Understanding B-BBEE and your scorecard

Posted 18-OCT-06

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.

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.

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.

A relatively ‘easy’ and very satisfying way to not only earn BEE points, but more importantly to contribute to economic empowerment of broader society, is social investment. 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 %, 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.

However, it is not about picking someone “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. None-the-less, my experience in the social investment 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.

Consider a scenario where the beneficiary organisation has misspent the social investment 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 beneficiary 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.

Large businesses operating on the Generic scorecard where their social investment 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 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 contributions to relevant, qualifying beneficiaries in an accountable and developmentally responsible manner. The concept of a managed portfolio fund is an almost entirely unexplored area in South Africa, but could be an ideal vehicle through which smaller businesses are not only able to contribute to a variety of relevant beneficiaries and as such qualify for all the relevant BEE points, but also have peace of mind that issues such as due diligence, transparency and meeting the related BEE reporting requirements are being managed.

Kim Marr (nee Vosse), Director