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Posted: 2006-05-20 / Author: Paul Janisch and Keith Levenstein

B E E South Africa: Sabotaging The Bee Process

BEE South Africa

We believe that any organisation that insists on rating its suppliers using narrow based principles is sabotaging the BBBEE process. Questionnaires that limit the empowerment credentials of an organization to black ownership and control are still being circulated. This information is then used to decide whether or not a company is "black empowered". In some cases business threatening decisions about continuing to purchase from the business are made based on this information.

This is both problematic and wrong!

The perpetuation of narrow-based BEE criteria and questionnaires will have a definite negative effect on the economy. This short list is our assessment of some of the problems.

Fronting. Misrepresenting the ownership and management of a company is the easiest thing in the world to do. The existence of a name on a shareholders' register is no guarantee that that person actually benefits from his or her shareholding, whether this be a financial or any other benefit. Fronting also creates the mistaken impression that there are enough black-owned firms to service the entire economy. This reality is still a way away, apartheid ensured that black entrepreneurship was stifled and retarded in every possible way. All the controls in the world will not prevent new and cleverer ways to misrepresent a company's BEE status. It stifles entrepreneurship. South Africa needs more entrepreneurs, not a replacement of white entrepreneurs with black ones.

It favours a miniscule section of the population. The new uber-rich black elite seem to be getting richer at the exclusion of the overwhelming majority. The true intention of BEE - i.e. creating opportunities for the entire population, is negated. This is speculative - but it is likely to have some impact on the brain-drain.

The Broad-based Black Economic Empowerment Act of 2003 identified that narrow based principles could not possibly benefit the majority of the population. It set out to create a larger set of criteria that would see companies extending their empowerment initiatives to have a greater impact on the whole economy. This has culminated in the drafting of numerous charters and the dti's BBBEE Codes of Good Practice, each with its own scorecard. Each scorecard is made up of seven elements: Ownership, Management, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Corporate Social Investment.

The hall of shame (those organisations who do not support broad based black economic empowerment) is growing in number. It includes government (have you ever tried to fill in a government tender) and state owned companies (ESKOM is a fantastic example). Commercial companies like major banks, telcos, and other large corporations may state in big banner advertising that they are now "BEE", but they do not follow the guidelines in the slightest.

A bank told us that they use narrow based questionnaires because of the difficulty in verifying broad based data they may get from suppliers. In discussing this further with them, they acknowledge that they will not change the policy for a year or two.

This implies, and they recognise the facts that:

To do business with them will require a "white" owned business selling 50% or more of their shares to a black investor. In two years time, when they change their policies this will no longer be required, and the transaction could just as well be reversed. Are they serious? Do they realise that a partnership in a business is more than for convenience sake? How can a genuine partnership be reversed just because they expect to finally wake up in a year or two's time?

What these hall-of-shamers are not quite aware of is that they are in a great position to assist their suppliers in developing a broad-based BEE profile and in some cases actually help those suppliers score points.

The first step must be to insist on a broad-based scorecard, this could be from an unaccredited rating agency (there are no accredited rating agencies at present) or a self assessment (from EconoScorecard). This process will expose each supplier to the intricacies of BBBEE and scorecards.

The second step is to analyse the scorecard information from each supplier. They will be able to assess the score and the actual black ownership of each supplier (50.1% black ownership does impact on a supplier's score). This information is also vital to calculate a preferential procurement score).

The third step may be to provide suppliers with the opportunity to get involved in that purchasing organizations own enterprise development and CSI projects as a method to improve a supplier's score. Similarly the purchasing organization might be able to support a supplier as an enterprise development beneficiary - there are benefits from purchasing from an enterprise development beneficiary. ---------------------------------------------------------

Abouth teh Authors:
Paul Janisch and Keith Levenstein

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