An overview of BEE. ASDFSA BEE Presentation 8 June 2006. By William Janisch BEE Specialist at Empowerment Services. BEE Codes of Good Practice Phase II. Contents Skills Development as the centrepiece of BEE Putting BEE in Perspective A global viewpoint on social transformation
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An overview of BEE ASDFSA BEE Presentation 8 June 2006 By William Janisch BEE Specialist at Empowerment Services
BEE Codes of Good Practice Phase II • Contents • Skills Development as the centrepiece of BEE • Putting BEE in Perspective • A global viewpoint on social transformation • So where are we at? • A simple overview of BEE: what will be required, by when, by who? Clearing up mis-perceptions. • BEE as the centre-piece of Business Strategy • How to approach BEE at the moment in your organisation
BEE Codes of Good Practice Phase II Why are we here today? • The Final Codes of Good Practice for BEE are going to drive business behaviour (and expenditure) for the next 10 years. • It is imperative that, as Skills Professionals; HR, EE, Training Managers, SDFs, Government or SETA personnel; you understand the short and long-term implications of BEE on your organisations / department and the economy as a whole.
Skills Development as the centrepiece of BEE “Of all the elements of the BEE Scorecard, Skills Development is probably the most enduring in its ability to empower the people who receive it, and is, in many ways, therefore, at the heart of the transformation envisaged by the BEE Act.” AND Skills Development is at the HEART of every element of the Scorecard
Putting BEE in Perspective PEOPLE…..PLANET…..PROSPERITY A NEW WAY OF PERCEIVING PROFIT ! • The whole world is grappling with the problem of how to reduce the gap between the “have’s” and the “have-not’s” • International attempts at shifting the way we perceive & measure profit include: • “Triple Bottom-line Accounting”; • “Sustainable Development” or • the myriad of programs like “Investors in People”
Putting BEE in Perspective • The bottom line is that people are starting to realise you cannot make a sustainable profit without good social and environmental practice AND WHAT IS NOT MEASURED IS NOT DONE !!! (i.e. Change will not come about without actively measuring organisations) • BEE is SA’s way to attempt to define & measure social best practice & to re-define the way we do business. • It is being measured by means of a BEEScorecard
The BEE Scorecards • BEE is measured using a “Balanced Scorecard” consisting of 7 areas or “elements”: • Ownership • Management • Skills Development • Employment Equity • Preferential Procurement • Enterprise Development • Social Investment / Sectoral Initiatives
PLEASE TAKE NOTE!!! Much of what you see & hear today is still open to amendment over the next few months. Only a few areas of BEE are finalised. The rest recently closed for public comment (31 March) and are under second draft as we speak. Those areas which could change are still important to understand because: • They show the direction in which government is thinking • They help as a broad target at which to aim in designing your own organisation’s strategies and policies so you are not foundwanting when BEE is finalised later this year
Where are we at in the process? The Development Process Mar-June 2005 20 Dec 2005 April-May 2006 June 2005 Oct 2005 Mid 2006 Jan 2004 Dec 2004 BEE Act Passed Release of First Draft for public comment (Phase 1) Collation of comments on Phase 1 2nd draft discussed with key private sector stakeholders Cabinet approves Phase 1 in principle Draft of Phase 2 released Review of submissions & drafting of 2nd draft Final Codes are approved by Cabinet / Accreditation of Verification Agencies
The BEE Scorecards The Codes see three types of business, each with its own way of being scored: • Micro-EnterprisesThese are companies with an annual turnover below the VAT registration threshold (currently R300,000 per year) • Qualifying Small Enterprises (QSE’s)These are so called because in order to “qualify” as a QSE, a company needs to turn over between the VAT threshold (R300,000) and an upper limit which is defined sector by sector (as defined by The National Small Business Act) …SEE TABLE ON NEXT SLIDE… • Medium & Large OrganisationsThese are organisations with an annual turnover above the thresholds defined for QSEs as well as government departments, SOEs & Section 21 Companies (NGOs).
