To BEE or Not To BEE
First and foremost I want to take this opportunity to thank CharDes & Associates for granting me the opportunity to write for you on all matters B.E.E. I really hope that each of you will enjoy reading my column and find some value in it for as long as it is relevant. I trust that I will receive lots of feedback from you, no hate mail please, I ask nicely. I thrive on constructive criticism as it serves as my learning and development, just don't send me to ANN7 or the New Age for training, if it's that bad I might as well quit writing for you completely, lool. So ya there you have it, let me know.
By now we all should know that The Amended Codes of Good Practice - Government Gazette 11 October 2013 No. 36928 have been launched. Depending on which debate team you are the codes will either excite or left you disappointed, or maybe you have mix feelings in that you welcome some amendments and are disappointed by others.
Because this is my first article on the subject matter, in this newsletter we will deal briefly with the amendment codes and with each element separately in the following weeks - months.
For now I want take us down memory lane due to the fact that a great majority of South Africans are still greatly misinformed of what the current Codes of Good Practice of Broad-Based Black Economic Empowerment (B-BBEE or commonly referred to as B.E.E) entails and what it sets out to achieve. What is more shocking is that 10 years after the introduction of the B.E.E Act of 2003 and 7 years after the current Code of Good Practice of 2007 of B-BBEE was launched a great majority of MD's , CEO's, Finance , Procurement and HR Directors are equally misinformed on the subject, and have thus no strategy relating to B.E.E, no transformation committee or manager and thus want to rely on consultants to assist their businesses with "quick fixes" even wanting to buy "cold drink" when the prospect of losing business looms due to non-compliance which in itself can mean many different things; i.e. non-compliance at the right level (4), no black ownership or no black female ownership.
To many business owners B.E.E still relates only to selling, and I am been polite, many business owners think they must give away, like in for free, give away 26% (25% plus 1 vote) of their businesses, and was thus resistant to the idea of suddenly bringing on board an unknown, no value adding black businessman, to share in the company's profits whiles earning a big fat cheque every month as a salary for doing a big fat nothing. Well, that was perhaps the case between 1999 and 2007 when the issue of spreading wealth was a strategy build on Equity Ownership only, the selling of 26% of your business to a B.E.E partner, not giving the share away for free, maybe at a discounted price but not for free.
Thus during 1999 and 2007 we were dealing with what was referred to as narrow based B.E.E which focused solely on creating wealth and addressing our inequality through ownership. But that as we know created a handful of multi-millionaires and billionaires referred to as amongst others "Fat Cats", "Black Diamond", "Usual Suspects" to name a few. Government quickly realized that through this medium the B.E.E Act was never going to reach its objective which was to create an equal society funded by equal opportunity through State and Private Sector procurement, whiles addressing broader societal problems i.e. unemployment (labor and socio-economic needs), skills (education), poverty (business development, entrepreneurial spirit and equity ownership).
Thus we saw the birth of the current Codes of Good Practice of 2007 of Broad-Based Black Economic Empowerment. The Act and the Codes were strengthened as the policies were written into government's Preferential Procurement Policy Framework Act (PPPFA) and Preferential Procurement Regulations which in turn is written into National, Provincial and Local (Municipal) Government legislations written into the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA).
All the acts and policies finally led us to the Codes of Good Practice of Broad-Based Black Economic Empowerment. Which consists, in some instances consisted of the following.
NB* The QSE scorecard requires only 50.1% representation (ARG), with 2 bonus points if the organization had 25% or more Black Female representation at Top-Management Level. Employment Equity 15 (18 wbp) as follows:
- Ownership at 25% plus 1 vote (20 points), may vary in some sectors
- Management at 50%, this is compliance at board level and at director and senior top management at 40% (10 points) , both targets to be achieved after adjusted recognition for gender (ARG) calculations was done; meant black total divided by 2 (my vary by sector) plus black female total.
|Black Disabled Employees ARG
||2% (0-5 years) ; 3% (6-10years)
|Senior Management ARG
||43% " ; 60% "
|Middle Management ARG
||63% " ; 75%
|Junior Management ARG
||68% " ; 80% "
||Meeting or exceeding above targets
NB*On the QSE scorecard the Employment Equity Targets are divided into two categories only, one management category with the target at 40% for the first five years and 60% for the second five years and the second category deals with all employees with a black compliance target of 60% for the first five years and 70% for the second five years and 2 bonus points for meeting or exceeding the targets.
Skills Development 15 , which requires businesses to spend 3% of their leviable amount (annual salary bill) on training black employees (arg), 0.3% on black disabled employees (arg) and run learnerships 5% of the total staff compliment on employed or unemployed staff.
NB* On the QSE Scorecard the requirement is that companies only spend 2% of the leviable amount, and there are no targets for training people with disabilities and neither are there targets for learnerships, and the element carries 25 points.
Socio- Economic Development 5 requires companies to spend 1% of their NPAT on assisting 75% or more black beneficiary base non-profit organizations or individuals.
