Paul Janisch

Eskom alights

  A light bulb has suddenly gone on within Eskom.  They placed an ad in Sunday's Sunday Times.  I can't find this on google - and I'm not going to sift through Eskom's website to try and find it, so I'll type it out.

REQUEST FOR VALID B-BBEE CERTIFICATES

Dear valued supplier

Eskom is migrating from narrow based black economic empowerment to broad-based black economic empowerment.  In order to do business with Eskom, we request you, our valid supplier to provide us with your current and valid BEE certificate.  Eskom will will only accept certificates from verification agencies that are members of ABVA and other self-regulated bodies.

The deadline is is the 15th of May, 2008.  And if you want any more information you can phone Marina Venter on (011) 800-4092 or Lindi Maphumulo on (011) 800-3107

And as a parting shot they say (in bold too)

N.B Eskom reserves the right to conduct its own assessment.

I wonder what took them so long.  Was it because of the inexcusable mess they made with their coal procurement? 

I also don't know what "other self-regulated bodies" are but it seems as though they might accept a self-rated certificate. 

This is going to be an eye-opening excercise.  There is no doubt that Eskom has created a lot of sustainable black businesses, but will these and other smaller suppliers be able to get to an ABVA accredited verification agency at all, or in time.

Obed - it looks like BEE Matrix has got its work cut out it for the next few weeks.

OK - I'll say it.  Well done Eskom, it's about bloody time but at least you've done it.  I hope that you are at least informing your procurement officers about BROAD-BASED BEE.  Give me a call if you need my help.

BEE and contract

An effective BEE implementation needs a strong legal framework

Paul Janisch of Caird, a BEE-compliance consultancy have spent the last year analysing the codes from a legal perspective and are firmly of the opinion that a successful BEE implementation should be backed with the necessary legal support.  I am mildly amused at the notion that a lawyer is generally only consulted when it comes to drafting of shareholder's agreements or assessing the viability of potential BEE partnerships.   “What most people don’t realise is that the codes are made up of a series of contractual relationships between the company and its staff, the company and its suppliers etc. And these contractual relationships should be committed to writing to protect all the parties concerned.”

The board and employment equity
As an example when inviting strategic individuals to sit on a company board, whether in an executive or a non-executive capacity, a “Contract of Engagement” should be signed between the company and the individual in question. Often directors are paid emoluments in anticipation of their contribution to the well-being and good governance of a company. An engagement agreement between the parties ensures that the roles and responsibilities are defined and therefore the role and fiduciary duties of that director are communicated upfront and unequivocally, and there is recourse in the event of a breach.  Similarly, an employment contract between the company and key BEE staff should be properly managed and annually updated in order to accommodate any changes in the legislation.

Skills development
A vital element of the longevity of our economy and BEE is that of skills development.  The codes have set a compliance target of 3% of payroll to be spent on the training of black staff.  Whilst most companies are not averse to training staff they are concerned that an employee may leave before the company has benefited from these new skills.  The law can protect employers under these circumstances and permits the company to make it a condition that the employee stays within the employ of that company for a finite period after the conclusion of that training. If the employee leaves within this period, they could be obliged to pay the company for a portion of that training.

Preferential procurement
The relationship between a company and its suppliers is a contractual relationship as well.  “I have come across contracts that insist that a supplier either meets a certain BEE score within a certain time or requires that the BEE score improves each year.” says Janisch, “In some cases these clauses are material to the contract.”  Old contracts should be updated to incorporate this commitment and new suppliers should be properly screened to avoid any potentially negative BEE repercussions.

Enterprise and Supplier development
Janisch believes that an often overlooked aspect of BEE is that of enterprise and supplier development. In some cases it might be necessary to incorporate a water-tight Service Level Agreement to ensure that the relationship stays on track.  An example is cited of a company that had gone through the whole enterprise development process and were just not receiving the levels of service that they expected their enterprise development beneficiaries. They then tried to enforce the required levels of service via a SLA. “This might be a little too late to be effective, the SLA should be agreed upon at the outset of the process, making it very clear what will expected from each party.”

