Broad-Based BEE. Jonathan Goldberg
Government is under pressure from voters to ensure that the country transforms. They have taken the view that the way to do so is to place greater emphasis on black ownership, supplier and enterprise development.
Rather than working towards economic growth, people have been prone to bask in the glory of the political miracle – which cannot be sustained without a vibrant economy that will benefit the majority of the population.
The image of Nelson Mandela lifting the Rugby 1995 World Cup trophy in a Springbok jersey is deeply etched in the minds of many South Africans. It had a remarkable impact on people, capturing the essence of the political transition that had taken place. Nelson Mandela’s leadership approach has helped to fuel transformation: the great leader showed how to forgive and move forward. With the death of this great leader all South Africans need to continue to uphold this legacy.
Many South Africans involved in the current empowerment deals are able to relate to the emotional impact this moment had on their sense of destiny. Nevertheless, it is important to question whether the vast majority of South African citizens can relate to this today. Even if they can, does it bring a sense of things having changed for the better since then? Statistics indicate that, from an economic transformation perspective, we have not progressed very much since 1994. Given our country’s history, particular circumstances, convergence of interest-based dreams, goals and unity of purpose, pressure will continue to be exerted business to step up to the plate and support the government’s broad-based BEE agenda.
The problem is business alone cannot achieve these goals. There is a lack of partnership between business and Government and this is reflected in the implementation of the Amended Codes of Good Practice. These Amended Codes were not sufficiently consulted with business. Transformation cannot be achieved without business commitment and support. The unintended consequences of these Codes could very well be that business decides not to participate in the narrow BEE approach.
In a session with primarily white business leaders, Cyril Ramaphosa was asked to give his view of transformation in the context of the future government legislation and other measures to propel transformation. His reply was that transformation should start with each person asking themselves what they personally could do to bring about economic transformation in a radically racial and economically polarised society. A suggestion he gave was of a domestic worker in an average South African household. “Why not try to empower the person by giving them the opportunity to develop driving skills?” In this way the domestic worker could, for example, carry some of the “workload” by picking up the children and transporting them to and from school and extra-mural activities, and have the potential to move on to a better and higher-paying job. Ramaphosa’s contention was that if people are not personally committed to empowerment at a micro- (household) level, how would they implement empowerment in more complex business environments and across all spheres of the economy?
“Growth will put asunder all the false alliances we are so careful to protect. It will set people free and strengthen democracy as people reap benefits they will never want to lose . . . we are becoming a normal country, perhaps much faster than anyone believes possible.” – Peter Bruce, journalist and editor
SMOKE-AND-MIRROR EMPOWERMENT
The debate around broad-based BEE, particularly from an ownership and management perspective, is emotionally charged, and the solution is not simply a matter of “colouring in by numbers”. Fronting, window dressing and certain special-purpose vehicles created to profit opportunistic “predators” through smoke-and-mirror empowerment schemes have been strongly criticised for, inter alia, creating unsustainable token empowerment entities. The incentive for phantom BEE credentials might return due to the emphasis on Ownership in the Amended Codes.
The broad-based distribution of BEE Scorecard points substantially addresses the problem of phantom or fronting broad-based BEE ownership and management schemes. The Scorecard points are dispersed over a number of Elements to encourage transformation over a broad spectrum of business stakeholders. Only time will tell whether these Amended Codes are going to achieve the governments transformation agenda. Only time will tell whether the resilience, dogged determination, boldness, creativity and enthusiasm for broad-based BEE from business leaders will continue into the future now that the Amended Codes have raised the compliance targets significantly and placed so much emphasis on black ownership.
CASCADE EFFECT
The codes recognise that the application of broad-based BEE initiatives is intended to accelerate the transformation process in the economy. The cascade effect of broad-based BEE will be felt throughout the business supply chain. It will result in most businesses becoming drivers of broad-based BEE in their own businesses, in their suppliers and in other stakeholders.
An example of the cascade effect would be a multinational motor vehicle manufacturer with a production plant in South Africa. The manufacturing entity will not be fined or penalised directly through legislation for not implementing the Act. They do, however, conduct business with the government insofar as the sale of vehicles and trucks is concerned and further rely on government incentives for their exports. It is in this regard that when government deals with them, it applies the legislation to impose direct pressure on the manufacturing entity to comply with broad-based BEE regulations. We expect Government to exert pressure on all entities. This will result in pressure further down the supply chain a consultancy wanting to do business with the manufacturing entity will be required to comply with the Amended Codes because the manufacturing entity would like to score procurement points to contribute towards their broad-based BEE score. A motor manufacturer is limited in the area of procurement as the majority of components are imported from international businesses that are not in a position to comply or be measured with the Amended Codes. This will translate into even more pressure being imposed on local suppliers to comply with the legislation and Codes of Good Practice.
This knock-on effect is illustrated by the consultancy firm now having to get its empowerment credentials up to speed. It would be forced to look at its own procurement. Here let’s assume that one of the major expense items is travel. The consultancy will put pressure on its travel agent to become broad-based BEE compliant. The travel agent, whose quest, in time, is to have a good broad-based BEE rating, now looks at its suppliers, and so on.
The cascade effect of broad-based BEE will be experienced throughout most industries’ supply chains – any business that ignores it will be ill-advised. The future strategic orientation of businesses clearly needs to be around BEE ownership and the cost of implementation versus non-compliance.
TAKING BROAD-BASED BEE SERIOUSLY
Businesses need to give broad-based BEE serious consideration as it will become an issue in retaining and winning business. Equally, though, the government, in setting parameters for South Africa’s economic transformation, needs to recognise, understand and create an environment that is conducive to creating and growing businesses.
The situation in South Africa is completely different from that of 1994. Businesses will, in future, be required to demonstrate their BEE credentials in line with policy instruments, the broad-based BEE Scorecard and the applicable legislation.
What is required is a completely new way of thinking, an opening of one’s mind to new scenarios and possibilities for transforming businesses in the South African economy. Black people will, for example, need to be placed in positions of real power and influence in businesses
– this will include ownership, governance and management positions.
CASE STUDY
Broad-based BEE case study
An entrepreneurial black person, Xolani, approached an owner-managed business (which had been established approximately 11 years earlier by Richard) to form a joint venture for the purpose of tendering on a five-year provincial government contract. The nature of the business was highly specialised and the operations required