INTEGRATED
REPORTING
SOUTH AFRICA - 2013
Next Generation Consultants
Reana Rossouw
www.nextgeneration.co.za
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Corporate Reporting Journey
Financial Reports
Sustainability Reports
Integrated Reports
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Financial information
Backward looking
Short term focus
Compliance with regulations and standards to inform investors
Financial Accounting Standards Board; General Accepted
Accounting Procedures (IASB, IFRS)
• Mandatory for publicly listed companies
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Primarily non-financial information
Backward and forward looking
Long term focus
Global Reporting Initiative (GRI)
Voluntary and mandatory
Financial and non-financial information
Backward and forward looking
Short-medium-long term
Support more informed capital allocation
International Integrated Reporting Council (IIRC), Sustainability
Accounting Standards Board
• Voluntary and mandatory
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Tipping point or cross roads?
• Sustainability reporting at a cross road
• After 10 years sustainability reporting has become mainstream
for big business in many countries, with the GRI as the reporting
standard. Despite this, there has been no change in integrating
sustainability into business strategies.
• Stakeholders don’t read reports and don’t use them for decision
making. They want more and specific information. A one size fits
all approach is not working.
• Huge parts of the economy remain opaque. SME’s, public
agencies and SOE are sow on uptake and are not yet reporting enmasse. Reporting from specific industries and family owned
businesses remain an exception.
• Sustainability reporting has to evolve to serve its initial goals – the
world is not becoming more sustainable.
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Tipping point or cross roads?
• Investors and shareholders want better reporting and
Integrated Reporting is a trend that no business can
escape
• The convergence of financial and non-financial information
(sustainability and financial information) is the new norm.
Materiality, balance, comparability and conciseness is key. Risks,
opportunities and quantification of extra financial data are among
the elements expected in an integrated report
• The implications of integrated reporting are profound for business
• However, the content still needs to be clearly framed according to
the needs of specific stakeholders
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Why a change?
• The growing concern that financial short sightedness is a major
barrier to the true and vital emergence of a sustainable
economy is now out in the press, with opinion leaders voicing
the need for a longer-term financial focus.
• The latest wave of The Sustainability Survey reveals that a very large
majority (88%) of the 1642 experts polled see pressure for shortterm financial results as a barrier to businesses becoming more
sustainable.
• Recent research from KPMG and Trucost shows that if companies
had to pay the full environmental costs of their activities, they
would have lost 41cents out of every dollar earned in 2011 – and
that these costs are doubling every 14 years, sometimes outweighing
the total EBITDA of a sector. With recent systemic and market failures
having shown the vulnerability of the real economy to financial
volatility, long-term plans and strategies that foster better
resilience to crises are of great interest to the financial
community.
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Reporting in a unsustainable future?
• Strategy first, then management and then reporting
• “Integrated Reporting may mean the end of the lengthy
‘carpet bombing’ sustainability report, but it will definitely
not become a one-stop shop.”
• Different types of sustainability communications with
different contents, adopted to the expectations of all other
stakeholders, will flourish with the help of new
communication technologies. Reporting leaders are clear.
Integrated Reporting will not mean the end of other
sustainability communications.
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Why communicate/report?
• The ultimate objective of communication is to build
trust – in a brand, a product, a company in a world where
businesses are not trusted easily anymore.
• With more than 10% of the world’s population now part of social
networks, and information on companies and products easily
available through a diversity of channels, stakeholders knows a
lot about companies.
• The old paradigm of communication, based on a vertical process
where companies emitted a message towards receivers that were
not empowered to react has had its day.
• Three major aspects are shaping this paradigm shift
• The rise of social networks
• The development of mobile access to the web
• The localisation of communications
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Purpose of Corporate Reporting
• To engage and involve stakeholders in corporate
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practice
To inform business practice, strategy and management
focus
To share the framework for measurement and target
setting – performance
To show commitment and compliance
Show understanding and consideration of impacts and
risks on external environment
To account for sustainability performance and activities
To improve internal processes
To demonstrate adequate management of risks
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Corporate Reporting
• Describes performance
• Where you are, where you come from and where you are going
• Involves measurement
• Against specific targets and objectives
• Is a recurring process
• Over time the story emerges by reporting regularly against
consistent indicators
• For a specific audience
• The practice of measuring, disclosing and being accountable to
stakeholders for performance against specific goals and metrics
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Reporting is a management process
1. Company identifies relevant
sustainability issues and understands
how these are linked to its business
2. To address these issues, the
company defines action plans to
implement business cases with
performance targets
3. The company commits to
performance targets, monitors and
reports annually to stakeholders, and
feeds back stakeholder perspectives
into the company strategy
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Reporting Trends (1)
• In the drive for greater transparency, companies are losing
sight of the bigger sustainability picture
• Companies are increasingly providing reliable accounts of their
sustainability programs
• However, on a global scale they are far from delivering solutions to
the most pressing sustainability problems
• Companies today are increasingly aware of sustainability issues and
actively integrate sustainability into core business strategy and
decision-making. They are opening up and describing in detail how
they define material issues, engage stakeholders and join multistakeholder initiatives. However, as they become more responsive to
the Global Reporting Initiative (GRI) sustainability reporting guidelines
and other reporting frameworks, they are failing to adequately put
their performance into context.
