What is BEE?

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Transcript What is BEE?

BEE Codes of Good Practice Phase II

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ASDFSA, RainbowSA workshops to prepare a submission on behalf of the Skills Industry to the dti

By William Janisch Projects Director at Rainbow SA and BEE Specialist at Empowerment Services

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BEE Codes of Good Practice Phase II

Skills Development & HR Strategy are at the HEART of BEE, making up more than half the BEE Scorecard.

Of all the Elements of the BEE Scorecard, Skills Development is probably the most its ability to empower and is, in many ways, at the Transformation heart enduring the people who receive it, of the envisaged by the Act.

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BEE Codes of Good Practice Phase II

Why are we here today?

• The Final Codes of Good Practice for BEE are going to drive Skills Development & HR behaviour (and expenditure) for the next 10 years. • It is imperative that as the industry body, you submit comment which helps ensure effective, relevant Skills Developmet takes place in SA and that the administrative burden is not too cumbersome. Any targets should integrate with structures already in place under Skills & HR related legislation.

• The end result should be that the Skills & HR areas of the scorecard help change the way organisations operate – especially the way they view their staff!

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PLEASE TAKE NOTE!!!

Much of what you see & hear today is still open to amendment over the next few months. Only a few areas of BEE are finalised. The rest are open for public comment until 31 March 2006 During this presentation, a clear distinction will be made between areas which are considered FINAL and areas which are still open to change.

Those areas which could change are still important to understand because:    They show the direction in which government is thinking While the Public Comment phase is still open, you might wish to make suggestions They help as a broad target at which to aim in designing your own organisation’s strategies and policies so you are not found wanting when BEE is finalised later this year

Putting BEE in Perspective

PEOPLE…..PLANET…..PROSPERITY

A NEW WAY OF PERCEIVING PROFIT !

• The whole world is grappling with the problem of how to reduce the gap between the “have’s” and the “have-not’s” © Copyright Rainbow SA & Empowerment Services 2006

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• International attempts at shifting the way we perceive & measure profit include:   “Triple Bottom-line Accounting”; “Sustainable Development” or  the myriad of programs like “Investors in People”

Putting BEE in Perspective

• The bottom line is that people are starting to realise you cannot make a sustainable profit without good social and environmental practice AND WHAT IS NOT MEASURED IS NOT DONE !!! (i.e. Change will not come about without actively measuring organisations) © Copyright Rainbow SA & Empowerment Services 2006

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• BEE is SA’s way to attempt to define & measure social best practice & to re-define the way we do business. • It is being measured by means of a

BEE Scorecard

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The BEE Scorecards BEE is measured using a “Balanced Scorecard” “elements” : consisting of 7 areas or

– Ownership – Management – Skills Development – Employment Equity – Preferential Procurement – Enterprise Development – Social Investment / Sectoral Initiatives

The BEE Scorecards

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HOWEVER, not all organisations are measured in the same way. Two factors can affect the scorecard that applies to you: 1.

Different sized businesses are measured using different scorecards and Micro-Enterprises (the smallest companies) are not even scored. AND 2.

Certain sectors may need to vary the targets for each “element” in order to achieve specific sector objectives. This will result in those sectors developing their own Sector Codes which will have slightly different scorecards.

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The BEE Scorecards

The Codes see three types of business, each with its own way of being scored:

1. Micro-Enterprises These are companies with an annual turnover below the VAT registration threshold (currently R300,000 per year) 2. Qualifying Small Enterprises (QSE’s) These are so called because in order to “qualify” as a QSE, a company needs to turn over between the VAT threshold (R300,000) and an upper limit which is defined sector by sector (as defined by The National Small Business Act) …SEE TABLE ON NEXT SLIDE… 3. Medium & Large Organisations These are organisations with an annual turnover above the thresholds defined for QSEs as well as government departments, SOEs & Section 21 Companies (NGOs).

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Who qualifies as a QSE?

