Presentation delivered to MBA students about the importance of social capital. What it is, how to measure it, case studies and applications. How it is different to other capitals and what is happening in the field.

1. UNDERSTANDING
SOCIAL CAPITAL
Reana Rossouw
Next Generation Consultants

2. Introduction:
• What is social capital?
• What constitutes the forms and dimensions of social capital?
• How does the value of social capital differ for individuals, organisations, and
communities?
• What should business leaders and organisations bear in mind when making
investments in social capital?
• Examples and case studies about the importance of social capital
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3. Why the focus on social capital?
• While there are many tools and approaches for measuring social impact available,
companies are increasingly calling for a single harmonized and broadly accepted approach
which will:
• Clarify best practice for business by providing a focal point for the development of best
practice approaches, tools and standards for social performance measurement and
management,
• Scale up the positive social impacts of business by informing appropriate action
throughout a company's operations and supply chain,
• Improve business credibility by providing a solid foundation for companies to report or
disclose their impacts and dependencies externally, building on existing frameworks such
as the International Integrated Reporting Framework.
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4. Why is social capital important?
• It is ‘the glue that binds society together’’, and provides the opportunity for businesses to be
purposefully involved in creating a sustainable future for their operations, communities, and
society at large.
• It allows companies to demonstrate the impact of their business activities on communities, the
economy, and the environment through their stakeholder engagements and the social value
created.
• It provides value to businesses in the form of improved performance, market opportunities,
innovation and new product development, and enhanced reputation.
• It fosters economic development and growth for communities which are part of the ecosystems in
which businesses are embedded.
• Companies with higher levels of social capital gain competitive advantage as a result of access to
valuable resources, knowledge and information that are not easily traded.
• It provides businesses with the opportunity to gain license to operate through the social legitimacy
they gain and maintain in communities.
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5. What is social capital?
• Social capital refers to the resources, knowledge, and information that accrue to an individual,
a company or a collective as a result of the network of social relationships within and between
companies, institutions, and communities.
• Social capital is created when individuals and companies:
• Establish connections and networking relationships with key stakeholders such as customers,
suppliers, competitors, business partners, local communities, and government officials and policy
makers.
• Foster trust with their key stakeholders.
• Develop shared norms, common values, and goals to influence attitudes and behaviour.
• Obtain and maintain a social license to operate to demonstrate their commitment to key
stakeholders such as communities and government.
• Social capital has two forms – internal and external.
• Internal social capital comes from social networking relationships and connections among
individual members within a company, a community (e.g. members of a neighbourhood) or a
system (e.g. members of an association).
• External social capital, on the other hand, derives from the social networking relationships and
connections between an individual, a company, or a community and its key external
stakeholders, as well as among other stakeholders such as mining communities.
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6. Where does social capital come from?
• The International Integrated Reporting Council Framework (IIRC), is requiring
businesses to prepare integrated reports which include the need to measure a
company’s social capital initiatives and its value for the company and society.
• As a result, business practitioners who are concerned with assessing the quality
of their relationships with stakeholders, and those who are increasingly
required to report on their company’s social capital as an input and an output
to the creation of value, are interested in how to measure and determine the
value from social capital.
• The interest in social capital from both social scientists and business practitioners
has resulted in a vast body of literature on definitions, forms, dimensions,
measurement and the value or impact of social capital.
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7. What is the value of social capital?
• Understanding and measuring social capital will:
• Provide opportunities for businesses to explore the benefits of both formal
relationships (e.g. established relationships between a business and its suppliers or
the government) and informal relationships (e.g. relationships or engagement
between a business and community leaders.
• Enable communities to identify the benefits that can be derived from the trust,
norms and value systems that exist within communities, and the relationships they
develop with businesses, non-governmental organisations (NGOs) and government
departments involved in community development.
• Provide opportunities for businesses to use the connections and relationships they
develop with communities to create social change, inculcate the idea of
sustainability, and address the social needs of communities.
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8. Internal & External Social Capital andValue
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Internal value
• Determinants:
Social Networks -Trust
Shared norms, values and goals
• Benefits:
Increased information sharing
Access to knowledge - Access to resources
Buy-in and commitment to company goals
Retention of employees - Committed employees
• Value:
Improved financial and operational performance
Efficiencies - Enhanced innovation
Project success - Change management success
Enhanced reputation from supporting social capital
activities of employees
External value
• Determinants:
Social Networks -Trust
Civic norms - Civic Engagement
• Benefits:
Increased information sharing
Gain access to valuable knowledge
Access to resources
Gain valuable employees
• Value:
Cost reduction - Growth of the company
Enhanced reputation - Employment growth within
communities
Obtain new customers - Achieve sustainability
Mitigate effects of poor strategic decisions
Increase shared value - Socio Economic Development