• The largest companies fall short of sustainability leadership
• A lack of balance and comparability still pervades reporting
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Reporting Trends (2)
• Innovation is the key
• Embedding sustainability into systematic innovation, applied
company-wide, disseminated to supply chains and throughout
product lifecycles, based on internal and external stakeholder
feedback is increasingly important
• We can learn from the high-risk industries
• Stakeholder engagement basics are in place – but
genuine two-way engagement at board level is rare
• There is a trend towards the use and reporting of
indicators and targets
• Take-up of web-based and interactive reports continues to
grow
• Integrated reporting is still in its infancy
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Drivers of reporting – SA Context
• Stakeholder and peer pressure
• An initial driver fro non-financial reporting was the publication of environmental
reports by international business peers, signalling the growing expectation by
stakeholders more broadly for greater corporate accountability
• Growing awareness of the strategic importance of sustainability
• The drive to non-financial reporting during the 1990’s came at a time of growing
institutionalism of the business response to sustainable development following the
Rio Earth Summit in 1992 and the World Summit on Sustainable Development in
2002 (Johannesburg)
• Changing corporate governance requirements
• The King Code on Corporate Governance (King II – 2002) required that ‘every
company should report at least annually on the nature and extent of its social,
transformation, ethical, safety, health and environmental management policies and
practices”;
• The subsequent King III (effective from March 2010) highlights the importance of
Integrated Reporting. This became a listings requirement for the JSE on an ‘apply
or explain’ basis that has raised the profile and implementation of these
recommendations
• Awards
• Prompted in the mid-1990’s by WWF South Africa, there have since been various
annual reporting awards (i.e. ACCA, KPMG, Ernst & Young, etc.) that have helped
to encourage the uptake and improve the quality of reporting
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SA Context
• Various voluntary initiatives
• These have contributed to fostering greater corporate accountability e.g. the JSE’s Socially
Responsible Investment Index (SRI) – (May 2004); the international Carbon Disclosure Project
(2007); as well as initiatives such as the UN Global Compact, Responsible Care and the
International Council on Mining and Metals (ICMM)
• Finally, and more recently, there is growing pressure from social responsible
investors for greater transparency on environmental, social and governance
(ESG) issues
• Newcomers
• The growth in sustainability reporting is visible across various:
• South Africa’s listed companies – where there has been an increase not only in the number, but also in
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the spread of business sectors that are now reporting on sustainability issues
Small and medium sized enterprises – i.e. Impala Clothing that has published GRI based reports since
2007
Industry sectoral organisations – such as the National Business Initiative (NBI) which produced an
integrated annual report in 2005
Non governmental organisations – with sustainability reports published, amongst others by the
HIV/Aids NGO Cotlands and environmental NGO Delta Environment Centre
Governmental organisations – such as the Provincial Government of the Western Cape, which
produced its first annual sustainability report in 2008
• Changing legislation regarding corporate reports
• Including the BBB-EE Act that requires annual progress reports to be submitted to government, the
Employment Equity Act on annual reporting to government on unfair discrimination in the workplace;
the National Climate Change Response Paper that includes provision for establishing a detailed and
up-to-national greenhouse gas inventory and requires companies and economic sectors or subsectors to prepare and submit mitigation plans that set out how they intend to achieve the desired
emission reduction outcomes
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Challenges in reporting
• The definition of key indicators and topics to report on
• The sensitivity of some of the information that needs to be
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provided
Non-financial information is not valued or considered as
irrelevant
The associated costs of reporting
Ignorance or lack of knowledge about reporting and
difficulties with linking sustainability performance to the needs
of stakeholders and investors
Internal organisational structures
To continue reporting - for SMEs, the biggest challenge is not
to report for the first time, but to continue reporting in the future
– (resources, costs, time, technology, systems, processes)
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Why people don’t read reports
• A general lack of interest in the issues covered
• A high degree of mistrust of the company’s intentions
and lack of reliability of the reports
• Reports are often hard to find, too lengthy or difficult to
navigate through
• More direct means of communication with companies
are preferred to obtain the required/specific information
• Important general company statements with regard to
good policies and issues (for example, animal testing or
the use of GMOs) are often not included in the reports,
but disclosed on the website of the company, which
therefore are preferred sources of information
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Report readers expectations
• Investors
• Value the (future) management of sustainability over the disclosure of
sustainability. Questions asked by analysts tend to be forward looking,
rather than focus on past performance, which is what current sustainability
reports mainly present.
