Paul Janisch

Counting on an Abacus

 Say you are but a humble BEE consultant who advises a certain multinational called Harriest*. Harriest has a complex structure because it is made up to two companies, Harriest One and Harriest Two. Harriest One is really an import company with no employees at all, they just import goods from their parent, HARRIESSENCE. They then supply Harriest Two with the same goods, to the extent that they are Harriest Two's biggest supplier by far (contributing about 90% of Harriest Two's total cost of sales bill). Their CEO, whose name is not Harry, is only interested in getting Harriest Two rated. And this is because Harriest Two employs all the people and some or other reason which you as the consultant accept.

Now, not Harry is a good CEO and he invests in his staff, has good employment policies and all that stuff. You advise him on the best way to get this enterprise development thing done properly etc. But you notice that in spite of all this, Harriest Two is only going to scrape onto the scorecard. not Harry is happy with this. So you and the verification agency go ahead and get the certificate (which is issued on the 11^th of November 2010) and you come up with the following score (level 8)

Element	Score	Maximum (excl bonus points)
Ownership	0.00	20
Management	0.00	10
Employment equity	3.31	15
Skills development	8.34	15
Preferential procurement	2.70	20
Enterprise development	12.51	15
Socio economic development	4.00	5
Total	30.86	100

And so you think you've done your job, not Harry pays you and off you go.

Now say you are having lunch with a friend of yours called HanselGretel and he tells you that Harriest Two has in fact got a level 6 rating. You gasp "I do not believe you, HanselGretel, is this the wine you have served me that is talking to me?" HanselGretel is determined that this is correct and on the Monday when the haze has cleared he sends you their scorecard. To your amazement this is the scorecard that is issued by Abacus Verification (Pty) Ltd (ABVA member and SANAS accredited BVA 086).

Element	Score	Maximum (excl bonus points)
Ownership	0.00	20
Management	0.00	10
Employment equity	4.41	15
Skills development	12.00	15
Preferential procurement	15.99	20
Enterprise development	15.00	15
Socio economic development	5.00	5
Total	52.4	100

The new scorecard is issued on the 24^th of March, 2011 - a mere four months after the first one. You fumble for breath – how is it that two verification agencies could be so different in such a short time. So you phone Harriest Two's CFO (So long MaryAnne) and ask her about this one. The conversation goes along the lines of:

Consultant: So long MaryAnne, but I am so surprised at this score.

 So long MaryAnne: Isn't it good, we are very proud of it

Consultant: But how is this possible?

So long MaryAnne: I met a man at a car wash who told me he does BEE scorecards

Consultant: Now that is interesting, do go on

So long MaryAnne: I told him that our score was bad, so he volunteered to come and look and see what he could do

Consultant: I am more intrigued than ever, So long MaryAnne, please don't stop and speak up for I fear I cannot hear you for my racks of sobs

So long MaryAnne: He said that procurement is preferential, and that means (something which the consultant has forgotten), and you can exclude imports

Consultant: (sob) uh huh (loud sigh and deeper sob)

So long MaryAnne: So he gave us almost 16 points for procurement which we deserve

Flabergasped, your consultant consults everything he can get his hands on in this regard. He then rattles off an email to Harriest Two's people

I feel that as the person who advised you for the earlier scorecard that I do need to point out why I think your new scorecard has issues.

The most concerning score is the procurement score. I spoke to So long MaryAnne today and she said the person who did the scorecard said that you could exclude imports and intra-group company expenditure. Imports aren't a worry, if I remember correctly the imports came through Harriest One anyway. However intra-group company expenditure is a problem. The first place we need to look at is the actual preferential procurement code (Code 500) which states that

5 Total Measured Procurement Spend

The following procurement is measurable within Total Measured Procurement Spend;

5.12 Intra-group procurement: except as provided in statement 002, all goods and services procured from subsidiaries or holding companies of the Measured Entity

This means that unless the intra-group company expenditure must be included unless it is exempted under statement 002..

002 talks about complex structures and is very clear that intra-group company expenditure can be excluded when you do a consolidated scorecard. In your case an example would be doing Harriest One which included Harriest Two. Under these circumstances you would take a look at the combined procurement and target each one's suppliers. The code then goes onto say that if each company within the group gets a separate BEE scorecard they must consider the BEE score of each group company if there is procurement between each one.

This paragraph explains it (in very bad English)

Conditions applicable to Measured Entity Level B-BBEE scorecards for Group Structures

8. Preferential Procurement score: calculation of the score for this element must measure procurement spend by the measured division/ business unit only. Note that incomes to an entity level B-BBEE scorecards for divisions, intra-group procurement with the enterprise to which the division or business unit belongs is measurable as per Statement 500.

The reference to Statement 500 is that paragraph 5 above.

I think that you were very badly advised under these circumstances. I'd be more than happy to explain this in person, but in the interim I do recommend that you forward this onto ABACUS because they must explain why they did this because they risk losing their verification licence if this scorecard gets queried.

Your consultant, who is an amateur blogger then makes a note of this on his blog. This post is greeted with shock and surprise by Maritha Steyn, who represents Abacus. The consultant is pleasantly surprised by her non-confrontational style and good humour – all the correspondence shows that she is willing to explain this. The consultant promises not to blog on this unnecessarily and gives her over a month to respond. Sadly that month has passed and a final note is emailed to her a week ago saying that this post would go up today. Another promise of a response comes the consultant's way – but nothing materialises. She did however agree that in a group of companies, intra company procurement must be considered as preferential procurement if there is no consolidated scorecard.

Harriest Two is wholly owned by HARRIESSENCE – a German company. (So only SA production should have been used as the baseline for PP) Harriest One PP should have been included as it was intra group Procurement; as far as I know this was not a consolidate scorecard where the Intergroup should not count as B-BBEE PP. On the ABACUS scorecard this was included and the amount was not small. I unfortunately deleted the scorecard but will request another copy as well as the file in order to do an internal audit on this matter.

