Tell me where you've BEEn?

The Financial Mail had a huge feature on BEE a few weeks ago.  The lead article, entitled spiritually bankrupt, is probably the best article Sibonelo Radebe has written so far.   The title is a pun on compliance vs the spirit of BEE and argues that we are heading more toward a culture of compliance as opposed to embracing the spirit of transformation etc.   Kevin Lester, quite correctly states in the article that "the level of detail in the codes is territory for smart people to find gaps and exploit them" . 

This is the crux of the entire concept: compliance and transformation.  Compliance does not always mean actual transformation - all it means is that your BEE score has improved because your ability to measure yourself has improved.  Cyril Ramaphosa made this same point in yesterday's Business Day (more on Cyril later).

Compliance with legislation and with scorecards is not enough.........  it is the bare minimum, the objective is to go beyond individual scorecards and narrow business interests

I was presenting to a prospect yesterday and I likened the whole BEE jol to the diet industry.  Compliance would be buying that abflex or the Atkins Diet book.  Transformation would be actually making use of these tools and following that calorie controlled diet and losing the weight - transforming.  Yet the weight loss industry makes billions of dollars each year from the same people because they are looking for the next quick fix. 

The reason why is not too hard to fathom.

We are a world that is interested in quick fixes - we want fast food and we want it fast so we use the drive through at McDonalds.  The world is more competitive, so we need skills and we need them now - we'll pay a premium for those skills.  We need black executives and we pay in telephone numbers to get them - and then try all sorts of schemes to retain them.  Similarly staff tend not to be as loyal as they used to be - they move around from one place to another for numerous different reasons.  It is difficult to develop them into management positions because there is no guarantee that they will stay.

And this reality is not only South Africa's - it's a global phenomenon.

Therefore compliance is the only way to go.  Companies make use of people like me because I am a compliance expert.  I am not hired to come in and set-up transformation teams and plans - I'll leave that to guys like Robin Woolley who are experts at this.  And as Kevin said earlier, I am one of those who will analyse the codes, run my schemes past experts like Obed de Swardt and see if his verification agency will accept them.  If he doesn't, then I look for other loop holes.   I can't say I am any different to any tax consultant.

How do you then marry compliance with transformation?  I don't think I know the answer to that question.  Perhaps BEE should move away from a stick inducement  to a carrot reward system.  The only logical way to do this is for Trevor to start providing tax breaks to those companies that are objectively complying on certain elements, like skills development, employment equity and enterprise development.   I choose these three because they will all have a positive impact on the economy and the fisc.  A skilled employee has a better chance of climbing the ladder and therefore earns more - Trevor can then take more tax money from them.  A properly implemented enterprise development strategy will create more companies and employ more people - and Trevor gets more money.

By the way take a look at this table.  School boy errors abound - even the FM is fallible.

Comments

[Kevin Lester]

Mr. Radebe did not fully reflect my comments to him. My beef with compliance mentality is actually limited to ownership. I am hardly concerned about clever compliance stuff in the bottom 6 elements of BEE because there is a built in carrot - if you seek to buy credits for any of the bottom six, you'll end up paying a lot of money for a pile of nothing. If you target sustainability, chances are you'll pay once off and reap the rewards.

Ownership if of course a very different proposition. Because of this unhealthy obsession with shareholding, you get some awful models like the "terminal" share models for ESOPs where the workers hang around for 10 years, then get paid out just enough to buy a lounge suite and we call it promoting black ownership of the economy!

As I have said to you before on more than one occasion - we all missed a lesson learnt under Volkskapitalisme - create a black owned bank to rival the big five banks in size, then we're talking real ownership. Not five meaningless collections of 10 percent in each of the big five.

So while run around creating little nebulous shareholdings to chase this rather pointless 25 percent by hook or by crook, answer me this - can we really claim to have promoted genuine and sustainable black ownership of the economy when the prospect of black owned long term insurance house rivaling Sanlam or Old Mutual in size anytime in the next 50 years look decidedly gloomy.

[Paul Janisch]

Thanks Kevin

I am very glad that you made the latter point about "Volkskapitalisme". It's something you have been speaking about for a while and I did want to blog on it at some stage - I couldn't quite remember the context.

[Kevin Lester]

Some interesting stuff on Volkskapitalisme:
Highly respected authority: Dan O'Meara: http://www.anc.org.za/ancdocs/pubs/umrabulo/umrabulo22/volk.html
Highly respected SA academic: Herman Gillomee:
https://www.givengain.com/cgi-bin/giga.cgi?cmd=cause_dir_news_item&cause_id=1270&news_id=17818
Anthony Butler's recent biography of Cyril Ramaphosa that quotes no less that Michael Spicer on the true reasons for the General Mining Deal in the 1960's (published by Jacana) on page 120.
There is so much about Afrikaners Empowerment and the factors that made it such a success, that we don't even know. The consensus seems to be that that the scale of the challenge was different and therefor the to initiatives are incomparable.
To those who buy into this orthodoxy, I have only two replies:
1) have look what Giliome says about education and job creation and link it to recent research like the Unilever Institute's Black Diamonds Report and Business Map's very last data sample on the economic impact of Skills Development and Employment Equity; and
2) Just keep asking the question, will we see a black owned bank of any substance in SA in out lifetimes. Good good people, if Santam/Sanlam and Volkskas could emerge in less that 20 years, why are we so fussed with 25% stakes or less.