Nowhere in the world has social accounting been pioneered on the same scale, depth and complexity as South Africa’s broad-based black economic empowerment system. The main idea, that a business can be measured on more than one bottom line, is not new. Kevin Lester, takes on the debate
The BEE Codes serve as a useful basis on which to benchmark the BEE efforts and initiatives of South African companies. Their strength lies in the fact that they allow everyone to make a contribution to transforming our economy.
That said, their breadth often leads to difficult choices. Take enterprise development. Company A lends money equivalent to 3% of its net profit after tax to a black-owned business, repayable after 10 years with no interest charged. Company B lends the same percentage to another black-owned business, charging prime and expecting monthly capital repayments to commence within six months.
Who is the superior BEE contributor? When one obsesses with the BEE metrics, the answer Company A, which can claim 100% of the almost perpetually flat outstanding capital amount as enterprise development. Company B gets to claim 60% of the outstanding — and decreasing — capital balance. BEE verification agencies will nod in agreement and point to the fact that this is the way the Codes are written.
Herein lies a profound fault line that runs through BEE. Verification agencies refuse to offer any guidance on the real value and sustainability of such initiatives, offering up nothing but allegedly “objective” final scores. If it turns out that Company A is a level 2 BEE contributor and Company B a level 5 contributor, the former will trounce the latter and sustainability of BEE be damned!
For all the blows exchanged in this two-year-old consultant versus verification agency squabble, consultants and verifiers generally agree that independent verification of corporate BEE initiatives is essential, particularly in the case of mid- to large-sized businesses and those who supply the public sector.
Where we differ is as to the meaning of independent verification. Largely schooled in the audit discipline, our verification industry always veers in the direction of numbers, metrics, calculations, standards, procedures, the whole nine yards of the traditional ISO mindset.
It is safe country where you don’t have to offer opinions, you don’t have to admit the subjectivity of the BEE project and you don’t really have to engage with the subject matter.
It is also a pretend country where a company with low employment equity scores, but a state-of-the-art human resources strategy guaranteeing cultural diversity and integration, low black attrition rates and a high degree of collective staff satisfaction is the loser when pitted against another company with a R26million slush fund created to buy more black management as the 45% year-on-year black attrition rate continues its merry slide towards unsustainable oblivion.
The effect on corporate South Africa is patently obvious: BEE has become a juvenile contest where completely untransformed businesses proudly billboard their BEE verified scorecard and mouth off platitudes about their vision of being “beyond compliance”.
In a world so profoundly subjective as BEE, the truth is that methodologies and processes are more a matter of risk management than about integrity and credibility. Indeed, in BEE integrity and credibility are much more a function of the honesty of your commitment to the actual objective of BEE and your willingness to act as an instrument of change — even if this means accepting that high-scoring BEE initiatives do not necessarily translate as being sustainable or valuable.
At a recent seminar the chair of the Association for BEE Verification Agencies (Abva) confirmed that it was their intention to ensure that the approved methodology laid down by their regulator, the South African National Accreditation Systems (Sanas), would prevent the customers of accredited verification agencies from accepting proof of their own supplier’s compliance in any form other than a verification certificate issued by another (or indeed the same) accredited verification agency.
This was to prevent fronting, a senior Abva member stated later in the media, without explaining how it is possible that every major verification agency has in the past and will continue to unintentionally dish up billboardable scorecards for companies that are little more than fronts, notwithstanding standards and methodologies applied.
Implicit in the Abva chair’s admission is that the organisation is engaged in a process of creating a closed shop. In this self-serving reality, self-assessment is clearly out of the question, regardless of how small and insignificant the poor business is that seeks to shave some operational expenditure by doing a DIY scorecard.
Abva often cast themselves as innocents under siege from a bunch of usurpers intent on destroying or stealing their industry. Yet they spend a great deal of time trying to lock everyone else out of their processes and their members-only club. One wonders whether the irony of this will ever dawn on them. BEE is not for the faint-hearted — Abva need to be bold and abandon the lavish protection of a regulated, members-only parasitic industry and get out there and do some BEE.
Kevin Lester is an executive director of BEE consultancy Mohlaleng Transcend