Trade and Industry Minister Dr Rob Davies has defended the new codes for Broad-based Black Economic Empowerment (BBBEEE), but has also moved swiftly to deal with the fallout arising from the controversial last-minute decision to downgrade recognition for broad-based ownership schemes and employee share ownership programmes (Esops) in the new scorecard.

He announced on Friday that a technical task team would be set up to "explore the appropriate balance between active (direct) and passive (broad-based schemes) ownership". The task team would deliver its recommendations within 30 days.

Under the previous codes, companies could earn 12 points under the 25-point ownership element of the scorecard for such schemes. But in a recently released notice of clarification of the new revised BBBEE codes, the Department of Trade and Industry (DTI) updated the scoring criteria in a way that effectively limited recognition to only three bonus points.

The shock move has been widely criticised by business, BBBEE verification agencies as well as some trade unions, with the National Union of Mineworkers describing the notice as “regressive”.

Steel and Engineering Industries Federation of Southern Africa CEO Kaizer Nyatsumba added his voice to the criticism. He told Engineering News Online that the move was unsettling, particularly given that inclusion of employees and communities in ownership structures was seen as a way of broadening the benefits of empowerment beyond a few “politically-connected individuals”.

“Government's new position has come as a big surprise. BEE has a bad name among the previously disadvantaged precisely because in its early years it tended to benefit powerful, politically-connected individuals. A BEE dispensation that benefits a bigger community that includes companies’ employees is far more preferable," Nyatsumba said.

Speaking at the release of the seventh iteration of the Industrial Policy Action Plan, Davies indicated that the “cap” had been put in place in an effort to prevent what the DTI saw as the abuse of the Esop arrangement, whereby firms created “general passive trusts” that had no impact on the running of the business.

“But we learn as we go,” Davies added. “We can engage, and if there’s a need, we can look again. I don’t think there is a problem with that.”

However, director-general Lionel October stressed that it would be incorrect to perceive the change as an attempt to limit Esops in favour individual BEE investors.

“It’s not an either-or situation. What we are attempting to do is to cap the amount of points for Esops, but we want both to happen. You need broad-based ownership, which is obviously passive by its very nature, but you must also bring on board black entrepreneurs  . . . as active shareholders that build real value in the businesses,” October outlined.

“[But] we are open on the question of the allocation [of scores] between the different players,” he added.

The DTI also stressed that the codes notice would not have a retrospective effect. "This means that all BBBEE deals concluded prior to May 1, 2015, will not be affected. These deals will have a full recognition under Code Series 100."

The Minister, nevertheless, defended the overall changes made to the architecture of the codes, arguing that the intention was to incentivise the “real involvement of black people in the economy”, rather than the creation of “passive” black shareholders.

He argued that previous share transactions had often created shareholders that didn’t participate in the operations of a company. “They weren’t involved in the core business . . . and we think that that is not really what empowerment is about.”

SUPPLIER DEVELOPMENT

The aim of the new codes was to encourage companies to focus more heavily on supplier and skills development, with a failure to meet “subminimum” thresholds in these areas likely to result in a downgrading in a company’s overall BBBEE rating.

“If it means that somebody was scoring high on the old codes and they go down on the new codes, well we would expect that. We want it to be an incentive to you to try to change your behaviour.

“If you were going to just fill out the form differently and end up with the same result, what’s the point? We want it to be a tool of encouraging people to change behaviour in a way that we think is good for empowerment, but also good for the manufacturing economy,” Davies outlined.

The DTI also saw the revamped codes as core to its aspiration to create black industrialists.

“You can’t become a general industrialist,” Davies averred. “You need to become somebody who knows the industry you are involved in, who has some technological grasp, who is in touch with developments and who’s got a passion for it – those are successful industrialists.”

The change to the codes, together with a proposed R1-billion Black Industrialists Development Programme, were held up as tools for incentivising supplier development and for facilitating a “symbiotic relationship” between big and small companies.