I strongly recommend that companies consider professional advice for all these aspects of BEE at the outset. “I encourage people to see contracts as living things. They’re seldom perfect but always fulfil a function and have a place within the ecosystem any business - and as with all ecosystems, it is better to have all role players functioning than not.” 

 

 

Cumulative targets?

I'll tell you what I know about the art of BEE (as opposed to it being a science, which it clearly isn't) and that is that every person in the industry interprets each element differently.  Goodness knows that I have, convincingly I stress, interpreted all the elements in the most business friendly light and will generally go out of my way to prove that my interpretation is right.

But I was stumped on Friday.  And this is why.

I was told by a client that he had been advised that enterprise development is cumulative.  "True", I said.  According to what they'd been told this meant that the contributions are cumulative from the inception date (either Feb 2007, or a date five years prior) which means that the targets are cumulative too.  In other words,  say you contribute 2% of NPAT in the first year, then in order to make that full fifteen points the next year then you need to spend 4% of NPAT and so it goes on.

I disagreed with them but Vuyo's book is very vocal on this matter.  It is so important to Vuyo and Kyle that they have provided it with a heading on page 322

"Cumulative measurement of enterprise development contributions"

The targets and contributions for each year are cumulative.  The reason (for this) is to encourage a long term investment strategy...... A measured entity that does not contribute to the targeted amount to enterprise development in year one will carry the shortfall over to year two.  It will have to contribute a larger amount in year two to compensate for the shortfall in year one.

Not being one to allow Vuyo's opinion to be the overriding one when it doesn't suit me I phoned Obed.  And Obed had the same opinion as me and that was that you measure the contribution against the last year's target.  My next port of call is the codes themselves and the Interpretative Guide.

Code 600, paragraph 3.1.2
Qualifying Enterprise Development Contributions of any Measured Entity are recognisable cumulatively

BEE interpretative guide (page 84)
All enterprise development contributions are measured cumulatively from the earlier of the commencement of the Codes or a maximum of five years prior to the commencement of the codes until the date of measurement. This cumulative period will be limited to five years at a time – in other words the sum of contributions is averaged over the number of years (limited to a maximum of five years).

If Jack and Harris are correct (and I strongly suspect they aren't) then this is the second time the codes have opted for a stick approach to a  target; the other time with that ridiculous 40% minimum under employment equity.

To qualify my argument that the Jack/Harris interpretation is wrong.  Both code 600 and the interpretative guide talk about contributions being measured cumulatively.  Nowhere is it mentioned that targets are cumulatively measured.  This  is further confirmed by the description of the formula for calculating enterprise development spend; viz.

B is the value of all Qualifying Contributions made by the Measured Entity measured from the commencement or the this statement or the Inception Date to the date of measurement

C is compliance target in respect of the Qualifying Contributions as specified in the scorecard for statement 600 (which is clearly 3% of NPAT)

Is there anyone out there who would like to provide me with an argument that suggests Vuyo and Kyle are correct?

Let's end this now

I don't think that the self vs independent assessment debate has anywhere else to go.  Albert sent me an updated email that I think summarises the debate.  I won't post the email but he very succinctly says that SANAS' requirements and procedures border on fascistic (my word) and that prospective agencies are sent back to modify their submissions to meet these standards.  Under these circumstances, Albert argues, it is understandable to see that Theo and ABVA would regard R47-2 as law.  Be that as it may - R47-2 or 1 for that matter, is not law and there is no piece of legislation, code of good practice or court precedent to suggest that self-verification is not acceptable.

The onus therefore lies on the procurement officer or the "measured entity" to decide what they will or won't accept, it certainly does not lie with the consultant or verification agency.

Thanks to everyone who contributed to this debate.  I can't say I won't bring it up again but in the absence of anything more concrete I can't see that we can flog this poor horse any more.

