BEE Codes of Good Practice Phase II
ASDFSA, RainbowSA
workshops to prepare a
submission on behalf of the
Skills Industry to the dti
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
By William Janisch Projects Director at Rainbow SA
and BEE Specialist at
Empowerment Services
BEE Codes of Good Practice Phase II
Skills Development &
HR Strategy are at
the HEART of BEE,
making up more than
half the BEE Scorecard.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Of all the Elements of the BEE Scorecard,
Skills Development is probably the most enduring in
its ability to empower the people who receive it,
and is, in many ways, at the heart of the
Transformation envisaged by the Act.
BEE Codes of Good Practice Phase II
Why are we here today?
• The Final Codes of Good Practice for BEE are
going to drive Skills Development & HR behaviour
(and expenditure) for the next 10 years.
• It is imperative that as the industry body, you
submit comment which helps ensure effective,
relevant Skills Developmet takes place in SA and
that the administrative burden is not too
cumbersome. Any targets should integrate with
structures already in place under Skills & HR
related legislation.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
• The end result should be that the Skills & HR
areas of the scorecard help change the way
organisations operate – especially the way they
view their staff!
PLEASE TAKE NOTE!!!
Much of what you see & hear today is still open to
amendment over the next few months. Only a few
areas of BEE are finalised. The rest are open for
public comment until 31 March 2006
During this presentation, a clear distinction will be
made between areas which are considered FINAL
and areas which are still open to change.
Those areas which could change are still important to
understand because:


© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036

They show the direction in which government is thinking
While the Public Comment phase is still
open, you might wish to make suggestions
They help as a broad target at which to
aim in designing your own organisation’s
strategies and policies so you are not found
wanting when BEE is finalised later this year
Putting BEE in Perspective
PEOPLE…..PLANET…..PROSPERITY
A NEW WAY OF PERCEIVING PROFIT !
• The whole world is grappling with the
problem of how to reduce the gap between
the “have’s” and the “have-not’s”
• International attempts at shifting the way we
perceive & measure profit include:
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036



