Paul Janisch

Racial transformation not ‘complete failure` - SAIRR

The report suggests that turning these figures around will depend on the three Es - education, entrepreneurship, and economic growth - the only way in which real empowerment can occur, particularly for those who were disadvantaged by the racial policies of the past. Future progress may therefore come to depend less on racial policies such as Black Economic Empowerment and more on ensuring access to sound education while fostering a climate conducive to economic growth.

via www.politicsweb.co.za

This refers to a report written by the  South African Institute of Race Relations.  For those who have not yet read the DA's Economic Inclusion Green Paper, it carries a similar sentiment.  If the ANC had done only one thing properly and that was focusing on education and making it work then we'd have a fraction of the BEE and social problems we have now.  If you don't look after the basics you'll never achieve anything.  This argument is the gist of my presentation at the NEEEF conference in Namibia later this month.

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. 

 

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.

 

Of course

My good friend Sandy Pullinger (or Sadams as I have always known her) asked me to speak at an APMP meeting last night.  For those of you who don't know Sandy, she runs a fantastic software company called nFold.  I recommend you look at their web site too.  It was a wonderful event with a great crowd who really got involved.  Thanks Sadams, I really enjoyed it - you can ask me any time. 

On the subject of courses and training, I mentioned before that you'd do well to ignore all the BEE courses that are floating around at the moment.  They are generally overpriced and offer the same old drivel that has been expounded on for the last four years.   Who the hell wants to go to a conference that is going to tell you why BEE is the right thing to do and how you can maximise your points on procurement.  I certainly don't.  The face of BEE is going to change - the noises from Zumachine Gun and Phosa are steering us toward a different and more meaningful goal.  The days of doing something because it generates points at a great expense have to come to an end.  No BEE course is going to tell you that. 

HOWEVER

Kevin Lester invited me to his four hour presentation on the so-called verification manual.  It's the same course that the DTI distanced themselves from - stupid move.  Kevin's presentation is quite the best I have been to (and I include all the ones I have presented too).  He comes from a largely  legal perspective and puts things across in such a way that you can immediately see the folly of the manual but you are still left with a sense of hope.  And Kevin is particularly entertaining too!!!

This same course is being offered to ABVA members for R950 and non-members for R1050.  Go to this presentation; it is money well spent and you'll get more out of it than you would a one or two day course for seven times that amount.  It is valuable for any person involved in any aspect of BEE.

On a sad note

Today would have been John Lennon's 68th birthday.  I still mourn his loss on a daily basis.

And an even sadder note

When I started out in this business I did a lot of employment equity reporting.  I would then take my report to the 4th floor of the Department of Labour in JHB.  I was always greeted by the friendly face that belonged to Ethel Tsagane.  I learned a week ago that Ethel had died from a long illness.  A great loss to the whole EE world - my deepest condolences to her family and colleagues.

BEE education

I chaired a two day BEE conference last week and was exposed to some of the finest thinkers in this industry.  These include Andrea Brown of Mohlaleng, Kevin Lester (soon to be ex Cliffe Dekker), Robin Woolley, Colin Reddy, Germien du Plessis and Christiaan van der Merwe. 

The delegates were largely from the major corporates and government departments in South Africa and all contributed actively to the conference each from their own perspective and BEE charter.  It's pleasing to note that the BEE implementers within the country are very clued-up about their subject.

I did notice a few common themes coming through.  I'll list them.

• BEE requires you to change your business, but this change must result in growth.  Change for change's sake is not a sustainable option.
• Your BEE strategy must be aligned to your business strategy (this was reiterated by almost every speaker).
• Transformation and growth must go hand-in-hand, you can't have one without the other.  A brief glimpse at the recent BEE deals highlights this.  The successful deals result in the business growing.
• On the subject of deals, Kevin Lester offered a fantastic insight into the world of deals.  Firstly - a BEE deal is the same as any other merger or acquisition, any good M&A lawyer is able to draw up the necessary agreements. Secondly, deals should be done because a genuine desire exists to do the deal.  Ernst and Young conducted a survey on M&As and found that 80% of them fail; if the desire is lacking the odds are stacked on the deal being a statistic.
• Sandile Hlophe of KPMG coined a new phrase "doing an Mzi".  This refers to Mzi Khumalo who has a notorious reputation for buying into companies and then selling that stake a little earlier than intended.  Mzi has upset a few big businesses that he has dealt with but his behaviour is typical of any capitalist (more on this later.)
• Rating agencies are a necessary evil to most companies, although almost all of the delegates were opposed to the idea that there was only one rating agency and that they should make use of that agency. 

And the final codes - it looks like they'll only come out in October at the earliest.

BEE strategy should be communicated to all in the company

Strategy, business plans and their ultimate implementation are normally discussed at the upper levels of an organisation. The implementation guidelines are then filtered down to the lower levels.

It is quite common that the people at the lower levels are not aware of all the ramifications of the strategy and their implementation may have a detrimental affect on the company.

This situation may also be exacerbated by customer and supplier-facing representatives who may sacrifice a deal because they don't fully understand the company's strategy.

I come across this situation on a daily basis when it comes to BEE. There always seems to be two extremes that you experience.

Supplier facing personnel receive a brief that the company is to buy from certain types of companies, e.g. black-owned companies. They are more often than not, not given the tools and knowledge to adequately ascertain the BEE status of existing and prospective suppliers.

This situation is exacerbated by the fact that in some organisations purchasing officers are incentivised to concentrate their procurement efforts on black-owned companies. As a result the purchasing organisation may have to seek alternatives that might ultimately impact on price, local content and other criteria.

In addition suppliers to this organisation are not provided with the opportunity to state their case as the organisation has made a decision to use those criteria and those criteria only in determining their suppliers.

Sales people in an organisation must be equipped with a comprehensive understanding of a company's BBBEE status.

The company's BEE profile will be brought up at some stage in the sales process, and the sales person must be able to allay these concerns at the outset. The deal can then be freely negotiated on a business level.

A uniform message also removes any confusion in the market place. There are companies and government departments that happily speak about broad-based BEE in much of their marketing, but only use narrow-based criteria when it comes to determining their suppliers. This kind of dissonance could have a negative impact on their image.

It is simplistic to suggest that only BEE strategies need to be communicated across the organisation. Kaplan and Norton, in their book "The Strategy-focused organisation", argue that the company's broader strategy must be communicated across all levels.

But the need for adequate broad-based BEE education throughout the organisation must be a priority for all companies as business can be won or lost based on a simple misperception.