Companies face BEE rating decrease: KPMG

The survey indicates that the average score obtained for 2013 was 52.53, when compared to the previous year's score of 63.95 - resulting in a general drop in the BEE status level from level 5 to level 6 BEE contributor.

The decline can be explained by a few factors. Preferential Procurement has decreased by 2.79, Enterprise Development by 2.09 and Ownership by 1.98.

Management Control has also dipped from an average of 4.87 obtained in the 2012 results, to 4.28 in 2013. Similarly, Socio-economic Development fell from 4.92 points in 2012 to 3.75 points in 2013.

"Standardisation of the verification process is important to ensure consistent application and interpretation of code by verification agents. South African companies must review their transformation strategy if they are to achieve the goals of BEE - up-skilling and employment of black people, and the increased development of and procurement from black businesses," says Boitumelo Ngutshane, Director, KPMG BEE Advisory. "The survey results support the compelling case for Revised Codes".

Scores in comparison to the Revised Codes

The KPMG Survey, now its 8th year, also investigated how organisations are likely to perform against the Revised Codes of Good Practice, which are intended to tighten compliance, and will be effective for all ratings from May 2015. The Revised Codes introduce three priority elements: Ownership, Skills Development and, Supplier and Enterprise Development; and minimum thresholds.

In response to the question "how companies will fair against the Revised Codes?" on the three priority elements, companies achieved: 44% against the target point of Ownership, 25% against Supplier and Enterprise Development, and 35% against Skills Development.

"This implies that most companies would be at risk of being discounted a level as the sub-minimum for Skills Development and Supplier and Enterprise development are not achieved," says Ngutshane.

Entities need to achieve at least 40% of set targets for each of the elements.

The Revised Codes were gazetted in October 2013, in order to address the shortcomings in BEE compliance. "The revisions also bring about many positive changes. Companies with turnover below R10 million are now exempt from BEE provisions. Unemployed people are included as part of Skills Development initiatives - and companies will now be able to earn points from training individuals outside their organisations. New Enterprise Development criteria encourages entrepreneurship and innovation," explains Ngutshane.

"One of the major advantages of the new codes is that the Supplier Enterprise Development element requires suppliers of services and products to 'mentor' smaller companies, including competitors in some instances. This means companies will need to be more innovative - without compromising on intellectual property - to comply or face a discounting of their rating," says Ngutshane.

Reaction to the Revised Codes

When asked what impact the Revised Codes will have on their BEE score, 75% of respondents indicated they anticipate a decrease in their rating, which is consistent with expectations in the face of increased requirements.

The survey reveals that 81% of respondents have taken measures to prepare for the new codes. The presentation of the survey, and Revised Codes coincide with the country's 'coming of age' - the 20th anniversary of democracy. "The results suggest that the next 20 years in business will be even more crucial to redressing moral, social and financial inequalities," believes Ngutshane.