Transcript Charter - ipac

BEE and the Financial Sector
Charter
Introduction
 In August 2002, at the NEDLAC Financial
Sector Summit, the financial sector
committed itself to the development of a
Black Economic Empowerment (BEE)
Charter.
S 1. Charter Preamble:
Commitment made noting…
 that South African society remains
characterised by racially based income
and social services inequalities - which is
not only unjust, but inhibits the country’s
ability to achieve its fully economic
potential;
 BEE is aimed at addressing inequalities;
 It will unlock the sector’s potential, and
promote its global competitiveness
Parties to this charter are….
 Committed to promoting a globally
competitive financial sector
 that reflects the demographics of South
Africa, and
 contributes to the establishment of an
equitable society by providing accessible
financial services to black people and
directing investment into targeted sectors of
the economy.
This financial sector charter…
 Was voluntarily developed by the sector;
 Is a ‘Transformation Charter’ ito BEE;
 Constitutes a framework and establishes the
principles upon which BEE will be implemented;
 Represents a partnership programme;
 Establishes targets;
 Outlines processes for implementing the charter
and mechanisms to monitor and report on
progress.
Interpretation
 BEE accredited - being validated in terms of this
charter as a BEE company, or having achieved a
certain standard of BEE contribution in terms of
a charter scorecard.
 BEE transactions – acquisition by blacks of
direct ownership in financial sector entity, and
JV’s in BEE companies
 Black companies - companies that are more
than 50% owned and are controlled by black
people.
Interpretation cont…
 Black empowered companies – more than 25%
owned by black people and where substantial
participation in control is vested in black people.
 Black influenced companies – companies that
are between 5% and 25% owned by black
people and with participation in control by black
people.
 Black people – All Africans, Coloured and
Indians who are South African citizens and
includes black companies – also in certain
circumstances, includes permanent residents of
the Republic of South Africa.
Interpretation cont…
 Black women-empowered enterprise – companies that
are more than 30% owned by black women, and where
substantial participation in control is vested in black
women.
 Broad-based ownership – where an empowerment
shareholder represents a broad base of members such
as employees or where the benefits support a target
group, for example black women, people living with
disabilities and the youth.
 Control – authority to manage assets, the determination
of policies and direction of business oparations.
[ indicators listed in def’n – e.g. voting rights and general
participation in control structures and in executive
management]
Interpretation cont…
 Direct ownership – ownership of an equity
interest together with control over all of the
voting rights attaching to that equity
interest.
 Empowerment financing – provision of
finance for or investment in:
 Targeted investment; and
 BEE transactions
Interpretation cont…
 Financial sector – all the classes of financial
institution defined below.
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Banks
Long-term insurers
Short-term insurers
Re-insurers
Managers of formal collective investment schemes in
securities
 Investment managers and other entities that manage
funds on behalf of the public
 Any other institution in the financial sector may opt in
Interpretation cont…
 Indirect ownership – investor owns equity in a
company on behalf of beneficiaries and there may
not be direct participation by the beneficiaries in
the voting rights.
 Management
 Senior management – cost to the employer is
R450 000 pa or more [excludes executive management]
 Middle management – between R250 000 and
R450 000 pa
 Junior management – R150 000 and R250 000 pa
 Salary bands will be increased in line with the consumer
price index (“CPIX”)
Interpretation cont…
 Procurement – all expenditure to acquire goods
and or services including capital expenditure,
but excluding:
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Broker commissions;
Commissions paid to insurance intermediaries;
Property and rental purchases
Salaries and wages
Procurement spending where there is a monopoly
Procurement where supplier imposed by global policy
for technical reasons
 Social investment spending
Interpretation cont
 Sound business practice – business practice
conducive to maintaining and promoting,
Confidence in the sector etc [see definition]
 Targeted investment – financing of or equity
investment in SA projects where gaps /backlogs
in economic development and job creation have
not been adequately addressed by financial
institutions [such as in low income housing etc]
Challenges
Section 3: Challenges facing the
Financial Sector
 Financial sectors plays a central role in enhancing
growth and development. South African financial sector
is world class, but is confronted with a number of
challenges:
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The sector is dominated by a few very large institutions
Low levels of black participation, especially of black women
Access to financial services difficult for blacks
No effective provision of credit to black entrepreneurs
National level of savings and investment is inadequate
Insufficient investment into targeted investments of national
priority
 Funds circulates outside the formal financial system, stokvels,
 Limited support for new black firms
 Need to find meaningful ways to support the Prouldy South
African Campaign
Challenges cont…
 By addressing the challenges, the financial
sector will make a significant contribution
towards economic growth and also
promote growth in the financial sector.