A Practical Example A company has only 4 suppliers and their scores are as follows: Company A – 15% Company X – 55% Company Y – 78% Company Z – 55%(but it is >50% black owned) The relative BEE recognition levels can be put into a table with the amounts spent on each company: The BEE Procurement percentage for this company is calculated as follows: BEE Procurement Spend = BEE Spend / Total Procurement Spend = 29,000 / 80,000 = 36,3%
Let’s Clear Up Some Misperceptions • BEE is no longer about Ownership, but is now about a broad scorecard measuring seven elements. Out go terms like “black owned”; “black empowered”; “black women-owned” etc. In comes your BEE “Level”. • BEE is not law yet. There are no official verification agencies and the Codes have not yet been gazetted. • The Codes for Ownership & Management are fairly final, but the Codes for the remaining 5 elements are still open for public comment and will only be finalised later this year.
Let’s Clear Up Some Misperceptions • Black People are defined as: • Africans, Coloureds and Indians • Citizens of the Republic of South Africa: – by birth; – by descent; – by naturalisation prior to Interim Constitution (1994); – by naturalisation after the Interim Constitution, where prevented by Apartheid prior to that date No white women or white disabled!
Who MUST comply with the Codes? • All organs of state (i.e. National, Provincial & Local Government) • All public entities listed in Public Finance Management Act (i.e. State-owned Enterprises and Agencies) • Any enterprise which undertakes any business with any organ of state or public entity • Any enterprise which undertakes any business with an enterprises undertaking business with any organ of state or public entity
What else will drive BEE Compliance? • When the Public Sector does any of the following, they must assess your BEE status: • Evaluate tender submissions(They can make it a minimum tender requirement) • Sell state-owned assets • Enter into Public Private Partnerships • Issue Concessions (e.g. water rights) and Licences (including ALL regulated industries – eg. Banking, certain Transport Sectors, Telecommunications, Gambling, Mining, Petrochemicals and Exporting) By default this means all companies supplying regulated industries need to be scored, so that the regulated industries can count your score towards their score.
What else will drive BEE Compliance? • In the Private Sector: • Your score counts towards your customer’s score • Your supplier’s score counts towards yourscore BEE is not a compliance issue…… ……..it is a competitiveness issue. • The National BEE Database (Public Domain)When everybody can see your BEE Score, BEE becomes even more of a Competitiveness Issue! Even workers and public lobby groups can now exert pressure for transformation. • A BEE Label appearing even on consumer products & services to drive spending habits
But who measures all this? • Accredited Verification Agencies who will perform a yearly “BEE audit” on companies. • All Verification Agencies will be working off a single national standard & will have to comply with stringent industry regulations monitoring quality, transparency and own compliance.
Which Scorecard will be used? • Which Scorecard? • Governments? • Industry Sectors? • Procurement Department’s own scorecard? • Bearing in mind that it is critical for the country to stay as close to a single national standard as possible in order to level the playing field, sector charters, if they are to be officially applied, need to AT LEAST match the generic scorecard. • Private scorecards (eg. ESKOM Scorecard) will fall away.
