A Reminder And A Reflection Of The Revised B-BBEE Codes

TRANSFORMATION: A Reminder of why we are doing this and a reflection on the Revised Codes

“The pressure on business of all sizes to do more to empower black people is growing relentlessly. The sooner they start doing this, the better they’ll be able to survive, and in fact prosper.”

CGF Executive Business Brief

B-BBEE strives to ensure that equitable opportunities are created and offered to black South Africans in a sustainable manner. This is in alignment with our common pursuit as all South Africans, as it builds a sustainable future for all our children.

Economic and social transformation in South Africa is an evolving and fluid issue, with the rules being written by, and through our actions. The revision of the Codes of Good Practice (RCoGP) governing B-BBEE is a reflection of some of this fluid nature over approximately the past seven years, both the good and the bad, and provides us with some indication of how the Department of Trade and Industry (Dti) views the progress made to date. This article seeks to review some of the fundamental principles of good, sustainable transformation.

As a country, as companies transacting in that country and as individuals living in that country there is a fundamental need to change our behaviour if our country is going to survive. We need to be more economically inclusive, we need to create employment, we need to protect our weak and vulnerable, we need to give every South African the opportunity to live a healthy, productive, and fulfilling life. The diagram below shows the effect of South Africa’s inequality (being the nation in the world, with the highest inequality) on our life expectancy.

Source: Wilkenson and Pickett “The spirit Level” (2009)

The graph above shows the average life expectancy of a South African being 50 years old, with enough average wealth if we followed global trends to live into our 70’s!

In the past transformation has concentrated on a slow organic process focused on changing the behaviour and make-up of existing players. The focus of the revised codes is more of a game-changer in nature and this is evident in the shift to more stringent requirements and resultant punitive measures for non-compliance. The implication is that a stronger step response is required from business if we are going to have a chance of improving sustainability the social fabric of South Africa.

Who are the beneficiaries of B-BBEE?

In formal legal terms the beneficiaries of B-BBEE are “black people” which according to the B-BBEE Act is “a generic term which means Africans, Coloured’s and Indians, including only natural persons who are citizens of the Republic of South Africa by birth or decent; or are citizens of the Republic of South Africa by naturalization:

a) Occurring before the commencement date of the Constitution of the Republic of South Africa Act of 1993; or

b) Occurring after the commencement date of the Constitution of the Republic of South Africa Act of 1993; but who, without the Apartheid policy would have qualified naturalization before then.” It also just makes good business sense to ensure that all your employees are given the tools to contribute to growth of your business. B-BBEE recognizes that some racial groupings in South Africa have been significantly more disempowered than others.

Part of the transformation process is bringing the resources of the company to bear which involves ensuring your employees are individually engaged creatively in this task, and so….in simple terms the basic unit of transformation is the individual and the ethos of transformation involves creating an enabling context in the company for the individual to be all that they can be and make their best contribution to the transformation of the company and the country.

B-BBEE is also a mitigation strategy against South Africa’s social, political and economic risks. Its aim is also to address the legitimacy of a mixed market economy and dramatically reduce our gap between the wealthy and the poor. South Africa has the highest GINI co-efficient in the world at 0.7 (SA transformation report (2013)). Therefore as a country, if South Africa can achieve a more equal society (including specifically economic equality) then all the people of South Africa will benefit from such transformation as it brings with it a new set of shared values and increased socio-economic and political stability.

What does this mean for our business?

Key business priorities remain simple. Steering a course for the future that benefits both companies and their stakeholders and yet, remaining relevant in an increasingly competitive and diverse market. Our transformation efforts, endeavours to address both the inequality in our social fabric and keep in the foreground the economic priorities that face companies today. So B-BBEE should not be seen and managed as a cost of doing business in South Africa but seen as it is,- a mechanism for change and bringing the business into symbiosis with its environment.

Most people have seen the process of empowering or transforming their enterprise as coming at a cost and impeding the performance/ growth of the business.

While this is very true that transformation does have immediate costs associated with it, in this view transformation tends to decrease performance, which in turn leads to slower or negative growth, which in turn makes transformation more difficult to sustain. Transformation if viewed as just another necessary evil of doing business in South Africa (like death or taxes), will simply not happen, as a manager’s function is to increase performance and reduce the costs.

In our experience, this prevailing and dominant management logic is the biggest single obstacle to sustainable transformation. If your view is to cut off your leg before you lose an arm and a leg, and then to try to hop into the future not globally competitive, then that is what will happen. So the first hurdle to transformation starts in the mind of you and your employees, as transformation need not only be a ticket to the game, but can also become a ticket to an emerging growth market. If it becomes only a ticket to the game the cost could be so high that many will be unable to afford to play in the game anymore!

So, the big question which we will need to explore is:

HOW CAN TRANSFORMATION BE USED TO INCREASE PERFORMANCE IN YOUR BUSINESS WHILE CONTRIBUTING TO SOCIETY?

SO HOW DOES B-BBEE WORK? 

The figure above is analogues to a Maslow’s Hierarchy of Needs view to resolve transformation interrelationships between issues.

The diagram refers to five key principle changes reflected in the revised CoGP that need to be resolved in the right sequence as follows:

1. We need to re-channel the focus on SED out of education (the informal elements of which will be captured in skills development) and into other barriers to economic access, such as heath, poverty alleviation and basic service delivery. Note environmental and infrastructure projects are now explicitly part of SED contributions
2. We need to refocus our skills efforts to include non-employees (unemployed people), such that our future skills pool is developed and equipped to become employed. We need to ensure that our learnership and artisanship processes are effectively used as work preparation and employee courtship processes, so that there is effective retention of our unemployed learners.
3. We need to be recruiting and training employees in proportion to the Economically Active Population (E.A.P).
4. We need to ensure that access to economic opportunity for small black-owned businesses is enhanced through supplier development. This will benefit both entrepreneurs and the jobs that are stimulated through this process. Malaysia utilised this to overcome the “twin economies” behaviour evident in their economy at the time. In South Africa the same concept could apply, namely: bringing established business and small informal business into supply partnerships to stimulate growth and competitiveness, and mutual benefit. This manifests as a black ownership, small business focus in this pillar, as 95% of businesses in the country are small enterprises with the bulk of these being black-owned.
5. We need to ensure, as far as is economically viable, that our supply chains are localised, to enhance value-added supply and job creation.
6. We need to ensure that ownership (through broad-based, employee ownership or strategic partners) exceeds the unencumbered subminimum of 10% (which is 40% of the Net value points).

In an environment where we have a worsening state of inequality, it is vital for the country to revise its efforts and focus wholeheartedly on promoting social inclusivity, in an attempt to deal effectively with varying expectations in South Africa.

However, it is when we translate this national compact into a business context that difficulties emerge. We need to simultaneously promote and stimulate economic growth and at the same time promote inclusivity if we are to emerge as a country that effectively serves all its citizens. The RCoGP require a fundamental strategic review in order to align itself with both national and business objectives. Invasive surgery is never easy, but it is sometimes necessary.