BEE Partner, South Africa Economy Watch

The current BEE Act, the First Code of Good Practice and the BEE strategy document, all released in 2003, are the cornerstones of government’s plan to give impetus to broad-based empowerment by 2014. This legislation has direct bearing on the current BEE requirements for your business, and as a consequence needs to be studied in some detail.

The BEE 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. It allows each industry to explore how it can contribute to transformation, given the constraints and context of that particular industry. Although the Act allows some space for the private sector to drive the process, it also empowers the minister to issue codes of good practice that will form the basis of criteria for the granting of licenses and other authorisations. These codes are meant to react to the changing needs of the transformation process, and also to vary the pressure on the private sector depending on the progress and needs at any given moment. In basic terms, the Act provides the private sector with enough space and the measuring framework to effect transformation, but has the legal means to increase pressure if it does not deliver.

The First Code of Good Practice

The First Code of Good Practice is supported by a strategy document. This code serves two purposes:

To guide the thinking in the process of developing a sectorial transformation charter.

To guide all organs of state in awarding licenses, tenders and other authorisations.

The First Code would apply directly to you if your industry was not currently more precisely defined by a charter (if you are under an industry charter, the charter would have taken the code definitions into account during its evolution). These dimensions are: shareholding, control, skills development, employment equity, preferential procurement, enterprise development and a residual that is normally interpreted as corporate social investment.

Note that the base of the pyramid has the broadest impact on the business environment, laying the foundation for effective interventions in your supply chain (called indirect empowerment). That leads to initiatives that impact your employees. Lastly, your ownership initiatives seem to have limited impact, but, as we will see under employee share options, this is not necessarily the case.

The seven transformation dimensions have the following definitions:

Equity ownership (shareholding): Direct empowerment focuses on the percentage share of economic benefits.

Control: The right or ability to direct or otherwise control the majority of the votes attached to the shareholder’s issued shares; and the right or ability to appoint or remove directors holding a majority of voting rights at board meetings. It is measured as a percentage of black persons in executive management.

Skills development: The development of employees in a company. It is measured as the rand spent on skills development as a percentage of payroll.

Employment equity: To bring about an equitable representation of black persons in all occupations and at all levels of the organisation over a period of time. It is measured through a weighted employment equity analysis.

Preferential procurement: Procurement from black-owned and empowered enterprises as a proportion of total procurement.

Enterprise development: The development of the capacity of black companies (normally suppliers). It is measured by the total investment going to enterprises that are BEE compliant.

Residual (corporate social investment): Allows for flexibility by taking into account the specifics of your industry, but is normally interpreted as corporate social investment. It is generally measured as a percentage of after-tax profit spent annually on housing, transport, bursaries, health, etc.

The charters

The government has developed the First Code for companies to measure and report their efforts towards sustainable broad-based transformation. This framework will be more specifically translated into targets and measures for each industry (called charters), but until this process is completed, companies can use the First Code to measure and report their transformation process and set their own targets using the key dimensions in the code.

If your business falls under a charter, this replaces the code as guide to setting targets and reporting your transformation efforts. However, don’t sit back and wait for a charter to tell you what to do. You should be getting involved in the process of developing your transformation strategy and a charter for your industry in the interim.

Developing an `as-is’ transformation picture

In order to guide your strategic thinking, it is useful to get a very rough picture of your company’s current BEE status set against the key areas of transformation. Using the table below, estimate your company’s raw scoring in each of the areas.

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