Paul Janisch

Comment from Kevin Lester on Advisory Council

Kevin commented on my Zuma appoints members of BBBEE Advisory Council post. It's too good to leave buried away under comments so I've reblogged it.

I am thrilled by the composition of the Advisory Council - not one BEE consultant, not one verification agent and not one member of the team that drafted the Codes - finally an opportunity for an un-conflicted regulator. Chantyl Mulder was a member of the committee that drafted the Accounting Professions Charter, but she is an extremely level headed and capable person who is unlikely to be conflicted, even if that charter becomes a Sector Code.

Eltie Links, Wendy Lucas-Bull, Jerry Vilakazi, Sandile Zungu, Don Mkhwanazi and Claudia Manning all have extensive business experience. Big business in South Africa could not hope for a better "representative" than Lucas Bull who ran FNB before going out and co-building a not unimpressive BEE Investment house (Peotona that now holds some pretty impressive shareholdings, including a stake in De Beers)

But, all things being equal, a DTI that serves, an ABVA and NABC that is being watched, and my old friend Sandile Zungu up there, I have no complaints at all. Indeed, safe hands are finally completely on the wheel – I must say, with a team like this, I doubt very much that the (real or imagined) influence peddlers are going to be happy with this outcome.

But, if I have any complaint, I wonder why those with experience in establishing and managing genuine viable broad-based groups are absent from the team. People like Clifford Elk (MIC), Kgotso Schoeman (Kagiso Trust), Tanya Slabbert or Sonja Sebotsa (Women's Development Bank) and (my shareholder) Salukazi Dakile-Hlongwane (Nozala).

Also some people who manage BEE compliance from within major corporates would also have been useful, and I think particularly here of Nolitha Fakude, who's absence from this Council is notable.

In the interests of ensuring consistency in policy, I think it might have been useful for the President to co-opt Philisiwe Buthelezi from the National Empowerment Fund, but perhaps her role will be like that of the BEE Unit of the DTI, which is (I assume) to guide and support the Council.

But that said, I am still very impressed.

(ENDS)

Oy, Zumachine Gun - if you're reading this do as Kevin says (this is Paul writing).

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.

SAB's BEE deal

It's made the press again -in fact it's made a lot of press.  I was referred to the Business Day report by Robert Simmonds.  This report concentrated on the beneficiaries, 20% of whom are SAB's lower paid white employees.  And once again Mr Obvious (one Ajay Lalu) is asked for his opinion - to which he replies  “Unfortunately, according to the codes of good practice, white beneficiaries don’t qualify,”  Er....... tell us something we don't know Ajay.  So what if they don't get any points for this deal - what SAB hopes to achieve is the financial independence of their staff and sundry other players.

And then not to be outdone ol' Aj "criticised the fact that there was no guarantee on the value of the stakes at the end of the 10-year lock-in period."  He might have been taken a bit out of context here so I'll cut our hero a little slack - but just in case AjLal is not that clued up about these things I'll explain it for him.  RISK AND REWARD OLD MAN, CAPITALISM IS ALL ABOUT RISK AND REWARD.

I've blogged about the SAB deal before

SAB is a fascinating deal, it stands out as the only one where the business reasons are so apparent.   We know that the Western Cape is clamping down on unlicensed taverns and 70% of SAB's turnover comes from unlicensed taverns.  Here is SAB staring at the potential demise of their biggest channel unless they do something.  Sheer brilliance, if I may use such a superlative.

And I still think it's the best deal done so far, in spite of what Fawu says.  Let them strike I say - just make sure that you suck on Windhoek Lager at the end of the day of hard toyi-toying.

Zuma appoints members of BBBEE Advisory Council

I just got a call from Mzwandile Jacks telling me about the BEE Advisory Council that's just been announced.  This is what it looks like

1. Minister of Trade and Industry, Rob Davies.
2. Minister of Labour, Membathisi Mdladlana
3. Minister of Economic Development, Ebrahim Patel
4. Minister of Women, Children and Persons with Disabilities. Noluthando Mayende-Sibiya.
5. Professor Mohammed I. Jahed, professor of macro-economic policy, economics and public finance at the Wits University Graduate School of Public and Development Management.
6. Prof Eltie Links, a professor extraordinaire at University of Stellenbosch Business School
7. Wendy Lucas-Bull, a businesswoman and the founder of Peotona Group Holdings
8. Andile Lungisa, Chairperson of the National Youth Development Agency
9.  Sebenzile Matsebula, an independent consultant and former Director in the Office on the Status of Disabled Persons in the Presidency
10. Jerry Vilakazi, chief executive officer of Business Unity South Africa
11. Dumisani Mthalane, a member of the National Working Committee of the South African National Civics Organisation
12. Ellen Tshabalala, a business and management consultant with expertise in small, medium and micro-sized enterprises development, banking and marketing.
13. Adv Matshego Ramagaga, Vice-President of Black Lawyers Association
14. Tsakani Matshazi, President of the Association of Black Accountants and Vice-President of the Confederation of Black Business Organisations
15. Sidumo Dlamini, President of the Congress of South African Trade Unions
16. Sandile Zungu, businessman with extensive experience having served in various companies at a senior level including NAIL and Denel.
17. Don Mkhwanazi, a former president of the Black Management Forum
18. Dr Claudia Manning, businesswoman
19. Chantyl Mulder, senior executive for transformation and growth at the SA Institute of Chartered Accountants, who has served as facilitator of the BEE Charter process amongst other work on economic transformation.

