The code of good practice on black economic empowerment
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The Code of Good Practice on Black Economic Empowerment. STRUCTURE OF THE CODE OF GOOD PRACTICE. AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT. STRUCTURE OF THE CODE OF GOOD PRACTICE. CODE 000: IMPLEMENTATION FRAMEWORK. CODE 100: EQUITY OWNERSHIP.

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The Code of Good Practice on Black Economic Empowerment

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The code of good practice on black economic empowerment

The Code of Good Practice onBlack Economic Empowerment

1


Structure of the code of good practice

STRUCTURE OF THE CODE OF GOOD PRACTICE

AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT

STRUCTURE OF THE CODE OF GOOD PRACTICE

CODE 000: IMPLEMENTATION FRAMEWORK

CODE 100: EQUITY OWNERSHIP

CODE 200: MANAGEMENT

2


The code of good practice on black economic empowerment

Progress on the B-BBEE Process

Current Achievements:

  • BBBEE Act provides an enabling framework

  • The BBBEE Strategy stipulates the BEE intents and principles of Government

  • Massive increase in BEE across all sectors of the economy

  • BEE is recognized as a business imperative and deals are more broad-based than previously

  • BEE Charters in strategic sectors (Mining, FSC, ICT, Tourism, Liquor, Agriculture, Transport, Health)

3


The code of good practice on black economic empowerment

Concerns and Risks around the B-BBEE Process

  • Lack of full understanding and appreciation of the principles of broad-based BEE

  • Inconsistent application of BEE

  • Extensive debates could result in delays – biggest risk is slow or no progress on BEE

  • Disparity in Charter Definitions and Targets

  • Lack of Implementation Guidelines can result in ‘Fronting’ or ‘Sham’ transactions promoted

4


The code of good practice on black economic empowerment

Code of Good Practice as the BEE Implementation Framework

Broad-based BEE Act

No. 53 of 2003

Legislative Enabling

Framework

Broad-based BEE

Strategy

Strategic

Framework

Codes of Good Practice

Implementation Framework

and Guidelines

Generic or

Sector-specific

BEE

Scorecards

Interpret

BEE

Definitions

Set BEE

Indicators,

Weightings

and

Targets

Guidelines

to draw

up BEE

charters

Guidelines

to maintain

Institutional

Framework

(BEE Council

/Accreditation

Agencies)

5


Agenda

Agenda

AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT

STRUCTURE OF THE CODE OF GOOD PRACTICE

CODE 000: IMPLEMENTATION FRAMEWORK

CODE 100: EQUITY OWNERSHIP

CODE 200: MANAGEMENT

6


The code of good practice on black economic empowerment

Code of Good Practice (Structure)

Each Code explains all issues pertaining to a key BEE element and can consist of one or more statements

A Statement include a related set of principles that guides the implementation of one BEE issue

Code

of

Good

Practice

Phase 1

Code 000:

Framework

Statement 000:

Conceptual Framework

Statement 010:

Charter Guidelines

Code 100:

Ownership

Statement 020:

BEE Council

Code 200:

Management

Statement 030:

Broad-based BEE

Implementation

Code 300:

Employment Equity

Statement 040:

Glossary

Phase

2

Code 400:

Skills Development

Statement 050:

BEE Rating agencies

accreditation

Code 500:

Affirmative Procurement

Code 600:

Enterprise Development

Statement 100:

Ownership

Code 700:

CSI and Industry Specific

7

Code 800:

BEE Practice Notes

Statement 200:

Management


The code of good practice on black economic empowerment

Structure of the Code of Good Practice

Structure of the Code:

The Benefits of the Adopted Structure:

  • Logical Flow of the Structure: The Code is structured according to the logical flow of BEE scorecard.

  • Flexibility of the Structure: It enables the Minister and DTI to expand, amend or remove individual statement as and when required, without having to re-issue the entire Code of Good Practice.

  • Best Practice: The structure is similar to those used by the Generally Accepted Accounting Practice internationally.

8


Agenda1

Agenda

AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT

STRUCTURE OF THE CODE OF GOOD PRACTICE

CODE 000: IMPLEMENTATION FRAMEWORK

CODE 100: EQUITY OWNERSHIP

CODE 200: MANAGEMENT

9


The code of good practice on black economic empowerment

Code 000 – Implementation Framework

Objective of this Code:

This code comprises of statements that:

  • Establish the conceptual framework

  • Summarizes the indicators, weightings and targets for

    each element of the Scorecard

    BEE elements

  • Provide application guideline for the generic BEE

    Scorecard

  • Establish different institutional framework to facilitate the

    implementation of the Strategy and the Code of Good

    Practice.

