CPE 14
BEE PRACTICALITIES AND THE
BUSINESS IMPERATIVE
Foreword
The course material, as contained in this handbook, is intended to serve as a guide for
businesses and for employers and employees, on some of the practicalities of BEE and
the business imperative of BEE.
In developing the course we have worked on the assumption that not all attendees of the
CPE have an understanding of BEE. We accordingly have tried to strike a balance
between including information which we believe will serve to help you understand BEE
and at the same time we have included information which deals with the practicalities of
applying BEE in your business and which will help you build BEE into your business
strategy.
Please note that this course material is simply a guide. It is not meant to be a complete
summary of the legislation, nor is it a comprehensive legal update. It is not intended to
replace professional advice, but hopefully it will give the attendees an overview of some
of the important practicalities of BEE and of the business imperative of BEE.
Please also note that the BEE legislative framework and environment is changing
constantly – and much of what is covered in this CPE will soon be outdated, and/or will
need to be updated on an ongoing basis. BEE is a dynamic field that is changing all the
time – and it is for this reason that we would recommend professional advice be sought
when you embark on developing your BEE Strategy, or when you build on your existing
strategy. We also recommend you have systems in place to keep you updated on
developments, in this ever changing BEE environment.
Finally, we would like to express our appreciation to Robin Woolley and Ownership
Solutions Pty Ltd, for their contribution, both time and material, to this manual.
Considerable portions included in this manual are taken from Robin’s book: Everyone’s
Guide to Black Economic Empowerment.
Disclaimer
While every attempt has been made to ensure that the information published is accurate
the developer of this material takes no responsibility for any loss or damage that may
arise out of the reliance by any person upon any of the information contained herein.
1
CONTENTS
1. Introduction to BEE
a. what is BEE, do we need it and is it important?
b. what is your ‘transformation maturity?’
c. stages of transformation
2. BEE – A legal overview
a.
b.
c.
d.
a brief summary of early BEE steps
the BEE Act
the first Code of Good Practice
the Charters
3. Developing a Strategy for your business
a. with whom do you develop a strategy
b. a transformation strategy
c. six critical factors in developing a BEE strategy
4. The BEE Scorecard
a. introduction to the scorecard
b. the seven elements of the scorecard
c. communicating your scorecard
5. Ownership and Partner Selection
a.
b.
c.
d.
ownership options
steps to follow in selecting a BEE partner
questions to ask in choosing a BEE partner
issues to be careful of in BEE partner selection
6. Preferential Procurement
a.
b.
c.
d.
what is preferential procurement
why implement preferential procurement
developing a process
preferential procurement processes and procedures
7. Retaining and Securing Employees
8. Conclusion
9. References
2
Links to other Good BEE information Sources:
1. exceedempowerment.co.za
2. empowerment.co.za
3. businessmap.org.za
4. cliffedekker.com
5. busrep.co.za
6. thebrenthurstintiative.com
7. dti.gov.za
8. ictcharter.org.za
9. npi.co.za
10. empowerdex.com
11. ey.com.za
12. idc.com
3
1.Introduction
BEE stands for Black Economic Empowerment. Empowerment has been defined
by the government 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 numbers of black people that manage, own and
control the country’s economy, as well as significant decreases in income
inequalities.”
There is little dispute that the goal of BEE is important. South Africa has enjoyed
12 years of consistent growth. Unfortunately, growth has not been shared
equitably amongst all South Africans. Given the inequalities of the past, and the
overwhelming economic disparity in this country, with black people having always
been the vast majority living in poverty, the need to address this imbalance is
obvious and cannot be disputed.
The sentiment leading to the present BEE legislation is summarised in the
Preamble of the Broad Based Black Economic Empowerment Act, 1993, which
states:
‘Whereas:
Under apartheid, race was used to control access to South Africa’s productive
resources and access to skills;
South Africa economy still excludes the majority from ownership of productive
assets and the possession of advanced skills;
South Africa’s economy performs below its potential because of the low level
of income earned and generated by the majority of its people;
Unless steps are taken to increase the effective participation of black people
in the economy , the stability and prosperity of the economy in the future may
be undermined to the detriment of all South Africans, irrespective of race; ‘’
4
The goal of BEE is aimed at increasing the effective participation of black people
in the economy.
Robin Woolley refers to BEE as ‘transformation’1, as it means changing form
which is at the heart of BEE. He reflects that economic transformation is a
business necessity as a consequence of the following imperatives2:
“A moral imperative: The National party started apartheid in 1948. Economic
repression led to the expropriation of black property not already expropriated
under the Land Act. There was widespread exclusion from economy on the basis
of race. In addition there was exploitation of black labour by white capital.
A social imperative: The top 10% of income earners in SA carry a significant
load of the economy. They contribute about 46% towards the consumption of
good and services. In the US and Britain the top 10 % income earners contribute
31 and 27% towards the consumption of good and services respectively. The
difference between these developed countries and SA is that a significant middle
class contributes about 70% towards the consumption of goods and services.
The GINI co-efficient measures the disparity between a few rich elites and the
poor majority and reflects the level of social tension. If the GINI co-efficient is too
large (inequality index of 59. 3), there is a tendency toward an unstable society
as reflected in high levels of crime etc. Black economic empowerment is
expected to grow the black middle class in SA, thereby stabilizing the country.
A financial / growth imperative: As a result of South Africa’s history we have
high unemployment, about 37% compared to 6.4% in Brazil and about 5% each
in the US and Britain. This unemployment can only be addressed in a growth
environment. While the first two imperatives for empowerment are obvious a third
often overlooked but vital imperative is that transformation can enable growth – in
fact transformation requires growth to succeed. The Strategy document released
5
by the Department of Trade and Industry re-enforces this issue “an effective and
successful process of BEE and accelerated economic growth are mutually
reinforcing objectives. The absence of shared economic growth will continue to
generate a lower rate of growth as it will continue to restrict levels of demand in
the economy.”
BEE in a growth environment
BEE is a form of transformation. Transformation is more sustainable in growth
environments as it does not require you to move over and make space for
someone else, but rather the growth requires extra capacity in your company
which you can ensure is representative.
So if transformation benefits from, and is enabled by growth, one needs to ask
the question – how can you be growing your business? And how can BEE help
you to grow your business?
In South Africa, BEE is evolving and developing on an ongoing basis. [I have
included two articles which give an interesting perspective on how people are
viewing BEE – these are included at the back of this manual.] One of the
difficulties that businesses, particularly smaller businesses, have faced has been
as a result of their failure to understand the goals of the government’s BEE
policies. [This may partly be as a result of poor communication by government
and the relevant authorities.] Businesses have been flooded with information and
have battled to find their way around the legislation. In addition, due to its
evolving nature, what has been relevant or important yesterday has not
necessarily been as important or applicable today. This has had a particularly
damaging effect on businesses who have seen BEE as another form of
government imposed legislation, which simply needs to be complied with – and
who have acted on information so as simply to ‘tick the box’ and have treated
BEE as a compliance function. They have not embraced BEE and hence have
not integrated BEE into their business strategy. Often decisions have been
6
made, partnerships entered into and costly agreements concluded which, as
BEE has progressed and as targets and criteria have developed or moved, have
proven simply not to make business sense. On the other hand there are
businesses that have embraced BEE and have recognised and maximised
opportunities that have flowed from BEE. They have recognised that the
emergent black middle class is going to have money and is going to be a driving
force in our economy – and they have been prepared to tap into that market.
They have built BEE into their business strategy.
However you and your business are approaching BEE, one thing we can be
assured of is that BEE is not going to go away! Exactly the opposite,
empowerment has become the defining business issue of our time.
Given that BEE is here to stay one needs to ensure that you understand what
BEE is about, how it is going to roll out and you need to know how the roll out will
or may impact on your business. You need to understand the environment in
which you find yourself and your business. You also need to understand the
impact on your business should you not adapt to your new environment.
The challenge is for you to move with the times. It is the challenge of the
leadership of your business to be able to recognise the opportunities that come
with transformation and to recognise why it is that transformation, in our current
environment, makes good sense.
BEE Maturity
Below is a list of questions which will give you an indication of your company’s
BEE maturity. It is followed by a breakdown entitled ‘The Stages of
Transformation’. Answer the questions and see whether, based on the
questionnaire, your company’s understanding of BEE needs to be developed.
Look at the Stages of Transformation and see into which category your company
would fall.
7
The 12 Questions to establish the Transformation maturity of the
respondent3:
1) Is BEE a critical part of your business and development strategy?
Yes/No
2) Is BEE considered to be a cost of doing business in SA?
Yes/No
3) Do you understand how BEE enables the performance of your business?
Yes/No
4) Do you have BEE initiatives that fall outside the scorecard?
Yes/No
5) Do you know what the key dimensions of BEE are?
Yes/No
6) Do you believe BEE is a threat?
Yes/No
7) Is BEE good for your business?
Yes/No
8) Do you personally have actions that are contributing to the transformation
of your business?
Yes/No
9) Is BEE different to employment equity?
Yes/No
10) Do you track the developments in BEE in your industry?
Yes/No
11) Do you have many cross cultural friendships?
Yes/No
12) Are you contributing to or have contributed to the development of your
industry’s charter?
Yes/No
If you answered yes for less than 8 of the questions above your understanding of
what BEE is about needs to be developed.
8
The Stages of Transformation:
Innocence
Awareness
Competence
Structured
programmes have
been run building an
organisation wide
understanding on
BEE.
Clear understanding
and broad
acceptance of the
necessity of BEE.
Limited results to
date.
Management
acceptance of the
need to drive BEE
There are linkages
to the current
developments in
BEE that all
employees are
exposed to
Participatory
attitude - BEE is
perceived as a
highly integrated
issue.
The necessity that
BEE needs to be
driven as an internal
and external issue
High level of activity
to define goals, issue
responsibilities, timelines etc
Goals are quantified
but not driven on a
day-to-day basis
To implement BEE
as part of the
organisation fabric
BEE
understanding
The organisation
only knows about
BEE from its
environment of
business.
General
attitude of the
organisation
High level of
resistance and
unwillingness to
consider BEE.
Orientation
Avoidance
Re-active and not
committed
Typical
drivers/motivat
ors
Maintaining the
status quo and
resistance
towards BEE
Looking for
support to
maintain point of
view.
Lack of goals
Pressure from
customers and
threat of long-term
sustainability
Fronting and
superficial attempt
to integrating BEE.
Responsibility
No one has
responsibility for
this function
BEE is driven as a
back-office issue
Becoming part of the
top management
responsibilities
Top management
as coach with
champions to drive
this on a day-to-day
basis
Change
management
No change
management
Ad-hoc and
reactive change
management
limited to the BEE
compliance issues.
Understanding of the
requirement to
formally manage the
required change
process. Limited
progress
The formal
management of this
process with clear
strategies, roles and
measures driven on
an ongoing basis
Typical
responses
Goals
Structured
programmes have
been run building
the managements
understanding of
BEE.
Reluctant
acceptance of the
need for BEE as a
necessary evil to
stay in business.
Understanding
Goals are defined
by doing the
minimum to avoid
the cost of nonadherence
Broad acceptance
throughout the
organisation to drive
BEE
Broad participation
programmes.
Change
management
Goals are reviewed
periodically
throughout the
organisation with
clear actions and
responsibilities
Excellence
The organisation
engages in
unstructured
debate on BEE
developments and
their impact.
BEE is well
stabilised and
entrenched in the
culture and day-today operation of
the organisation.
Maintaining BEE
as part and parcel
of the organisation.
An open
discussion and
approach.
Maintaining the
values and culture
Pro-active
management of
issues which may
threaten BEE.
Although goals are
defined and
adhered to, they
are less important
and BEE is
predominantly
maintained through
the culture.
Top management
as custodians of
the values but
responsibility is
dispersed
throughout the
organisation.
Change
management has
virtually
disappeared.
9
2. LEGAL OVERVIEW
BEE in South Africa has developed in stages over the past 12 years, and, as
stated in the introduction, it continues to develop at a rapid rate.
A brief summary of the early steps that were taken include:

In the early 1990’s there were various steps taken to achieve greater
diffusion of economic power within the black community.

