The department of trade and industry is revising the legislation to expose abuse such as fronting, writes Thalia Randall.
The department of trade and industry has said that the broadbased black economic empowerment (BBBEE) codes of good practice are being revised to avoid malpractice.
Department spokesperson Sidwell Medupe said malpractice was rife. “Companies have adopted a tick-box exercise where it is about scoring the maximum points without any qualitative and substantive initiatives,” he said. Certain elements have “fallen under the radar” and have “not yielded the desired results”.
The department hopes that the revision of the codes will address these issues.
Kate Moloto, the chairperson of the Association of BEE Verification Agencies (Abva), said the association welcomed amendments to address “inconsistencies that allow for errors and loopholes”. Revision of the codes, which form the framework for corporate implementation of BBBEE, is part of an overall black economic empowerment shake-up started by the department last year.
The process to revise the BBBEE Act of 2003 began in December 2011. The Act forms the overarching legislation for black economic empowerment. Noteworthy changes would include widened definitions of fronting and the introduction of a BBBEE Commission to oversee malpractice. The revised Act would also introduce heavy penalties for fronting, including:
- A year’s imprisonment for the offender,
- A fine of 5% of the company’s annual turnover, and
- The offending company being banned from tendering to the government.
Fundamental principles of BBBEE
“Fronting is a big issue,” said Chantyl Mulder of the BBBEE Advisory Council, which assists the department in black economic empowerment matters. She said the changes would help to guide the country “back to the fundamental principles of BBBEE”.
The department-drafted document on the codes, which was leaked during a series of stakeholder engagement meetings earlier this year, shows how government hopes to achieve these aims.
The document has been criticised by industry practitioners for introducing “draconian” requirements.
It recommends that all companies with less than 40 points on the scorecard be rendered noncompliant, meaning that all companies with a current level eight (the lowest compliance level) would lose their BBBEE status altogether.
If the suggestions are implemented, most companies would drop at least “one or two [status] levels”, said Bruce Rowe, the managing director of BBBEE consulting company Mpowered Business Solutions.
In addition, companies would need to earn between 10 and 20 extra points to maintain their status. A company with a level-five status would need to increase its score “from 55 points to 75 points” to maintain this status, said Chris van Wyk, the chief executive of BBBEE verification agency AQRate.
Practitioners fear that the more stringent regulations will cause public despondency.
“This system is a voluntary one,” said Van Wyk. “If this thing is going to be forced down their throats, corporate South Africa is going to walk away.”
Rowe echoed his concern. “I know the intent is … to encourage transformation, but I think some companies will put their hands up and say: ‘You know what, we are just not going anywhere with this. It’s just not feasible any more’,” he said.
Medupe, however, told the Mail & Guardian that “no reliance should be placed on [the] contents” of the document in circulation. He said it was “leaked to the public and as such is not an official document”.
Medupe said that when the department had finalised the official document it would “issue an official gazette notice announcing such” and give the public an opportunity to comment. He further noted the department’s intention to oversee “specific stakeholder and public engagement”.
Kganki Matabane, Business Unity South Africa’s (Busa’s) executive director of transformation policy and internal operations, said the organisation has “no doubt that [the department] would honour its promise” to engage with Busa once the codes has been released.
Van Wyk criticised the department for inviting input only “after the fact”.
He said the department had a history of making policy decisions before inviting input from stakeholders. He observed that industry input was also limited to technical issues, and that “all the [policy] debates took place behind closed doors”.
Moloto confirmed that the department “had not involved Abva in the revision process” but said it was “not obliged to do so”.
In response, Mulder said: “I cannot say there have been thousands of engagements, but we have engaged enough to know what some of the issues are.”
Black economic empowerment practitioners have also raised concern about the validity of the empirical basis for the revisions. Rowe said there is a lack of relevant research on which to base the changes. “At best, they might be using out-of-date research,” he said.
Van Wyk said the BBBEE Advisory Council is making revisions based on its own very strong perceptions.
Mulder said empirical research is not necessary for the revisions and that the people on the advisory council were invited to participate because they had industry experience of the issues. They had held discussions with the heads of relevant government departments to gain further insight, she said.
Discussion about the codes are somewhat irrelevant to the real issue. “No code can ever replace a change in people’s hearts and minds,” Mulder said.
Corporates need to stop asking how the codes affects their score and start trying to increase the number of people who will benefit from their actions, she said.