9. Definitions of social capital:
9
Social Capital:
Ability to secure or obtain
assets or resources,
knowledge and information
by an individual, group or
community for its benefit
through social networks,
trust, shared norms and
license to operate
Social Networks
(relationships, ties,
connections)
Obtain and maintain
social license to operate
Shared norms, values
and social structures
Trust and reciprocity

10. Dimensions of social capital:
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Social
Capital
Structural:
Pattern of connections and
networks among actors
Relational:
Relationships and
interactions due to trust
among actors
Cognitive:
Shared goals and values
among actors

11. How is social capital different to other forms of capital?
• Social capital can be differentiated but also share some
similarities:
• It is closely linked to natural capital because it is based
on relationships between people and groups who in
turn rely on the natural environment
• Facilitates the development of intellectual capital by
influencing the conditions necessary for relationship
building and the exchange and combination of ideas
and knowledge
• Is instrumental in the development of human capital
through educational experiences and social
interactions with other employees
• Assists in the acquisition, management and use of
manufactured capital through the shared norms, value
systems, goal and social relationships with external
stakeholders
• Influences the creation of financial capital by increasing
profitability, market share, sales growth, operational
efficiency, etc.
Natural Capital
IntellectualCapital
HumanCapital
Social Capital
Manufactured
Capital
Financial
Capital
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12. Similarities and differences between the
capitals:
• How social capital is the same as other
forms of capital
• It is a resource or an asset
• It is not costless to produce, it requires an
investment
• It provides a value
• The value persists
• Can be reduced to economic capital in the
long run
• How social capital is different to other
forms of capital:
 Requires relationships between and among
individuals and groups
 Depends on the interaction of social, political,
cultural and economic factors
 Cannot be sold or traded
 Is not easily alienable from organisations or
groups
 Is not subject to market exchanges
 Is not tangible
 Is characterised by unspecified obligations
and an uncertain time horizon
 Does not diminish or depreciate with use, but
appreciate with use
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13. What can go wrong?
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• Not understanding or capitalising on the value of social capital: Marikana and Lonmin – Labour unrest in
South Africa’s Platinum Industry*
• The labour unrest in the SA platinum industry led to the tragic killing of 34 people at Marikana in August 2012
and subsequently contributed to the longest strike in South Africa’s history in 2014. Viewed through the social
capital lens it indicates the following aspects:
• Mining management’s relationships with workers, surrounding communities and other stakeholders. These
relationships deteriorated systematically in the lead up to the unrests, which may have been identified and addressed
earlier by considering a more relevant approach to social capital.
• The mining management relationship with workers, specifically the rock drillers had become less and less direct because of a
reliance on intermediaries in the form of union representatives and contractors. As a result, middle and senior managers became
increasingly isolated from the grievances and growing distrust among the workers. This includes managers general lack of
knowledge of workers increasingly precarious financial situation, premised in large part on their exposure to unsecured loan
providers and emolument orders. A social capital analysis might have indicated earlier on that there are holes in the managers
network relationships with workers and that these holes contributed to a lack of pertinent knowledge and necessary trust.
• Second, managers arguably paid insufficient attention to the relationship between workers and the dominant union, the National
Union of Mineworkers. As the relationship deteriorated, rivalry between incumbent and a new contender created crucial challenges
for management. That is, not just relationships of employees or the organisation are vital for effective management, but also of
third parities. The challenges faced by mining companies with regard to conflicts between rival factions within communities, or
between municipalities and traditional authorities, provide further examples of this. A social capital analysis would focus attention
on these third party relationships and ways in which the company could seek to support more conducive network dynamics.
• Third, the prolonged strike then let to 1) No income for workers 2) failure of workers to send money to dependents 3) failure of
workers to pay bills and loans – ultimately this led to the collapse ofAfrican Bank and the regional economy.
• Fourth – following on from the collapse of the regional economy and the deteriorating relationships between business, government
and communities lead to the burning of 25 schools in the Vuwani District as a result of integration with other municipalities.
• Five – this clearly shows how social capital can 1) influence relationships 2) influence capital formation or destruction 3) prevent
children from going to school thereby impacting on their human rights 4) the increase of racial conflict 5) the growth of political
influence and party politics (i.e. the conflict between the ANC and EFF 6) the shutdown of businesses and services due to prolonged
strikes and violent protests 6) the collapse of the education system in Limpopo
* Based on the work of Ralph Hamman – UCT GSB

