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Revised B-BBEE codes might put pressure on compliance

Scepticism mounts on the new codes of good practice.

JOHANNESBURG – Despite companies being knowledgeable and changing their approach to broad-based black economic empowerment (B-BBEE), they still face challenges in achieving accepted scores of compliance with the policy.

This is the view from a 2013 KPMG B-BBEE survey which revealed a year-on-year decrease in the average score of 52.53 points, compared with 2012’s 63.95 points – resulting in a general drop in the B-BBEE status level from 5 to 6 (See graph of comparison points below).

The decline, said director of KPMG BEE advisory Boitumelo Ngutshane can be explained by an interpretation of B-BBEE codes.

“Standardisation of the verification process is important to ensure consistent application and interpretation of codes by verification agents,” said Ngutshane.

“South African companies must review their transformation strategy if they are to achieve the goals of BEE – upskilling and employment of black people, and the increased development of and procurement from black businesses.”

Source: Department of Trade and Industry (DTI)

A total of 75% of the respondents anticipated a decrease in their rating of compliance with the implementation of the new revised codes, which is “consistent with expectations in the face of increased requirements”.

The new B-BBEE codes

The changes in B-BBEE codes of good practice are now gazetted into law by the Department of Trade and Industry (dti), which now sees five elements (reduced from seven) on how companies are measured on their B-BBEE compliance.

These elements include ownership, management control, skills development, enterprise and supplier development and socio – economic development

Companies have been given until April 30 2015 to ensure that they are ready for the increased requirements of the revised B-BBEE policy.

There are fears that the amendment of B-BBEE codes could result in a reduction of empowerment ratings. The revision places an 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.

Failure to achieve the 40%, according to the gazetted amendments, will result in the reduction of overall compliance by one level.

In its previous 2012 survey, KPMG said companies were apprehensive about changes to the B-BBEE legislation, as the impact was believed to be negative.

Among the elements that are proving to be difficult for companies to comply with is employment equity (now merged under the new revised codes as management control), as “there is a shortage of skills from black employees”.

The overall decrease in the average B-BBEE score was due to the drop of 2.79 points from the preferential procurement element, enterprise development by 2.09 points and ownership by 1.98 points. Management control also dipped from an average of 4.87 points obtained in the 2012 results, to 4.28 points in 2013. Socio-economic development fell from 4.92 points in 2012 to 3.75 points in 2013.

The B-BBEE survey had participants of over 2 000 JSE-listed and unlisted organisations operating in different industries. The industries of those that participated in the survey include state-owned companies, retail, mining, financial services, construction, pharmaceutical, ICT, manufacturing and property.

Companies respond to revised codes

There are still some frustrations towards the revised codes said Ngutshane as companies are concerned about how these changes will ultimately impact them and the industries in which they operate.

She explained that there is an improvement in the approach by companies to B-BBEE, as most are looking at ways to meaningfully comply.

“81% of respondents are looking at some strategy or measure to comply. It’s positive and B-BBEE is becoming a priority,” she explained.

But companies in the survey achieved a below par rating on the three priority elements on the B-BBEE revised scorecard.

On the three priority elements the following is achieved: 44% against the target point of ownership, 25% against the target point of enterprise and supplier development and only 35% against skills development.

“This implies that most companies would be at risk of being discounted a level as the subminimum for ownership is not achieved,” Ngutshane explains.

Among the industries which participated in the survey, the mining industry did not perform well.

The mining industry is classified as a non-compliant B-BBEE contributor level, scoring an average total of 25 points under both the current and revised codes, as there is an over emphasis on the ownership element in the Mining Charter.

“You can’t concentrate on one element (reference to ownership), but there must be a focus on all elements and that is why the mining sector has not performed well.”

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