Challenges cont…
 To address BEE, the following imperatives must be
satisfied:
 Long term financial stability and sectors capacity to finance
economic growth to be maintained
 Enhance access to financial services for blacks
 A savings culture to be developed
 Investing in the skills development and training of existing
and new black professionals and managers
 Black leadership must be fostered
 Promote triple bottom line (economic, environmental,
social) accountability, including good corporate governance
Challenges cont
 Representation of black women and black people
living with disabilities must be increased
 Black firms providing services and products to the
financial services industry must be increased
 Business to support black entrepreneurs
 Direct savings towards targeted investment of
national priority
 The sector must lower the barriers to entry and must
promote the empowerment objectives of this charter
SECTION 4.Application of the
Financial Sector Charter
 Targets applied from 1 January 2004 until
31 December 2014.
 the Charter Council will review and make decisions
regarding the implementation of the charter on an ongoing
basis, and
 Principles contained in the charter will be relevant beyond
2015.
 In 2009 the Council will have a mid-term review
 Ownership provisions will be reviewed in 2011 to establish
shortcomings
 In 2015 the Council will undertake a second comprehensive review
to decide further steps.
 The provisions of the charter are to be
achieved in a manner consistent with
sound business practice
Application of the
Financial Sector Charter cont…
 Provisions of the charter will not apply in the same
manner to all financial institutions. The following
examples of qualifications are provided for:
 Human Resource Development – less than 50 staff members
[but still bound by other BEE legislation]
 Empowerment Financing – less than R10m
 If a global policy applies – ratio’s change
 Retirement funds –less than 50 members=certain exclusions – if
more than 50, different exclusions
 All Provisions – less than 50 staff members & less than R10m
designated investment
 Anyone can opt in!
 Any exclusions = need to apply to Council and motivate
exclusion
Application of the
Financial Sector Charter cont…
 Parties to the Charter agree that
 when sourcing products and services from the
financial sector, competing for business, they will use
the charter rating to explain their BEE contribution
 Specifically agreed, when competing for business, the
charter rating to explain their BEE contribution
 Tenders - Government will base their
adjudication of BEE contribution on the charter
rating
 Private sector should base its evaluation of the
BEE in terms of this charter
Human Resource Development
 Each financial institution undertakes to:
 Promote a non-racial, non-sexist environment;
 Increase the participation of black people in
skilled, strategic and operational leadership;
 Invest in leadership to enable them to play a
central role in driving the transformation
programme
Human Resource Development
cont…
 In addition to the obligations of Employment
Equity and Skills Development legislation –
 Each financial institution will have a minimum
target of 20% to 25% black people at senior
management (> R450 000pa) level by 2008;
 4% black women at senior management level (>
R450 000pa) by 2008;
 30% black people at middle management level
(> R250 000pa) by 2008;
Human Resource Development
cont…
 10% black women at middle management level (>
R250 000pa) by 2008;
 40% to 50% black people at junior management level
(> R150 000pa) by 2008;
 15% black women at junior management level (>
R150 000pa) by 2008;
 A 2014 target of 33% of the relevant total back
representation target has been set for black women
representation at all four levels.
