[Updated BEE codes are not a business handicap; they’re an opportunity ]
There’s a perception that the new BBBEE standards will make it harder for many companies to remain BEE compliant, but some experts believe the new codes are the key to a sustainable future for the country, and for individual businesses.
South Africa’s Black Economic Empowerment policies will always spark heated debate. Even before the first government BBBEE Codes of Good Practice, the manner in which SA companies were going about increasing their “black” ownership was often criticised for enriching a few figureheads, while doing nothing to address the lack of ownership, education, skills and jobs that trap millions in poverty. Since the introduction of the codes, this perception has not changed. The emergence of a few super-rich and the emergence of the “black diamonds”, too much fanfare, has not stopped our unemployment rate climbing, and the level of frustration of these people from rising to dangerous levels.
As early as 2010, experts were warning that something needed to be done. In their book The New Divide, business analysts Ted Black, Richard Pike & Loane Sharp concluded that, under our current labour laws, BBBEE could not work. “High school drop-outs are on the rise. There is a growing sense of hopelessness about finding work … As the jobless grow in number and anger, authoritarian rule will begin to take hold … We propose a change process that is widely participative and encourages constructive debate to test dogma and entrenched positions. This way, we build relationships and partnerships between government and business leaders that are cooperative and constructive – not hostile and paralysing.”
We have already seen their prediction of growing joblessness and anger fulfilled, in labour action and service delivery protests. Increasingly, the poor are venting their rejection of BEE policy that enriches a few individuals through ownership, but does not uplift the masses. However, while we may criticise the manner in which BEE was introduced and its outcomes, there is no gainsaying its necessity. Transformation is not a social “nice to have” – it’s a business imperative. We cannot hope to succeed, as a country, until we can guarantee the majority of our citizens meaningful participation in the economy.
Switching the focus to development
Whatever the flaws in the original BEE codes, they were perhaps the fault of inexperience – South Africa faced a unique problem, with no historical precedents to offer guidance. The result has been a steep learning curve and the need to adjust policies when it becomes clear that adjustment is required. Government has indeed listened to both business and the jobless, and the new codes, published on 11 October 2013, are the result of a long process of consultation. The Department of Trade and Industry published the proposed codes six months ago, and then took the input from the private sector seriously, substantially altering their proposal. The result is a dramatically improved BEE Code of Good Practice that makes it harder to achieve acceptable BEE ratings via a form over substance approach. Funding few high profile shareholders in schemes that often found themselves under water is no longer good enough – the focus is on small enterprise development, training and ownership with bonus points for broad-based schemes.
In fact, a number of companies in the private sector, recognising the futility of “traditional” BEE, and anticipating the unacceptable consequences of concentrating power further, have already investigated broader-based options off their own bat. The most obvious option has been to turn the staff into shareholders in a more broad-based scheme. However, while this may net the worker/shareholder a dividend of a few thousand extra Rand annually, it has the advantage of asking staff to think like shareholders.
There is, however, another ownership option available, which combines BEE compliance with broad-based upliftment. Specialist search firm Humanity Search and Select has adopted an ingenious solution that addresses both at once. Through a deal in which 15% of Humanity’s equity is held in the Community and Individual Development Trust (CIDT), the trust provides educational opportunities to bright and willing previously disadvantaged students who would otherwise be unable to study at the tertiary level. As a result, Humanity has achieved a Level 2 BEE rating, placing it at the forefront of the search industry in terms of transformation.
As importantly, the firm is partnering with CIDT in a joint venture called Invincible People, to produce a better class of business graduate. Students from historically disadvantaged backgrounds are provided with financial bursaries and other support by the Maharishi Institute, locally founded by Taddy Blecher, which aims to produce about 100 graduates a year through partner accredited academic institutions internationally and locally, despite the pass mark being 60% for academic subjects and 80% for skills subjects. “A 50% pass mark just isn’t good enough, in modern business,” says Humanity Search and Select. “How can you trust someone who has a 50/50 chance of not knowing what they’re doing? We’re looking for students who believe that mediocrity is not acceptable – their education is free, but they have to put in the work to earn it. This makes the job of Invincible People who have to place them in jobs much easier”
Holistic learning combined with on-the-job experience
The approach used is one of consciousness-based education, a holistic programme that helps students unlock their own potential, and includes transcendental meditation twice daily. Several hundred studies of the technique have shown that its calm, stress-free environment produces better academic results and reduces anti-social behaviour. “The attitude of our Invincible People is incredible,” says Barrick. “You should see them in distance education lectures at their computers with their Professors in America; sitting forward in their seats, eager to learn – nobody’s slumped in the back with a hangover. It’s no wonder they can out-perform a lot of ‘advantaged’ students academically. Consciousness-based education produces graduates with high levels of confidence, intuition, openness and honesty – the ‘high-consciousness’ skills that research has shown are just as important in modern business as operational capacity is.” And Barrick isn’t the only one who has faith in Blecher’s project. Significant contributions of assets and time to the Maharishi Institute have come from Anglo American who donated the building, the Rockefeller Foundation, Microsoft, Regenesys Business School, and communications businesses Fleishman Hillard and Mortimer Harvey amongst many others. Consciousness-based education is becoming increasingly accepted and supported by significant companies with solid records. What also binds them together is an unshakable conviction that quality education is the key to macro-economic wellbeing, and a stable and sustainable society. The view is if the fruits of BEE ownership were put to use fixing the education system, that society would be better off than under the old codes where individuals – no matter how virtuous were the beneficiaries.
Creating a multiplying effect
The Humanity approach to BEE is a high-consciousness choice; instead of slavishly following a “traditional” tick box approach, the firm has created a programme that will multiply its own value many times over. “When you invest in someone’s personal development, you’re not just giving them a leg up,” says Taddy Blecher. “You’re creating a whole value chain. That person can now be employed, or start their own business – meaning they have disposable income to spend in their communities; they help sustain jobs. They’re also now able to help their family members get an education, so they can be employed or become entrepreneurs, too – thus creating more jobs. It becomes a virtuous cycle.”
“Of course our BEE score is important to us,” says Humanity Search and Select. “Not simply because it’s the right thing to do, but also because we are involved in many high-level BEE placements for major companies and government institutions. We could not retain those clients if we didn’t practise what we preach. But by linking our BEE rating to an actual broad base, rather than benefitting a narrow elite, we are helping to transform the whole business environment as well.”
If SA’s economy is to grow at a rate of 6% or higher, there is no denying that we have to double and redouble the size of the black middle class. This will stimulate consumptive growth that together with the governments planned infrastructure spend will create more jobs and increase the tax base. But to be sustainable it all needs to start with education. The changes to the BEE codes are not only an attempt to correct our original mistakes; they’re also an opportunity to create real development benefits across a much broader base. They have the potential to create a more vibrant SA business environment capable of achieving that 6% growth rate. They are here to stay, and smart businesses will see opportunity – both for their own economic health and that of the nation.