- Transformation: accelerating the vision forward
- The Top 10 challenges to B-BBEE
- Boost your B-BBEE score
TRANSFORMATION ACCELERATING THE VISION FORWARD
While an unacceptably high number of South Africans are still not participating in the economy, there is another issue at hand ‒ women are just not managing to break through the glass ceiling and simply leave for greener pastures. At SAICA, we are proud of those who are striving to do something about this
One of the impediments to economic growth in our country is the slow pace of transformation. The chartered accountancy profession, by virtue of being a training and development ground for CAs(SA) and a source of future business leaders, has a significant role to play in transforming the country’s economy.
The profession has made significant strides in transforming the profession, with the latest SAICA stats showing an increase of 615% in black chartered accountants since 2002 million, to 9 674 currently. However, there is a long road ahead. One of the hurdles to a faster pace of transformation in our profession is the pipeline produced by our education system, both at a basic education and higher education level. The current numbers produced by our education system are not adequate to meet the needs of the different professions and industries, which creates huge competition for resources. This is exacerbated by the fact that the number of learners who are taking pure maths at school has declined over the years.
Combined with the analysis of data from the Institute for Futures Research at the University of Stellenbosch and the Commission for Gender Equality, the Organisation for Economic Co-operation and Development (OECD) has recently highlighted another huge factor of concern, in an analysis showing the migration patterns between all African countries and OECD countries – that is, South Africa has the highest number of highly skilled women professionals of any African country who are emigrating to other countries because of limited career opportunities. (The OECD is made up of 35 countries, including the United States, Australia, New Zealand, the United Kingdom and several European countries.)
According to Janine Hicks, Commission for Gender Equality commissioner, in 2013/14 women made up for 46,8% of the employed population; however, their representation only stood at 29,3% among executive managers, 9,2% among private sector chairpersons of boards, and as low as 2,4% among CEOs of JSE-listed companies.
Besides not being compensated fairly, rigid attitudes in the professional environment regarding the inclusion of women in key decision-making is another reason women begin seeking other opportunities, she said. In addition, the private sector fails to recognise the needs of women when fulfilling their corporate social responsibility obligations, especially in rural areas where access to services is limited.1
GROWING THE PIPELINE
However, it is reassuring to know that there are firms doing what they can to accelerate transformation …
Part of the PwC’s recruitment policy is to identify potential employees at school level. The firm’s pipeline for recruitment is five years – a policy that has helped it identify and recruit the cream of accountancy graduates.
‘This policy ensures that the firm targets more than 70% black bursary awards. PwC has, however, over the years far exceeded this. By using this approach the firm is assured that departmental transformational targets per intake of qualified recruits are maintained or exceeded. Different industries and organisations are slowly realising that more innovative mechanisms are required to attract learners and students to the profession. More specifically, organisations should be catching learners while at school and guide them through the subject choice process, particularly learners in the less privileged areas,’ says Nana Madikane, PwC Southern Africa Transformation, Diversity and Inclusion Leader.
With its diverse, inclusive culture Deloitte, too, is committed to uplifting and empowering South Africa’s citizens and addressing the inequalities of the past. ‘We are extremely proud of the fact that the firm has been led by black South African CEOs consecutively for the past 18 years, an achievement that is unmatched by our main competitors. Forty years on from the qualifying of the first black chartered accountant, underpinned by a proven track record of more than 20 years of contributing directly to growing representation of the accounting profession, we remain as committed as ever to the call for transformation in corporate South Africa. We know that diverse, talented and dedicated individuals are critical to our success and thus we grow our talent organically from within. Our current CEO and deputy – both of whom are black Africans – joined the firm as graduates and have excelled through ranks into their current positions,’ says Sandy Willard, Associate / Learning, Events and Transformation Leader at Deloitte.
BREAKING THROUGH THE GLASS CEILING
According to Grant Thornton’s annual International Women in Business survey, only 24% of all senior leadership positions worldwide are held by women, with the South African national average being 23%. Grant Thornton South Africa is proud that 32% of all top decision-makers within the national business are women.
