Launch of B-BBEE Codes of Good Practice

Published: 8 December 2004
The South African government successfully developed a multi-faceted approach to achieve Broad-Based Black Economic Empowerment (BBBEE) that culminated in the release of the Strategy on Broad Based Black Economic Empowerment in 2003. The strategy outlines in detail government’s approach to BBBEE as well as some of the instruments it will implement to accelerate the deracialisation of the economy and ensure a higher rate of economic growth. In this regard, the Codes of Good Practice and the drafting of sector charters are primary interventions to promote BBBEE. The Codes of Good Practice on BBBEE were formulated in line with the provisions of the BBBEE Act No 53 of 2003. In terms of the BBBEE Act. The purpose of the Codes of Good Practice is to assist and guide the public and private sectors in their implementation of the objectives of the BBBEE Act. Essentially, the codes lay down principles and guidelines to facilitate and accelerate meaningful and sustainable implementation of BBBEE. Below is a brief summary of the most salient aspects of the Codes (the complete Codes will be available on the dti website). The summary deals with the Codes for the balanced generic scorecard, sector charters as well as ownership and management. It also flags the Code dealing with the BBBEE Advisory Council and the standards for the accreditation of BBBEE rating agencies. 1. Measuring BEE – Framework and Scorecard This Code sets out the key elements of BBBEE and ways of measure it. This Code establishes the overall framework for BBBEE and contains a detailed scorecard that includes clear targets, weightings and indicators that can be used to measure these components. The new scorecard has been enhanced considerably. It contains clear targets for ownership, management and enterprise development. It also recommends that companies should, amongst other things aim to achieve the following targets; BEE equity levels of 25.1 percent; Black management - 40 percent; Procurement from BEE compliant entities- 50 percent Employment equity –50 percent The inclusion of clear targets in the scorecard is the result of requests by the private sector that government should play a more active role in co-ordinating the various charter initiatives and ensure the harmonisation of the targets in the various charters establishing clear targets will also allay some of the acrimony and uncertainty that has occurred in various charters discussions. The scorecard also gives greater emphasis to the participation of women in the empowerment process. It should be emphasised that the scorecard is a guide that may, within certain limits, be adapted to suit specific circumstances. Serious deviations from the scorecard should, however, be based on a sound economic rationale. 2. Codes of Good Practice on Sector Charters The Codes provide clear guidance to sectors on the development of sector charters by setting out clear guidelines for the process to be followed to ensure the active consultation with and participation of key stakeholders. It also recommends the constitution of charter councils as well as their powers and functions. It also sets out the principal elements that should be covered in sectors scorecards. To ensure harmonisation between charters, this Code recommends that the weightings and targets on the generic scorecard be used as a guide, and that deviations be fully justified. 3. Codes of Practice on measuring ownership and management These codes spell out in detail how to measure the ownership and management elements of the scorecard, including delineations of the various elements of ownership such as economic interest and voting rights. To eliminate any uncertainty about the use of share options and other derivatives, clear definitions and formulas are provided. To ensure that the underlying financial arrangement is sustainable, it recommends that ownership points should be divided between restricted and unrestricted portions of equity ownership. The result is that the points allocated to the restricted portion of equity ownership are limited and additional points are obtained as and when there are no restrictions on ownership. This will ensure that companies are rewarded for the initiation and negotiation (facilitation) of the empowerments transaction as well the sustainability of the transaction. This system will ensure that the financial bubble and speculative BEE transactions of the 1990s are not repeated. The code also sets out clear targets for women, and other designated black groups defined in the B-BBEE strategy, and allocates s bonus points for the introduction of new entrants and overachieving on set BEE targets. These provisions ensure that BEE remains broad -based and constantly expands the pool of BEE beneficiaries. For management, it is recommended that companies be rewarded on a higher scale for black participation in executive management. The other Codes provide clear definitions, set out e key principles and also contain a glossary of BEE terms. The remaining codes cover the BBBEE Advisory Council and standards for the accreditation of BBBEE rating agencies. In a nutshell, the codes on BBBEE Advisory Council elaborate in detail on the powers, composition and functions of the Council as well as its broader mandate stipulated in the BBBEE Act. Essentially, in terms of the BBBEE Act, the BBBEE Advisory Council will guide the empowerment process by issuing of Codes of Good Practice. These Codes are still draft codes and in terms of the BEE Act, must allow for public comment and consultation for a period of 60 days. It is anticipated that there will serious and intensive debate on these Codes and cognizance will be taken of all views before finalising them. It is also important to note that, the Codes, which are released today, constitute the first phase of the Codes. The second phase of codes will released in due course and they will include codes on fronting, enterprise development, skills development, employment equity, preferential procurement and residual factor. The release of the codes for the second phase will follow a similar process to the release of the current codes.