Checklist takes sting out of BEE

A new mechanism that seeks to ensure black economic empowerment (BEE) fulfils its broad-based mandate takes the form of a checklist developed by Ditikeni Investment Company, a BEE investment holding company.

It marks yet another effort to strengthen the impact of BEE, which is under attack from various political formations that feel it should be abandoned because it has not worked as policy. The checklist is made up of 40 questions divided into eight subsections that serve as an indicator of the legitimacy, credibility and sustainability of BEE worthiness.

According to Ditikeni, a company that passes the test is credibly broad-based. “Any genuine broad-based organisation should easily score the required 30 out of 40 points,” said Sahra Ryklief, Ditikeni’s chairperson. BEE is defined by the Industrial Development Corporation of South Africa as “the process by which previously disadvantaged South Africans are being empowered through the transfer of ownership, management and financial control of companies, the multilevel transference of skills and the widespread creation of jobs”.

However, recently the process has been scrutinised for benefiting only a select few elites, leaving many previously disadvantaged South Africans out of the process. “The new checklist will help prevent individual profiteering and promote the broad-based principles upon which the concept of BEE was founded,” said Ryklief.

The checklist would not be introduced by means of government lobbying, but by working with other broad-based companies. “If you can’t win up there, start down here,“she said. Jay Naidoo, a former trade union leader and a former MP, said that BEE had, in many instances, been hijacked by a “cabal of predatory elites”.

He said BEE was partly to blame for the country’s continuing inequality. BEE was meant to be broad-based, to bring about inclusion and real transformation. “BEE fell short of its aims. It gave us the BEE-elites,” said Naidoo.

However, he said he still believed that if done correctly, BEE could achieve its desired purpose, it just had to be in keeping with the goals of a people-centred democracy. In this way, it could bring dignity, employment and pride to those who felt left out by the policy all these years.

The Ditikeni broad-based BEE checklist is designed to verify the credentials of any broad-based BEE organisation. It supplements, but does not replace, the BEE code of good practice. That code deals with issues of ownership of enterprises, management control, skills development and employment equity, among other things, all measured by the percentage or number of black people involved in each category.

Ryklief told the Mail & Guardian that the idea came from a need that wasn’t being expressed through the code. “These are simple questions that were not being asked.” The questions asked by the checklist are different from those being asked by already existing mechanisms such as the BEE scorecard or the code of good practice.

Companies should be encouraged to use the checklist because she believed that many companies want genuine broad-based beneficiaries and are seeking to improve their BEE code. “This is an ethical checklist that assists with verification and authentication,” she said.

Checklist questions
Beneficiaries:

  1. Are the beneficiaries truly “previously disadvantaged”?

  2. Are the beneficiaries a class of person or a community (and not an individual or group of individuals)?

  3. Have the beneficiaries been defined?

  4. Are the beneficiaries sufficient in number to justify the term ‘broad-based’?



Transparency


  1. Are the founding documents -publicly available?

  2. Are the directors or trustees publicly identified?

  3. Are the financial statements publicly available within a reasonable period after the year-end?

  4. Are the financial statements audited, without qualification, in terms of a recognised accounting standard and by a reputable firm of registered chartered accountants?

  5. Does the organisation report at least annually on its activities as well as its finances to its beneficiaries?

  6. Is the public officer (or similar) identified and are his or her contact details publicly available?



Good governance

  1. Is there a governing body?

  2. Does it have independent members?

  3. Does the board include members either representing or knowledgeable about the communities that are to be supported?

  4. Does the governing board meet at least twice annually?

  5. Is the attendance record of board members satisfactory (are at least half of the meetings attended)?

  6. Are there clear lines of separation between board and management?

  7. Are the respective powers of authority of the board, the management and other participants clearly set out?

  8. Do beneficiaries have an opportunity to hold the board to account at least once annually?



Effective distribution or service delivery mechanisms

  1. Does the organisation have in place either an effective distribution mechanism of its own or a distribution arrangement through other parties that have such a mechanism in place? Alternatively, a service delivery mechanism?

