Transcript No Slide Title

The Code of Good Practice on
Black Economic Empowerment
1
STRUCTURE OF THE CODE OF
GOOD PRACTICE
AN IMPLEMENTATION FRAMEWORK FOR
BROAD-BASED BLACK ECONOMIC
EMPOWERMENT
STRUCTURE OF THE CODE OF GOOD PRACTICE
CODE 000: IMPLEMENTATION FRAMEWORK
CODE 100: EQUITY OWNERSHIP
CODE 200: MANAGEMENT
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Progress on the B-BBEE Process
Current Achievements:
3
•
BBBEE Act provides an enabling framework
•
The BBBEE Strategy stipulates the BEE intents and principles
of Government
•
Massive increase in BEE across all sectors of the economy
•
BEE is recognized as a business imperative and deals are
more broad-based than previously
•
BEE Charters in strategic sectors (Mining, FSC, ICT, Tourism,
Liquor, Agriculture, Transport, Health)
Concerns and Risks around the
B-BBEE Process
4
•
Lack of full understanding and appreciation of the principles
of broad-based BEE
•
Inconsistent application of BEE
•
Extensive debates could result in delays – biggest risk is
slow or no progress on BEE
•
Disparity in Charter Definitions and Targets
•
Lack of Implementation Guidelines can result in ‘Fronting’ or
‘Sham’ transactions promoted
Code of Good Practice as the BEE
Implementation Framework
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Broad-based BEE Act
No. 53 of 2003
Broad-based BEE
Strategy
Legislative Enabling
Framework
Strategic
Framework
Codes of Good Practice
Implementation Framework
and Guidelines
Set BEE
Generic or
Interpret Indicators,
Sector-specific
BEE
Weightings
BEE
Definitions
and
Scorecards
Targets
Guidelines
Guidelines to maintain
to draw Institutional
up BEE Framework
(BEE Council
charters
/Accreditation
Agencies)
Agenda
AN IMPLEMENTATION FRAMEWORK FOR
BROAD-BASED BLACK ECONOMIC
EMPOWERMENT
STRUCTURE OF THE CODE OF GOOD PRACTICE
CODE 000: IMPLEMENTATION FRAMEWORK
CODE 100: EQUITY OWNERSHIP
CODE 200: MANAGEMENT
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Code of Good Practice (Structure)
Each Code explains all issues pertaining
to a key BEE element and can consist of
one or more statements
Code 000:
Framework
Phase 1
Code 100:
Ownership
Code 200:
Management
Code
of
Good
Practice
Phase
2
7
A Statement include a related set
of principles that guides the
implementation of one BEE issue
Statement 000:
Code 300:
Employment Equity
Code 400:
Skills Development
Code 500:
Affirmative Procurement
Code 600:
Enterprise Development
Code 700:
CSI and Industry Specific
Code 800:
BEE Practice Notes
Conceptual Framework
Statement 010:
Charter Guidelines
Statement 020:
BEE Council
Statement 030:
Broad-based BEE
Implementation
Statement 040:
Glossary
Statement 050:
BEE Rating agencies
accreditation
Statement 100:
Ownership
Statement 200:
Management
Structure of the
Code of Good Practice
Structure of the Code:
The Benefits of the Adopted Structure:
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•
Logical Flow of the Structure: The Code is structured
according to the logical flow of BEE scorecard.
•
Flexibility of the Structure: It enables the Minister and DTI to
expand, amend or remove individual statement as and when
required, without having to re-issue the entire Code of Good
Practice.
•
Best Practice: The structure is similar to those used by the
Generally Accepted Accounting Practice internationally.
Agenda
AN IMPLEMENTATION FRAMEWORK FOR
BROAD-BASED BLACK ECONOMIC
EMPOWERMENT
STRUCTURE OF THE CODE OF GOOD PRACTICE
CODE 000: IMPLEMENTATION FRAMEWORK
CODE 100: EQUITY OWNERSHIP
CODE 200: MANAGEMENT
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Code 000 – Implementation
Framework
Objective of this Code:
This code comprises of statements that:
•
•
Establish the conceptual framework
Summarizes the indicators, weightings and targets for
each element of the Scorecard
BEE elements
•
•
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Provide application guideline for the generic BEE
Scorecard
Establish different institutional framework to facilitate the
implementation of the Strategy and the Code of Good
Practice.
