Broad-based black economic empowerment (B-BBEE) is a progression from the old, narrow-based, black economic empowerment in that it looks more broadly than just at ownership and management. B-BBEE basically seeks to undo the economic damage of apartheid. Even though apartheid systematically excluded black people from meaningfully participating in our economy, B-BBEE is not about affirmative action, nor is it about white people giving money to black people – rather, it is a growth strategy that targets inequality within the South African economy.

According to the BEE Act, B-BBEE can be defined as “an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the number of black people that manage, own and control the country’s economy, as well as significant decreases in income inequalities”. Black people are defined as South African citizens who are African, Coloured or Indian.

Currently in the draft Codes of Good Practice, B-BBEE highlights 7 areas or elements of focus, namely ownership, management, employment equity, skills development, preferential procurement, enterprise development and residual (corporate social investment).

I think the key word to keep in mind when trying to get your head around the different BEE requirements and developing your company’s BEE strategy is ‘process’. In order to achieve economic interventions where the impact is long-lasting, it is impossible for businesses to go from being non-compliant to being 100% BEE compliant overnight. A minimum score of just 31 points makes you BEE compliant, albeit the lowest contributor at level 8, but a starting point none-the-less from which to work up in a conscious and sustainable way.

There are two BEE scorecards. According to the current draft Codes of Good Practice, small and medium sized businesses qualifying to have their compliance marked on the QSE (small qualifying enterprises) scorecard and need only focus on 5 of the7 elements. Larger businesses however are to be marked on the generic scorecard where all 7 elements require attention.

The current draft Codes of Good Practice specifies the maximum number of points available for the first element, Ownership, on both the QSE and Generic scorecards as 20. Ownership basically measures the entitlement of black people to voting rights, thereby their ability to contribute towards strategic and operational policies, and economic interest which results in their accumulation of wealth. Ownership is often a complicated and very emotional focus area and would certainly require expert input and guidance.

Management, the second element, looks at black representation at board and executive management levels. This equates to the power to determine policies and the direction of economic activities and resources. Currently, the maximum number of points available on the QSE scorecard is 20 and 10 on the Generic scorecard.

Employment Equity is about promoting equal employment opportunity. It is important to note that badly implemented employment equity is not only unfair on that employee, creating a scenario where the employee is not provided with sufficient capacity to tackle the job at hand and is therefore destined to fail, but is also likely to lead to negative feelings from fellow employees which inevitably creates a negative and unhealthy work environment. Thus, it is important to tackle this element with proper planning, skills development where necessary and transparency. The current scorecard breakdown is 20 points to QSEs and 10 to non-QSEs.

Skills Development refers to the development of core competencies of black people to promote and encourage their interaction in the mainstream of the economy. It makes good business sense to target some of this capacity building to those black people who you have ear-marked for promotion to management and board levels and eventually partners. Both scorecards provide a maximum of 20 possible points. Over time as you achieve this, you will also improve the scores on your management and ownership scorecards as a result.

Preferential procurement takes the focus away from your business’ internal structure and skills and looks at your suppliers. This element aims to widen market access for BEE enterprises, thereby integrating them into the mainstream of the economy. Your business is required to spend a certain %, the amount differs depending on whether you are being marked on the Generic or QSE scorecard, of your overall procurement spend on BEE compliant enterprises. Thus, the BEE Act is not only encouraging your enterprise to be BEE compliant, but also your suppliers. Maximum total points available are 20 for both scorecards.

Enterprise Development aims at assisting and accelerating the development, sustainability and ultimate financial and operational independence of qualifying BEE enterprises. There is an obvious link here, though it is not mandatory, that the beneficiaries of your enterprise development contributions be your suppliers as this will have a positive effect on their capacity and their resultant ability to deliver. Also, on the Generic scorecard, this overlap results in the opportunity to achieve bonus points. Again, the beneficiaries of your support also have to be BEE compliant. Businesses being marked on the Generic Scorecard can attain 10 possible points, whilst the QSE scorecard has 20 possible points.

Finally the last element, residual or social investment, is about a companies’ investment in people, organisations or communities that is external to the work of that company. The Codes require a certain percentage, depending on which scorecard you are being marked on, to be spent in a number of development areas, such as education, HIV, Skills Training, the Environment, Sport and Arts and Culture. At least 75% of the benefits must accrue to natural persons who are black and preferably those in rural communities or part of the government’s rural development and urban renewal programmes. Currently QSEs may score a maximum of 20 points, whilst larger businesses may score a maximum of 10 points on the Generic scorecard.

BEE Options for small businesses
As a QSE, when deciding on which 5 of the 7 elements to focus on, it is relatively ‘easy’ to include enterprise development and social investment as in terms of expenditure, it is the kind that most often results in a warm, fuzzy feeling that comes from feeling proudly South African in contributing towards capacity building, community development and transformation. However, it is not about picking someone or some enterprise “off the street” to hand a signed cheque to. In fact, it is not about charity at all, as this approach is likely to have significant pitfalls that not only affect your business image negatively, but also your bottom line.

Consider a scenario where the beneficiary organisation / enterprise has misspent the contribution and this results in a negative impact on the community. Your industry peers and transformation activists will certainly question the motivations of your developmental approach, leaving you to admit that it was merely a ‘hand-out to get the points’.

Besides the challenge of finding responsible qualifying BEE partners, the above scenario highlights the importance of expertise around issues such as due diligence, performance-based monitoring, accountability, impact and return on investment. Your BEE contributions need to be conscious interventions that will create the kind of sustainable economic change that is the driving focus of BEE. My experience in the social investment and enterprise development arena shows often people just give their money away without seeking advice, examining the options or consciously thinking about the change their investment could bring about. No wonder despite millions spent on transformation, things rarely seem to improve. Pumping more money into the system is not the solution either, but rather, focusing on how it is being directed.

Large businesses operating on the Generic scorecard where their social investment and enterprise development contributions are, separately, relatively significant, should without a doubt engage a specialist to ensure that not only are they being credited for their interventions, but that they are assisting in creating long lasting change in our economy. On the other hand, small to medium sized businesses operating on the QSE (small qualifying enterprises) scorecard often consider their social investment or enterprise development contributions too “small” to justify engaging a specialist. In addition, in isolation, the reality is that their contributions fall somewhat short of being able to make any real impact.

For this reason, Social Advantage has set up a managed Portfolio Trust Fund that acts as an independent vehicle through which businesses can channel their social investment and enterprise development contributions to relevant, qualifying beneficiaries in an accountable and developmentally responsible manner.

By Kim Marr

Kim Marr is the Director of Social Advantage, an organisation that maximises the benefits of BEE social investments, with a specific focus on the residual (corporate social investment) and enterprise development elements of BEE.

Archive: BEE

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