Paul Janisch

A retailer's tale

Black economic empowerment as a concept works when the lone consumer is not involved in the procurement decision. 

Perhaps that was a little vague - what I mean is that the BEE status of a certain vendor/supplier/manufacturer etc is almost completely irrelevant to the average consumer.  An example is the power failure we experienced yesterday (which strangely enough cannot be blamed on City Power).  We had no power so we called our favourite electrician - Cooks Electrical.  We use Cooks because they are good, reliable and reasonable.  The last thing I would ever enquire about is their BEE status - I don't care, I want my electricity fixed.  And I'm willing to be that every home-owner in this country feels the same way (including Zoomersheengat).  

This same behaviour happens in my daily grocery and other purchases.  I use Woolworths for certain things and Pick 'n Pay, Shoprite and Spar for other things.  Never once have I ever bothered to enquire from the shop manager as to their BEE status - it has absolutely no bearing on whether I will shop there or not.

This factor has now been brought to the fore with the Walmart purchase of Massmart.  There seems to be an issue with local procurement.  (By the way - welcome back Lionel.)

Last week the deputy DG in trade & industry, Lionel October said in parliament, "We want to make a clear stand at the tribunal that [procurement] is an issue...It is not to prevent [Wal-Mart] from entering the South African market but to try and get a voluntary commitment from their side that they will try to procure locally.”

Massmart's CEO, Grant Pattison, took (vehement?) exception to this 

“it would be against the tenet of the Competition Act to hold Massmart to procurement targets, but not the rest of the industry.  If Massmart is held to that condition, and our competitors are not, then the one factory in SA that makes lawnmowers can sell us product that is 20% more expensive than others are importing them. “You cannot have asymmetric regulation. It’s terminal from a competition point of view.”

He is absolutely correct.  It's a ludicrous concept - Massmart owns a bunch of retail/wholesale stores.  This is where people like me come in and buy stuff for our personal and in some cases, business use.  We shop there because we believe (often incorrectly) that we will find the best prices for what we are looking for.  In order to cater for this, Massmart must negotiate the best price for each item.

If they are now forced to start procuring locally and the consumer does not like the product or the price then they won't buy it.  They will probably head off to other stores to buy those products that Massmart used to sell.

The fact remains that BEE is irrelevant in the retail space and suppliers of consumer goods are probably very aware of this.  There is no way that any of the retailers are going to stop purchasing from a supplier who provides goods that consumers want to buy because of their BEE status.  And these consumers include the likes of jungle jim and all his ANC cronies.

Davies and the empowerment goliath

Rob Davies has been doing some reading and is now talking about empowerment (after a year's silence). The good news is that he is most concerned important things like ownership – which the mining sector is most concerned about. Rob is worried about things like enterprise development and skills development. It shouldn't be such a surprise – he's just launched the IPAP which is very dependent on both. I had to laugh at a quote from Engineering News Online

Speaking at a media conference in Pretoria, Davies said that even though most share transactions included a BEE component, 75% of companies in the private sector were still not fully compliant. Davies told Engineering News Online that this was mainly owing to companies using BEE scorecards as "tick-boxes", and not as a "dynamic tool" to empower and train people from ground level upwards.

 

Why the hell is he so surprised by this? When you look at the scorecard all you see is something that says you need to shell out a bunch of cash for points. After all the codes are all about quantity and not quality. When you tell a company that they have to spend money on the following each year, they are never going to "embrace it".

An empowerment shopping list

Description	Annual contribution	Once off
Sale of shares (likely financed by the company)		√
Black independent non-executive directors' fees	√
Skills development spend on black people (3%)	√
Procurement analysis (id est begging for scorecards)	√
Enterprise development (3% of NPAT)	√
Enterprise development (1% of NPAT)	√
Verification	√

 

In order to get what he wants, Rob reckons he's going to use Section 10 of the BEE Act

"Government will be looking at article 10, where we, as organs of the State, will assist with the broader implementation of BEE codes. We may consider forming partnerships with companies within the private sector to promote further enterprise and skills development in accordance with the codes."

Does this mean that the DTI is going to start making it a requirement to get a licence to conduct any form of business activity? I sincerely hope not.

