Wow! How the year has flown! We’re looking down the final stretch towards December 2015 and yet it feels like just yesterday that we were wishing everyone “Happy New Year”. As they say, “Time flies when you’re having fun!”, so we must all be having loads of fun!

In the second edition of our newsletter, we broach a pretty controversial topic, but turn the negative perception on its head and look at it from a more holistic and positive perspective. Hold your breath… considered as reverse discrimination, controversial, flawed and elitist, this edition deals with the South African initiative of Broad-based Black Economic Empowerment or B-BBEE.
 
 
Yes, we've sensed how corporate South Africa’s hackles have just risen! But take a breath, sit back and have a read. You may just find something of great value in our positive perspective!

Enjoy!

Toni Shüping
Group Executive Manager
 
 
The Revised B-BBEE Scorecard
 
 
The revised BBBEE codes came into effect in October 2014, reducing the number of scoring areas from 7 to 5. The greatest impact of these revisions have been on the three key areas of Ownership, Enterprise & Supplier Development and Skills Development. It is imperative for companies to meet the minimum requirements in these three priority areas or face a reduction in their overall score.

The greatest weighting on the new scorecard has been allocated to Enterprise & Supplier Development (ESD), which contributes a total of 40 points. A minimum of 16 out of 40 points is required to avoid being penalized with a drop of at least two levels. However, developing external businesses is not the core focus of most companies, which disadvantages companies from the onset and places an increased burden on their internal resources as they attempt to comply with the revised codes.

When faced with the encumbrances imposed by the BBBEE legislation, compliance is generally viewed as a “grudge purchase” by many South African corporates. Companies comply by doing the bare minimum so as not to fall foul of legislation. Only a minimal amount of the intended benefit from the implementation of this policy is therefore being filtered down through the South African economy.
 
The Positive Perspective
 
 
Ms Toni Shüping, Group Executive Manager of the Honeyguide Group, has a different perspective on the issue of BBBEE: “Businesses short-change themselves if they look at the BBBEE requirements in isolation and take the negative perspective of seeing them solely as a burden.” In her opinion, ESD for example, should be seen as motivation to implement critical supply chain improvements that are necessary to compete in an increasingly global market anyway, while simultaneously reaping the benefits of fulfilling their BBBEE requirements.

“Honeyguide offers a full set of business expertise to support CSR, ED and Supply Chain developmental programs. Companies can focus on their core business while we seamlessly interface with existing departments, working towards their BBBEE targets. From this perspective,” she says, “it is a win-win situation all around."

"Business is able to safeguard and diversify its supply chain and also gain bonus points for moving SMMEs along the value chain from enterprise development to inclusion in their supply chain. On the flip side, SMMEs receive the developmental support and mentorship to progress to a level of superior competencies, and are presented with the opportunity of gaining access to markets and funding.”
 
Fundamentally Positive Objectives
 
 
Indeed, while it might not be obvious all the time, the rationale behind the revised BBBEE codes is not to place added strain on business, but rather to stimulate growth in the South African economy. Each of the three priority areas have fundamentally positive underlying objectives. “Ownership” motivates for economic empowerment for those previously excluded or disenfranchised; encourages participation in and contribution to the economy, which makes good economic sense; and brings about economic transformation, as opposed to retaining the existing status quo which will not be sustainable for very much longer.
 
“Enterprise & Supplier Development” drives growth within small and medium enterprises - broadening the supply base; promotes mentorship and support of these SMMEs until they achieve sustainability; and encourages entrepreneurship, critical to job creation, which is a dire need as South Africa faces the highest unemployment figures ever.

Thirdly, “Skills Development” encourages personal development and provides the opportunity for individuals to obtain recognized qualifications which contributes to a more educated workforce and ultimately leads to a less conflict-ridden labour market.

The two additional elements on the BEE scorecard: “Management Control” benefits from the strategic approach to ownership encompassing revised employment and labour policies; and “Socio-economic Development” is fulfilled as a spin-off of Enterprise and Supplier Development as well as Corporate Social Investment.
 
Holistic Innovative BEE Strategies
 
“Instead of viewing BBBEE with apprehension and as separate to the successful running of the business, companies should be looking at more holistic, innovative and creative BEE strategies,” agrees Mrs Niré Torrente, an independent Operational and Labour Law expert, with a background in Industrial Psychology. Mrs Torrente’s philosophy is that “the whole is greater than the sum of its parts.” Approaching business from a holistic perspective and leveraging existing business practises and spend, could give rise to a number of innovative solutions to achieving BBBEE compliance. She believes that business owners are more likely to decide on compliance methods which adversely impact on the operational success of the business when they look at BEE in isolation. Instead, it is preferable to review current successful operations and identify the opportunities for compliance.

“When addressing Ownership and Management Control, employment strategies and operational needs could provide scope for BEE development while still protecting operational effectiveness. Opting for contract employees as opposed to salaried employees, while developing appropriate BEE candidates into effective permanent posts, could contribute to scoring in these areas,” she suggests. “Channeling advertising and marketing spend in such a way as to fulfil CSR, Skills and Socio-economic Development programs then becomes an existing business practise, with extended scope to contribute to BEE compliance. However, to be able to devise these creative strategies,” she cautions, “business should not merely focus on ticking off elements on the BBBEE scorecard, but rather concentrate on integrating BEE into dynamic, successful operational practises in the business as a whole.”
 
