Only a small percentage of South African businesses have reached their potential level of Broad-Based Black Economic Empowerment (BEE) compliancy, making the rest increasingly vulnerable to blacklisting by parastatals and the corporate sector, says Cor van Deventer, a director at Greyvensteins Attorneys, a member of the national Phatshoane Henny Group of Associated Firms and a specialist BEE legal advisor.
Warning of mounting pressure by the Department of Trade and Industry (DTI) on companies to comply with the Broad-Based Black Economic Empowerment Act, he says the country’s major banks are following in the wake of the parastatals by prescribing a minimum level of compliancy from their suppliers.
Accountability
Van Deventer also warned that the DTI’s current non-prosecutorial approach would not last indefinitely, and that directors and shareholders would likely be held legally and financially accountable for non-compliance with the BBBEE codes going forward.
According to Van Deventer, the BEE scorecard ranges from level 1 “which is optimum”, to level 8, “which shows the existence of both a scorecard and intention”. However, he adds, the level 4 compliancy rating benchmark is no longer sufficient, with “more and more parastatals and private companies pressing their suppliers for level 3 to level 1 ratings”.
Strategy
“Accurate scorecards, together with a proper strategy, now have to be treated as a priority,” maintains Arnel Ayers, who heads up the Greyvensteins BBBEE division She says that while the Act was promulgated in 2003, the floodgates opened when the codes of practice were amended in 2007.
“In the past, a business owner could focus on BEE once a year when it was time to obtain a certificate. Now you have to pay specific and continued attention to every element of the scorecard and make various payments throughout the year, which need to be included in the company’s budget. The problem is that business owners are often too involved in running their companies to focus on BEE, which requires continuous guidance and input to get to the required level.”
Ownership fears
Ownership structures are the major stumbling blocks for most businesses with regard to BBBEE, says Ayers, especially in light of the latest amendments to the Codes of Good Practice. “Business owners often think they have to give up ownership of their business or at least give shares away, but this is not the case. BEE has to work for your business. It’s not the intention of the Act to make business owners lose their businesses.
Categories
The Exempt Micro Enterprise (EME) is a business with a turnover of less than R10 million per annum as well as any start-up business which has been trading for less than a year. Both are automatically given a level 4 status where they are white-owned. In order to obtain a higher level of compliancy, such an EME will need to comply and be rated on a QSE (Qualifying Small Enterprise) scorecard, explains Ayers.
A 100 % black-owned EME is given a level 1 status, while a 50.1 % or more black-owned EME is afforded an automatic level 2 status. The Qualifying Small Enterprise (QSE) is a business with a turnover ranging from R10 million – R50 million per annum. Again, a 100 % black-owned QSE is given an automatic level 1 status, and a 50.1 % or more black-owned QSE qualifies automatically for level 2 status, she says.
The Generic Enterprise, a business with a turnover of over R50 million per annum, is the most complicated, Ayers says further, since a higher spend and more complex procurement elements are required.
Fronting
And then there’s the issue of fronting, a criminal offence that carries with it fines of up to 10% of a company’s annual turnover and could see directors found guilty landing up in jail for up to 10 years, according to Ayers. She adds, “Fronting can also blow up in the business owner’s face, when such an employee realizes that he or she in fact owns shares in the business, and then proceeds to claim the value of that shareholding in rand value.”
“One of many cases I’ve dealt with concerned the owner of a business who transferred 30% of its ownership to a long-serving black employee in order to get a favourable BEE score to qualify to tender for a contract. When the relationship turned sour, the employee sought legal advice and demanded to be paid for her shares, which cost the owner millions and ended up in the business having to close down.”
Verification and tenders
Verification is a time-consuming exercise, says Ayers. “Business owners make the mistake of thinking that they can pop in and get a certificate when they need to submit a tender, but that’s just not going to happen. It’s a lengthy process that takes four to eight weeks to do properly.
For example, where a business owner claims points for employing a brown male supervisor, he will need to submit all the requisite evidence and documentation in support of this claim, including employment contracts – and lots of businesses don’t even have these in place. Hiccups like this will obviously prolong the process.”
BBBEE has become very complex, concludes Van Deventer, though he adds that “it’s not all doom and gloom”. “It’s actually a very well thought-out empowerment plan, which, with the professional guidance required to attain the maximum level of compliancy while keeping the business financially viable, will benefit all parties. But it needs an expert to implement and guide the process, which begins with an assessment of an entity’s BEE status, its shortfalls and the desired and attainable level of compliancy, and moves on to the development of a suitable BEE strategy, possible restructuring and a Workplace Skills Plan as well as a host of other reports and documentation.
So it really makes sense to go to an expert attorney and get compliant. It will save you money and stress down the line.
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| Cor Van Deventer | Arnel Ayers |
| Director, Greyvensteins Attorneys |
Head of BEE division, Greyvensteins Attorneys |
| cor@greyvensteins.co.za | arnel@greyvensteins.co.za |
| www.greyvensteins.co.za | www.greyvensteins.co.za |