• Information that is linked to financial performance is of top relevance:
it could be complementary to other policies, like anti-bribery or anticorruption policies or sector specific issues.
• Information must be comparable across companies, which makes
normalising of information necessary.
• Information must be consistent over time. Information must be relevant
and material, linked to the company strategy. Companies should explain
why
to investors
certain sustainability information is material.
• Information should be reliable, and therefore assured by a third-party.
The scope of a report is important (right numbers, right topics covered).
Stakeholder involvement can add value to quality and reliability.
• Information related to risks, including the reputational risk, is important
because this also indicates how well a company is managing its relations
with stakeholders.
• Information must be complete and comprehensive.
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Other stakeholder’s expectations
• Civil society
• Reports focus too much on good news and topics that are easy to cover; reports tend not to detail
the impact of a company’s operations (and supply chain) on issues such as poverty and job creation.
Current reports often deal with isolated issues, whereas a comprehensive systematic analysis is
preferable. Reports do not use common indicators, making comparability difficult.
• Media
• As journalists tend to prefer ‘tough’ issues, whereas sustainability related issues are often perceived to
be ‘soft’, linking sustainability to risk and to new technologies may make the information more attractive
to the media. In their presentations to the financial media, companies often fail to explain how
sustainability issues relate to strategy and financial performance.
• NGOs
• Carbon disclosure; water footprint; corruption issues; use of sustainability criteria in investment
decisions; sustainability issues in general and human rights issues in particular; information on
business deals; working conditions in the supply chain.
• Consumers
• Sustainability information related to product safety measures; the effects of products on health; product
quality, liability and warranty; new product development , - the product manufacturing process: the
circumstances under which products are produced (e.g. working conditions).
• Labour unions and employees
• Collective bargaining and good industrial relations within their own organisation and the supply chain;
disclosure of details of supplier factories; disclosure of percentage of workers on short-term contracts including the supply chain; information on management pay linked to performance on sustainability
issues; the structure of incentives for the purchasing department; disclosure of Health and Safety
issues; disclosure of data on integration of disabled people; disclosure of data on women in executive
positions.
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General information requirements
• A link between sustainability strategy and overall business
strategy
• Including information on risk management and resource management (physical
and human), purchasing and value chain management, research and
development, and marketing and lobbying activities
• Commitment to sustainability, demonstrated by a balance of
good and bad news
• A thorough stakeholder engagement process and incorporation of their
feedback into strategy, plans and targets, a clear definition of targets and
results with clear explanations and external verification of the provided
information (assurance)
• Actions taken to address sustainability issues
• Showing what actual measures are being taken by the company regarding
sustainability impacts in practical terms. Reporting companies need to provide
evidence on
key sustainability impacts are addressed: operations,
product development, sales, and relationships with customers, investors,
government and other stakeholders
• Innovative thinking to solve sustainability challenges
how
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Nirvana – what do we want?
• More comparable data
• As sustainability reporting becomes both standardised across industries and
increasingly aligned with financial reporting, comparability will be
paramount. When companies report on the same categories of information
in the same way, stakeholders (including investors) will be better able to
analyse them for side-by-side comparisons.
• More comprehensive data
• The number of activist groups seeking to have their topic covered in
sustainability reports increases every year from diversity organisations to
those focused on water or carbon or e-waste. There are more tools for
measuring and reporting. More organisations are offering awards, rankings
and indexes – and it’s clear what it takes to score high: more disclosure, on
more topics.
• More quantitative data
• Hard data is already the standard, not the exception, for reporting leaders.
