A tick-box approach to the scorecard for the Revised Codes of Good Practice for Broad-Based Black Economic Empowerment (B-BBEE) will not normalise our society and fix past socio-economic injustices with the urgency it requires.
Social unrest is a symptom of the vast disparities and the poverty that exists in South African society, and a fixation with compliance to the B-BBEE scorecard will not create the jobs and wealth at a pace and scale that South Africa so desperately needs.
Given business’s central role in achieving transformation as a national economic imperative, the Department of Trade and Industry (DTI) would do well to take on a more collaborative ‘carrot approach’ to business versus the ‘stick approach’ that many private sector players have experienced to date.
Related: What To Look For In A B-BBEE Partner
The essence of transformation as laid out in the B-BBEE Act of 2003 – to transform South Africa’s economy and bring about meaningful participation in it by black people – has been side-lined by the technicalities of compliance. This tendency was further entrenched when the B-BBEE codes of 2007 were substantially amended in October 2013 and became compulsory from 1 May 2015.
The limitations of a narrow focus on compliance only, has particular relevance for Enterprise and Supplier Development (ESD) for two reasons:
- ESD is the main pillar of the codes, making up over one-third of the scorecard and worth 40 of the 105 total points;
- All stakeholders agree that meaningful job creation and economic growth in South Africa will come from the small and medium business sector.
Furthermore, because Enterprise Development (ED) is recognised in the codes as 1% Net Profit After Tax (NPAT) and Supplier Development (SD) as 2% NPAT, companies are bringing enterprises as suppliers into their supply chains far too quickly.
This practise assumes a steady stream of enterprises that are fully scaled and adequately prepared as suppliers, when in fact, they are not. It has only proved costly, compromised efficiency, placed businesses at risk and thwarted the success of small and medium black-owned businesses.
In implementing ESD, supply chains and business operations cannot be disrupted. This makes it imperative for ED and SD to be considered by a business together. They cannot have different objectives, different measures and different strategies just to meet compliance requirements. This will only see ED and SD go in different directions and compromise the competitiveness of the big business and the success of the emerging enterprises or suppliers.
The function of developing enterprises into suppliers must align with the strategic needs of the business. Therefore, ESD must have the full buy-in of company leadership teams. CEO, CFOs and CPOs need to understand exactly how supplier diversity adds value to their supply chains and makes their business more competitive. It is not something that can be simply delegated.
Businesses we work with want their workforce, suppliers and partners to reflect society because they want a strong economy.
In embracing the B-BBEE codes, and achieving success in ESD, their focus has been less on compliance and more on building enterprises as a funnel for their supply chains; on building the best suppliers; and on creating supply chains that have the full mandate of their procurement teams.
When supplier development is strategically driven, we see ED, SD and procurement teams working together to:
- Understand and analyse the business’s current procurement needs
- Establish what the specific barriers to entry into their supply chains are
- Identify where the future opportunities lie.
In turn, they are able to identify and build SMMEs that meet the current and future needs of the supply chain. And, they can develop joint B-BBEE scorecards while building strong enterprises and suppliers.
To expand the economy meaningfully, strategic supplier development must focus on developing suppliers that add value to the business and not on getting more points. Then, suppliers must be evaluated according to the same criteria and benchmarked against both best practice and each other. No one supplier should be given preference over another.
Transformation and business success go hand-in-hand. Transformation is not a business function, it is the future of an organisation; it is not a short-term development intervention, but a long-term strategic business fundamental. It is a pity this ethos did not underpin the DTIs BEE drive with business from the start.
It is well accepted, and welcomed, that the revised B-BBEE codes address fronting, which saw a relatively small number of black and white business people benefit hugely through superficially constructed broad-based groups in empowerment deals. We look forward to hearing from the BEE Commission that was set up to monitor and evaluate fronting.
We also look forward to seeing big business supply chains sustainably and progressively transformed to reflect the demographics of South African society.
LFP Training – The ‘Agents’ Of Transformation
Implemented correctly, BEE has the potential to change the current status of South Africa’s economy. Add to that LFP Group’s focus on helping corporates to boost employee skills and engagement and upskill disadvantaged people across the country, and Louis Pulzone is aiming to make a real difference.
LFP Training is the leading provider of BEE aligned turnkey skills development training in South Africa, delivering innovative, industry-first learnership programmes to educate and upskill abled and disabled individuals in line with the BEE codes of good conduct.
LFP Training’s fully accredited learnerships are strictly aligned to BEE guidelines and allow companies to implement skills development.
To date, more than 700 companies have actively benefited from LFP Training’s solutions, reaching their desired target spend at a fraction of the cost. This solution is the most cost-effective way of implementing BEE initiatives while gaining maximum points.