In 1994: the Reconstruction and Development Programme, RDP, was an
empowerment-related initiative aimed at creating jobs, human resource
development and the general reduction of inequality in society. This was
essentially Government’s transformation blueprint. BEE emerged as
central objectives of the RDP which was refined & redeveloped within the
RDP

In 1998: Important pieces of legislation were enacted including the Skills
Development Act and Employment Equity Act, the Competition Act , and
the National Empowerment Act

In 1999: the Skills Development Levies Act was introduced

In 2001: the BEE Commission was formed to re-evaluate the path to
transformation. Its report recommended the adoption of an integrated
national BEE strategy. It inter alia, developed detailed specific targets for
BEE over a 10 year period, and outlined a strong state role. There had
been a lack of cohesion in legislation and policies since 1994 and the
Commission highlighted the need for a national integrated BEE Strategy.

In 2003: Government’s 3 major BEE developments were:
1. the DTI’s Strategy for Broad-Based BEE,
2. Codes of Good Practice on BEE,
3. Broad-based Black Economic Empowerment Act, 53 of 2003
The release of the above marked the start of a new BEE era, where community
and broad based benefits are a major focus.
10
Soon after 1994 there had been a rash of empowerment deals between black
capitalists and white corporates. Many of these deals created instant black
millionaires – but in the late 1990’s for various reasons many of these deals
unraveled or failed and this hampered empowerment progress. By 2001
empowerment was in crisis. Market performance of black companies was poor
and there was a substantial drop in BEE deals.
It was alleged government policy was responsible for a failure to protect black
capitalists. Government was accused of being responsible for massive job
losses, poverty, and non delivery of services. This led to pressure on the state to
intervene, and in response the BEE Commission was formed.
This led to the current BEE Act, and the BEE strategy document all released in
2003, which are the cornerstones of the government’s empowerment strategy.
This legislation has direct bearing on the current BEE requirements for your
business and as a consequence needs to be studied in some detail.
Who qualifies for BEE?
The beneficiaries of BEE are “black people” which according to the BEE Act is “a
generic term which means Africans, Coloureds and Indians’. The earlier drafts of
the Act and the financial services charter further qualified this definition as South
African citizens or permanent residents. The most recent definition of black as
contained in the Codes limits the definition of black to Africans, Coloureds and
Indians who were South African citizens by birth or became citizens before 27
April 1994
11
The Broad Based Black Economic Empowerment Act
This Act has as one of its aims, the creating of a legislative framework for
promoting black economic empowerment. The Act has very specific objectives.
These include, facilitating Broad-based black economic empowerment by;
1. promoting economic transformation that enables meaningful participation
of black people in the economy
2. achieving a substantial change in the racial composition of ownership &
management structures & in the skilled occupations of existing & new
enterprises
3. increasing the extent to which communities, workers, cooperatives & other
collective enterprises own & manage existing & new enterprises &
increasing their access to economic activities, infrastructure & skills
training
4. increasing the extent to which black women own & manage existing & new
enterprises, & increasing their access to economic activities, infrastructure
& skills training
5. promoting investment programs that lead to broad-based & meaningful
participation in the economy by black people in order to achieve
sustainable development & general prosperity
6. empowering rural & local communities by enabling access to economic
activities, land, infrastructure, ownership & skills
7. promoting access to finance for black economic empowerment
The Act empowers the Minister of Trade and Industry to gazette sectorial
charters that are developed by the private sector on an industry–by-industry
basis. This allows the specific sectors to develop their own charters according to
the context of that specific sector. The Act also empowers the minister to issue
codes of good practice that will form the basis of criteria for the granting of
licenses and other authorizations. These codes are intended to establish
weightings for the measurement of empowerment and are meant to react to the
changing needs of the BEE process.
12
The First Code of Good Practice
(which is supported by a describing strategy document)
This code serves two purposes:
1. This code should be used to guide the thinking in the process of
developing a sectorial transformation charter.
2. The code serves to guide all organs of state in awarding licenses, tenders
and other authorisations.
This Code would apply directly to you if your industry is not currently more
precisely defined by a charter (as the charter would have taken the Code
definitions into account during its evolution). This Code does however impact on
all business as essentially it defines broadly the areas the private sector should
be looking at in order to contribute to the transformation process4
The Code defines seven elements, with their respective weightings, that a
company needs to address in order to become BEE compliant. These are as
reflected in the diagram below:
13
Direct
Empowerment
Ownership
20%
Management
10%
Human
Resources
Development
Employment
Equity
10%
Skills
Development
20%
Indirect
Empowerment
20%
10%
10%
20%
Preferential
Procurement 20%
20%
Enterprise
Development 10%
10%
Social Development
10%
10%
The seven elements have the following definitions:
Ownership (shareholding): focuses on the percentage share of economic
benefits as well as the percentage of total voting rights vested in black owned
shares.
Management : the right to manage the enterprise. It is measured as a
percentage of black persons in management; on the board of directors, senior
management and other executive management
Skills Development: the development of employees in a company. 10% of the
20 points allocated for skills development is measured as the rand spent on skills
development as a percentage of payroll. The other 10% is in terms of black
learnership positions as a percentage of total employees.
Employment Equity: to bring about equitable representation of black persons in
all occupations and at all occupational levels of the organisation over a period of
time. It is measured through a weighted employment equity analysis.
14
Preferential procurement: This is procurement from BEE compliant enterprises
as a proportion of total procurement.
Enterprise Development: the development of BEE compliant companies. It is
measured by the total investment going to enterprises that are BEE compliant, as
a percentage of profit before tax, interest and dividends.
Residual – Corporate Social Investment (CSI): Allows for the specifics of the
industry, but it is normally measured as percentage of profits before tax interest
and dividends, on corporate social investment such as housing, health, education
etc
[for more on these 7 elements, see Chapter 4 below.]
The Charters
The government has developed the First Draft Code for companies to measure
and report their efforts toward sustainable broad based transformation. This
framework will be more specifically translated into targets and measures for each
industry (called Charters) but while this process, the development of the
Charters, is occurring companies would be using this Code to measure and
report their transformation process.
If your business falls under an industry regulated by an approved Charter, this
replaces the Code to guide the reporting of your transformation.
It is interesting to note that although it has not been legislated the Department of
Trade and Industry has on several occasions stated that the final Codes will
contain a provision that will prohibit any sectoral charter from deviating from the
targets set by the Codes with more than 10% either way. It is for this reason that
companies must take note of the Codes when developing their BEE strategy
whether or not it is envisaged that the specific company will in future be governed
by an industry charter or not.[i.e.there will be substantial comparability between
Codes and Charters in terms of weighting and targets and methods used to
measure same.]
15
3. Developing a Strategy for your Business
There has been a perception that if you can get your business empowered, you
will have a marked advantage over your competitors. There is also the
perception that if you bring in a black partner who is in some way related to a
high powered politician, you will win government contracts and you will be
flooded by lucrative work! That is a perception that needs to change.
The situation is fast approaching where being empowered is not going to give
you an advantage – but is simply going to allow you to effectively compete! All
your competitors will have achieved a similar status. The days of simply knowing
the right people in the right places – and using those people to use their influence
to gain you contracts – is something of the past.
Every day we read in the press of new investigations into bribery and nepotism
relating to contracts awarded to empowered companies –the awarding of state
and municipal contracts is being policed like never before! So expecting a quick
BEE fix is not going to work.
For BEE to work in your business you need to do it properly. You need to
transform your business to become BEE compliant and you need to do it in a
sustainable way where you have developed a competitive edge.
Developing and integrating a BEE strategy into your business will affect:

who you do business with,

how you do business, and

what business you do
16
Transformation further requires a shift in the way:

your business is structured;

your business strives for customer attention; and
 individuals in your company collectively think and behave5
You do not have to replace your current business strategy, with a BEE strategy.
There may be changes necessary – and your clients may want different products
to what you currently offer. Preferential procurement may make you reconsider
who you buy from – and possibly what you buy. A change in management may
change the mandate in managing your business. But all in all you need to
enhance and enrich your current strategy – and not to replace it. [Part of the
reason you are in business is because your business strategy works!] You need
to use transformation to build your company – and to build on your current
strategic thinking.
With whom do you develop a transformation strategy6?
One of the biggest problems with BEE initiatives is that they become one
person’s responsibility. Crucial to developing a successful strategy is to put
together a team with clearly defined roles. [If the business is a small business,
one person can play multiple roles.]
17
Transformation requires a process something like depicted in the
diagram below:
A Transformation dialogue
Hearts
BEE Strategy
BEE team
Minds
Employee dialogue
Strategic actions
30 day review
The process starts with your employees understanding the purpose and meaning
in transformation, with that clear you need to form a team (in small businesses
this can be one person), that can tackle the transformation strategy and guide the
process. This team will inform the hearts and minds of the employees and
develop a high level overview of what the transformation strategy looks like. It is
however the employees that give feet to that strategy in its detail and that is why
they need to be engaged in a dialogue that develops the actions by which each
and every employee can contribute to transformation. The team through the
relevant company structures will evaluate these actions in a 30 day review cycle,
develop the BEE scorecard based on these actions and feed this back into the
company view of the transformation strategy.
18
The BEE team should ideally consist of the following:

project manager – ensures all the actions decided on are drawn together
and are implemented

boundary spanner – pulls together the teams communication

gate keeper – stays in touch with the changes in the business and
informs the group of recent developments in empowerment