Give us tax breaks

Rob, it is the private sector that has made the biggest strides in empowerment. They've been doing it for years and they are starting to get good at it. The government and especially the parastatals have been dismal at it – take a look at the mess with the Captain Barnard case and ESKOM's procurement policies. Stop using the stick – it's hard enough doing business in this country as it is. Give us tax breaks, especially for effective skills development, enterprise development and SED projects.

William Gumede - ANC must spring-clean, nothing less.

Drop black economic empowerment as a policy and give companies BEE points for how much they invest in job creation, black education and housing; and for uplifting the physical and social infrastructure of townships and rural areas, and supporting the five-million entrepreneurs in the informal sector.

http://bit.ly/cAD4Gk

Go from BEE level 8 to a level 6 with minimum investment

Most companies think that moving up from a level 8 to a higher level (6 or above) is going to require them to re-engineer their business or at the very least cost a small fortune.

We at Caird don't think that this is the case.

BEE is an art not a science, and it's all about making the relevant BEE codes working for you.

Brief case study

One of our clients (an engineering firm) needed to move from a level 8 to a level 6 in a very short space of time.  After a short consultation Caird has

• Found more than R300k's worth of enterprise development within the business (15 points)
• Filtered through their procurement and found 18 points,
• Analysed their skills development to generate 8 points out of the 15

 

As a result our client is now comfortably a level 6 and has a plan to maintain and improve this score over the next five years.  The nature of their business has not changed and they are now benefitting from a variety of business efficiencies brought about by this change.

Find out how your company can improve its score in the shortest possible time

For an hour's free consultation (no obligation) with Jacques Swanepoel (BEE HR expert) and Paul Janisch (compliance expert) please email us.

 

This offer is only valid to those companies operating within the Gauteng region.

--------------------

Paul Janisch

Caird - Broad-based BEE compliance experts

"working BEE solutions"

 

083 227-1375

FNB rethinks 'racial' bursaries - hmmmm

Solidarity took FNB to task about their allocation of education bursaries for employees' children. The November issue of Treetalk (FNB's newsletter) offer financial support to children of African, Indian, Coloured and Chinese employees earning less than R100,000 a year.   This is a very well reported story indeed. 

I'm not in the way of getting involved in politics and I am no fan of trade unions so I'm not going to discuss the merits of Solidarity's complaint.  The thing that I picked up on was the comment on meeting with FNB CEO Michael Jordaan and Solidarity's  Dirk Hermann

The union said yesterday that during talks between Dirk Hermann, deputy general secretary of Solidarity, and FNB CEO Michael Jordaan, it had been agreed that the bank would include whites in allocating bursaries if the law allowed for such a step.

Apparently FNB had been advised by lawyers

According to legal advice obtained by FNB at the time regarding the transaction, those who benefit from black empowerment must exclusively be black.

LEGAL ADVICE!!!!!!!!!!!!!! You paid for legal advice of this quality?  I think you were ripped off Michael.  The correct advice goes along these lines. 

Paragraph 3.2 of code 700 (DTI) clarifies what socio-economic development contributions are.   It is 3.2.2 that is most important here:

 The full value of SED contributions made to beneficiaries is recognisable if at least 75% of the value directly benefits black people.

Even the FSC implicitly concurs with this paragraph

13.2    CSI means projects aimed primarily at black groups, communities and individuals that have a strong developmental approach and contribute towards transformation.

You don't have to consult your dubious lawyers Michael - you can happily go ahead and include white people in this scheme and still earn your BEE points.  Any B-grade BEE consultant or verification agency could have told you this.

I know there are those (like my odd cousin and friend Joe) who feel that this is perfectly fair, after all whites did it to black people during Apartheid.  I don't agree, we as South Africans have a responsibility to invest in the future of all South Africans.  This country is still suffering under that policy with low education and literacy levels.  And this will always be a burdon on the country and tax payer.

Michael - you charge me R0.50 (fifty cents) for every email I send to people when I pay them from my FNB bank account.  I don't mind if you continue ripping me off with these excessive charges if you have an equitable CSI policy. 

 

Caird Code Rule #1 – Is BEE applicable to you

A while ago I was doing a presentation to the American Chamber of Commerce on Equity Equivalents. One of the delegates was an apparel manufacturer who asked my why his company should consider the programme I was proposing. I was a little surprised that such a company would even consider equity equivalents as an option. Why would they need to, they sell takkies, T shirts and caps. Every single one of their products are sold to a consumer who is very unlikely to use BEE status in their decision to buy their product. Edgars etc might ask them for their BEE status but I have my gravest doubts that they will not stock those products in their stores because that company does not comply with their BEE wishes. And it is also unlikely that Edgars will incentivise their sales staff to push a local product over the imported one. Can you imagine the conversation

Consumer: I'd like to try on these Adidas shoes.