“Triple Bottom-line Accounting”;
“Sustainable Development” or
the myriad of programs like “Investors in People”
Putting BEE in Perspective
• The bottom line is that people are starting to realise
you cannot make a sustainable profit without good
social and environmental practice
AND
WHAT IS NOT MEASURED IS NOT DONE !!!
(i.e. Change will not come about without actively measuring organisations)
• BEE is SA’s way to attempt to define & measure
social best practice & to re-define the way we do
business.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
• It is being measured by means of a
BEE Scorecard
The BEE Scorecards
BEE is measured using a “Balanced
Scorecard” consisting of 7 areas or
“elements”:
– Ownership
– Management
– Skills Development
– Employment Equity
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
– Preferential Procurement
– Enterprise Development
– Social Investment / Sectoral Initiatives
The BEE Scorecards
HOWEVER, not all organisations are measured in the
same way. Two factors can affect the scorecard
that applies to you:
1.
Different sized businesses are measured using different
scorecards and Micro-Enterprises (the smallest companies)
are not even scored.
AND
2.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Certain sectors may need to vary the targets for each
“element” in order to achieve specific sector objectives. This
will result in those sectors developing their own Sector Codes
which will have slightly different scorecards.
The BEE Scorecards
The Codes see three types of business, each with
its own way of being scored:
1. Micro-Enterprises
These are companies with an annual turnover below the
VAT registration threshold (currently R300,000 per year)
2. Qualifying Small Enterprises (QSE’s)
These are so called because in order to “qualify” as a QSE,
a company needs to turn over between the VAT threshold
(R300,000) and an upper limit which is defined sector by
sector (as defined by The National Small Business Act)
…SEE TABLE ON NEXT SLIDE…
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
3. Medium & Large Organisations
These are organisations with an annual turnover above the
thresholds defined for QSEs as well as government
departments, SOEs & Section 21 Companies (NGOs).
Who qualifies as a QSE?
Sector
Qualifying Criteria
Agriculture
T/O < R 3million or < 50 employees
Mining
T/O < R10million or < 50 employees
Manufacturing
T/O < R13million or < 50 employees
Energy (Elec, Gas & Water)
T/O < R13million or < 50 employees
Construction
T/O < R 6million or < 50 employees
Retail & Motor
T/O < R19million or < 50 employees
Wholesale & Agencies
T/O < R32million or < 50 employees
Catering, Accommodation
& Other Trades
T/O < R 6million or < 50 employees
Transport, Storage &
Communications
T/O < R13million or < 50 employees
© Copyright Rainbow SA &
Empowerment Services 2006
Finance & Business
011-485-2036 Services
Community, Social &
Personal Services
T/O < R13million or < 50 employees
T/O < R 6million or < 50 employees
How is each sized business scored:
1. Micro-Enterprises
All micro-enterprises, regardless of whether they are black or
white, are given an automatic BEE status (i.e. They will
automatically be “Level 4” contributors to BEE. This means
that for every rand spent with them, an organisation can
claim the full rand as BEE expenditure.)
2. Qualifying Small Enterprises (QSE’s)
QSE’s have their own scorecard with slightly “softer” targets.
Each “element” is worth 20 points and a QSE can select any 5
of the 7 elements to get a score out of 100.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
In order to incentivise ownership, if one selects ownership as
1 of the 5 elements to be measured, your ownership score
will be increased by 25%.
If they choose to be measured in all 7 areas, their score out
of 140 is actually measured out of 125 as a bonus. This score
is then converted to a score out of 100.
The BEE Scorecards
How is each sized business scored:
3. Medium & Large Organisations
All other organisations will be measured using
what has come to be called “The Generic
Scorecard” – being the full 7 element scorecard.
It is measured out of 100. All elements are
counted. Bonus points mean a score of more
than 100 can be attained.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
The BEE Scorecards
Scorecard Element
Ownership
Management
Employment Equity
Skills Development
Preferential Procurement
Enterprise Development
Social Investment / Other
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Generic
Weighting
QSE
Weighting
20%
10%
10%
20%
20%
10%
10%
20%
20%
20%
20%
20%
20%
20%
For 5 elements –
TOTAL SCORE measured
out of:
100
100
(ownership
increased by 25%)
For 7 elements -
125 reduced to 100
How a BEE Score is used
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
A Practical Example
A company has only 4 suppliers and their scores are as follows:
Company A – 15%
Company X – 55%
Company Y – 78%
Company Z – 55% (but it is >50% black owned)
The relative BEE recognition levels can be put into a table with the
amounts spent on each company:
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
The BEE Procurement percentage for this company is calculated
as follows:
BEE Procurement Spend = BEE Spend / Total Procurement Spend
= 29,000 / 80,000
= 36,3%
Let’s Clear Up Some Misperceptions
• BEE is no longer about Ownership, but is now
about a broad scorecard measuring seven
elements. Out go terms like “black owned”;
“black empowered”; “black women-owned”
etc. In comes your BEE “Level”.
• BEE is not law yet. There are no official
verification agencies and the Codes have not
yet been gazetted.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
• The Codes for Ownership & Management are
fairly final, but the Codes for the remaining 5
elements are still open for public comment
and will only be finalised later this year.
Let’s Clear Up Some Misperceptions
• Black People are defined as:
• Africans, Coloureds and Indians
• Citizens of the Republic of South Africa:
–
–
–
–
by birth;
by descent;
by naturalisation prior to Interim Constitution (1994);
by naturalisation after the Interim Constitution, where
prevented by Apartheid prior to that date
No white women or white disabled!
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
History of BEE
Black Economic Empowerment
1990s – BEE Equity deals
• Focus on ownership
• Creation of Black elite
1998 – BEE Commission appointed
2001 – BEE Commission report
2002 – First Charters (Mining & Petrochemical)
2003 – Broad Based BEE Strategy
2003 – BEE Act (Dec)
2004 – Charters begin in earnest
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
2004 – Phase 1 Codes released for comment (Dec)
2005 – Phase 1 Codes approved by cabinet (Oct)
2005 – Phase 2 Codes released for comment (Dec)
BEE Act
• Establish BEE Advisory Council
• Strategy for BEE
• Codes of Good Practice for BEE

