From charity to BBBEE beneficiary

A workshop by Transcend held in Johannesburg on 4 May 2015

Trialogue has seen phenomenal growth in corporate social investment (CSI) in the last decade, with research indicating three main reasons: moral imperative, reputation and the Department of Trade and Industry’s (DTI’s) Broad-based Black Economic Empowerment (BBBEE) codes. CSI is entrenched in the codes as they compel companies to invest 1% of Net Profit After Tax (NPAT) in socio-economic development (SED) initiatives. The recent revision to the BBBEE codes create new opportunities for NGOs to seek support, especially in the skills development space.

Why BBBEE?

Research by Gapminder shows strong correlation between income and life expectancy. The higher a country’s average household income per annum, the longer the population is expected to live. However, in South Africa this does not ring true due to the GINI co-efficient – a tool that measures the gap between the rich and the poor. South Africa has the biggest gap in the world. BBBEE is a tool to narrow this gap. BBBEE is thus all about transformation.

What is government trying to achieve?

South Africa faces nine particular challenges as outlined in the National Development Plan:
1. Too few people work
2. Poor Education
3. Infrastructure is under-maintained and insufficient
4. Spatial patterns drive inequality
5. Economy is overly resource intensive
6. Failing public health system
7. Corruption
8. Poor public services
9. Divided society.

With this in mind, BBBEE is intended to be “an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the number of black people that manage, own and control the country’s economy, as well as significant decrease in economic inequalities.” South Africa’s Economic Transformation: A strategy for Broad-Based Black Economic Empowerment (www.dti.gov.za)

Revised Codes of Good Practice (RCoGP): what’s changed?

Government has revised the BBBEE codes to increase focus on ownership, skills development and enterprise and supplier development, particularly in smaller businesses. There are now five pillars (as opposed to the previous seven) and points allocated for SED are significantly lower than the other pillars. NPOs need to show corporates how they can positively impact their BBBEE scores beyond just SED.

Pillar 1: Ownership (25 points)

NPOs are considered to be black-owned entities if at least 75% of their beneficiaries are black. On the back of that, the black ownership profile of companies can be enhanced if NPOs are made to be shareholders and funding is received by way of dividends. Documentation to verify how those dividends are being used to benefit black beneficiaries will be required. It’s best to work with a BBBEE consultant to achieve this.

Pillar 2: Management control (19 points)

NPOs can’t access donations for management control but need to understand and apply it to manage their own BBBEE scorecards (to the extent such scorecards are required). Points are allocated at various weightings according to the number of black and/or black female executives appointed to the board, executive management, senior management, middle management and junior management. Additional points are allocated for providing employment for the disabled.

Pillar 3: Skills development (20 points)

There is a shift in the RCoGP for companies to include non-employees in their skills development plans. A high target of 6% of payroll needs to be spent on training in order to achieve maximum points for skills spend. Companies may struggle to spend this on their own employees so NPOs can offer another avenue for spending on the development of black people who are not employees of the company and for learnerships, internship or apprentiship programmes with the company. Note should be taken of the distinction between formal and informal training and the mix of black people (Africans, Coloured and Indians) benefitting from the training. Ratios need to be in accordance with South Africa’s national and provincial economically active population figures.

Pillar 4: Enterprise and supplier development (40 points)

What was previously just enterprise development (ED) has been split into enterprise development (5 points) and supplier development (SD) (10 points) in the RCoGP. The aim is encourage the development of black-owned small businesses and their access to market. NPOs can’t benefit directly since they are not businesses, but they can act as a conduit by facilitating enterprise development and supplier development initiatives for a company. Management fees can be charged for this facilitation service and in addition, NPOs can set up small black-owned business units within their operations for companies to fund. For example, the ASHA foundation created a catering business to cook for their crèches to secure ED funding – the remaining 25 points of this pillar is in respect of preferential procurement.

Pillar 5: Socio-economic development (5 points)

As per the previous codes, the points are gained when a company spends 1% of NPAT on SED initiatives. SED differs slightly from CSI in that CSI is about being a good corporate citizen and could include conservation and environmental affairs. SED, as referred to in the codes, is about helping people gain sustainable access to the economy. So for example, a feeding scheme would be considered CSI and not SED.

Case study: The Maharishi Institute

The Maharishi Institute is an NPO that gets marginalised matriculants into university and then jobs by providing bridging programmes, finance and work experience. They aim to train and develop 100 000 future leaders for South Africa. BBBEE offers the best opportunity for NPOs to grow their work. The Maharishi Institute did this by:

  • Growing the principle of shared value. Companies that have government as clients are putting pressure on other companies to improve their BEE scorecards.
  • Setting up a BEE trust that owns a percentage of a number of companies. This ensures income (through ownership) for the education of black youth.
  • Starting small businesses to create jobs and foster entrepreneurship. The institute’s student beneficiaries work for these businesses while they are studying and this serves as enterprise development. These small businesses, such as call centres, serve a host of companies who score further points for supplier development.
  • Skills development funding is sought from large companies who now have to spend 6% of payroll on developing black talent (not necessarily employees).

Further reading

  • From charity to BBBEE beneficiary – a NPOs guide
  • Transcend’s PowerPoint presentation: BBBEE workshop (May 2015)

Available on request from Transcend Corporate Advisers, telephone (011) 442 2433.

2017-12-04T18:38:35+00:00 June 12th, 2015|CSI|