Sales assistant: Please sir would you consider these Dlaminis. They are locally manufactured and Edgars will get more BEE points if we sell these.

Consumer: No I will not you horrid sales assistant you. I'm off to Sportsman's Warehouse.

This fictitious interaction exposes the deepest flaw in the implementation of BEE viz if the average joe is the end user then BEE is not going to be very important. This means that BEE can really only be applicable when the consumer is some sort of a corporate or government entity.

The general rule here is that if your business caters for consumers then it is unlikely that BEE will ever affect you. This would include restaurants (that don't serve alcohol), shoe shops, clothes shops, plumbers, electricians, pool companies, record shops, news agents, retail jewellers. As with any rule there are exceptions.

1. Any restaurant, hotel, pub or anything that serves alcohol requires a liquor licence. And those licenses are handed out by the DTI. And the DTI asks a bunch of BEE questions in allocating these licenses. I have written countless BEE plans for liquors wholesalers and retailers that have to be submitted with each renewal.
2. Shops looking to rent in malls that are owned by parastatals like Transnet or Eskom. I have heard that your BEE status is important to these types. ACSA is another example – the annual tender for renewals for shops in the airports require BEE credentials. I don't know who drafted those BEE questionnaires but they are so badly written they are an embarrassment (mind you so is ACSA). I haven't come across private property owners asking for BEE credentials.
3. Manufacturing jewellers have to comply with the Mineral and Petroleum Resources Development Act of 2002, (MPRDA). The requirements for this are exactly the same as those for a mining licence. I won't comment on this right now but suffice to say – this abomination requires its own future post.
4. Anything that can be used under section 10 of the BEE Act. I haven't really seen this being used, although I have worked on PPPs where the legal advisors have anticipated it in the PPP agreement. The DTI has taken a cautious path when it comes to section 10 because I believe that they recognise that over-regulation will stifle the development of the South African economy (as if we aren't over-regulated already). Technically speaking they could shove section 10 in the way of almost everything to achieve the BEE Act's transformation goals.

What about those entities that think they might need a BEE scorecard but don't

Charities and other section 21 companies that are looking for SED money

Paragraph 5 of Code 000, statement 004 states very clearly that their BEE status is not a consideration in determining whether they will be beneficiaries of SED contributions

The status of Socio-Economic Development Contributions made to any of the types of entities in paragraphs 1 and 2 under Code series 700 is not dependent on such entity's scorecard result, but rather the nature of the contribution itself and the identity of that contribution's beneficiaries.

There are some NGOs/section 21s who provide certain types of services to corporates to raise money for their core activity. Under these circumstances they become a supplier to that corporate and might be required to produce a specialised enterprises BEE scorecard (statement 004).

Entities or companies providing enterprise development services

Now this is a very common occurrence. There are many private companies providing these services, Endeavor, Raizcorp and ED Alliances are three that I know rather well. This practice is contemplated by code 600, paragraph 3.2.5.12

payments made by the Measured Entity to third parties to perform enterprise development on the Measured Entity's behalf

However it does not appear that these companies actually need to produce a BEE scorecard to provide ED services. One of the exclusions under Code 500 (Preferential Procurement) is empowerment related procurement – more specifically (paragraph 6.5.2)

investments, loans or donations qualifying for recognition under any statement under Code series 600 or 700

This means that the expenditure is excluded and hence a BEE scorecard is not needed.

PPC new BEE rating and the construction code's applicability

This is very interesting.  PPC announced that the have moved up from a level 4 to level three in their latest rating.  This is actually so important that they have made a JSE SENS announcement as well.

They haven't actually updated their website so I haven't seen the certificate but I surmise from the article that they used the DTI's codes to get there. 