Balanced Scorecard
• Transformation Charters
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
What are “The Codes of Good Practice”?
• Exactly what they sound like – Codes by which to practice
good BEE. They show how BEE should be measured in minute
detail.
• The Codes give flesh to the bones of the BEE Act.
• The Codes are arranged in a similar fashion to the Codes for
Good Accounting Practice.
• The Codes are arranged in a numerical order with Code 000
providing an overall framework & Codes 100, 200, 300, 400,
500, 600 & 700 applying to the 7 elements of the scorecard.
(I.e. 100 = Ownership; 200 = Management, etc.)
• Under each Code, multiple Statements can be issued dealing
with specific issues (eg. Code 100, Statement 100 deals with
the measurement of ownership generally, whereas, Statement
101, deals with the sale of assets / businesses to achieve an
© Copyright Rainbow SA &
ownership score, etc.)
Empowerment Services 2006
011-485-2036
• Code 800 is where Sector Codes will be placed.
• Code 1000 provides a framework for QSEs with Codes 11001700 dealing with the 7 elements of the QSE scorecard.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Who MUST comply with the Codes?
• All organs of state
(i.e. National, Provincial & Local
Government)
• All public entities listed in Public
Finance Management Act (i.e. State-owned
Enterprises and Agencies)
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
• Any enterprise which undertakes any
business with any organ of state or
public entity
• Any enterprise which undertakes any
business with an enterprises
undertaking business with any organ
of state or public entity
What else will drive BEE Compliance?
1.
When the Public Sector does any of the
following, they must assess your BEE status:

Evaluate tender submissions (They can make it a minimum
tender requirement)

Sell state-owned assets

Enter into Public Private Partnerships

Issue Concessions (e.g. water rights) and Licences
(including ALL regulated industries – eg. Banking, certain
Transport Sectors, Telecommunications, Gambling,
Mining, Petrochemicals and Exporting)
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
By default this means all companies supplying regulated
industries need to be scored, so that the regulated
industries can count your score towards their score.
What else will drive BEE Compliance?
2.
In the Private Sector:


Your score counts towards your customer’s score
Your supplier’s score counts towards your score
BEE is not a compliance issue……
……..it is a competitiveness issue.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
3.
The National BEE Database (Public Domain)
4.
A BEE Label appearing even on consumer
products & services to drive spending habits
When everybody can see your BEE Score, BEE becomes
even more of a Competitiveness Issue! Even workers and
public lobby groups can now exert pressure for
transformation.
But who measures all this?
• Accredited Verification Agencies who
will perform a yearly “BEE audit” on
companies.
• All Verification Agencies will be working
off a single national standard & will
have to comply with stringent industry
regulations monitoring quality,
transparency and own compliance.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Which Scorecard will be used?
• Which Scorecard?
• Governments?
• Industry Sectors?
• Procurement Department’s own scorecard?
Bearing in mind that it is critical for the country to stay
as close to a single national standard as possible in
order to level the playing field, sector charters, if they
are to be officially applied, need to AT LEAST match the
generic scorecard.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Private scorecards (eg. ESKOM Scorecard) will fall away.
How will sector charters be handled?
• A sector charter can be gazetted firstly as a
“Transformation Charter” and, subsequently, if it
meets stringent criteria, as a “Sector Code”.
• Only “Sector Codes” replace the “Generic Scorecard”
for a sector.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
The status of Sector Charters
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
The criteria for a Sector Code
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Scoring for Complex Structures
Who can do what?
• Consolidate


