Paul Janisch

I got a level 1 without ownership

Perhaps that isn't quite true, BEE Matrix awarded it (when the hell are they going to fix up their website) - I just found the points.  I was approached by Nic du Toit of Rand Management Services to help a client of his move from a level 4 to something higher. 

This is normally really easy to do if the company is a QSE and this was no exception.   My initial analysis was that they would be about a level 2 but alas with the bonus points under employment equity, Lintrans moved to a level 1.  I told Frik Lindeque (after bribing him with a bottle of Fokol) that he should beg for a reduction to a level 2 - but unfortunately if the facts state that you are a level one then you are a level 1. 

A few facts

• Lintrans has no black ownership.  This means they have to try harder on the other elements to get to a level 1.
• Technically speaking Frik has a black 2IC in the company who runs it when he is away.  We chose not to push this up to management.
• He has a very stable staff complement which is almost entirely black.

Here are a couple of tips that can make use of when putting together your own QSE scorecard.

I find that with white owned companies we tend to leave out ownership, management and skills development.  I normally exclude skills development because the requirements are too much of a burden for smaller businesses.  And as a general rule all the training that happens is on-the-job and the codes are not keen on that.  Also they tend not to have submitted a workplace skills plan, which means that they cannot claim any points under skills. 

This is what you have left.

1. Employment equity - remember the QSE codes ask for the total number of managers.  All you need to do is draw up a logical organigram of the logical management positions (there is no final definition of a manager so a company has the freedom to create their own definition).  In other words if there are 3 senior, 2 middle and 4 junior managers then there are 9 managers.  I four of those are black female then you get the full number of points under managers.
2. Procurement - Frik went out of his way to get me verification certificates for his major suppliers.  The QSE preferential procurement is an application of the 80:20 rule - 80% of your procurement comes from 20% of your suppliers.  Don't waste your time looking for BEE scorecards from the rats and mice.  Also - this procurement figure is measured against the income statement NOT the total procurement figure.  This might require you digging a little deeper to find amounts from broad categories like insurance, telephone etc.
3. Enterprise development and SED.  Nic du Toit really has his finger on the pulse here.  He records those contributions as either ED or SED in the financials.  Admittedly we still had to prove that the contributions were made to worthy beneficiaries, but the verification agency is not going to question the legitimate financials when it comes to measuring the actual contribution.

And that is how it went - maximum points for each element plus a bonus point under employment equity. 

If you are looking for a reliable transport company why don't you consider Frik Lindeque and Lintrans, afterall they are a level one contributor.  

 

 

 

 

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.

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.

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.

Govt. commits to improving lives of the disabled and a bit on the advisory council

Got this off the Eyewitness News website.  It's the last paragraph that interests me

“By 2014 we should have achieved our employment equity targets, the Welcome to The Ollie Halsall Archive minimum of two percent according to the Employment Equity Act,” said Motlanthe.

Hmm - by that stage everyone else is supposed to have reached a target of 3% for black people alone.  This is an omission in the codes - perhaps the new advisory council will do something about this.  This could be their first test.

And a post within a post - I was quoted by Business Report this morning

Paul Janisch, the chief executive of Caird Consulting, a BEE compliance firm, said the council should have had more private sector representation. "Remember the private sector has to implement the BEE that politicians want. It would be much easier for them to implement it if they were well represented on the council."

When I was speaking to Mzwandile yesterday I was at pains to point out that the council seemed to be too heavy on politicians, labour and black lobby groups (like the BMF and BLA).  I think there should have been more business representation to temper labour and the BMF's ridiculous notions and demands.  What we need to be very wary of is the jungle mantra of "empowerment at all costs".  We have seen the folly of this thought in the Tshwane and police cases.  In both cases positions have either been frozen because EE candidates did not apply for the job - the Tshwane case is absolutely scary.  The police case's judgment is reserved but I will be very interested in reading it when it is made public.

PIC and Cyril - two from Business Report

This is truly an hysterical article.  I would normally Tweet on these things but it warranted a lot more than 140 characters.   Ann Crotty reports that the Public Investment Corporation (PIC), which manages about R800 billion of funds on behalf of the Government Employees Fund, is in discussions with the Department of Public Works to resolve concerns about the PIC's black economic empowerment (BEE) status.

PIC chief operations officer Albertina Kekana said various government departments and local authorities were tenants of properties owned and managed by the PIC and noted, "we sometimes have difficulty with renewing leases because the department's procurement officers say we're not empowered".

And the upshot of this lack of empowered status

in some instances the PIC struggled to collect rent from the departments and local authorities.

This either goes to show how clueless government departments are about BEE (which they are) or that PPPFA cannot come to terms with state-owned entities bidding for government contracts.  The latter is addressed in the new regulations.

The only BEE solution I can think of is the BEE that of a BEE Facilitator.  Paragraph 3.4.3 of code 100 states

The Minister may by notice in the gazette, designate certain Public Entities as BEE Facilitators. In calculating their Ownership score, Measured Enterprises must treat BEE Facilitators as having rights of Ownership held:

• 100% by Black People;
• 40% by Black Women;
• 10% by black designated groups:
• without any acquisition debts; and
• without any third-party rights.

In other words they get the full 20 points for ownership.  The DTI has done it before with PetroSA.  I suppose the question is whether the PIC is a Public Entity.  They are not in Schedule 2 of the PFMA but then neither is PetroSA.  They do say that they are subject to three different acts - one of which is the PFMA. 

