Greater transparency will address some of the concerns around BEE and usher in a new era of clarity on and understanding
Last year will be remembered as the year of the broad-based BEE Act and the BEE codes of good practice, which were promulgated and released in January and December of 2004 respectively. Along with the regulatory framework provided by the act, the codes of good practice introduce a set of guidelines for implementing and measuring BEE initiatives.
They highlight two main principles that need to be considered when implementing and measuring BEE. First, they emphasise economic substance rather than legal form. In other words, an enterprise receives points for its BEE contributions only if it offers tangible economic benefits to the intended black beneficiaries. Second, they reaffirm the broad-based BEE scorecard, which identifies and measures BEE through seven factors - ownership, management, employment equity, skills development, preferential procurement, enterprise development and corporate social investment.
Clarity on the beneficiaries and estimates of the potential benefits of BEE will ensure that the beneficiary base is both broad and inclusive and initiatives benefit black shareholders, employees, entrepreneurs and the broader community. The codes will also address the concerns that BEE benefits only a small group of individuals.
The factors of ownership and management that are dealt with in the first section of the codes will be of interest to business and BEE practitioners.
First, the codes specify the way in which black ownership stakes can be recognised and measured. The transfer of voting rights with limited economic benefits to black investors will no longer be recognised as full compliance with BEE. This will mean that a number of completed transactions will not be recognised until their black investors are able to enjoy the economic benefits flowing from their ownership stakes.
Second, the target set for ownership by black women and designated groups, and the bonus awarded for the inclusion of newcomers to BEE transactions, further addresses the concern that BEE transactions tend to involve a select few.
Third, the limitation of recognition for black nonexecutives (limited to 10%) addresses the trend of appointing black directors to nonexecutive positions with influence rather than management executive positions.
Finally, the codes provide further clarification on the status of different industry charters. The charters promote joint industry BEE initiatives, but the differences between the charters have caused confusion. The codes call for the streamlining of recognition and measurement criteria as well as industry substantiation where weightings and targets differ from the department of trade & industry's BEE scorecard.
The codes' emphasis on economic substance and transparency will address some of the concerns around BEE and take us into a new era where greater clarity and understanding of BEE will accelerate its implementation.
Chia-Chao Wu is deputy CEO of empowerment rating agency Empowerdex