Sector Agriculture Mining Manufacturing Energy (Elec, Gas & Water) Construction Retail & Motor Wholesale & Agencies Catering, Accommodation & Other Trades Transport, Storage & Communications Finance & Business Services Community, Social & Personal Services Qualifying Criteria T/O < R 3million or < 50 employees T/O < R10million or < 50 employees T/O < R13million or < 50 employees T/O < R13million or < 50 employees T/O < R 6million or < 50 employees T/O < R19million or < 50 employees T/O < R32million or < 50 employees T/O < R 6million or < 50 employees T/O < R13million or < 50 employees T/O < R13million or < 50 employees T/O < R 6million or < 50 employees

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How is each sized business scored:

1. Micro-Enterprises All micro-enterprises, regardless of whether they are black or white, are given an automatic BEE status (i.e. They will automatically be “Level 4” contributors to BEE. This means that for every rand spent with them, an organisation can claim the full rand as BEE expenditure.) 2. Qualifying Small Enterprises (QSE’s) QSE’s have their own scorecard with slightly “softer” targets. Each “element” is worth 20 points and a QSE can select any 5 of the 7 elements to get a score out of 100. In order to incentivise ownership, if one selects ownership as 1 of the 5 elements to be measured, your ownership score will be increased by 25%.

If they choose to be measured in all 7 areas, their score out of 140 is actually measured out of 125 as a bonus. This score is then converted to a score out of 100.

The BEE Scorecards

How is each sized business scored:

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3. Medium & Large Organisations All other organisations will be measured using what has come to be called “The Generic Scorecard” – being the full 7 element scorecard.

It is measured out of 100. All elements are counted. Bonus points mean a score of more than 100 can be attained.

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The BEE Scorecards

Scorecard Element

Ownership Management Employment Equity Skills Development Preferential Procurement Enterprise Development Social Investment / Other TOTAL SCORE measured out of:

Generic Weighting

20% 10% 10% 20% 20% 10% 10% 100

QSE Weighting

20% 20% 20% 20% 20% 20% 20% For 5 elements – 100 (ownership increased by 25%) For 7 elements 125 reduced to

100

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How a BEE Score is used

A Practical Example

A company has only 4 suppliers and their scores are as follows: Company A – 15% Company X – 55% Company Y – 78% Company Z – 55% (but it is >50% black owned) The relative BEE recognition levels can be put into a table with the amounts spent on each company: © Copyright Rainbow SA & Empowerment Services 2006

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The BEE Procurement percentage for this company is calculated as follows: BEE Procurement Spend = BEE Spend / Total Procurement Spend = 29,000 / 80,000 = 36,3%

Let’s Clear Up Some Misperceptions

• BEE is no longer about Ownership, but is now about a broad scorecard measuring seven elements. Out go terms like “black owned”; “black empowered”; “black women-owned” etc. In comes your BEE “Level”.

• BEE is not law yet. There are no official verification agencies and the Codes have not yet been gazetted.

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• The Codes for Ownership & Management are fairly final, but the Codes for the remaining 5 elements are still open for public comment and will only be finalised later this year.

011-485-2036 Let’s Clear Up Some Misperceptions

• Black People are defined as: • Africans, Coloureds and Indians • Citizens of the Republic of South Africa: – by birth; – by descent; – by naturalisation prior to Interim Constitution (1994); – by naturalisation after the Interim Constitution, where prevented by Apartheid prior to that date No white women or white disabled!

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History of BEE

Black Economic Empowerment

1990s – BEE Equity deals • Focus on ownership • Creation of Black elite 1998 – BEE Commission appointed 2001 – BEE Commission report 2002 – First Charters (Mining & Petrochemical) 2003 – Broad Based BEE Strategy 2003 – BEE Act (Dec) 2004 – Charters begin in earnest 2004 – Phase 1 Codes released for comment (Dec) 2005 – Phase 1 Codes approved by cabinet (Oct) 2005 – Phase 2 Codes released for comment (Dec)

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BEE Act

• Establish BEE Advisory Council • Strategy for BEE • Codes of Good Practice for BEE  Balanced Scorecard • Transformation Charters

What are “The Codes of Good Practice”?

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• Exactly what they sound like – Codes by which to practice good BEE. They show how BEE should be measured in minute detail.

• The Codes give flesh to the bones of the BEE Act.

• The Codes are arranged in a similar fashion to the Codes for Good Accounting Practice.

• The Codes are arranged in a numerical order with Code 000 providing an overall framework & Codes 100, 200, 300, 400, 500, 600 & 700 applying to the 7 elements of the scorecard. (I.e. 100 = Ownership; 200 = Management, etc.) • Under each Code, multiple Statements can be issued dealing with specific issues (eg. Code 100, Statement 100 deals with the measurement of ownership generally, whereas, Statement 101, deals with the sale of assets / businesses to achieve an ownership score, etc.) • Code 800 is where Sector Codes will be placed.

• Code 1000 provides a framework for QSEs with Codes 1100 1700 dealing with the 7 elements of the QSE scorecard.

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Who MUST comply with the Codes?

