While it has taken what appears to be a long time to get the mechanics of implementation right, B-BBEE is here to stay and companies who wish to be competitive will need to comply with the requirements of the scorecards. Obviously, there are elements of the scorecard which will require long term planning to change however, there are sufficient elements in the scorecard that can be addressed in the short term.
The rate at which your company needs to become BBBEE compliant is best explained in the following quote by the minister of Trade and Industry, Mandisi Mphalwa;
"Black economic empowerment is a process. Nobody is expecting every enterprise in South Africa to be BEE compliant immediately, but government does expect every enterprise to immediately commence implementation of BEE with a view to becoming compliant over the next 10 years!"
The critical issues raised are:
- BBBEE is not a “once-off” initiative,
- There is no expectation of being compliant at the outset, and
- Businesses are only expected to be compliant over the next 10 years.
It thus follows that the speed of transformation is not expected to happen overnight and government has catered for this in designing the BBBEE Codes. The fact that the Codes are also not enforced is further evidence of this. However, ignorance to the BBBEE Codes will ultimately have an impact on the sustainability of your business.
Obviously, as with all fledgling industries there are going to be challenges that arise however, where the spirit of the Act is adhered to, this piece of legislation is one which should ensure that REAL transformation for ALL becomes a reality.
Detailed below are some of the topics discussed (click on each topic for a brief overview):
BEE COMPLIANCE
It is very important to remember that the B-BBEE Act is not legislated against any company – but rather that government institutions and para-statals are required to comply.
So what does this mean?
This act and the provisions thereof are driven through the supply chain. If a company (Company A) does business with government or other para-statal organisations, then this company will need to prove its BEE credentials. To improve its own BEE rating, Company A is likely to require its suppliers to be rated in terms of BEE so that Company A’s own rating is as high as possible.
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BUSINESS CLASSIFICATIONS
What we are looking at here essentially is the different size of enterprise (in terms of turnover) and the different requirements that are imposed upon each of them in terms of B-BBEE.
One of the key objectives of the legislation is to promote the growth of the economy through the development (and thereafter the sustainability) of small businesses. For this reason, it was important not to place onerous compliance requirements on small enterprises as this could lead to them being unable to meet the requirements of the legislation and hence being unable to conduct business in a market where bigger businesses are able to comply more easily.
As a result of this, businesses have been identified as follows:
a. Exempted Micro Enterprise (EME)
These are businesses where the annual turnover of the company is less than R5 million. Such companies are not required to be rated in terms of B-BBEE but are rather given an automatic LEVEL 4 CONTRIBUTOR STATUS. Companies that are in their first year of start-up also qualify as EME’s and, if they are black-owned, their status is immediately elevated to a Level 3 Contributor status.
If your business fits this classification, click here for a simple means of obtaining a BBBEE Compliance Certificate.
b. Qualifying Small Enterprise (QSE)
Any business or enterprise where the annual turnover is less than R35 million, is a Qualifying Small Enterprise.
Again, these businesses are expected to be responsible for the economic growth of the country and thus the decision was taken that these companies need to comply with the requirements of the Act and the Codes of Good Practice but with targets that are more achievable than those to which large organisations are subject.
A QSE must select any four of the seven pillars of the scorecard, which have been weighted as follows:
| Element |
Weighting |
Code Series 800 |
| Ownership Equity |
25% points |
801 |
| Management Control |
25% points |
802 |
| Employment Equity |
25% points |
803 |
| Skills Development |
25% points |
804 |
| Preferential Procurement |
25% points |
805 |
| Enterprise Development |
25% points |
806 |
| Socio-Economic Development Contributions |
25% points |
807 |
c.
Generic Enterprise
Any organisation turning over more than R35 million annually is categorised as a Generic company and have to be rated against the Generic Scorecard.
A GENERIC company is scored against all 7 elements.
The “weighting” reflects the maximum number of points that the enterprise can be awarded for a specific element of the scorecard even if the enterprise exceeds the target for the element.
Elements and weightings (Generic Scorecard)
Element |
Weighting |
Code series ref. |
Ownership Equity |
20 |
100 |
Management Control |
10 |
200 |
Employment Equity |
15 |
300 |
Skills Development |
15 |
400 |
Preferential Procurement |
20 |
500 |
Enterprise Development |
15 |
600 |
Socio – Economic Development |
5 |
700 |
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ELEMENTS OF BBBEE
What then are the various ELEMENTS (PILLARS) against which companies will be measured?
Ownership Equity
This element of the scorecard looks at the effective ownership of an enterprise by black people as evidenced by their voting rights and economic interest in the organisation.
Management Control
Here, the organisation is being scrutinised to determine how much decision-making power and strategic management control is in the hands of black people in said company.
Employment Equity
For this element of the scorecard, there is an investigation of the demographic make-up of the employees – in other words, what percentage representation is there of black people in relation to the total number of employees at the various levels of the organisation.