14. What is happening?
• ArcelorMittal SouthAfrica has developed a customized methodology to objectively assess the social,
economic and environmental impacts of its operations on SouthAfrican society. Based on the analysis,
each impact area is classified as ‘mostly positive’, ‘positive and negative’, or ‘mostly negative’. Its regular
application allows identification of key areas where performance can be improved and informs specific,
actionable steps
• Companies are also coming together to define a common methodology. A number of companies,
including BASF, BMW Group, DSM, Goodyear, Philips, AkzoNobel and L’Oreal, are working with the
Roundtable for Product Social Metrics to advance life cycle indicators and approaches for social
sustainability assessments at a product level and recently published the Handbook for Product Social
ImpactAssessments.
• Most recently, Nestlé has embarked on an effort to better understand approaches to measuring and
monetizing social and environmental impacts. Nestlé conducted a study aiming to calculate a value for
environmental impacts, and define how to carry out a similar assessment of their social impacts.
• SABMiller’s Sustainability Assessment Matrix (SAM) uses five levels, ranging from minimum standard to
leading edge, to assess the progress of their businesses around the world based on their sustainable
development imperatives.The results, combined with a wide range of additional performance indicators
and supplementary data for the business globally and locally, are made publicly available to explore via
their SAM reporting tool.
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15. An input-output-outcome model of social
capital value
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Social Capital Inputs
Social Networks -Trust and reciprocity – Norms, values and goals – Civic engagement – License to operate
Social Capital Outputs
Information Sharing – Access to knowledge – Access to resources – Social cohesion – Increased communication -
Empowerment
Social Capital Outcomes
Individual: Job creation, skills development, access to information, services, empowerment
Community: Increase household income, reduce crime, improve health outcomes
Organisation: Efficiencies, improve performance, market share, innovation
Social Capital Impacts
Greater profitability - Economic growth – rural
development – new product/service/market/customer
development – higher human/manufactured capital

16. An integrated model of capital sources, definitions,
measures and value
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Determinants
Social networks
Trust and Reciprocity
Shared norms, values
and social structures
Obtain and maintain
social license to
operate
Definition
Ability to secure or
obtain assets or
resources and
information by an
individual, group,
organization or
community for its
benefit through social
networks, trust,
shared norms and
license to operate
Measurement
Social Networks
•Network structure
•Relationships, ties and
connections
•Social cohesion
Trust and Reciprocity
•Generalized
•Interpersonal
•Institutional
•Reciprocity
Norms
•Shared Norms
•Civic Norms
•Values
•Goals
Civic Engagement
•Association membership - Civic
participation - Volunteerism
•Political Participation - Social
Support
Benefit/Value
Source of privileged
knowledge - Job
Opportunities -
Organizational
Performance
Sharing of sensitive
information - Lower
transaction costs -
Diminished resistance
Self-sustaining
solutions - Higher
social role definition
Improved health outcomes –
Reduced Crime – Higher
corporate social responsibility

