Archive for category True Empowerment
A not-so unique way of fronting
Posted by Keith in BBBEE Knowledge, Fronting on October 30th, 2012
Many companies are hooking into what they consider a unique way to front and misrepresent their BEE status.
The BEE codes define an EME (exempt micro enterprise) as one that has an annual turnover of less than R5 million. The codes also state that a start-up must be measured as an EME in the first year following their formation or incorporation.
Section 6 of Code 000 states:
6 Start-up enterprises
6.1 Start-up enterprises must be measured as Exempted Micro-Enterprises under this statement for the first year following their formation or incorporation. This provision applies regardless of the expected total revenue of the start-up enterprise.
6.2 Start-up Enterprises are deemed to have a B-BBEE Status of “Level Four Contributor’ having a B-BBEE procurement recognition of 100% under this paragraph
6.3 In order to qualify as a Start-up Enterprise, the enterprise must provide an independent confirmation of its status.
6.4 Despite paragraph 6.1 and 6.2, Start-up Enterprises must submit a QSE Scorecard when tendering for any contract, or seeking any other business covered by section 10 of the Act, with a value higher than R 5 million but less than R35 million. For contracts above R35 million they should submit the generic scorecard. The preparation of such scorecards must use annualised data.
The idea that many companies have is to form a new business, that does the exact same work as the old business, but regard themselves as an EME in the first year.
What they don’t know is that “start-up enterprise” is defined in the codes as:
Means a recently formed or incorporated entity that has been in operation for less than one year. A start-up enterprise does not include any newly constituted enterprise which merely a continuation of a pre-existing enterprise;
Note the grammar error “which merely a continuation”.
Also paragraph 2.5 of Code 000 states:
2.5 Initiatives which split separate or divide enterprises as a means of ensuring eligibility as an Exempted Micro-Enterprise, a Qualifying Small Enterprises or a Start-Up Enterprise are a circumvention of the Act and may lead to the disqualification of the entire scorecard of those enterprises concerned.
This has not stopped hundreds of companies choosing to ask their verification agency for an EME status. Some companies are getting quite innovative. They don’t inform their verification agency that they are a start-up – they simply produce audited statements for the first year of operation of this new business. If they have not fully transferred their activities across to this new entity, then the entity will have a turnover of less than R5 million and be an EME. The Codes for Complex Structure and Transactions & Fronting do talk about how complex structure should be verified.
It is certainly a circumvention of the Act to produce or issue an EME certificate if the entity is not an EME.
The B-BBEE Amendment Bill makes allowances for up to 10 years in jail for fronting offenses.
Fraud and fronting
Posted by Keith in Accreditation, Fronting on July 27th, 2012
B-BBEE Fraud and Fronting
Fraud and fronting is quite prevalent in the B-BBEE sphere. The expectation initially was that it would be self-regulating. The B-BBEE act and codes do not make sufficient allowance for legal regulation. Anyone who issues an invalid B-BBEE certificate or misrepresents their B-BEE position would be guilty of fronting. The dti and National Treasury have threatened to create a black list of such companies, but this has not worked to any great extent. There is no doubt that B-BBEE fronting is fraud – a company that deliberately issues an incorrect BEE status, and companies can be charged with fraud, or even in terms of the corruption act if they intended to use their BEE certificate in an illegal manner to make profits.
The hope was that companies, competitors, verification agencies would identify fronting activities and stamp it out. This has not happened. If a BEE certificate is presented to a company, it is usually, without question accepted. In some cases companies are checking, and may reject the certificate. Consultants and verification agencies too, often reject certificates that they deem invalid. Few however bother to investigate and report this to the dti. We are one of the few that do report, as per dti guidelines any infringement.
The proposed B-BBEE Amendment Bill, expected to be passed in parliament shortly does indeed criminalise fronting. The bill establishes the office of a B-BBEE Commissioner who is empowered to investigate and prosecute offenders. This however may only happen in one of two years time, after the bill is passed, the BEE Commissioner appointed, budgeted for and staffed properly.