This is an issue that must be sorted out, there is little doubt that both the consultant and the first verification agency have lost a client, unfairly I would suggest. This is the story so far, Ms Steyn is more than welcome to explain the situation but as the consultant in the story (I bet you never guessed that it was me), my reputation is a little on the line and I have lost a client.

 

* Some names have been changed to protect the innocent

A little more on fronting and a PLT

The association (ABVA) decided to host a conference to help its members and associates spot the signs of fronting and to develop codes of best practice which would cover aspects of the law that were open to interpretation.

Fronting, according to the Department of Trade and Industry (dti) is regarded as a deliberate circumvention of the act and includes cases in which black people are appointed or introduced to an enterprise on the basis of tokenism.

via www.timeslive.co.za

The quote on fronting and the word DELIBERATE reminds me of an email Keith Levenstein sent to a certain company. I'm not going to publish the whole email - you'd die laughing, so I'll post only the pieces where he shows us all the extent to which he is an expert.

My track record speaks for itself: I pretty much stopped the ArcelorMittal deal.

Really. I thought the deal hinged on a certain ICT being awarded mining rights.  As it is a number of people (true practitioners - but not self-proclaimed experts) have evaluated the BEE deal and found something close to 17 points in it.  

Fronting can be done through negligence or design. 

Hell Keith, are you sure about that negligence or design thing.  Is your own fronting some sort of negligent mistake?  I think I'm starting to see a few cracks in your expertly facade here.

You (being the person this email was addressed to) are going to have to brush up on your B-BBEE knowledge.  I am the recognised expert on BEE, in particular fronting.

You must be right about the expert thing - you know what, if you say it often enough to yourself you might just believe it, but don't hold your breath that anybody else will.   Can anyone possibly drop me a hint as to what it is that the PLT is an expert in.

Not the NABC content – but they would do well to pay attention to this post

Some people can verify BEE stuff, I can't. I cannot stand the roteness of that job – I find it staid, mundane, invasive and actually offensive. So I choose to consult – horses for courses they say. This is an article I wrote a few months' ago about the BEE consulting world.

 

What you should expect from a BEE consultant.

 

The BEE consulting industry is about 10 years old. With BEE laws and practices being reasonably bedded down the industry has become relatively established with BEE consultants being called in to provide a variety of BEE-related services to their clients.

Typically a BEE consultant is brought in for two reasons

1)    To remove the admin nightmare of both measuring BEE requirements and managing the verification process

2)    To advise on a specific issue that might need a little more focus. This point has opened up opportunities from a variety of professions ranging from lawyers and accountants through to HR professionals and corporate social investment specialists

BEE consultants differ from BEE verification agencies in that consultants do not verify. A simple analogy would be a cricket game where the players are watched over by an umpire. All decisions regarding wickets and runs are decided by that umpire. In the BEE world the consultant is the player and the verification agency is the umpire. The cost of setting up a verification agency is somewhat prohibitive which is one of the reasons why there are so few verification agencies. However the barrier to entry to become a BEE consultant is very low, all that is needed is a modicum of expertise and a client. Because of this low barrier to entry there is a possibility that the consultant you appoint might not be able to assist you properly. In my experience the following eight pointers should serve as a guide to what you should expect from a BEE advisor

1. A working knowledge of the codes and charters and how they interact with each other. It's not necessary to be an absolute expert but over the consultation period they have to satisfy the client that they are providing the best possible advice
2. A basic financial understanding. They should at least be able to read a balance sheet and income statement (understanding Afrikaans terminology is a bonus)
3. BEE consultants deal with a variety of departments in a company – from the financial department to the HR department and the procurement department. Each one has a different set of priorities and responsibilities – a consultant must be able to talk to each person with an understanding of their responsibilities and how these will benefit the company in their own BEE scorecard.
4. Overall knowledge of the legislation that black economic empowerment derives its legal legitimacy. This includes the Companies Act, Skills Development Act, Employment Equity Act et al
5. They should know what a verification agency will or will not accept. There are two ways to get behind this, you can either read the verification manual (which is an absolute must) or they can run ideas and interpretations past a verification agency. I have learned that there is little point in arguing over something when a verification agency has decided that they won't accept it.
6. Good writing skills are a benefit. Often a consultant will need to write certain types of policies, letters, memoranda of understanding which will form the basis of verification file.
7. A consultant will often be asked to refer charities or enterprise development beneficiaries for clients to earn points. A brace of these types of causes and beneficiaries that satisfy the various charters that can be referred are always useful.
8. A decent working relationship with a verification agency. I would recommend that they work with a few verification agencies. This is because it might be very embarrassing when you have advised a client on one issue that a verification agency has rejected
9. A willingness to sign some sort of non-disclosure agreement. The consultant will be exposed to almost all your company's confidential information.

A brief case study

I was approached by an engineering company who needed BEE advice. I really cut my teeth on this project I found myself advising them on the construction charter which involved setting up a variety of initiatives and programmes to get them to the BEE score they wanted. Some of the things that I ended up doing for them were:

1. Sitting in with lawyer and assisting in the drafting of the shareholders' agreement and contract of sale for the shares. A lawyer knows the law – but they typically do not understand the subtleties of a BEE deal and the demands the codes make on such a transaction
2. Writing HR policies that are unique to the construction sector charter
3. Advising on the best method to adhere with the complicated enterprise development requirements in the charter

This was pretty much what the client expected and it proved to be a very sharp learning curve. I suspect that these kinds of demands are placed on consultants all the time.

Maybe the NABC will accept this as the standard. Hmmm – no never, that's too much hard work.