President's Advisory Council and Finance Charter

BEE Brief April 2011
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Highlights from Friday 1st April President’s Advisory Council: One of the key issues raised at the Black Economic Empowerment Advisory Council meeting, chaired by President Jacob Zuma, was the over-emphasis on diversity of ownership and senior management. An unintended consequence of this over-emphasis is ''fronting'' and tender abuse and the Council spoke out strongly against this seeing it as one of the major obstacles to the implementation of B-BBEE. Fronting is when black people are listed as directors of companies, but do not take part in the decision-making process or ownership of the business. Participants agreed that fronting needed to be eradicated and effective mechanisms, including possible punitive measures against those guilty of fronting practices, needed to be implemented to stamp it out.

According to the Presidency, there was special emphasis on the implementation of the government's New Growth Path programme and the role of Broad-Based Black Economic Empowerment (BBBEE) in creating jobs at the meeting. In particular, the meeting stressed that BBBEE was not just about big business deals for a few individuals in society but also had to have a hand in empowering ordinary people. The Council called for the consistent implementation of broad-based BEE in all sectors of the economy, to ensure that the policy touches the lives of more people. This included ownership by communities and workers, increased skills development and career-pathing for all working people and support for small enterprise and cooperatives, as well as a new emphasis on procurement from local producers in order to support employment creation.

The meeting also pointed out that to contribute to job creation, BBBEE has to, amongst others, promote new enterprise development, encourage local procurement and enhance skills development and employment equity.

It was agreed that government, with the support of the BBBEE Advisory Council, would ensure a revision of the BBBEE Codes to promote employment creation, investment in small business and co-operatives, broad-based ownership and employment equity. The Council also recommended that government should urgently ensure proper monitoring and evaluation of the implementation of the BBBEE Act.

What we can deduce is that the Codes are not static and that there will be continuing change in the years ahead.

Tourism Sector Code: Following on from the comments in the last BEE Brief regarding companies having to use the relevant Sector Code if 50%+ of their revenue is derived from that Sector, it is interesting to know that on 22nd March 2011 NERA was severely embarrassed when they were forced to withdraw their DTi COGP BEE certificate for City Lodge. This happening after a somewhat self-righteous company called EconoBEE complained to the Minister of the DTi that the Tourism Sector Code applied to City Lodge and also that NERA was not accredited for the Tourism Charter. In this case, whilst living up to their irritating reputation, EconoBEE have actually helped to clarify and highlight an issue that has been undermining the various Sector Charters for some time.

BEE Suppliers
Eleven of the country's biggest companies have launched a "diversity council" to help businesses find black empowerment suppliers, in order to avoid falling foul of BEE legislation. The companies, which include ABSA, Barloworld, De Beers, Rand Water, SASOL, and Unilever, say the non-profit SA Supplier Diversity Council will help develop black businesses, so that they can compete commercially.

The council's interim-head, Matthew Govender, says they have set up a growing database which now includes 800 black suppliers, that have gone through an assessment and certification process.

Finance Charter (Will it ever see the light of day?)
Black business and professional organisations are up in arms over proposals in the financial services charter to permit financial institutes to use equity equivalents in their BEE ownership calculation. Equity Equivalents are a way of scoring ownership points by making equivalent valued contributions under other Elements, usually via Enterprise Development, and have in the past been restricted to multinationals.

The charter was announced as long ago as October 2003. The first phase of the charter was finally gazetted last November by Trade and Industry Minister Rob Davies for public consultation and has introduced equity equivalents as an option to reach ownership targets. Financial institutions will have an option to address the direct requirements by either achieving a total of 15% ownership or a minimum of 10% direct ownership and a maximum of 5% equity equivalents in the direct ownership requirement. Equity equivalents can be in the form of loans to black people or entities.

This is favoured by the banks who argue that there are not enough black investors who could hold a 15% ownership stake in a major financial institution without incurring substantial debt. The 15% Target is in itself highly controversial with many black business and professional organisations saying this is in conflict with the Codes of Good Practice which requires 25.1% direct black ownership. The Banks have also raised concerns that increasing the direct black ownership target will lead to then introduction of under-capitalised shareholders in mainstream banks.

The Confederation of Black Business Organisations (CBBO), the Black Management Forum, and Black Lite Consulting have all written to Davies to voice their objections.
One sometimes wonders whether the Banks are content to have the their Charter under continuing discussion!

DTI training programme for B-BBEE
The Department of Trade and Industry (dti), together with three universities (Unisa School of Business Leadership, Wits Enterprise and UFS Centre for Business Dynamics), is finalising the development of a Standardised National Training Programme for BEE verification. This is intended to apply to SANAS accredited verification analysts and IRBA registered auditors. A recent report back to stakeholders elicited a sharp response from ABVA complaining that:-
1. No hard copy of any material was distributed during the report back.
2. The Joint Venture Universities did not approach to ABVA for input into the curriculum requirements and an ABVA suggested curriculum was not considered.
3. The curriculum appeared to focus on theoretical concepts which will not equip the industry with the necessary technical skills for the correct calculation of BEE scores.
4. The fast-track option for current BEE industry practitioners and registered Auditors with 3 years of BEE experience should mean 3 years of BEE Verification Experience.
5. The suggestion that Auditors can complete the 5-day course and then be in a position to issue certificates for all Codes including Sector Codes both present and future ones is unrealistic and unfair to the ABVA VAs who are working under a vastly tighter regime.
6. The cost of R15,000 for the 5 day course is high.
Alasdair Yuill