The amended BBBEE codes of good practice have many companies on their toes. Some with excitement, some with trepidation. At MEDO, we believe knowledge is power, and that you can only fear what you don’t know. So we have compiled a brief explanation of what exactly the new codes entail, and guess what? It’s as easy as counting to 5…
In late 2013 the Department of Trade and Industry gazetted the amended codes of good practice on BBBEE. The amended version was aimed to address various shortfalls of the codes since their introduction in 2007. The DTI gave companies an 18-month transitional period in order to familiarise themselves with the amended codes, and to start implementing them effectively. Replacing the previous seven-pillared code structure, the amended version places emphasis on the following five pillars; ownership, management control, skills development, enterprise and supplier development, and socio-economic development. This year, on the 30th of April, the codes will finally begin to take effect, regardless of differing financial years. This of course means that companies will soon have to align their old scorecards with the new BBBEE rankings should they not comply with the requirements of the amended codes.
One of the major changes to the codes is that Ownership, Skills Development and Enterprise and Supplier Development will rise to become priority elements. “It is crucial for businesses to not only understand these codes, but also consider strategies that would facilitate compliance simultaneously with the new codes becoming effective in April. That way, businesses can comply, remain competitive and not run the risk of losing clients or work due to not being compliant,” Nicolene Schoeman-Louw, BBBEE consultant recently explained in an article. Jenny Lawrence, managing director of verification services from Grant Thornton echoes this view that companies should largely be changing their strategies. “You get instances such as family owned businesses where ownership isn’t an element they want to implement. Yes, they won’t receive 100 points on their scorecard, but they can still have a good scorecard. They only have to focus more on the other pillars, invest more in skills development, socio-economic development and enterprise development,” Jenny explains.
As stipulated in the amended codes, this is a priority and compulsory element. Apart from a few omissions, this code has not undergone major changes. The greatest of these changes is undoubtedly that 100% black-owned enterprises with a turnover of under R10 million (EME’s) receive an automatic level one status, and that greater than 51% black-owned enterprises with a turnover of under R 50 Million (QSE’s) automatically receive a level two contributor value (if they aren’t 100% black-owned).
This category represents a merger between management control and employment equity. Management control will present a possible 15 points to companies, attainable with regards to a race/position relationship in which employees are hired in.
With this category weighing 20 points, with a possible 5 points extra, companies will undoubtedly place extra emphasis on skills development. This category refers to development of staff members, as well as learnerships to unemployed citizens. In the development, 70% of the learner’s time needs to be person-to-person development. Should the company decide to take on the learner after a year on the job, the company receives the extra 5 bonus points.
Enterprise and Supplier Development (ESD):
This category holds the greatest change in structure and weight in scorecard points to companies. With a possible 40 points, ESD is to become the main focus of all companies looking for a competitive BBBEE score. The supplier development portion of the scorecard encourages companies to assist their suppliers who are not fully developed with support and mentoring to ensure they become sustainable and viable businesses. This leads to the concept of “Empowered suppliers’. EME’s automatically qualify as Empowered suppliers and QSE’s that are greater than 51% and less than 100% black-owned will have to confirm their status as an Empowered supplier through an affidavit and assessment. All other companies will have to have their Empowered supplier status confirmed with a BBBEE agency. All suppliers must have an Empowered supplier status in order to be counted under procurement. Companies looking to have a competitive scorecard will therefore have to reevaluate suppliers to ensure optimal codes are achieved. However, it should be noted that suppliers should be developed before the company can benefit from this procurement structure. Therefore, the codes should be looked at as a guiding process, allowing for the possibility of improvement to the scorecard. After all, only by developing a struggling supplier will a company fully enjoy its contributions.
The amended codes will affect some major changes to the way companies engage with BBBEE. This, however, isn’t a bad thing. In fact, these codes offer companies a basic structure that will allow them to approach BBBEE much more creatively, which will actively empower small businesses and suppliers, ultimately leading to an empowered economy. As Jenny Lawrence from Grant Thornton explains, “A little knowledge, especially about BBBEE is a dangerous thing.” Get informed, and get that scorecard ready for 30 April!