Archive for May, 2009
Ownership revisited
Posted by Keith in BBBEE Knowledge, True Empowerment on May 26th, 2009
The more I hear of ownership deals, the more disillusioned I become that ownership is going to contribute to empowerment. To clarify, I’d like to see meaningful participation in the company by any empowerment partner. What is the point in a junior partner have a small stake in a business if they do not learn the ropes and work in the business? Taking it further, I have seen many “deals” where the junior partner earns no dividends (the majority partner ensured that ther was none, or just a tiny handout to satisfy them.), does not participate in the business, and the “empowerment” goes no further than a group of people owing a meaningless asset – shares in a private company. I say meaningless because in truth the majority owner of the company can pretty much do what he wishes with the company and the shares. He can engineer it so dividends are never paid, he can sell portions of the business to another entity which makes the profits and ensure that the BEE entity is only vaguely profitable.
I know the companies act is supposed to protect minority shareholders, and the targets for ownership is 25% plus one vote, which allows the minority shareholders to veto a special resolution. In reality this is often bypassed, even in large businesses, and one has to be pretty legally savvy to avoid a big business from bullying a small/minority shareholder. The regulations around fronting don’t give that much protection in any event.
I often see companies with 17-20 points on the ownership socrecard, but only 1 or 2 points on the management scorecard. This can only mean that the BEE partner has 25% of the shares, but only has 1 or 2 non-executive directors on the board. What a waste of doing a deal if the company is not maximising their scorecard. A good way to find suitable candidates to be executive directors is from the chosen BEE partner. If the partner has no suitable candidates, then maybe they are not the best possible partner.
In conclusion I would like to see a link of the scorecard between owenership and management. High scores on owenrship should be accompanied by high scores on management.
Socio-economic Development and Publicity
Posted by MPUMULO MAPHOSA in Marketing, Socio-economic development on May 26th, 2009
One of the simplest and effective ways of earning BBBEE points is to increase the level of spending on Socio-Economic Development (SED). SED is one of the seven elements of a BEE scorecard focusing on the extent to which an organization carries out initiatives intended to uplift the South African society. It is worth 25 points for a Qualifying Small Enterprise and 5 points for a Generic company.
Publicity is the deliberate attempt to manage the public’s perception of a company and its products. From a marketing perspective, publicity is one of the variables that comprise the promotional mix where as promotion is one of the variables that comprise the marketing mix.
Therefore, without a shade of doubt, companies stand to gain immensely by channeling significant investment levels towards SED initiatives not only by earning valuable BEE points, but also from a marketing perspective. Investing in SED builds a superb image and an explosive reputation for an organization.
Needless to say, it is of paramount importance for companies to note that modern consumers are incredibly well informed and educated. They identify themselves with reputable organizations. They recognize and appreciate the active involvement of a company in uplifting the society.
It makes sense therefore for companies to engage on those SED projects, which relate to their field of expertise. Amongst other issues, such projects may be targeted towards education, HIV/AIDS, projects for the disabled and other community building initiatives.
However, engaging in SED for the purpose of earning BEE points and building a good image is a misfired and twisted approach. The bottom line is, it does not support the ideal transformation of the society and certainly it is not good enough to create a meaningful and sustainable improvement. Such entities will enjoy in the short-term and definitely not in the long-term. A company’s SED policy should be based on the commitment to contribute to the constructive transformation of the South African society. In this way, an organization gains an enormous amount of publicity at the same time earning priceless BEE points.
To put this into perspective, let us take a company that identifies an orphanage whose walls are an eye’s nightmare. It then invests in painting those walls giving them a fresh and stunning look. Such an initiative does not give back anything physical like money to that particular organization. If those involved in such a project are doing it based on the commitment to make a positive difference, that instant improvement of the orphanage’s walls may be emotionally rewarding but moreover, the community recognizes and appreciates that effort. Through such an investment a company builds a respectable and sustainable image and an explosive reputation whilst at the same time improving on its BEE points.
The pain of verification
Posted by Keith in Accreditation on May 21st, 2009
We have come across a lot of companies lately that talk about the pain of verification. One company has been waiting for nearly four months for their certificate. Another called in a verification agency, then asked them lots of questions, which they did not answer and finally decided to scrap their verification.
In this instance the verification agency acted correctly. It is not their job – in fact they stand to lose their accreditation status if they consult to their client while they are doing verification. Consulting and verification are mutually exclusive.
The reason that companies talk of the pain of verification is because they are not prepared for that verification. They do not have all the answers to the questions that the verification agency asks them. They find it difficult to understand what to give to the agency. They also have no idea of how to approach the agency – or how to react to them. Many companies are terrified fo the verification agency, never midn the whole process. They have not calculated a scorecard so they have no idea what their score is going to be. In cases cases they do not even know what constitures a good score.
