A vital question!
This month is a turning point for a large number of businesses on their empowerment journey. Thousands of BEE certificates will be expiring in April 2016. During April 2015 companies rallied to have a final verification done under the ‘old’ codes, expecting that the generic amended codes would become fully effective on 1 May 2015.* If that verification was based on the company’s February 2015 financial year, this time the verification will have to be based on the February 2016 financial year in terms of the generic amended codes or any sector codes amended prior to 29 February 2016. As many companies did not upscale their BEE initiatives sufficiently in their 2016 financial year, many will now opt to not have a verification done on their 2016 financial year but will focus on their 2017 financial year. Others will have to be satisfied with a ‘non-compliant contributor’ certificate. Yet, some others will opt to be verified on their 2016 financial year but will first have to implement a black equity ownership transaction in terms of the amended codes to reach compliancy.
Basically companies will have to make the decision whether this is the end of their BEE journey or not. Achieving compliancy again will be a mind-shifting and expensive exercise and therefore has to make business sense. Something that will make this decision much easier is to approach it as a purely commercial one. Boards of directors that are able to take a more clinical look at the costs and benefits can come to the right decision.
Here are some important questions to consider at the outset. Is the company an empowering supplier yet? Are we willing and able to accommodate the right black equity partners and do we know of all the latest ownership models on the market and their levels of risk? How will an equity transaction be structured so that the current shareholders’ value is protected without infringing on the right to economic interest of the black shareholders going forward? Will sharing operational control of the company be part of the strategy? Is our business model and staff complement conducive to implementing qualifying and accredited skills development programs? How can we approach enterprise and supplier development in a manner that makes commercial sense and yet meet the objective of the codes of good practice?
The decision whether to proceed with BEE should primarily be a commercial one. There should be reasonable certainty that improved empowerment credentials will lead to revenue growth or at the very least current market retention. Transformation must make business sense and should never be to the detriment of the company itself in these harsh economic times.
EMPOWERMENT TIPS TO SMEs
- Empower from within. Partner with loyal employees already contributing to the success of your business.
- Implement initiatives that you control and that have a solid business rationale.
- Remember that a sustainable empowerment equity transaction requires transparency to all stakeholders at all times.
- Do not ignore possible tax consequences.
*The generic amended codes did become effective on 1 May 2015, but if certain criteria are met some companies can still be measured right now in terms of the ‘old’ codes.
Author: Anton de Wet CA(SA) is Managing Director of Net Value Holdings