Code 000 – Implementation
Framework
Statement(s) currently contained in this Code:
•
•
•
•
•
•
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Statement 000: Conceptual Framework
Statement 010: Sector Transformation Charters
Statement 020: BEE Advisory Council
Statement 030: Implementation of Broad-based BEE
Statement 040: Glossary
Statement 050: Accreditation Agencies
Statement 000 – Conceptual Framework
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Key
Principles
Description
Implication
Substance
over Form
Broad-based BEE must be
measured and reported
according to economic reality
rather than legal form
• Penalize the use and reporting of
‘fronting’ or ‘sham’ BEE
structures and entities.
• Prevent BEE from becoming a
box-ticking exercise and lose its
socio-economic substance.
Broadbased BEE
Scorecard
BEE is an integrated socioeconomic process which aims
at empowering all black people
BEE is measured based on seven
core elements: ownership,
management, employment equity,
skills development, affirmative
procurement, enterprise
development and residual
Old scorecard
vs
New scorecard
Old
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New
No targets included
Targets included
No points allocated for
women
Points allocated for women
Preferential procurement
based on black ownership
Preferential procurement
based on BEE contribution
No bonus points for overperformance
Bonus points given for overperformance
Indicators limited
More options for indicators
Statement 010 –
Sector Transformation
Charter
• Outline the process to be followed in
formulating a sector charter
• Establish the status of sector transformation
charter
• Identify principles to be applied to harmonise
the different charters
• Outline the process of constituting Charter
Councils and prescribe the powers of these
Councils
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Statement 010 –
Sector Transformation Charter
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Key
Principles
Description
Implication
Qualification
Criteria
Only sectors interacting directly
with the government, as
determined by government are
encouraged to develop sector
charters.
• Ensure that charters are only
developed in key economic sectors.
• Preclude entities from avoiding the
application of the generic scorecard
through sector charters.
Guideline for
setting
targets,
weightings
and
indicators
The charters cannot deviate from
the definitions and principles of
the Code.
• Prevent sectors from circumventing
the BEE principles of the Act,
Strategy and the Code through
charters
• Reduce confusion resulting from
multiplicity of definition for the same
BEE principles in different charters.
Publication
of charter in
the Gazette
Minister to publish in the Gazette
as a charter if meet all s12
requirements. Minister can also
elect to publish charter as a Code
(s9) if it meet all requirement of
the Strategy and this Statements.
• Gazetted Charter are an evidence of
sector commitment to transformation
• On the other hand, Charter gazetted
as a Code of Good Practice has same
status as a Code (can be used in
determination of BEE status)
Statement 030 –
Implementation of Broad-based BEE
• Identify policy instruments and initiatives that
can promote broad-based BEE
• Align the implementation of policy
instruments and initiatives to broad-based
BEE
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Statement 030 –
Implementation of Broad-based BEE
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Key
Principles
Description
Implication
Policy
Instruments
Identifies policy instruments and
initiatives that can be used to
promote broad-based BEE
• Increase awareness of public and
private sector decision maker of
when broad-based BEE status can be
applied
Application
of Broadbased
Principle
Differentiate between the use of
broad-based measures (based on
the scorecard) and narrow-based
measure (based solely on
ownership). Identify the risk of
narrow-based application to the
BEE process and the economy.
• Provide implementation and
reporting guidelines to align policy
instruments to broad-based BEE
• Raise the awareness of the risks and
potential conflicts around the use of
narrow-based BEE measures
• Promote the adoption of the
scorecard as contained in the strategy
and the Code.
Transitional
Provisions
Entities currently applying
measures that are either narrowbased or that are contrary to the
Code will be given 12 months to
adapt their decision-making and
reporting mechanisms.
• Align all public and private sector
policy instrument and initiatives to
broad-based BEE over 12 months
• Enhance the multiplier effects as
envisaged in the broad-based BEE
model
Other Statements within Code 000
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Key
Principles
Description
Implication
Advisory
Council
(020)
Establish the guidelines for the
creation and the operations of
the BEE Advisory Council
• Facilitate the creation and operation
of the BEE Advisory Council
Glossary
(040)
Provide a standard glossary of
all terms and definitions used in
the Code of Good Practice
• Collate all BEE terms and
definitions used in the Code of Good
Practice
• Provide a centralized source of
BEE definitions that can assist sector
organizations, entities and
practitioners
Approved
Accreditation
Agencies
(050)
Establish the technical and BEE
qualification criteria for
accreditation agencies. Create
an approval mechanism for dti
to approve accreditation
agencies.
