A SUSTAINABLE APPROACH TO EMPOWERMENT

This is the post that should have been done on 19th July

This is exactly the kind of mind set that should be in place when dealing with BEE issues. Well done Jonathan for making it so simple.

A sustainable approach to empowerment A
im is to create a broad ownership base that includes youth, women
Jonathan Goldberg
14 March 2007 at 06h00

The final Codes of Good Practice for Broad-Based Black Economic Empowerment (BBBEE) were approved by Cabinet in December last year and were gazetted into law on February 9. In this article we will attempt to introduce the approach that needs to be taken by organisations in respect of BBBEE implementation. In the first instance, organisations should note that BBBEE must be fully integrated with the business strategy, not implemented as a separate function. In other words, before an organisation decides on a specific course of action in respect of how it wishes to implement BBBEE activities, it must ensure that they will drive value upwards and costs downwards over time. For example, assume that you own a transport firm. The serious shortage of Code 14 drivers may very well form the basis of enterprise development initiatives such as free driver instruction and financing of ownership schemes. This assists the firm in ensuring more code 14 drivers are available to it or a proper business unit is created on an outsource basis. The decision is seen from a business perspective, not handout perspective. The codes include a scorecard outlining elements of implementation for which points can be scored.

There are two separate scorecards: one for enterprises with annual turnovers of more than R35-million and one for "qualifying small enterprises", which have a turnover of between R5-million and R35-million a year. The scorecards award points for the following elements: Ownership; management control; employment equity; skills development; preferential procurement; enterprise development and socio-economic development. The elements each have a weighting and compliance targets (over five and 10 years in the case of the bigger enterprises).It is clear that BBBEE must be broad and have substance. The focus is on a sustainable approach to addressing socio-economic matters of poverty eradication, skills creation, entrepreneurship, equity and broad based ownership. Enterprises whose annual turnover is between R5-million and R35-million have an easier scorecard to implement. They can select four of the elements to score themselves out of 100. Enterprises with a turnover of less than R5-million are be exempt from BBBEE implementation.

The first two elements are explained below. The others will be addressed in a later article. The first is ownership. This refers generally to shareholding that results in economic interest being paid to shareholders as well as attributable voting rights. Care has been taken not to create "capitalists without capital" in that a full eight points of the 20 are based on net economic interest. In the event that "payment" is not made against the debt incurred in purchasing the shares at the required rate, the realisation points will be forfeited pro rata. In addition, ownership has been shaped in order to drive a broad ownership base (eg youth, disabled, unemployed) and to incorporate new entrants (participants who have not previously done a deal worth R20-million) into ownership structures.

Broad-based schemes such as Employee-Owned Trusts and Employee Share Options have resultantly become very popular. There is also an allocation on the generic score for compliance of the target of 40% for black women in ownership to achieve maximum points. A structure that does not include black women would lose points. The second element is management control, which ensures diversity in respect of strategic business and financial direction decision-making power. This is achieved by measuring the transformation status across four levels in the organisation, which are: the board of directors, senior top management (CEO, chief operating officer, chief financial officer), other top management (eg heads of marketing, strategy and HR) and non-executive directors

This element will become one of the more difficult to address given skills shortages at these levels. It has been estimated that SA will require an additional 3 000 black executive directors across the top 200 listed companies by 2016 in order to meet the targets set for the element.The importance of mentoring, coaching, career and succession planning and staff retention is highlighted at this level. Any of these activities are an extension of the existing Employment Equity and Skills Development initiatives and will have to form a part of enterprises' strategy going forward.

Jonathan Goldberg, is the CEO of Global Business Solutions, and can be contacted on 083-281-9571, or johnny@iafrica.com