Empowerdex/FM top empowerment companies

It's annual empowerment feature time.  The April 4 (2008) issue of the FM had a special empowerment supplement.   A JV between the FM and Empowerdex, the supplement stands out as the best one so far.  The cynic in me is desperately trying to find fault with this issue - but I can only find small typo and editing problems that aren't worth mentioning.  The full list of the top 188 companies is here.

I should mention however that much of this information is NOT verified.  A source told me that they had been interviewed over the phone and submitted what they believed they had achieved.  Effectively a self-rating.  (The methodology is discussed in the introduction).
I am going to use these scores in my own assessments with my clients, as will many other verification agencies.  So we have a self-assessment endorsement from the great protagonist of  independent verification.

Brian Leroni asked me what the average score was in the top 50.  It is 64.1.  This does seem quite high but perhaps the larger the company the easier it is to achieve these targets.  I wonder what jungle jim would have to say about this.  Amongst his many (often amusing but always infuriating) utterances is that the targets of the FSC are too lenient.  Is he going comment in a similar vein?

On the subject of jungle.  I presented at a conference recently and got there early because he was speaking.  I was singularly unimpressed.   He spoke to the audience as if there were no white people present and rambled on about how black people should pronounce their names correctly.  But he did say a few things that concerned me greatly.

1. We should get rid of the PPPFA.  In order to do this you would have to change the constitution.  A singularly dof idea - see Bright below.
2. He and the department of labour have decided that all QSE's must include EE in their scorecards.  He maintains that the scorecard will be rejected if it is not included.  I wonder how he is going to do this.  The labour department has yet to go to court over their Comair allegations and they had such a watertight case too.  I have added Comair to my Google alerts and nothing has come up. 

It is this lack of consideration for law that makes things very difficult for me.  If a law is passed then you are expected to live by it.  A person who declares that certain laws or conventions just be scrapped without any consideration for the constitution should be censured. 
A fantastic example is that of our northern neighbours.  I have been watching this very closely because I believe that once Bob and his cronies are removed Zim has the most amazing potential.

I was listening to Redi Direko interviewing Bright Matonga (ZANU-PF propagandist).  I have heard some nitwits in my life, but never anything that compares to this one.  He is often compared to Comical Ali (that Iraqi Information Minister who maintained that Baghdad was not under threat) because he continues to preach the ZANU-PF message of provocation etc.  There are so many absurd comments coming out of his mouth (you don't have to coax them out of him but you do have to ask him to shut up between sentences because you might die laughing) but the best one is the threat of white farmers coming to invade their land.  I haven't seen any pictures of a bunch of white farmers astride their wheat threshers and Massey-Fergusons on the Zambian border waiting to invade.

Oh - Bright (can't imagine why he was called that) has a farm too.  He took it from a family called Schulz in 2002.  What makes this story more bizarre is that Bright married a white English woman called Anne who apparently accused the Schulz family of stealing her land.  You can read the ridiculous story here.

I wouldn't like to be in Bright's shoes (ever really) when Mugabe and co lose power.  Because I have my doubts whether he will find Zimbabwe a hospitable place at that point.  I just hope that our government doesn't offer him or any of the other ZANU hoodlums asylum here.

ABVA Breakfast

About two weeks ago I got a phone call from Kevin Lester telling me about an ABVA breakfast.  So I mustered up the courage to cough up R150 and I arrived at the breakfast yesterday.  It wasn't the best attended event but there were a bunch of BEE industry people that I knew or had heard of like Tony Balshaw, Norman Hjelm and the prince of Tshwane - Louis McLaren.

I arrived a little late and missed most of Theo's presentation.  But I caught enough to argue with him on that thorny issue of self-assessment.  I need to reiterate why this issue interests me so - and it has a lot to do with what I do as a consultant.  I help companies rate themselves.  And my clients are very happy with the service I provide them.  This rating is the culmination of the compliance consulting.  There are times when I bring in BEE-Matrix to confirm my assessment, but more often than not my clients are very happy with the certificates we produce.