Types of fronting
Companies are guilty of many types of fronting:
Ownership: Shares are sold/given to a black partner who is unaware of his duties/rights or even that he is a shareholder. In some cases the black partner has been forced to sign his sell agreement so the company can “take back” the shares when they wish
General misrepresentation: Companies give incorrect information to the verification agency about turnover, management, employees.
Exempt Micro Enterprise (EME) fraud: An EME is one that has a turnover of less than R5 million (depending on industry) and is automatically allocated level 4. Many companies deliberately understate their turnover in order to qualify as an EME. An extreme case was a R1.2 billion company that said its turnover was less than R5 million – and won business as a result of its BEE status
Qualifying small enterprise fraud (QSE): A QSE is one that has a turnover of between R5million and R35 million (depending on industry). Companies us the same fraudulent mechanism as for EMEs above.
Unaccredited verification agencies: A certificate is only valid if produced by an accredited verification agency. Agencies are accredited by SANAS or approved by IRBA. Many unscrupulous unaccredited agencies offer to produce genuine looking certificates without following any verification procedures. We have seen unaccredited agencies illegally using the SANAS logo. One non-accredited agency created a standard certificate showing 77 points and used “mail-merge” to put the names of his clients onto it. Companies may say they were scammed by these con artists, but when it is pointed out to them that their certificate remains invalid, they continue to issue it, effectively participating in the fraud and fronting process. Often companies will call in these con artists because they know they will not perform any verification checks, or even give them the level they need. Many of these “agencies” are incompetent. An extreme example was an unaccredited agency whose one page certificate had 20 mistakes.
Responsibility to report Fronting
The dti Code obligate companies and verification agencies to report fronting. Reporting is towards SANAS (who do try to take action where the offense related to SANAS), IRBA (who are new in the arena and tend to take less action) , the sector councils (who seem ot feel they have little power to investigate or take action), and the dti (who also feels that they have too little power. The reality is the current B-BBEE act requires that government “take into account and where possible apply” a BEE certificate when awarding tenders, concessions, licenses or similar activities.
The worst B-BBEE certificate I’ve ever seen
Posted by Keith in Accreditation, BBBEE Knowledge, Fronting on March 15th, 2012
This is probably the worst BEE Certificate I’ve ever seen.
Let’s identify the errors and problems on it:
- Produced by Hansie D Labour Brokers – not an accredited agency or approved auditor
- Ownership states “Male owned”. It does not mention any black ownership. (On contacting the company they confirm they have no black ownership)
- The rating certificate is called “Unaccredited Transitional SMME”. There was a transitional scorecard in 2007 ending in 2008, otherwise “transitional” does not make sense. In B-BBEE terms we use QSE, not SMME.
- Spelling: “procerement recognition rating”. Also “Non Complaint Contributor” instead of “Non-Compliant Contributor”.
- It lists the procurement recognition rating as level 2. The procurement recognition is 125% for level 2. However if you add up the points “earned” on the four elements, it comes to 100, which is level 1
- It lists the 7 elements by number 1100, 1200 up to 1700. This numbering methodology was used in the draft codes of 2005. The gazetted codes of 2007 use 801, 802, up to 807
- It lists code 1200 as “equity ownership”. It should be “Management”
- It lists code 1500 as “preferred procurement”. It should be Preferential Procurement”
- It lists code 1700 as “residual”. This is also a relic of the draft 2005 codes, and should be “Socio Economic Development”
- It awards 25 points to ownership because the business is 100% white owned. It should be zero.
- It awards 25 points to “equity ownership” (should be management) because the business is 100% white managed. It should be zero.
- The certificate is unsigned.
- It mentions a date of 01-02-2011 and a validity date of 28-02-2012. Certificates at most can be valid for one year, not 13 months.
