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The role of HR in facilitating Black Economic Empowerment

The role of HR in facilitating Black Economic Empowerment

By Garth Mason and Gary Watkins who can be contacted at www.workinfo.com

1. Introduction

The broad-based Black Economic Empowerment (BEE) Bill, when promulgated by Parliament will inject new life into employment equity and skills development initiatives. That's the good news. An unfortunate consequence of the proposed legislation is that affirmative action measures focused on (white) women and people with disabilities may be relegated to the distant horizon in the BEE landscape.

The BEE Bill refers exclusively to the broad-based empowerment of black persons (African, Coloured and Indian). The familiar terminology of designated groups is not present in the BEE Bill, despite designated groups remaining the focus of affirmative action measures in the Employment Equity Act.

The government launched the Black Economic Empowerment (BEE) strategy in March 2003. The message of the strategy is clear — for the South African economy to grow it needs to draw on the skills and resources of the whole population.

The Department of Trade and Industry, led by Alec Irwin, will act as the support, guide and overseer of the BEE policy. At present the strategy is at the Bill phase and industries, political and business leaders are busy debating the interpretation of the policy.

Critics of the BEE approach argue that it is being decided on ‘behind closed doors’ in partnerships between government and big business. It is crucial therefore that businesses remain informed and educated about the BEE process.


2. What is it?

After the furore of the leaking of the Mining charter in 2002, the government’s BEE policy has moved away from a prescriptive approach driven by charters to one that allows and supports individual industries to draw up their own charters and targets, except in sectors where government has a right, a license, a concession or an asset.

Government has drawn up a ‘balanced scorecard’ to measure the progress made in achieving BEE goals and will provide policies, codes, principles, bills and regulations as instruments of change to guide and regulate the implementation of the strategy in the public and private sectors. The common scorecard will provide a basic framework for measuring BEE.

The scorecard will measure empowerment through ownership, control of assets and enterprises, human resources development, employment equity, preferential procurement bringing about indirect empowerment of other enterprises and communities.

The government will use a ‘balanced scorecard’ to measure progress made in achieving BEE by enterprises and sectors and help set measurable targets for BEE. It is a balanced scorecard because it incorporates the measurement of three varied but core elements of economic empowerment:

>> Direct empowerment through ownership and control of enterprises and assets

>> Human resource development and employment equity

>> Indirect empowerment through preferential procurement and enterprise development

3. How will it be used?

The scorecard will be issued as a Code of Good Practice in terms of the forthcoming legislation. The code will allow for a measure of flexibility in order that it can be adapted to the particular sector or business context it is being applied, will still retaining a generic standardisation to the definition and measurement of BEE.

Government will use the BEE criteria of the scorecard in the following circumstances:

>> In granting a licence to engage in a specific regulated economic activity, e.g., mining In granting a concession to a private enterprise to operate an asset or enterprise on behalf of the state

>> In the sale of an asset or state-owned enterprise

>> When government enters into a public-private partnership

>> When government engages in any economic activity

The ‘balanced scorecard’ includes a residual category to allow sectors to tailor the scorecard to their industry’s circumstances. Government encourages sectors to consider the following in their scorecards:

>> Infrastructure support to suppliers and other enterprises in the same area or community

>> Labour-intensive production and construction methods, beneficiation and investment, support to enterprises operating in rural areas and the development of those areas that are the industries labour reserve (both urban and rural)

In order to promote the achievement of equality of women, as provided for in section 9(2) of the Constitution, a code of good practice issued in terms of the BEE legislation, may distinguish between black women.

4. Definition of categories of empowerment and related scorecard percentages

# Direct empowerment: Black persons must reflect BEE in an increase in ownership and control of assets and enterprises. Such ownership must involve genuine involvement in decision-making at board and, executive management and operations levels, and must include the assumption of risk.