‘We strategically enhance the recruitment policies in parallel with well-planned retention strategies to ensure the advancement of women in the workplace. We recognise that women bring different perspectives and tremendous value to the executive boardroom table. In catering for the needs of the next generation of CEOs, one has to face the reality that having a strong knowledge-based set of skills will be vital in the future. Women, in particular, need to ensure that they have a deeper understanding of business and its challenges,’ says Ntokozo Mojapelo, Partner: Audit, People and Culture at Grant Thornton.
She adds: ‘Many businesses struggle to succeed because CEOs do not have that deeper understanding. We therefore need to ensure that as we train and develop, and as we live our lives as professional women striving to become the next generation of future CEOs, we immerse knowledge and education in our people, which will ensure that there’s deeper understanding of business, life and its challenges. Our senior women lead by example, guiding and growing other women in the organisation. Transfer of knowledge and skills is also at the heart of the firm through discussions and sharing of experiences with the younger generation.’
EY’s commitment to Diversity and Inclusiveness (D&I) enables them to harness the power that lies in the differences of their diverse workforce.
‘The different points of view across generations, gender, race, creed, skills set and backgrounds create a culture of high-performing teams, who deliver innovative and exceptional client service. It is through our culture that we develop our leaders of tomorrow and create a vibrant space of self-expression. As part of our D&I culture we are continuously accelerating gender parity within EY through programmes that are geared towards accelerating the growth of our female top talent. Gender parity means a lot more for us, we emphasise the importance of women not only as part of our workforce, but also as valued leadership of our organisation,’ say Johanna Mapharisa, Africa Talent Leader at EY.
At KPMG, women cross generation, make up 56% of the workforce. The firm’s executive team has 25% female representation, and it boasts 30% percent female representation at board level.
‘The firm has established programmes that serve as springboards for women. One such programme is the KPMG Network of Women (KNOW), established to enhance the personal and professional objectives of women. KNOW focuses on practical and sustainable approaches to educate and advance women in the workplace. It strives to advance women’s leadership across careers and cultures, while facilitating networking opportunities for women within the firm,’ says Mpho Netshiombo, Human Resources Chief Operations Officer at KPMG.
It’s time for the rest of us to also take the next leap forward in transformation …
- Khulekani Magubane, Highly skilled South African women opt for emigration, BDlive, 12 April 2016, http://www.bdlive.co.za/business/management/2016/04/12/highly-skilled-south-african-women-opt-for-emigration.
THE TOP 10 CHALLENGES TO B-BBEE
Anton de Wet unpacks what are in his opinion the Top 10 challenges to achieving a competitive B-BBEE status and provides insights on how to approach each one
For most companies the effective grace period before having to implement enhanced B-BBEE initiatives has now come to an end. In the case of almost all companies their 2016/2017 financial year will be measured in terms of the amended generic or some sector specific codes. Implementation therefore has to commence as a matter of urgency.
I have made a list of what I think are arguably the top 10 challenges that companies will face in order to achieve an acceptable status level. These challenges cover areas ranging from compliance to practical issues. I also offer some high-level ideas for consideration.
THE COST OF B-BBEE
B-BBEE is a significant cost to a company. Although I would like to replace the word ‘cost’ with ‘investment’, I have come to see that for some companies the one applies and for others, the other. If the company is very empowerment sensitive because of dealing directly with government or having corporate clients with strict B-BBEE requirements, the ‘investment’, if it results in a competitive status level, should render a decent return in the form of market share increase and revenue growth. For other companies, where the main aim is to retain current market share only, unfortunately B-BBEE is more of a ‘cost’ than an ‘investment’.
Each element on the scorecard has a cost attached. In the case of ownership it is the cost of structuring and financing an equity transaction. Under management control it is the ongoing cost of recruiting the right people in specific managerial positions. Skills development is by far the most expensive area as the spend targets in the codes are excessively high. Having to replace suppliers impacts supply efficiencies and carries a definite cost. Having to develop one or more other black-owned businesses will take time and money. Donating to the poor is still a cost to the company.
My advice is that the total overall cost of (or investment into) B-BBEE be properly determined before deciding if the company should be empowered in the first place. Then, if B-BBEE needs to be part of the business strategy, each individual initiative should be properly analysed to ensure that it has a return on investment.
