Two progress reports on BEE in the past week appear to come to startingly different conclusions. Is the empowerment glass half-full or almost empty?
Still, it is encouraging that a start has been made on measurement.
Recently, Business Report quoted the Presidential Black Business Working Group, which met President Thabo Mbeki last Friday, as finding established companies’ BEE performance wanting. The group called for punitive measures to give BEE “teeth”.
Last week, KPMG South Africa partner Sandile Hlophe released KPMG’s 2007 BEE Survey, which found that while corporate South Africa still had some way to go to implement BEE, it had at least embraced the idea and had begun to implement and monitor BEE progress in a meaningful way.
The Black Business Working Group, reportedly chaired by BEE pioneer Peter Vundla, bases its call for penalties for non-compliance on a baseline study that was apparently done by Consulta Research for the University of Pretoria’s business enterprise unit.
An official statement by the presidency this week notes: “Broadly, the study found a 10,4% excellent, 1,5% good, 2,0% moderate, 7,8% low and 78,2% non-compliance with existing BBBEE [broad-based black economic empowerment] scorecards.”
It adds that the study focused on companies in a wide range of sectors.
It is difficult to comment properly on the working group’s study, since I have seen only reports on it, rather than the study itself. However, it is not surprising that, overall, companies have not complied with the scorecards, since the whole broad-based strategy was unveiled only in 2003 and the codes only gazetted and thus finalised this year.
It is also clear that the baseline study focused narrowly on quantitative compliance: the KPMG survey asked qualitative questions as well.
Indeed, the KPMG survey report remarks: “Only a few industries have BEE strategies that focus on compliance. The common trend across all industries is for the BEE strategy to form part of the organisation’s growth strategy.”
If this is true, then BEE is not being viewed as another tax or simply as a regulatory burden — at least by those companies that bothered to respond to the survey questionnaire, of course.
The KPMG sample size was 1 000 companies — JSE-listed, unlisted, multinational and parastatal — with a 20% response rate.
And though both studies agree that more needs to happen, the KPMG survey, using the same elements of the BBBEE scorecard as the working group study, found:
• positive progress in implementing BEE ownership as evidenced by the average 54,1% achieved on the ownership element score by survey respondents;
• good progress on management control (average 77,1%);
• limited progress on employment equity (36,1% average);
• positive progress on skills development (52,1%);
• positive progress on BEE preferential procurement (54%);
• some progress on enterprise development (40,4%); and
•good progress on socio-economic development (corporate social investment) (64%).
According to the report, the baseline study found that firms were doing better on employment equity than ownership, but KPMG found progress on employment equity limited.
Vundla is reported to have said that the greater progress on employment equity was because this area of empowerment was covered by legislation and firms were required to produce regular reports.
By contrast, the KPMG survey notes that the difficulties firms have in advancing in both employment equity and in black management control, beyond appointing black non-executive directors, lie in the skills shortage.
“When analysing the challenging elements of broad-based BEE across all industries and all types of companies, the greatest proportion of all respondents find management control challenging at 23%. This is followed by employment equity at 20%.
“When it comes to senior management, these two elements are very much linked and the fact that both pose such a challenge to South African businesses points to the shortage of black candidates at senior and executive management level,” the survey states.
The KPMG survey found that, among others, the construction, mining, transport, storage and communication (including ICT) and energy sectors all scored above average on ownership. The energy (liquid fuels) and mining sectors have had charters for some time now, so that would make sense because the charters emphasised ownership as the main thrust of BEE until recently.
On the subject of mining, the industry has seen the departure recently of two chief executives who made BEE ownership transfer their priority and did some of the earliest and most significant BEE deals. AngloGold Ashanti’s Bobby Godsell did deals that made Patrice Motsepe into one of the big BEE movers by giving him operations that Anglo no longer wanted.
Bernard Swanepoel did one of the first BEE deals at the holding company level by selling a 7% stake to the broad-based consortium Simane, headed by Mzi Khumalo. At the time, the trend was to do deals at operational level.
To Harmony’s surprise, Khumalo first bought out the broad-based consortium, making the deal narrow-based, and then seemed to have sold his stake, leaving Harmony without any empowerment partner.
Harmony’s commitment to empowerment made it possible for Swanepoel to present the later merger of Harmony and Patrice Motsepe’s Armgold as less of an empowerment transaction than a merger of equals.
It is ironic that Motsepe stays on at Harmony as chairperson, while Swanepoel moves on from the company he built up almost from scratch.
And I quote …
The KPMG survey includes some interesting direct quotes from the respondents on the challenge of meeting employment equity (EE) requirements:
• “The availability of a skills pool to draw from to meet employment equity targets in a meaningful manner [is a challenge].”
• “From an EE perspective, the challenge for us does not necessarily lie only in attracting black talent, but in retaining black talent and also attracting black talent to our brand initially.”
• “Recruiting skilled black women.”
• “Finding appropriate and affordable black talent.”
• “Talent retention/difficult to attract and retain talent.”
• “Attracting good-calibre managers who have the necessary technical experience.”
• “The company is investing a substantial amount in skills development, but is experiencing a problem in retaining qualified staff owing to the general skills shortage in the country.”
• “The country has a small pool of skilled labour, of which the majority is white. It will take decades of investment in education for this to be remedied.”
• “Representation of black people at senior management level is still a problem.”
• “The shortage of numerically qualified people with work experience. In our business we need actuaries, CAs, engineers, doctorates in maths and science.”
• “Although we have various bursaries, maths initiatives, and the TOPP [Training Outside Public Practice] programme — we need more African and coloured graduates to have numeric degrees. There seem to be more white and Indian people with these.”