/ 11 February 2009

In reverse gear

Time is no longer on the side of corporate South Africa. Implementation of BEE not only slowed but regressed in 2008, according to a survey released by auditing firm KPMG late last year.

Companies performed poorly, particularly in the management control, employment equity, skills development and ownership areas of the BEE scorecard.

The report’s release coincided with the end of the transitional period for the measurement and reporting of BEE and the gazetting of the Department of Trade and Industry Codes of Good Practice.

With the codes come standardised measurement of broad-based BEE implementation, including the private sector in the measurement and reporting of BEE compliance. This task previously rested almost exclusively with the public sector.

The survey showed that only 42% of the 500 companies surveyed across sectors met the ownership element of the scorecard, down from 57% in 2007.

Management control was down from 54% in 2007 to 43% in 2008, while a mere 38% was achieved on the skills development element of the scorecard, down from 53% in 2007.

Employment equity, or companies’ attempts to ensure black people are represented at every level of their business, was down from 36% in 2007 to 34% in 2008.

The report does, however, state that one of the main reasons for the weak results has been the impact of the adjusted gender recognition principle (ARG), which penalises companies that have not included gender transformation as part of transformation in management control, employment equity, ownership and skills development. According to Empowerdex’s guide to the codes of good practice, the ARG does away with separate indicators for black women under each of the elements of the scorecard. Instead the codes have introduced an ARG calculation where black women should generally make up between 40% and 50% of all the compliance targets for each of the elements.

‘The adjusted recognition for gender principle has definitely made it harder [to meet] all the elements that require some aspect of human resources as a measure to score higher,” said Hotlo Ramokgopa, KPMG’s director for business performance services.

Similarly, the poor performance made on preferential procurement is because the bar has been raised for companies. In 2007 supplier self-assessments and narrow based assessments focusing chiefly on ownership and management control were still accepted. Most companies, however, are now required to get independently verified BEE scorecards from suppliers, which is making compliance more difficult.

A dearth of BEE verifications agencies has added to the woes of businesses wanting to get accredited or wanting to ensure that suppliers are BEE compliant.

‘The number of BEE verification companies that are members of Association for BEE Verification Agencies [ABVA] stands at 66. These agencies are in the process of being considered by South African National Accreditation System [Sanas] for accreditation,” said Ramokgopa.

These agencies are spread throughout the country and, as members of ABVA, action can be taken against them should they not abide by the organisation’s code of conduct, but none is accredited as yet.

‘The absence of accredited agencies makes it harder for companies to score points for preferential procurement as their suppliers often give this as a reason for not submitting their own verified certificates and thereby impacting negatively on the scores of companies that have been verified and want to improve their procurement scores,” said Ramokgopa.

Nevertheless the survey indicated that 86% of JSE-listed organisations measured their broad-based BEE ­status through independent BEE verification. ‘The high percentages of companies being verified indicates that the absence of accredited agencies, although an issue, has not deterred companies from being verified,” she said.

It also pointed to the fact that companies increasingly have deadlines for suppliers to achieve specific BEE status. Companies across all sectors indicated that punitive measures will be taken against suppliers who fail to meet minimum BEE requirements.

The BEE Act does not provide for the establishment of a BEE inspectorate, instead it introduces the concept of peer pressure through the codes, said the report.

‘The respondents’ willingness to create consequences for suppliers who do not comply with the minimum BEE requirement constitutes the effective implementation and the intent of the codes.”

The survey noted that the country is now at a stage where ‘non-BEE compliance could signal the end of organisations seeking to operate in South Africa”.

Multinationals, meanwhile, indicated difficulty in implementing certain empowerment elements, especially ownership — with 50% naming it one of their top three most challenging items to implement.

The Department of Trade and Industry has accommodated multinationals in the gazetted codes of good practice by introducing the equity equivalents principle, said Ramokgopa.

Multinationals can apply to score ownership points without having to dispose of shareholding.

Through equity equivalents programmes, multinationals are allowed to contribute the equivalent of the selected shareholding percentage that they would have had to sell to black shareholders towards any of the other six elements of the BEE scorecard.

‘We have found that although this option is available to multinationals, most of them have chosen not to use the equity equivalents option, but opted to register local subsidiaries and dispose of equity in the local subsidiary to score ownership points,” Ramokgopa said.

‘This is mainly due to the capital requirements and additional administration required to run the programmes efficiently to ensure that the multinational scores the ownership points every year as these programmes are evaluated annually. As a way forward though, the option is open to those who are interested and has been implemented successfully by multinationals such as Hewlett-Packard South Africa.”

From the middle class to the working class
It’s a big country with big priorities and all of these are squeezed tight into a 51-page manifesto. For this reason the ANC dedicates just one line to black economic empowerment. This is it: ‘Vigorously implement broad-based economic empowerment and affirmative action policies and adjust them to ensure that they benefit more broad sections of our people, especially the workers, youth, women and people with disabilities. Policies will, in addition, actively promote skills development and equity at the workplace.”

What does it mean? Essentially, BEE is about to become a welfare and development programme under an ascendant faction of the ANC. Whereas BEE was at the apex of economic policy under then president Thabo Mbeki, if ANC president Jacob Zuma’s lieutenants have their way, it will not be a policy that creates a black middle and business class any longer, but a hybrid that is geared largely towards alleviating poverty and to ensuring that business plays its part.

In its new shape and target it is more a corporate social investment policy than an economic policy implement to reshape the colour of the economy.

In the section of the manifesto which deals with the gains of democracy the ANC notes that ‘ANC government policies such as black economic empowerment and affirmative action have contributed to the growth of South Africa’s middle class by 2,6-million in 2007 —”.

If the policy was previously targeted towards growing the ranks of the black middle class, the focus of ANC policy now is on the working class.

Its effort is to defend decent work and to crack down on labour brokers. Decent work is defined by the International Labour Organisation as a job that provides a living wage plus social protection against unemployment.

Increasing sectors of business use labour brokers to dodge what they perceive as inflexible and expensive labour laws. Influenced by the Congress of South African Trade Unions and the South African Communist Party, the ANC states explicitly that it will clamp down on labour brokers. — Mail & Guardian reporter