- The table “BEE Status Qualification” describes the points to levels table: e.g “Level Two Contributor > 85 but < 100 on the generic scorecard”. It should be “Level Two Contributor >= 85 but < 100 on the generic scorecard”. There is a big different between greater than, and greater than or equal to. This is why the entity apparently earned 100 points but is level 2.
- The points earned for preferential procurement is 25 and enterprise development also 25. Based on the numerous errors we would doubt their methodology and calculations.
- Based on the errors identified so far we would doubt that they took into account key principle 2.6: “Any representation made by an Entity about its B-BBEE compliance must be supported by suitable evidence or documentation. An Entity that does not provide evidence or documentation supporting any initiative, must not receive any recognition for that initiative.” We doubt that they have the evidence to support their conclusions.
- Based on the errors identified so far we believe that key principle 2.4 applies: “Any misrepresentation or attempt to misrepresent any enterprise’s true B-BBEE Status may lead to the disqualification of the entire scorecard of that enterprise.” This certificate definitely misrepresents the company’s true B-BBEE status.
PPPFA Fails
Posted by Keith in BBBEE Knowledge, True Empowerment on January 17th, 2012
We were very pleased when the finance minister gazetted the changes to the PPPFA regulations. It brought the PPPFA in line with the B-BBEE act and codes. It made for consistency and ensured fairness and objectivity in adjudicating and awarding tenders.
It was a shock therefore to see that the finance minister has issued an exemption to all public/state owned enterprises for the new regulations. SOEs no longer need follow the new regulations and have pretty much carte blanche on how they will issue/ advertise and ultimately award tenders. The exemption is for a period of 12 months to 7th December 2012. The PPPFA does allow the minister to issue those exemptions notices, but we feel that this has set back the entire B-BBEE process, almost irretrievably.
Who is affected? All entities in schedules 2 and 3(b), (d) of the Public Finance Management Act. This includes ACSA, Telkom, Transnet, SAA, Eskom, Rand Water, Umgeni Water. It refers to a huge proportion of government expenditure.
What is left are only government and provincial departments and smaller organisations like Boxing SA that need to follow the new regulations.
We see this as a huge blow for true empowerment. The only measure of empowerment is your B-BBEE certificate, and yet, the largest SOEs are refusing to implement the new regulations in favour of a different, inconsistent system.
The SOEs do have reasons for wanting to be exempt – ranging from difficulty in implementing the new policies to their feeling that B-BBEE is “too soft”. The Black Business Council feels that the new regulations threaten black business because many white owned businesses have a better B-BBEE level, or can win business by giving a discount of more than 10%. They are asking that certain spend be set aside for specifically black business.
This is inconsistent with the B-BBEE scorecard. If there was a problem with the B-BBEE scorecard being “too soft”, then the route to go should be to change the B-BBEE codes and strengthen the fight against fronting rather than throwing out B-BBEE in favour of the old PPPFA regulations.
We do recognise that some SOEs, e.g ESKOM demand that their suppliers have a valid BEE certificate, level 4 or above, so they are not dismantling B-BBEE totally.
The new regulations have been discussed for 3 years, and were gazetted in June 2011, so there was sufficient time for discussion before it was implemented, rather than the minister have to issue his exemption on the date that the new regulations came into effect. It really makes us wonder why the minister bothered to implement any regulations at all if he is going to exempt probably more than 50% of all state procurement from the regulations.
This is not going to improve peoples’ attitudes around tendering and B-BBEE – rather is will harm them and result in lower compliance. At the moment the dti is trying to get its new B-BBEE Amendment Bill accepted by parliament. This is also a set back for the chances of that bill being approved. We, ourselves have spent nearly two weeks writing up our submission on that bill, giving it our qualified support, and making what we consider are positive suggestions. Based on the failure of the PPPFA, our feeling right now is that the Amendment Bill will never be gazetted or implemented, so why bother wasting time on a submission. If that is our feeling, as the biggest supporters of empowerment and B-BBEE, I’d hate to hear what others are saying.
