Highest BEE rating for firm with no black ownership
17 April 2009

A company with no black ownership or management control has achieved the highest rating under SA’s codes of good practice for broad-based black economic empowerment (BEE) simply by meeting other criteria under the empowerment laws.  Ocean Legacy Marine (OLM), a Port Elizabeth-based engineering company, is understood to be the first white-owned company with no black management to be awarded a level 1 rating under black economic empowerment laws.

Roger Latchman, MD of PKF BEE Solutions, which awarded OLM its rating, said yesterday that the company has scored highly in four of the seven categories it was assessed on.  Because it had a turnover of less than R35m, it was possible for OLM to achieve the high score without having to meet black ownership, black management, or employment equity criteria.

Latchman said businesses of that size were required to comply with only four of the seven scorecard categories on which empowerment is judged. “It may surprise people to know that smaller companies can achieve high ratings without black participation in ownership or management,” said Latchman. OLM achieved its top rating by scoring full points of 25 in each of the four categories it was judged on, namely: skills development, preferential procurement, enterprise development and socioeconomic development.

OLM’s MD, Kevin Gray, said: “I believe passionately in the importance of empowerment, and I think that from whichever angle you look at it — ethical, business or political — it was essential for the company to do this.”   Gray said OLM had large corporate clients, including Coca-Cola and SABMiller, which had insisted on it being empowerment rated properly.  “Although that’s not the only reason we wanted a level 1 rating, it certainly makes perfect business sense for us.”

Kevin Lester of empowerment consulting firm Mohlaleng warned that white-owned firms receiving top ratings with no black ownership would not be given full recognition by state-owned enterprises and the government.  These companies would have difficulty in winning lucrative government tenders.  “It is the government which implemented the BEE laws, yet state-owned enterprises will not do business with companies which do not have black management in place. They are treated like second-class citizens,” Lester said.  He said that under the codes of good practice, it was expensive and a burden for a company to meet criteria other than ownership and management control. “If a company has managed to get it together, it certainly didn’t come easy.”

Loyiso Majija, a director at empowerment verification agency Empowerlogic, said it was “unusual” for a small enterprise to achieve a level 1 rating without black ownership or management control.  “It can be achieved if a company is able to meet criteria other than that of ownership, but this would prove to be very challenging and not so easy to fulfil. “For instance, the company would have had to provide assistance to black-owned businesses by way of training or donations to charities,” she said.  Majija said that the codes were designed so that companies could select any four of the seven categories for measurement. However, ownership and management control were usually the least difficult to meet of all the elements, she said.

Latchman said most white-owned businesses feared empowerment was about ownership and management control. “They’ve got the wrong end of the stick.” Lester explained that the empowerment scorecards were determined by the codes of good practice.  Qualifying small enterprises with turnover of R5m-R35m had to select any four of the seven scorecard measurement elements. If they did not, the best four were chosen by default. The seven elements are ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socioeconomic considerations.

Latchman said that a company with an annual turnover of less than R35m should spend an amount equal to 2% of its total payroll on training its black staff. This would earn it full 25 points for skills development, which OLM did. “We checked the empowerment ratings of all the company’s suppliers. Full points were awarded because the company had sourced at least 50% of the total value of their supplies and services from organisations which were BEE-compliant,” Latchman said.

Enterprise development involved providing assistance to majority black-owned businesses. This could take the form of grants, training, mentoring, or even assisting the business to become a supplier to the company providing the assistance. Socioeconomic development involved assistance to charities and nongovernmental organisations (NGOs) as long as 75% of the beneficiaries were qualifying black people. In both of these categories, OLM scored full points because it was actively involved with the local community. Latchman said that OLM helped a black-owned company with a grant, and the financial manager assisted the company with its accounts.

He said that OLM was involved in a number of socioeconomic projects, which included assisting an NGO in its community outreach programme involving alternative transport methods, which was approved by the government. The company also assisted a rugby club by providing them with their entire kit.

Sanchia Temkin, www.businessday.co.za