The EconoBEE method is to help our clients prepare for the verification. Or clients see verification as the end of their BEE process for the year, and instantly start preparing for the next year. They look forward to their verification and are happy toclal in the verification agency because they know they will get a good score, and it is exciting awaiting that certificate. There is no pain involved. They treat the verification agency with respect, and the verification agency will recognise that the customer needs even more respect and care. Our clients prepare their documentation and calcualater their score for each indicator. The agency is then given the documentation and TOLD what the score is that has already been calcualted for that indicator. It is up the agency to refute the evidence if they disagree. Since our clients are well prepard, there is no chance that an agency will see fit to challenge their evidence.
The time for the agency to do their work is cut down – from endless months to days or even hours. A verification agency spent only 2 dayhs with out valuable client, Makro because they had everything at their fingetips. It not only save the verification agency time and effort – for which they wer grateful, but saved our client valuable maangment time. It was not a painful experience – it one one they were looking forward to!
Adoption of BBBEE
Posted by patience in BBBEE Knowledge on May 20th, 2009
The adoption and implementation of BBBEE is still varied in the country. Where does your company fall in the adoption process of BBBEE?
Innovators
Brave companies with people, pulling the change. Such companies have embraced BBBEE and are continuously improving their BBBEE points.
Early Adopters
Respectable companies, opinion leaders in their industry leading the pack and are improving their BBBEE points.
Early Majority
Thoughtful companies, careful but accepting change more quickly than the average companies and are beginning to implement BBBEE.
Late Majority
Skeptic companies which will only implement BBBEE when the majority have implemented BBBEE.
Laggards
Traditional companies, caring for the “old ways”, and are still critical towards BBBEE and will only accept it when it becomes mainstream or when forced to comply.
BBBEE is here to stay and will continue to gain momentum. The only way for your company to accept this noble phenomenon is to understand it and know how it affects your business. Our workshops/seminars and conferences are there to help you.
B-BBEE Sector Codes
The dti has announced that the first BBBEE sector codes have now been signed. This announcement is certainly another landmark reached very likely marks the start of a few more BEE Sector codes in the near future.
Admittedly this is a move that I did not expect (I was hoping that no sector codes would be gazetted and the codes used instead). Nonetheless all organisations who fall part of the Tourism, Construction, and Forestry sector will now start following their applicable sector code and not the BEE Codes of Good Practice.
EconoBEE V3 and EconoLog scorecard tools. We will ofcourse be updating our software tools to include all sector codes gazetted.
We have many questions that we will be asking of the dti and investigating ourselves. Feel free to contact us if you have any issues you wish to highlight.
Cabinet reshuffle – how does it affect BEE?
Posted by Keith in BBBEE Knowledge, politics on May 13th, 2009
In his new cabinet announcement President Zuma has appointed a new minister of trade and industry, Dr Rob Davies. At the same same he announced the establishment of a new ministry – Economic Development, to focus on economic policy making. This new ministry is headed up by Mr Ebrahim Patel.
A third new ministry, headed by Mr Trevor Manuel is the national planning commission.
It would appear as if it will be these three ministries that will be most concerned with designing and implementing B-BBEE policy.
I would not be surprised to see BEE being moved to Economic Development, as BEE is an economic development policy.
President Zuma seems to have placed quite a lot of emphasis on aspects that are close to the B-BBEE policy, for example the new ministry responsible for women, youth and children, including people with disability.
“BEE should be implemented from the grassroots level, not from the top downwards”
Posted by Keith in BBBEE Knowledge, General on May 8th, 2009
I’m seeing many comments about BEE lately – not entirely negative, but more positive criticism like “BEE should be implemented from the grassroots level, not from the top downwards.”
I have always stated that it’s a pity that the BEE codes did not start with the elements in the reverse order, ie SED, then ED, the procurement, skills etc.
That notwithstanding, BEE still does have 7 elements, on which enterprises earn various points for achieving certain targets, even pro-rata points can be earned.
The point I wish to make is that sometimes enterprises themselves are to blame, not necessarily government for the poor implementation of BEE. The policy is excellent (I’ll be happy to debate this issue anytime), but the way that companies have gone about it is bad, and does not even make business sense in many instances. I can never understand why a company will, for example, sell shares at a huge discount and in the process earn very few BEE points at high cost to them. They have so many other alternatives that do earn more points, costs less and will have far bigger beneficial impact on the country and their own company. For example, why not spend money on skills development for employees? It will increase productivity, allow room for personal development and help the company become a lot more compliant than simply selling shares to a big investor.
Many commentators complain that BEE enriches a small handful of businessmen. I do not deny that some businessmen (both black and white) have become wealthy as a result of the BEE policy of certain companies. I simply question those companies as to WHY they chose to implement such a policy. They could far easier, and more cheaply earned points on other areas.
What is even worse is that some of the share deals are under water due to the JSE dropping. This means that the entire shareholding deal of some companies is going to cost them more money, and will earn them absolutely no points. This is due to enterprises/companies making wrong decisions about how to implement the BEE policy, not because the policy itself is bad. So, to a large extent the criticism should be directed at companies and not government.
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