THERE are two schools of thought when it comes to black economic empowerment (BEE).

The first might be called the theorist approach. This approach contemplates the total concept of empowerment and proposes solutions that will have the greatest positive effect on SA, its economy and people.

The second is best described as the pragmatist approach. The pragmatist identifies the touch points of empowerment on which his clients are placing the greatest emphasis and works on those aspects exclusively.

In BEE language, the theorist approach is known as broad-based BEE; and the pragmatist approach is known as narrow-based BEE.

The theorists are hoping that their approach will become the pragmatist methodology. Prominent theorists include the trade and industry department. They are, however, up against the rest of the government, state-owned enterprises and most large corporations who are ensuring that the pragmatists continue thwarting the department’s efforts.

Narrow-based BEE concentrates on ownership and control of an organisation. Decisions regarding whether a supplier will be chosen are made on these criteria. In order to continue operating, the pragmatist would start making urgent plans to incorporate black ownership into his organisation. The chances are they will consider a variety of options in solving this problem. Some of these options include:

Fronting. Misrepresenting the ownership and management of a firm is easy. The more the controls on this practice are tightened up, the more devious the fronting becomes. The problem here is that a name on a shareholders’ register is no guarantee that that person benefits from his or her shareholding. Fronting also creates the mistaken impression that there are enough black-owned firms to service the economy. This reality is still a way away; apartheid ensured that black entrepreneurship was stifled in every possible way;

Bring in the same wealthy black people. These people have cash and they have clout. There is a problem though; they are inundated with so many investment opportunities that they will probably not show much interest in any old business;

Look internally for a shareholder. This usually takes a bit of time. Narrow-based BEE wants to see a shareholding immediately so the pragmatist had better do something radical and do it in such a way that it is not fronting.

The pragmatist has probably opted for either alternative one or two, but at what cost? The purchasing organisation is now well on its way to achieving its procurement target on paper, but the reality is probably quite different.

The theorist would frown upon this. BEE was designed to have the greatest impact on the majority of the population; narrow-based evaluation criteria are not likely to have an impact on the poorest of the poor.

They would also shake their heads at the idea that a white-owned firm that is incapable of finding a black partner but who has a business that employs many black people, will not even get a look-see at doing business with companies that focus on narrow-based BEE.

Perhaps the theorists would find themselves most confused at the fact that the Broad Based BEE Act lists criteria such as the economic empowerment of all black people, including women, youth, people with disabilities and people living in rural areas, through strategies that include:

Increasing the number of black people that manage, own and control enterprises and productive assets;

Facilitating ownership and management of enterprises by communities, workers, co-operatives and other collective enterprises;

Skills development;

Achieving equitable representation in all occupational categories and levels in the workforce;

Preferential procurement; and

Investment in enterprises that are owned or managed by black people.

The theorists would then wonder why the last four categories are ignored in the definition of empowerment, and may speculate when these companies are going to broaden their definition of empowered companies to take the BEE act into account.

There does seem to be a mixed message from these companies. The fact that they are checking up on their BEE status implies that they are aware of at least one element of BEE, namely preferential procurement.

What comes as the greatest surprise to the theorist is that they only require each supplier to submit a maximum of 30 points on the scorecard (20 points for ownership and 10 for executive management). This will not bode well for companies’ scorecards in the long term because a score of 30 or less does not earn them any preferential procurement points.

Theorists have suggestions that can help these firms.

The first suggestion must be that they insist on a scorecard from each supplier. This will have two positive results: firstly their suppliers will be forced to develop a broad-based BEE profile; and secondly the company can be assured that there will be enough suppliers in every field (for now). They need not worry that black suppliers will be marginalised by other BEE suppliers as the codes favour black-owned and managed suppliers.

The second suggestion would be to provide each supplier (irrespective of racial profile) with a list of potential suppliers to mentor and subcontract in their delivery. The supplier could then claim this as part of their own enterprise development scorecard.

The third suggestion is to create a facility for each supplier to provide some type of contribution to a social fund or cause that the purchasing firm champions. Almost every firm in SA would like to make a contribution to a cause, but often battle to identify suitable recipients. The company could provide projects or funds that each supplier could get involved in.

If these and other broad-based ideas are implemented, we will see the pragmatists follow suit quite quickly.

While the practice of selecting suppliers along narrow-based criteria continues, the chasm between theorists and pragmatist widens, with the people that broad-based BEE is intended to benefit being the losers.

Janisch is CEO of BEE transformation consultancy Caird Consulting.