The New Targets Conundrum
Posted by Keith in Accreditation, Interpretations, Scorecard points, True Empowerment, Verification on January 13th, 2012
The BEE Codes of Good Practice sets variable targets for employment equity and procurement. For all other elements, there is a fixed target e.g 3% of NPAT for enterprise development.
Employment equity and procurement have target that state “Years 0 to 5″ and “6 to 10″. The 6 to 10 target are higher than the 0 to 5. eg. senior management targets for 0 to 5 are 43% and 6 to 10 are 60%.
Since the codes came out there have been debate about when the new targets kick in. It was presumed that codes have a duration of 10 years as per paragraph 13.2 of code 000 and the new targets apply half-way through. The wording has been ambiguous enough for people to came up with various interpretations.
1) New targets apply for all verifications as from 9th February 2012
2) New targets apply for all verification as from 9th February 2013
3) New targets apply after the 5th verification that a company undergoes.
4) New targets apply for companies whose rating period ends after 9th February 2012.
In May 2011 we wrote to the dti asking for clarity and pointing out that if the minister were to issue a new interpretation, it may have be issued in terms of 9(5) of the act giving the public 60 days to comment before the final gazette would be issued well before 9th February 2012. This is no longer possible.
The new targets will have a very serious effecton your scorecard – there can be up to 15 points difference if you use the old targets.
Latest news from the dti is they are looking at option (4) above as their understanding on the codes. This means if your rating period ends after 9th February 2012, then you will use the the new targets. A rating period generally refers to your financial period, or financial year. So, a company that has a financial year that ends in December 2011 will be rated on the old targets, even if the actual verification takes place in October 2012. A company whose financial year ends on 28th February 2012, and uses that as their rating period will be verified on the new targets, even if that verification takes place in June 2012.
Measurement period:
Key principle 2.3 of the codes state:
The basis for measuring B-BBEE initiatives under the Codes is the B-BBEE compliance of the measured entities at the time of measurement.
There has been much debate over the concept of the time of measurement period or rating period. Is it the date on which you are being verified, or the period during which your scorecard is being calculated? Financials form a large part of the BEE scorecard so companies generally use their annual financials as the basis for measurement. It does happen that due to delays a company will submit its 2010 financials for verification in 2012 because its 2011 financials are delayed. In this case the old targets would be used. A more diligent company that produces its financials on time will have to use the new/higher targets.
Another issue is many verification agencies do not respect the rating period for their EE, management and ownership calculations. Your measurement period may be 2010 to 2011, but the agency will insist on measuring you on EE, management and ownership as at the date of verification. Under these circumstances we wonder which target the verification agency will use?
The solution is for the minister to issue a gazette or regulation outlining exactly how the new targets will work. It would have to encompass better interpretations around the measurement period.
Proposed amendments to the B-BBEE Act
Posted by Keith in BBBEE Knowledge, Fronting, Interpretations, True Empowerment on November 25th, 2011
Proposed amendments to the Broad-Based Black Economic Empowerment Act (B- BBEE)
Cabinet approved the publication of the Broad-Based Black Economic Empowerment Act (B-BEE) Amendment Bill for public comment.
The proposed amendments to the Act intend to achieve the following objectives:
(a) Align the Act with other legislation impacting on the B-BBEE and with the codes
(b) Establish the B-BBEE Commission to establish an institutional environment for monitoring and evaluation broad-base black economic empowerment
(c) Provide for the regulation of the verification industry by the Independent Regulatory Board of Auditors
(d) Deal with non-compliance and circumvention by introducing offences and penalties
The proposed changes to the B-BBEE codes of good practice:
(a) Enterprise Development (ED) and Procurement to be elevated with each requiring sub-minimum and enhanced recognition for ED targeted at key sectors in IPAP and the New Growth Path
(b) Penalty provision for non-compliance with Enterprise Development and Procurement elements of the B-BBEE scorecard, and discount from overall score
(c) The points of ownership element should be broadened to include designated groups in the main points, creating greater incentives for genuine broad-based ownership such as employee share ownership, co-operatives and community ownership
(d) Setting sub-minimums/threshold for each element of the scorecard save for the adjusted ownership element
(e) The Qualifying Small Enterprises scorecard will be adjusted and certain elements made mandatory.The thresholds for Exempted Micro Enterprises will be reviewed
(F) The Employment Equity element to receive adjusted recognition and to be aligned to the Employment Equity Act (targets, Reporting and Definitions).