PPC met its objectives in almost all of the Department of Trade and Industry’s code of good practice scorecard pillars, with notable increases in scores relating to employment equity, enterprise development and socioeconomic development

If they did use the DTI's codes then this brings up an interesting debate about which scorecard they should follow.  I presented a Construction Codes seminar around the country earlier this year and one of the delegates came from a cement manufacturing company and asked why she should attend the breakfast they are a manufacturing company that derives its income from the construction industry.  This posed a bit of a conundrum so I looked at the code itself

Code 2000, paragraph 3 (précised) says

Any company that conducts any construction-related activity must determine what percentage of their turnover is derived from construction
if the majority of their turnover is derived  from construction related activities then the charter is applicable

The construction sector is defined under the interpretations and definitions (page 29) as

all enterprises that are involved in the

• creation
• expansion
• maintenance

of fixed assets related to residential, or non-residential buildings, infrastructure or any other form of construction works in South Africa

This is difficult, manufacturers like PPC are indirectly involved in all three bullet points.  Is this link then strong enough for them to find the construction code applicable to them.  The available evidence suggests that the verification agency doing PPC might have thought that there was no strong link between them and the construction code.  However before I make any rash conclusions I need to consider

Date of applicability of the construction code

The preamble to the codes (notice 862) announces that

this notice is effective from the date of publishing (5 June 2009) and means that the Construction Sector Code is binding on all stakeholders operating in the construction sector

Does this mean that if the code falls into your measurement period then you are suddenly bound by it?  I would think not - but I have heard of VAs who seem to think so.

It is possible that the measurement period that PPC used might have pre-dated the gazetting of the construction code and that's why they used the DTI's COGP.  This sentiment is now common cause - there is nothing in the construction code that says it is retrospectively applicable.

ABVAcuousness

I was sent an email by Louis McLaren telling me that the certificate I issued might not be accepted.  I sent him a mail back telling him that it was perfectly legal in terms of notice 32467.  I then got a response from him telling me that a VA would not accept it because ABVA says it won't.  I then mentioned that the VA is not in a position to decide who are what certificates are acceptable.  I have blogged about this in a great amount of detail before.

I need to stress that Louis is a highly respected man in this industry - he is not part of this tirade.  At all times he kept the name of the VA away from me.

This dimwit (who is nameless to me) has a similar intelligence level to Bright Matonga  - in fact I'll call him/her that name.  This is Bright's response (peppered with my comments.

"His statement that no verification agency may decide what to accept or not clearly shows ignorance on the side of the individual in question.

Really?

It is the precise function of a verification agency to decide on the validity of evidence presented to it by a measured entity.  The procurement official of that measured entity may have decided what to accept as sufficient proof for its procurement purposes but for verification purposes verification agencies have to make their decisions within the context of a legislated regime which prescribes what is acceptable evidence or not.

Questionable legislation.  Tell me Bright have you actually read the verification manual?  It is a document drafted by someone who might be marginally cleverer than you.  The English and exemplary BEE knowledge of the drafter/s make for comedic reading indeed.  Here are but two examples

• Establish the existence (?) proof through the AMP201 (page 64).  What the hell is an AMP201?  It doesn't exist in a South African legislative context.  I somehow think they are referring to an EMP 201.  If Bright's drafter friends don't even know this then what are they doing drafting this riveting document?
• There are no local production (5.4.6.1 - page 69).  Lovely stuff - something my corporal might have uttered and he made no bones about the fact that he spoke English very reluctantly.  Bright, could you be my old corporal?

Whilst it might be regarded as "law" for now - everyone knows that this document would be thrown out of a court of law. 

The decision of the verification agency can therefore not be arbitrary but must have a sound legal basis.  The interpretation of ABVA on the particular matter is based on the current legislation issued on the matter.  Although controversial, it is the only interpretation that stands the test of legality.  I would love to hear the legal - not policy or emotional argument, for the view adopted by this individual.

Yes Bright this is ABVA's interpretation.  Confirmed to me by Andile (is BEE really my strongpoint?) Tlhoaéle.  And this is the most important point - it is not a point endorsed by the DTI or SANAS.  Whilst Andile avers that it has some legal backing because of the definition of a verification agency in R47-02 it still lacks legitimacy.  And this is another perfect example of ABVAndalism and ABVAingloriousness. 

I suggest he starts off by providing me with the legal definition of the term "unaccredited verification agency" that does not result in an absurdity"

I just did you knucklehead.  And I have a little news for you I have heard the Sipho Zikode asked the question why your little association should be the only one that gets to play BEE god.  He suggested at a recent meeting that SAICA, ACCA or any other association should also represent their members who are VAs.

