#4 Summer 2015

Back to BEE basics

Businessman, presidential advisor and chair of the GSB Advisory Board, Sandile Zungu is on a mission to find the lost heart of Black Economic Empowerment.

Amendments to Broad-Based Black Economic Empowerment (B-BBEE) legislation, which came into effect this May, have continued to generate heated debate.

One man – Sandile Zungu – is as close to the issues as it is possible to be, having provided advice to presidents around these codes for more than a decade. His recommendations have had a lot to do with the leadership and legislation that drives economic transformation in the country. Now Zungu wants people to embrace the spirit of BEE – which is where he believes its success ultimately lies.

“In 1994 there was a sense that anything could happen; everything was possible for our country and its people. Personal fears and resentments were put aside for the common good. We need to get back to that way of thinking,” he says.

Zungu’s appeal comes after criticism of the two biggest changes to B-BBEE legislation: criminalising circumvention of the act, and a focus on direct black ownership and control of companies that is far less compromising than previous legislation.

Fronting – which is circumventing or attempting to circumvent the act and its codes – has now been recognised and criminalised. Zungu says the way many companies and individuals were treating this legislation made it necessary to bring in these harsher measures.

“Things got really bad. Flouting the B-BBEE Act has evolved from using a housekeeper as the director of a company to lawyers and corporate advisors creating elaborate schemes to get the benefits from the act without doing anything for transformation,” he says.

Economic commentators have suggested that by tightening legislation to make noncompliance with the act more difficult for those who have slipped through loopholes in the past, companies will simply find more convoluted ways to achieve B-BBEE requirements. The prediction is that only the odd person will really comply, which could be the start of a vicious cycle with government creating even tighter legislation in future.

“But the legislation was never meant to be the end. It was meant as only the means to an end,” counters Zungu. “The legislation, including the latest amendments, is not perfect; but it is well intentioned. At the moment, some use the codes to tick boxes when we need to move beyond tools – we need to touch the moral heart of the nation. We need to shake up and inspire a generation of shapers who have taken Mandela’s legacy and transformed it into the nuts and bolts that build up our society and hold us together.”

With an MBA from the GSB and a Global Leadership Certificate from Harvard, Zungu is the founder and executive chairman of Zungu Investments Company (Pty) Ltd (Zico), an investment group with a diversified portfolio of interests in manufacturing and services. He is the chairman of EOH Holdings and nonexecutive director of Grindrod Limited and Novus Holdings, all listed on the JSE Securities Exchange. He serves as a member of the BRICS Business Council, Vice President of the Black Business Council and has been re-appointed to the Presidential Black Economic Empowerment Advisory Council. He is also a council member of UCT and was recently elected as the new chair of the GSB Board of Advisors, a role that allows him to “reflect soulfully on my accomplishments and mentor and coach others in the same way that I have been supported”.

Zungu is quick to point out that he would have achieved little without the continuous aid and support of those around him, and remains unapologetic about the other main change to B-BBEE legislation – a focus on direct black ownership and control of companies.

Amendments now mean that listed entities are still able to count indirect ownership in their tally of black ownership, but smaller companies will need direct black ownership. In the past, despite being entirely white-owned, a company could achieve good BEE levels by doing well in areas like employment equity or socio-economic development. Categories for compliance have now been reduced from seven to five, three of which are priority elements that must be complied with. One of these is a minimum 10% black shareholding with a weighting of 40%. Failure to comply with the ownership element will result in being discounted on a broad-based black economic empowerment level.

In order to fast-track the new focus of B-BBEE legislation around direct black ownership of companies, the government has created the Black Industrialists Programme (BIP) as part of its strategy to transform the economy. BIP, which has identified black industrialists as vital protagonists for black economic empowerment, job creation, enterprise and industrial development, has been adopted as a flagship programme by the Black Business Council.

“The intention is to establish people involved in the production side of the economy. Not just those who own shares on the JSE, but individuals who will contribute to the actual growth of the economy. Ultimately, the aim is to have thousands of our people heading up South African companies that can substitute imports with locally produced goods,” Zungu says.

At present, black-controlled companies make up just 3% of the stock exchange and Zungu says lack of progress in deracialising South Africa’s economy has necessitated the creation of programmes like BIP and the tightening of B-BBEE legislation, but cautions that legislation alone will never be enough to bring about true transformation.

“BEE should never be about dodging the system, but embracing the spirit of black economic empowerment and the benefits it brings to our nation as a whole. So we need to go back to basics. We need a return to the softer side of who we are and what we hope to accomplish; it is this that should underpin legislation. We must invest in poverty dialogue and rally the mass media around transformation. There is a lot that is happening that is good, but too many people no longer feel part of the dialogue. We cannot achieve black economic empowerment and transformation when people believe that they exist on the fringes. Unless companies embrace the true spirit of transformation, BEE has a very long and difficult road ahead,” he says.

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