sponsor – a senior person – preferably the CEO – ensures the team has
backing to overcome political and other obstacles

champion – the person who shares the experiences and developments
with the rest of the company wherever and whenever possible
The following is taken from an article written by Robin Woolley, ‘BEE – Why it
makes sense and what to do about it’, which highlights important points which
need to be considered when building a transformation strategy:
“A Transformation Strategy
The first point to note is that a transformation strategy is not a separate
functional strategy, but it is the strategy of the business. Now you probably
already have a very good strategy currently, so what you are actually exploring is
how to revise that strategy in order to take transformation into account.
The key feature of this view of your current strategy is that it must be simple so
that you can enter into a strategic dialogue with your employees who after all
represent the feet to your strategy.
19
A value based view of transformation:
STEP 1:
Any business combines its resources toward a purpose, and any business must
matter to someone in order to create sales. That customer that pays for your
value proposition must get a fair exchange of value. And so the purpose of any
business is to drive up the value to the client and drive down the cost to the
company for delivering that value. So Figure 4 below asks the question “what
does your customer value?” If you to were to list the three key things that your
customer values in your business, what would they be? You should be looking at
the things that you do that your customer cannot do – i.e. The key differentiating
value drivers and not the obvious things that are just givens in your industry.
[see Annexure 3.1 – Value Plan]
Figure 4: The Essential Task of Business
HOW
WHAT
WHO
PHILOSOPHIES
PRODUCTS
POSITIONING
PURPOSE
PEOPLE
PARTNERS
VALUE
PROPOSITION
1.
2.
3.
4.
PROCESSES
Source: Tony Manning (2003)
20
STEP 2:
So, the next step is to answer this question: HOW CAN TRANSFORMATION BE
USED TO ENHANCE THE VALUE DRIVERS IN YOUR BUSINESS? This
question is obviously of a strategic nature, the key lies in transforming your
business to become Black Empowered while simultaneously enhancing your
competitive advantage.
This question can be answered by putting each of the key transformation
dimensions (of ownership, management, employment equity, skills development,
preferential procurement, enterprise development, and corporate social
investment)up in tension against the value drivers and asking how can I
undertake this aspect of transformation so that it enables any one of the three
value drivers.
The answer to this question varies from business to business, but there are some
general patterns and best practices that each company can learn from. Some of
the generic approaches are detailed below.
21
A long term Organic Approach:
The transformation triangle (fig. 5 below) has a slow organic view to the
relationships between the transformation dimensions.
Figure 5: The transformation triangle
Shareholding
Ownership
Control
Skills Development
Employment equity
Attracting & Retaining
Preferential Procurement
Enterprise Development
Corporate Social
Investment
Your business
Your supply chain
Indirect Empowerment
Residual
The environment
of business
This organic approach would use corporate social investment as a tool to
influence the environment of business, but also be influenced by the environment
of business. This means that the organisation embarks on initiatives into its
community in such a way that its business is exposed to the needs and views of
the community and builds a brand and relationship with the environment of
business. The understanding that this creates allows the business to be
sensitised to and live in symbiosis with its environment of business. This
understanding allows the business to embark on transformation initiatives into its
supply chain with sensitivity as it is in many ways a transformed supply chain that
wins.
A company cannot just transform itself, which is clear from the nature of the
transformation dimensions. This sensitivity and the supply chain initiatives lay the
ground for a company understanding and culture that makes it a business that
22
attracts and retains black talent and is able to understand and develop the
employees in the business.
Over time some of that development will allow the best and most able employees
to develop into shareholders and when coupled with employee ownership
through trusts, will result in a stable transformed business that makes the most of
the competencies that are in the business already.
This process takes time and in many businesses there is not this luxury, so many
companies employ mixed strategies that make use of short and medium term
acquisitive strategies to reduce the pressure.
A short to medium term acquisitive approach:
There is often immense pressure, particularly in the area of ownership. This
pressure on ownership comes from the large companies who are often your
customers as their preferential procurement policy and scorecard are based on
ownership alone. This can result in the company needing to acquire new
shareholders (direct being black individuals or indirect being black companies),
and incorporate them into the business. This is a very difficult process fraught
with uncertainties. While it is currently in vogue to just go and find an
empowerment partner it is suggested that strategically all possible options be
explored, such as empowered trusts, which effectively warehouse the shares for
you over the medium term. These trusts while bringing the ownership component
are normally not looking for a permanent role in the business but are easing the
pressure over the short term.
The scorecard gives you a snapshot view of how your transformation process is
progressing as measured against your transformation targets. It does not
23
measure how sustainable or meaningful your transformation efforts have been –
or do your employees get what transformation is about? During my experiences
of transformation the following organizational characteristics have surfaced as
indicating a healthy transformational mindset:
Understanding the moment:
A business needs a memory of the past (we don’t want to hit our heads against
the same walls), and a vision of its future, but as importantly it needs to ensure it
is operating in symbiosis and harmony with its environment of business and
understanding the needs of its customers. Its leaders need to understand and
make sense of this moment we are in. This is after all the essence of leadership.
What moment are you living in, how can you better understand the world around
you?
It’s all invented:
If you are looking for certainty then stay in bed! To become paralysed by a lack of
certainty in the transformation environment can be very dangerous as the rules of
this game are being invented by us by our very actions.
Organisations that are not focused on the scorecard, and the detail of its
interpretation but are rather pouring their energy into developing creative value
adding transformational initiatives are focusing on the right issues. Let’s not get
caught with a score-carding mindset that just “ticks the boxes”, and then its
business as usual. Find the magic people in your business and get them to push
the boundaries to create value adding transformation actions. If the creative
24
solutions make good business sense then it does not matter what the rules are
that currently surround transformation.
Stepping into a universe of possibilities:
There are many barriers and excuses as to why this can’t be done. Exciting
possibilities do await us every day; we stumble over them, pick ourselves up and
carry on!! Is your organisation bringing every ounce of creative energy to bear to
find the possibilities that are there but we are just not seeing? There is a lovely
adage that sums this up, “some men dream dreams in the comfort of their beds
at night, while the great men dream their dreams in the strong daylight.”
Dreaming our dreams in the daylight
While I am admittedly a rabid South Africanist, I recognise the need for business
leaders to be balanced, to not lose the belief that we will win this transformation
battle, while keeping stock of and reacting to the realities of the complexity of
what we are trying to achieve. If you lean too much to either side the momentum
is lost. Idealists lack the credibility for “buy-in” as people just see them to be
foaming at the mouth again, and this polarity does not assist implementation.
People want a balanced not a biased view. So, you need to dream your dreams
in the harsh daylight of your business.
Contribution…Moments of truth:
This management concept draws from the experience of Scandinavian airlines in
their turnaround. They focused their energy on every moment that they could
maximise their customer’s experience. In your organisation there are small
moments every day that slip by us that we could use to enable transformation
25
and we miss them in the rush of our day. How is your organisation seizing these
small moments and using them to build bridges of sustainable transformation?
We often are so busy in our day that someone can be talking to us, but we are
simply not there! The screensavers are on! How can we be more aware of the
moment we are in as individuals and to personally take hold of the opportunities
that exist moment by moment? It is in the texture of those small moments that we
find the graciousness and the care to give as it is needed. It is these moments
that really empower people and help them to be the best they can be. These
cannot be procedures, and turned into a memo reading– “please empower eachother”, they rest in the very heart of you and your organisation.
Giving away to passion:
If you are not passionate about making this country work, and translating that into
your business then your business is not going to get it. Find creative ways of
understanding and dealing with the fears of transformation .”
The rate of transformation
When designing your transformation strategy, you need to choose the rate of
transformation that suits your company, the nature of your business and the
industry climate. Industries and businesses experiencing strong growth can more
easily implement transformation. [For example, where one has low growth it is
difficult to attract both talent and investment and one simply does not have
capacity for newcomers.] You need to work out the rate of transformation that
works best for you.
26
There are six critical factors needed when developing a transformation
strategy7:
1. make your transformation strategy an integral part of your entire company
strategy and not a separate document.
2. develop a transformation team that can assist in developing the strategy
and help to build a critical mass in the company
3. ensure that transformation does not occur at the expense of performance
of your company
4. approach transformation differently under conditions of high growth versus
low growth
5. be sensitive in your approach to implementation as it has the potential to
polarize staff. Seek specialist consultants to assist you if you have any
doubts about achieving absolute success
6. involve your entire company in giving input and impetus to your strategy.
xxxxx
27
28
Annexure 3.1
Value Plan
The strategic planning process that helps you cut to the chase and focuses your team on the
few activities that will make the most difference to your business results.
It’s powerful and practical, and based on global best practices.
ValuePlan
Prepared for (company)
_________________________________________________
By (executive)
________________________________________________
Date
________________________________________________
29
STEP 1: Issues facing your business
What are the key issues that you must deal with now and for the future?
Consider factors such as environmental trends, competitor actions, customer
needs, etc. Also think about challenges within your organization.
30
STEP 2: Create your Value Plan
There are four steps in this process:
1.
2.
3.
4.
Define your purpose
Agree your three key value drivers
Agree maximum of three goals for each value driver
Agree maximum of three actions for each goal
GOALS
VALUE DRIVER
#1
ACTIONS
1.
x3
2.
x3
3.
x3
PURPOS
E
VALUE DRIVER
VALUE DRIVER
#2
#3
GOALS
ACTIONS
GOALS
ACTIONS
1.
x3
1.
x3
2.
x3
2.
x3
3.
x3
3.
x3
Define your purpose
Use the following questions as a guide to deciding on “the hill” you will aim for.
WHY DO WE EXIST?
WHOM DO WE
SERVE?
WHAT VALUE
DO WE
DELIVER?
WHY DO WE
MATTER?
WHAT IS OUR
AMBITION?
31
Value Driver #1
Goals
Goals
List a maximum of three goals – things
that must happen for your value driver to
be effective.
Actions
Actions
List a maximum of three actions for each
goal – the critical things you must do to
attain your purpose.
1.
1.
2.
3.
2.
1.
Actions
2.
3.
3.
1.
2.
3.
32
Value Driver #2
Goals
Actions
Goals
List a maximum of three actions for each
List a maximum of three goals – things
goal – the critical things you must do to
1.
that must happen for your value driver to
attain your purpose.
be effective.
1.
2.
3.
2.
1.
2.
3.
33
3.
1.
Value Driver #3
Goals
Actions
Goals
List a maximum of three actions for each
List a maximum of three goals – things
goal – the critical things you must do to
1.
that must happen for your value driver to
attain your purpose.
be effective.
1.
2.
3.
34
2.
35
4. The BEE Scorecard
Once you have developed a strategy you need to assess your empowerment
credentials. The BEE scorecard is used to measure the progress towards BEE of
businesses that are subject to a transformation Charter or a Code. The BEE scorecard
will also be used by any enterprises making application for a license, a concession or
other authorisations to an organ of state, or bidding for public procurement contracts. In
essence the scorecard helps you to measure your empowerment progress – over the
short, medium and long term.
The scorecard works on the basis of a weighted average. The Codes provide for a score
card that lists seven elements, sometimes referred to as the ‘seven pillars of
empowerment’, with a weighting and target attached to each element. This enables a
company to determine its score with regard to each element of the scorecard. The sum
of the scores for each element determines the company’s BEE score or status.
The 7 elements together with corresponding targets and weightings as per the Codes
are reflected in the example below
Example:
Criteria
Weighting
Target
Actual Level
Ownership
20%
25%
0%
0%/25%*20%
0%
Management
10%
50%
10%
10%/50%*10%
2.0%
Employment
Equity
10%
50%
30%
30%/50%*10%
6%
Skills
Development
20%
3%
1%
1%/3%*20%
6.67%
Preferential
Procurement
20%
50%
20%
20%/50%*20%
8%
Enterprise
Development
10%
1 - 5%
0%
0%/5%*10%
0%
1 - 5%
1%
1%/1%*10%
10%
Industry
10%
Specific
Overall Weighted Average
Score
Conversion
Score
33%
In the example above the company only attained a score of 33% which is inadequate.
36
The score card contained in the Codes also contains sub headings, indicators,
underneath each of the seven elements. This encourages, amongst others, black
women participation, the broad based goals of the legislation, and new ownership
entries [see below.]
Broad Based Black Economic Empowerment Scorecard – July 2005 Codes1
Core Component
BEE Elements
Ownership
Code
Ref.
BEE 100
Weighting
Indicators
20 %
Exercisable Voting Rights by Black people
Exercisable Voting Rights in the Enterprise in the hands of Black women
Economic interest in the Enterprise to which Black people are entitled
Economic interest in the Enterprise to which Black women are entitled
Economic interest in the Enterprise to which Black designated groups are
entitled
Net economic interest
Direct
Empowerment
Management
Human Resource
Development
BEE 200
10 %
Employment Equity
Skills Development
BEE 300
BEE 400
10 %
20 %
Preferential
Procurement
BEE 500
20 %
Enterprise
Development
BEE 600
10 %
Residual Element
BEE 700
10 %
Indirect
Empowerment
Element
Weighting
Targets
7%
25 % + 1 vote
10 %
25 %
10 %
3%
Ownership by broad based schemes or new entrants
3%
Exercisable Voting Rights by Black people
3%
20 % of the target
(yr 1 to 2)
50 % of the target
(yr 2 to 5)
75 % of the target
(yr 6 to 8)
100 % of the target
(yr 8 to 10)
Bonus per each
level of 5%
50 %
Members of the board who are black
Members of the board who are black woman
Senior black executive representation
Woman Senior black executive representation
Black other executive representation
Woman black other executive representation
Black independent director representation (Bonus)
Weighted Employment Equity Scorecard (see BEE 300)
Investment in Skills Development (including the skills development levy), as a
percentage of payroll
Learnerships and internships (as a percentage of employees)
Level 1 contributor, as verified by BEE verification agencies
(Recognition of R1.35 for every Rand spent)
Level 2 contributor, as verified by BEE verification agencies
(Recognition of R1.25a for every Rand spent)
Level 3 contributor, as verified by BEE verification agencies
(Recognition of R1.10 for every Rand spent)
Level 4 contributor, as verified by BEE verification agencies
(Recognition of R1.00 for every Rand spent)
Level 5 contributor, as verified by BEE verification agencies
(Recognition of R0.80 for every Rand spent)
Level 6 contributor, as verified by BEE verification agencies
(Recognition of R0.60 for every Rand spent)
Level 7 contributor, as verified by BEE verification agencies
(Recognition of R0.50 for every Rand spent)
Level 8 contributor, as verified by BEE verification agencies
(Recognition of R0.10 for every Rand spent)
Cumulative qualified investment into enterprise development over the past 5
years, over average net profit before tax, interest and dividend over the same
5 years
1%
1%
2%
1%
1%
1%
1%
10 %
10 %
50 %
25 %
40%
20%
40%
40%
40%
50 %
3%
10 %
20 %
3%
50 %
10 %
Cumulative qualified investment into enterprise development over the past 5
years, over average net profit before tax, interest and dividend over the same
5 years
10 %
1 % (yr 1 to 2)
2 % (yr 2 to 5)
3 % (yr 6 to 8)
4 % (yr 8 to 10)
1 % (yr 1 to 2)
2 % (yr 2 to 5)
3 % (yr 6 to 8)
4 % (yr 8 to 10)
100 %
Total
Indicator
Weighting
3%
2%
4%
2%
1%
100 %
Indicator Weighting
1
The Code at the time of drafting this Manual, had not been finalised. Hence targets and criteria
contained in this Code may change in the final version of the Codes.
37
Once one has achieved a score and a level of empowerment, from a procurement
perspective, you will fall into one of the categories as reflected under that section of the
scorecard dealing with Preferential Procurement. The table below shows the different
contributor levels, as measured by the scorecard, and the recognition given to each
level. [see too the scorecard, above, under ‘Preferential Procurement’ .]
Contribution Level
% Points
Scorecard
on
Generic BEE
Recognition
Level
Level 1 Contributor
>= 100 points
135%
Level 2 Contributor
<100 >=85 points
125%
Level 3 Contributor
<85 >=75 points
110%
Level 4 Contributor
<75 >=65 points
100%
Level 5 Contributor
<65 >=55 points
80%
Level 6 Contributor
<55 >=45 points
60%
Level 7 Contributor
<45 >=40 points
50%
Level 8 Contributor
<40 >=30 points
10%
Non-Compliant
Contributor
<30 points
0%
The Financial Charter, [which as yet has not been finalised and may still be subject to
changes] has used a different mechanism, a more complex overall weighted average
mechanism, which awards symbols based on performance ranging from an ‘A’ for a
score in excess of 80 points to an ‘E’ for a score of less than 40 points. The Financial
Charter has not as yet been finalised, and it is well possible that this Charters’
measuring mechanism will change.
Remember that if a company falls under a specific industry charter, that charter and its
targets must be used. If you fall outside a charter your company will be measured by the
Codes.
It is envisaged that all companies will undergo an annual BEE audit. The audited score
will then be entered into the National Empowerment Directory which will be open for
public access. Gone are the days where quality and price of service or product are the
only criteria for determining who one will procure from – before making any procurement
38
decision it is envisaged that corporate South Africa will very often, first and foremost
determine the BEE status of a potential supplier with reference to the empowerment
directory before making an enquiry into the quality and price of the goods or service.
THE SEVEN ELEMENTS OF THE SCORECARD 8
Ownership
At present the Code defines ownership as having three components:

economic interest

voting rights [control]

net equity value
‘economic Interest’ is interpreted as meaning equity ownership in the business with full
liability for risk and full profit entitlement passing to the new owners.
‘voting rights [control] - seen as the right of the shareholder to control the voting rights
attached to the shareholding, to be able to appoint and remove directors, and the power
to control the management of the business.
‘net equity value’ is the nett value of the black participants equity interest, after deduction
of any third party rights or claims that may exist against the black participant as a result
of the transaction, measured as a percentage of the total value of the measured
enterprise.
Ownership accounts for 20% of the scorecard and the breakdown of how that 20% can
be achieved is reflected in the scorecard above. [Note the allocation of points for black
women and designated groups and the bonus points for ‘new entrants’]
Management Control
This deals with representation of black people in management including board
representation and/or other levels of management. These representatives are involved
in determining and implementing company strategy. Management accounts for 10% of
39
the scorecard and the breakdown of how that 10% can be achieved is reflected in the
scorecard above. [Note the allocation of points for black women.]
Employment Equity
This essentially is the racial breakdown of your staff complement. Generally the practice
that is followed is to establish the participation of black staff at all levels of the company
– and including a gender component. Employment Equity accounts for 10% of the
scorecard.
Skills Development
This refers to the transfer of skills and general practice on how this is calculated is expenditure on continuous professional development and job-specific training for
permanent employees as a percentage of payroll. At present the Code divides Skills
development into two sections; the first, with a scorecard weighting of 10%, goes
towards the investment in skills development, the target being 3% of payroll (which
amount will include the skills development levy contribution). The second, also with a
weighting of 10%, relates to learnerships and internships, with the target being 3%. In
total, Skills Development accounts for 20% of the scorecard.
Preferential Procurement
This refers to the percentage of a company’s expenditure that goes towards businesses
that are BEE compliant. The Code target is 50% of all expenditure. Preferential
procurement accounts for 20% of the scorecard [Preferential Procurement is dealt with
more thoroughly in Chapter 6 below.]
Enterprise Development
The aim is to develop BEE compliant suppliers. It is measured by the total investment
going to enterprises that are BEE compliant. Investment can be both in capacity –
building joint ventures,or simply by a direct investment into a business. Enterprise
development accounts for 10% of the scorecard.
40
[In developing an enterprise development strategy, one needs to take a practical
approach and to consider different levels of involvement you are realistically able to
have, preferably with your suppliers. One can get involved at a low level; such as getting
involved in workshops with the entity, or you can get involved at a higher level – such as
getting involved in mentoring the enterprise. At all times you need to ensure that you do
not disrupt, or dictate to, the enterprise, where you would run the risk of being seen as
meddling in their business.]
Corporate Social Investment
Generally it is measured as pre - tax profits, before dividends and interest, spent on
social needs such as housing, education, sport, health etc. Corporate Social Investment
[CSI] accounts for 10% of the scorecard.
[Most people have seen CSI as simply paying a cheque over to their local charity or
sending cash to the local soccer team. This is an over simplistic view of what CSI is
meant to be.
Ideally one should have the involvement of your company and staff in the goals of your
CSI programme. Preferrably one should also be investing in your own business
environment. Your investment should ideally build your capacity or that of your future
clients. A good example of this is to put money into scholarships in your area of business
– or those areas where your business will benefit. This process will not only create
opportunities for those you are supporting but will also create a brand awareness, and
possible loyalty in that community, to your company’s brand.
One does not necessarily have to start your own CSI initiative - in fact very often it does
not make good business sense to do so. Instead keep a look out for initiatives that are
already in operation that your company can support.
The following are good pointers on a successful CSI initiative:
-where your business is aligned to the initiative
-where you have a clear strategy and focus area
-where you are able to constantly measure the impact of your CSI
41
All in all CSI can have a very positive effect on the community in which you find yourself
– and it also should have a very positive influence on your employees who will feel part
of a positive initiative.]
COMMUNICATING YOUR SCORECARD9
Once you have developed your scorecard you need to be able to tell clients and
potential clients what you have done and where you are heading. Clients will generally
want to know what you have achieved as determined by your scorecard, and they will
want to know where you are heading and what you intend to achieve in the years to
come. At the same time you need to have an action plan in place to ensure that the
targets you have set in the long term are being pursued and you need to have a process
in place to constantly review your progress and to communicate that to your clients.
You may want to invest in a rating agency [see below] to assess your empowerment
credentials and to accredit your position. [Rating agencies are companies that will be
accredited and will be specialists in assessing your empowerment credentials. They will
issue a certificate that will reflect your empowerment status. This is useful as it is
independent and carries credibility particularly if one is tendering for work from
government or you are offering your services or product to corporates.]
Once you are satisfied that your scorecard is in order you need to communicate it to
your major suppliers and to all your clients. Make your staff aware of your position so
everyone in the office can know what your position is, and also so that they can
communicate it and market the business. Obviously you will want to work with your
marketing team to ensure they are able to maximise communication of your
empowerment credentials. You need to develop a streamlined method of communication
and you need to focus on making sure you can maximise the communication of your
empowerment credentials to all your suppliers and clients.
42
Below are three annexures:
Annexure 4.1 – a draft Financial Services Sector - BEE data rating Sheet
Annexure 4.2 – Financial Sector Charter Scorecard [ as yet not finalised]
Annexure 4.3 – Draft Broad Based BEE Strategy
43
ANNEXURE 4.1
[note that information herein may change, and need to change, on an
ongoing basis as the Codes, Charters and BEE legislative framework,
develop and change.]
DRAFT - Financial Services Sector: Broad based contribution to
Empowerment
BEE Rating Data Sheet10
SECTION 1: GENERAL DATA OF ENTEPRISE
1.
Enterprise Name
:
2.
Enterprise Registration Number
:
3.
Year of Establishment
:
4.
Contact Person (for BEE issues)
:
5.
Office telephone number
:
6.
Facsimile number
:
7.
E-Mail address
:
8.
Last Financial period (e.g. March 03 – Feb 04)
:
9.
Types of goods or services provided
:
10. Type of Enterprise
:
(e.g. manufacturing, maintenance/service, contractor, consultancy, distributor, retailer)
SECTION 2: BEE SCORECARD RATING
A.
DIRECT EMPOWERMENT
A1.
BEE (EQUITY) OWNERSHIP: PERCENTAGE SHARE OF ECONOMIC BENEFIT
Legal BEE Ownership (as per the enterprise’s share register) and Economic benefit accruing
to the BEE shareholder: Additional documents to be provided: Share Register(s) or the
page out of the financials that indicates shareholding
Individual Shareholders
Percentage
Holding
Population
Group
Name
%
A/C/I/W/
NSA1
Corporate or Organization
Shareholders
Entity Name
Percentage
Holding
Ownership
by Black
People2
%
%
Proportion
Operational
Involvement
Male/
Female
Yes/No
M/F
Disabled
Y/N
Proportion
Operational
Involvement
Yes/No
Women
Holding
Collective
Y/N
%
Total Holdings
1: A = African, C = Coloureds, I = Indian, W = Whites NSA=Non-Indigenous Person
2: Black People=African, Indian and Coloured Indigenous South Africans
48
A2.
BEE M ANAGEMENT AND CONTROL– (PERCENTAGE) BLACK PERSONS IN EXECUTIVE
M ANAGEMENT AND/OR EXECUTIVE BOARD AND BOARD COMMITTEE
Board of Directors / Members (indicating percentage BEE control at board level): Additional
documents to be provided: List of Directors (CM 29).
Item
No
Name of Director / Members
Shareholder
Status
Key Roles and
Responsibilities2
Capacity
Local /
Foreign
Position in Enterprise
Executive /
NonExecutive
Population
Group
Gender
M/F
(A/I/C/W)3
1
2
3
4
5
TOTAL
B.
HUMAN RESOURCES DEVELOPMENT AND EMPLOYMENT EQUITY
B1.
EMPLOYMENT EQUITY: WEIGHTED EMPLOYMENT EQUITY ANALYSIS
Occupational Levels of Permanent Employees
Occupational Levels
(Permanent Employees)
Black
Male
White
Black
Female
White
Sub-Total
Senior Management
Middle Management
Junior Management
Total
B2.
SKILLS DEVELOPMENT: SKILLS DEVELOPMENT EXPENDITURE AS A PERCENTAGE OF TOTAL
PAYROLL
Skills development expenditure on black staff as a percentage of total payroll:
%
Learnerships as a percentage of total staff
%
2
3