(Single Scorecard)
Un-incorporated Joint Ventures
Related Micro-enterprises
• Attribute (Some Elements taken from parent, some from
child)


© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Groups of Companies / Subsidiaries
Franchises
• Separate


(Separate Scorecards)
Divisions
Companies Subject to more than one Sector Code
1. Ownership
Generic Scorecard:
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting
(Marks)
Target
Black voting rights
3
25%+1
Voting rights of Black women
2
10%
Black economic interest
4
25%
Economic interest of Black women
2
10%
Economic interest of Black
designated groups
1
2.5%
Ownership fulfillment
1
Complete
Net equity interest
7
Increasing
TOTAL
20
1. Ownership
Bonus points

Black new entrants

Black deemed participants of broad-based
ownership schemes
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036

Black participants of co-operatives

Maximum of 3 bonus points for 15% equity
stakes by above-mentioned groups / individuals
1. Ownership
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Net Economic Interest Target
Net Economic Interest - Generic Scorecard
%
30
25
20
15
10
5
0
1
2
3&4
5&6
Year
7&8
9 & 10
1. Ownership
QSE Scorecard
Indicator
Weighting
(Marks)
Target
Black voting rights
5
25%+1
Black economic interest
7
25%
Ownership fulfillment
1
Complete
Net equity interest
7
Increasing
TOTAL
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Bonus Points:
Black women ownership
Broad-based Ownership Schemes
20
3
15%
1. Ownership
Net Economic Interest - QSE Scorecard
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Net Economic Interest Target
%
30
25
20
15
Generic scorecard
requires only 2.5%
in year 1
10
5
0
1&2
3&4
5&6
Year
7&8
9 & 10
1. Ownership
Multinationals

Recognition of Equity Equivalents

Criteria:
• Own and control entire entity
• Ownership subject to global policy
• “substantial commercial harm”
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
1. Ownership
Multinationals

Equity Equivalents include:
• Approved Public Programme
• Sale of offshore equity
• Sale of a local business or asset
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
1. Ownership
Organs of State, Public Entities, Section 21
and Companies Limited by Guarantee
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036

Ownership omitted

Score on all other elements (80 points)

Converted to score out of 100
1. Ownership
Warehousing Funds
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036

Benefits exiting black shareholders

Hold shares for maximum of 3 years

Deemed ownership
•
100% Black
•
40% Black female
•
10% Black designated groups
2. Management
Generic Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting
(Marks)
Target
Black board member voting rights
3
50%
Black executive board members
1
50%
Black female executive board members
1
25%
Black senior top management
2
40%
Black female senior top management
1
20%
Black other top management
1
40%
Black female other top management
1
20%
TOTAL
Bonus point: Black independent nonexecutive board members
10
1
20%
2. Management
1. What constitutes the Board?


In a company, the board is those persons elected by
the shareholders to serve as board members
In other forms of enterprise, the board would be the
owner representative body
2. What are executive Board members?


Those persons serving on the Board who are also
ordinary employees of the company
It is not enough that they are paid a directors fees.
They must be actual employees
3. What are non-executive Board members?

© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Board members not employed by the company
4. What are non-executive independent Board
• members?

Non-executive Board members who are independent of
the company (i.e. not shareholders!)
2. Management
5. What constitutes Senior Top Management versus
Other Top Management?
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
2. Management
QSE Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting
(Marks)
Target
Black representation at Owner
Manager Level
20
25.1%
TOTAL
20
Bonus points: Black women
representation at Owner Manager level
2
10%
3. Employment Equity
Generic Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting
(Marks)
Target
Black people with disabilities
2
4%
Black Senior Management
2
60%
Black Women in Senior Management
2
30%
Black Professionals, Specialists and MidManagement
2
75%
Black Female Professionals, Specialists
and Mid-Management
1
40%
Black Skilled Technical, Academically
Qualified, Junior Management, Foremen,
Supervisors and Superintendents
1
80%
TOTAL
10
3. Employment Equity
QSE Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting
(Marks)
Target
Black representation at
Manager-Controller level
6
40%
Black female representation at
Manager-Controller level
6
20%
Black employees as a percentage of total
employees
4
70%
Black women as a percentage of total
employees
4
35%
TOTAL
10
4. Skills Development
Generic Scorecard
Pre-Qualifying Conditions:
• Be compliant with the Skills Development Act
(SDA) & Skills Development Levies Act (SDLA)

© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Up-to-date with Skills Levy
• Registered with applicable SETA
• Developed a Workplace Skills Plan (WSP)
• Have implemented programs targeting the
development of Critical & / or Core Skills generally,
and specifically, in relation to black employees
4. Skills Development
Generic Scorecard
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Indicator
Weighting
(Marks)
Target
Spend on Black skills development as
percentage of Leviable Amount
4
3%
Spend on Critical Skills and/or Core
Skills development as percentage of
Leviable Amount
2
2.6%
Spend on Critical Skills and/or Core
Skills development for black women
as percentage of Leviable Amount
2
1.4%
Spend on Critical Skills and/or Core
Skills development for black disabled
as percentage of Leviable Amount
1
0.3%
TOTAL SPEND RELATED SCORE
9
4. Skills Development
Generic Scorecard continued
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Indicator
Weighting
(Marks)
Target
Number of black employees on SETA
accredited learnerships as
percentage of total employees
2
5%
Number of black women employees
on SETA accredited learnerships as
percentage of total employees
2
2.5%
Number of formerly black
unemployed or formally black rural
people on SETA accredited
learnerships as percentage of total
employees
1
1%
TOTAL LEARNERSHIP SCORE
5
4. Skills Development
Generic Scorecard continued
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting
(Marks)
Target
Formal BEE Strategy, integrating all elements, assigning clear
executive responsibility, appropriate functioning committees,
approved by board & being implemented.
1
Yes
SDF employed
1
Yes
Policy on Non-Discrimination widely published, promoting
diversity, being implemented, regular, ongoing external
diversity management training.
1
Yes
Employment legislation compliance
1
Yes
Implementation of effective HR Management Plan emphasising
retention, long-term career planning. Include measurable
targets.
1
Yes
Programme designed to give practical effect to the above
through routine organisational social environmental audits, the
results of which must be published widely in the organisation.
1
Yes
TOTAL OGANISATIONAL
TRANSFORMATION SCORE
6
TOTAL SCORE FOR
SKILLS DEVELOPMENT
20
4. Skills Development
Quantifiable Skills Spend includes:
Direct Training Costs (Must represent at least 50% of all Skills Spend)







Internal training that is quantifiable & verifiable (proof of identifiable
outcomes, training schedules, attendance registers & course content
must be provided to verification agencies)
External training that is quantifiable & verifiable (proof of invoicing or
identifiable outcomes, training schedules, attendance registers & course
content must be provided to verification agencies
Training courses structured & recognised by the applicable SETA
Costs of Training Materials
Costs of Trainers
Cost of external training facilities including catering costs
Scholarships & bursaries (as long as awarded on a non-recoverable basis)
Indirect Training Costs
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036