• Create a framework whereby
Government can leverage the work
and information of the accreditation
agencies to accelerate BEE
• Provide an approval framework to
ensure that all accreditation agencies
have the necessary technical and
BEE credentials to evaluate BEE
Agenda
AN IMPLEMENTATION FRAMEWORK FOR BROADBASED BLACK ECONOMIC EMPOWERMENT
STRUCTURE OF THE CODE OF GOOD PRACTICE
CODE 000: IMPLEMENTATION FRAMEWORK
CODE 100: EQUITY OWNERSHIP
CODE 200: MANAGEMENT
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Code 100 – Ownership
Objective of this Code:
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•
This code comprises of statements that inform the recognition
and measurement criteria for black ownership.
•
The code also ensures that the BEE process can result in the
transfer of genuine, substantive and sustainable ownership to
black people.
•
The Code also aims to reduce ‘fronting’ and misrepresentation of
black ownership by companies through the stipulation of a
standard set of principles and guidelines for its measurement
and reporting.
Code 100 – Ownership
Statement(s) currently contained in this Code:
•
Statement 100: Recognition and Measurement of BEE
Ownership
Objectives
•
•
•
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To increase the number of black people that manage, own
and control enterprises and productive assets.
Provide recognition and measurement criteria for black
ownership
Provide key principles to be used in determining
ownership by black people
Statement 100 – Ownership
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Key
Principles
Description
Implication
Ownership as
Economic
Interest and
Voting Rights
Ownership is measured as an
entitlement to both voting rights
and economic interests.
• Prevent transactions where black
people are given voting right but no
economic interest.
• Prevent fronting transactions where
no real economic transfer take place.
Flow
Through
Principle
Ownership is included if it is held
by natural person. In the case of
holding by a juristic person such as
a company, only the portion of
ownership in that entity by a
natural black person will be
included.
• Pierce through pyramid holding
structures that are been used to inflate
black ownership in entities
• Measures and reports the actual
levels of economic ownership held by
black people
• Will determine what are the actual
economic benefits flowing to the BEE
equity holders.
Restrictions
Identifies and exclude any equity
subject to any rights limitations
• Penalize transactions where the
rights attached to the equity holding of
black owners are limited
• Reduce ‘Fronting’ transactions
Flow Through Principle
49%
Black Individual
51%
Non-BEE Shareholders
Holding Company 1
49%
51%
Holding Company 2
49%
51%
Company C
Effective black ownership in Company C is 51%*51%*51% = 12.5 percent
Determinant
ofOwnership
Ownership
Determinant of
ScoreScore
All Black S/H
Voting Right
Economic Benefit
Ownership
(20% of
BEE Scorecard)
Unencumbered Interest
Black Women
Broad-based
Broad-based Groups
Groups
New Entrants
MEASUREMENT PRINCIPLE:
Recognize and reward companies for the ability of black people to exercise
and benefit from
ownership rights, as well as the extent of the beneficiary base.
(2 Ways to allocate scores for BEE Ownership)
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•
Allocation by black people’s ability to exercise ownership rights including:
– unrestricted voting right
– the right to receive economic interest such as dividends and capital gains
– unrestricted and unencumbered entitlement to economic interest
•
Allocation by the beneficiary base, taking into accounts participation by:
– black women
– new entrants, and
– black designated groups (such as black workers, black youth, black people with
disability and black people living in rural areas)
Ownership
Score
Allocation
Black
Designated
Groups
5%
Black
Women
20%
All Black
People
(including
black
women and
designated
groups)
75%
Allocation by
categories ensures that
only companies with
black women and
designated group
participant get 100%.