• All organs of state (i.e. National, Provincial & Local Government) • All public entities listed in Public Finance Management Act (i.e. State-owned Enterprises and Agencies) • Any enterprise which undertakes any business with any organ of state or public entity • Any enterprise which undertakes any business with an enterprises undertaking business with any organ of state or public entity

011-485-2036 What else will drive BEE Compliance?

1. When the Public Sector does any of the following, they must assess your BEE status:     Evaluate tender submissions (They can make it a minimum tender requirement) Sell state-owned assets Enter into Public Private Partnerships Issue Concessions (e.g. water rights) and Licences (including ALL regulated industries – eg. Banking, certain Transport Sectors, Telecommunications, Gambling, Mining, Petrochemicals and Exporting) By default this means all companies supplying regulated industries need to be scored, so that the regulated industries can count your score towards their score.

011-485-2036 What else will drive BEE Compliance?

2. In the Private Sector:   Your score counts towards your customer’s Your supplier’s score counts towards your score score

BEE is not a compliance issue…… ……..it is a competitiveness issue.

3. The National BEE Database (Public Domain) When everybody can see your BEE Score, BEE becomes even more of a Competitiveness Issue! Even workers and public lobby groups can now exert pressure for transformation.

4. A BEE Label appearing even on consumer products & services to drive spending habits

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But who measures all this?

• Accredited Verification Agencies who will perform a yearly “BEE audit” on companies.

• All Verification Agencies will be working off a single national standard & will have to comply with stringent industry regulations monitoring quality, transparency and own compliance.

Which Scorecard will be used?

• Which Scorecard?

• Governments?

• Industry Sectors?

• Procurement Department’s own scorecard?

Bearing in mind that it is critical for the country to stay as close to a single national standard as possible in order to level the playing field, sector charters, if they are to be officially applied, need to AT LEAST match the generic scorecard.

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Private scorecards (eg. ESKOM Scorecard) will fall away.

011-485-2036 How will sector charters be handled?

• A sector charter can be gazetted firstly as a “Transformation Charter” and, subsequently, if it meets stringent criteria, as a “Sector Code”.

• Only “Sector Codes” replace the “Generic Scorecard” for a sector.

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The status of Sector Charters

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The criteria for a Sector Code

Scoring for Complex Structures Who can do what?

• Consolidate (Single Scorecard)   Un-incorporated Joint Ventures Related Micro-enterprises • Attribute (Some Elements taken from parent, some from child)   Groups of Companies / Subsidiaries Franchises © Copyright Rainbow SA & Empowerment Services 2006

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• Separate (Separate Scorecards)   Divisions Companies Subject to more than one Sector Code

1. Ownership

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Generic Scorecard:

Indicator

Black voting rights Voting rights of Black women Black economic interest Economic interest of Black women Economic interest of Black designated groups Ownership fulfillment Net equity interest

TOTAL Weighting (Marks)

3 2 4 2 1 1 7

20 Target

25%+1 10% 25% 10% 2.5% Complete Increasing

1. Ownership

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 Black new entrants  Black deemed participants of broad-based ownership schemes  Black participants of co-operatives  Maximum of 3 bonus points for 15% equity stakes by above-mentioned groups / individuals

1. Ownership

011-485-2036 Net Economic Interest Generic Scorecard % 30 25 20 15 10 5 0 1 2 3 & 4 Year 5 & 6 7 & 8 9 & 10

1. Ownership QSE Scorecard

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Black voting rights Black economic interest Ownership fulfillment Net equity interest

TOTAL Bonus Points:

Black women ownership Broad-based Ownership Schemes

Weighting (Marks)

5 7 1 7

20 3 Target

25%+1 25% Complete Increasing 15%

1. Ownership

011-485-2036 Net Economic Interest QSE Scorecard % 30 25 20 15 10 5 0 Generic scorecard requires only 2.5% in year 1 1 & 2 3 & 4 5 & 6 Year 7 & 8 9 & 10

1. Ownership

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Multinationals

 Recognition of Equity Equivalents  Criteria: • Own and control entire entity • Ownership subject to global policy • “substantial commercial harm”

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1. Ownership Multinationals

 Equity Equivalents include: • Approved Public Programme • Sale of offshore equity • Sale of a local business or asset

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1. Ownership

Organs of State, Public Entities, Section 21 and Companies Limited by Guarantee

 Ownership omitted  Score on all other elements (80 points)  Converted to score out of 100

1. Ownership

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Warehousing Funds

  Benefits exiting black shareholders Hold shares for maximum of 3 years  • • • Deemed ownership 100% Black 40% Black female 10% Black designated groups

2. Management

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Generic Scorecard

Indicator

Black board member voting rights Black executive board members Black female executive board members Black senior top management Black female senior top management Black other top management Black female other top management

TOTAL

Bonus point: Black independent non executive board members

Weighting (Marks)

3 1 1 2 1 1 1

Target

50% 50% 25% 40% 20% 40% 20% 20%

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2. Management

1. What constitutes the Board?

  In a company, the board is those persons elected by the shareholders to serve as board members In other forms of enterprise, the board would be the owner representative body 2. What are executive Board members?

