/ 23 December 2010

Transformation in an age of compliance

Those involved in BEE can still sound evangelical, even at this late stage of the game.

At a recent BEE conference, presenter Dionne Kerr, chief executive of Siyakha Consulting, said that BEE should not be a tick-box function. It was unfortunate that BEE was seen as a matter of compliance rather than as a strategic issue, and the compliance mindset needs to change. BEE, she said, was not about BEE but about economic transformation and economic growth.

The participants the EES-Siyakha BEE conference were interested in scoring the maximum points in terms of the broad-based BEE (BBBEE) scorecard. BEE practitioners were well represented, filling a large hall at the Grayston Drive Southern Sun. But, as a survey of BEE practitioners showed, they were also concerned about getting buy-in from management and “embedding a mentality of

The approach of the department of trade and industry is one of advocacy as well as information. Thabo Masombuka of the department said it favoured the word “implementation” rather than “compliance”.

He spoke of implementation being aimed at the substance of BEE, and purposeful interpretation of BEE legislation. He was outraged by verification agencies selling online verification certificates and insisting that exempt small businesses must have these.

Yet, although government’s BBBEE strategy does try to move beyond changing the colour of the owners of business, and fits into the category of corporate social responsibility or good corporate citizenship, compliance issues dominate many conversations about BEE.

In truth, the 2007 BBBEE codes of good practice marked a new stage in the evolution of BEE. As Masombuka said in another context, the codes were “unprecedented policy expected to be the answer to all sorts of problems in South Africa”.

He said the department was looking to revamp the BBBEE Act this coming year to give it “regulatory strength”. Yet the problem with using legal approaches is always that some will apply the letter rather than the spirit, of legislation, especially if they do not see the moral argument for the legislation.

Fronting is a feature of this approach. And fronting was a key concern of the department and other delegates at the conference, though it is more difficult to combat than at first appears. Although the department receives frequent complaints about fronting, and there have been cases of outrageous fraud such as using the name of the gardener as a director, few have hit the headlines.

Association of Black Verification Agencies chairman Chris van Wyk noted that many complaints about fronting may simply be about BEE practices that are perceived to be untoward in some way rather than fronting per se. Tokenism, for instance, is not strictly speaking fronting.

There’s an element of dishonesty about it, but it is an ethical rather than a legal issue. Also, fronting can come about as a survival mechanism to deal with overambitious legislation: in the apartheid era white people fronted for blacks who were banned from doing business in white areas. As apartheid showed, laws that push people into disobedience cause overall disrespect for the law.

Though one can have sympathy with the view of BEE as an essential part of business strategy, we have to get used to being in an era of compliance. This creates certainty for business, which now does not have the defence of not knowing what to do. But it also means that innovation is lost and figuring out what the law requires takes priority.

The transformation charters moved the boundaries of what was considered BEE, but the codes do impose a kind of strait-jacket on what is now considered worthwhile. Perhaps if business had done more sooner, the legislative approach could have been avoided.

In private conversation, one of those making a living from BEE said that the very need for legislation on transformation in South Africa was an indictment on established business. Or perhaps, as has been argued, there is a natural evolution of voluntary approaches to corporate citizenship into regulation.

It is ironic that only three years after the codes were gazetted, and verification agencies put in place, there are calls from various quarters for a revision of BEE policy, most notably in the New Growth Path from Minister of Economic Development Ebrahim Patel. The authors of the New Growth Path believe that BEE policy is not broad-based enough and still focuses too much on ownership and management control.

Will this mean more rather than less regulation? Unfortunately, the downside of being passionate about the importance of BEE is that any mention of cost is viewed in a negative light. But as I said about the sector codes, all regulation has a cost, and regulatory impact assessments should be used to minimise those costs and fine-tune legislation before it is on the statute books.