It's the required 19 people with the exeception of the President who is required in terms of section 6(a) of the BEE Act.  I wonder if this will have an impact on the legitimacy of the council.

I would have liked to see more business representation.

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.

 

It's not going anywhere

It's been a while since my last post.  I've been doing a lot of work on public private partnerships which I'll blog about at some stage.  To my mind these are the only way that we are going to get the economy going.  We are going to be hosting a two day conference on PPPs in municipalities in November - I'll blog on this later.

There was an article a few weeks ago in the FM speculating as to the future of BEE.  It suggested that Rob Davies wasn't that interested in it.  Zuma's speech to black professionals in Sandton last night make it clear that he's not about to scrap it nor is he going to allow it to fall by the wayside. 

This is what he said (bold is my emphasis):

We share the concern of black business and black professionals about the need to create an inclusive and transformed economy, and our Broad-Based Black Economic Empowerment (BBBEE) is one of the key tools of addressing this.

Our view is that we have a good BBBEE policy. The current BBBEE framework is adequate. It is inclusive and balanced. We may just need to sharpen implementation and communication. The Department of Trade and Industry is attending to this aspect.

The seven elements of the BBBEE scorecard are a response to the initial narrow BEE, which focused only on ownership and management control in enterprises.

In addition, very few people realise that the current BBBEE framework provides for co-operatives.

In our view, BBBEE must reinforce:

    * Skills and rural development.
    * Enterprise and socio-economic development.
    * Job creation through procurement and entrepreneurship.

Access to government procurement opportunities by black firms has been raised as a serious challenge.

Government is working hard to ensure that this is being addressed adequately. Already, the key objectives of the Preferential Procurement Element of the Codes of Good Practice promote the use of black owned professional service providers and entrepreneurs.

In this regard, black owned professional service providers are recognized as value adding enterprises for purposes of the BBBEE scorecard.

We need to ensure that State-Owned enterprises give effect to this in a meaningful way. This includes ensuring that government departments allocate and implement the targeted procurement services for black professionals.

We are planning to hold a National Summit on BBBEE on May 2010. This summit will be able to give government a sense of progress on the implementation of BBBEE.

Ladies and gentlemen, we are meeting with you this evening because you have a role to play in the implementation of the country’s programme of action.

We need to work together to improve government’s service delivery mechanisms. We appreciate the fact that you constantly inform us of areas where government needs to increase the pace, or improve the quality of service. Remember that this is your government. Working together we can do more to effect the desired improvements!

We noted your concern raised at the last meeting about the unacceptable delays by government departments in paying black businesses and SMMEs for services rendered.

Treasury Regulations state that all payments must be settled within 30 days from the receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgment.

The exception is only in cases where parties have agreed to an alternative arrangement. In addition, the BBBEE Codes of Good Practice have made provision for shorter payment periods in order to assist to alleviate cash flow burdens faced by SMMEs.

The Minister for Performance Monitoring and Evaluation in The Presidency has written to all national and provincial departments and municipalities, and urged Ministers, Premiers, MECs and mayors via Premiers, to ensure that heads of departments comply with the regulations.

The Departments and municipalities are expected to provide feedback to the Minister at the end of July.

Ladies and gentlemen, we are also working hard to promote gender equity in the economic sphere.

We want to emphasise greater focus on entrepreneurship development for women, especially in the male-dominated construction and property industries amongst others.

However, we must add that while the 50% gender representation policy of the ANC and government are commendable, there needs to be a way to encourage the private sector to do likewise.

Better enforcement of the provisions of the Employment Equity Act could go a very long way towards achieving this objective.

Let us see what happens now. 

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.

Eskom is an example of BEE's failure

THIS IS A SENSATIONAL HEADING, I am hoping it will sell more copies of my book.  It is totally false, but I think there are a lot of people out there who would love it to be true.  The Eskom situation does raise a lot of questions about their very questionable procurement practices.

For some or other reason Eskom seems to think it is the guiding light when it comes to the empowerment of black owned businesses.  The reality is that they have caused more damage than good.

I am not really the expert when it comes to Eskom's procurement policies, you would need to speak to Lisa Tait about this.  But I have read their Eskadaat 6 many times (Procurement by Eskom from black suppliers).  I assume that this is the document that is used as a guideline for their procurement.  It's actually not a bad document, I often referred to it  in my book and I use it in my consultation work.  It has a very useful procurement hierarchy that explains how Eskom goes about its procurement.