(g) Skills Development Element to be aligned to the New Skills development Strategy and the New Growth Path and
(h) Targets in the Ownership Skills Development Procurement and Enterprise Development will be adjusted.
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Comments:
In general, EconoBEE welcomes the proposed changes. We need to see the actual bill to analyse it in more detail, but in general, all the recommendations we have sent to the dti and BEE Council have been addressed.
We like that B-BBEE is being aligned with other acts, in particular the PPPFA which comes into effect on 7th December 2011.
More than a year ago we recommended to the minister that he establish an office of the BEE Ombudsman, to handle issues of interpretations, valid certificates, fronting, disputes. This is now being done via the establishment of a commission.
We also welcome IRBA as the overall regulatory body for verification. The verification industry has always had problems, starting with ABVA, and subsequently SANAS has struggled to handle our volume of enquiries and sort out various issues. We hope that IRBA will be fully staffed to handle the increased workload.
We were one of the first companies to raise the issue of invalid certificates, fronting and other non-conformances. We therefore welcome the approach that fronting will be penalised, and that the B-BBEE Commission will be tasked to investigate this.
In principle,we also welcome any proposed adjustments to the weightings and targets of the elements or the definitions. We have always like the fact that B-BBEE stands for “broad-based” implying it affects all aspects of the economy, and not necessarily only narrow based ownership.
We look forward to seeing the proposed bill and will make representations
Changes to government procurement rules
Posted by Keith in True Empowerment on November 10th, 2011
As from 7th December 2011, rules for government procurement change in terms of new regulations for the PPPFA – Preferential Procurement Policy Framework Act.
In terms of the new regulations, government must now also follow B-BBEE principles in its procurement process. For the first time all govt agencies, SOEs, organs of state will be required to take into account your GOOD B-BBEE score based on a valid B-BBEE certificate in awarding tenders. For tenders worth between R30 000 and R1 million the new regulations state that govt will use the 80/20 rule where 80% of the evaluation of the tender is based on price and 20% of the tender will be on the basis of your B-BBEE level. e.g if you are a level 1 company then you get the full 20%. If a level 4 then you get 12 points and so on. It means that companies with a good B-BBEE level stand a better chance of winning the tender. Companies without a B-BBEE certificate will need to discount their prices to win. For tenders worth above R1 million the 90/10 rule applies, where 90% is based on price and 10% on B-BBEE level.
The full conversion of B-BBEE level to PPPFA points are as follows:
BBBEE, PPPFA Tender Points Calculator
| B-BBEE |
PPPFA – Government tender points allocation |
||
| B-BBEE Level | B-BBEE Score Achieved |
80/20 |
90/10 |
| Level 1 Contributor | ≥ 100 points | 20 | 10 |
| Level 2 Contributor | ≥ 85 points but < 100 points | 18 | 9 |
| Level 3 Contributor | ≥ 75 points but < 85 points | 16 | 8 |
| Level 4 Contributor | ≥ 65 points but < 75 points | 12 | 5 |
| Level 5 Contributor | ≥ 55 points but < 65 points | 8 | 4 |
| Level 6 Contributor | ≥ 45 points but < 55 points | 6 | 3 |
| Level 7 Contributor | ≥ 40 points but < 45 points | 4 | 2 |
| Level 8 Contributor | ≥ 30 points but < 40 points | 2 | 1 |
| Non-Compliant Contributor | < 30 points | 0 | 0 |
ArcelorMittal finally gets a B-BBEE Certificate
Posted by Keith in Accreditation, True Empowerment, Verification on August 17th, 2011
ArcelorMittal was in the news last year for all the wrong reasons. It tried to undertake a deal -called it a “BEE deal”, that would not have earned many points. There are have been calls for ArcelorMittal to produce its B-BBEE certificate for a long time, and the lack of a certificate has hurt many of its customers’ own B-BBEE scores. As a primary provider of steel, its B-BBEE credentials will flow down to most of the rest of the economy.
