The dti has announced that new B-BBEE codes will be released, probably before the end of October 2012. These codes will be drafts, available for public comment. Only once they are gazetted in terms of section 9(1) of the act will they need to be implemented. It has typically taken up to a year for new codes to be released.
Implementation Transition – The BEE Codes have in the past included forms of transitions which allow some time for the new codes to be implemented. The most notable is the transition from Narrow Based to Broad Based using Ownership and Management data. Due to the nature of the changes, the fact that it will take time for the verification industry to understand the new codes and the scale of the changes we suspect a transitional period allowing companies a period of time to implement the new codes.
Even if a transitional period might be on the cards the reality is that it will be more difficult to achieve the same level of compliance. The best practical solution to avoid the difficult challenges is to prepare now using the current codes which will give extra time. The implication is that you will have a verified scorecard without the urgent need to use the new codes.
Timelines – We expect that the earliest that the codes will come into effect will be mid-2013.
When the new codes are released we will invite our clients to a session where we will analyse them in detail and if necessary produce a submission to the dti. Contact our consultants now to help you earn more BEE Points on your next BEE Scorecard.
Summary of the revised codes;
- Reduction of the generic scorecard to five elements, with Employment Equity and Management Control being consolidated, and Preferential Procurement and Enterprise Development merged to form a Supplier Development Element.
- Ownership has been broadened to include designated groups in the main points.
- The thresholds for Exempted Micro Enterprises and Qualifying Small Enterprises (QSE) have been adjusted.
- All companies, except Exempted Micro Enterprises, will be required to comply with the five elements of the B-BBEE scorecard.
- B-BBEE recognition levels status table has been revised.
- Priority elements have been introduced, namely ownership, skills development and supplier development, and large enterprises are to comply with all three priority elements.
- The priority scores of entities that do not comply with sub-minimum requirements in each priority will be discounted.
- Entities that are 100% black-owned will qualify as Level 1, while entities that are more than 50% black-owned will qualify as Level 2.
- Framework for the accreditation of B-BBEE Verification Agencies to extend to the Independent Regulatory Body of Auditors.
- Alignment of the B-BBEE Employment Equity elements with the Employment Equity Act and the Skills Development Elements has been aligned to the New Skills Development Strategy.
Implications and Speculation
Generic – All elements must be followed with the inclusion of priority elements. If certain minimum thresholds are not met then penalties will be allocated against the points earned. This type of concept is similar to the current Employment Equity targets where a company does not earn at least 40% on the indicator then they are not awarded any points for that indicator.
QSE – All elements must be followed. Indications are that QSE’s will not have penalties for non-compliance with priority elements. Targets are expected to be easier. However since all elements need to be followed a level 1 QSE will be hard to achieve.
EME – Principles remain largely unchanged however we believe that 100% black-owned will qualify as Level 1, while entities that are more than 50% black-owned will qualify as Level 2 only for EME’s.
Turnover thresholds will change.
Verification methodology is currently taking an about turn. Once the revised codes come into effect we anticipate seeing an even bigger change. Through auditors, B-BBEE compliance is becoming more about earning points and doing good than following procedure. If we look at the true essence of transformation we should encourage businesses to do good, and in so doing gain points.
Updated procurement recognition table. Indications are levels have been adjusted which makes it more difficult to achieve a level. A minor change of this nature will immediately drop procurement points.
|Opinion – BEE’s law of (un)intended consequence|
All government policies have implications and consequences. Since B-BBEE is so emotive we tend to see both extremes – positive and negative. Each requirement in the BEE codes has certain implications – Procurement for example requires companies to ask all suppliers for a scorecard. By asking for a scorecard from suppliers helps “spread” B-BBEE because for that supplier to become compliant they then need to go through various activities in-order for them to comply.
Each element has a consequence that if it is too difficult it is ignored or alternatively if it is easy it is pushed tremendously. Procurement is again a good example because the relative cost to earn a single point is cheap. However on Procurement there are 20 points for large businesses available which in comparison to Social development only has 5 points but requires a spend of 1% NPAT. Most companies will try and earn maximum points on Procurement because the points are cheap and relatively easy to earn.
Incentivise change rather than use brute force
If Broad-Based Black Economic Empowerment is going to be successful we need to ensure companies are willing to do something. For this to truly work B-BBEE needs to be easy and stress free and then allow companies to get rewarded a small amount for that effort. Increasing targets or harder benchmarks ultimately frustrates the system.
If more points are based on activities which has the result of transformation, even if the activity itself is quite easy, this should result in a more willing implementer.
Hard to achieve aspects get very little attention. Skills Development spend is expensive and difficult to keep track of. Increasing the targets for Skills Development spend isn’t going to result in more compliance – rather less points. Increasing the number of points again will only result in more lost points eventually resulting in no points because it is just too difficult to keep track of the spend or spend enough.
Recent charters have the same exact problem – the ICT charter increased the targets for Ownership but the impact has been negligible. If a company was planning on doing an ownership deal they may choose not to do so. Increasing targets for an element that generally doesn’t earn many points isn’t helping transformation.
For Skills Development the cost of skills might be quite expensive but implementing a learnership through Cat B, C and D training is much easier. The targets are easier and the intended consequence results in genuine skills being developed. Skills through qualifications is generally an easier activity which allows more points to be earned and more positive transformation.
Creating an intended consequence
A balance of intended actions with real value needs to be created. If your intention is to assist a small business with Enterprise Development then by awarding a small number of points for having documentation will work very well – in the construction codes allow 5 points to be earned by spending money with appropriately sized businesses but only if you have the right documentation. 10 points are then awarded for spend. Procurement encourages buying from Enterprise Development because you can inflate the spend by a further 1.2%. Increase Employment Equity by awarding points for new recruits in the business. Skills development by incentivising training logs or further points for compliance with legislation.
The Broad-Based BEE Codes of Good practice is a cleverly created concept. We hope the revised Codes of Good Practice are even better and result in the intended consequence of true transformation.
Manage your BEE process better EconoBEE’s complete managed service is designed to help you earn more BEE points, be less admin intensive and ultimately less costly. Contact 011 483 1190 or visit www.econobee.co.za for more info.
|B-BBEE New Targets Clarification|
The Codes have always set targets for Employment Equity and Procurement for the years 2007 to 2012 and 2012 to 2017 (the new targets). The minister has issued a notice confirming that the new targets have come into affect as from February 2012. The notice states that if your year-end is after 9th February 2012. Unfortunately when the minister issued that notice some mistakes were included. Those mistakes have now been corrected. The document is available in our downloads section.