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BBBEE is a cornerstone of the South African transformation Agenda. Part 1: Understanding how to measure large corporates

Broad-based black economic empowerment (B-BBEE) is an integral part of the South African Government’s transformation strategy. The overall aim of the programme is to bridge the equity gap and alleviate poverty.

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Broad-based black economic empowerment (B-BBEE) is an integral part of the South African Government’s transformation strategy. The overall aim of the programme is to bridge the equity gap and alleviate poverty. This insight is not intended to provide an opinion on whether it has been successful or not, but understanding this clearly shows that the various legislation and practice notes target the key elements of unlocking transformation in its purest form. We have focussed this discussion on large corporates as part of a series of posts.

B-BBEE comprises various components which is aimed at increasing the number of Black people (being South African citizens who have been racially classified as African, Indian or Coloured) who manage, own and control the country’s economy, and decreasing racially based income inequalities. While there is no legislation which requires a company to attain a specific BBEE level, it is beneficial for companies to improve their scorecard due to certain legislation like preferential procurement, or those wanting to improve their own scorecard. There are certain sectors which designate the achievement of a score per charter, the mining industry is one such sector.

Measuring B-BBEE: Exactly how do we define a large corporation?

A ‘Large Enterprise’ is any enterprise with annual total revenue of ZAR 50 million or more. The term ‘total revenue’ is defined under the Codes as the total income of an enterprise from its operations as determined under South African Generally Accepted Accounting Practice (which are effectively the same as the International Financial Reporting Standards (IFRS)).

In general a large corporation follows a scorecard approach where the different aspects of B-BBEE are weighted according to a points system to determine the B-BBEE score of a measured entity. There is either a general scorecard which is included in the general Codes, while sector-specific scorecards are included in the sector codes that apply to particular sectors as mentioned above.

The generic score card is structured as follows:

Scoring B-BBEE: what does a BBBEE scorecard look like?

BBBEE ELEMENTOVERVIEWPROOF REQUIREDPOINTS AVAILABLE
Ownership

The ownership element considers the extent to which:

  • ownership interests (voting rights and economic interest) in a measured entity are held by Black people, and by Black women specifically; and
  • such ownership interests
Proof of ownership rights in the hands of Black people (e.g. share certificates, shareholders agreement, etc.).25
Management ControlThe management control element refers to the number of Black members, and Black women in particular, who sit on the measured entity’s board of directors, as well as the number of Black people who participate in all levels of management (executive, senior, middle and junior management).
Companies above a certain size also have separate obligations in terms of the Employment Equity Act, 1998 to prepare employment equity plans and to submit returns regarding their progress on employment equity to the Department of Labour.
Proof of Black people in top, senior, middle and junior management. Interviews will be held to confirm seniority, job description, salary, etc. Submission of an employment equity report required.19
Skills Development

The skills development element is measured based on the amount of money that an entity spends on skills development programmes for Black employees.

  • Employers are required to, by law, pay an amount equal to a prescribed percentage of all their employees’ salaries to the National Skills Fund in terms of the Skills Development Act, 1998 and the Skills Development Levies Act, 1999.
  • Entities can also score points for the number of learnerships they facilitate for Black people, Black women and Black disabled persons, the amount of money they spend on bursary programmes, and the implementation of mentorship programmes.
Proof of training spend on Black employees or non-employees and accredited programmes (e.g. apprenticeships, learnerships, internships, mentorship programmes).20 (plus 5 bonus points)
Enterprise and Supplier DevelopmentThe enterprise and supplier development element under the Codes has three components: preferential procurement, enterprise development and supplier development:Proof of purchases from current suppliers that have a B-BBEE rating and are empowering suppliers as a percentage of total procurement spend.
Proof of contributions to developing business owned by Black people.
Proof of contributions to Black-owned suppliers.
40 points in total (plus 4 bonus points)
Points for preferential procurement are scored depending on the extent to which measured entities procure goods and services from Black-empowered suppliers who comply with certain criteria to qualify as Empowering Suppliers. In essence, a certain percentage of a measured entity’s expenditure with an Empowering Supplier is recognised as B-BBEE expenditure, depending on that supplier’s B-BBEE level. Entities can increase their scores on this element if they procure a greater percentage of goods and services from suppliers with higher B-BBEE ratings, from small businesses (such as QSEs and EMEs), from suppliers that are at least 51% Black-owned, and from suppliers that are at least 30% owned by Black women.25
Points are scored for enterprise development in relation to the contribution (both monetary and non-monetary) that an entity makes to developing businesses that are owned by Black people (e.g. investing in businesses owned by Black people, making loans to businesses owned by Black people, providing credit guarantees to businesses owned by Black people, providing preferential credit terms to businesses owned by Black people, giving discounts, and providing training or mentoring). The targets that apply to enterprise development are set as a percentage of the measured entity’s net profit after tax (NPAT).5
Supplier development refers to the enterprise development contributions that an entity makes to its Black-owned suppliers and, in particular, small Black-owned businesses who are its suppliers. The targets that apply to supplier development are
also set as a percentage of the measured entity’s NPAT.
10
Socio economic impactThe socio-economic development (SED) element is assessed based on the corporate social investment (CSI) contributions that an entity makes. Targets for SED are based on a percentage of NPAT.Proof of corporate social investment contributions5
Total (including bonus points)  118

Download a sample B-BBEE scorecard

Download this sample scorecard to see how the BBBEE scoring model applies to your own organisation. 

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Conclusion

So how are these points achieved? A simple example is if only 15% of the economic interest in a measured entity is held by Black people (where the target is 25% and the total points that can be achieved is 4 points), the entity would get points in proportion to its achievement of the target. In this example your actual points are calculated as:

Actual Points = (percentage actually achieved ÷ target percentage) x total points = (15% ÷ 25%) x 4 = 2.4 points

Our team at Kettle Consulting focusses strongly on optimising the most amount of points across the companies scorecard through our innovative tools and solutions. We believe that while we are accountable to our larger clients, we believe we are responsible for those parties across the scorecard.

We’d love to hear from you! Call us on 011 025 1446 or email us on info@kettleconsulting.co.za

Insight by:

Justin Kettle

Managing Director

Kettle Consulting (PTY) Ltd

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