  Those persons serving on the Board who are also ordinary employees of the company It is not enough that they are paid a directors fees. They must be actual employees 3. What are non-executive Board members?

 Board members not employed by the company 4. What are non-executive independent Board •  members?

Non-executive Board members who are independent of the company (i.e. not shareholders!)

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2. Management

5. What constitutes Senior Top Management versus Other Top Management?

2. Management

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QSE Scorecard

Indicator

Black representation at Owner Manager Level

TOTAL

Bonus points: Black women representation at Owner Manager level

Weighting (Marks)

Target

25.1%

2 10%

3. Employment Equity

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Generic Scorecard

Indicator

Black people with disabilities Black Senior Management Black Women in Senior Management Black Professionals, Specialists and Mid Management Black Female Professionals, Specialists and Mid-Management Black Skilled Technical, Academically Qualified, Junior Management, Foremen, Supervisors and Superintendents

TOTAL Weighting (Marks)

2 2 2 2 1 1

10 Target

4% 60% 30% 75% 40% 80%

3. Employment Equity QSE Scorecard

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Black representation at Manager-Controller level Black female representation at Manager-Controller level Black employees as a percentage of total employees Black women as a percentage of total employees

TOTAL Weighting (Marks)

6 6 4 4

10 Target

40% 20% 70% 35%

4. Skills Development Generic Scorecard

Pre-Qualifying Conditions: © Copyright Rainbow SA & Empowerment Services 2006

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• Be compliant with the Skills Development Act (SDA) & Skills Development Levies Act (SDLA)  Up-to-date with Skills Levy • Registered with applicable SETA • Developed a Workplace Skills Plan (WSP) • Have implemented programs targeting the development of Critical & / or Core Skills generally, and specifically, in relation to black employees

4. Skills Development

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Generic Scorecard

Indicator

Spend on Black skills development as percentage of Leviable Amount Spend on Critical Skills and/or Core Skills development as percentage of Leviable Amount Spend on Critical Skills and/or Core Skills development for black women as percentage of Leviable Amount Spend on Critical Skills and/or Core Skills development for black disabled as percentage of Leviable Amount

TOTAL SPEND RELATED SCORE Weighting (Marks)

4 2 2 1

9 Target

3% 2.6% 1.4% 0.3%

4. Skills Development

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Generic Scorecard

continued Indicator Weighting (Marks)

2 Number of black employees on SETA accredited learnerships as percentage of total employees Number of black women employees on SETA accredited learnerships as percentage of total employees Number of formerly black unemployed or formally black rural people on SETA accredited learnerships as percentage of total employees

TOTAL LEARNERSHIP SCORE

2 1

5 Target

5% 2.5% 1%

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4. Skills Development Generic Scorecard

continued Indicator

Formal BEE Strategy, integrating all elements, assigning clear executive responsibility, appropriate functioning committees, approved by board & being implemented.

SDF employed

Weighting (Marks)

1 1

Target

Yes Yes Policy on Non-Discrimination widely published, promoting diversity, being implemented, regular, ongoing external diversity management training.

Employment legislation compliance 1 1 Yes Yes Implementation of effective HR Management Plan emphasising retention, long-term career planning. Include measurable targets.

Programme designed to give practical effect to the above through routine organisational social environmental audits, the results of which must be published widely in the organisation.