Point Allocation by Categories of Ownership
Rights
Unemcumbered
Economic
Interest
40%
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Voting Rights
25%
Economic
Interest
35%
Allocation by
ownership right
differentiate
between the rights
accrual to black
investors
Ownership Indicator
1.1.1
Weighting
points
Compliance
target
Voting Rights:
1.1.1.1
Unrestricted Voting Rights in the Enterprise in
the hands of Black people
3
25%+1 vote
1.1.1.2
Unrestricted Voting Rights in the Enterprise in
the hands of Black women
2
10%
1.1.2
Economic Interest:
1.1.2.1
Economic Interest in the Enterprise to which
Black people are entitled
4
25%
1.1.2.2
Economic Interest in the Enterprise to which
Black women are entitled
2
10%
1.1.2.3
Economic Interest in the Enterprise to which
Black designated groups are entitled
1
2.5%
1.1.2.4
Level of Unrestricted entitlement of Black
people to receive their Economic Interest in
the Enterprise
8
25%
1.1.3
Bonus points:
1.1.3.1
Involvement of new entrants who are Black
people in the ownership of Enterprises
1
As specified
below
1.1.3.2
Performance in excess of the requisite
targets for Unrestricted Voting Rights or
Unrestricted Economic Interest
1
As specified
below
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Ownership measured through the matrix table, allocating point for
different categories of rights and different beneficiaries
Measurement
Principles
Key Principles
26
•
Options and Contingent Claims: Where an option is used
where the economic interest is contingent upon a future event,
the economic interest will be projected on a fair and
reasonable basis, but will be recognized as restricted
economic interest.
•
Organs of State, Pension Funds and Superannuation
Schemes: The BEE ownership by organs of state, pension
funds and superannuation schemes are specifically excluded
from the calculation from both numerator and denominator.
The amount excluded from total ownership (denominator) is
limited to the lower of 25 percent or the level of economic
interest owned by black people. An enterprise with more than
75 percent ownership by the state is specifically exempted
from the application of this statement.
Key Principles (Continued)
27
•
Bonus Points: The statement provide for:
– one (1) bonus point to be awarded for new entrants,
where the black people buying into the enterprise have
not entered into a previous transaction where the fair
market value of the company exceed R 20 million in
value.
– The statement also provide one (1) bonus point to be
awarded to company who have exceeded the 25
percent target for voting right or economic benefits
•
Non-Circumvention:
The non-circumvention principle allows for identification of
fronting or other structures which aims to misrepresent the
level of ownership. Rating agencies are required to
maintain a database of such structures. In order to ensure
that ownership information is not misrepresented,
enterprises are required to provide appropriate
documentation to evidence their ownership.
Agenda
AN IMPLEMENTATION FRAMEWORK FOR
BROAD-BASED BLACK ECONOMIC
EMPOWERMENT
STRUCTURE OF THE CODE OF GOOD PRACTICE
CODE 000: IMPLEMENTATION FRAMEWORK
CODE 100: EQUITY OWNERSHIP
CODE 200: MANAGEMENT
29
Code 200 – Management
Objective of this Code:
•
This code contains the statements which guide the
recognition and measurement of black management
representation. Management represent the second leg
of direct empowerment component of the BEE
balanced scorecard.
Statement(s) currently contained in this Code:
•
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Statement 200: Recognition and Measurement of
Management
Statement 200 – Management
• Provide Recognition and Measurement Criteria for Management
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Key
Principles
Description
Implication
Weighted
Measurement
Criteria
The measurement criteria for
management is weighted to
give recognition to key
executive (2), executive (1) and
non-executive positions (0.5)
• Reward enterprises for appointing
black management into key executive
rather than non-executive positions
• Prevent black management
requirement from becoming a
numbers game
Management
Target
The management target is
currently set at 40 percent of
the weighted score
• Similar to mining charter
requirements
• Percentage score calculated as a
percentage of the target
Limitation of
non-executive
recognition
The statement limit the
recognition of non-executive to
10 percent of the scorecard
• Prevent enterprise from achieving
quota by only appointing black nonexecutives
• Counters market trend in
appointing black non-executives
rather than executives
Additional
Recognition
for Women
Black women management at
all levels are allocated more
significant weightings
• Provide bonus and reward
enterprise which appoint black
women management
Bee deals in R billion - source E & Y
45
40
35
30
25
R Bn
20
15
10
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
Number of BEE deals - source E & Y
200
150
No 100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
32
Year
2004
Thank You
33