Transitional Period Transitional Score: • First 12 months after Commencement Date • Use full scorecard score OR • Score = 1.92 x (Ownership + Management)
Fronting Fronting Practices • Window-dressing • Benefit Diversion • Opportunistic Intermediaries
Fronting Fronting: "An entity awarded a contract as a result of preference for BBBEE may not subcontract more than 25% of the value of the contract to an entity which does not qualify for such a preference" National Treasury - Draft Preferential Procurement Regulations 2004 WARNING
1. Ownership Generic Scorecard:
1. Ownership Bonus points • Black new entrants • Black deemed participants of broad-based ownership schemes • Black participants of co-operatives • Maximum of 3 bonus points for 15% equity stakes by above-mentioned groups / individuals
1. Ownership Net Economic Interest - Generic Scorecard % 30 25 20 Net Economic Interest Target 15 10 5 0 1 2 3 & 4 5 & 6 7 & 8 9 & 10 Year
1. Ownership QSE Scorecard
1. Ownership Warehousing Funds • Benefits exiting black shareholders • Hold shares for maximum of 3 years • Deemed ownership • 100% Black • 40% Black female • 10% Black designated groups
2. Management Generic Scorecard
2. Management QSE Scorecard
3. Employment Equity Generic Scorecard
3. Employment Equity QSE Scorecard
4. Skills Development Generic Scorecard
4. Skills Development Generic Scorecard continued
4. Skills Development Generic Scorecard continued
4. Skills Development Quantifiable Skills Spend includes: Direct Training Costs (Must represent at least 50% of all Skills Spend) • Internal training that is quantifiable & verifiable (proof of identifiable outcomes, training schedules, attendance registers & course content must be provided to verification agencies) • External training that is quantifiable & verifiable (proof of invoicing or identifiable outcomes, training schedules, attendance registers & course content must be provided to verification agencies • Training courses structured & recognised by the applicable SETA • Costs of Training Materials • Costs of Trainers • Cost of external training facilities including catering costs • Scholarships & bursaries (as long as awarded on a non-recoverable basis) Indirect Training Costs • Costs of internal training facilities including catering • External costs such as course fees • Costs like accommodation & travel • Administration costs such as organisation of training
4. Skills Development QSE Scorecard
5. Preferential Procurement 5. Preferential Procurement – Generic *MPS – Measured Procurement Spend
5. Preferential Procurement 5. Preferential Procurement – QSEs
6. Enterprise Development Generic Scorecard
6. Enterprise Development QSE Scorecard
7. Residual Element (CSI) Generic Scorecard
7. Residual Element (CSI) QSE Scorecard
BEE – The way forward • Pro-actively address the issue! BEE is an investment. It will cost time, resources, energy – but good investments are well managed to maximise returns. • Get outside assistance(Huge misunderstandings; experts can share knowledge of Best Practice through practical experience with a broad-range of organisations; emotional issues like equity sales, employment equity and dealing with suppliers and staff are best handled by independent third parties) • Get everyone to understand what is required(Shareholders, board, executive management, key departments [Finance, HR, Procurement, Transformation, CSI ….SALES & MARKETING!!!]
BEE – The way forward • Determine your current BEE status(Can’t know where you’re going if you don’t know where you’re at!) • Determine the limitations of your organisations’ BEE score(Eg. EE limitations, Skills limitations, Procurement limitations etc.) • Determine the market drivers on BEE in your industry or market – competitors’ scores; customer pressures; internal pressures; timeframes linked to short, medium & long-term BEE targets • Use BEE to re-invent your business – no matter how conservative your business is. (bill gates; monkey story)
BEE – The way forward • Design a BEE strategyPreferably in a workshop format with all key stakeholders present so that there is buy-in from the people who are going to need to achieve the targets that they, themselves, are setting. The Workshop should design a BEE strategy for the organisation which sets: • Deliverables and a Plan-of-Action for each area of the scorecard • Deliverables for each manager; business unit and/or department & measurement tools to ensure delivery. • TIMEFRAMES • Budget & Resources • Communication strategy
BEE – The way forward • Design a BEE strategy (continued…)Get people or departments responsible for each element to determine what they can realistically achieve & what the costs for achieving the targets are likely to be – then base decisions on solid data like lowest cost to compliance or strategic benefits to the organisation or unavoidable business imperatives. Include KPIs for these people which tie performance bonuses to achievement of BEE targets.Many organisations, especially foreign-owned multinationals, like to provide their foreign shareholders with various scenarios on how to achieve the required points in order to justify an equity sale or not OR to justify increased expenditure in Skills, Enterprise Development or CSI.Address all 7 areas of the BEE scorecard.
BEE – The way forward • Where targets are set, allocate sufficient resources & stick to timeframes • Having set targets, adjust any policies which might need to come into line with BEE targets (especially EE, HR Development policies, Skills policies etc.) • Communicate clearly with stakeholders • Staff (Manage perceptions, obtain buy-in) • Shareholders / Owners • Clients (BEE Branding) • Suppliers (Hold supplier forums or pay for them to have their current BEE status determined)