TOTAL OGANISATIONAL TRANSFORMATION SCORE TOTAL SCORE FOR SKILLS DEVELOPMENT

1 1

6 20

Yes Yes

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4. Skills Development

Quantifiable Skills Spend includes:

Direct Training Costs (Must represent at least 50% of all Skills Spend)        Internal training that is quantifiable & verifiable (proof of identifiable outcomes, training schedules, attendance registers & course content must be provided to verification agencies) External training that is quantifiable & verifiable (proof of invoicing or identifiable outcomes, training schedules, attendance registers & course content must be provided to verification agencies Training courses structured & recognised by the applicable SETA Costs of Training Materials Costs of Trainers Cost of external training facilities including catering costs Scholarships & bursaries (as long as awarded on a non-recoverable basis) Indirect Training Costs     Costs of internal training facilities including catering External costs such as course fees Costs like accommodation & travel Administration costs such as organisation of training

4. Skills Development QSE Scorecard

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Application submitted to the National Skills Fund Quantifiable Skills Development Spend on black employees in addition to Skills Development Levy as a percentage of the Leviable Amount

TOTAL Weighting (Marks)

5 15

20 Target

Yes 2%

5. Preferential Procurement

5. Preferential Procurement – Generic

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BEE Procurement Spend from Suppliers based on the BEE Procurement Recognition Levels as percentage MPS* BEE Procurement Spend from QSE Suppliers based on the BEE Procurement Recognition Levels as percentage MPS* BEE Procurement Spend from Exempted Micro Enterprises Suppliers as percentage MPS*

TOTAL

*MPS – Measured Procurement Spend

Weighting (Marks)

15 4 1

20 Target

70% 15% 5%

5. Preferential Procurement

5. Preferential Procurement – QSEs

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BEE Procurement Spend from Suppliers based on the BEE Procurement Recognition Levels as percentage of Total Measured Procurement Spend

Weighting (Marks)

Target

50%

TOTAL 20

6. Enterprise Development Generic Scorecard

011-485-2036 Indicator

Cumulative

Non-Recoverable

made as a percentage of cumulative EBITDA measured from commencement/inception date to date of measurement Contributions Cumulative

Recoverable

Contributions made as a percentage of cumulative EBITDA measured from commencement/inception date to date of measurement

TOTAL Weighting (Marks)

6 4

10 Target

2% 3%

6. Enterprise Development QSE Scorecard

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Qualifying Enterprise Development Contributions made by the Qualifying Small Enterprise as a percentage of EBITDA

Weighting (Marks)

Target

TOTAL 20

7. Residual Element (CSI) Generic Scorecard

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Cumulative Rand value of

Qualifying CSI

measurement

Non-recoverable

contributions as percentage of net profit after tax measured from commencement/inception date to date of Cumulative Rand value of

Qualifying Industry Specific

of measurement contributions as percentage of net profit after tax measured from commencement/inception date to date

TOTAL Weighting (Marks)

Target

1.5% 5

1.5%

7. Residual Element (CSI) QSE Scorecard

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Qualifying Residual Contributions made by the Qualifying Small Enterprise measured as a percentage of net profit after tax, made to Corporate Social Investments and/or Industry Specific Contributions

Weighting (Marks)

Target

TOTAL 20

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Fronting Fronting Practices

 Window-dressing  Benefit Diversion  Opportunistic Intermediaries

Fronting

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Indicators of Fronting Risk



High Risk Indicators (3 points):

• Black owners / managers role uncertain • Black executives paid lower • Entity only performing peripheral functions • Entity relies on 3 rd party for core functions • Contractual or technical reliance on 3 rd party • Any other practice circumventing Codes

Fronting

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Indicators of Fronting Risk



Moderate Risk Indicators (1 point):

• Black owners/managers - limited knowledge • Black people not active in top management • Paying admin/management fees to related non-BEE entity • Procures at non-market rates from related non-BEE entity (Transfer Pricing) • Obtains loans from related non-BEE entity at excessive interest • Shares infrastructure with related non- BEE entity and pays non-market prices

Fronting

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Fronting Score:

   

Add up indicator points to get score Fronting Score >= 10:

• “Excessive Fronting Risk” • Recognition Level decreased by one for every 5 points • 14 days to rectify or reported to Minister

Fronting Score from 5 to 9:

• “High Fronting Risk” • Recognition Level decreased by one

Fronting Score <5

• No action

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Fronting Fronting:

WARNING

A person awarded a contract as a result of preference for BBBEE may not subcontract more than 25% of the value of the contract to a person who does not qualify for such a preference"

National Treasury - Draft Preferential Procurement Regulations 2004

Transitional Period

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Transitional Score:

 First 12 months after Commencement Date  Use full scorecard score OR  Score = 1.92 x (Ownership + Management)

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Questions?

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Thank You

William Janisch is a director at

Empowerment Services

South Africa’s leading BEE Consultancy as well as a Project Director for –

The National Empowerment Directory

– the dti’s “BEE bible” – a step by-step guide through BEE, due out when the Codes are gazetted later this year and

The National Skills Development Directory

He can be contacted on: 011 485-2036 OR via email:

[email protected]