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BEE: Counting the rands and cents

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By Dionne Kerr

About two years ago I had the pleasure of presenting at a Wharton Business School event hosted to look at the critical elements of investing in South Africa and emerging markets versus established markets. The audience was from all over the world, but principally US businesses looking at operating here. On the panel with me were three other individuals, a BEE industry expert from the audit and verification environment, the global head of Marketing for a mining conglomerate, the senior project manager from an oil and petroleum giant involved in transformation and myself as a consultant focused on the implementation of transformation strategies.

The question was presented to us as a Panel, "Is BEE not another form of Tax and a further cost of operating in an emerging market environment?' As I opened my mouth to answer, Tom from the oil company said, "I think I have this Dionne'. He very succinctly described how as a company, they understood that to sustain their market and continue to build sales of their product, they realised that fuel is sold in communities and markets where employment is high and individuals can afford motor vehicles and other equipment that require fuel. To ensure that employment was high, communities needed to have access to education. So, the investment in community development, education and poverty alleviation was a principal strategy for the company in all emerging markets. For the business, it translated into building market share, a key business growth strategy. Clever man!

The key element is that "aha? moment, where companies realise that you cannot deliver any part of your strategy in isolation to another. You cannot deliver increased sales despite your strategy to curb investment in advertising and marketing, decrease your market presence and a decrease in sales staff. Any business strategy is only as good as the ability to implement it and, most importantly, to pull it through into the day-to-day deliverables of each and every employee. You cannot do business and then tick this check-box each year with a BEE auditor. BEE is not a reporting requirement, it is an operating ethos. When it becomes this, we start to experience the real benefit.

The emphasis on BEE has always been perceived as an issue of racial divide. The name itself, Black Economic Empowerment, suggests that it is simply about Black ownership of shares - the issue of segregation of beneficiaries of any development programme, or an exclusion policy that limits the opportunities for any one group of people is not sustainable. We know this more than any other nation.

So why do we remain insistent that BEE works and what is the real benefit to organisations?

We can quote examples of companies which have won contracts or been awarded a renewal because they have finally met the requirement stipulated for BEE compliance by their customers, but this still potentially misses the real value.
In today?s operating environment, we know a few business "tricks? that are a recipe for success in any market. To build our brand, we need to establish a link between what we do and those issues that are relevant and topical to our target market. In South Africa, and indeed the greater continent of Africa, what is more relevant and topical than job creation, poverty alleviation and community stimulation?

The world over, Corporate Social Investment (CSI) has become a function of the modern-day Board with our own King III referring to a Board?s responsibility to ensure that companies act as responsible corporate citizens in respect of people, environment and community. Furthermore, carbon points, environmental sustainability and access to emerging markets are at the coal face of most decisions around product development and market penetration. The CSI report in 2007 reported that of the R3-billion invested by corporate South Africa in CSI initiatives, less than 30% of it reached the actual beneficiaries. Bring in BEE legislation that requires accurate reporting and analysis and most importantly, a commitment to engaging with all communities, be they rural, employee or supplier.

We complain about levels of taxation, about the cost of doing business and about the issues of quality with regard to procurement, yet we balk when it comes to Enterprise Development. South Africa has a vast SMME market, which needs to grow if we wish to use Entrepreneurial Development as a means to decrease unemployment and create a more viable and sustainable economic landscape for growth and investment. This element allows commitment to training, mentorship, loans, investment, time, product, goods, services, preferential payment terms, and the other 500 or so options that exist to deliver the business strategy. This element, if delivered correctly, pays for itself after three years and delivers a quality, robust pool of pre-qualified suppliers which decreases price, increases effectiveness and improves the supply chain controls that are necessary for optimal operating environments.

Instead, we choose to write out a cheque three weeks before the audit because not enough was done, OR we deliver highly sophisticated programmes that are costly, time intensive and complicated. I am fairly certain that each company committed to training doesn?t register as a Training Academy - stay focused on your core business, develop a strategy that makes sense and ensure that the champions of the process are aggressively driving the implementation towards ultimate sustainability.

