Redressing historical wrongs: Laws that confer advantages to black-empowered enterprises

Since 1994, the South African economy has been profoundly transformed and consistent economic growth has been recorded. Despite these successes, the government recognised that as long as the economy continued to be characterised by strong gender or racial inequalities, South Africa would be socially and politically unstable. Thus, the government set about to adopt meaningful strategies and policies that would include the participation of the majority of South Africans in its economy. One such strategy is Black Economic Empowerment (BEE), which was formalised on April 21, 2004, when the Broad-Based Black Economic Empowerment Act (B-BBEE Act) came into effect.

IMPLEMENTATION: The B-BBEE Act is an enabling framework that allows the government to implement detailed BEE policies and to provide a standard framework for the measurement of BEE across all sectors of the economy. More specifically, the B-BBEE Act requires that organs of the state and public entities must take into account an entity’s BEE status when determining qualification for licences and concessions; developing and implementing a preferential procurement policy; determining qualification criteria for the sale of state-owned enterprises; and developing criteria for entering into partnerships with the private sector.

SCORECARD: The B-BBEE Act also allows for the development of Codes of Good Practice (the Codes). Published in February 2007, the Codes provide a standard framework in the form of a “generic scorecard” for the measurement of B-BBEE across all sectors of the economy. The scorecard contains an overall score of 100 points, and is made up of seven elements, namely, ownership, management control, employment equity, preferential procurement, skills development, enterprise development and socio-economic development initiatives. Each element contains targets. For example, a company wishing to maximise its ownership score would have to have 25% of its equity owned by black people.

The Codes provide some flexibility for foreign multinationals with international headquarters outside of South Africa. If those multinationals, as a matter of global policy, restrict the sale of equity in their regional operations, the Codes make provision for the recognition of an equity equivalent in the place of black shareholding in the multinational’s South African operations. Those equity equivalents could take the form of enterprise creation for black people or economic development programmes, provided that those programmes have been approved by government.

NON-ADHERENCE CONSEQUENCES: As appears from the above analysis, if a company is reliant on business conducted with, inter alia, government or state-owned entities or with companies that conduct business with government or state-owned entities, they would be required to adhere to BEE principles. Failure to do so is likely to result in the loss of those types of customers. There are also likely to be consequences for businesses operating in regulated sectors, such as gaming, mining and telecommunications. Firms operating in these sectors are generally bound by licence conditions, which may require minimum BEE compliance. Non-compliance may result in a breach of the licence and, ultimately, revocation of the licence.

For companies other than those described above, adherence to BEE principles may be described as voluntary and is ultimately dependent on the extent to which those firms are reliant on public perception, and, being perceived as good corporate citizens. In December 2011 the government published an amendment bill to the B-BBEE Act for public comment. The bill appears to be a move to regulate BEE in a more rigid manner by the setting up of a regulator to be called the BEE Commission and regulating agencies that independently audit and verify the BEE credentials of companies. The bill proposes that the misrepresentation of BEE or actions that undermine the objective of the B-BBEE Act (so-called “fronting”) is criminalised, and parties found guilty could face imprisonment, fines, having contracts or licences cancelled and/or being banned from contracting with the government in future.