CONSIDER a scenario where Company X has R40 000 (2% of earnings before tax, depreciation and amortisation) to spend in order to get its full 20 enterprise development points and R30 000 (2% of net profit after tax) to spend in order to get its 20 residual (social investment) points.

Comprehensively planned and effectively implemented, this could translate into 40 points on Company X’s black economic empowerment (BEE) scorecard, resulting in it being at least a level 8 BEE contributor.

Add to this, relevant skills development initiatives, employment equity processes and a focus on preferential procurement, for example, and Company X could be working its way up to being a level four contributor in no time. Although Company X’s compliance level is 100%, what it really means is that it is effectively working towards real economic transformation in SA.

The key to this transformation success however, lies in the words “comprehensively planning” and “effectively implementing” BEE strategies. Achieving this often involves seeking expert advice or outsourcing the interventions to specialists.

However, my experience in the social investment and enterprise development area shows that often, businesses just give their money away without seeking advice, examining the options or consciously thinking about the change their investments could bring about.

No wonder that despite millions spent on transformation, things rarely seem to improve.

A stumbling block that my previous piece alluded to was the challenge facing small to medium sized businesses where their social investment and/or enterprise development contributions are considered too “small” to justify engaging a specialist.

Company X, for example, is unlikely to feel that contributions of R40000 and R30000 warrant the additional costs of bringing in expertise or outsourcing the interventions; yet the company is equally unlikely to have the relevant expertise and experience in-house to plan and execute a sustainable strategy.

A portfolio trust fund is one way of overcoming this challenge as it is able to act as an independent, yet expertly managed, vehicle through which businesses can channel their social investment and enterprise development contributions to relevant, qualifying beneficiaries.

Globally, examples of social funds are few and far between. The Brazil Stock Exchange has launched the Social Stock Exchange that raises funds for 30 education non-profit organisations. Through the social stock exchange, the Brazilian bourse hopes to create a suitable environment for charitable investment by stimulating philanthropy and improving prospects for the disadvantaged in Brazil.

Germany boasts the Global Exchange for Social Investment which encourages donors and social investors to participate in endeavours that generate social, ecological and economic benefits in poverty areas where access to development capital is difficult.

Much like its Brazilian counterpart, the German vehicle administers the “stock” or portfolio of beneficiary organisations, monitors the work and duly reports on progress and impact.

The role of the fund’s administrator is vital as this will make the difference between a group of relevant, transparent, accountable beneficiary organisations and a group of irrelevant organisations that misspend the funds, leaving a bad taste all round.

The administrator is responsible for sourcing the beneficiary organisations; conducting a due diligence or verification on each one to obtain an indication of their strengths and weaknesses; monitoring the progress of each organisation towards creating change; and gathering evidence on the work done for reporting and verification purposes.

The accompanying diagram shows the relationships between the fund, the donors, the beneficiaries and the administrator and the different roles they play.

The power of cumulative funds combined with specialist input and monitoring characteristic of an administrator translates into outcomes that are much more likely to be tangible, and will more effectively meet the overall objectives of BEE.

Marr is director of Social Advantage, a BEE consultancy that focuses on enterprise development and corporate social investment.