Cyril doesn't like BEE lockins

Also from the Business Report today written by Mzwandile Jacks.  Mzwandile is a great journalist - I've met him before

Bidvest chairman Cyril Ramaphosa yesterday launched a fierce assault on black economic empowerment (BEE ) lock-in agreements, saying they inhibited black access to profit.

He reckons it messes with the spirit of empowerment and he's right.  Being locked-in because you fulfil certain BEE requirements is stupid and sorely lacking in any business sense.  They've tried to alleviate this problem with the "once empowered, always empowered" rule, which Cyril says is open to abuse. 

The "once empowered, always empowered", "continuing consequences", "high watermark" rule is a fantastic get-out clause for black players.  They stay in the business for three years, make a bit of cash and go.  The business continues to recognise the ownership level (albeit with reduced points) and everyone is happy. 

However Ajay Lalu does not agree with me (he apparently drafted that useless verification manual)

Ajay Lalu, a BEE expert and partner at Bravura Consulting, said the "once empowered, always empowered" approach was enshrined in the financial sector charter. "This goes against the spirit of broad-based BEE," Lalu said.

I don't really understand this paragraph but if I am reading the bold correctly then Ajay is talking the most misinformed drivel yet uttered in the BEE world - and the competition for that accolade is fierce.  Let's go back the preamble of  BEE Act.  And I quote

(to) promote the achievement of the constitutional right to equality, increase broad-based and effective participation of black people in the economy and promote a higher growth rate, increased employment and more equitable income distribution

If the rule is properly implemented then you'll achieve a few of these requirements and the underlined part.

Caird has developed an accounting officer's template for EMEs that contains all the necessary information that an EME might need to adequately demonstrate their EME status. This document contains an affidavit that contractors can sign confirming their EME status (this is very useful for procurement departments). The cost is R350 - for more information email me.

 

Very few companies consider skills development as an area that can generate BEE points within a very short period of time

And so begins my posting of useful information.  I am unfortunately not an expert on Skills Development but I know a lot of people who are.  Also I am not an expert on inserting tables into the blog and I can't seem to get Word to upload the posts.  I'll have to figure this out - hence the scrunched up tables.  And BEE is all about tables.

A BEE score is based on the measurement of a set of elements actually initiated over a year.  Whilst the codes aren’t specific about what that period should be, most companies are measured over a financial year.  With the current March to February financial year rapidly coming to an end most companies should have the necessary BEE processes in place to achieve a better BEE score than the previous year.  Our experience has shown that this often isn’t the case – there is always a mad scramble to do something to attract points in the last few months of the financial year. 

Most companies will have regarded it too late to do much more than make desperate enterprise development or socio-economic development donations and attract those 20 points, hoping that these will be enough to favourably stack up against their competitors.  There is another way to earn at least a further six points under skills development in a very short period of time.

The skills development is concerned with two measurements

1              Spend on skills development

a.    3% of payroll under the generic scorecard spent on the training of black people with a strong emphasis on black women

b.    0.3% of payroll spent on black disabled people

2              Learnerships

5% of staff should be black people on learnerships.

Learnerships amount to 6 points on the BEE scorecard.  To comply with the learnership requirement 5% of all staff should be black people registered on learnerships.  This measurement is based on the number of people registered on learnership during the measurement period.  It makes little difference to this score whether the learnerships exist at the beginning of the period or on the last day.

The added bonus with learnerships is that the salaries paid to the learner whilst they are on the learnership are considered skills development spend.  This would then make a sizable dent in the skills development spend target of 3% of payroll.  From a points’ perspective it would be beneficial to register a learnership as early as possible within the measurement period.  Nevertheless even if the learner begins late in the measurement period you can claim their salaries as skills development spend for the balance on the year which will generate a few points.  And this same learner will earn you points in the next measurement period.  Adding black disabled learners to this programme can attract a further three points.

The table below summarises the requirements for skills development, the potential points’ value for each requirement and offers a few tips for attracting those points.  Don’t forget the four primary requirements that need to be adhered to before any points can be had under Skills Development

• compliance both with the Skills Development and Skills Development Levies Acts.
• registered with the applicable SETA
• developed a Workplace Skills Plan (WSP)
• have implemented programmes targeted at developing priority skills  generally, and specifically for black people. (this is derived from the Workplace Skills Plan)

 I have italicised the word developed above because it doesn't mean that the plan has to be submitted.  The (interminably dodgy) veification manual states that the WSP has to have been submitted, which is not a requirement under the code.

Description	Points	Target
Spend on skills development spend on black people ·         About 40% of the target must be spent on black women ·         Skills development spend includes salaries of people on learnerships ·         Overseas travel for business purposes can be regarded as legitimate skills development spend ·         If the money is claimed back through the Workplace Skills Plan it can still be used for points under this element	6	3% of payroll (equivalent to 3% of annual SDL contribution)
Spend on skills development spend on black disabled people About 40% of the target must be spent on black women   Skills development spend includes salaries of people on learnerships Siyakha has a database of suitable disabled people	3	0.3% of payroll (equivalent to 0.3% of annual SDL contribution)
Number of black employees participating in learnerships, ·About 40% of the target must be spent on black women ·   Consider cross-sectoral learnerships, not just those that your SETA offers ·         These points can be obtained in a very short period of time	6	5% of staff (this follows the definition of an employee – it usually is 5% of the number of people listed in your EEA2 submission)