Skills Development
Skills Development refers to training and development of black employees and looks at the amount of money spent annually on such training as well as at the TYPE of training that takes place.
Preferential Procurement
This is the element which drives BEE as this is what forces companies to look at the BEE compliance of their suppliers. These suppliers include all of those companies and / or individuals who invoice the company for goods and / or services provided.
Enterprise Development
This element focuses on the contribution that the company makes to assist suitable and appropriate
companies to be set up and to become sustainable.
Socio-Economic Development
Formerly called Corporate Social Investment, this is the element where an enterprise can score points for any spend – monetary or non-monetary – that is donated to appropriate beneficiaries (75% of the recipients being black) where this spend will promote access to the economy for these beneficiaries.
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BEE RECOGNITION LEVELS
In terms of the scorecards, companies are rated against set targets for the different elements and are then given a total score out of 100. Obviously, the higher the score that the business achieves, the better. In this regard, there are different LEVELS of compliance as shown in the table below:
| B-BBEE Status |
Qualification |
B-BBEE Recognition Level |
| Level One Contributor |
≥100 points |
135% |
| Level Two Contributor |
≥ 85 but < 100 |
125% |
| Level Three Contributor |
≥75 but < 85 |
110% |
| Level Four Contributor |
≥ 65 but < 75 |
100% |
| Level Five Contributor |
≥ 55 but < 65 |
80% |
| Level Six Contributor |
≥ 45 but < 55 |
60% |
| Level Seven Contributor |
≥ 40 but < 45 |
50% |
| Level Eight Contributor |
≥ 30 but < 40 |
10% |
| Non-compliant Contributor |
< 30 |
0% |
Let us look carefully at this table.
- A company that scores less than 30 points is regarded as non-compliant – or a non-contributor to BEE. Thus, the first step for all companies is to ensure that they achieve 30 points out of a possible 100 irrespective of the scorecard against which they are being measured.
- The highest status that a company can achieve is more than 100 points – this is possible because there are a number of BONUS points awarded against various elements of the scorecard.
- Qualification means the percentage that the enterprise has achieved when measured across the elements of the scorecard.
- BEE RECOGNITION LEVELS is the percentage of the money that clients spend with these organisations that can be claimed as BEE Spend. This is most easily explained with examples and will be done on the board. Please take notes below.
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BEE CODES VERSUS SECTOR CHARTERS
It has become very obvious that for certain industries, it will be difficult to achieve a reasonable score against the scorecards. Examples of this would be the requirement for black female representation in the construction industry and the lack of black upper management (skilled employees) in the financial sector.
As a result of this, the codes allow for the introduction of industry or sector specific codes which differ slightly from the general Codes of Good Practice. Upon investigation, you will find that certain industries have charters in place, while others have industry / sector codes gazetted.
So what is the difference between the two?
A CHARTER is a statement of intention. In other words, it is where an industry, in consultation with all stakeholders and roleplayers from said industry, will explain their INTENTION and describe what they are trying to achieve in terms of transformation within the industry.
A CODE is the measurement of that intention and is as binding as the Codes of Good Practice although these Codes of Good Practice will always take precedence.
Let us take an example.
Should a CONSTRUCTION SECTOR CODE be gazetted, it will be binding against all construction companies in the following way; BIG BOY CONSTRUCTION (BBC) is a large organisation that uses construction sub-contractors to assist them. BBC could insist that all of these sub-contractors be scored against the CONSTRUCTION CODE. However, BBC could not demand that their stationery suppliers be scored in this way – such enterprises would be rated against the generic Codes of Good Practice.
Of course, as with this legislation generally, it would be up to the sub-contractors themselves as to whether or not they wish to be rated at all. Should they choose not to be, they would obviously run the risk of not getting the work from BBC and any other company that requires certification.
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RATINGS AND BEE VERIFICATION AGENCIES
Despite the fact that the Codes of Good Practice being gazetted in February 2007, to date verification agencies have only just been accredited (February 2009). All accredited verification agents can be validated on the SANAS website.
Why Verification Agencies?
Realistically, there is potential for companies to be very “creative” in their calculation of their own BEE scorecards. If this was allowed, then the whole idea behind BEE would be lost and it is likely that there would continue to be a lack of real transformation in the country.
So, what is needed to ensure that every company is assessed in exactly the same way, is a verification system and independent verification companies to conduct the verification of the score being claimed. This is process is no different to that of the financial auditing industry; namely an independent audit to confirm to shareholders and other stakeholders that the financial information can be relied upon to make financial decisions.
To become accredited, verification agencies have to comply with the regulations as set down by the South African National Accreditation Services and the requirements are very stringent.
Underlying all work conducted by verification agencies are the following two key principals:
- Confidentiality, and
- Impartiality
Thus, all information obtained by the verification agent during the verification process must be kept confidential and cannot be disclosed to a third party without the consent of the business being rated.
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