Very few businesses are forced by legislation to participate in Based Black Economic Empowerment (B-BBEE). It is a voluntary process and for most small business owners, the decision about whether or not to do it is primarily a financial one. The reality is however, that if you choose not to be BEE compliant, some clients can equally choose not to do business with you. Some companies avoid it on the assumption that ownership is the only way to achieve a good-enough rating to really leverage the benefits of having a good BEE Level of Compliance.
“What’s needed is a shift in mindset around B-BBEE. It’s not a tax. Neither is it a legal obligation on all companies yet. Nor is it only about selling out to a BEE shareholder or giving shares away. In fact, small companies can achieve a Level 1 with 10% or 12% black ownership. And, the benefits of compliance can far outweigh the costs, if you do it right,” says Deon Oberholzer, CEO at Gestalt Growth Strategies.
Transformation is top of government’s agenda, and should be a priority for any company that wants to do business with public sector organisations or companies that are subject to B-BBEE compliance. The recently gazetted ICASA regulations enforcing 30% Black ownership and Level 4 for ICASA Licensees are case in point. Companies prefer to partner with businesses in their supply chain that are compliant because they can earn points on their own scorecards for doing so. This means that compliance is a major factor in winning or losing business. Rather than viewing B-BBEE compliance as another tax or expense, Oberholzer says it should be seen as an economic enabler and a passport for participating in South Africa’s formal economy.
Many companies set out minimum requirements for businesses to tender or become registered or approved suppliers. Often, they want a minimum BEE Level 3 or higher. There are also preferences built into the Preferential Procurement regulations to favour companies with higher levels.
So how should approach B-BBEE?
“It is important for companies to understand what their industry and their clients want. While the expectation from certain organisations and industries is a Level 1, a Level 4 may just be good enough to get a foot in the door. Level 1 is the ideal but for many companies, it is viewed as a prohibitively expensive ambition. The benefit, however, may significantly exceed the cost/investment.
“Understand your competitive position. What do you need to stand out in the crowd?”
When you realistically weigh up the advantages each point on the scorecard brings against its associated costs, it is possible to see where the benefits are and how they can be realised most efficiently and cost effectively. Have a view of what you can do with a Level 1 B-BBEE status to understand your competitive position and what you need to do to stand out amongst your competition. For instance, a sound Level 3 could be the cost/benefit sweet spot that delivers the most value for your business.
Oberholzer says companies should have a plan and sweat their B-BBEE strategies, “Don’t view compliance as a checklist process where you simply tick-off your actions. Sweat the big stuff, the small stuff and everything in between. Make sure you understand from where every point on the scorecard comes, what you could do with it and how it would benefit your business. Every single B-BBEE expense you incur should benefit your business.”
He explains: “For example, one of the elements measured on the scorecard is skills development. The Codes measure the amount of money invested in training black employees as well as those who are not employed by the business.
“Skills development is one of the priority elements and can earn a company up to 30 points on their scorecard. So it is critical. But, it is expensive so don’t waste it. Skills development should be undertaken wisely according to a proper strategy.
“The most leveraged approach would be to place employees on learnships, internships or apprecnticeships. In these cases, you can count the cost to company salary of an employee for the period on the course, to your skills development target. We have seen many companies that have invested 20 to 25% of their skills target get close to full points on this element on the BEE scorecard.
“Only spending on short courses would not stack-up points as effectively as leveraged training programmes which are recognised as Category B, C or D in the Learning matrix of the Amended BEE Codes. There are numerous short courses that do qualify in these categories so it is important to do your homework when choosing short courses to ensure that they align with a leveraged approach to training. This allows for the salaries of participants to be recognised as part of Skills Development Expenditure. Your skills development approach should include people with disabilities as well as programmes that allow for salary inclusion, tax breaks, subsidies and Sector Education and Training Authority (SETA) funding. In fact, including people with disabilities is especially tax efficient.
“You can also optimise your skills development by up-skilling black people outside of your business. Focus on developing scarce skills as defined with the SETA within which your business industry operates.
Another point is that participating in the Youth Employment Services (YES) Initiative allows you to earn points for hiring and training previously disadvantaged young people. It can be almost free to participate in YES if you need people anyway.
“It is also important to recruit wisely based on your long term business needs, matched to B-BBEE needs, to ensure that you get the best talent on board. If you have a long term view of recruitment that is aligned with your business strategy, you can meaningfully improve both the skills development and management control measures on your scorecard to improve your B-BBEE rating over time whilesaving you money on your skills development budget.”
Oberholzer concludes: “Consider B-BBEE as a long term business strategy. Though a high rating may seem unattainable, never believe it to be impossible to achieve. The important thing is to get started with a plan to optimise the elements that will get you the best scores in the most cost effective way.
“Small, strategic changes gather momentum and can build a decent scorecard in three to five years, when undoubtedly more companies are going to be more discerning about choosing partners and suppliers that are compliant.”