Procurement - the concept of do business with individuals who are tax compliant, CIPRO compliant, Quality standards compliant, HR compliant - means that you get a quality supplier who will be around for years to come delivering a consistently superior product or service. Increasing the diversity in supplier partnerships increases the access to the very best available to deliver a product or service. It commits the procurement manager to ongoing assessment of suppliers, update of supplier information and moves business towards supplier partnerships. A partner understands the business, supports the key performance drivers and remains committed to working with you to deliver your vision. Of course, we have an increased pool of suppliers because of our commitment to enterprise development so sourcing like-minded, committed supply partners is not a problem.

Harvard Business Review looked at the top performing businesses in the world and what they did differently to their peers. A 6% investment in skills development and training was in the top three differentiators. The world-over we live in a skills short market. We have two choices, change the way we operate to rely less on people, or, invest in skills development to increase the pool of skills in our business and our industry. It is considered one of the strongest retention tools to have employees focused on their career development in partnership with their employer, and the increased pool of skills reduces the cost of hiring and increases of our operating efficiencies. In South Africa, this investment is claimed, in part, back from the SETA. Learnerships qualify for tax rebates and incentives - training pays for itself. Companies who don?t do this are at risk of not remaining relevant in today?s times.

Risk vs Return

Employment Equity is an element everyone complains about. "If we could find the skills, we would employ them...' (refer skills development strategy), "Black skills are highly mobile and difficult to retain...' (refer skills development strategy again), "We are in a skills short market, finding highly qualified technical skills are virtually impossible without gender and racial targets...' (dare I say it again?) Business needs to get its act together. There is no greater return on investment than competent, committed staff dedicated to realising the business strategy. It is 16 years post the declaration of our democracy. A child could have entered the schooling system, completed their full schooling and a tertiary qualification or degree in that time! If we continue to lament how hard it is versus doing something proactive to achieve equitable workforces that represent our demographic then frankly we deserve the criticism and the finger-pointing that comes from those individuals in the "Business should Pay!' corner.

South Africa is a diverse country made up of a multitude of people from all races, genders and abilities. If the intent was real and we were committed to getting it right, then we would have been able to deliver this strategy, 16 years in the making. What other business strategy would a Board tolerate such poor performance of after 16 years? Sure, it requires commitment. Yes, it is a long-term imperative, but any business that has not made progress has most surely done so through an absolute commitment to NOT address it - you cannot achieve absolutely nothing without an absolute commitment to exactly that.

Management control doesn?t mean appointing someone to your Board who is visibly Black and content with not participating on any level lest they should have the bizarre inclination to add value. Board members are appointed, in line with corporate governance, to direct or influence the decisions of that business to guarantee performance, return on investment for shareholders, compliance and sustainability. Realise the real benefit of a committed, relevant, qualified Board and the ROI that they bring through the role that they all play in achieving the organisational strategy.

Ownership is the element that everyone thinks is BEE. Ownership counts for 20 points - can we all please get to that common point of understanding? Bad ownership deals are not a symptom of BEE, they are a result of poor decision-making, ineffective strategies and incompetent or ignorant executives. This made worse by the likes of Telkom who have decided to recognise some elements of the Codes of Good Practise and completely ignore others, dictating to their suppliers how their ownership transactions should be effected. Do an ownership transaction because you want to increase your market share, access capital, access resources or add products or services to effect your business strategy. Then identify suitably qualified individuals, businesses or collectives to achieve this. It is scientific and it adds direct ROI when done correctly.

Change is difficult, ignorance and fear makes it even more so. Not realising the benefits of a fully integrated business strategy that considers how we do business, who we do business with, who benefits from the business we do and how we keep our business relevant into 2050 - that is high risk and costly.

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