Broad-Based Black Economic Empowerment – an exercise in Social Engineering which has broadly succeeded.
By: Ivor Blumenthal
This article may appear counter-intuitive, given the huge amount of rhetoric and conjecture which abounds outside of workplaces where BBBEE has been mindfully implemented. There is a huge amount of negativity which exists where BBBEE has failed to be successfully implemented, and even more fake news from owners in those companies which have failed to, or where they have simply refused to, implement any kind of BBBEE solution at all.
The reality is that BBBEE has been hijacked by so many “Consultants” and “Lawyers” intent on pushing mechanisms designed to convince their clients that they should do everything to avoid implementing BBBEE properly, that those unknowing and often unsuspecting clients end up wasting money and a perfect opportunity to increase their turnover.
This article is not about the “how” to implement BBBEE but about the “why”?
There are now FIVE ELEMENTS which are key to a successful implementation of BBBEE. Each is well designed and sufficiently tested to bring about positive empowerment where they are properly and thoughtfully pursued. Where the Founders and Shareholders who decide to implement a solution understand both the financial consequences and mechanisms involved and the reason they are necessary.
What is the purpose of Ownership being a compulsory focus for companies wanting to implement a BBBEE solution? Simply put, to be BBBEE-rated requires a commitment from Shareholders, who would traditionally be White, to SHARE the benefit of a fair Economic Dividend earned in the course of a year, with the Black workforce of the company.
In a large company defined as doing more than R50 Million in turnover in a year, nothing in-excess of 26% of shared ownership is required, to earn the maximum points available on the Ownership Element.
I am of the opinion that anything more than 26% (for the wrong reasons) is simply bad advice. In the wrong situation, selling or giving away 51% of Ownership in a situation which transfers the balance of power away from the traditional shareholders, is simply stupid. This is either in a Large business or in a Small or Exempt one.
In the wrong circumstances, a 51% empowerment deal simply means discounting the true value of your business by 49%.
There are many ways of implementing either a 26%, 51% or 100% solution for purposes of an Ownership deal. The safest and most practical ways are by-way of implementing either an Employee Participation solution or a Black Beneficiary solution.
The intent to Socially Engineer, when it comes to the Ownership Element, in the case of an Employee Ownership Trust or a Beneficiary Trust, has never been to transfer the actual shares of the business to any particular worker, or to any individual beneficiary.
The true Benefit deriving from this element of Social Engineering is Economic
The percentage of shares which is affected with either solution, is held in a Trust and only the proceeds of Dividends declared, from the Net Profit realized by the company, on conclusion of each year’s Annual Financial Statements, is the actual gain or benefit derived from such a scheme.
Socially, it is the economic enrichment resulting from the share split in favor of the beneficiaries, either as Black Employee’s or as identified Black Beneficiaries, which is intended to have a permanent and positive effect on social transformation amongst the worker communities and their extended families, or amongst the beneficiaries directly.
Should an employee leave the company, their entitlement would fall away and indeed the company is able to and often do, establish criteria which apply to beneficiaries in such a way which makes sense of performance and behavioral management in the company.
- MANAGEMENT CONTROL
Whereas most Shareholders are worried about surrendering Ownership, this is the element which should give cause for concern. The targets set with this element are high given that the majority of companies do not have anything close to 50% of senior Black Managers and certainly very few of them have in excess of 40% Black Female Managers.
Whereas goals of transformation are genuine in the case of the majority of South African companies, the fact is that unless actual, accountable and verifiable evidence is present at the time of verification about Black Managers actually participating at the most senior levels of the company, a significant amount of BBBEE points will be sacrificed.
This is the Element, more than any of the other four which talks to the development, deployment, recognition and the reward of people of colour, based on the supposition that for far too long people of colour are who have contributed to healthy and admirable margins and profits, without benefitting directly from that success. This is the Element of direct redress and as a result direct social upliftment. This is the Element, ultimately by which the future health of a business will be judged.
- SKILLS DEVELOPMENT:
By mutual agreement between the Social Partners at the National Economic Development and Labour Council (NEDLAC), the financial goals are set high, when it comes to Skills Development expenditure for BBBEE recognition. 6% or a 500% increase in the Skills Levy agreed to at NEDLAC in 1997.