Describe the main tasks performed, e.g. Operations Director
A = African, I = Indian, C = Coloured, W = White
45
C.
INDIRECT EMPOWERMENT
C1.
PREFERENTIAL PROCUREMENT: PROCUREMENT FROM BLACK-OWNED AND EMPOWERED
ENTERPRISES AS A PROPORTION OF TOTAL PROCUREMENT
Suppliers
Amount Incurred
Cost of
Sales*
Other
Expenses**
Capital
Expenses***
R
R
R
% Total
Procurement
BEE Supplier rated D
BEE Supplier rated C
BEE Supplier rated B
BEE Supplier rated A
Non-BEE Suppliers
Total
Table to rate suppliers:
Tendering to
Govt.
Financial institutions procuring from Pvt.
Sector
Score %
Rating
Weighting to be
given by Govt.
Where the
supplier is
subject to a
charter
Where the supplier is
measured on the basis
of ownership
< 40%
E
0
0
40 – 55%
D
25%
50c in the R
55 – 70%
C
50%
75c in the R
70 – 80%
B
75%
100c in the R
Black empowered
100c in the Rand
> 80%
A
100%
125c in the R
Black owned – 125c in
the Rand
Black influenced – 50c
in the Rand
46
C2.
ENTERPRISE DEVELOPMENT: INVESTMENT IN BEE COMPLIANT SUPPLIERS AS A PROPORTION
OF TOTAL ASSETS
Investment into empowered enterprises as a percentage of total procurement:
%
D.
SOCIAL INVESTMENT
Expenditure on blacks/black communities who are not employees as % of net profit (after Tax and
Finance Costs)
%
E.
ACCESS TO FINANCIAL SERVICES
% Products and services aimed at the lower LSMs:
Product/ Service
Transactions savings
products and services
Bank savings products and
services
Life assurance products
and services
Collective investments
products and services
Short term risk insurance
products
Origination
Consumer education
Description
Response
Effective access for
LSM 1-5 (%)
Effective access for
LSM 1-5 (%)
Effective access for
LSM 1-5 (%)
Effective access for
LSM 1-5 (%)
Effective access for
LSM 1-5 (%)
Origination of home loans
(R)
Origination of agriculture
loans (R)
Origination of black SME
loans (R)
% of post tax operating
profits spend p.a.
47
F.
ACCESS TO EMPOWERMENT FINANCE
Targeted Investments
Institution’s target for
Targeted Investment (R)
% of Target
Institution’s annual
investment in
transformational
infrastructure (R), lowincome housing (R),
agricultural development
(R), black SMEs
BEE transaction financing
including JV’s, debt
financing, equity
investments in BEE
companies that are not
black SMEs
Do you have intent to change your empowerment status during the current year?
Yes / No.
I confirm that to the best of my knowledge the information supplied is accurate.
Date:
Name:
Position:
48
ANNEXURE 4.2
FINANCIAL SECTOR CHARTER SCORECARD
1.
Ratings
1.1
Each financial institution will be given a rating each year; after the Charter Council
has approved the audited scorecard of the institution.
1.2
The basis of rating financial institutions and suppliers will be:
Tendering to
Govt.
Financial institutions procuring from
Pvt. Sector
Score %
Rating
Weighting to
be given by
Govt.
Where the
supplier is
subject to a
charter
Where the supplier is
measured on the
basis of ownership
< 40%
E
0
0
40 – 55%
D
25%
50c in the R
55 – 70%
C
50%
75c in the R
70 – 80%
B
75%
100c in the R
Black empowered
100c in the Rand
> 80%
A
100%
125c in the R
Black owned – 125c in
the Rand
Black influenced – 50c
in the Rand
2.
Thresholds
2.1
Unless otherwise specifically provided, points will be scored from the level of the
threshold for each target and in linear progression from that level to the level of
the target.
2.2
The 2014 thresholds will be set as part of the process of the 2009 review outlined
in 4.3 of the charter.
3.
Interim Rating
The 2004 equivalent of the rating bands in 2008 (reflected in paragraph 1.2
above) will be established before the effective date. The rating bands for each of
the intervening years will be a linear progression from the 2004 ratings to the
2008 ratings.
4.
Ownership and Control Scoring
For the purposes of paragraph 10.2 of the charter, if within 3 months of a reporting
date an institution ceases to comply with the provisions of paragraph 11.1 for
reasons beyond its control, but re-establishes compliance by the time the report is
due, it will be deemed to have complied at the reporting date.
52
Core
component
of BEE
Indicators
Target
2008
Target
2014
Financial
institution
annual
target
Threshold
Section 1 – (Paragraph 5 of the charter)
Human Resource Development
1.1.2 Middle
management
1.1.3 Junior
management
Industry
Mean at
31/12/2003
black people as a % of
senior management
Min 20%-25%
black women as a % of
senior management
Min 4%
black people as a % of
middle management
Min 30%
black women as a % of
middle management
Min 10%
black people as a % of
junior management
Min 40%-50%
black women as a % of
junior management
Min 15%
1.2 Skills development
Instituti
on’s
annual
score
20
1.1 Employment Equity
1.1.1 Senior
management
Points
15
4
(3 at 20%
+
1 at 25%)
33%of
black
target
1
4
33%of
black
target
1
4–
(2.5 @
40%, 0.75
@ 45%
0.75 @
50%)
33%of
black
target
1
5
50
Core
component
of BEE
Indicators
Target
2008
1.2.1 Skills
spend
% of payroll spent p.a. on
skills development of black
employees
1.2.2
Learnership
program
Threshold
Points
1.5%
0%
3
learnerships as % of total
staff
4.5%
0%
2
Section 2 – (Paragraphs 6 & 7 of the
charter)
Procurement and enterprise development
50%
Procurement
Procurement
from black
influenced
companies, &
companies
rated “D” in
terms of a
charter
Procurement
from
companies
rated “C” in
terms of a
charter
Procurement
from black
empowered
companies, &
companies
rated “B” in
terms of a
charter
Target
2014
Financial
institution
annual
target
Instituti
on’s
annual
score
15
70%
10%
Targeted procurement from
those companies as a
percentage of total
procurement
- Scored at 50% of
Rand spend
Targeted procurement from
those companies as a
percentage of total
procurement - Scored at
75% of Rand spend
Targeted procurement from
those companies as a
percentage of total
procurement - Scored at
100% of Rand spend
51
Core
component
of BEE
Indicators
Target
2008
Target
2014
Financial
institution
annual
target
Threshold
Points
Instituti
on’s
annual
score
Procurement
Targeted procurement from
from black
those companies as a
SMEs, black
percentage of total
companies,
procurement - Scored at
black women125% of Rand spend
empowered
enterprises &
companies
rated “A” in
terms of a
charter
Enterprise Development: paragraphs 7.1.1
& 7.1.2 of charter
Enterprise
Rand spend - Scored at
development:
50% of Rand spend
black
influenced
companies
Enterprise
Rand spend - Scored at
development:
100% of Rand spend
black
empowered
companies
Enterprise
Rand spend - Scored at
development:
125% of Rand spend
black SMEs,
black
companies &
black womenempowered
enterprises
Section 3 – (Paragraph 8 of the charter)
Access to Financial Services
18
52
Core
component
of BEE
Indicators
3.1
Transactions
savings
products and
services
3.2 Bank
savings
products and
services
3.3 Life
assurance
products and
services
3.4 Collective
investments
products and
services
3.5 Short term
risk insurance
products
Effective access for
LSM 1-5 (%)
3.6
Origination
3.7 Consumer
education
Threshold
Points
80%
70%
4
Effective access for
LSM 1-5 (%)
80%
70%
4
Effective access for
LSM 1-5 (%)
tbf
Effective access for
LSM 1-5 (%)
Target
2008
1%, plus
250, 000
Effective access for
LSM 1-5 (%)
6%
Origination of home loans
(R)
Origination of agriculture
loans (R)
Origination of black SME
loans (R)
% of post tax operating
profits spend p.a.
tbf
tbf
tbf
Min 0.2%
Target
2014
Financial
institution
annual
target
Instituti
on’s
annual
score
12
0
Tbd
0
4
10% of
target
10% of
target
10% of
target
0%
4
2
2
2
53
Core component of BEE
Section 4 – (Paragraph 9
of the charter)
Empowerment Financing
4.1 Targeted Investments
4.2 BEE transaction
financing including JV’s,
debt financing, equity
investments in BEE
companies that are not
black SMEs
Indicators
Target
2008
Target
2014
Financial
institution
annual
target
Threshold
Points
Tbf
0
17
Tbf
0
5
Institution’s
annual score
22
Institution’s target for
Targeted Investment (R)
Institution’s annual
investment in
transformational
infrastructure (R)
Institution’s annual
investment in low-income
housing (R)
Institution’s annual
investment in agricultural
development (R)
Institution’s annual
investment in black SMEs
Institution’s target for BEE
transaction financing (R)
54
Core component of BEE
Indicators
Section 5 – (Paragraphs
10 & 11 of Charter)
Ownership & Control
5.1 Ownership
5.1.1 Direct ownership
Max of 4 Bonus points
scored: 0.5 when direct
ownership at 13.75%, 0.5 at
17.5%, 1.5 at 21.25% and
1.5 at 25%
5.1.2 Direct or indirect
ownership in excess of
10%
Target
2008
Target
2014
Financial
institution
annual
target
Threshold
Points
Institution’s
annual score
22
25% by 2010
Listed companies:
standard valuation as % of
market capitalisation
Non-listed companies:
standard valuation
Ditto
14
Min 10% by
2010
-
15% by 2010
-
2.5%
12 + 4
bonus
0.5 points
at: 13.75%,
17.5%,
21.25%, &
25%
5.2 Control
8
5.2.1 Board
3
Black people as a % of
board of directors
33%
20%
2
Black women as a % of
board of directors
Min of 11%
0%
1
Black people as a % of
executive management
Min 25%
Industry
mean at
2003
4
5.2.2 Executive
Executive management
Black women as a % of
executive management
Min 4%
33%
Industry
mean at
2003
1
55
Section 6 – (Paragraph 12)
3
Corporate Social Investment
Corporate Social
Investment
% of post tax operating
profit directed p.a. to CSI
0.5%
0%
3
56
ANNEXURE 4.3
Draft - Broad Based Black Economic Empowerment Strategy
Company Name
:
Company Registration Number
:
Address (Physical & Postal)
:
Contact Person
Office number
:
:
Facsimile
:
Cellular
:
E-Mail
:
Year of Establishment
:
Tax Reference Number
:
VAT Registration Number
:
PAYE Registration Number
:
Turnover (Last Financial Year)
:
Net Asset Value
:
Total Payroll (Last Fin. Year)
:
57
Additional Documentation Required:


Financial Statements (Audited) for the Last 2 Years
Tax clearance certificate
58
Executive Summary:
59
1.
1.1
Current Company Position:
Direct Empowerment:
1.1.1 Equity Ownership:
Individual Shareholders
Percentage
Holding
Population
Group
Name
%
A/C/I/W/
NSA1
Corporate or Organization
Shareholders
Entity Name
Percentage
Holding
Ownership
by Black
People2
%
%
Proportion
Operational
Involvement
Male/
Female
Yes/No
M/F
Disabled
Y/N
Proportion
Operational
Involvement
Yes/No
Women
Holding
%
Collective
Y/N
Total Holdings
Additional Documentation Attached:


Shareholders Agreement(s)
Certificate(s) of Ownership and Share Register(s)
60
1.2.2 Executive Management:
Board of Directors / Members (indicating percentage BEE control at board level): Additional documents to be provided: List of Directors (CM 29). Copy of directors ID documents.
Item No
Name of Director / Members
Shareholder Status
Key Roles and Responsibilities4
Capacity
Population Group
Gender
Local / Foreign
Position in Enterprise
Executive / NonExecutive
(A/I/C/W)5
M/F
1
2
3
4
5
TOTAL
1.2
Human Capital:
1.2.1 Employment Equity:
Occupational Levels:
Occupational Levels of Permanent Employees
Occupational Levels
(Permanent Employees)
Black
Male
White
Black
Female
White
Sub-Total
Top Management
Senior Management
Professional and Middle Management
4
5
Describe the main tasks performed, e.g. Operations Director
A = African, I = Indian, C = Coloured, W = White
61
Skilled Staff
Semi-Skilled Staff
Un-skilled Staff
Disabled Staff
Total Permanent Employees
Additional Documentation Attached:
Employment Equity Plan
1.2.2 Skills Development:
Course / Education Detail
Service Provider
Total
Black %
Attending
Course
Internal /
External
Expenditure
(R)
0
0
0
Additional Documentation Attached:

Workplace Skills Plan
62
1.3
Indirect Empowerment:
1.3.1 Preferential Procurement:
Please complete electronic spreadsheet on information supplied below:
Supplier(s) Name
BEE Status
of Supplier
(%)
Expenditures
(R)
Additional Documentation Attached:

Suppliers’ BEE Measurement / rating Document(s) (and supplier communication regarding BEE status)
1.3.2 Enterprise Development:
1.3.2.1
BEE Enterprise Investment:
BEE Company / Enterprise
Black
Shareholding
of Company
(%)
Investment
(R)
Details of Investment
Total
63
1.3.2.2
BEE Enterprise Joint Ventures (JV):
BEE JV Partner
Black
Shareholding
of BEE Partner
(%)
Company
Revenue
from JV
(R)
BEE Partner
Revenue
from JV
(R)
BEE Partner
Workload
Split
(%)
Total
1.4
Residual:
1.4.1 Social Commitment:
Sector / Programme /
Initiative
Investment
(R)
Details of Investment / Programme /
Initiative
Total
64
2
Broad Based BEE Implementation Plan
(The actions that give rise to the transformation position):
This section describes the nature and detail of the transformation initiatives undertaken by the organisation.
65
Activity Description: (supporting detail)
This section attaches all the approved actions that the organisation has committed to undertake
Action
Description
Action
Summary
Strategy
Synergy
Return on
investment
Impact on
Scorecard
short medium
& long term
Who
66
When
Approved by:__________
Date:_________
67
5. Ownership and Partner Selection
Ownership Options11
Ownership issues have historically been poorly addressed when it has come to
BEE. There are a number of ways in which to address the ownership issue and
we will briefly look at the following ownership options:
Employee share options – this is where your employees can exercise
employee share options in the business
Employee ownership – .International evidence, and more recently in South
Africa, shows that employees shares should be held jointly in a trust.[ see
Annexure 5.1 hereto] All the employees are able to vote their shares together
and act within the company through the trust
Direct shareholding – this involves finding individuals who are able to add value
to your business and who will become an integral part of your business
Social empowerment partners – these are collectives, such as broad based
trusts and who are emerging as a new approach to ownership
Black Economic Empowerment Group [BEEG] – this involves selling off part
of your shareholding to a black or empowered group who do not become
operationally involved in your business
Any of these five ownership options can all work, and one can also have a
combination of these options, but it depends on your specific circumstances and
the needs of your business which you need to analyse and see which option or
combinations of options, works best in your circumstances.
68
Context of BEE partner selection
When one is dealing with ownership issues one always has to consider the
selection process – how to choose the right partner for your business. This is
crucial – and is a step many companies are getting wrong, resulting in a messy,
acrimonious break up or a business that is not operating at its full potential.
Companies have been looking for black partners who have political and business
connections, or who have parastatal involvement, and for ‘big names’. This has
resulted in limited new faces being involved in deals’ for which BEE has been
much criticized. In addition, often the partners selected also add little value to the
company, do not enhance the corporate image and their involvement has no long
term strategic value to the business.
Suggested steps to follow when looking for a black partner [in this context
the partner could be an individual or a BEE Group]
The following steps should be followed when looking for a black empowerment
partner.
1. Develop a business case for a BEE transaction
2. Define the specific role of the BEE partner
3. Develop a screening process for selecting the BEE partner
4. Manage the selection process in-house
5. Sign a contract with the BEE partner
6. Compensate the BEE partner for specific work done
7. Create a break-up clause [as with marriage – sadly, contracts need a
break up clause.]
69
Questions to ask in choosing BEE partner
1. What is the track record and what are the skills of the BEE partner
– Look at the individuals involved
– Look at the team
– Review previous transactions of the group /individuals, and
understand the reasons for their success or failure
– Investigate previous transactions whether they were done
individually or by the same team
– What failures/success stories are relevant to your situation
2. What specific skills are in the BEE partner and are they compatible with
your needs?
– Are there specialist skills such as finance, strategic planning,
operational or general management that are required in your
business?
3. What is the resource availability in the BEE partner
– Who makes everything happen in the BEE partner
– What is their availability?
– Who are the full-time employees in the BEE partner?
– Are there enough resources in the BEE partner?
– Who are the providers of capital to the BEE partner and what are
their terms?
4. What other businesses is BEE partner involved in
– Are these businesses compatible with your own?
– Do the businesses demonstrate sound business acumen?
– Do the businesses require a great deal of attention?
– What is the relative value of the other businesses compared to
yours?
5. What is the chemistry between the BEE partner and yourself like?
70
Issues to be careful of in partner selection:
1. with Broad-based BEE consortia often there is questionable value-add by
the broad based partner
2. be careful who you use to assist you in choosing your partners – often
those helping you put together a deal and who are earning income as a
result of introducing you to a partner, have a vested interest in a deal
taking place and they will ‘push’ a mis-match, simply to ensure they do not
lose their fees. They also may take an easier option which is quicker and
more lucrative to their business.
3. Do not expect miracles from black partners – too many businesses expect
their black partners to open doors and to use their political connections to
gain work – those days are over as deals become scrutinized by
government, the media and your competitors!
4. be careful of BEE Groups who are dependant on individual personalities
who may move on, or where such reliance on the individual results in a
weak and unsustainable business.
5. Treat aggressive targets for new business flows expected as a result of
the BEE deal, with caution. Be realistic as to what can be achieved.
xxxxxx
71
ANNEXURE 5.1
USA and UK Experience with Employee Ownership
The National Center for Employee Ownership in Oakland reports that companies
with Employee Ownership can grow 8% to 11% a year faster than they
otherwise would be expected to grow -- but only when combined with a truly
'participative management style'. Today, some 11,000 employee owned firms in
the USA own 4% of the total value of U.S. corporate net worth, or
approximately $500 billion (that is, American employees have acquired roughly
2.5 times the value of the JSE in under 25 years and now are acquiring the
equivalent of the JSE every year).
In the UK, employee share ownership has enjoyed all-party support in
Parliament since 1978. To the Conservatives, it is a way to spread property
ownership to a wider constituency, turning them into capitalists. The Labour
Party regards employee ownership as a form of social ownership that works in
a market economy. For the Liberal-Democrats, it is a way of reconciling the
antagonism between management and labour. Several pieces of legislation
now support employee ownership, the latest being the All Employee Scheme,
2000.
The most recent study in the UK on the links between “Employee Ownership,
Motivation and Productivity” cites the evidence that companies with high levels
of employee ownership outperform others.6 The central finding of the study is
that, “Creative, knowledge-rich, innovative, highly productive work requires a
high trust, people-driven organisation”. The study found that the interrelationship of sound employee involvement practices with employee
ownership “has a positive effect on motivation and performance”.
6
Birkbeck, University of London and The Work Foundation, November 2002
72
ANNEXURE 5.2
Due Diligence process*:
The due diligence (existing business)
Inputs
Strategies, Organization,
Operations & Processes
• Business Strategy (Next 3 Years)
• Organizational Breakdown
• Process, Operations & Systems
Historical, Current & Pro Forma
Financial Statements
•
•
•
•
Income Statements
Balance Statements
Revenue Schedules by Projects
Quarterly & Annual Statements
Deliverables
Due Diligence
& Valuation
Process
Strategy
•
•
•
Marketing, Sales & Biz Dev.
Current & Planned Contracts
Strategic Alliances
Financial
Analysis &
Valuations
Operations
Organization
Engagement Objective
Business Development, Contracts &
Alliances
Strategy &
Operating
Assessment &
Due Diligence
• Deliver an assessment and
valuation to support
acquisition
process
Due Diligence &
Valuation Report
Each of the inputs must be collected from the potential partners
with the following process used to analyze the inputs.
[*c/o Robin Woolley]
73
The process……….(existing business)
Valuation
Collect
Collect
Build
Valuation
Model
Financial Reports
& Strategies
Validate
Due Diligence
Initiate
Collect
Organizational &
Project
Assess
Business
Strategy
Assess Operations,
Organization &
Financial Condition
Calculate
Valuations
Communicate
Validate
Valuation &
Due Diligence
Present and
Distribute Draft
Report
Operating Systems
Collect
Establish a Fair
Market Value For
Acquisition Target
Biz Dev. Plans &
Contracts/Alliances
Organize and Administer Project
Confirm Progress
Confirm Progress
Confirm Progress
and Status Review
and Status Review
and Status Review
Confirm
Deliverables
This then results in the output of the due diligence report.
74
6. Preferential Procurement
Many questions are raised on what is Preferential Procurement and why is it
necessary. For this reason we have included this short chapter on what is
Preferential Procurement and why it is necessary to have a procurement policy in
place.
What is Preferential Procurement?
It is defined as the sourcing of goods and services from a target category of
society with a view to equalizing market accessibility for them in order to ensure
that they will not forever be excluded from playing a meaningful role in the
economic mainstream.
It is aimed at increasing the volumes of purchases from the targeted category of
society and the development and utilization of such enterprises.
In South Africa preferential procurement looks at your supply from empowered
businesses.
Why does implementing Preferential Procurement make good
business sensexii?
 Black people constitute by far the largest market for most companies
operating in SA.
 Black people provide opportunity for business growth.
 Black people are increasingly moving into the middle class with disposable
Rands
 Businesses operating in the SA market need to show commitment to the
black market.
75
 Increasingly blacks will become vocal about where they would like to
spend their money
 There is now a presence of black executives in the public sector
controlling procurement expenditure, demanding empowerment.
 There is an increasing presence of black executives in the private sector
controlling procurement expenditure, demanding empowerment.
 Doing business with organs of state demands that bidders should
implement affirmative procurement
 We now have laws that require BEE compliance in order to qualify for
state business e.g.
 Preferential Procurement Policy Framework Act
 Public Finance Management Act
 Broad Based Black Economic Empowerment Act
 Second tier BEE programmes are increasingly putting pressure on
companies to conform
 Businesses that operate in empowerment sensitive markets now demand
that their suppliers implement affirmative procurement.
 Black business provide out-sourcing, joint venturing and sub-contracting
opportunities to prime contractors/suppliers
Developing a Process
It is critical that you involve relevant stakeholders in designing the Preferential
Procurement procedures. The process should not be a stand alone process and
should be integrated into your overall procurement policy.
76
To be successful, preferential procurement requires the
following features
1. A Preferential Procurement Policy – which reflects the rules governing
the implementation of preferential procurement. The following are key
areas in the formation of a Policy:
 Purpose of the Policy
 Policy Statement
 Policy Objectives
 Applicability
 Definition of Terms
 Related policies
 Implementation Guidelines
 Interventions e.g. price preference, BEE weight
 Supplier development
 Supplier Support Initiatives
 Monitoring and Reporting
2. Procedures – this represents the implementation of the policy and
describes the process to be followed. Good programmes have the
following characteristics:
 Commitment - From top to bottom, one needs to ensure that
there is buy-in
 Communication - Communicate goals, methods, progress
etc
 Management - Top management support should be
unquestionable on an on-going basis
 a written policy must be in place [see above]
 provide for training - preferential procurement is new terrain
that requires new knowledge and skills to implement.
 Established goals and targets,
77
 On-going monitoring.
xxxxxx
7. Retaining and Securing Employees
Both black and white employees need to be protected in this transformation
process.
One needs to constantly be asking your staff what it is that they should be doing
to ensure that they are maximizing their talents. On the one hand one runs the
risk that one will lose black professionals who are at present highly mobile [one is
especially at risk of losing your black staff who are showing the most potential.]
On the other hand you are at risk of losing your good white staff - white staff
often feel threatened, and there is always the risk that they may leave to start
their own businesses, where they believe they will be in control – and where they
may feel less threatened by the BEE processes.
You need to ensure you have the right environment that attracts and retains the
right people with the right talents and skills.
To this end, you need to foster an environment where there is:

A focus on the individual’s career development

An emphasis on loyalty to and from the employee

An ongoing opportunity for the employee to develop and maximise their
skills, their training and their expertise

an opportunity to grow within the business, i.e. there must be an
emphasis on the growth prospects within the business

Emphasise equity amongst all staff

Rewards, and work related recognition, need to feature high, and are
crucial to employee satisfaction [ there is a constant need to reward high
achievers for their extra effort - but to do so where it is not perceived to
be at the expense of the other employees.]
78
There is also a great need in South Africa to develop a broad base of skills in the
country – where so many South Africans have not had the opportunity to receive
training. There are many ways of dealing with this issue in the work place such
as having mentorship programmes, coaching, study opportunities and the like. All
of this works in growing your relationship with your staff and in building a loyalty
with staff.
xxxxx
8. In Conclusion
The aim is for you to implement a BEE strategy that will add value to your
business and that will be sustainable. To do this you need:

to have a good understanding of the legislative framework and a system
in place to monitor changes and developments as they take place

to know how your company is presently placed and you need to have in
place a business strategy, which should include your BEE strategy, to
take you to where you want to go as a business.

to have your BEE process and Policy in place.

to have your team working together – and this must include the team that
is driving your BEE process, and it needs to include the CEO and all the
staff