# Control means: The right or the ability to direct or otherwise control the majority of the votes attaching to the shareholder’s issued shares. The right or ability to appoint or remove directors holding a majority of voting rights at meetings of the board of directors of that shareholder

# The right to control the management of that shareholder: Direct ownership or equity ownership (shares) has a weighting of 20 % on the ‘balanced scorecard’ Management i.e., the % of black persons in executive management has a weighting of 10% on the ‘balanced scorecard’

5. Weighting of the balanced scorecard

# Human resource development and employment equity: The weighting of human resource and employment equity is 10% on the ‘balanced scorecard’ Enterprises are required to comply with the provisions of the Employment Equity Act. The Act aims at bringing about an equitable representation of black persons in all occupations and at all levels of business organisation.

# Indirect empowerment: Preferential procurement carries a weighting of 20% on the ‘balanced scorecard’ Preferential procurement by both State and the private sector is aimed providing black enterprises with opportunities to expand their output.

# Enterprise development is the second component of indirect empowerment and takes two forms, Investment in black-owned and black-empowered enterprises and joint ventures with black-owned and black-empowered enterprises that result in substantial skills transfer Joint ventures may take the form of include outsourcing or jointly contracting for certain projects. Investment in black-owned and empowered enterprises carries a weighting of 10% in the balanced scorecard

# Equity Ownership: The indicator is % share of economic benefits and a weighting of 20% is given to this category

# Black Management: The indicator here is the % black person in executive management and/or executive board and board committees and a weighting of 10% for this category

# Enterprise development: The indicator for enterprise development is investment in black-owned and empowered enterprises as a proportion of total assets, and a weighting of 10%

# The residual carries a weighting of 10% for sector charters

6. Ranking enterprises using the scorecard

Using the scorecard as a guide, the government will rank and categorise enterprises for the purposes of preferential procurement, restructuring of state-owned enterprises, financing and other kinds of support.

>> A total score of 65% and above will be a good contributor to broad-based BEE

>> A total score of 40% to 64.9% will be a satisfactory contributor to broad-based BEE

>> A total score of below 40% will be seen as a limited contributor to broad-based BEE

Download the relevant BEE documentation: The BEE Bill, BEE Strategy Document, Code of Good Practice and Scorecard can be viewed online at http://www.workinfo.com/bee , along with various sector Charters, namely the Petroleum and Liquid Fuels Charter, Mining Charter, and Financial Institutions Charter, as well as the guidelines for the Information Technology Empowerment Charter.

7. Employment equity & skill development: some questions and considerations

Of particular interest for HR practitioners and line managers responsible for implementing skills development and employment equity is the so-called balanced scorecard, and more specifically the rating ascribed to "management" [10%], "employment equity" [10%] and "skills development" [20%]. The dual components of employment equity and skills development are categorised under the heading of human resource development.

The combined rating for "management" and employment equity" is a total of 20% while a further 20% is ascribed to skills development. The Scorecard in the BEE Code and the Strategy Document establishes skills development expenditure as a percentage of the total payroll as the indicator of skills development contribution for the purposes of the scorecard.

The Code has a very general definition of what constitutes human resource development. It refers to the transfer of skills generally and advanced professional skills in particular.

The "Balanced Scorecard" uses the EE Act and Skills Development Act as the method of measurement of "human resource development". In particular the indicator for Skills Development is skills development expenditure as a proportion of total payroll, while the indicator for employment equity compliance will be comprised of a basket of indicators, ranging from numerical targets, compliance with employment equity reporting requirements and affirmative action measures.

# SKILLS DEVELOPMENT MEASURES: The Skills Development Levies Act requires all employers to contribute 1% of the leviable amount. The leviable amount is defined in the Skills Development Act. The BEE Code refers to skills development expenditure as a proportion of total payroll. The Skills Development Act allows for the recovery of up to 50% of the leviable amount (being 1%), aside from any discretionary grants. Any expenditure over the leviable amount will not be recoverable.

The Business Map Foundation indicates that South African training expenditure is well below international norms. In South Africa the average spend on training is 2.7% of payroll. In countries such as Korea and the OECD region, training spend is on average 7% of payroll.

