Broad-based BEE has been described as the greatest strategic issue confronting businesses of all sizes, structures and shapes in South Africa. Yet it is often swept aside as too onerous, confusing, unfair or unnecessary.
Strategic implementation of broad-based BEE will help business and other roleplayers ensure sustainable economic growth and advantage the enterprises that implement it properly now.
Given the material impact broad-based BEE has on an enterprise, it is clear that it must be approached strategically.
This process entails identifying the value creation of the broad- based BEE deal. It is this value creation that will determine sustained growth for the enterprise and not its current score.
It is therefore critical that the enterprise implements the elements of the BEE scorecard in a way that clearly relates them to its purpose and goals as a business.
Going for the best short-term score will not be in the longer-term benefit of the enterprise.
Secondly, the enterprise must determine its current broad-based BEE status based on the most accurate information it has. By establishing its existing score, an enterprise can strategise around its areas of weakness and implement actions and programmes to improve its score, linking these efforts to its purpose and goals.
This can be followed by a benchmarking exercise to determine where other enterprises operating in the same sector are positioned.
Thirdly, the organisation should, if this is appropriate, consider identifying the correct broad-based BEE partner.
This could be a difficult process and enterprises need to take their time selecting such partners. At this stage, the expectations of the enterprise and its partners should be clearly identified and documented.
The more this is documented early on in the process, the easier it will be to implement broad-based BEE later on.
The driving force behind the broad-based BEE legislation lies in the procurement circle.
Although the code applies only to state and public entities, it serves as a guideline to the private sector.
The procurement element has already become a rolling snowball.
An example of the cascade effect is motor manufacturer DaimlerChrysler South Africa.
It will not be fined or penalised directly for not implementing BEE. It does, however, conduct business with the government insofar as the sale of vehicles and trucks is concerned. It also relies on government incentives for its exports.
When the government deals with DaimlerChrysler it applies the BEE legislation, creating direct pressure on the firm to comply with the regulations on broad-based BEE.
Further down the supply chain a consultancy wanting to do business with DaimlerChrysler South Africa will be required to comply with BEE regulations because the contracting company wants to improve its broad-based BEE score by receiving more procurement points.
Motor manufacturers are limited in the area of procurement because their major procurement comes from international businesses. International companies tend not to be able to comply with the codes easily.
This means that even more pressure is imposed on those suppliers that can comply with the legislation and BEE codes. The pressure is going to come down the supply chain quicker than one thinks.
The knock-on effect of BEE is further illustrated by a consideration of the consultancy firm working for DaimlerChrysler. It now has to get its empowerment credentials up to speed.
This requires looking at its own procurement. Assume that one of the major expense items for the firm is travel. The consultancy will now put pressure on its travel agent to become broad-based BEE compliant. The travel agent, whose quest in time is to have a good broad-based BEE rating, now looks at its suppliers and so on.
Enterprises need to understand the impact this legislation is going to have on them and fast.
The enterprises that approach BEE from the start by considering which of the elements in the codes make the most business sense will be the ones that can truly capture its benefits.
Jonathan Goldberg is the CEO of Global Business Solutions