Companies across the board are falling behind on their black economic empowerment (BEE) compliance, a survey by forensic auditing firm KPMG has found.
This lack of focus and delivery of economic transformation is leading to increased social agitation by the majority lower- and middle-income black population for faster delivery, KPMG BEE services director Sandile Hlophe said in releasing the findings of the survey on Thursday.
This was evident at the African National Congress conference in Polokwane last year, in the xenophobic attacks that swept informal settlements in May and in the recent trade union marches to demand government intervention in spiralling food, transport and energy prices.
Organisations need to ”urgently realise” that a meaningful scorecard rating will become one of the main factors that will affect the growth and survival of businesses going forward, said Hlophe.
”Organisations focused much of their time and energy on the ‘BEE wedding’, which ensured the codes and scorecard measurement set out by the [Department of Trade and Industry] were fair and amenable,” he said.
”However, these companies have forgotten to make the marriage work. Eighteen months on, many organisations have been left behind.”
Hlophe said broad-based BEE (BBBEE) is no longer ”nice to have” to comply with political correctness, nor is it only important for economic growth and acceleration. ”It is now a necessity for economic stability,” he said.
The survey found a ”worrying” decline of more than 20% each in the ownership, preferential procurement and skills development elements of the scorecard.
The average ownership score decreased to 8,6 out of 20, from 10,8 in 2007.
Companies might have started focusing on areas other than ownership after the release of the final codes of good practice in February 2007, not taking into account the increased stringency of ownership requirements under the new codes, the survey suggested.
KPMG attributed a similar decrease in the preferential procurement element scores to the end of supplier self-assessments in favour of independently verified BEE scorecards.
”The survey clearly showed that companies with a good, independently verified BBBEE scorecard will possess a real competitive advantage in the market place,” said Hlophe.
The survey found a smaller decrease in employment equity scores, which went from an average of 5,4 points in 2007 to 5,1 this year.
”This result can be qualified against the introduction of the Adjusted Recognition for Gender (ARG) principle, which has minimum scoring thresholds for black female employees, for the gazetted measurement of employment equity and skills development as defined in the codes.”
Hlophe said the survey’s findings pointed strongly to the fact that certain sectors still view the ownership and management control elements of the scorecard as cornerstones to BEE.
He said a shift from this narrow-based mindset to that of BBBEE, which focuses on all seven elements of the scorecard, has to take place before meaningful empowerment can be seen.
The survey found that the private sector is becoming increasingly involved in the monitoring of BEE, linking compliance incentives and non-compliance penalties in the form of preferential tendering criteria for their suppliers.
”This is an indication that BBBEE monitoring is shifting from legislative compliance to pressure from the actual customer base, who seem to wield more power and influence and would like to improve their own scores and gain further competitive advantage on their peers,” said Hlophe.
The survey found a ”huge improvement” in the average score for enterprise development, which rose to 7,9 from 6,1 points.
”The findings of this survey go deeper than just a scorecard,” said Hlophe.
”The social and economic implications of non-compliance are forcing government and corporate South Africa to place more emphasis on programmes that will create real economic opportunities for the majority black lower- and middle-income classes,” he said.
Hlophe concluded that the sombre outlook on industry’s progress in addressing BBBEE revealed by the survey lends support to the call for speedier economic transformation. — Sapa