  2. Can the organisation demonstrate that distribution or service delivery has indeed been made to the correct parties?

  3. Is there clear evidence that the distribution is effectively employed at its final destination? Or that service delivery is efficient at the end of the chain?



Track record

  1. Has the organisation evidence of sufficient experience in its chosen field to give reasonable confidence of success?

  2. Does the organisation have a definite way of measuring its -achievements?

  3. Does it regularly disclose how far it has achieved its objectives?

  4. Does it periodically evaluate its progress towards its objectives?



Costs

  1. Does the organisation disclose sufficient financial information to en-able the cost of administration to be calculated?

  2. Is the cost of administration reasonable in relation to the assets, or alternatively, to the income of the organisation?

  3. Are related-party payments (such as commission payments or transaction fees) disclosed separately?

  4. Are such commission and fees reasonable in relation the transaction involved?

  5. Are related party payments approved by the governing board (the related party recusing itself)?

  6. Do board members get paid fees or receive any other benefits and is this disclosed in detail in the publicly available annual report?



Relationships

  1. Does the organisation have measures in place to ensure that a clientlike relationship with beneficiaries is avoided?

  2. Does the organisation ensure that party political considerations play no role in the allocation of funds?

  3. Ditto sectional interests?

  4. Are the funding (or service delivery) relationships based on sustainability and has the organisation examined carefully the consequences of the withdrawal of funding (or service delivery) before it proceeds?

  5. Is the organisation satisfied that its intervention is in the best long-term interests of the community concerned?

  6. Is the intervention driven by the needs of beneficiaries, rather than by the needs of the giving organisation?

  7. If publicity is sought for the organisation’s intervention, is this primarily for the benefit of the beneficiary concerned?



Scoring

  1. Was this ethical checklist completed by an independent person?



Give us your views

The Mail & Guardian and Metropolitan have embarked on a project to promote the understanding of transformation in commerce and industry. Since the outset of democracy 17 years ago, South Africa has promoted a number of laws and initiatives to right the wrongs of the past.

Is transformation happening to schedule, is it achieving its intended aims and is it benefiting deprived South Africans adequately?

You tell us.

Please send your comments and responses to the questions below to benk@mg.co.za

Help us to promote information about transformation by having your say.
1. As one of South Africa’s most influential newspapers tracking transformation, have we covered all the policies, influences and issues that effect change in South Africa? If not, what should we include?
2. We focus on seven key components in commerce and industry that shape the circumstances in our growing democracy and we seek answers to the following questions: Which elements do you believe to be most important?
2.1 Employment equity: Eskom met its goal of 63% equity in 2010. How do other companies compare?
2.2 Management control: How close are we to meeting the commitment of 20% black female representation by 2013?
2.3 Socioeconomic development: How close are we to meeting the compliance target of 1% of net profit after tax? How important is this?
2.4 Procurement: Are companies ignoring procurement equity to their cost?
2.5 Enterprise development: Vodacom scored 15/15 on the enterprise development scorecard with spending of more than R1-billion. Is this important to you? Do you know how well other companies have scored in this area?
2.6 Skills development: A lack of skills remains a drawback in meeting the goals of employment transformation. At what level should we address this?
2.7 Ownership: Black South Africans own 18% of the available shares of the top 100 companies listed on the JSE, but still lag behind government’s target of 25%. Should this be a priority or should we rather encourage entrepreneurs?
3. Do you think there are new transformation issues that have arisen in the past two years? If so, what are they?
4. Having read today’s pages brought to you by Metropolitan, please advise:



4.1. Has the subject matter been -covered fairly and comprehensively?

4.2. Do you believe this story is contributing positively towards transformation?

5. Are there additional ways in which the Mail & Guardian in association with Metropolitan can assist in furthering change, measuring change and informing on change in our country?

6. Do you believe continuing debate on our web pages can assist in supporting transformation and in creating a marketplace in which change can be accelerated?

Any additional comments or observations are welcome.

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