CHOOSING THE RIGHT EQUITY PARTNER
This has historically proven to be easier said than done. Would you sell shares in your company in the current economic conditions if B-BBEE didn’t exist? Maybe, if you were approached by a buyer willing to pay what you thought the shares were worth. At the moment, shares in private companies are worth less than we probably think. But B-BBEE is asking that you sell shares right now to someone you don’t know at a price you don’t want to sell at. It goes against everything we’ve been taught. What this demonstrates to me is that a B-BBEE transaction is everything but a ‘traditional’ share sale transaction. It therefore must be treated as something out of the ordinary and selecting who the empowerment party will be is therefore of utmost importance. It is for this reason why many companies are opting for a broad-based partner where the benefits of the ownership will flow to classes of previously disadvantaged people and hopefully make a difference in their lives.
In my opinion, the largest risk associated with B-BBEE is selecting the wrong partner. When values, business vision and a decent contribution to the company is unlikely, B-BBEE ownership could be a recipe for disaster – as has been the case with the downfall of many a company in the past. If natural persons are selected as your new shareholders, unless they will be active participants with the relevant experience, in my opinion their shares should be held in trust for as long as they have proven their loyalty to the company and have obtained the required experience.
THE OWNERSHIP STRUCTURE
It is vital that the terms of a B-BBEE transaction are customised to incorporate the elements unique to B-BBEE. I often see structures where standard contract templates have been used making very little provision for the various ‘What if … ’ scenarios that will most likely arise in the case of a B-BBEE deal.
One of the things to consider is the various tax consequences of the different structures. For example, a sale of shares has different tax implications than an issue of shares. The value at which the transaction takes place also determines the type of tax that could be triggered. Having your tax practitioner review the transaction will be worth your while.
As existing equity has been built up by the existing shareholders, I am of the opinion that, unless fair value is paid by the black party, such equity should never simply be ‘given away’. An equity transaction should not be a donation! Also, provision should be made for the unlikely event of the B-BBEE legislation being repealed and the even more likely event of the black party having to or wanting to exit sometime in the future.
EMPOWERING SUPPLIER STATUS
Qualifying as an empowering supplier as defined, is a pre-requisite to implementing B-BBEE in a company. There are five criteria to qualify as an empowering supplier. For some companies, such as those that primarily import goods or services or are manufacturers, meeting the relevant criteria could be very difficult without some pre-planning. The criteria must be met within the measurement year, so early planning is vital. If a company is not an empowering supplier, its customers will gain no recognition for buying from it, effectively rendering its B-BBEE certificate almost valueless.
This is one of the first reviews that companies should be doing as a matter of urgency to ensure that they qualify during their 2016/2017 financial year. With some planning these criteria are not impossible to meet.
OVERALL COMPLEXITY OF THE CODES
The reality is that the codes are very technical and complex.
Not everything in the codes is applicable to your company. In practice, what a company must do is look at each scorecard element to determine which provisions apply to their business. I recommend agreeing on a single strategy for each scorecard element that will have high impact and is clearly defined. The past practice of ‘business as usual’ and ‘hoping for the best’ will unfortunately not suffice any longer. Companies must know exactly what they will be doing and when they need to do so in order to be sure that the initiative will result in the points expected. If in doubt, run the initiative by your verification professional before implementing it.
This refers to the fact that for large enterprises (generally with an annual turnover above R50 million) both the staff composition and the annual training spend are expected to be aligned to the national or provincial demographical statistics. This means that if your business is based in the Western Cape, it is expected that your employee profile and training spend reflects that of the province which would consist of a certain percentage African males, African females, Indian males, Indian females, Coloured males and Coloured females. Each of these ‘sub race groups’ has its own specific target in the codes. I don’t see a large enterprise in South Africa being physically able to score full points under either the management control or the skills development element without employing people and doing skills development for scorecard purposes only.
Other than a total corporate restructure, the only way to improve on the management control scorecard is to incorporate demographic representation into your HR policies in the long term. Despite the very high cost involved, a focused training strategy incorporating bursaries and accredited learnerships should result in good points.
