DRG Outsourcing - New Codes of Good Practice for B-BBEE2015-12-17 An interview with Raoul De Marco (Sales Director), from DRG Outsourcing Interviewer: Gayle McLennan-Smith of KZN Business Sense
Questions and Answers around the new Codes of Good Practice for B-BBEE on Generic sized organisations. What are the new changes in turnover thresholds in which organisations are catergorised into; I believe they have increased in this correct? The new turnover thresholds are:
Yes that is correct, companies used to be rated on seven elements namely; Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Socio Economic Development. Now companies have to be rated on five. Management Control and Employment Equity have been merged into one element, and Procurement and Enterprise Development have also been merged to form an element called Enterprise and Supplier Development. This element is probably the biggest change within the codes as it has also included another element within this to be measured against. The five elements are now set out as follows; Ownership, Management Control, Skills Development, Enterprise and Supplier Development and Socio-Economic Development. There is lots of talk around Priority Elements and subminimums and companies dropping levels if these are not met? Please explain this a little further? Yes there are three Priority Elements for Generic organisations. They are Ownership, Skills Development and Enterprise and Supplier Development. A Generic organisation is required to comply with all the Priority Elements and has to meet a 40% subminimum requirement set out in each of these three elements. Non-compliance with the 40% sub-minimum requirements of any of the priority elements will result in the following outcomes. The Measured Entity's B-BBEE status level will be discounted by one level down until the next applicable verification period, in which the Measured Entity can demonstrate compliance with the 40% sub-minimum requirements. Are there new revised Recognition Levels or do these remain the same? The amendments to the Codes significantly change the manner in which a firm's BBBEE status (or level) will be calculated, as the number of BBBEE points required to achieve a particular BBBEE level has been increased. The changes are set out (and compared with the current position) in the following table. There are new recognition levels, I think these are best explained with this table. How are the new weighting points for measuring the new BEE scorecard? The weighting for each of the five new elements are set out (and compared with the current position) in the following table: Let's look a little closer at each of these five elements can you outline the major changes in the new codes within the Ownership Element? One of the major changes within the Ownership Element is the introduction of the sub-minimum requirement. A Measured Entity is required to achieve a minimum of 40% on net value points (i.e. eight points) based on the net value calculation set out in the codes. Net value seeks to measure the extent to which black individuals enjoy effective economic interest in an entity's ownership structure. The importance of this metric lies in the fact that many ownership deals are financed by the measured entity itself. A company may for instance loan money to a black director (or group of employees) enabling them to purchase shares in the organisation. Through this loan, the owners of the shares enjoy immediate access to dividends and share value appreciation, and the entity in turn enjoys immediate empowerment status without having had to give any of its shares away. The idea is that the black participants in the transaction will progressively pay off the loan extended to them, thereby becoming the outright owners of the benefit they now only partially enjoy. The problem lies in the fact that some individuals so benefiting are not in the financial position to ever pay off the loan they have been granted. In cases like these, although an ownership transaction may structurally have taken place, the substantive benefit thereof never actually accrues to its purported beneficiaries. To avoid discounting in Ownership, a company must have at least 10% black ownership. In year one after the ownership transaction, at least 10% of this black ownership, or in other words 1% of the total ownership of the entity must be held outright by the relevant black participants. In this way, the Codes make provision for a minimum amount of black ownership to be enacted (10%), as well as ensuring that over a period of 10 years, this 10% economic interest accrues in its entirety to the black participants envisaged by the transaction. (MBS Empowered, 1 March 2014 written by Seth Randall) Skills Development is also another talking point amongst companies; can you give us the major changes within this element? As mentioned before this is another Priority Element and Measured Entities are required to achieve a minimum of 40% of the targets set out in the Skills Development Element, if they are not reached they will discount an overall BEE status level. A few of the other changes are listed here:
To qualify as an Empowering Supplier a company must be B-BBEE compliant, a good South African citizen company and comply with at least three of the following prerequisites:
Like I mentioned earlier this element is also a Priority Element, and a Measured Entity must achieve a minimum of 40% of each of the targets set out in Procurement Supplier Development and Enterprise Development, excluding the bonus points. The Procurement section of this element has not changed too much from the old codes other than the sub-minimums and the compliance targets being higher. The biggest change here is the inclusion of the Supplier Development section of this element. A Supplier Development Beneficiary is a current supplier to the measured entity that has an annual revenue of less than R50 million and is at least 51% black owned or at least 51% black women owned, they must have a contract and a plan with the measured entity and be an Empowering Supplier. The compliance target for this is 2% of the Measured Entities annual net profit after tax (NPAT). An Enterprise Development Beneficiary is NOT a current supplier to the measured entity. It is an organisation not linked to the Measured Entity at all. The Enterprise Development Beneficiary must also have an annual revenue of less than R50 million and is at least 51% black owned or at least 51% black women owned. They would also need to have a contract and a plan with the measured entity and be an Empowering Supplier. The compliance target for this is 1% of the Measured Entities annual NPAT. Remembering the subminimum target here is 40% of the 2% and 1% of NPAT for both Supplier Development and Enterprise Development. DRG Outsourcing (Pty) Ltd Tel: +27 (0) 31 - 767 0625 Fax: +27 (0) 31 - 767 3280 david@drg.co.za www.drg.co.za |
DRG Outsourcing - New Codes of Good Practice for B-BBEE
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