 The Council will establish other 2014 targets for
management and executive level – before 2008
Human Resource Development
cont…
 Over and above any skills levies, from the
effective date of the charter to 2008, spend 1,5%
of total basic payroll per annum on training of
black employees.
 Skills development initiative shall be directed at
skills programmes that promote black skills.
 Financial sector undertakes to implement a
Learnership Programme which will employ up to
4,5% of its total staff in the form of black
matriculants in registered learnerships.
Human Resource Development
cont…
 Each financial institution undertakes to
develop and report on:
 Career pathing to facilitate progress in their
black employees careers;
 Implementation of mentorship programmes;
 Targeted recruitment
 Cultural diversity and gender sensitivity
programmes;
 Introduce training programmes in line with the
NQF requirements.
Chapter 6.Procurement Policies
 Financial institutions will implement a targeted
procurement strategy. The target will be 50% of
the value of all procurement from BEE
accredited companies by 2008 and 70% by
2014.
 A minimum of two thirds of that expenditure must
be spent with BEE accredited companies as the
primary vendor. The residual one third may be
channeled via a primary vendor.
Procurement Policies cont…
 Financial institutions will:
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Provide support to black SMEs, setting aside areas
of procurement reserved or preferred for black
SME’s only;
Promote early payment;
Encourage existing suppliers to address BEE;
Explore ways of supporting the Proudly South
African Campaign;
 The Charter Council will review the 2008 and
2014 targets in 2005.
Enterprise Development
 The sector will:
 Improve levels of assistance to BEE accredited companies –
such as infrastructure support, secondment of staff etc.
Measurable financial support will be scored under procurement
 Support establishment of BEE accredited companies through
which the sector sells its products and services – this will be
scored under procurement
 Support j.v’s debt financing of and equity investment in BEE
companies – this will be scored under Targeted investments
 the sector undertakes to, where appropriate, refer
business opportunities to and procure financial services
from, black owned financial institutions
Access to Financial Services
 the Sector recognises that access to retail
financial services is fundamental to BEE
 specific actions were agreed in relation to:
 Ensuring the provision of financial services including:
 Affordable banking services;
 savings schemes;
 Credit for small and micro enterprise and poor households.
 Aim is
 to enhance accumulation of savings and direct them to
development initiatives
 Increase access to financial services to a greater segment of
the population, such as access to savings products, life
assurance products etc
Access to Financial Services cont
 Sector agrees:
 to annually invest a minimum of 0.2% of post tax
operating profits in consumer education –
empowering consumers to make informed decisions
about their finances.[ from charter effective date to
2008]
 Focus of education to empower consumers to make
informed decisions about their finances and lifestyles
 To eliminate discrimination in the provision of financial
services
 By 2005 there will be standards to monitor and
evaluate the above initiatives on access.
Section 9.Empowerment Financing
 All the parties commit themselves to working in
partnership with Government and to mobilise
resources for empowerment financing.
 Preliminary calculations estimate new
empowerment financing from the sector could
exceed R75bn
 Investment in transformational infrastructure will
depend on mechanisms to identify and analyze
potential projects
Principles of BEE transactions
 BEE ownership initiatives should be aimed at promoting
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the sustainable participation of black people in the sector
Ownership to be encouraged where it adds value to the
co and includes management and control
Funding structures to facilitate the transfer of full
economic interest to the BEE partner, aimed at long
term shareholder- type relationships.