WSP AND EEA COMPLIANCE
Annual submission of a company’s workplace skills plan (WSP) to the relevant Sector and Education Training Authority (SETA) and the employment equity plan (EEP) to the Department of Labour has become pre-requisites to B-BBEE compliance. If proof of submission of the WSP cannot be provided to the verification professional, the codes clearly stipulate that no points may be allocated to the skills development scorecard at all. Also, if proof of submission of the EEP cannot be provided, the company will be deemed to not be in compliance with ‘all relevant laws’ which is a requirement to be an empowering supplier. Both the above submissions have specific annual deadlines. It is imperative that companies do these submissions timely as we currently understand that late submissions are not accepted by either of these agencies.
SHORTAGE OF BLACK-OWNED SUPPLIERS
In the case of a large enterprise, 9 of the 25 main points in the generic preferential procurement scorecard are dependent on spending 40% of total annual procurement with suppliers that are at least 51% black-owned. Another four points are dependent on spending 12% of total annual procurement with suppliers that are at least 30% black woman-owned. This means that 52% of the main preferential procurement points can only be scored by procuring from such suppliers. In some sectors such suppliers simply do not exist and will not exist in the foreseeable future. The result will be that especially large enterprises will in the next couple of years score very poorly on this element of the scorecard.
I understand that to address this dilemma, some corporates have outsourced their procurement arm to a separate legal entity. We can only assume that this was based on sound legal advice. In my opinion, besides such a drastic step, which is not a viable option for most companies, there are two other sustainable solutions to this. One is that existing business owners (suppliers) consider implementing 51% black ownership in their existing or newly created businesses. The other is to, in collaboration with experts in this field, work with your suppliers and assist them to transform over time to the target levels of black ownership. The latter is in my view the much more sustainable approach that will avoid unnecessary supply chain interruptions.
LACK OF TIME TO ASSIST OTHER COMPANIES
In these critical economic times just the idea of having to assist another small business to become financially and operationally independent, sends any business owner running in the opposite direction. We are often struggling to keep our own companies profitable.
Enterprise and supplier development (ESD) is vital for future economic growth and job creation. The question that still needs to be answered however is what the best route to impactful ESD really is. In the meantime, I recommend that a company carefully reviews the requirements in the codes outlining the types of qualifying ESD contributions that can be made and once a qualifying beneficiary business and/or supplier has been earmarked, that a highly focused initiative be implemented. Gone are the days of attendance registers and time sheets.
Last, but definitely not least, fronting poses a huge risk to companies thinking that there is any type of ‘quick fix’ to B-BBEE.
A B-BBEE commission has been established that has made it very clear that it is determined to investigate and uncover all forms of ‘fronting practices’ widely defined in the B-BBEE Act. A company director, procurement officer and even the verification professional is now subject to the applicable penalties. Soon a new B-BBEE verification regulator will be established in order to standardise and regulate the verification industry at a much stricter level. It is also proposed that all B-BBEE practitioners will be required to hold at least one of three formal accredited qualifications. And those that think that a sworn affidavit will be a way to side-step B-BBEE will, in my view, be taking an uncalculated risk. (Refer to the B-BBEE viewpoint article in this issue of ASA.)
We don’t have to give any recommendations in this regard other than: let’s just keep doing the right thing!
These are just ten of the more prominent challenges already experienced in practice. None of them are insurmountable. With a basic knowledge of the codes applicable to your specific business, the assistance of expert advisors and the help of a verification professional, any company that wants to commit to genuine empowerment will be able to do so successfully. And those doing so first will be the ones reaping the greatest rewards.
Are you struggling to improve or maintain your B-BBEE score? Take a look at SAICA’s nation-building initiatives. By Karin Iten
Would your company survive if your B-BBEE score dropped? For many, the answer is no. With the revisions that have taken place on the B-BBEE Codes of Good Practice, have you have taken every provision possible to maintain (or, even better, improve) your score?
THREE KEY CHANGES REFLECTED IN THE REVISED CODES OF GOOD PRACTICE (RCoGP)
One of the main problems with the revised codes is how confusing many people find them, says Transcend’s Transformation Facilitator, Dr Robin Woolley. ‘South Africa’s economic and social transformation is an evolving issue, with the rules being written by and through our actions,’ he says. ‘The recent RCoGP have introduced the following changes in what is expected from companies to reach compliance:
- ‘Companies need to re-channel their skills development focus out of education and into other barriers to economic access, such as heath, poverty alleviation and basic service delivery.