NB* The QSE compliance target is also 1% of NPAT but with 25 weighting points.
|Total B-BBEE Spend
||50% (0- 5) ; 70% (6-10)
|Total B-BBEE Spend on QSE & EME
||10% " ; 15% "
|50% Black Owned and
30% Black women owned
|15% " ; 20%
|NB* The QSE scorecard required companies only to spend 40% in the first five years and 50% in the second 5 year term with no QSE / EME or black ownership categories and the element carries 25 points. Enterprise Development 15,
NB* Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of CharDes & Associates, Mpower Training Solutions or any of its Affiliates or Associated Companies.
required companies to spent in any quantifiable form 3% of the Nett Profit After Tax (NPAT) on developing black controlled companies, or companies with minimum 25% black equity with a level 6 B-BBEE Certificate or higher.NB* The QSE compliance target is 2% of NPAT with 25 weighting points.It should be noted that we are in the second five year term (6-10), I only mentioned the first five year term to accurately write on the subject as we still unpack our B.E.E history.
This brings us to the New or Amended Codes of Good Practice, which I will briefly discuss in this bulletin and elaborate on in detail over the next few weeks as we unpack each element separately.
The Amended Codes have made the following changes:
There are only five Elements now: Ownership, Management Control, Skills Development, Enterprise and Supplier Development, and Socio Economic Development.
The Exempted Micro Enterprises (EME)
threshold has been moved upwards from R5million to R10million
and the Qualifying Small Enterprises (QSE)
threshold from R35million to R50million
. QSE's will continue to do 4 elements but Ownership is compulsory and they must choose between Skills and Enterprise & Supplier Development as one of the other additional three elements they would like to be rated on, but are welcome do both if they choose to do so. Furthermore black controlled (50.1% and wholly owned (100%) EME's and QSE's will now qualify as automatic Level 2 and Level 1 Procurement Recognition entities respectively.
Lastly - Ownership, Skills Development and Enterprise & Supplier Development are priority elements which means enterprises have to achieve at minimum 40% of the target for these elements or face the penalty of dropping by one level, we will discuss in detail when we discuss each element what this means and how it is applied.
- Ownership now accounts for 25 points, it is compulsory for Qualifying Small Enterprises and Large Enterprises.
- Management Control which is Management Control and Employment Equity combined accounts for 19 points even though the score under Management Control says the element accounts for 15 points, the actual points scoring opportunities under the element is 19, thus I will accept this misreporting as usual government error until otherwise informed.
- Skills Development account for 20 points with an additional 5 points for the taking if 100% of unemployed learnerships are absorbed by the entity. In addition skills development expenditure has increase to 6% of the leviable amount, and organization will now score points separately for running employed and unemployed learnerships. Skills development is also a priority element which means entities need to obtain 40% of the target to avoid been penalized the one level drop penalty.
- Enterprise and Supplier Development which combined the Preferential Procurement and Enterprise Development Elements will now account for 40 points with 2 bonus points each under the procurement and enterprise categories of the element, which makes it a total of 44 available points for the element. As noted previously the element is a priority element thus companies need to achieve 40% of the target.
- Socio-Economic Development remains largely unchanged, as the element still accounts for 5 points with the target still been 75% to score full points for initiatives aimed at a 75% black beneficiary base.
Unlike in the case of the impending E-Tolls, which is commonly and mostly without relevance compared to B.E.E of late? I must admit that corporate South Africa has itself to be blamed for much of the more stringent compliance targets set out in the amended codes. It is at this point that I want to charter into that dangerous territory of also comparing BEE to the E-Tolls.
It is a fact that we (Joburgers / Gautengers) are enjoying the much improved Gauteng motorways which cost us billions of rands to fund. We all enjoy the economic benefits of these roads, employees are on time at the office, all our stress levels are down, road rage are unheard of these days, there may be a case of lesser accidents on the roads due to the absence of potholes and presence of more and wider lanes, and whiles I'm not an expert on the subject of roads, I have noticed the shortened time I spend on the road, furthermore I would normally consume a full tank (53 litres of petrol) on the road between Monday and Thursday afternoon just before my trip home. Now I go the entire week Monday to Friday on the same tank, this maybe due to the concertina effect that have greatly been reduced, which means I get 3 extra trips to and fro on my normal weekly travel, but then again I do drive a 1.4 16v VW Polo Classic 2003 model and I drive between 80 and 100 kph and I'm not hogging the fast lane.
But, that's not why we are upset with our Government is it? It is the lack of transparency and rejection of seemingly good and simple ideas to repay these loans and continues senseless enrichment of foreign entities at the expense of South Africans, whiles we do appreciated in some instances the importation of foreign skills and expertise which we do not posses locally, thus we benefit from the transfer of skills - pretty much as in the case of what B.E.E requires.
