BEE Partner, South Africa Economy Watch

Depending on the size of a business, the management control provision presents an interesting challenge in the QSE environment. Many QSEs have a single owner who retains sole management control over the entity. The size of the business does not warrant a second top manager. In practical terms, the business also does not have the cash flow to employ a Black person of the calibre comparable to corporate business. The apparent solution is to train an existing employee to take over a top manager position. Most QSE owners probably do not have the time or expertise to do this.

The most common route taken by QSEs is a hollow appointment. I have discussed this above. It means promoting someone in title, but in practice the role remains unchanged. This is fronting and the points will not be granted.

The successful practical application of the management control element requires the business owner to develop a strategy based on two key principles of BEE:

• BEE is a process rather than an event. Although there is a business i_mperative to achieve a high score in the near future, a sustainable BEE strategy is more likely to be developed over time. Instant solutions are not sustainable.

• Sustainable BEE strategies are based on growth initiatives.

By including a new managerial participant, the business owner is afforded the opportunity to manage the business on a more strategic level, which is often something that QSE owners have insufficient time for. The opportunity to provide strategic direction can increase the profitability of the business and justify the inclusion of a new management participant.

When a QSE has many top management positions, succession planning becomes a key factor in achieving management control points. The nature of management succession requires the measured entity to be proactive in forward planning. Management positions are not dynamic as they are usually held for a long period. Failure to use an open position for a Black person now virtually precludes scoring opportunities on the management scorecard for a number of years to come. The emphasis is on planning, not immediate succession without substance.

Board participation

To qualify as top management, the Black participant must own a portion of the business or have board participation. Some QSEs do not have an active board of directors. Where the QSE chooses not to comply with the provisions of the ownership scorecard, they will have to initiate an active board of directors to qualify for management control points. However, they should only do this if an economic rationale exists.

A board of directors can bring strategic management direction to a small business. The shareholders control who is appointed to the board. A small business owner will want to retain control of the board, so a board of directors is likely to be appointed giving the business owner the right of control over decisions made by the board. Including outside participants who contribute to the board meetings and ask questions that challenge decisions will result in more robust decision making in the operation.

The Codes are not asking for the business owner to hand over control of the business. They are asking the business owner to include Black People in top level management participation. Including Black people does not mean leaving a seat open for a “yes” person who will add nothing to the business. Black board participants must be selected o_n their ability and willingness to contribute to the current and future profitability and success of the business. Successful Black board participation depends on the active involvement of the Black member.

When a business makes a hollow board appointment, represented by a Black person who has a position but is never taken seriously, then it does not have substance. If there is no substance, then the entity may not claim the points. Not only is there no substance but the appointment represents a straight expense to the business. If the Black person does not contribute to the business then there is no return on investment. Move away from hollow appointments towards someone who is more likely to earn their money.

Using board participation to assess potential partners

Board participation should also include non-executive members. Non- executive members are people who are not employed in the daily operation of the business. Where a business is looking for an appropriate BEE partner, appointing that person to the board as a non-executive board member gives the business owner and the BEE party time to assess their ability to work together and whether the association is capable of creating new profit for the business.

Obligations

Black people with positions in management and directorships on the board are perhaps more empowered than any other party to drive transformation in an organisation. There is no legal necessity for the Black appointees to participate in the transformation drive. In some cases, Black directors will know less about BEE than their white counterparts.

The only obligation on Black directors to drive transformation is a moral one. The liberty of Black people to participate in the economy is at the mercy of existing business. Black leaders have a moral obligation to encourage the participation of Black people in the economy. They can achieve this by driving transformation from their position of power. While there is an economic driver for BEE, the social necessity should not be underplayed.

Possibly related posts: (automatically generated)
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• A Sound and Working Relationship: BEE Partner part 1
• South African Global Strengths
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• Typical BEE business Partners vs Businesses