ArcelorMittal has now had its certificate verified – it is level 7 as follows.
Ownership 0
Management control 9.42
Employment equity 0
Sills development 11.09
Preferential procurement 15.51
Enterprise development 0
Socio-economic development 5
Total 41.02
Tutu’s wealth tax and B-BBEE
Posted by Keith in BBBEE Knowledge, General, True Empowerment on August 17th, 2011
The recent comments by Archbishop Tutu caused some controversy. He complained that the rate of transformation is too slow and the inequalities in our economy still remain – the gap between rich and poor is still too great. He is of course correct. The recent release of the employment equity statistics by the commission for employment equity shows that management jobs are still dominated by white people.
Tutu then suggested a wealth tax. Please note he did not suggest a white wealth tax. The “white” was added by the media without foundation. His actual comments can be found here (courtesy of @gussilber via Twitter), and a video of his talk can be seen on Youtube. The Archbishop is probably not aware that B-BBEE is intended to solve all the problems he identified, in a far more elegant manner than a tax.
B-BBEE is not a tax, because it is voluntary and companies are encouraged to comply, by not necessarily only spending money. It is not a tax because it requests actions, rather than a pure monetary spend. In some ways it can be seen as a levy – e..g with regards to skills development it asks companies to spend 2% or 3% of their payroll on training of their own staff. With regards to enterprise development and socio-economic development it asks companies to spend between 1% and 3% of net profit after tax on those activities. The spend does not need to be pure money – it can be a monetary equivalent, e.g a company can spend time helping a smaller business, and this will be classed as enterprise development. There are other methods of earning B-BBEE points that do not require spending money (tax), like procurement where companies will encourage transformation by asking their own suppliers for their B-BBEE certificates. In this way every company will contribute towards transformation, leveling the playing fields, without the need for a wealth tax.
Some companies have done a wonderful job of complying with the B-BBEE codes and genuinely made a difference to the lives of the people they touched. Many other companies have a reluctance to achieve, and it is this reluctance that Tutu, and others are seeing. Their good, but slightly misguided intentions are a direct result at seeing slow transformation.
Some years back we wrote an article headlined “The alternative to B-BBEE is B-BBEE”, implying that when you look at it, and if transformation is needed the best alternate remains the B-BBEE codes, warts and all. Any other alternative proposed would not be as effective or efficient!
With regard to a wealth tax, government does not have a great record of spending our tax money. Given the option I’d far rather decide for myself whom to support, train than let government tell me, and possibly waste the money. This is what B-BBEE proposes. If you do have to spend 3% of profit after tax, why not decide for yourself how best to do it, in the way that works, and makes business sense to you?
For five years we have been saying that B-BBEE has to succeed – the alternative will be people proposing some outrageous solutions taht we are seeing right now, such as nationalisation or wealth taxes.
Comments by Rob Davies dti minister during his budget vote
Posted by Keith in BBBEE Knowledge, Enterprise Development, Fronting, General, Interpretations, True Empowerment on April 20th, 2011
Minister Davies spoke about B-BBEE during his budget vote: He said the following:
“Regarding economic empowerment more generally, the BEE Codes of Good Practice were promulgated 4 years ago and we are now in a better position to assess their impact. The Presidential Advisory Council has made several policy recommendations to allow for greater participation by black people in productive activities and to tackle what is now emerging as increasingly complex practices of fronting. To this end, the dti and the Presidential Advisory Council are focusing on reviewing the BEE Codes of good practice and possibly amending the BBBEE Act. This could entail, amongst others, refinements to ensure greater policy coherence in the application of BBBEE across government and to strengthen access to procurement opportunities through the now approved and aligned PPPFA regulations. We are also looking at ways to strengthen our efforts to combat the fraudulent practice of fronting.”