But back to E-tolling, one such brilliant idea is that we could repay these e-toll loans within six months if we increase the fuel levy by 6c. Government or the ANC's argument is "Why should other regions, areas, provinces pay for our (Joburg's) road infrastructure upgrades". Well, I understand that Gauteng tax payers contributions are crucial to the financial well been of this country, and the last I checked all these taxes went into the national budget that help build South Africa, not Gauteng. So, what am I on about? Yes, I would strongly support the idea of helping government repay the E-Toll loans by increasing the fuel levy, as this will help us in general to maintain roads across South Africa.
Furthermore, I'm no politician, political analyst or commentator to know which funds collected through which means can fund which type of projects, i.e. surplus funds collected from the fuel levy can go to Education or be invested better in rural development, the possibilities are endless, and when did we get to the type of thinking, reasoning or mentality that Joburgers must build Gauteng and Capetonians the Western Cape. What will then happen to areas like Umtata and similar regions in the Northern Cape, Mpumalanga, Limpopo, North West, Western Cape, KwaZulu-Natal and the Free State, are people living in these areas expected to flock to Gauteng once more for a better living?
I wonder what my new best friend Jimmy Manyi would say about that, after all I did take up his advice to move to Joburg from Cape Town, I'm just joking. Incidentally I did sit next to him at the B-BBEE Summit when the amended codes was launched and shared the same joke with him, he laughed outlandishly out loud (lool) and felt vindicated and my constant clarification that it was a joke - I'm a coloured born and bred in Joburg - well Springs and Brakpan to be exact, did little to convince him otherwise.
So, why is business themselves to be blamed. I'll start by quoting the President "If by 2023 we are still talking about B.E.E then something is definitely wrong with us". I share that sentiment and so does many business people, especially our white counterparts. Some does not even see the need for us to have a B.E.E act or policy, and that attitude is what has led us to the more stringent targets set in the codes. But first, in what context do I compare B.E.E with the E-Tolls. B.E.E unlike the E-Tolls is the one policy were business people, employees and labor unions agree it is the best way to address the imbalances of our society whiles stating their cases on why B.E.E is not working, laugh out loud.
Yes, you heard me right. Ask any person who is anti B.E.E what they will replace B.E.E with to address the imbalances created by Apartheid and Colonialism and they will give you different forms of exactly what is in the Codes of Good Practice. Common statements are, lets train the unemployed youth, coach and mentor small black businesses, assist all businesses with tax breaks to help up-skill our workforce the list is endless.
That is exactly what B.E.E does as illustrated above when I listed the current elements, but due to our own resistance to various government policies we fail to see the benefits and how we can use these policies as tools to help us make our own businesses operate more efficiently, increase profitability, create sustainable employment, help create a skilled labor force which will ultimately bring about innovative ideas, products and services, attract (foreign) investors to your business and South Africa.
But, due to governments poor transparency policy and even poorer track record when it comes to dealing with corruption it's about to face the biggest show of civil disobedience as civil society along with one of its strongest affiliates Cosatu has given E-tolls the thumbs down, which resulted in rating agencies downgrading or wanting to downgrade (Mac Maharaj is still writing that statement) our credit rating because of governments stance to ignore the voices of their most powerful supporter and stakeholder- It's People.
Thus, how does this compare with governments amendments of the Codes of Good Practice? Between 1994 and 2003 (2007) government left it to corporate South Africa to deal with the inequality issues we were grappling with as a country and business choose to turn a blind eye and leave it to the next. Whiles some have been doing exceptionally well even before the Codes were gazette in 2007, maybe because they heeded governments call to self regulate and come up with their own transformation strategies guided by the Employment Equity Act, or because they understood that this change like any other market and technology changes they have to adapt, and this have brought them great success due to been true champions of transformation. Whilst others have been hard at it to circumvent any government policy ranging from tax to the skills development levy to employment equity. Some businesses choose to under report their turnover, staff compliments and ignore many more corporate governance policies and procedures to avoid complying, practices which have seen their businesses stifle, not growing and have put some out of business or on the brink thereof.
Simple example - many business owners see the Skills Development Levy as just another Tax thus they quite happy to write the levy off as just another tax without attempting to submit a Workplace Skills Plan (WSP) or train their own staff which will make them more efficient and help the business deliver on its own mandate as far as their Mission, Vision and Goals statement(s) are concerned, but instead choose to circumvent than to implement when the tax breaks for their businesses, if properly implemented as part of the business strategy would make all business owners fight with the Seta's to have more learnerships approved just so they can benefit from the tax breaks that comes with running learnerships.
I always asked my clients what is better, 100% of R10million or 74% of R50million?
However, I will be the first to agree that dealing with government departments is not selling or baking cakes, not sure which is the right saying to many clichés on governments inadequacies and incompetence's, I've kinda lost track.
The one thing that I have much confidence in and is always motivated by is the hope and drive of ordinary citizens wanting to make South Africa a better place for all. So, maybe we do, maybe we don't need B.E.E, what is evident is that for the most part both government and civil society has lost faith and trust in each other to make this marriage (South Africa) work.