Companies need to satisfy important stakeholders by adhering to the
Greenhouse Gas Protocol and Global Reporting Initiative (GRI). Those that
once avoided comparable numbers now compete to offer more of them.
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What do we want (2)
• More visible data
• Sustainability websites are already being promoted, along with products, in
commercials and press releases. Assurance brands are developing new sustainability
marks for consumers. Professional associations are forming, new credentials
programs are being tested, and corporations are creating new management positions
for sustainability reporting.
• More strategic data
• Going forward, sustainability reporting will be proactive, aimed at brand enhancement
(or outright rebranding). Choosing which customers and audiences to win over, what
information to use for that purpose, and how to change the company itself are
becoming matters of strategic, C-suite importance.
• More integrated data
• Companies are beginning to look for ways to integrate their annual financial reports
and their sustainability reports. Companies won’t have to integrate multiple reports.
They’ll just report, period.
• More interactive data
• As reporting matures and technology allows, organisations will continue to have more
robust conversations with their stakeholders from online forums and surveys to
conversations on social media. Companies that take the time to listen and respond to
stakeholder interests will have the advantage of developing even more effective
reporting. Even more importantly, beyond reporting, stakeholder conversations can
inform and strengthen overall business strategy.
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What do we want (3)
• A supply chain requirement
• Large companies are increasingly looking to their suppliers for help
managing their own carbon footprint. Requests from large companies
of their suppliers for sustainability data will continue to move down the
food chain until many more companies are collecting and reporting
their data.
• Powerful enough to make a difference
• There will be a tremendous increase in social awareness of the
quantifiable social and environmental impacts of corporations. This will
give other business customers, as well as individual consumers, a way
to make choices that reward responsible behaviour.
• Standard audit / assurance process
• Third-party assurance means credibility, and credibility is key in
sustainability. Companies that want to demonstrate leadership have to
assure their reporting – and the big audit/assurance providers know it.
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In conclusion
• Reporting Change
• Readers are taking action based
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on what they read, making
investment, partnership and
purchasing decisions
Readers don’t consider
reporting to be a form of
stakeholder engagement
Trust is driven by consistent,
transparent performance
demonstrated over time
There is no trust without
consistent and balanced
transparency
Readers discuss what they have
learnt from reports
Readers are now global and
connected
• Change Reporting
• Design a strategy to identify the information
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stakeholders need to make decisions.
Consider including ‘calls to action’ to
readers on specific behaviours.
Reporting and stakeholder engagement are
not interchangeable. Create separate but
complementary strategies for both.
Focus on the track record of actions and
demonstrated performance. Better yet,
integrate financial and sustainability reporting
into a comprehensive reporting strategy.
Robust reporting must take into account
dilemmas and failures as well as successes.
Translate key messages into memorable
sound bites, create accessible modular
structures and conduct and enable social
media communications.
Appreciate and accommodate regional
variations in report design and
communications to deliver returns in both trust
and action. Go beyond single language
translation to account for local priorities, local
concerns, and local success stories
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An integrated strategy
Analysis and
interpretation
Stakeholder
Engagement –
Define report
content
Commitment
to effective
reporting –
Define roles
and
responsibiliti
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Planning and
Controlling –
risk and
opportunities,
benchmarking –
materiality
analysis and
sustainability
context/strategy
Frameworks and
standards – Define
report process and
systems
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An Integrated Focus
• Identify a senior champion who can drive integration as a way of
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building value for the company
Use workshops to engage Board members and senior
management
Reinforce cases where integrated thinking and Integrated Reporting
have had positive results in order to build the internal business case
Use the report as a tool to advance discussions on strategy and the
business model internally
Focus on how to create value – this helps to shape thinking
internally
Think about what sustainability really means for the business
Don’t ignore the governance structures of the business for driving
activity internally as it enables everything to be more strategic
Use the language of business; talk in terms of economic benefits
Use both a financial and non-financial risk management systems
and aim to get as much certainty as possible on the understanding
non-financial risks
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An Integrated Process
• Use non-financial data to gain a clearer picture of the business internally
• Develop more robust systems for performance management
• Reduce the amount of data that is published and make the story more
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accessible to stakeholders
Streamline performance reporting and find efficiencies within the business so
that data sets can be used in a range of different ways
Reduce duplication of information and ensure consistency of messaging
Find out what others are doing and the lessons they are learning
Look at the content of the report from the perspective of audience needs and
interests
View the report as an evolution in response to stakeholders – ensure it is not just
what you want to say but respond to what they want to know
Aim to meet the top-level needs of as many stakeholders as possible but use
alternative means to communicate the details, such as digital technology
Differentiate stakeholders and enable them to access different information in
ways that suit them – this will help them understand the business better
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Going Forward (1)
• Differentiate
• Think beyond current reporting.