- ‘Companies need to refocus their skills efforts to include non-employees (unemployed people). This includes assisting the development of South Africa’s future skills pool. This means your company needs to ensure that learnership and artisanship processes are effectively used as work preparation and employee courtship processes.
- ‘Companies need to ensure that access to economic opportunity for small black-owned businesses is enhanced through supplier development to both benefit entrepreneurs and ensure that jobs are stimulated through this process.’
But while compliance sounds complicated, SAICA’s Nation Building division offers solutions that, collectively, can address your company’s socio-economic development, skills and enterprise development challenges.
HOW SAICA’S INITIATIVES CAN ASSIST WITH YOUR COMPANY’S B-BBEE REQUIREMENTS
Since quality education is the country’s best way to reduce poverty and improve the economy, the RCoGP have made it the responsibility of all stakeholders to put the economy back on a growth path by focusing on improving our education outcomes.
Enter SAICA’s Thuthuka Education Upliftment Fund (TEUF), which runs 47 initiatives across all nine of South Africa’s provinces. Through its camps and supplementary classes in mathematics and accounting; career drives and awareness programmes, annual Accounting and Maths Olympiads; business games and more, TEUF is actively improving the educational standards of maths, science and accounting in South Africa’s disadvantaged areas. The Fund has had an impact on over 1 million learners since it began in 2002.
In addition, TEUF also runs capacity-building projects at South Africa’s six historically disadvantaged institutions (HDIs) in order to build the BCom Accounting degree at these universities to the required SAICA standard.
The primary benefit of this project is that it ensures that there is sustainable capacity to provide the same level of quality of education available in the rest of the country to South Africa’s rural communities.
The Thuthuka Bursary Fund (TBF) helps talented African and Coloured learners pursue a career in CA(SA) by providing them with funding for their university studies as well as provides bursars with academic support, access to additional tutorials, life skills, workplace readiness and study skills and a supportive study environment.
On average, TBF has an intake of 300 new students a year, whom the fund supports throughout their four-year CA(SA) study period. Highlighted as one of the most successful transformation models in the country by former Deputy President of South Africa Kgalema Motlanthe, Dr Bonginkosi Emmanuel ‘Blade’ Nzimande (Minister for Higher Education and Training) and Sizwe Nxasana (chairperson of NSFAS), TBF has supported over 3 000 learners at tertiary level study since 2005.
In addition to TBF, your company can also earn skills development points through the Association of Accounting Technicians South Africa (AAT(SA)) – a finance and accountancy professional body that offers practical, internationally recognised qualifications and support to it members.
AAT(SA) offers a suite of qualifications tailored to suit the needs of South Africa, including specific local government and public sector accounting qualifications. Developed as registered learnerships, these qualifications provide practical competence that assists AAT(SA) member with the ability to do their jobs effectively.
SAICA also offers two enterprise development solutions.
The first is The Hope Factory, which specialises in mentorship projects that grow entrepreneurs and develop their business so that they in turn can impact their communities and the nation.
Since inception, The Hope Factory has mentored over 500 black-owned businesses and forever changed the lives of hundreds of entrepreneurs.
There is also SAICA’s Enterprisation hub, an entity that helps develop sustainable SMMEs by providing a full suite of affordable back-office financial support services to help SMMEs put in place key disciplines like management accounts; budgeting; proper record-keeping; SARS’ compliance; payroll systems; and proper VAT and tax practices. This is all aimed at helping SMMEs develop to a high-enough level of financial sustainability that they are able to become real players in the economy.
Enterprisation currently services over 120 SMMEs through a cohort of unemployed accounting graduates who, in turn, are given a platform where they can develop their accounting skills and become work ready.
BUILDING SOUTH AFRICA IS EVERYONE’S NATIONAL IMPERATIVE
Faced with growing inequality (South Africa has one of the highest Gini coefficients in the world), it is vital for the country to revise its efforts and focus wholeheartedly on promoting social and economic inclusivity. Only through this approach can we effectively deal with the varying expectations of all South Africans.
Invest in SAICA’s nation-building projects and you can ensure your company does just that, while meeting its own business imperatives at the same time.
For more information on how to get your B-BBEE points through these and other SAICA nation-building initiatives contact:
AUTHOR l Karin Iten is Project Manager: Marketing, Communications and Marketing at SAICA