Value added by black economic empowerment (BEE) partners is the staple diet in the BEE language, especially for the white shareholders. How does one define value added by a black partner, especially in contrast to white shareholders?
A general understanding of value added by BEE partners is the contribution that they make that will have a bottom line effect on profits and transformation, over and above what the existing shareholders and management are doing.
The tangible financial results are measured through increased revenues, increased profits and an increase in the asset base among other measures. It all depends on the type of business and its drivers.
In the early stages of an enterprise, the value added by the BEE partner is that he can give strategic input in the running and the direction of the business.
BEE partners are expected to open doors, which should potentially result in more business. In more established businesses, which may be cash cows, there tends to be less involvement by the shareholders in the day-to-day running of the enterprise. The value added by BEE partners in this scenario is mostly through their networks. According to some firms it helps if those networks include political clout.
The measurement of value added by BEE partners can be tricky. It is difficult to map out a causal link between increased business and the result of contribution from a partner. There are usually a variety of factors that affect the underlying performance of the business that may be beyond the control of the partners.
Therefore to be measured on something that one cannot control may be blatantly unreasonable. While it is important to agree on the measures of value adding, pragmatic measurements must always be kept in mind. Pragmatic measurements of the value added range from percentage of the revenue to new types of clients.
The revenue measures do not penalise or reward the BEE partners. Other measures include the percentage of net profits before tax, depreciation and other amortisation, especially in capital-intensive businesses to a percentage of assets under management for the asset managers.
Fees for value-added contribution are mostly applied to pay any third-party financing and to some extent to cover the working capital costs of the BEE partner.
Other measurement criteria take into account the qualitative aspects of the contribution of the BEE partner by seeing how they drive the different elements of the scorecard.
There is an assumption that the partner should know BEE better than the shareholders and management, which is why they are tasked with the transformation agenda.
But this assignment of task to the BEE partner is good. The responsibility of driving transformation lies with management.
They know the firm inside out and are in control of the operational budgets that would make a difference in how BEE is implemented. The BEE shareholder's responsibility is to ensure that the oversight on BEE is maintained, especially if they are not also employed within the entity on a full-time basis.
There are certain potential constraints on using one's network to drive increased business in different businesses. BEE partners sometimes do not want to deplete their networking capital by burdening their contacts with constant requests for new business.
They use these networks with extreme economy lest they deplete their goodwill with their valued contacts. Constant request for favours from contacts depletes network credits faster than the speed of light.
Therefore, meticulous BEE partners always guard their network capital with their lives and don't use them inappropriately. This may have a result of making their white counterparts impatient because there might be no seeming value coming from the extensive networks.
On the other hand, you have BEE partners that drop names and act the part of being well connected, and yet have nothing to show for it. As Lao Tzu, the father of Taoism, said many centuries ago: "Those who know, don't say much, while those who are the loudest know nothing".
The value-adding concept is a very important one but it can also be very nebulous and used as an excuse for shifting blame to black shareholders for lack of transformation performance of the enterprise.