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New BEE codes: Confusing and complex

Companies that tried to be proactive are being punished.

In a statement by the Department of Trade and Industry (dti), the minister is saying that if your financial year is prior to April 30 2015 then you must be verified using the old codes. If your financial year is after May 1 you must be verified using the new codes. All those companies that rushed to be verified before April 30 have wasted their time – they could have delayed for another year or more and could have been verified next year. Those that tried to be proactive are being punished.

Those companies that did beat the deadline will now feel quite irritated that others, that were late can still get verified. In our case, we ensured that hundreds of clients achieved verification before April 30 – even to the extent of us working weekends and late hours – all to no avail. It would have been very nice of the dti to inform the public that the codes were going to be delayed.

In the event they only informed us on May 5 that the deadline that expired on April 30 would be extended for year ends prior to April 30. They deliberately have not used the phrase “codes delayed”, but this is what has happened.

The Amended codes state that the old codes can be used up until the end of the transitional period – originally October 2014, then extended to April 2015. This notice does extend the usage of the old codes. We know that some companies take over a year to obtain their audited financial statements and only thereafter do they ask to be verified. It is quite probable that many companies will still want to be verified in December 2016 or even January of February 2017 using their financial results of February 2015.

If you have not yet been verified on your previous financial year, then there is obviously time to do so – the date of April 30 is no longer relevant. You can use the old codes for your next verification, even up to next year – as long as you use a financial year prior to April 30 2015.

We always knew that the sector codes were not included in the amended codes and that the old sector codes would continue. This of course flies in the face of logic to have sector codes using completely different points to levels table to the generics. Once again it would have been helpful of the dti to have given the market this information more timeously. The wording on this notice is also problematic: There was never a transitional period for sector codes, so where the minister gets to describe a “transitional period for sector codes”, only the dti knows.

An issue that also worried most commentators was the concept of empowering suppliers. The dti has now decided that all verifications using the old codes will be defined as empowering. This helps, but does not clear up the problematical issues around empowering suppliers for the new codes.

By a strange quirk of fate, SANAS, one of the regulators, has awarded accreditation to all agencies that applied to be able to verify using the amended codes. This notwithstanding the lack of verification manual which is prescribed. Unfortunately in this comedy of errors, SANAS has taken away agencies’ accreditation for the old codes. To be strictly accurate – which is what the law demands, SANAS agencies are no longer allowed to issue old verification certificates.

By far the most serious error is point 1(d) in the minister’s announcement and the one that urgently needs a retraction. It says “Black participants in Broad-Based Ownership Schemes and Employee Share Ownership Programmes holding rights of Ownership in a Measured Entity must only score points under paragraph 2.2.3 under the Ownership scorecard”. This means that a company that is 100% or 25% owned by a broad-based or employee ownership scheme will not earn points under any other indicator on the scorecard than “2.2.3 Participants in broad-based schemes” which is worth 1 point on the old codes, and 3 on the new. This very clear statement implies that no other points for economic interest or voting rights may be earned. Economic interest is the indicator to help calculate net value, so no entity will achieve any net value score.

EconoBEE has been complaining for some time now about fronting using suspect broad-based schemes. However, there are some very good, genuine schemes that do deserve to be rewarded. Is the minister really saying those really good broad-based ownership schemes, which previously gave most large businesses full points for ownership, will now give them only 1 point? On the new codes the priority element kicks in and entities with employee or broad-based ownership schemes will drop another level. This is obviously a mistake that needs to be rectified.

It is easy to get around this: Simply don’t define your scheme as a broad-based or employee ownership scheme – lose a couple of points to get 21 (on the old codes and 3 out of 25 on the new codes). We know there is a serious issue with fronting using broad-based schemes, but the dti has thrown the baby out with the bathwater.

In summary, the new codes are coming, despite the frustrating delay. Plan ahead so you can be compliant next year. We wish that BEE were not so complex – and the dti would not make so many mistakes.

Keith Levenstein is CEO of BEE advisory firm, EconoBEE.

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