17. Lets get practical: Examples of impact and
value of social Capital (1)
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Discipline Examples of potential Impact or value Examples of Mechanisms
Economics • Leads to efficiency and growth
• Minimises free-rider phenomenon in economic
exchanges
• Promotes economic growth
• Leads to higher standard of living
• Increases household income
• Leads to early adoption of innovation
• Minimises losses from exchanges
• Obtains refers that increase business opportunities
Addressing Industry failures:
The upheaval in the music industry with the arrival of streaming services
The print journalism world with the proliferation of profuse free and cheap digital content.
Examples:
• Corporate venturing
• Impact investing
• Co-investment in commercial funds
Health • Social capital elements such as trust, reciprocity and
membership in voluntary associations are significantly
associated with higher life expectancy
• Reduces obesity rates
• Reduces mortality rates from hearth diseases, strokes,
unintentional injury
Delivering value through development:
Procurement teams don’t always understand the power that they hold and how they can drive
social value. It is important that social value plans outline what they expect from different
contracts and that community investment teams are involved throughout the procurement
process.There needs to be flexibility within procurement so contractors of all sizes can play
their role, and we need to look beyond apprenticeships to other types of activity that can
deliver social value.
Business • Increase efficiency of transactions
• Reduces costs
• Enhances entrepreneurship
• Increases access to financial resources
• Creates and supports knowledge access and acquisition
Perception Surveys and Inclusive Business:
Catalyzing solutions that integrate the base of the economic pyramid (BOP) into companies’
value chains as customers, suppliers, retailers, and distributors.The focus lies on scaling up
action, gaining greater insights, and overcoming both internal and external barriers to scaling
up these ventures around the world.

18. Lets get practical: Examples of impact
and value of social Capital (2)
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Sociology • Provides explanations of social class differences
• Helps explains racial, ethnic and cultural disparities in
health
• Increases achievement in mathematics and reading
• Promotes well being of individuals and organisations
Industry Collaboration:
Toilet Board Coalition,” together with Kimberly-Clark,Unilever, and Lixil Corporation as well
as 15 sanitation expert organizations, to foster the co-innovation needed to accelerate
sanitation solutions in developing countries.39Their goal is simple but daunting: to catalyze
a robust business sector to deliver sustainable and resilient sanitation to the 2.4 billion
people who lack it, of which almost 1 billion defecate in the open, and in turn improve health,
productivity, and living standards
Government/
Political
• Increases civic engagement and citizenship
• Facilitates stable democracies
• Increases confidence in government systems
• Contributes to poverty reduction
• Helps resolve disputes and crises
Rural Livelihoods:
Aiming to enable effective cross-industry collaboration to make rural areas more attractive
places to work, live and invest in.The business solution responds to challenges faced by
companies in ensuring sustainable access to natural and human resources, and improving
health, safety and working conditions throughout rural supply chains.To tackle the root-
cause of these challenges, the work focuses on (i) outlining a shared understanding of rural
development needs; (ii) launching collaborative projects that provide proof of concept and
encourage wider engagement; (iii) clarifying appropriate roles for business and partners; (iv)
and establishing a platform for companies and partners to catalyze connections, match
challenges with solutions, stimulate collaboration and fill capability gaps in rural areas.

