South African businesses must take action now to benchmark and maximise their Black Economic Empowerment (BEE) scores under the Department of Trade & Industry’s new BEE Codes before the transitional period ends on 30 April 2015.
That’s the warning from Saul Symanowitz, Divisional Manager at Sage Pastel BEE123, who says that most companies will find their BEE certification tiers will drop two to three levels under the stricter new Codes when they take full effect. Those that want to retain their preferred status as empowered suppliers to large companies and government when they’re next audited will therefore want to urgently assess their compliance levels so they can develop a strategy to improve their credentials, he adds.
“The Revised Codes were gazetted in October last year, and were originally intended to be phased in over a year,” he says. “The deadline was extended a further six months to give businesses time to understand the impact of the codes on their scorecards, to create a plan, and implement the changes that will allow them to retain or improve their BEE status.”
Symanowitz says that under the Revised Codes, the pillars of transformation have been reduced from seven to five. The Revised Codes focus on the following five categories: Ownership, Management Control, Skills Development, Enterprise and Supplier Development, and Socio Economic Development. Compliance levels for each are tougher than before.
Organisations with a turnover of more than R50 million a year must achieve a score of 40% in each of the following categories that have been deemed ‘Priority Elements’: Ownership, Skills Development, and Enterprise and Supplier Development.
Failure to meet this threshold in just one pillar will result in a lowering of a company’s overall empowerment status by a level, no matter how good its scores are in the other categories. “This is the first time the BEE Codes include such a penalty provision,” says Symanowitz.
Another new concept the new codes introduce is that of an ‘Empowering Supplier’, defined as an entity that meets three of the following criteria if it is large entity (R35 million-plus turnover) or one if it is a medium-sized company (R10 million to R50 million turnover):
- Buys at least 25% of cost of sales excluding labour cost and depreciation from local producers or local suppliers
- 50% of jobs created are for black people
- At least 25% transformation of raw material/beneficiation
- Spends at least 12 days a year of productivity in assisting small black companies to increase their operation or financial capacity
Other complexities the Revised Codes introduce include new race sub-groupings for the Management Control and Skills Development categories. “Taken together, all the changes have major implications for any company’s BEE scorecard, except those with turnovers of below R10 million that are exempt,” Symanowitz says. “And the calculations that companies need to do to understand how to keep their BEE level constant when the Revised Codes take effect are complex. Automated tools can take some of the pain out of the process.”
Sage Pastel BEE123 provides a range of tools that help organisations calculate and understand their BEE scores ahead of an audit for certification. With their recently released BEE123 Scorecard Software businesses simply input the relevant numbers in and the application will tell them how the Revised Codes will impact on their scorecards. Once they have done so, they can use the Sage Pastel BEE123 scenario planning tool to determine exactly how certain changes could potentially impact their BEE rating, and thereby develop an appropriate and cost effective BEE strategy.
“For example, you could assess how appointing a black female director, increasing your training budget, or spending more on enterprise development would impact your score,” Symanowitz says. “This allows you to test out a few scenarios before you commit so that you can spend your resources in the way that has the best impact on your budget, your business and your BEE scorecard.”
He adds: “BEE can be complex to implement under the Revised Codes, but organisations that act now to comply can improve their competitive positioning as well as help to drive genuine transformation and inclusiveness in the workplace. Getting it right starts with having the correct data and information at your fingertips, which is where our tools have a valuable role to play.”