It follows therefore that by ABVA decreeing that only verified certificates are acceptable it tends to mess with my business.  So I will go to extraordinary lengths to prove to the ABVAakies that they do not have the mandate to decree.

During my argument with Theo I got the distinct impression that ABVA's decision to reject non-independent verifications was taken from SANAS R47-01 document (there seems to be an updated one R47-02).  He argued that the word "verification" can only mean an independently assessed certificate and that this definition was found in R47.  A verification agency could therefore reject a certificate and then insist on the "sufficient evidence" that code 000, paragraph talks about.   Theo's presentation (page 17) states that one of the duties of a verification agency is to "check evidence to substantiate unverified BEE status etc."  You will notice on page 6 that one of the documents that ABVA bases its principles on is the Guidance Notes for Verification Agencies.  The same document that the DTI refuse to endorse.

I was sitting next  to Sibonelo Radebe of the FM and I said to him that it appears as if the  R47 document conflicts with codes.  What does a good blogger then do - he goes off and reads the necessary documents.  And I read both of the R47 documents, and was pleasantly surprised to see that they were only 20 odd pages long and that 02 is an update of 01.

And this is what I learned:

Verification

There is no definition of the words verify or verification.  The nearest word I can find is ‘evaluation’  which means to assess, verify and validate the BEE status of measured entities.

Score so far - Theo 0, Paul 1 (it is a points game isn't it).

Self-serving

This allegation has long been leveled at ABVA.  And it makes sense.  I mean I am serving my own interests by writing on this blog.  But if ABVA want to push their own agenda (and they are doing this and then some) then they should at least make sure that they have the facts and the mandate to do this.

Now take a look at this (from SANAS R47-02)

9.1.3 Principles for inspiring confidence include:
(a) Impartiality
....a BEE Verification Agency has to be able to demonstrate that its decisions are based on objective evidence and that its decisions have not been improperly influenced by other interests or by other parties.

Threats to impartiality include:
Self-interest threats – threats that arise from a person or enterprise acting in their own interest, for example financial self-interest

Let us "unpack" (doesn't that phrase irritate the hell out of you - it does me).  The point about corroborating evidence was kicked to death yesterday.  Theo couched it in a ball of "best interests of the client" when he said that the verification agency would have to charge the "measured entity" (Andile Tlhoaéle loved that phrase and even used it when he wasn't answering a question he was being asked) to verify that supplier.  Come on Theo - it is patently clear that you want to create more work for your constituents when you say that the verification agency will only accept a IVC (independent verification certificate, I'm sick of writing this out in full).

Score so far - Theo 0, Paul 2 (I'm the judge here and I'll award the points in a Mugabe-ist fashion if I choose)

Prescriptive nature of R47

9.1.1 The principles outlined in this document are fundamental and are not prescriptive requirements. This document does not give specific requirements for all the situations that can occur; however, these principles should be applied as guidance for decisions that may need to be made for unanticipated situations.

Need I say more - no more scoring of points.

And finally

The FSC has a little issue on its hands.  The code of ethics that R47 preaches in only applicable to the dti's codes of good practice (gazetted under section 9)

6. THE ROLE OF BEE VERIFICATION AGENCIES
6.1 Assess, verify and validate BEE information for decision-making BEE Verification Agencies should assess, verify and validate both disclosed and undisclosed BEE-related information on measured entities. The verification thereof should be based on the principles contained in the Broad-Based BEE Codes of Good Practice, as well as the relevant gazetted industry charters, published and accepted as a Sector Code of Good Practice on Broad-Based BEE (Section 9 of the Act).

They cannot refer to R47 when a verification agency behaves in an odd fashion and cannot lay a complaint in terms of section 20 of 47-02.

And absolutely finally

Brigitte please comment on the blog.  I would love this blog to become the centre of BEE debate.