10


Code 000 implementation framework

Code 000 – Implementation Framework

Statement(s) currently contained in this Code:

  • Statement 000: Conceptual Framework

  • Statement 010: Sector Transformation Charters

  • Statement 020: BEE Advisory Council

  • Statement 030: Implementation of Broad-based BEE

  • Statement 040: Glossary

  • Statement 050: Accreditation Agencies

11


The code of good practice on black economic empowerment

Statement 000 – Conceptual Framework

12


Old scorecard vs new scorecard

Old scorecard vs New scorecard

13


Statement 010 sector transformation charter

Statement 010 – Sector Transformation Charter

  • Outline the process to be followed in

  • formulating a sector charter

  • Establish the status of sector transformation

  • charter

  • Identify principles to be applied to harmonise

  • the different charters

  • Outline the process of constituting Charter

  • Councils and prescribe the powers of these

  • Councils

14


The code of good practice on black economic empowerment

Statement 010 – Sector Transformation Charter

15


Statement 030 implementation of broad based bee

Statement 030 – Implementation of Broad-based BEE

  • Identify policy instruments and initiatives that

  • can promote broad-based BEE

  • Align the implementation of policy

  • instruments and initiatives to broad-based

  • BEE

16


The code of good practice on black economic empowerment

Statement 030 – Implementation of Broad-based BEE

17


The code of good practice on black economic empowerment

Other Statements within Code 000

18


Agenda2

Agenda

AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT

STRUCTURE OF THE CODE OF GOOD PRACTICE

CODE 000: IMPLEMENTATION FRAMEWORK

CODE 100: EQUITY OWNERSHIP

CODE 200: MANAGEMENT

19


The code of good practice on black economic empowerment

Code 100 – Ownership

Objective of this Code:

  • This code comprises of statements that inform the recognition

    and measurement criteria for black ownership.

  • The code also ensures that the BEE process can result in the

    transfer of genuine, substantive and sustainable ownership to

    black people.

  • The Code also aims to reduce ‘fronting’ and misrepresentation of

    black ownership by companies through the stipulation of a

    standard set of principles and guidelines for its measurement

    and reporting.

20


Code 100 ownership

Code 100 – Ownership

Statement(s) currently contained in this Code:

  • Statement 100: Recognition and Measurement of BEE Ownership

    Objectives

  • To increase the number of black people that manage, own and control enterprises and productive assets.

  • Provide recognition and measurement criteria for black ownership

  • Provide key principles to be used in determining ownership by black people

21


The code of good practice on black economic empowerment

Statement 100 – Ownership

22


Flow through principle

Flow Through Principle

Effective black ownership in Company C is 51%*51%*51% = 12.5 percent


Determinant of ownership score

Determinant of Ownership Score

All Black S/H

All Black S/H

Voting Right

Ownership

(20% of

BEE Scorecard)

Determinant of Ownership Score

Black Women

Black Women

Economic Benefit

Broad-based

Groups

Broad-based Groups

Unencumbered Interest

MEASUREMENT PRINCIPLE:

Recognize and reward companies for the ability of black people to exercise and benefit from

ownership rights, as well as the extent of the beneficiary base.

(2 Ways to allocate scores for BEE Ownership)

  • Allocation by black people’s ability to exercise ownership rights including:

    • unrestricted voting right

    • the right to receive economic interest such as dividends and capital gains

    • unrestricted and unencumbered entitlement to economic interest

  • Allocation by the beneficiary base, taking into accounts participation by:

    • black women

    • new entrants, and

    • black designated groups (such as black workers, black youth, black people with disability and black people living in rural areas)

New Entrants

New Entrants

23


Ownership score allocation

Allocation by categories ensures that only companies with black women and designated group participant get 100%.

Ownership Score Allocation

Allocation by ownership right differentiate between the rights accrual to black investors

24


The code of good practice on black economic empowerment

25

Ownership measured through the matrix table, allocating point for different categories of rights and different beneficiaries


Key principles

Key Principles

  • Options and Contingent Claims: Where an option is used where the economic interest is contingent upon a future event, the economic interest will be projected on a fair and reasonable basis, but will be recognized as restricted economic interest.

  • Organs of State, Pension Funds and Superannuation Schemes: The BEE ownership by organs of state, pension funds and superannuation schemes are specifically excluded from the calculation from both numerator and denominator. The amount excluded from total ownership (denominator) is limited to the lower of 25 percent or the level of economic interest owned by black people. An enterprise with more than 75 percent ownership by the state is specifically exempted from the application of this statement.

26


Key principles continued

Key Principles (Continued)

  • Bonus Points: The statement provide for:

    • one (1) bonus point to be awarded for new entrants, where the black people buying into the enterprise have not entered into a previous transaction where the fair market value of the company exceed R 20 million in value.

    • The statement also provide one (1) bonus point to be awarded to company who have exceeded the 25 percent target for voting right or economic benefits

  • Non-Circumvention:

    The non-circumvention principle allows for identification of fronting or other structures which aims to misrepresent the level of ownership. Rating agencies are required to maintain a database of such structures. In order to ensure that ownership information is not misrepresented, enterprises are required to provide appropriate documentation to evidence their ownership.

27


Agenda3

Agenda

AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT

STRUCTURE OF THE CODE OF GOOD PRACTICE

CODE 000: IMPLEMENTATION FRAMEWORK

CODE 100: EQUITY OWNERSHIP

CODE 200: MANAGEMENT

29


The code of good practice on black economic empowerment

Code 200 – Management

Objective of this Code:

  • This code contains the statements which guide the

    recognition and measurement of black management

    representation. Management represent the second leg

    of direct empowerment component of the BEE

    balanced scorecard.

    Statement(s) currently contained in this Code:

  • Statement 200: Recognition and Measurement of

    Management

30


The code of good practice on black economic empowerment

Statement 200 – Management

  • Provide Recognition and Measurement Criteria for Management

31


The code of good practice on black economic empowerment

32


Thank you

Thank You

33


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