Beyond the usual suspects

Empowerment works when it fosters new connections between established and emerging companies; develops skills at the lower and middle levels of the hierarchy; and creates space for new entrepreneurs to get a seat at the table. At its best, says a study by Matthew Andrews of Harvard’s Kennedy School of Government, BEE can yield spectacular dividends.

Too often “firms keep looking to established networks” in search of BEE partners. The same already-empowered people benefit over and over and a relatively small group of highly skilled black business people finds itself desperately overstretched.

The government needs to reform the codes of good practice that form the template for BEE to encourage more of the growth-fostering empowerment that can genuinely transform the South African economy and fewer of the “usual suspects” equity deals that too often simply extract rents from the economy.

Andrews has seven proposals to inject new dynamism into a business environment from one that is dominated by large players with entrenched interests to an emphasis on the lower and middle levels of organisations, where scope for developing new skills is greatest.

  • “Government should increase the number of points it rewards firms for doing BEE deals with new entrants,” Andrews writes.
  • The usual suspects are a known quantity and so less risky to deal with by definition. Companies need to be given an incentive to take the plunge and deal with new partners.

  • Too much emphasis is placed on employment equity at the top of organisations, where a relatively small group of previously disadvantaged people with top-level qualifications is already too thinly spread.
  • Government should focus on improving the available supply of black people with top-level qualifications instead through training initiatives.

    More attention should be paid to ensuring that lower-level job openings create space in the corporate structure for black employees to move up through their companies over time.

  • The Department of Trade and Industry should amend the codes of good practice to “reward firms for employing (especially from unemployed groups) and for training unemployed people”, to shift the emphasis towards the lower levels of the economy further, Andrews says.
  • A more radical reform, but in many ways a much simpler one to implement, would be a move towards “an open architecture approach to BEE”.
  • A revised scorecard would have to be created, with up to 150 points on offer (rather than the current 100), including points for training and job creation, but the final score awarded would still be out of 100, with companies choosing the categories on which they want to be measured (or do not want to measured).

    Under such a system, a company that truly excels in job creation and procurement but falls down on shareholding, for example, could still get a very high score.

    An open architecture approach would put the emphasis back on industry charters, rather than the increasingly “one size fits all” approach that current scorecards seem to promote.

  • Far too often trusts and other investment vehicles claiming to be “broad based” are nothing of the kind. There is little transparency about their ownership or the flow of benefits to the “disadvantaged” people they purport to represent. These entities must be made to provide a full account of their membership and finances, Andrews says.
  • The government could literally show businesses how to benefit from breaking out of their “frozen” relationships with customers and suppliers, perhaps by sponsoring demonstration projects in crucial sectors of the economy. For example, setting up a forum for black panel beaters to gain access to the insurance industry.
  • Finally, and critically, Andrews’s research suggests that “BEE will catalyse structural change more effectively where firms believe the policy has a defined end point, specifically where firms believe that real BEE change will result in an end to BEE regulation”.
  • Currently no such certainty is available. Companies do not know for sure how they will be treated if their BEE status changes as a result of events beyond their control — a black shareholder sells his stake to a white buyer for example, or an irreplaceable black executive leaves.

    “Government should define what it is trying to achieve through the BEE policy,” Andrews says. “It should stipulate what success will look like and it should set terms for business about when success will be declared and the policy will reach its conclusion.”

    At the heart of Andrews’s research is the principle that in South Africa’s highly concentrated economy BEE represents an opportunity to boost economic growth and broaden its benefits, but only if it is used as a tool to crack open the closed and static networks that dominate the business world.

    Simply clipping on a small new elite to the old oligarchy will not achieve that, it will simply reshuffle the pack.

    His proposals are simple and emminently implementable. Whether anyone is listening is altogether a different question.

    Read the full study at:www.treasury.gov.za/publications/other/growth/06-Procurement%20and%20BEE/default.aspx

     

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