BBBEE policy: are we focusing on the wrong things?

Now in its third year, 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.

Here, Andile Khumalo, co-founder of the Sanlam Transformation Gauge and CEO of KhumaloCo, reflects on the results of the 2023 report:

Having been part of the team that launched and developed the Sanlam Transformation Gauge over the past three years, I have seen just how complex the world of measuring something as sensitive as BEE can be.

I always thought I was adequately learned about BBBEE and the issues that dominate the policy, but the more I dug, the more I realised that these are much bigger and inevitably more emotive than I had initially thought.

The amount of feedback I have received has mirrored this policy’s importance and its relevance to the prospects of our nation. However, the responses have also shown me that we may be missing a trick here. We may be focusing our attention on the wrong things. We may be spending lots of energy having the wrong debate.

The overwhelming response to this year’s Sanlam Transformation Gauge report has centred on the question of whether BBBEE policy should continue to exist.

Few topics are as polarising as BBBEE is in SA — everyone has a different opinion on its impact, how it ought to be implemented, and its relevance.

Let us consider what the data tells us. 

Over the past three years, the Sanlam Transformation Gauge report tells us that all BBBEE sector codes, including the generic codes, have failed to meet any of their target elements other than for socioeconomic development. 

Furthermore, many of these targets do not even reflect the demographics of the country, yet remain unattained. Consider the black ownership targets of 25% or black senior management targets of 60% in a country where black people make up more than 80% of the population, according to figures from Stats SA. 

More than half of the BBBEE verification agencies that responded to a Sanlam Transformation Gauge survey attributed racism as the main reason behind resistance by corporate SA to appoint black people to management positions.

It is possible that this lived experience of a resistance to transformation by captains of industry is what drives many to increasingly call for more stringent punitive measures for companies that fail to meet BBBEE targets, including fines and possibly jail time.

Unfortunately, a “more stick, less carrot” approach may not be the magic wand required. Compliance does not always drive impact.

Take enterprise and supplier development (ESD), for instance. 

The prospect of being included in the supply chain of major JSE-listed and multinational corporations has given a glimmer of hope to many small- and medium-sized entrepreneurs. However, these hopes have been dashed by the many companies that still prefer to procure from legacy suppliers.

In measuring compliance for ESD, BBBEE points on the generic scorecard are awarded on the basis of the percentage of net profit after tax. In other words, if a company makes a profit of R100m in a year and spends R3m on activities that qualify as ESD, in terms of the relevant sector or generic codes it earns full points on this element. So, compliance is based on an input called spend. There is no need to assess the impact of any of the ESD initiatives to earn full points. 

This could be the reason companies score the points, but the impact is not felt by the broader target beneficiaries.

This is only one element of the five in the generic scorecard. There are equally complex issues with ownership, management control and skills development.

I am therefore in agreement with Sanlam chair Elias Masilela, who cautions us not to “throw the baby out with the bath water”. That is exactly what those opposed to economic justice want to see.

On the contrary, we need to be sober in our assessment and be guided by empirical evidence and well thought-out solutions that are practical in implementation and impactful in outcome. 

Read the full 2023 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.

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

This article was sponsored by Sanlam.