Implementing BBBEE codes

Jonathan Goldberg

The BBBEE Act is an Act of 2003, passed into law in January 2004. It has taken three years of extensive debate, and draft codes what guidelines should be given to an organisation to implement the Act/Law.

The Codes of Good Practice have some surprises.

Firstly, the two distinctive categories have a higher threshold than originally envisaged. The first of the Exempted Micro Enterprise categories was raised to R5 million. This means that organisations that have less than R5 million turnover per annum are exempt from the implementation of BBBEE and automatically qualify as 100% compliant. The BBBEE recognises this as the status of level four. All such organisations need to get a certificate from an auditor or accountant verifying that their turnover is below R5 million per annum and they automatically qualify for this level.

The second surprise was the moving of the Qualifying Small Enterprise (QSE) to definition of between R5 million to R35 million turnover per annum. Any organisation that falls into this category has also got a scorecard of seven elements to comply with but they can elect four of such elements. This was much greater than was envisaged in respect of the original drafts and both these categories are a big compromise to business from the original draft position.

Over R35 million turnover per annum is the final category and such organisations have to then implement the full generic scorecard.

Implementation is key

Notwithstanding the above, implementation is the key for both qualifying small enterprises and enterprises with a turnover of above R35 million per annum. The key to such a full implementation is going to be for such organisations on where to start in implementations of the codes of good practice.

The traditional method of implementation has been through the element of ownership. The results of this approach have been problematic and the approach that might be more appropriate to South Africa and many enterprises is to start with where the greatest impact will be for an enterprise.

It has been our experience that rushing into ownership deals without the necessary careful thought process around organisational strategy has disastrous consequences. Organisations need to make sense of the implementation of BBBEE. To do so they need to find an entry level in respect of where an organisation would now have to decide in the organisation where one enters from a strategic perspective.

The elements of natural strategic entry for most organisations must lie around the element of skills development. Most SA organisations are currently thin on skills, if not completely lacking skills, in various elements of their organisational structures. It is here that SA organisations are going to have to spend in order to survive over the long term and it is here where we recommend the entry point for BBBEE for many organisations.

In the diagram below one sees that skills will then affect the employment equity and management numbers over a period of time. By this approach you are addressing 40 potential points of the scorecard. As you invest more in skills development (15 points) the better your employment equity numbers become (10 points) and over a period of time your management representation (10 points).

click to enlarge

One can take this approach and look at the entry level of enterprise development and corporate social investment. These are investments of a monetary and non-monetary nature, a number of innovations are taking place in organisations on the areas of outsourcing various parts of the business like logistics, warehousing, and owner driver schemes to support the drive of Enterprise Development. This will also then have an effect on your procurement implementation by the support of such organisations.

It is through this strategic application of the codes that organisations get the benefit of BBBEE and is highly recommended that this process, unlike many other approaches in SA on transformation, be tackled from a truly strategic transformational perspective.

To assist you in implementation of the codes, download the free BBBEE software from www.globalbusiness.co.za.