Sanlam Transformation Gauge survey reveals a mismatch between BBBEE scorecards and reality

Nearly 30 years since the dawn of democracy and more than 20 years after broad-based BEE (BBBEE) targets were introduced, the rate of transformation remains slow, according to the findings of the 2023 Sanlam Transformation Gauge report.

The annual Sanlam Transformation Gauge, presented in partnership with the Sunday Times Business Times, is the only consolidated, sector-focused research report to take a holistic measurement of economic transformation in SA, accounting for all elements of BBBEE.

In addition to providing a clear and accurate picture of the state of BBBEE and transformation in SA, the independent research carried out by Intellidex aims to ignite meaningful dialogue, shape policies and inspire actions that foster a more inclusive and prosperous future for all South Africans. 

“In SA, it is widely accepted that our challenges can be summarised in the triple challenges of poverty, inequality and unemployment, all of which can be resolved through the effective implementation BBBEE policy,” said Andile Khumalo, co-founder of the Sanlam Transformation Gauge report.

The research is based on the BBBEE scores of 14,542 companies across 10 sectors of the BBBEE classifications system:

• Agri-BEE;
• Construction;
• Financial;
• Forestry;
• Information and communications technology (ICT);
• Integrated transport;
• Marketing, advertising and communication (MAC);
• Property;
• Tourism; and
• Generic, which includes all other sectors that do not have a gazetted BBBEE sector code, such as mining, manufacturing, wholesale and retail. 

The findings from this year's report were unpacked at the recent Sanlam Transformation Gauge Conference: watch the recording of this event below.

Lerato Ratsoma, MD of Empowerdex, revealed that overall, SA Inc’s efforts at transformation have improved, albeit slowly. Overall, total scores improved to just above the level 3 threshold with a slight increase in black ownership from 75% of target in 2022 to 80.81%. Management control — traditionally a problem area — improved from 56% of target last year to just over 69% in 2023. 

Despite an expectation that enterprise supplier development (ESD) scores overall would see an uptick in 2023, this score has remained at a relatively low average of 75% of target. ESD is made up of procurement, enterprise development and supplier development. “Most companies get full points for enterprise and supplier development, but struggle with the procurement aspect because there are not always enough black suppliers to procure from,” said Ratsoma.

The ESD pillar is regarded as one aspect of the BBBEE framework that could make a significant difference to SA’s economic trajectory if it was practised in the way that it was originally envisaged, to develop small and medium black-owned enterprises. Unfortunately, however, procurement practices have been subverted by corruption and the impact has been disappointing, according to the 2023 report. 

Newly appointed BBBEE commissioner Tshediso Matona, said when the BBBEE act came into effect, there may have been a naive belief that everyone would comply with the codes and act in good faith. It was not expected that people would want to “game the system” or that there would be “fronting and misrepresentation of BBBEE credentials”. 

Transformation not as advanced as BBEEE scorecards suggest

This 2023 report included the findings of a Sanlam Transformation Gauge survey conducted among 42 BBBEE verification agencies.

Though scores improved across the scorecard this year, except for socioeconomic development which remains well above target, the main theme emanating from the verification agency survey was that transformation is not as advanced as the scorecards suggest.

More than half of verification agencies said management’s poor score was due to “resistance by corporate SA to seeing black people in leadership positions”. 

BBBEE participation is ostensibly still voluntary, even though it is legislated. However, in response to the slow pace of transformation, the government is pushing through a raft of legislation that attempts to enforce compliance in various ways.

Matona believes there is a need to recalibrate the balance between incentives and penalties to improve compliance with BBBEE codes and targets given that businesses won’t be incentivised to ramp up their transformation efforts unless it has a measurable impact on their bottom line. 

There has long been an assumption that listed companies, which are required to submit their BBBEE compliance reports to the BBBEE commissioner, will have better results than unlisted companies. However, the 2023 Sanlam Transformation Gauge report found listed companies in the majority of sectors underperformed compared to their unlisted companies, in some sectors by a large margin.

“While there is no apparent reason for this disparity, one possibility is that the balance sheets in the listed space are much larger than in the unlisted space, which in turn begs the question of how businesses are being funded,” said Sanlam chair Elias Masilela.

Words need to be turned into action

Previous Sanlam Transformation Gauge reports have highlighted BBBEE policy’s reliance on measuring inputs as opposed to outputs. In other words, it measures what a company spends on skills development, as one example, but does not measure the effectiveness of the skills training.

In the absence of embedded monitoring and measurement mechanisms, it’s impossible to determine if the intended outcomes and impact are being achieved or not. This continues to be the case in 2023 with Matona conceding that these shortcomings are valid concerns. The unintended consequence of not measuring impact is that “these matters become relegated to a tick box exercise”, he said. 

This year's Sanlam Transformation Gauge Conference included a panel discussion on the “lived experience of BBBEE” vs the research findings. Panellists included Tabea Kabinde, chair of the Commission of Employment Equity, transformation consultant Litha Kutta , co-chair of the Enterprise & Supplier Development Community of Practice; Nozizwe Vundla, head of the Sanlam Foundation, Mamkeli Jim, a dealmaker in leveraged finance at RMB, and Disa Mpande, acting CEO at merSETA. They all agreed that the thinking regarding BBBEE needs to be reframed and more needs to be done to enable meaningful change. 

Other panel discussions at the event echoed a consistent theme: to enable real transformation, words need to be turned into action — with more opportunities for collaboration to be uncovered.

“Collaboration is a key enabler in addressing some of the critical social ills that are facing our country,” says Ray-Ann Sedres, chief transformation officer at Sanlam. “We need to instil hope in our youth by working together to create more equitable opportunities to become economically active, thriving members of society.”

Read the full Sanlam Transformation Gauge report

Use the arrows to page through the report below (zoom in or go full screen for ease of reading) or download it.

This article was sponsored by Sanlam.