Time to reassess the scorecard

Nick van Rensburg, the managing director of one of the country’s most successful empowerment and business development initiatives, Anglo American’s Zimele, has come out strongly against ditching enterprise development from government’s broad-based black economic empowerment strategy.

KPMG, a leading accountancy firm, has suggested that enterprise development, with skills development and socioeconomic development, be ditched. This would cut the seven elements now used to rate companies’ broad-based BEE profile to four.

The suggestions are contained in the firm’s recently released 2009 broadbased black economic empowerment (BBBEE) survey, ‘Are we there yet?” ‘It will be an atrocity if that falls away,” Van Rensburg says. He describes enterprise development as the ‘seedbed” of job creation in South Africa and points out that whereas big business is shedding jobs in the current downturn, only small business is creating jobs.

At present every big company has to look at enterprise development as part of its business in complying with the BEE codes, he says. Every company has suppliers and every company can be involved in creating new suppliers. ‘As long as we are in a growing economy we should be looking at enterprise development.”

KPMG, urging innovation to accelerate transformation, says that cutting the elements down to four will ease implementation and monitoring. The seven elements that form the basis of the generic scorecard are: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socioeconomic development initiatives.

Using nine rankings, ranging from level one to non-compliance, the organisation or company to be measured receives a BBBEE status based on its overall performance. Level one is the highest, accruing 100 points and the lowest is non-compliance, scoring less than 30 points.

The survey states that companies should concentrate on ownership, management control, employment equity and preferential procurement, because targets for socioeconomic development, which are akin to the civil society index, have been achieved.

Enterprise development and skills development, the impact of which has been limited, should also be rethought, KPMG says. Accordingly, the weighting of the remaining four elements should be increased to 25 points for each in the reconfigured scorecard.

The survey attracted responses from 250 companies ranging from listed to unlisted, parastatal and multinational organisations.

Sandile Hlophe, the managing director at KPMG Restructuring Advisory, says that because of the relative success of companies in meeting targets, some of the BEE initiatives are no longer effective, hence the need to ‘shift our attention to the areas that have not shown positive progress in the past four years”.

Hlophe maintains that ownership is critical in ensuring meaningful empowerment. BEE beneficiaries need access to ownership of corporate equity to stimulate income and wealth creation.

Leadership is equally important. The management control of organisations is essential for effective transformation, whereas employment equity ensures the transformation of an organisation through the profile of its staff complement.

Hlophe underscores the role of preferential procurement as the key to ensure that the ‘spirit of — black economic empowerment is translated into practical consequences for both suppliers and contractors in terms of compliance”. To stimulate the attainment of the level-four compliance requirement, the survey recommends 75 points as the target to ensure progress on all four elements.

It is worrying, Hlophe says, to note that 15 years into democracy, BEE still remains elusive for the majority of the black population, hence the need to accelerate BEE initiatives. ‘We would also advocate that no further changes be [made to] the selected four elements, as this would require further consultation and gazetting of the new measures, which would set back the progress on BEE by a few more years,” he says.

The findings of the survey revealed uneven progress in the implementation of BEE:

  • Ownership showed an average of 51% scored by survey respondents compared with 42% in the 2008 survey;
  • Management control: 55% compared with 61% in 2008;
  • Employment equity: 49% compared with 34% in 2008;
  • Skills development: 48% compared with 38% in 2008;
  • Preferential procurement: 69% compared with 43% in 2008;
  • Enterprise development: 67% compared with 53% in 2008; and
  • Socioeconomic development: 100% compared with 81% in 2008.

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