Retention of shareholding to be promoted
Broad based empowerment to be promoted -Employee
ownership to be promoted
Ownership in the financial sector
 Each financial institution will have a target
of a minimum of 25% black ownership at
holding company level by 2010;
 10% by way of direct ownership by black
people;
 Bonus points to be warded if more than 10%
is directly owned
Ownership in the financial sector
cont…
 Direct ownership should include:
 Direct ownership as a result of BEE
transaction financing
 Broad-based ownership;
 Disposal of any assets or businesses by the
financial institution to black people as a going
concern;
 Direct shareholding, at subsidiary level ;
 Joint venture or partnership arrangements
Ownership in the financial sector
cont…
 Any transaction which involves BEE parties
acquiring equity on a conditional, deferred basis,
with no issue of equity carrying upfront
economic interest for the avoidance of doubt,
will not fall to be counted as direct ownership;
 If direct ownership transaction unwinds, it must
be referred to the Charter Council – who will
analyse the original transaction –was it a
genuine transaction?
 if owned more than 25 % by empowered co, the
institution can take into account the direct black
ownership in that other company
Control in the financial sector
 A target of 33% black people on the board
of directors by 2008;
 A minimum of 11% black women on the
board by 2008;
 A target of a minimum of 25% black
people at executive level by 2008;
 A minimum of 4% black women at
executive level by 2008.
Shareholder activism
 Sector recognises shareholder activism critical for
growth in the sector
 Institutions undertake, within parameters of good
corporate governance, to:
 Promote influence of black owners at board level
 Encourage training and awareness of shareholders
 Fund managers and asset consultants commit to
improve their knowledge and that of union trustees
regarding BEE transactions and targeted investments
 Pension Fund trustees encouraged to promote the
objectives of the charter in the entities in which they
have taken significant investments
Corporate Social Investment
 A target of 0,5% per annum of post tax operating profits to
corporate social investment (CSI).
 CSI means projects aimed primarily at black groups that will
contribute to transformation.
 Projects may include, but will not be limited to:
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Education
Training
Development Programmes
Environment
Job Creation
Arts & Culture
Health
Sport
Regulatory issues
 Regulatory environment must promote the
Charter’s empowerment objectives
 If regulatory environment inhibits compliance it is
to be changed to allow for compliance
 This is published as a Transformation Charter in
terms of BEE legislation
 Minister requested to publish a Code of Good
Practice to give effect to the adjudication of
tenders
Implementation
 Charter Council – an independent body to
oversee the implementation of the Charter
 Council will :
 Conduct reviews
 Evaluate and review targets and strategies in a
changing environment
 Confirm ratings of financial institutions
 Issue guidance notes on interpretation of the Charter
 Evaluate new areas of intervention
 Accredit agencies to perform audits
 Promote, along with government, institutions and BEE
advisory Council, the implementation of the Charter
Implementation cont
 Reporting and Review
 Each financial institution will report annually to the
Charter Council. If a financial institution is a member
of a group, it should report as part of the group in the
South African holding company.
 The first annual report will be for the year ending 31
December 2004.
 All financial institutions will publish, for general
information, an annual BEE report which will include
the audited scorecard.
The Scorecard
 The scorecard forms an integral part of the
financial sector charter
 The scorecard
 provides measurement indicators for purposes of
measuring BEE progress.
 Will be used by:
 Financial institutions for self assessment
 Charter Council to measure BEE progress
 Government in adjudicating contracts awarded to financial
institutions
 The private sector in awarding contract to financial institutions
 Financial institutions which are exempted from any
paragraph in the charter will not be required to
complete the specific section in the scorecard.
Scorecard continued
 measures three core elements of BEE
-Ownership and control of enterprises and assets,
-HR development and EE,
- Indirect empowerment through preferential
procurement
 BEE Ratings:
 0 to 40 = limited contributer
 40 to 65 – satisfactory contributer
 More than 65 = good contributer
 Financial Charter uses more complex overall weighted average
mechanism – from an ‘A’ for more than 80 points to an ‘E’ for less
than 40points
Charter signed by
 Association of Black Securities and Investment
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Professionals
Banking Council of South Africa
Foreign Bankers Association of SA
Institute of Retirement Funds
Life Offices’ Association of SA
South African Insurers Association
Association of Collective Investments
Bond Exchange of SA
Investment Managers Association of SA
JSE Securities Exchange SA
South African Reinsurance Offices’ Association
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