B-BBEE – whereto next year? – EconoBEE Newsletter December 2008

B-BBEE – whereto next year?

Many “BEE deals” are unraveling due to the drop in the JSE. Many “BEE” companies are struggling to pay their debts now that the share price is below the strike price of the deal.

We have little sympathy. BEE is not, and has never been about the size of the ownership deal. Yes, ownership is one of the elements of BEE, and we have always liked the concept of a properly structured and paid for deal, but the other elements are as important as ownership. Some of the companies whose deals are going to fall down have never made a sincere effort to implement Broad based black economic empowerment. They have earned very few points on socio economic development, enterprise development, skills development, employment equity and procurement. They thought, mistakenly, that by doing a deal they could ignore the true essence of BEE. Now these deals are falling down. These deals caused lots of unhappiness and brought true empowerment no closer than it has been.

What they should have done is implemented true broad based black economic empowerment. The designers of the BEE codes thought the process through properly. They understood that for transformation to work, it must be an inclusive process. They realized that true transformation is based on the seven elements – ownership, management, employment equity, skills development, procurement, enterprise development and socio economic development. Each element was given a weighting indicating its relative importance to the overall cause of transformation. The designers wanted enterprises to maximize those points, by taking “BEE actions” over most, if not all of the above elements. Companies that have concentrated on one element to the detriment of other elements, e.g. the ownership deal, are finding that they are on the losing side. Their new shareholders may have to sell their shares, leaving them with no empowerment partner and no BEE points. Those companies that have broadly made an effort across all elements will find more business coming their way.

They should have looked at the points they could earn from BEE, and attempted to maximize those points.

Our predictions for next year: Next year will see elections, and ANC will likely win with a smaller majority. Jacob Zuma will be our next president. He has already stated how concerned he is about skills development. B-BBEE is here to stay but more emphasis will be placed on the seven elements, rather than just the ownership deal. If BEE is seen as being a combination of all seven elements, and not about enriching some individuals, there is most likely to be more support and less anger over BEE.

A good or high BEE scorecard is likely to be your most potent marketing weapon next year. The companies whose deals are unraveling will have to make up their points via procurement and the other elements. If you position your business as being one with a high BEE scorecard, you are most likely to find more customers. A high BEE score is earned, not by doing a deal, but by becoming aware of the elements and indicators of BEE, and making the right decisions.

To repeat a series of phrases we coined three years ago:

“Your business decisions must make BEE sense”
“Your BEE decisions must make business sense”
“Above all, you must make a profit”

Your starting point is to understand the codes, then to assess your company’s current BEE status, then to design a strategy and methodology of improving and documenting your scorecard. We can help – Contact Us.

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