The Global Perspective
 
From a global perspective, Honeyguide Managing Director, Mr Stephan Lichtenauer, based in Germany, echoes the positive sentiment: “Enterprise and Supplier Development is not a South African concept, but rather a global movement where best practices are critical building blocks to sustainable business success. Also it is proven to stimulate economies, diversify supplier chains and create jobs” he says.

When implemented in-line with its true intentions, BBBEE has far reaching benefits not only for the active parties but also for the well-being of the economy and the country as a whole. The revised BBBEE codes should not be interpreted as a “crisis” for business but rather an opportunity to influence economy in a long term positive way. After all, in Chinese the word for “crisis” is composed of two characters – one meaning “danger” and the other “opportunity”, so it really comes down to perspective. The perceived BBBEE “crisis” can also be viewed from the perspective of great “opportunity.”
 
 
The B-BBEEE Strategy
 
 
The Broad-based Black Economic Empowerment (B-BBEE) Strategy was implemented by the South African government in 2003 as part of its transformation policy to drive economic transformation and economic participation of the previously disenfranchised in the South African economy.

In 2007, the DTI, who administer the BEE legislation, together with the Presidency, commissioned the BBBEE Progress Baseline Report. The study was commissioned with the objective to:
  • measure the extent of Broad Based BEE implementation and to make observations on the progress made;
  • draw conclusions on the obstacles to meaningful and sustainable participation of black people in the economy;
  • develop a benchmark to monitor the implementation of Broad Based BEE;
  • build a resource for government to be able to make informed decisions on the Broad Based BEE strategy.
Some of the findings from this study included the following:
  • 38.9% of companies reported having no plan or progress with regard to Broad Based Black Economic Empowerment and only 19.7% companies reported “fully implemented” plans;
  • Only 24.7% of respondents reported to have a formal scorecard from which they reported their BBBEE compliance level;
  • Of the 24.7% respondents reporting to have a formal scorecard almost two thirds (63.3%) are reported to be formulated by Verification Agencies;
  • Skills shortage was highlighted as a constraint to BBBEE with 52% of companies claiming not to be able to find suitably qualified staff employees;
  • 39.9% companies reported not having any skills development plan.
The calculated BBBEE Baseline score for South African Companies in 2007 was 33.89 points which is equivalent to a Level 8 Compliance or 10% BBBEE recognition according to the official BBBEE Scorecard published by the DTI in February 2007. The outcomes of this study were a major diver and prompted the 2013 revision to the BBBEE codes. The revised codes signaled a fundamental shift in the Governments approach to the implementation of B-BBEE. In order to effectively address the natural tendency of companies to choose easy-to-achieve elements of the scorecard, the Broad Based principles of the published codes were prioritized.

Following the National Summit in October 2013, the B-BBEE Amendment Bill was launched, the revised Codes of Good Practice were introduced and the next steps to achieving broad-based economic transformation in South Africa were outlined. The aim of the amended bill was to redress the notion that B-BBEE was only about “a few deals involving big business, to benefit a few individuals”. The B-BBEE Amendment Bill sought to:
  • Empower more black people to own and manage enterprises. Enterprises are regarded as black-owned if 51% of the enterprise is owned by black people, and black people have substantial management control of the business.
  • Achieve a substantial change in the racial composition of ownership and management structures and in the skilled occupations of existing and new enterprises.
  • Empower rural and local communities by enabling their access to economic activities, land, infrastructure, ownership and skills.
  • Promote human resource development of black people through, for example, mentorships, learnerships and internships.
  • Increase the extent to which communities, workers, co-operatives and other collective enterprises own and manage existing and new enterprises, and increase their access to economic activities, infrastructure and skills.
  • Ensure that black-owned enterprises benefit from the government's preferential procurement policies.
  • Assist in the development of the operational and financial capacity of BEE enterprises, especially small, medium and micro enterprises (SMMEs) and black- owned enterprises.
Furthermore the amended bill introduced Government's prescriptive approach to the implementation of B-BBEE, as well as punitive measures for non-compliance. The amended act criminalizes several offences with harsh and hefty penalties for non-compliance. Imposed penalties include up to 10 years of imprisonment and up to 10% of the annual revenue of the entities involved or both. Penalties also encompass the “discounting principle” where non-compliance results in the BEE status level being downgraded by at least one level.

Prior to the amended act, the government's BBBEE policy was based very much on a “voluntary” principle of implementation. However, with the amendments to the BEE code, government’s no-nonsense approach and intention to implement and promote BEE is very clear. In this instance, “like it or lump it”, the need to be BBBEE compliant is fast becoming the only way to do business in South Africa.
 
 
Issued by Honeyguide Agri Division.
Honeyguide provides a portfolio of professional business development, mentoring and consulting services.
 
© Honeyguide Group (Pty) Ltd 2015.
All pictures CC © their respective owners.