Costs of internal training facilities including catering
External costs such as course fees
Costs like accommodation & travel
Administration costs such as organisation of training
4. Skills Development
QSE Scorecard
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Indicator
Weighting
(Marks)
Target
Application submitted to the National
Skills Fund
5
Yes
Quantifiable Skills Development
Spend on black employees in
addition to Skills Development Levy
as a percentage of the Leviable
Amount
15
2%
TOTAL
20
5. Preferential Procurement
5. Preferential Procurement – Generic
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting Target
(Marks)
BEE Procurement Spend from Suppliers
based on the BEE Procurement
Recognition Levels as percentage MPS*
15
70%
BEE Procurement Spend from QSE
Suppliers based on the BEE Procurement
Recognition Levels as percentage MPS*
4
15%
BEE Procurement Spend from Exempted
Micro Enterprises Suppliers as percentage
MPS*
1
5%
TOTAL
*MPS – Measured Procurement Spend
20
5. Preferential Procurement
5. Preferential Procurement – QSEs
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting Target
(Marks)
BEE Procurement Spend from Suppliers
based on the BEE Procurement
Recognition Levels as percentage of Total
Measured Procurement Spend
20
TOTAL
20
50%
6. Enterprise Development
Generic Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting Target
(Marks)
Cumulative Non-Recoverable Contributions
made as a percentage of cumulative EBITDA
measured from commencement/inception
date to date of measurement
6
2%
Cumulative Recoverable Contributions
made as a percentage of cumulative EBITDA
measured from commencement/inception
date to date of measurement
4
3%
TOTAL
10
6. Enterprise Development
QSE Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting Target
(Marks)
Qualifying Enterprise Development
Contributions made by the Qualifying Small
Enterprise as a percentage of EBITDA
20
TOTAL
20
2%
7. Residual Element (CSI)
Generic Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting Target
(Marks)
Cumulative Rand value of Non-recoverable
Qualifying CSI contributions as percentage
of net profit after tax measured from
commencement/inception date to date of
measurement
5
1.5%
Cumulative Rand value of Qualifying
Industry Specific contributions as
percentage of net profit after tax measured
from commencement/inception date to date
of measurement
5
1.5%
TOTAL
10
7. Residual Element (CSI)
QSE Scorecard
Indicator
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Weighting Target
(Marks)
Qualifying Residual Contributions made by
the Qualifying Small Enterprise measured as
a percentage of net profit after tax, made to
Corporate Social Investments and/or Industry
Specific Contributions
20
TOTAL
20
2%
Fronting
Fronting Practices
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036

Window-dressing

Benefit Diversion

Opportunistic Intermediaries
Fronting
Indicators of Fronting Risk

High Risk Indicators (3 points):
• Black owners / managers role uncertain
• Black executives paid lower
• Entity only performing peripheral functions
• Entity relies on 3rd party for core functions
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
• Contractual or technical reliance on 3rd party
• Any other practice circumventing Codes
Fronting
Indicators of Fronting Risk

Moderate Risk Indicators (1 point):
• Black owners/managers - limited knowledge
• Black people not active in top management
• Paying admin/management fees to related non-BEE
entity
• Procures at non-market rates from related non-BEE
entity (Transfer Pricing)
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
• Obtains loans from related non-BEE entity at
excessive interest
• Shares infrastructure with related non- BEE entity and
pays non-market prices
Fronting
Fronting Score:


Add up indicator points to get score
Fronting Score >= 10:
• “Excessive Fronting Risk”
• Recognition Level decreased by one for every 5
points
• 14 days to rectify or reported to Minister

• “High Fronting Risk”
• Recognition Level decreased by one
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Fronting Score from 5 to 9:

Fronting Score <5
• No action
Fronting
Fronting:
WARNING
"A person awarded a contract as a result of
preference for BBBEE may not subcontract
more than 25% of the value of the contract
to a person who does not qualify for such a
preference"
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
National Treasury - Draft Preferential Procurement Regulations
2004
Transitional Period
Transitional Score:

First 12 months after Commencement Date

Use full scorecard score
OR

© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Score = 1.92 x (Ownership + Management)
Questions?
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
Thank You
William Janisch is a director at
Empowerment Services –
South Africa’s leading BEE Consultancy as well
as a Project Director for
The National Empowerment
Directory – the dti’s “BEE bible” – a step-
by-step guide through BEE, due out when the
Codes are gazetted later this year and
The National Skills Development
Directory.
© Copyright Rainbow SA &
Empowerment Services 2006
011-485-2036
He can be contacted on: 011 485-2036
OR via email:
william@empowermentservices.co.za