BEE: Comply or die

A recent ITWeb conference on black economic empowerment (BEE) revealed an alarming lack of compliance among South African companies. Of even more concern was the apparent confusion among delegates as to exactly what is required in terms of government expectations around BEE.

Brian Khumalo, CEO of Leaders Unlimited, voiced his concerns around this non-compliance during his presentation when he remarked that he had "yet to come across a company confident that it was on track as far as employment equity is concerned". He told delegates he foresees "a chaotic scramble for compliance" as the deadline for compliance looms, a "possible inflation of packages for employment equity executives" and a "possible increase in window-dressing".

The fact that the local ICT industry has a long way to go before attaining compliance is underlined by research done by Empowerdex, an independent economic empowerment and research agency. Its analysis of the listed local IT companies revealed that there are no "black owned" (more than 50% black equity ownership) firms in this sector. In addition, there are only four "black empowered" listed companies, namely Datacentrix, Grintek,CS Holdings and Digicore; and only eight "black influenced" organisations on the JSE, namely AST, IST, Spescom, Mustek, Altech, Bytes Technology Group, Reunert and Altron. The remaining listed companies have BEE ownership or BEE control at levels of less than 5%. The bottom line? Roughly 70% of the IT companies listed on the JSE are neither black owned, black empowered nor black influenced.

Realistically speaking, I think it will take a couple of years for BEE policies to be implemented and any sort of meaningful measurements taking place.

Gordon Fraser, CEO, Microsoft SA

Map this back against the government`s overall objectives and a picture emerges of exactly how much is still required in terms of a sincere commitment to BEE by ICT companies. Although specific figures or targets have yet to be set, the government seeks to ensure a substantial increase in the number of black people who have ownership and control of existing and new enterprises, as well as in the number of black people who have ownership and control of existing and new enterprises in the ICT sector. It`s also looking for a significant increase in the number of new black enterprises, black-empowered enterprises and black-engendered enterprises; and a significant increase in the number of black people in executive and senior management of enterprises in this sector. Nothing about the figures in the Empowerdex report suggests any "significant" or "substantial" commitment to BEE.

Not that companies other than those mentioned in the Empowerdex research aren`t taking BEE seriously; among which are the local subsidiaries of multinationals. Gordon Fraser, CEO of Microsoft SA, says his company is already addressing issues such as employment equity.

"Microsoft is hoping to build an industry that is representative of South African society and its economy - one that grants opportunities to a broad-based group of people and encourages entrepreneurship." In terms of transformation, Microsoft "would like to see things happening sooner rather than later. Realistically speaking, I think it will take a couple of years for BEE policies to be implemented and any sort of meaningful measurements taking place," he says.

We`re not convinced that merely creating a black channel is truly about transformation.

Bill Hoggarth, CEO, SAS

Another subsidiary of a multinational that is taking the BEE debate seriously is SAS. Bill Hoggarth, CEO of SAS, says he would like his company to be held up as an example of what a subsidiary of a multinational can contribute with regards to corporate citizenship, social responsibility and BEE. He will "look with interest as to what advice comes out of the discussions around the charter pertaining to multinationals and SAS will get involved as much as possible".

SAS, he says, is far more interested in promoting transformation than "enrichment". Says Hoggarth: "Our business model, where we focus strongly on product licensing and working through local partners, speaks strongly to empowerment through developing sustainable skills. These create the opportunity for those working with us to forge worthwhile careers, as opposed to enriching the 'lucky few`. We`re not convinced that merely creating a black channel is truly about transformation."

Rick Parry, MD of the local Progress Software subsidiary, says his company has "embarked on an initiative within the Progress community to ensure we and our business partners embrace BEE initiatives. The majority of our business here comes from local software houses. One of the things we are going to be doing is training up students and working with our business partners to ensure they find employment. We`re looking at our procurement policies as well to ensure we comply with the overall BEE objectives.

"We are also trying to make sure that we fully understand what the BEE requirements are from an ICT perspective and doing our best to influence the discussions around the formulation of a charter for the industry to make sure it meets the interests of the software industry, as we believe these differ from those of other sections - such as the hardware or solution provider industries."

We can`t see any multinationals revising the way they operate to accommodate equity issues.

Rick Parry, MD, Progress SA

The crux of the matter as far as BEE compliancy is concerned, is the ability for companies to prove they`ve met the necessary requirements so as to ensure they retain the ability to compete for future business in the local economy. While some involved in the BEE debate are pushing for penalties to be imposed on non-compliant companies, neither Fraser nor Hoggarth believe this is strictly necessary. On the contrary, they are of the opinion that the ease of business that compliancy will ensure will be reward enough. As Hoggarth puts it: "It is clear that those organisations that comply with the overall BEE objectives as put forward by government will be in a better position to meet their growth requirements. Obviously the future penalties for non-compliance will involve a lack of ability to participate in any meaningful economic growth."

Employment equity is a major concern for locally-based multinational subsidiaries. Parry, for one, doesn`t believe the debate around equity in multinationals is actually going to go anywhere. "Bearing in mind that the revenues generated by Progress in this country amount to roughly 1.5% of total company revenues - which holds true for several other subsidiaries of multinationals in SA - we can`t see any multinationals revising the way they operate to accommodate equity issues."

Parry says that in his personal opinion, the 20% weighting given to employment equity in the balanced scorecard currently receiving government support is "completely out of proportion".

"The fundamental basis for BEE should be the creation of a black middle class. This isn`t about a few people having ownership in corporations - it`s about the majority of people being afforded the opportunity to become effective contributors to the economy. It`s about training, broadening the job base and encouraging entrepreneurship rather than making a few fat cats even fatter."

Yet another issue that needs to be addressed is that of accreditation. Delegates at the ITWeb conference were divided as to how the accreditation process should be managed and by whom. Hoggarth is opposed to any sort of BEE accreditation being outsourced to a commercial concern. "At the very least, this should be handed over to a non-profit organisation that has a transparent mandate and the authority required to make its findings irrefutable." Fraser concurred, saying he believes charging a commercial company with accrediting companies in terms of their BEE policies would create a situation that "is open to abuse".

However, before accreditation becomes an issue requiring immediate attention, the ICT industry as a whole has a lot to do. Brian Rainier, who chaired the ITWeb conference, pointed out that BEE "is a reality that is here to stay". Few opportunities currently exist for companies not already committed to a BEE strategy to address this through acquisitions, he said. Those still needing to ramp up and meet requirements would have to build their own internal BEE capacity; largely through the introduction of skills development, training programmes and recruitment. BEE partnerships, he said, would become key, as "doing deals to achieve BEE is becoming more and more difficult".

The fundamental basis for BEE should be the creation of a black middle class.

Rick Parry, MD, Progress SA

However, it`s not all doom and gloom, even for those companies that have yet to begin strategising around BEE. As Dali Mpofu, a conference speaker and chairman of the ICT empowerment charter workgroup, said: "Sometimes we underestimate the ability of South Africans, when the chips are down, to sit down and meet our problems head-on."