Home Articles ANALYSIS: Why immediate B-BBEE implementation is important

ANALYSIS: Why immediate B-BBEE implementation is important

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Anton de Wet explains why companies should start implementing their enhanced B-BBEE initiatives as soon as possible

The amended codes of good practice become effective on 1 May 2015 and all verifications performed after this date will be in terms of the amended codes.

It is important to note that the first two elements of the scorecard relate to the so-called ‘head-count’ as they basically measure the number of black people involved in the business. These elements are equity ownership (measuring black economic interest and voting rights) and management control (measuring blackboard participation and the number of black employees) and are only measured at the time of verification. This means that if a business will have its first verification in terms of the amended codes done in April 2016, it gives management almost a year to optimise the employment equity structure and to implement an equity ownership transaction with a black equity investor. Some enterprises’ current B-BBEE certificates may expire much sooner, and these will have a much shorter window period for enhanced implementation under these two elements.

The last three elements on the scorecard relate to monetary expenditure. These are skills development (training black people), enterprise and supplier development (procuring from and supporting other B-BBEE compliant and small black-owned enterprises) and socio-economic development (supporting the broader population that was previously disadvantaged). It is these three elements that demand immediate implementation as they are based on a ‘measurement period’ for which properly draughted financial statements must be available for verification purposes. A company may only be measured once on a specific measurement period.

We foresee two challenges with regard to the measurement period:

  • If the last verification under the ‘old’ codes was based on the 2013/14 financial statements, then most probably only the 2014/15 financial statements will be finalised and available in time for the next verification under the amended codes. The problem is that most probably during the 2014/15 financial year, not enough was done to meet the enhanced criteria for the amended codes. An example is that the target for skills development (a priority element accounting for 25 points on the scorecard) under the amended codes for large enterprises (annual revenue above R50 million) has increased from 3% to 6% of the annual payroll of the company. Another example is that most probably no structured supplier development was done in the 2014/15 financial year, which accounts for ten points on the amended scorecard. These examples show that, unless specific initiatives were implemented in line with the amended codes, enterprises would score very poorly if measured for their 2014/15 financial year as the ‘measurement period’.
  • If the last verification under the ‘old’ codes was based on the 2014/15 financial statements, then the next verification under the amended codes will have to be based on the 2015/16 financial statements. This makes things a little easier, as this is the current financial year with around en months remaining. Training of black people can therefor still be done, more compliant and black-owned suppliers can still be sourced, supplier and enterprise development can still be arranged, and socio-economic development donations made. The sooner these initiatives are implemented, the better. The ultimate scoring will be when the entire 2015/16 financial year will be reviewed during the next verification.

The nature and criteria of the amended codes now make it an imperative that enterprises incorporate their B-BBEE initiatives into their overall business strategy if they are going to remain compliant and retain or grow their market share. As is the case with other business initiatives, proper tracking and reporting on a monthly basis will be essential. The problem is that the highly technical nature of the amended codes has left a knowledge gap within businesses that will unfortunately take time to fill – time that cannot be afforded to be spent right now!

There are two approaches that companies can follow when it comes to managing the B-BBEE function. An internal B-BBEE ‘champion’ with the relevant skills and experience can be appointed. This person should take full responsibility for driving the transformation process. External expert support may be obtained from time to time. With the buy-in from top management, this person implements identified initiatives and reports to top management on a regular basis. This approach has worked well for larger corporates.

Alternatively, the entire B-BBEE function can be outsourced to a specialist B-BBEE solutions provider who not only advises management on the most practical initiatives for the specific business, but also takes full responsibility for implementation.

Author:

Anton de Wet CA(SA) is B-BBEE Partner as Middel & Partners and Founder of Net Value Holdings (Pty) Ltd

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