With only a few weeks remaining for the revised Broad-Based Black Economic Empowerment (B-BBEE) codes to come into effect, there is still discontent about the codes with some even considering taking legal action.
The Department of Trade and Industry’s (dti) new B-BBEE codes of good practice are expected to become effective on May 1 – with many players snubbing them for being too draconian and possibly making compliance to transformation difficult.
The discontent has been exacerbated with Caird BEE analyst Paul Janisch saying his organisation will apply for an interdict at a high court “in the next couple of weeks” against the department’s revised codes.
The reason for the interdict, says Janisch, is that the department did not adequately consider the concerns raised by the B-BBEE codes.
“They [the department] decided that this is what they wanted. No sane business would have agreed to those codes because they are too draconian, too complex and too expensive to implement. Businesses are not ready for the codes,” Janisch told Moneyweb.
The department has made a raft of changes from the current codes including the consolidation of compliance elements from seven to five. The elements now include ownership, management control, skills development, enterprise and supplier development and socio-economic development.
There are fears that this move could make scoring points for B-BBEE compliance by companies difficult, as they place emphasis on three priority elements (ownership, skills development, and enterprise and supplier development). Companies must achieve compliance of at least 40% of these priority elements.
“The codes themselves are so poorly drafted… people need to know what is expected from them. It’s not possible to implement the codes because no one understands them and the dti has not bothered to explain them,” he says.
The changes to the codes also extend to small businesses referred to in the codes as Qualifying Small Enterprises (QSE) with an annual turnover of R10 million to R50 million. This section has raised temperatures, as QSEs exceeding the R10 million threshold would possibly have to give or sell their company to black owners or risk being non-compliant.
These QSEs under the new codes will have to comply with all five elements, whereas currently they need to comply with four of the seven elements.
If small enterprises demonstrate a 100% black ownership that guarantees level 1 B-BBEE credentials (considered the best ranking for compliance). If enterprises demonstrate a 51% ownership that automatically qualifies the enterprise as a level 2. Any ownership below 51%, means a company will be rated towards level 9 (ultimate non-compliance).
Janisch says the codes on QSEs are still in draft format and have not been gazetted. “But from experience we know that the draft codes are going to be the final codes, irrespective of what comments they will receive,” he adds.
CEO of EconoBEE Keith Levenstein once told Moneyweb that the dti’s rationale for the new codes stems from companies having been poor in committing to transformation. He says that about 83% of small businesses are at least not 51% and 17% have demonstrated more than 51% black ownership.
“But the solution to the problem is not to make it harder for those who are trying to comply. Many companies are not going to comply with this legislation. In some areas there will be fronting, as people find ways around the codes,” says Levenstein.
Another concern with the codes is the administration burden these codes will create for small businesses, which already operate in an environment viewed as highly regulated in terms of South Africa’s labour laws.
Allon Raiz, CEO of Raizcorp supports this view: “It [B-BBEE legislation] is still too much. We have to deal with so much every day as small businesses, and we are vulnerable.”
The work, Raiz says, is for enterprises to take the time to understand the codes. “Once you understand the codes it loses its scariness,” he says.
The process to understand the codes is already happening, says senior manager for enterprise development at Standard Bank Diale Mokgojwa, with companies already hiring private consultants well versed in B-BBEE.
Mokgojwa says there are benefits to the revised codes, as it will allow large companies to support small enterprises for the enterprise and supplier development element of the codes, in a bid to comply with B-BBEE. This in return, will enable the growth of small enterprises, Mokgojwa adds.