ONE of the greatest challenges facing small and medium-sized enterprises today with respect to empowerment is understanding what is expected — as well as understanding the benefits of compliance and the potential disadvantages of noncompliance.
The confusion is brought about by conflicting empowerment imperatives and a lack of overarching measurement frameworks. Many of these conflicting imperatives and evaluation criteria arose as a result of the lack of uniformity when determining what constitutes black economic empowerment contributions and the changing face of empowerment over the years.
Government and industry have not had the benefit of international best practice benchmarks as a basis for empowerment policies. Granted, there have been transformation initiatives in other countries, but none has enjoyed long-term, sustainable success. SA has been able to learn from international obstacles such as those Malaysia faced but has had no international blueprint for the successful implementation of empowerment. SA has had to learn from its own mistakes.
These include the collapse of a number of deals concluded in the late 1990s as part of the first wave of empowerment, in which black investors realised little or no value as a result of onerous funding structures.
This gave way to an emphasis on economic benefits flowing to black investors. This focus on equity participation — in deals concluded almost exclusively by a group of the same black men — led to an outcry against empowerment as a vehicle for the enrichment of a privileged few, and so the concept of broad-based ownership was introduced. That, too, will no doubt reveal its own flaws in time.
At the same time as these developments unfolded, industries began drafting charters as documents of intent, signalling their commitment.
Following the release of the trade and industry department’s strategy document on broad-based empowerment, which contained the first balanced scorecard, the face of industry charters began to change. Today, scorecards are critical components of charters, while the documents of intent often contain preambles, followed by detailed explanations of the application of the broad-based scorecard.
January last year saw the promulgation of the Black Economic Empowerment Act, as an enabling act paving the way for the codes of good practice. Although the first phase of the codes were released for public comment in December, the rest have yet to be seen.
The intention of the codes is to provide a standard for measuring broad-based empowerment, and to give guidance on the alignment of industry charters for the purposes of gazetting them as codes of good practice. Codes 300 onwards will provide guidelines measuring the empowerment contributions of small businesses.
Stemming from this history of independent charters in the absence of a complete framework, is confusion surrounding criteria for evaluating suppliers. At present, certain sectors evaluate suppliers according to narrow principles (ownership and management only) while themselves applying broad-based principles (ownership and management, employment equity, skills development, preferential procurement, enterprise development and corporate social investment).
Many small business owners without the requisite narrow-based empowerment credentials are therefore losing business, when in fact they may be able to prove contributions towards other broad-based elements.
But small businesses tendering for government contracts with departments applying the Preferential Procurement Policy Frameworks Act will lose out if they do not have black shareholding, since this act stipulates narrow-based evaluation.
A good starting point, then, would be for the small business to ascertain the basis of their customers’ evaluation. This refers not only to evaluation by narrow or broad-based principles, but also to any legislation, draft regulation or charter underpinning the measurement criteria being used.
The release of the second phase of the codes’ guidelines on small business, expected before year-end, will finally give small companies the knowledge to engage with their customers on their empowerment status.
Clow-Wilson is research and special projects manager at Empowerdex.