HIV/AIDS disclosure can help in management of risks
 
30-04-2003

Studies can assist companies to decide on, implement, modify and evaluate their strategies over time

With one of the major requirements of good corporate governance being adequate disclosure to stakeholders, HIV/AIDS disclosure and its effect on business has recently been a topical and controversial subject of discussion.

All the same, HIV/AIDS will have a big effect on almost all organisations operating in SA, not only through employee absenteeism and increasing costs of employee benefits but also because of a general reduction in household income leading to reduced demand for products and services.

Because of this, every business should investigate how it will be affected by HIV/AIDS, implement an HIV/AIDS risk management strategy and disclose to stakeholders how it will handle the epidemic.

This is how important HIV/AIDS has become to business. The SA Institute of Chartered Accountants (SAICA) is to issue guidelines on disclosure of the disease; the JSE Securities Exchange SA (JSE) is considering making HIV/AIDS disclosure a listing requirement; and the Global Reporting Initiative (GRI) has released guidelines on HIV/AIDS disclosure with the aim of making this an integral part of voluntary sustainability reporting.

All of this raises the question: what should be disclosed about HIV/AIDS in companies?

The GRI guidelines include the risk-management strategy, policies and procedures, HIV prevalence and the financial effect of HIV/AIDS on the organisation.

The problem is that companies may find it difficult to determine the prevalence and cost effect. Companies could even be reluctant to disclose this information.

For instance, a company involved in food-preparation would be worried about market reaction if it were to disclose that 20% of its staff is HIV positive. Consumers could indeed react negatively to such disclosure, despite the fact that it is impossible to become infected via food, and that for a number of years HIV-positive people have prepared much of the food that South Africans eat.

Also, a company with an estimated cost of HIV/AIDS of 15% of payroll in 2010 may feel that there is too much uncertainty about the estimated effect and so not want to disclose it.

For these and similar reasons, the GRI has constructed its disclosure guidelines in two phases. The first (intermediate phase) includes less detailed disclosure and description, basic level indicators.

Once a company complies with these basic level indicators, it can move to the advanced phase of disclosure by showing information on some or all of the detailed indicators. Furthermore, the JSE and SAICA have indicated that their guidelines will also not oblige companies to disclose HIV prevalence and the rand effect of HIV/AIDS.

There are, however, a number of counter-arguments. Some commentators believe that the market already assumes the worst.

In other words, if a company says nothing about HIV/AIDS, or discloses only vague information about the effect of the epidemic on their business, investors assume that the effect is significant and negative.

In addition, if one company in an industry discloses "bad news" about HIV/AIDS, the first market reaction may be shock, but immediately investors would ask why their competitors were not be saying anything about this state of affairs.Hence, it is argued that disclosure would eventually lead to more certainty and may, in fact, have a positive effect on share prices.

Of course, investors and analysts are not the only ones interested in HIV/AIDS disclosure. Unions, government, researchers and civil society all have an interest. This means that good disclosure demonstrates to these parties that a company manages the risk of HIV/AIDS well.

Better disclosure may lead to a generally positive reaction to a company. Hence, many companies may actually want to disclose details about how the epidemic will affect them and how their risk-management strategies will mitigate this effect.

The question is: can reliable figures be derived? For example, a company may institute a voluntary counselling and testing programme, or do anonymous testing.

Suppose that 80% of the company's 1000 staff come forward to be tested and that it is found that 80 (or 10%) are HIV positive. Can one say that 10% of the overall 1 000 staff (or 100 people) are HIV positive? Probably not. In this case, 200 people refused to be tested. This could be because they already know that they are HIV positive, or because they know (or think) that they are HIV negative, or because they are too scared to find out, or too worried that someone else may find out. Hence, while only 80 positive test results were obtained, it is theoretically possible that the real HIV prevalence is as high as 28% (280 HIV-positive staff members) or as low as 8% (80 HIV-positive employees).

The best way to interpret results is to compare them with all other statistics that a company may be able to collect. This could include absenteeism statistics over time, death and disability statistics, and the results of KAPB (knowledge, attitude, practice and behaviour) studies.

All of these figures give an indication of likely HIV prevalence, provided they are interpreted correctly.

Actuaries have done considerable work over more than 14 years to develop an understanding of the effect of HIV/AIDS.

Actuarial work on HIV/AIDS started in 1989 with the Metropolitan Doyle HIV/AIDS model. Since then, the AIDS committee of the Actuarial Society of SA has developed and released a number of HIV/AIDS models.

Provided then that a company appoints a suitably experienced actuary to analyse the effect of HIV/AIDS, useful projections can be made of the effect of HIV/AIDS without interventions, and then the financial and demographic effect of certain interventions such as education programmes, treatment programmes (both with and without antiretroviral therapy), changes in employee benefits, changes in recruitment patterns and so on can be quantified.

Given such an actuarial effect study, the company would be in a position to decide on and implement a risk-management strategy, modify its current strategy and evaluate the implemented strategy over time.

This means that decisions on whether to provide antiretroviral therapy can be made on an informed basis.

Of course, for smaller businesses a full actuarial effect study would not be viable. Instead, such businesses should collect as much information as possible on how HIV/AIDS affects their organisations, and then take advice on the best way to handle this going forward.

Experienced actuaries can advise on risk-management strategies, even in organisations that are too small to conduct a statistically significant actuarial HIV/AIDS effect study.

Ultimately, HIV/AIDS disclosure should not be seen as a threat to companies, but rather as an opportunity to show how well a particular company responds to one of the most serious challenges to business in SA.

Emile Stipp is a member of the AIDS Committee of the Actuarial Society of SA and a consulting actuary at B&W Deloitte. (Source: Business Day, 29 April 2003)