BEE scorecard must be altered to make white firms change

By Sindi Zilwa

The codes of good practice on broad-based black economic empowerment (BEE) and the accompanying scorecard in its current form are failing black business. Although the original idea was noble, the cause serves to benefit only mainstream white businesses.

The original two-pronged objective was aimed at encouraging transformation of big business, while opening doors for previously disadvantaged black-owned businesses. But the result is the direct opposite, as it only helps big business in point-scoring, making them look like they are transformed when they are not.

The empowerment scorecard has failed dismally to ensure that big business uses the services of black-owned firms. Because of their spending patterns, and the fear of change, companies have considered using their muscle to influence big businesses that they are already doing business with, to give them a correct rating.

Eventually, this becomes an opportunistic point-scoring game by big businesses rather than true transformation.

The scorecard for preferential procurement allocates 12 points for procuring from any business that achieves a level 7 rating or better; three points for procuring from any qualifying small enterprise (companies with less than R35 million turnover), irrespective of their BEE status; another three points for procuring from businesses with more than 51 percent black-ownership; then two points for procuring from businesses in which black women own more than 30 percent.
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To obtain a good score, without sweating, businesses only have to influence their existing supplier base to transform, then get the full 12 points, and procure from the small white-owned businesses they have been doing business with for generations anyway, and get the three points.

That is a 75 percent achievement on the preferential procurement scorecard, without sweating, and without even thinking about whether black businesses exist. So, big business calculates that to do all this hard work for the other 25 percent of the points is not worth it. That is why it is justifiable to request a revision of the codes, especially the preferential procurement scorecard, so that it allocates 75 percent of the points for procuring from black-owned businesses, with seven points for procuring from majority black-owned businesses, and another five points for procuring from businesses with more than 30 percent ownership in the hands of black women.

The remaining five points can be divided between qualifying small enterprises and transformed black businesses. If the proposed scores were to be implemented, for a change, the pareto (80:20) principle will work in favour of black entrepreneurs, who are struggling to survive because of a lack of access to meaningful opportunities offered by the private sector.

With this bleak picture on preferential procurement, it would be hoped that the enterprise development elements would come to the rescue of black entrepreneurs.

Unfortunately, this could not be the case because, first of all, most of the private sector is mischievous. It views enterprise development as only grant-focused. So businesses resist and excuse themselves on the grounds that they are not banks and therefore cannot offer loans to black businesses as they do not even have credit committees to assist them understand their risks.

Second, those who do understand that enterprise development is not about grants, mischievously choose not to understand that the main objective is about providing meaningful opportunities to black businesses. Apart from “the opportunity on the table” as the leading objective, the two other pillars of enterprise development are closing the experience gap, if any, and settling the invoice on time.

There are tested and proven ways of closing the experience gap. There are also proven case studies as far as enterprise development is concerned.

Take for instance an approach that was initiated by the late Stella Sigcau, then minister of public enterprises. In 1996, she appointed small auditing firms to do the audit of Transnet jointly with the larger accounting firms. Those small firms grew successfully as individual companies, and collectively are now a formidable front in their own right.

So, the lack of experience of black auditing firms was addressed through partnering them with the established firms. In the process, transfer of skills took place in a tremendous way. That changed the landscape of the accountancy profession in a sustainable way and challenged the larger firms’ way of thinking on transformation.

This created a win-win situation for all concerned. Simply put, there was space for everyone. It had a positive ripple effect on transformation as more black trainees were and still are recruited. The rate of producing black chartered accountants increased and more black partners were appointed both in the larger accounting firms and the founder-managed practices.

However, this did not happen without pain. In the start, the established firms were uncomfortable to share their territory with black firms. On the other hand, executives of state-owned enterprises had to deal with the new paradigm that black auditors were just as capable. With time, this became acceptable.

Third, those who are happy to provide grants must try to understand what the impact of the grant will be on their business in terms of realised market opportunities.

If we are serious about creating space for black-owned businesses, the Department of Trade and Industry has to revise the broad-based BEE scorecard for preferential procurement and enterprise development as a matter of urgency. The objective would be to encourage big business through an 80:20 principle to avoid short cuts and comfort zones, genuinely opening doors and embracing working with black businesses.

Sindi Zilwa is the chief executive of Nkonki, a firm of auditors and consultants. She is also a director at Airports Company South Africa, Woolworths, Discovery, Aspen, Strate and Ethos Private Equity

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BEE scorecard must be altered to make white firms change

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