Twelve years since Black Economic Empowerment was first implemented in 2003, May 1 saw the application of the revised and far-reaching Broad Based BEE legislation - aimed at boosting and accelerating transformation in SA. But how transformed is business really?
The original aims of Black Economic Empowerment, as described in the Commission Report of 2001, looks at: “redressing the imbalances of the past by seeking to substantially and equitably transfer and confer the ownership, management and control of South Africa’s financial and economic resources to the majority of its citizens.”
At its core, it seeks “broader and meaningful participation in the economy by black people, to achieve sustainable development and prosperity". In other words the economy should match the country’s demographics.
Yet, over a decade into it, BEE has been accused of paving the way to riches for an elite few, excluding the previously advantaged, benefitting established big businesses, and latterly, of dramatically under-correcting the black ownership of businesses as represented on the Johannesburg Securities Exchange (JSE).
Not only that, but businesses on the whole are perceived to have maximised their BEE scorecards to gain deals and beat off competitors, placing compliance over true transformation and empowerment value.
So what does a transformed company look like? It focuses on ownership, skills development and enterprise and supplier development, all of which gain weight and priority under the revised Broad-Based Black Economic Empowerment codes, scheduled to come into effect next month. But what are we aiming for and what can we do better?
“A truly transformed company is one that is black-majority owned with a strong black and white management team, it’s based on competencies and common vision,” says Xolani Qubeka, CEO of the Small Business Institute.
Qubeka says he welcomes the hard-hitting revised codes, which have become essential if the business or the business’s customers work with the government or JSE-listed companies.
“The Revised Codes of Good Practice on B-BBEE have a much better prospect for success because the main focus is on enterprise and supplier development. These codes provide a much better framework to ensure a focus on the entrepreneur rather than on a broad-based formation of an entity,” he says.
Qubeka, a former director of MTN and the Gauteng Economic Development Agency, chairman of the Pambi Trust and Small Business Council Working Group and owner of Qubelisa Enterprise Empowerment and Training, delivered his comments ahead of the annual Oliver Empowerment Awards, where he is a judge.
Qubeka looks to a symbiotic relationship between SMMEs and larger corporations, where “the large established company contributes towards bridging the capability gap of the smaller enterprise, and in the process provides access to its supply chain on a sustainable basis”.
Lynette Magasa, CEO of Boniswa Corporate Solutions says Black Economic Empowerment is about building and encouraging entrepreneurship.
Magasa founded her company in 2004 to provide services to major organisations in the telecommunications industry.
“Black economic empowerment to date has had limited success. There’s been a narrow focus on changing the racial composition of existing companies by facilitating the transfer of company shares to blacks. It has not focused sufficiently on building up the entrepreneurial prowess of black people in general, but has instead facilitated the rise of a small black business elite at the expense of broad-base enterprising entrepreneurs,” she says.
Magasa attributed the low level of black business ownership to a poor culture of entrepreneurship and non-expansionary BBE deals, which she says, eroded value and contributed to capital destruction.
“I think most BEE deals are done for compliance reasons rather than value creation and building a business that could compete meaningfully. BEE should not be about transferring equity either, it should be about expansion. Expansion and growth are a critical component of any broad-based black economic empowerment programme. We need to ensure that deals are done in order to contribute to the growth of South African economy, not just to transfer capital and equity from one hand to the other.”
According to Magasa, South Africans are known for their ingenuity and entrepreneurship and by growing the economy to include more South Africans with innovative ideas and new inventions, the country could become more competitive internationally.
“There are further huge implications for employers in this country. The need for skills development and training has become critical to ensure a sustainable and educated labour force, which can help drive the economy to be globally competitive.
“A truly transformed company should be proud to associate itself with every pillar of B-BBEE, and be in-line with the aspirations of all South Africans. It must also be able to compete not only in the South African market, but globally,” she says.
Magasa scooped the Top Black Female Leader of the Year Award at the 2014 Oliver Awards.
A transformed company will embrace the spirit of Black Economic Empowerment, rather than the letter of the legislation says Nhlanhla Sigasa, director at SizweNtsalubaGobodo and head of BEE at the pioneering black-owned accounting firm, considered one of South Africa’s top five.
“BEE succeeds when a company looks upon it as a tool in building our country, instead of simply as a license to trade with any company,” says Sigasa.
He says to truly transform a company, it’s important to take the business to the next level, which may mean bearing short term costs towards long-term fruitful benefits.
“You need to not only look at internal processes and how you work with current talent within your staff, but also to link all strategy and decision making to BEE elements. In particular, one needs to weave proper skills development into your strategy. That is not just training to gain BEE scoreboard points, but meaningful training that will empower people and change their futures,” says Sigasa.
To succeed in embracing the codes, he says a company should be “very considered” and embed employment equity and skills development into the heart of its strategy.
“Everyone from the CEO, to shareholders and employees needs to buy into their business strategy, to be involved in it and to link it to BEE. It is about being a responsible corporate citizen to all stakeholders - your staff, to your shareholders and to help uplift local communities, and you can do so in a way that will ultimately benefit your company.”
Sigasa suggests that businesses, while building BEE into future strategy, not only look down the long road, but also look back and reflect on the past and the inroads made.
“You can learn a lot in terms of historic transformation. By looking back at the last four or five years you can measure what you have achieved and learn fromyour shortcomings. It can be very valuable when planning strategy,” Sigasa says.
Sigasa hopes that the new codes – with fresh emphasis on black ownership, skills development, and enterprise and supplier development – will bear fruit.
Previously white-owned Qualifying Small Enterprise companies could work around BEE by being effective in four of the code’s seven elements. These include employment equity, preferential procurement, enterprise development and socio economic development ratings, excluding ratings on the three other critical elements: ownership, management control and skills development.
The new codes will address unemployment more effectively to benefit SA’s unemployed youth. In addition, the entrepreneurial culture in particular, with its R10-million threshold to exempt smaller businesses will help the nation towards transformation.
And meaningful transformation, which involves up-skilling South Africans, drawing those currently unemployed into the workplace by creating opportunities, growing the market and the economy and working towards meaningful prosperity for more and more people, is BEE’s ultimate aim.
Despite its criticism, BEE has succeeded in shifting many organisations and individuals. By acknowledging, encouraging and awarding vision, inspiration, innovation, leadership and action in BEE, South Africa can help to drive empowerment and transformation, and ultimately what is an impressive ideal - a better life for all.