The team at LFP Training comprises industry experts and combines years of experience with a passion for transformation, education and making a difference.
Today, both unemployed and employed, disabled and able-bodied people in all industries are actively benefiting and contributing to society, thanks to LFP Training’s turnkey training solutions and strategic partnerships.
In South Africa’s tough economic environment, where unemployment levels are so high, how is LFP an ‘agent of transformation’?
It’s no secret that times are still tough in South Africa. Our economic inequality is one of the highest in the world and unemployment is still a massive concern.
While this is nothing new, the good news is that it has forced us to become more resilient and find new strategies. At a time like this, we need to invest in our people and kick-start the economy again. At LFP Group, we look to new strategies, growth and the upliftment of people to help shape the future. Being agents of transformation means that we look towards solutions for a better South Africa for tomorrow.
We also recognise that government cannot do everything. Our goal as LFP Group is to be a leader in our industry, helping government achieve its goals for reducing unemployment. Our aim is to forge ahead with a great public-private partnership strategy.
What role do you play in transforming South Africa? Why is this important?
With the shortfall in education, responsibility has fallen on corporates to provide opportunities and to upskill employees. Many companies are filling the gap between what has been previously learnt and what is required in a practical job function.
By partnering with corporates, LFP can help companies to achieve their BEE objectives and gain access to rebates, while providing education in the form of learnerships. The stipend provided by corporates to learners is invaluable in mobilising learners to grow, learn and fill roles, while having financial security.
By providing a turnkey solution, all parties benefit from our all-encompassing approach — both on and off campus.
Each solution is accredited and optimised to ensure that both the learner and the business benefit from the skills acquired. Our offering has expanded over the years based on demand for further skills development and quality education.
As LFP Group we do not only consider transformation as a process of change and opportunities for individual employment; we see it as a way of transforming attitudes and creating hope for a nation that truly needs and aspires to be that country that does not live in the past, but acts in the future. We believe that transformation is the duty not only of state and politics, but every South African. We started by transforming our Group first, and now our vision has shifted to our country.
Why did you launch LFP? What was your goal, and how have you realised that goal?
Having recognised a critical gap for skills development to help address unemployment in South Africa’s ever-changing economic landscape, I founded turnkey training provider LFP Training in 2013.
The company’s innovative programmes are aimed at educating and upskilling people who have disabilities and who are unemployed, in line with the country’s BEE Codes of Good Conduct. More than this, I am truly committed to transforming not just the employment and skills development side, but my country’s quest for transformation. LFP Group is a platform where I could achieve that objective. I also believe in creating a winning team that echoes my vision and shares my passion to deliver that goal.
With more than a decade’s experience in the education industry, I am passionate about making a difference through education and saw a gap in the market for innovative training programmes aimed at educating and upskilling. By partnering with corporates, we have trained more than
7 000 learners with an excess of 700 clients paying R70 million in stipends directly to learners in stipends or salaries; this has resulted in a 100% pass rate in their BEE verification audits. This has a tangible impact on unemployment in South Africa.
Why is investing in people the single most important thing that businesses can do?
Addressing staff development and training is often low on the list of business priorities — but the relationship an organisation has with its employees can directly impact commercial success. Continuously evaluating, refining and improving your greatest asset — your people — can maximise their potential and bring wider business benefits; not least that individuals are happier and more motivated, and therefore more productive. In a recent survey on adult learning, 41% of respondents indicated that further education helped them improve the skills they needed to do their jobs.
Continually training staff means more of them will have up-to-date and relevant skills, which are valued and respected by the industry.
Continuing to develop staff not only adds value to the company, strengthens the workforce and improves workplace efficiency — it also improves job satisfaction, encourages loyalty and ensures commitment to the success of the business. Another final piece of our human investment capital is adding value to our internal staff, and that of all the clients and leaders of the companies we serve. LFP Group has created a specialised IP and as a leader in the industry I believe that we must educate and invest in the people we’re associated with.
Related: Scoring BEE Points
How should business owners and executive teams view training?
Education is a fundamental right, and everyone should have access to it. With a passion for education, I always look to a quote by Nelson Mandela, a true advocate for education: “Education is the most powerful weapon which you can use to change the world.”
This could not be truer. The private sector is having to fill the gaps in education and companies need to innovate to provide opportunities. In the fields of STEM there is a critical skills shortage, and we need to work together to empower and advance our country and its people. One of the most critical tasks we’ve focused on is training the leaders of industry.
Many business owners, CEOs and senior management, even shareholders of corporates, fear the mention of BEE and Transformation. The reason is simple: South Africa is not transformed enough, and this is part of our vision. We must ensure that as much as we service our clients and provide the services LFP Group has set out to do, we are slowly but surely penetrating the leadership market to educate and prepare them for transformation.
