By Janine Espin, managing director at Economic Development Solutions (EDS)
Community trusts, if run properly, are highly beneficial to the community they have elected to serve and work within.
These benefits include Broad-Based Socio-Economic Empowerment and Development. However, there are many pitfalls, if they are mismanaged this often includes corruption. As a result, beneficiaries of the trust need to stay on their toes and ensure that they are educated in all matters with regards to the trust objectives and trustee processes, whilst understanding legislation and compliance requirements, which in turn can help with the expectation management.
Who is involved?
A community trust can be described as an entity that manages and administers funds for beneficiaries such as a community, and it a non-profit body. The trust may have been established for the company’s Socio-Economic Development (SED) implementation management or part of their Social and Labour Plans (SLPs) in the case of a Mine, whilst the REIPPP programme has Community Trusts as an equity beneficiary. These communities are usually in rural areas. A trust is a preferred option and is usually formed by large companies that have huge impacts on the local populations in the surrounding areas where they are based and operate. These industries include mining, forestry, renewable energy spaces as well as the sugar cane industry.
Specific parties involved include representatives from the sponsor company and members of the community. However, there may also be another funder for the community trusts which hold equity, such as the Public Investment Corporation (PIC) or the Industrial Development Corporation (IDC), in which case, there will be a representative on their behalf. Importantly, from a governance perspective, the board can also include independent trustees which can be chosen from independent auditors (as an example), whose core function is to act as a trustee and to make sure that the remaining trustees adhere to good governance and keep the trust objective in mind when making decisions.
Broad based goals
Not all Community Trusts are created to achieve the same outcomes and can operate in various ways. However, the purpose of a community trust should consider the needs of the community, which includes broad-based socio-economic development objectives. These goals must be outlined and should be reviewed annually or at least every three years according to the community’s changing needs. Moreover, for the trust to be managed correctly, an Annual General Meeting (AGM) must take place and documentation needs be made available to the public.
Positive Impacts for the community
Broad-based goals by community trusts are very important as 99% of community trusts are set up in rural and impoverished areas. Even if the equity share is only 2.5%, this can still have a positive impact on a community of 30 000 impoverished people. These broad-based goals should include upskilling to allow people to become more employable.
For example, if one of the projects of the trust is to sponsor the building of a school, then the trust should utilise the skills within the community like builders or bricklayers. They should have side projects which can upskill workers while working on the project.
Engagement, education and communication are vital
However, where a community trust is not constituted correctly some community members may have unrealistic expectations. Often, they are under the impression that because there is equity in a company it means that they are entitled to financial benefits, including immediate cash pay-outs. Or they may feel that they have the right to dictate to the leaders of the community trust as to what needs to be done with the projects. This behaviour may be the result of the fact that the community did not participate in the setting up of the trust and the fact that they are shareholders is often only discovered after the establishment of the trust.
As a result, there needs to be engagement and education around the trust, prior to its establishment. This includes ways of engaging between the respective parties. For example, community members may have little to no formal education. The appointed community facilitators should find innovate ways to engage with the community members in order to achieve realistic goals and objectives. This will also impact the long-term expectation regarding what the trust may or may not be able to achieve or assist with. Companies must also take time to educate the elected trustees.
However, if the trust is already being established, it is best to have interim trustees manage the general setting up of the trust. This will provide a window period to educate the community about the rules and governance around the trust, what it means to be a trustee and what the trust deed objective is, i.e. the aim of the trust.
Rotational board members
The Trust is Governed by a Board of Trustees and this should include members of the beneficiary community (in the case of a Community Trust). However, in many instances this is not the case. In poorly constructed Trust governance structures, individuals who exercise authority may use the Trust for their sole purpose of personal gain. This equates to corruption and is a criminal offense. In order to combat this, regulations and rules of engagement must be clearly defined, agreed upon and documented as such by all relevant parties, this may include the Trustees and the Trust Sponsor (as an example).
It is recommended, specifically for Community Trusts that the Trustees should work for the trust voluntarily in order to curb corruption an ensure that they are not there for financial gain. Another suggestion, for example, is to have rotational board members of the trust whereby trustees cannot serve on the board for more than two terms and therefore need to be replaced every six years. Additional community members should also be trained in order to act as ‘stand-in’ trustees, as and when required. This will allow for continuity and for peer oversight.
In order for community trusts to continually provide positive outcomes and work the way they were intended to; it is important to implement appropriate governance processes. Companies should therefore take the time to educate the beneficiaries and ensure trustees are rotated regularly. Moreover, in addition to annual general meetings, trusts must be reviewed and monitored frequently. This will ensure all involved will work with one objective in mind, and thereby limit unrealistic expectations from arising.