This is more than simple Social Engineering. This is about creating solutions for the workplace related to both REAL needs, for the filling of vacancies which exist which need to be filled, and PROBABLE needs, being those needs, which will result in the short-to-medium terms in the workplace, becoming more and more evident with the onset of the 4th Industrial Revolution.
This is the Element designed not only to transform the existing workforce into a competitive and sustainable workforce of the future but as importantly to create a skilled and work-ready labour pool of workplace entrants to complement the existing workforce.
This is perhaps the most concrete and instrumental of all of the Elements having born fruit since the implementation of the first BBBEE Scorecard in 2003. It has resulted in a multitude of instruments registered at SAQA on the National Qualifications Framework, and thereby in countless Learnerships, Internships and also Apprenticeships being completed both as 81(1) activities for existing employee’s and for 18(2) for new job entrants.
YES, and ETI
The thing is though, that it has not been the Element which has converted those being trained into those being employed sufficiently to counter the effects of the 4th Industrial Revolution on employment levels. The Capital-intensive workplace has fast replaced the Labour-intensive one and with that jobs have been shed. It is for this reason that programs such as the Youth Employment Service (YES) and incentives such as the Employment Tax Incentive (ETI) have been introduced under Cyril Ramaphosa’s Government, to ensure Labour absorption occurs at acceptable levels into full-time employment.
As we examine the strategy of Social Engineering, perhaps none are more important in this BBBEE agenda than that of ensuring sufficiently significant transformation in the supply chain process of the economic sector of South Africa.
This is a direct statement to companies. If you want a reasonable and acceptable BBBEE Score, then you have no choice, you have to ensure that who your Suppliers are, or who you choose to buy from to make your own turnover, have themselves transformed. Continue doing business with non-transformed Suppliers and you do so at your own peril. You will be punished and should you not achieve at least 40% of your companies target on this Element, you will lose a BBBEE Level – automatically.
Suddenly, instead of since its introduction and phasing in, companies are panicking realizing that their own Verification has been penalized and punished because of who they choose to do business with, as their Suppliers.
The reality is that by 2020, it will be highly unlikely that whatever the service or product is that a company needs to procure, will not be available from a Level 1 / 2 or 3. Level 1 brings 135% of credit, 2 – 125% and Level 3 115%.
If these Suppliers are already there in the market place, then how does a company justify doing business with any Supplier which factually loses them credit, or as still is the case with Suppliers, is not Verified at all, gaining the customer no procurement credit whatsoever and hence any BBBEE points? Worse, actually causing a penalty of a BBBEE Level loss to be imposed?
Enterprise and Supplier Development
In the spirit of Social Engineering, BBBEE creates enticements and rewards for companies to gradually over a two-stage process, grow their Suppliers and in so doing earn valuable BBBEE points. First as a New Black Enterprise slowly learning the ropes and mechanisms of registering and creating a new business, and thereafter as a Supplier with contracts of supply in-place and advanced mechanisms of being supported and encouraged, built directly into the recognition engine of BBBEE.
- SOCIO ECONOMIC INVESTMENT
The final WHY, relates to the fact that in the wider, broader community, there is a need for the workplace to contribute where it is simply not possible for Government, or the Lottery to do so on their own.
The reality is that this is potentially the most misunderstood of all of the Elements in-that companies spend little time strategically implementing programs around this Element, costing them 1% of Net Profit. Strategic thinking would translate, at the very least into companies linking this Element back to Staff Reward programs for extended family members and if properly implemented even creating incentive awards directly for staff members in the external communities they live in and socialize in.
BBBEE A MIRACLE OF SOCIAL ENGINEERING
However, you view it, BBBEE is a MIRACLE of SOCIAL ENGINEERING which has paid dividends for hundreds of thousands if not millions of those currently employed within our economy. Accept that there are on average 9 dependents for every person employed and you understand the scope of the social impact which BBBEE is having now, on the South African population and not only in the workplace.
BBBEE is never going to be a benefit of entitlement. It is truly a benefit of participative management, ownership and a shared vision. That is if you choose to challenge the myths and not to believe the rumors.