BEE Legislation

BEE Legislation (2)

Purpose of the Codes

Section 9 of the Broad-Based Black Economic Empowerment Act No. 53 of 2003 (BEE Act) legally provides for the issuing of Codes of Good Practice on broad-based black economic empowerment. Besides the dti's Strategy for Broad-Based Black Economic Empowerment and the BEE Act, drivers of transformation charter processes to date, have lacked a standard BEE framework from which to develop charters. Furthermore, some charters were developed even before the BEE Act and the Strategy document were released. Consequently, there exists substantial incomparability amongst charters, with respect to content as well as criteria for measurement. This results in entities in certain sectors with stricter measurement criteria being unfavourably disadvantaged when competing for business with entities in sectors with more lenient measurement criteria.

Status of Charters in Relation to the Codes

Transformation Charters may either be gazetted in terms of section 9 of the BEE Act, or in terms of section 12. Code 000 contained in the Codes of Good Practice includes a Statement on transformation charters as well as guidelines on the gazetting of charters.

A transformation charter gazetted in terms of section 9 of the Act means that the charter has been gazetted as a Code of Good Practice and that it therefore has the same status as the Codes. This effectively means that the charter becomes legally binding on organs of state and public entities.

A transformation charter gazetted in terms of section 12 of the Act expresses an industry's commitment to transformation but is not legally binding on organs of state and public entities.

In cases where transformation charters have not been gazetted as Codes, government will make use of the Codes of Good Practice as a means of BEE measurement

Sector Codes gazetted under Section 9(1):

If the majority of the measured entity's turnover is derived as a result of gazetted sector related activities, then the relevant sector code will apply to such measured entity.

Summary of the 2013 new codes.

The amended Codes of Good Practice for Broad-based Black Economic Empowerment that came into effect on 1 May 2015 will significantly reduce current compliance levels – by two to three levels. It is imperative that companies measure themselves in terms of the revisions then plot their path to return to former levels.

The revisions were gazetted in 2013 but are being implemented now and represent a further wave in the BEE legislation of the Department of Trade and Industry. Initially, narrow-based empowerment (ownership and management only) was followed by broad-based empowerment, which incorporated seven elements: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development.

Now the number of elements is being reduced to five: ownership, management control, skills development, enterprise and supplier development and socio-economic development.

The main difference though is that the revisions go a step further by identifying priority elements on which companies should concentrate: ownership, skills development and enterprise and supplier development. Failure to comply with a 40% sub-minimum in any of these priority elements leads to an automatic reduction of one level in your contribution level.

There is a sharp focus on the human resource aspects of the scorecard, with real emphasis being placed on employment equity and skills development – with black females now carrying their own, separate measurement indicators. Both elements also use the Economically Active Population racial split to ensure that there is equitable representation based on these statistics. Skills development now takes into account the training of employees as well as unemployed people who could then be employable.

The procurement element is heavily weighted towards procuring from black-owned businesses as opposed to the highest-rated businesses. Because there are relatively few black businesses that service other businesses, there is an expectation that most companies will score poorly on this element. We have also noted a trend of companies working on new ownership transactions to ensure that they become black owned and thus be counted in the procurement scorecards of their clients. Finally, socio-economic development contributions are now fully focused only on support that facilitates income-generating activities in the hands of the beneficiaries.