The release of the Black Economic Empowerment (BEE) Codes of Good Practice by the Department of Trade and Industry (DTI) this week goes a long way towards demystifying growing confusion around compliance to legislative requirements of BEE, according to Robin Woolley, BEE consultant at Ernst and Young.
Woolley says the chorus clamouring for more clarity on regulatory compliance to BEE has grown in crescendo over the years as the government increasingly tightened the screws on industries and companies that were deemed to be lagging behind in implementing provisions of the BEE Codes of Good Practice.
“Hats off to the DTI on a rigorous document that appears to have well thought through all the surrounding issues; however, despite having simplified BEE regulations, the document does carry with it a complexity that makes it difficult for the man on the street to decipher. Rigour and simplicity are not easy to achieve.”
According to Woolley, the codes describe a process to which the charters are constrained and function within parameters set by the Codes of Good Practice. In other words, those companies who fall within those industries that are yet to finalise their codes should measure their progress on the general codes and not on their yet-to-be-completed BEE charters.
These provisions exclude mining and petrochemical companies whose charters were gazetted prior to the BEE Act. In other words, much of the effort put into the creation of these charters is undone as they try to realign themselves around the definitions contained in the codes, Woolley says.
“The innovation involving sliding targets [in the realisation points, social investment and enterprise development] helps industry to remember that this is a process, which is difficult to manage in 10 years, and to try to hit all the targets in year one is perhaps not that realistic [for us or our suppliers].
“The number of categories that the outcome of the broad-based scorecard can fall into has been increased to eight and the definitions of excellent, good and satisfactory contributors have been done away with. The result is an ongoing incentive to improve your broad-based scorecard with a corresponding positive impact in preferential procurement.
“This is an improvement as there is a significant difference in effort between 41% and 64%, with these two outcomes having the same impact on preferential procurement in the past.”
Woolley says the conspicuous absence of superannuation schemes, such as pension funds, from the exclusion principle (intimating that they are excluded from the calculation of ownership) is a significant departure from the past.
“Hence the exclusion principle would only operate on organs of state. The implications of this are enormous and have been the basis of much debate recently. The assumption was originally that this would imply that pension funds would be considered on the basis of their empowerment credentials and broad-based schemes.
“This has been refuted by the DTI in recent statements suggesting that they are not excluded from the denominator in the equity calculation but are effectively considered white in the numerator.
“This position makes sense if you take the view that you are looking to encourage black ownership in the economy, but provides no incentive for any changes to the pension funds in the country. Needless to say, a significant portion of listed companies are held by pension funds and superannuation schemes.
“The code 100 (and its appendix) shows the careful thought given to broad-based ownership schemes, indicating structures such as employee-owned trusts are significant routes to address ownership into the future.”
Though the codes are expected to have a far-reaching impact in shedding more light on how companies can comply with this piece of legislation, continues Woolley, many stakeholders are still in the dark about what the contents of the new codes are.
“The major downside about the codes is that they are coming out too slow with ever-shifting deadlines, a factor that renews with a risk of slowing down the transformation process, with the newest view being that the draft codes on the balance of the areas of the scorecard being made available before the end of December 2005. It seems that the DTI likes to release these things while we are all on holiday [the last draft codes were released in December 2004].
“Overall, the new codes are carefully thought out, well scripted and the challenge will be to see how effectively they can be translated into actions that sustain both transformation and the growth of the business,” adds Woolley.
The codes are expected to be released on Tuesday. — I-Net Bridge