The following hierarchy must be followed in sourcing products and services, with preference given to manufacturers over stockists:

1. Drawing from Eskom stores stock.
2. Drawing off from existing compulsory Framework Agreements.
3. Procurement from within Eskom Groups/Divisions
4. Procurement from Eskom Subsidiaries
5. Procurement from Black Women-owned Suppliers
6. Procurement from Small Black Suppliers
7. Procurement from Large Black Suppliers
8. Procurement from Black Empowering Suppliers
9. Procurement from other South African manufacturers
10. Procurement from local stock holders of South African or imported assets and goods
11. Direct importation.

In theory this should pose no threat to a white owned business that supplies a relatively unique product (number 9, number 9). 

It is also a good idea to read Eskadaat 6 in conjunction with the ESKAMAAE8 (Handbook for Purchasing from Black Suppliers).  This document states that

Black or Black Empowering Suppliers will not be treated differently than the norm with regard to quality, price, expected service level or delivery, or any other commercial or technical requirements.

I've singled this paragraph out because I think it is the requirement that is least adhered to.

The practice

Rumours have it that Eskom's procurement department is incentivised to purchase from levels 5 to 8 in the hierarchy.  And once you start this practice you find that the condition in ESKAMAA8 gets thrown out the window.  I would do the same if my bonus was measured in that way. A  Moneyweb report confirms this :

Eskom's annual report for 2002 stated that the company had now implemented "the first phase of the long-term plan to support BEE and introduce flexibility in purchasing coal requirements (over and above the existing long-term contracts.)"  Implementing this directive would be an "important part" of all the performance compacts of senior managers.

But there is more to this little mess.  The procurement department will go so far as to suggest to a level 9 supplier that they must be 51% black owned in order to retain Eskom's business.  My friend Selwyn who has a company in Newcastle.  He has been summoned to Durban to be told that he needs to be 51% black owned and quickly.  This might be an issue in Johannesburg, but it is damn near impossible to get right in Newcastle.  Nevertheless Selwyn is still trying to conclude a deal.

Selwyn's business with Eskom is always under threat.  He is the only company in that region that provides and maintains his product, he employs about 5 people as well.  And every now and then the Newcastle branch of Eskom decides to purchase similar products from black owned company in Durban. 
This is just plain ludicrous.  Here you have a local company that employs local people and has a proven track record with Eskom losing business to a Durban company. 

Eskom's so called black economic empowerment policy has the following impact:

1. They do not seem to be that interested in local companies employing local people.  It's all about buying from black owned companies.  In fact I heard a story about a big South African company that manufactures cables locally losing a tender to two black people who imported the same product from China.  As far as the Eskom procurement department was concerned they had bought from a black owned company.
2. They have singularly inspired and assisted in perfecting fronting practices.  Many companies realise that Eskom wants to see the black ownership so they ensure that their share certificate reflects that level of black ownership.  In many cases (the rule I would say) these are fronts. 

And now to the coal fiasco

The Carte Blanche feature interviewed some bloke who explained that Eskom decided in 2004 to hand the transporting of coal to the power stations to black owned companies.  The person notes that one contractor was a hairdresser who saw an opportunity (must count for some experience somewhere), they also paid these contractors a sum that was below their cost to transport the coal.  As a result many trucks were not maintained and coal supplies were not stable.

The same Moneyweb report explains that Eskom also moved away from fixed contracts for coal to a "active coal spot market".  This coal was then going to be purchased from levels 5 - 8 in the hierarchy.  The upshot of this programme was that the supply of coal could not meet Eskom's power generation needs. 

The question is then, has BEE failed for Eskom?

I don't think it has. There must be companies that have done well as a result.  But Eskom's procurement policy has set up a bunch of suppliers to fail because Eskom couldn't deliver in the long run.  Eskom could have been a little more innovative  in their approach by buying from a mixture of suppliers and supporting BEE at the same time.

The problem with this practice is that BEE will be blamed by the average consumer who once again has been booted out of CNA because of load shedding.

Perhaps Telkom should learn from this as well.

Tell me where you've BEEn?

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

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

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

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

The reason why is not too hard to fathom.

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

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

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

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

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

BEE news

I blogged about the Presidential Black Business Working Group wanting stronger laws to enforce the implementation of BEE.  The Business Report carried an article yesterday about this.   It would seem that the DTI wants "wants more legislative clarity to deal with fronting of companies by black people."   

I figured that you could only deal with things like fronting because you can't enforce transformation.  So if you criminalise fronting we might see it being curtailed.  I also think we need to start recognising the B-BBEE contributions of all companies and not limiting empowerment to ownership - as ESKOM is known to practice.  If you continue in this narrow-based fashion then fronting will continue.   

I'm in Gauteng Business

When I started out in the BEE bedryf, one of the first publications to carry my articles was Gauteng Business.  I have had a long relationship with both Ryk and Hendri.   These two guys have built this publication into a great mouthpiece for all businesses in Gauteng.  They don't mess around with the sensational - they want real issues and real solutions to these issues.  If you aren't familiar with the publication I recommend you subscribe.

I wrote an article about rating agencies and other options, it's in the latest issue.