Go for a competitive edge with
Integrated reporting:
• Report on your stewardship of all forms
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of capital
Think beyond the accounting definition
of ‘control’ – consider risks and
opportunities across the entire value
chain and operations
Consider cutting edge ideas and
themes from competitors and industry
partners
Take a longer perspective and view
Provide a forward looking perspective
and orientation
• Fix
• Keep up with developments - it is a
past paced industry
• Look for ways to avoid repetition
and reduce the length to improve
the narrative flow
• Consider whether your risk
descriptions can better reflect your
industry and specific
circumstances
• Consolidate existing content to
build a picture of your business
model
• Use clearer signposting and cross
referencing to demonstrate links
between key information
• Explain why your key performance
indicators are key
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Going Forward (2)
• Innovate
• Understand key stakeholders
expectations and information
requirements and find innovative
ways to address them
• Challenge your content and
whether it is material
• Experiment with communication of
key messages and communication
channels
• Be inspired
• Use your strategy to underpin your
reporting
• Demonstrate a clear link between
strategic priorities, KPI’s and
remuneration
• Discuss your risk profiles and how
it has changed
• Explain the drivers shaping your
markets and how it influences your
strategy and strategic choices
• Embed the business model and
sustainability into discussions
about strategy and performance
• Provide more operational/nonfinancial KPI’s to discuss key
resources and relationships
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In closing – Content structure
considerations (1)
• Set the scene
• Provide an overview of your
business and the environment
(markets) in which you operate
to contextualise your report for
the reader
• Live it, breathe it
• Clearly describe your
sustainability strategy over the
short, medium and long term,
demonstrate how it is
integrated in your core
business model and permeates
the organisation, its objectives,
values and deliverables
• What gets measured gets
done
• Identify KPI’s that is relevant to
your business, industry and
strategy, explain why they are
relevant, and how they are
measured and monitored and
linked to your targets
• The good, the bad and the
ugly
• Present information in a
transparent and balanced way.
Explain why, where and when
improvements will be made.
Avoid glossing over under
performance, under delivered
or negative and poor
performance
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In closing – Content structure
considerations (2)
• Snakes and ladders
• Clearly explain risks and
opportunities, explain the
relevance and implications
on strategy, operational
execution and performance
management
• It’s a material world
• Demonstrate
understanding of key
sustainability issues, the
relevance thereof to
stakeholders and report
only on those most
material
• Cash is still king
• Illustrate the impact of
sustainability on the bottom
line. Identify and define
potential ways and means
to maximise the potential
economic benefits going
forward
• The great beyond
• Consider relevant
upstream and downstream
value chain aspects in
order to take into account
all economic, social and
environmental aspects
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In closing – Content structure
considerations (3)
• Pay as you go
• Explain how directors and staff are
incentivised to deliver on the
sustainability strategy and the
goals and targets set – ensure
readers can understand the link
between performance and
remuneration
• Ask around
• Explain how you engage and how
the input and feedback has shaped
and informed strategy and actions
• Reach out
• Use multiple communication
channels. Ensure that the
medium, content and style are
tailored to both the audience and
the message delivered
• Big brother
• Explain how the sustainability
governance system works. Identify
those responsible for strategy and
execution, describe the policies
implemented and how it is
managed
• Prove it
• Ensure the credibility of your report
content – consider references to
independent studies, case studies,
external benchmarking, expert
review panels, or conventional
assurance. Remember to include
the scope of the assurance work
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Next Generation Consultants
• Reana Rossouw
• Next Generation Consultants
• Specialists in Development
• Sustainable Development and Reporting
• Community, Social, Socio Economic,
Local Economic and Enterprise
Development
• Business Development
• Leadership Development
• Tel: (011) 275 0315
• E-mail: rrossouw@nextgeneration.co.za
• Web: www.nextgeneration.co.za
• PLEASE NOTE: THIS PRESENTATION
IS PART OF A LARGER BODY OF
RESEARCH!
• THIS INFORMATION IS COPYWRITED
AND THE INTELLECTUAL PROPERTY
OF NEXT GENERATION CONSULTANTS
Contact:
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