My advice to you Bright is wake up, read the gazetted legislation and then work your pathetic little backside off from the 1st of February next year, because you are going to have to do about 50 verifications a day.  In the meantime stop hiding behind ABVA's skirt tails and service your clients not your immature ego.

The changing face of BEE deals as per FM?

Taken from an FM article on BEE investment houses who end up being benificiaries of deals and their overall performance.  The article concludes that BEE deals need to evolve, suggesting perhaps that a move toward entrepreneurship and away from passive hand-out involvement.

Recent broad-based empowerment deals from the likes of SAB, Tiger Brands and Adcock Ingram point to a changing trend in the structuring of black economic empowerment (BEE) deals. The tide has swung away from those that favour one black company or group of individuals. "The BEE deals of today are different to the way they were structured five years ago," says Sanlam Investment Management portfolio manager Ricco Friedrich. "Staff and related communities are now the preferred beneficiaries in deals that are broad based. They are more sustainable than the kind that favoured the usual suspects'. Those are dead in the water."

And then there is this quote from Jenny Cargill of BusinessMap.

"Current policy has effectively placed a 25% ceiling on BEE equity ownership. The acquisition of controlling interests by BEE investors is no longer evident and this has led to a more opportunistic character to BEE ownership."

I have always noted the sterility of the 25% target.  Once you set a target then people go for it and rarely exceed it - ask any sales manager.  Could this be why jungle (speaking predictably out of turn) is suggesting a 30% equity target by 2017?  Got to love his exemplorary knowledge of BEE and affirmative procurement.  And why not leave this post with a quote from my esteemed aficianado

Manyi said the BMF was changing its focus to concentrate on ownership, affirmative procurement and enterprise development instead of employment equity.

Does this mean that it's his other hat as DoL DG that will be looking after the EE side?

Caird BEE consultation methodology

Caird follows a very strict implementation methodology on all our engagements.

Understand the client's business

This is a singularly vital aspect in any consultation. Without a firm understanding of a company's internal and external workings it is not possible to develop any working BEE solutions. Often the codes' requirements cannot and will not fit into a client's business environment – and it is only with a complete understanding of the client's business that a working empowerment solution can be developed.

Know the industry that the client operates in

A simple requirement that is too often overlooked. Caird does not subscribe to the notion that more BEE points means more business but we firmly believe that every company must operate within the industry points' average. Caird conducts a comprehensive analysis for benchmarking purposes. We then plan our consultation to meeting this average in the shortest amount of time.

Ensure that all the correct people are involved in the process

In smaller companies this is generally an easier process because it is typically the CEO who manages the process. In larger companies there are many more people that are involved in the process – this ranges from ExCo through to sales people. Once we start implementing our balanced scorecard measurement process we are able to include almost every person in the organisation in the process.

Conduct a thorough as-is assessment

When reading a map there is no way you will ever get to your destination unless you know where you are at the moment. The as-is assessment shows where the company sits on the scorecard – both intentionally and un-intentionally (in other words points were found in the organisation that were a happy accident). It is not advisable to use the last verification certificate as a benchmark as things change and the same score might not be achieved in the next assessment.

Establish what the client would like to achieve on the scorecard and manage these expectations

Transformation is like a diet – it can take years of dedication to the programme to achieve the desired results. A client may want an incredibly high score that is not achievable in the short term. It is our job to ensure that we set realistic targets at the outset. We may work with the verification agency at a very early stage to ensure that whatever we do will be acceptable to them.

Look for points within the company first

It is amazing how many consultants fail to observe this point. We have seen companies spend hundreds of thousands on enterprise development without knowing that the points that they have just bought could be found within the company.

Bring in additional expertise

Caird expertise lies in BEE compliance. We have a broad knowledge of all the elements in all the scorecards. In some circumstances it is necessary to supplement this with legal, financial, HR etc experts. We have a network of experts that we draw on where necessary.

Implement a transformation balanced scorecard

This scorecard here refers to Kaplan and Norton's balanced scorecard. The Kaplan and Norton scorecard ties up business goals with an individual's key performance areas (KPAs) and links their performance to the overall goals of the company. In this way every person in the organisation knows what their involvement is in the overall transformation process.

Be part of the verification process

Caird comiles a logical verification file that makes it easy for the verification agency to perform the assessment in the shortest possible time.  If there are any outstanding issues we take care of them and report back to the client.  We analyse the preliminary assessment to make sure that it is accurate and correct all mistakes with the verification agency.