Business Day – 20th April 2011 is reporting as follows :
“Department of Trade and Industry acting director-general Lionel October said yesterday the recommendations of the advisory council — now being considered by the economic cluster of government departments — would shift the focus of BEE away from equity investment and ownership towards productive activities.
Currently, companies scored high marks on the BEE scorecard for black ownership, which gave them a high overall score even when they performed poorly in areas such as enterprise development and procurement.
A proposal being examined by the economic cluster is that minimum scores would be required for enterprise development and procurement — or the overall score would suffer. This would compel companies to aim for achievement in all areas.
Mr Davies said what was under consideration was that points would be deducted from the overall score if minimum scores for enterprise development and procurement from small companies were not achieved.
It would also not be enough to merely hand over money for an incubator or enterprise development project. Companies would have to be actively involved in fostering small businesses.
“In Asia, small and big businesses have a symbiotic relationship where big business gets a lot of input from small business and works hard to ensure that it has the required capacity and the technology,” Mr Davies said.
Complex forms of fronting also had to be addressed.
“We have seen that people who participate in ownership deals imagine that they have one thing, but then when they look at the fine print, they have something else,” Mr Davies said.
“There is now a whole industry of lawyers and accountants who are structuring these deals in particular ways.”
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The above is not too different from our crystal ball gazing in our previous newsletter. This is what we said:
The dti has been looking at revising the codes, and recently issued a tender for companies, presumably law firms to take this further. Once the service providers are appointed, the process will take many months or even years to evaluate and then re-evaluate the B-BBEE codes. We are quite sure that this will not result in “canceling” B-BBEE, but gazing into a crystal ball we expect in one or two years time to see the following:
Ownership
Ownership indicators will change to award more points to broad-based and employee ownership schemes. Individual ownership will be awarded less points. Less emphasis will be placed on direct voting rights and more emphasis placed on a new form of economic interest to ensure that new owners get direct benefit out of their investment. To date many companies do not declare dividends so a minority owner has no benefit, other than when he sells his shares, and in private companies there is no good way to value shares like the JSE does.
Management Control
Will be worth less points than present. Currently one new black director can be “worth” up to 6 points. This is seen as only benefiting a few, it is not broad-based enough. Management may be reduced to 5 points or even consolidated into the Employment Equity element reducing the number of elements to 6.
Employment Equity
Definitions will be cleared up. Allowing a significantly more objective measure of “senior, middle and junior” management employees. More points will be awarded. There is a possibility to have the definitions expanded to broaden the reach of the management levels. It should be noted that as from next year the targets for EE go up anyway.
Skills Development
Skills is anticipated to be the biggest beneficiary of the re-evaluations and will certainly be worth more points. Additional indicators, similar to the excellent construction charter will be created. This will include a more detailed breakdown including mentorships and bursaries. The cost of Skills Development will not be a major discussion point, rather what does that spend get used for. The cost will therefore be targeted in more specific and beneficial areas.
Preferential Procurement
As from next year the targets for procurement go up anyway. Definitions and interpretations, especially around exclusions – imports, third party will be cleared up. The procurement element cannot change substantially as it is the theoretical driver behind Black Economic Empowerment.
Enterprise Development
Points may drop slightly. More indicators like those in the construction charter will be added. Some “easy” points, may decrease in importance. Mentorships for developing enterprises will be added. Increased emphasis will be placed on the type of beneficiary ensuring better Enterprise Development opportunities and not generic spend with any qualifying beneficiary.
Socio-economic Development
Points may drop slightly in favour of the EE and Skills elements.
QSEs may find that the “easy” points on ED and SED will have less value.
The thresholds on EMEs will rise.
The charters will also have to be re-evaluated, so there may be a recommendation to decrease the number of gazetted charters
Let’s re-look at this in two years time and see how accurate we were.
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