Demystifying BEE codes of good practice

The chorus clamouring for more clarity on regulatory compliance to BEE has grown in crescendo over the years as government increasingly tightened the screws on industries and companies that are deemed to be lagging behind in implementing provisions of the BEE Codes of Good Practice.

Hats off to the dti on a rigorous document that appears to have well thought through all the surrounding issues, however, despite having simplified BEE regulations, the document does carry with it a complexity that makes it difficult for the man on the street to decipher. Rigour and simplicity are not easy to achieve.

The codes describe a process by which the charters are constrained to and function within parameters set by the Codes of Good Practice. In other words, those companies who fall within those industries that are yet to finalise their Codes should measure their progress on the general codes and not on their yet-to-be-completed BEE charters.

These provisions exclude mining and petrochemical companies whose charters were gazetted prior the BEE Act. In other words, much of the effort put into the creation of these charters is undone as they try and realign themselves around the definitions contained in the Codes.

The innovation involving sliding targets (in the realisation points, social investment and enterprise development) helps industry to remember that this is a process, which is difficult to manage in ten years, and to try hit all the targets in year one is perhaps not that realistic (for us or our suppliers).

The number of categories that the outcome of the broad-based scorecard can fall into has been increased to eight and the definitions of excellent, good and satisfactory contributors have been done away with. The result is an ongoing incentive to improve your broad-based scorecard with a corresponding positive impact in preferential procurement.

This is an improvement as there is a significant difference in effort between 41% and 64%, with these two outcomes having the same impact on preferential procurement in the past.

The conspicuous absence of superannuation schemes, such as pension funds from the exclusion principle (intimating that they are excluded from the calculation of ownership) is a significant departure from the past. Hence the exclusion principle would only operate on organs of state.

The implications of this are enormous and have been the basis of much debate recently. The assumption was originally that this would imply that pension funds would be considered on the basis of their empowerment credentials and broad-based schemes.

This has been refuted by the dti in recent statements suggesting that they are not excluded from the denominator in the equity calculation but are effectively considered white in the numerator.

This position makes sense if you take the view that you are looking to encourage black ownership in the economy, but provides no incentive for any changes to the pension funds in the country. Needless to say a significant portion of listed companies are held by pension funds and superannuation schemes.

The code 100 (and its Appendix), shows the careful thought given to broad-based ownership schemes indicating structures such as employee owned trusts are significant routes to address ownership into the future.

Though the codes are expected to have a far-reaching impact in shedding more light on how companies can comply with this piece of legislation, many stakeholders are still in the dark about what the contents of the new codes are.

The major downside about the codes is that they are coming out too slow with ever shifting deadlines, a factor that renews with a risk of slowing down the transformation process, with the newest view being that the draft codes on the balance of the areas of the scorecard being made available before the end of December 2005. It seems that the dti like to release these things while we are all on holiday (the last draft Codes were release Dec 2004)

Overall, the new codes are carefully thought out, well scripted and the challenge will be to see how effectively they can be translated into actions that sustain both transformation and the growth of the business.