The policies of BEE are constantly in the spotlight because of the opportunities it can provide. By embracing it, companies and people are able to benefit from it wholly.
What is the role of BEE in South Africa? Why should businesses embrace it?
If implemented correctly, BEE has the potential to change the current status of our economy. B-BBEE addresses transformation in South Africa through ownership and management in companies, upskilling of employed and unemployed people and growth of the economy and smaller enterprises through enterprise and supplier development.
Investment in B-BBEE and compliance creates massive business opportunities for your organisation in the form of public sector contracts and business from other B-BBEE compliant companies. This provides a competitive edge.
As LFP Group we recognise that BEE and transformation in the labour and corporate sector, will be with us for a long time. As an industry leader we must be on top of our game and always be at the forefront of knowing our industry, and more vitally what is to come. This will allow us to address the historical imbalances and assure that all citizens in our country have skills and an opportunity for a long-lasting and sustainable job.
What does LFP Campus do?
The LFP Campus is a blended online learnership platform that makes it possible for clients to gain substantial points towards their skills development spend in line with the BEE codes.
Applicable to all industries, this popular offering avoids downtime and loss of productivity, while supporting flexibility, thanks to a blended online offering which can be undertaken outside of working hours.
LFP Training has not only aligned its online initiative to the BEE codes but also made it possible for clients to do so at a fraction of the cost — all while being eligible for government initiatives such as tax rebates, youth subsidies and other grants.
Clients are now able to claim the salary of an enrolled employee for the full duration of the learnership without compromising on their business’s operational requirements.
Clients can also claim more than 500% of the actual spend towards their skills development target spend.
LFP Group’s offerings
Youth Employment Services Implementation Programme
A staggering six million youth aged between 18 and 34 are still unemployed and this is the exact reason why LFP Group is coming to the fore.
With the Youth Employment Service (YES) initiative — officially gazetted on 28 August 2018 — aimed at creating one million jobs within the next three years, companies can now earn additional BEE benefits.
The LFP Group, in support of the YES programme, recognises the critical role that South Africa’s youth play in shaping the economy and our country. LFP now offers YES programme management implementation to benefit clients and individuals.
The offering includes:
- Comprehensive assessment of the employer to determine YES eligibility and management of the entire project.
- Recruitment of the youth and full registration of recruited youth onto the YES initiative.
- Registration of the client on the YES initiative.
- Coaching, mentorship, a personal development plan and key performance indicators.
- Access to permanent placement opportunities for youth not absorbed upon completion of the YES initiative after 12 months.
- Compilation of verification file containing supporting evidence for YES and B-BBEE recognition.
LFP Permanent Placements
LFP’s attentive team of trained experts source talent in line with a company’s B-BBEE scale and predominantly recruit for roles in the fields of administration, healthcare, technology, retail and start-up hiring.
With a clear understanding of each clients’ needs and objectives, LFP Permanent Placements has a proven track record with a project completion rate of 97% and the remaining 3% attributed to unforeseen circumstances such as project shutdowns, health issues, relocation etc.
More than learnerships, LFP prides itself in providing its clients with a turnkey solution. For this reason, LFP not only handles recruitment, training, facilitation and paperwork for learners, but also takes care of outsourced payroll requirements.
LFP Group has a dedicated and trained administration team to handle the day-to-day management of a company’s learners’ stipends, temporary employees and permanent employees.
Changing and adding suppliers is a complicated and tedious task, but as a company’s BEE needs evolve to meet the demands of new legislation and accommodate further company growth, the need for more knowledgeable and reputable suppliers becomes inevitable.
BEE-Connex is a first of its kind app, changing the way South Africa does business in the BEE industry.
It’s as simple as downloading the BEE-Connex app and signing up to the biggest and most reputable network in South Africa. Here clients receive a host of benefits including:
- Enjoying hassle-free BEE.
- Getting connected to the right supplier in just a few simple steps.
- Gaining access to a comprehensive network of verified suppliers who understand and can meet your specific needs.
- An easy, cost-effective solution to gain maximum points.
Visit www. lfptraining.co.za for more information
It’s Do Or Die In BEE Compliance
What this means when doing business in South Africa.
More and more, we see businesses and BEE verification firms coming under the spotlight for fraud and non-compliance. BEE ratings are viewed as a ‘hot commodity’ and many BEE services firms have popped up over the past few years to accommodate the demand.
Pressure mounts on businesses to reassess their skills development spend, youth contributions, ownership and management structures in-line with the BEE scorecard, and the Government has been particularly verbal in highlighting the need for BEE compliance.