Q: Why the difference in terminology? Is the term "payroll" to be assigned the same meaning in terms of the Skills Development Act or will it be assigned the same meaning as "remuneration" as defined now in terms of the Basic Conditions of Employment Act regulation. This latter definition includes employer contributions to medical aid and retirement funds as well as other non-discretionary payments to employees such as 13th cheques or December bonuses.

The BEE legislation will hopefully see a significant imperative being given to training, at least in respect of those companies needing to comply with BEE. The question is whether the respective sector Charters will require this training spend to be focused on black persons only or will be allow for training initiatives generally.

>> The Financial Services Charter requires 1.5% of payroll spent p.a. on skills development of black employees; and a target of 4.5% of staff to be comprised of learnerships.

>> The Charter for the South African Petroleum and Liquid Fuels acknowledges the importance to be applied to HR Development (capacity building) but provides no further clarity in regard to Skills Development initiatives or Employment Equity targets.

>> The Socio-Economic Empowerment Charter for the South African Mining Industry merely sets out aspirational requirements for learnerships and does not clarify any further % spend on payroll, and merely cites literacy, mentoring initiatives and career pathing as vague criteria for HR Development initiatives. In fact, it avoids any reference to the measurement of Skills Devlopment initiatives.

# EMPLOYMENT EQUITY AND THE BEE CHARTERS: The Employment Equity Act require employers (designated employers ito the EEA) to implement affirmative action measures to ensure the promotion, development and equitable representation of people from designated groups. Designated groups in terms of this Act refer to Black persons (African, Indian and Coloured), Women and People with Disabilities. The BEE Code defines employment equity as "the equitable representation of black people in all occupations and at all levels of an enterprise. Where the EE Act purposively avoided the setting of actual numerical targets, the Sector BEE Charters now set specific numerical targets:-

>> The Financial Services Charter sets numerical targets for Black persons in Senior, Middle and Junior Management which are to be achieved within specified time periods (2008, and 2014). Of all the available Charters, the Financial Services Charter also recognises the prominence to be given to the employment or presence of black women by the BEE Code of Good Practice in management levels.

>> The Socio-Economic Empowerment Charter for the South African Mining Industry sets out vague aspirational targets of 40% black in management levels, and 10% women in the mining sector within a 5-year period. The stakeholders aspire to a baseline of 40 percent HDSA participation in management within 5-years; Ensuring higher levels of inclusiveness and advancement of women. The stakeholders aspire to a baseline of 10 percent of women participation in the mining industry within 5-years; These specific numerical targets which approximate quotas is a clear but necessary deviation from the EE Act.

8. Consultation

While the BEE legislation does not place any direct requirement for employee consultation, both the Employment Equity and Skills Development Acts place a premium on consultation in the establishment of employment equity plans and workplace skills plan.

The SDA regulations provide that it is important that employees are consulted about the person(s) to be designated as skills development facilitators, the workplace skills plan and the report on the implementation of the workplace skills plan. It is strongly recommended for organisations with more than 50 employees that a Skills Development Committee is established for the purposes of consultation on training matters.

The committee, as a whole, should reflect the interests of employees from all occupational categories in the organisation's workforce. All trades unions that represent 10 per cent or more of the workforce or represent a significant occupational group should be invited to take part in this committee. A trade union that represents 80 per cent or more of the workforce may be the sole representative. Indirectly therefore, employee consultation will remain a feature of the BEE legislation.

9. Conclusion

The Black Economic Empowerment legislation has acquired a life of its own, focusing on the twin pillars of economic empowerment and equality for black persons. It provides a new imperative to employment equity and skills development legislation, moving away from mere formal compliance with these Acts to establishing clear criteria which will need to be met.

We suggest that companies conduct an audit of their current employment equity and skills development efforts and evaluate such efforts against the Scorecard and sector Charters. This exercise, and resulting score should reveal the extent to which companies fall short of the measures required by Government and place companies in a position to formulate their human resource development strategy for the future.

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Gary Watkins

Gary Watkins

Managing Director


C: +27 (0)82 416 7712

T: +27 (0)10 035 4185 (Office)

F: +27 (0)86 689 7862

Website: www.workinfo.com
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