to get the buy in of all your staff – and this will only happen if you proactively engage in communicating with them.
And finally, you need to market your achievements.
79
References:
Robin Woolley, Everyone’s Guide to Black Economic Empowerment
As above – Pg 16
3 this is a summarised version of pages 83 – 87 of Everyone’s Guide to Black
Economic Empowerment
4 R. Woolley, Everyone’s Guide to Black Economic Empowerment, p25
5 As above, p32
6 this is a summery of the article ‘ BEE – Why it makes sense and what to do
about it’ by R. Woolley
7 R. Woolley, Everyone’s Guide to Black Economic Empowerment, p52
8 this is a summary of R.Woolley, Everyone’s Guide to Black Economic
Empowerment,, p96
9 as above, p107
10BEE rating data form: by BEEInform
11this is a summary of R.Woolley, Everyone’s Guide to Black Economic
Empowerment,
Ownership in your business p53ff.
xii this is a summary of R.Woolley, Everyone’s Guide to Black Economic
Empowerment, Preferential Procurement, p70.ff
1
2
80
ADDENDUM
[I have included two articles which give an interesting perspective on how BEE is
being viewed in South Africa.]
Article 1
Article by Rob Macdonald, ece consulting (pty) ltd – December 2004
Published in empowerment – SA.
BEE - the real problem is expectations not enrichment
Black Economic Empowerment’s (BEE) ability to deliver real empowerment is
increasingly under scrutiny. There has been vigorous criticism of the huge wealth
of people like Saki Macozoma, Patrice Motsepe, Cyril Ramaphosa and Tokyo
Sexwale. They appear to have the golden touch when it comes to BEE deals of
any major significance and could rightfully be dubbed the “Fabulous Four” of
BEE. But their new-found fortunes have prompted the label of “enrichment”
rather than “empowerment”.
At the time the Standard Bank empowerment deal was announced, Raenette
Taljaard, finance spokesman for the DA questioned why the bank just did not sell
the full 10% that made up this deal to its staff. Whilst a portion of this 10% went
to staff, significantly more went to Messrs Macozoma and Ramaphosa. Taljaard’s
question makes sense if one is thinking simply about broad-based
empowerment.
Yet it is understandable why the likes of Standard Bank, ABSA, Sanlam and
Alexander Forbes wanted to have one of the Fabulous Four in their fold. It means
immediate political kudos and the potential for privileged access to any potential
business opportunities emanating from both the public and private sector. This is
apart from the fact that by simply being black, the Fabulous Four help these
financial institutions meet their ownership targets outlined in the Financial Sector
Charter.
So what is the problem? Surely it makes sense for any white-owned business to
seek out black partners with the best contacts and hence the greatest potential
for new business?
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The critics of this approach have not argued coherently. This was pointed out
recently by Saki Macozoma, who argued in a Sunday Times article (10 th October
2004) that in a capitalist system, black people are going to get rich. As he puts it:
“Where have you ever seen a capitalist system producing socialist results?”
Unfortunately this is true. So in the same way that the Oppenheimers, the
Ruperts and the Wieses have got very rich in South Africa, so too do black
people have every right to get very rich.
Some argue that people like the Fabulous Four are only getting rich as a result of
government policy. Certainly there is substance to the view that somebody like
Herman Mashaba (of Black Like Me fame) is probably more of a genuine
entrepreneur than most of the Fabulous Four, except perhaps Motsepe. But the
phenomenon of businessmen benefiting from government policy is nothing new
in South Africa.
Notwithstanding the liberal political views of Harry Oppenheimer, and his
exceptionally generous philanthropic activities, the fact is that families like the
Oppenheimers and the Ruperts had a wonderfully supportive government system
(apartheid) to enrich themselves. It is interesting how in the BEE debate the term
“enrich” appears to be reserved for black businessmen. There is no doubt that
enrichment took place under apartheid, and it is taking place again in the new
South Africa, but not just to the benefit of blacks.
It is easy to forget that under apartheid Mark Shuttleworth would not have been
able to sell his company Thawte to an American company. Anti-apartheid
sanctions would have put paid to that.
So when it comes to BEE, the problem with “enrichment” is not the “enrich” part.
As argued by Macozoma, in a capitalist system, nobody can begrudge a black
person getting rich. But there are two key ways in which “enrichment”
undermines “empowerment”.
The first is a function of being spoilt for choice. People like the Fabulous Four
have so many and such diverse business interests that a legitimate question
must be, can they truly apply their minds to, and act upon, the transformation of
the many organizations in which they are involved? How active can they really be
in the governance and management of such a range of commercial interests?
The potential for the Fabulous Four to effect real change in any one business is
reduced directly with each and every involvement in a new business. It has to be.
They may be black, they may be fabulous, but they are only human.
It could be argued that whilst none of the Fabulous Four have the time or energy
to drive transformation effectively in all of their business interests, the fact that
they have stakes in such large businesses means that the many talented black
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people within those businesses will drive transformation. This highlights the
second problem with “enrichment”, that of “expectations”.
Finance Minister Manuel has already attacked the high salary expectations of
black professionals, arguing that this is another form of “enrichment”. Whilst
these expectations may be problematic, they are simply a function of supply and
demand, and if businesses want to pay less for their black professionals, they
have to make sure that they are contributing to growing the available pool of
black professionals. There are many ways to do this, be it through bursaries,
training, mentoring, or sponsoring schools and colleges. This is why corporate
social investment is a key element of the BEE sector scorecards.
But it is not the salary expectations of black professionals that is the problem. It is
in fact the expectations of white businesses, particularly medium and small
enterprises, which is the problem. In pursuing their BEE objectives, like Standard
Bank, many of these businesses do not see selling off a stake to their staff as the
first and most powerful step to empowerment. Rather they want to bring in black
shareholders who, like the Fabulous Four, will be connected, will open doors and
most importantly, bring in business.
Many BEE deals are being structured on the basis of black partners bringing in
business, for which they get rewarded. Why the need for a black partner to bring
in business? Given the fact that many of the people expressing this need have
built highly successful businesses on their own, and in the past have not had a
problem with bringing in business. So why suddenly a criterion for a suitable
black partner that they must be able to bring in business?
The answer lies with the Fabulous Four. The publicity around their many deals
has created the impression that a key part of becoming empowered is to do a
deal with a connected or influential black partner who can open doors and bring
in business. But it is simply a function of demographics, that there is not an
endless supply of well-connected, influential black people in the country.
So where does that leave the average small to medium business owner who
needs to become empowered? Well in fact it takes them back to what BEE is all
about. It is about black economic empowerment. This means that very soon,
merely to do business in South Africa, businesses will need some form of black
ownership (amongst a number of other empowerment criteria).
Having black ownership will simply enable many former white businesses to
continue to operate in their traditional markets. The last thing they should be
thinking about is getting black partners to bring in “new business”. Simply
retaining business will become dependant on being empowered. So in seeking
black partners, business owners should rather be worrying about getting black
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partners with whom they can work – to ensure that they can continue “business
as usual” as effectively as possible.
Rather this, than entertain delusions of grandeur about their potential black
partners, which has been the most important, and most unfortunate consequence
of the Fabulous Four’s much publicized acquisition spree.
Robert Macdonald
Article 2
Is empowerment the new Freedom Charter or just a free ride to wealth?
Business Day 14 Jun 2004, 1st Edition, Comment: Page 8 Edited extract.
The famous Freedom Charter was adopted by about 3000 delegates who met in
Kliptown on June 26 1955 during the Congress of the People. It was written by
Rusty Bernstein, a member of the then-banned South African Communist Party,
and it was supposedly based on thousands of pieces of paper on which many
people had written down what they expected of a country in which they wished to
live. Bernstein later admits he had to curb his own instinct to write a blueprint for
a Marxist state.
Nelson Mandela later said the charter was not intended to be the basis for a
Marxist state. But, when he made that all-important speech on the steps of the
Cape Town City Hall on the day of his emotional release from prison, he
repeated the mantra of nationalisation of the banks and the mines.
It is intriguing to go back to the written record of that speech. That sentence
about nationalisation has been excised. This is called rewriting history but those
of us who listened intently to what Mandela said that day, remember it only too
clearly.
In the years leading up to the great 1994 general election, ANC leaders were
roundly told nationalisation was a no-no. This message was delivered by many
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well wishers and governments from around the world and it resulted in what
seemed to be a dramatic U-turn.
Instead, after the ANC came to power, we got the reconstruction and
development programme. That did not last long and it was eventually replaced
with the growth, employment and redistribution programme which, in theory at
least, is still with us, even though it is fiercely opposed by the trade union
movement.
What we also got were affirmative action and, now, black economic
empowerment. And it is economic empowerment that is the flywheel of the
headlong stampede by rafts of companies to sell stakes in themselves to newfound black partners, sometimes at prices and on terms that are frankly
disadvantageous to existing shareholders.
In some circles, this is being called the nationalisation envisaged by the Freedom
Charter through the back door.
A catch-22 of sorts has certainly been created. On one hand we all know that
black South Africans need to be properly integrated into the mainstream of
economic life.
There is no need to debate this issue it is a given; it is an absolute essential if the
country is to prosper.
So yes, an empowerment programme has to be regarded as a major blank in the
economic and political ambitions of this country. I have said and written about
this on so many occasions that I have lost count.
But the programme that has developed has things wrong with it and we should
not be too squeamish or afraid to say what these are.
The first of these problems lies in the way it has been, and is being,
implemented. The impression of many people foreigners too is that it smacks of
legalised theft.
They see this as shareholders being asked to sacrifice 25% plus one share in
their companies so that this equity can be sold cheaply to an empowerment
consortium or organisation. And they think that the need sometimes for vendor
finance adds insult to injury.
It does not help to deny this, perception is what counts.
Second and more important is the problem that relates to the title of the act that
contemplates these events: the Broad-Based Black Economic Empowerment
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Act. It sounds encompassing but the “broad-based” bit doesn't appear to be
working.
In deal after deal, the same faces appear and reappear.
Last year publisher Thami Mazwai said that broad-based empowerment
groupings are a waste of time and driven by entitlement. But that is because
Mazwai thinks empowerment only means ownership and he takes no account of
small business development in poor areas.
I have heard suggestions that women's organisations have no place in the new
SA. Well, they should have a chat with ANC MP Nana Mnandi, who is one of the
leading organisers of women's co-operatives. She has other ideas about the
ownership and development roles women can play.
Mazwai was responding to growing criticism that economic empowerment was
more to do with enrichment of a few than the economic emancipation of the
many. It was a theme that Moeletsi Mbeki first advanced and for which he was
roundly castigated by? Yes, of course, those who have benefited most.
And this is the third area of concern. It may be true that the country needs some
black billionaires as role models. There is nothing wrong with that. The trouble is
that the few that now exist are seen to have arrived there because they are black
and politically well-connected, and not because they did it themselves. This is not
surely? the kind of role model we want to parade.
Fourth is the manner in which actions giving force to empowerment have
dragged us back yet again to the issue of race. Perhaps, given our history, we
shall never really escape it well, not soon.
Yet it does seem extraordinary that, 10 years into democracy, an act is written
into the statutes that defines black as meaning "Africans, Coloureds and Indians"
and then makes it plain that empowerment is intended only for them.
Fifth is the expediency factor this process has encouraged. In cases that I know
of, "white" owners have deliberately gone for "puppet elitists", namely black
South Africans who have let themselves be suckered into a fancy 4x4, a holiday
home and a vast salary and bonuses.
There is a good reason for choosing them. These are men who will look the other
way when white executives implement fancy and complex structures designed to
benefit them at the expense of the sustainable empowerment benefits that
should flow from these firms.
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At bottom, therefore, the stark question is whether and to what degree the
economic empowerment programme being pursued with such haste has really
contributed to the common weal. Well?
Those citizens the great majority previously disenfranchised from nearly all
aspects of economic life, have to be brought into the mainstream. But I am
frankly worried that the route we have adopted may fail to bring the salvation for
which we all hope.
What is really needed is the profoundly harder approach to encourage, stimulate
and grow a massive small business class and we need to do this in the
townships, those places which, for the average white South African are further
away than Sydney or London.
It is much less exciting, however, and the dividends are slow in coming too slow,
it seems, for politicians. There is no quick fix, no sizzle on the steak in this route.
Just a long, hard, slog. This is what training, education and job creation entails.
Yet it is the only way to go, acknowledging at the same time it is not possible to
right wrongs that have their roots in centuries of mistrust, anger and fear.
I do not as a rule devote this column to a single matter, but this issue is so
central to the success and well being of the nation that it deserves the fullest
debate and attention. I hope many others will
join in.
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