AJ Jordaan, Sales Manager for leading BEE-aligned Skills Development training company, LFP Training says that its more than compliance – it’s a way of life for businesses today. “Over time, businesses have realised that while they are doing almost everything right, what would make or break a deal could very well be their BEE rating,”
“Businesses receive additional points for doing business with BEE-compliant companies. Enterprise & Supplier Development is key to a firm’s business strategy. With legislation changing on a regular basis, we always advise that clients do it right from the get-go,”
Related: How Do I Become B-BBEE Compliant?
A scorecard is not a target – it should be incorporated into a business’s vision and growth strategy; it is just as important as any other top-line business matter these days. “With the need for more and more guidance in the realm of BEE, more suppliers have popped up to provide strategic counsel and it’s easy to get caught up in the ‘hype’. Terminology, weightings, paperwork and implementation are daunting tasks, but with so many businesses still failing their BEE audits – even under advisory – how do we know who to trust?
“Referrals by word of mouth are always great. I also believe that businesses must ask for a company’s success rate and previous customer testimonials. More than anything, the consultant/ BEE supplier that a company chooses must understand how to truly implement BEE strategies to achieve exactly what it’s there for – to empower the previously disadvantaged and help bridge gaps in society” says AJ.
With all the hype, we forget about what its there for. “Trading in points is not the intention; the end goal is economic transformation and fair opportunities for all,” he continues. “If a company fails its BEE audit, it’s essentially failed to promote exactly what BEE is all about. Money has been wasted and no transformation has really occurred. Partnering with a credible and knowledgeable partner is therefore key.”
BBBEE Share Schemes – A Ticking Time Bomb?
At the forefront of these mechanisms are employee share schemes.
Since the promulgation of the amended codes of good practice under the Broad Based Black Economic Empowerment Act 53 of 2003, as amended (“BBBEE” or “the Act”), compliance with the ownership element has become a compulsory compliance element for both Qualifying Small Enterprises (“QSE” having between R10 and 50 million annual turnover) and generic enterprises (over R50 million annual turnover). As a result, businesses have found themselves considering mechanisms which aim to address this element. At the forefront of these mechanisms are employee share schemes.
The first of these structures were constructed in the early 2000’s by JSE listed companies. The aim of these structures were essentially two-fold:
- An employee retention strategy similarly constructed as executive share schemes in many ways, and
- Compliance with BBBEE.
These structures have recently been under the spotlight again . Mainly because of the questions it raises in terms of whether it is true empowerment or not.
For businesses wanting to utilise these structures, a number of aspects are to be considered:
- Employers and employees stand in a vertical relationship with one another. This is because the employer directs the expectations and the standards of the services exchanged between them. Shareholders, on the other hand, are in a horizontal relationship as they are equally entitled to regulate and direct matters which may affect their shareholding or investment. So, to shift from a vertical to a horizontal relationship requires the necessary professional inputs, management and attention.
- These share schemes are separate entities that require the necessary attention and inputs. As such, it is not just a case of setting it up and it simply running itself.
- These structures need to have a shelf life in my view. In this regard, I mean that a clear commercially feasible strategy needs to be devised and implemented in regards to the trust. This would include a structured plan whereby employees would not only be entitled to dividends but would also have the opportunity to up-skill and to improve themselves in various ways. The financial benefits should aim to facilitate direct ownership.
It is important to remember that inviting partners to sit at the table, needs to fully embrace the concept. If it does not, it not only negatively impacts the relationship, but disempowers the people involved. The human aspect thereof is as devastating as the legal non-compliance which may even go as far as constituting fronting.
Related: The 5 Elements Of BBBEE
In order to avoid this, these structures need to be setup correctly and managed correctly, which means:
- The trust deed must clearly define the beneficiaries and the proportion of their right to receive distributions;
- The trustees must actively take part in managing the trust at a level similar to the management role of shareholders in a company having a shareholding;
- Based on the aforesaid, in my view, the trustees should be appointed by the beneficiaries;
- A written record must be kept identifying the beneficiaries as well as prove that they fall within the designated groups as defined in the Act. The trustees must have no discretion in this regard;
- A written record must be kept of fixed percentages of claims or outlining formulas for calculating claims. The trustees must have no discretion in this regard;
- The trustees must present the financial reports of the trust to the beneficiaries yearly at an annual general meeting of the Trust;
- The trust deed or other relevant statutory documents of the trust must be made available, or on request, to any beneficiary in an official language in which that person is familiar;
- On winding up or termination of the trust, all accumulated interest must be transferred to the beneficiaries or to an entity representing the interests of the participants or class of beneficiaries.
Expert professional guidance is therefore crucial in order to avoid these structures becoming your own ticking time bomb.
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