This year should be the year companies stop obsessing about the ownership component of their empowerment rating and start looking at what they are doing in the area of socioeconomic and enterprise development.
This is the opinion of Roger Latchman, managing director of PKF BEE Solutions, who says that the continued focus on ensuring that BEE ownership criteria are met has done little to ensure that the broader South African society has benefited from empowerment initiatives.
“It is important that companies examine what they are doing in terms of socioeconomic development,” he says.
“Through this, it is possible to have a far greater impact on the business environment than narrow ownership transactions will have.”
He said a combination of socioeconomic and enterprise development initiatives contribute 20% towards a company’s BEE score, equivalent to the score attributed to ownership. This means that companies could make a big difference to their rating without having to resort to selling equity.
“In the enterprise development field, it is relatively simple to focus on an organisation’s procurement strategies to ensure that they build black-owned companies rather than sending all procurement the way of the usual suppliers,” he says.
“There may be increased costs and it may be necessary to engage with the new supplier to ensure they are up to speed with the relevant processes and technologies, but these costs can be offset against the savings achieved from not having to explore other routes to achieving compliance with other parts of the BEE codes.”
Latchman says that the one area that has traditionally been underestimated when it comes to achieving BEE compliance is socioeconomic development. More specifically, the area of providing support for local schools has been neglected by all but a few of the more progressive companies.
“Providing support to local schools has innumerable benefits for the companies concerned,” he says. “Not only does it satisfy the needs of the company in terms of empowerment, but the benefits to the community have a more direct spin-off.”
By channelling funds into providing equipment, assisting teachers and ensuring that the environment is conducive to education, the quality of education will improve. This will aid in ensuring that the overall number and quality of matriculants from the schools in question increases and, consequently, that the skills shortage in South Africa will be mitigated.
“The poor matric results for 2009 are the clearest indication of the need for this kind of intervention,” Latchman says.
“The scale that assisting schools offers in terms of empowering ordinary South Africans cannot be underestimated.
“If you take a school with 1000 learners in it, and many schools have more than that, then any assistance that you give to that institution has a material influence on the quality of education that those attending the school will receive.
“A better education will provide more skills [to] the economy and by raising the economic wellbeing of ordinary South Africans, there is the opportunity to benefit from the increased income that higher skills typically attract,” he says.
He adds that a focus on skills development will make the issue of ownership much easier to resolve in the longer term, because this will “ensure that people from disadvantaged communities are brought up through the ranks of the companies to a point where they can take up an equity stake in the company”.
The equity question, however, remains a difficult one, with companies feeling compelled to make some kind of equity deal in order to comply with the regulations set out by the various sector charters.
Although Latchman expects that 2010 will be a quieter year when it comes to BEE transactions, there are a number of areas in which there will be action, including revisions to the mining charter and the finalisation of a number of other charters, including the information and communication technologies charter.
He says the concern is that companies are going to focus on complying with the letter of the charter rather than trying to ensure that they remain true to the spirit of empowerment.
In addition, he says, he hopes that there will be a move towards stronger broad-based empowerment over the next year and a real sense of community involvement in these deals.
“By bringing a broader spectrum of South Africans into the empowerment fold, I hope we can create a culture of personal investment and give more South Africans a sense of ownership in the economy, something that has not been the case previously.”