19. Case Studies
Nestle SharedValue Standard Bank Report to Society
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20. More Examples
• Product redesign
• Designing motor cars to be more fuel
efficient, using renewable energy, reusing
recycled materials
• Product accessibility
• Redesigning products to be accessible to
hearing, vision impaired
• Servicing previous unserviced/underserviced
markets i.e. using technology (MPESA),
MzansiAccounts
• Solving social issues - Unemployment
• Retailers training unemployed, unskilled
workers for entry level positions –
cashiers/call centers
• Public Private Partnerships
• Mining companies developing infrastructure
such as schools, hospitals, clinics
• Supply Chain Management
• Responsible sourcing, consumption
• Future employee skills development
• Bursaries, Internships, Science & Maths
Programs
• Reinventing purpose
• Nestle – from food to Nutrition
• Nike – from shoes to Health
• IBM – from IT to Smart Cities
• Automotive – from cars to Eco mobility
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21. Related concepts entering the lexicon:
• New BuzzWords
• Inclusive economy
• Circular economy
• Social capital
• Social value
• Conscious capital/investment
• Collective/social impact
• Old(er) news
• Shared/Blended value
• Social economy
• Social entrepreneurship
• Social innovation
• Impact investment
• New drivers
• The Sustainable Development Goals
• Sustainability and Integrated
Reporting
• The forgotten
• National Development Plan
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22. In Closing: Going Forward
• Currently companies all over the world are focusing on understanding their social impact,
mitigating social risks, determining social value:
• A lot of work is being done around social impact measures:
• KPMG and theTrueValue Methodology
• PWC and theTotal Impact Measurement and Management (TIMM)
• True Cost
• Social Profit and Loss accounting
• Social Life Cycle Analysis
• GIIN offers the IRIS catalogue of social, environmental, and financial performance metrics as
a free public good to support transparency, credibility, and accountability in impact
measurement practices
• SROI Network will convene experts across social enterprise, impact investing and the public
sector to collaborate with business to advance the technical practice of valuation and
monetization
• NEXT GENERATION CONSULTANTS: THE IMPACT INVESTMENT INDEX – Measuring
the impact and return on investment of social development
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23. Reana Rossouw:
Next Generation Consultants
• Website: www.nextgeneration.co.za
• Linkedin: https://www.linkedin.com/company/next-generation-consultants
and https://www.linkedin.com/in/reanarossouw
• Google+: ttps://plus.google.com/+reana rossouw
• Pinterest: https://www.pinterest.com/reanarossouw/
• Facebook: https://www.facebook.com/nextgenerationconsultants/
• Slideshare: http://www.slideshare.net/Reana1
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24. Next Generation Consultants
• Who we are:
• Next Generation Consultants helps
organisations across the African continent to
become more sustainable and have greater
positive impact on the economy, society and the
environment.
• In the investment and development sectors - we
provide consulting and advisory; research and
engagement; training and facilitation; impact
assessment and due diligence services.
• We have developed the Impact Investment
Index™ - a methodology that measures the
impact and return on investment of social /
community and enterprise development
investments.
• What we do:
• We have developed the Impact Investment Index (III)™
in 2009.
• Since then we have assessed more than R3 billion
worth of social/community and enterprise
development investments. This includes more than
600 programs across 15 focus areas/investment
portfolio’s.
• We have conducted these impact assessments on
behalf of Multinational Funders,Corporate Donors and
the Development Sector – within the mining, retail,
manufacturing, government, media, communications
and financial sectors.
• Our work resulted in an indicator library with more
than 5 000 qualitative and quantitative indicators.We
have also identified 21 dimensions of impact and more
than 15 dimensions of return.
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25. Resources
• Network for Business Sustainability South Africa
• Measuring and valuing social capital – a systemic review
• Journal of South African Institute of Mining and Metallurgy
• Nestle – Creating SharedValue
• Standard Bank – Report to Society
• Mark Kramer – Creating shared value – the role of business in society
• World Council for Sustainable Development – Measuring impact framework
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