The HIV/AIDS pandemic poses an immediate and significant threat to the economies and societies of African nations - but with responsible management, companies should be able to meet the challenge posed and survive the turmoil.
In South Africa, the King Committee on Corporate Governance has released its long-awaited draft report on corporate governance, which will replace the first King Committee code on corporate governance issued in 1994. The report broadens the responsibilities of directors and follows an inclusive approach that recognises corporate responsibility to all stakeholders.
It proposes that responsibility for risk management should rest with the board of directors, and places the onus of maintaining sound risk management systems and strategies squarely in the boardroom.
Risk management is a relatively new discipline in South Africa, having evolved over the past 20 years. Its evolution can be attributed to the demands made by corporate governance, a reaction to the escalation of conventional insurance premiums, and a method to afford companies a competitive edge. The role of risk management in a company must now be afforded top priority by the board.
The classic elements of risk management are risk identification, analysis, reduction and monitoring. These elements are implemented by assessing and understanding the risk, identifying what can be done, and formulating a response to minimise the exposure. Why then has corporate South Africa largely turned a blind eye to the HIV/AIDS pandemic - which poses perhaps the greatest threat of all - in effect, denying the best tradition of corporate governance?
Most boards appear to have identified the HIV/AIDS crisis as a social problem, rather than a workforce one. This perception is seriously flawed. The potential ramifications for corporate South Africa and indeed for multinationals with ties to South Africa are massive and demand that this threat be addressed.
The reality is:
For companies, the HIV/AIDS environment is one of increasing risk and increasing cost, and the available conventional insurance approaches are narrow and limited.
Medical benefit funds are frequently exclusionary in their approach (either on membership or on claiming). Those schemes that do offer annual HIV/AIDS benefits are frequently skewed in favour of upper income employees which, according to HIV/AIDS demographics, leaves the neediest, lower income bracket uncovered. Further, a massive percentage of blue collar workers are not on medical aid (due to the cost) and therefore are not able to access the HIV/AIDS benefits that their higher paid colleagues can. Companies with these practices risk facing accusations of going against the basic human rights principles of the South African constitution.
Conventional insurance has also shied away from the crisis. Exclusionary policies exist and, in other instances, the costs of premiums are exorbitant. In response, businesses frequently blur the distinction between disability and HIV/AIDS, claiming on their disability policies for HIV/AIDS-related illnesses. The consequences are obvious. Insurance companies currently bearing the costs will inevitably increase market rates to factor in HIV/AIDS.
For as long as HIV/AIDS remains a non-disclosable and stigmatised condition, the ability to quantify the hidden costs will remain very difficult. In addition, the actual costs of managing the pandemic will escalate (they include absenteeism, reduced productivity, re-training, and the increasing cost of employee benefits). Employers must therefore ensure that they have funds in place to address this catastrophe. By ring fencing the areas of risk, they can be better managed.
The King Committee’s draft report specifically proposes that boards of directors should:
In short, the onus is on the board to be proactive and develop a risk management policy to deal with HIV/AIDS as they would any other corporate risk - establish the risk, understand the implications, and formulate a strategy.
With little satisfaction offered by conventional insurance or medical funds, my own group advocates looking at alternative risk transfer (ART). In order to enable employers to develop funding pools to pay for HIV benefits, specialised financing vehicles, for example cell captives, can be created, to assist in tailoring appropriate solutions to address the challenges posed by HIV/AIDS.
The writing is on the wall. Pressure groups can be expected to increasingly question companies on their HIV/AIDS policies, and lobby groups may initiate consumer boycotts and unfavourable publicity. The regulatory environment will also become harsher and more demanding. Finally, the costs of managing the disease, if left unaddressed, will continue to escalate. Companies can simply no longer afford to ignore the risks.
--
Michael Blain is general manager, Nova Group, whose shareholders include Munich Re, AmRe and South African based financial services group Capital Alliance Holdings,
Email: mblain@novariskpartners.com
CORPORATE VIEW
Jim Murphy, Barlow Ltd, South Africa, lists the issues and some possible strategies
Impact
The potential impact for businesses of South Africa’s widespread prevalence of HIV/AIDS may involve:
Risk analysis and strategic plan
The prevalence of HIV within a business depends on:
The prevalence of HIV within a company may be determined by actuarial means using the above parameters, or by voluntary anonymous testing using a saliva-based HIV antibody test.
What will be the effect in five years on:
Consider whether it may be appropriate to adjust employee benefits. And remember the effect on earnings per share may be greater in labour-intensive industries.
Prevention
Care and Support
Antiretroviral treatment, which prolongs the quality and duration of life, is now more affordable. Many medical aid schemes pay for this medication and some companies intend providing this for non-medical aid employees.
Monitoring
