The B-BBEE conundrum

File picture: Nokuthula Mbatha

File picture: Nokuthula Mbatha

Published Feb 13, 2017

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Between 2007 and 2015, economic transformation was measured on the basis of the Codes of Good Practice on Broad-Based Black Economic Empowerment (B-BBEE), which were initially gazetted in 2007 and amended in 2013.

During this period, it became clear that a "one size fits all" approach to this measurement was impractical, as the generic codes did not address the various nuances of different sectors.

And thus the introduction of various sector charters and codes, including ones specific to the mining, financial services, information technology, chartered accountancy and construction sectors, and many more.

It is important to lay out early on the difference between a sector code and a charter; the former is gazetted in terms of section 9(1) of the B-BBEE Act and has the same standing in principle as the generic codes, while the latter is gazetted in terms of section 9(5) of the same act and is applicable only to the sector for which it is gazetted and is not “aligned” to the generic codes.

Most companies measured against the generic codes have largely started being assessed based on the 2013 codes, while the sector codes are trickling in, with Tourism, ICT and Marketing, Advertising Communication, while the Chartered Accountancy Charter was repealed, and the other in various stages of alignment to the 2013 codes principles.

The 2016 Most Empowered Companies Survey had to be split between those companies verified against the 2007 codes and those against the 2013 codes. It would not have made sense to have one list with different principles applied. For example, the 2013 codes and its amended sector codes include the discounting provision, where company scores are discounted one level if they do not reach certain sub-minimums in priority elements.

It seems that the 2017 survey will prove no less challenging in respect of this listing. This is due to the delays in the alignment of the various sector codes with the generic codes; the most noteworthy of these being the mining and financial services sectors.

The delayed alignment is not in and of itself the problem, the problem is the impact this has on the measurement of transformation in the country. If some sectors are measured on higher or more complex standards than others, it becomes very tricky to determine the extent to which the economy is truly transforming. This is not a comparison of apples with apples.

Examples include the difficulty in measuring the real impact of the employability and absorption of black youth in the background of excessively high youth unemployment where companies assessed in terms of the generic codes are required to report on this, while those not measured on sector codes aligned to these generic codes are not reporting on this important measure.

Another example in terms of the financial services sector, the sector code gazetted in 2012, allowed banks the dispensation to measure their transformation in terms of ownership on the basis of the valuations of their companies as at December 2010 for a period of five years; however companies in this sector are having to continue measuring their impact on equity ownership by black people based on their 2010 valuations as the alignment process has yet to be completed and a set of codes for this sector finalised and gazetted.

Surely the values of these banks has not remained stagnant in the last seven years and the proportion of ownership by black people must have changed from the numbers indicated on their scorecards.

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Other impact of misalignment relates to the ability to cumulatively recognise contributions made towards enterprise or supplier development initiatives.

The aligned generic codes are quite clear in stating that companies must make annual contributions to enterprise or supplier development programmes, however it is still possible to escape this duty if one operates in a sector whose code is not yet aligned to the generic codes.

This undermines the true spirit of transformation. Of course, those companies who are committed to the objectives of transformation and recognise their individual contribution to the cause will plan so that their initiatives are annual rather than cumulative.

But the continued misalignment of measurement instruments allows for some sectors to be favourably measured over others.

These are just a few examples of the inconsistencies that make it impossible to get a sense of where transformation is going.

And for as long at the two systems run parallel, it is likely to delay the work of the DTI and the Commissioner in noting trends, tightening lose ends, and clarifying ambiguous areas that may lead to lower levels of transformation.

Nomzamo Xaba is the group executive, Research and Advisory of Empowerdex.

BUSINESS REPORT

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