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The Code of Good Practice on Black Economic Empowerment

The Code of Good Practice on Black Economic Empowerment. STRUCTURE OF THE CODE OF GOOD PRACTICE. AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT. STRUCTURE OF THE CODE OF GOOD PRACTICE. CODE 000: IMPLEMENTATION FRAMEWORK. CODE 100: EQUITY OWNERSHIP.

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The Code of Good Practice on Black Economic Empowerment

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  1. The Code of Good Practice onBlack Economic Empowerment 1

  2. STRUCTURE OF THE CODE OF GOOD PRACTICE AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT STRUCTURE OF THE CODE OF GOOD PRACTICE CODE 000: IMPLEMENTATION FRAMEWORK CODE 100: EQUITY OWNERSHIP CODE 200: MANAGEMENT 2

  3. Progress on the B-BBEE Process Current Achievements: • BBBEE Act provides an enabling framework • The BBBEE Strategy stipulates the BEE intents and principles of Government • Massive increase in BEE across all sectors of the economy • BEE is recognized as a business imperative and deals are more broad-based than previously • BEE Charters in strategic sectors (Mining, FSC, ICT, Tourism, Liquor, Agriculture, Transport, Health) 3

  4. Concerns and Risks around the B-BBEE Process • Lack of full understanding and appreciation of the principles of broad-based BEE • Inconsistent application of BEE • Extensive debates could result in delays – biggest risk is slow or no progress on BEE • Disparity in Charter Definitions and Targets • Lack of Implementation Guidelines can result in ‘Fronting’ or ‘Sham’ transactions promoted 4

  5. Code of Good Practice as the BEE Implementation Framework Broad-based BEE Act No. 53 of 2003 Legislative Enabling Framework Broad-based BEE Strategy Strategic Framework Codes of Good Practice Implementation Framework and Guidelines Generic or Sector-specific BEE Scorecards Interpret BEE Definitions Set BEE Indicators, Weightings and Targets Guidelines to draw up BEE charters Guidelines to maintain Institutional Framework (BEE Council /Accreditation Agencies) 5

  6. Agenda AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT STRUCTURE OF THE CODE OF GOOD PRACTICE CODE 000: IMPLEMENTATION FRAMEWORK CODE 100: EQUITY OWNERSHIP CODE 200: MANAGEMENT 6

  7. Code of Good Practice (Structure) Each Code explains all issues pertaining to a key BEE element and can consist of one or more statements A Statement include a related set of principles that guides the implementation of one BEE issue Code of Good Practice Phase 1 Code 000: Framework Statement 000: Conceptual Framework Statement 010: Charter Guidelines Code 100: Ownership Statement 020: BEE Council Code 200: Management Statement 030: Broad-based BEE Implementation Code 300: Employment Equity Statement 040: Glossary Phase 2 Code 400: Skills Development Statement 050: BEE Rating agencies accreditation Code 500: Affirmative Procurement Code 600: Enterprise Development Statement 100: Ownership Code 700: CSI and Industry Specific 7 Code 800: BEE Practice Notes Statement 200: Management

  8. Structure of the Code of Good Practice Structure of the Code: The Benefits of the Adopted Structure: • Logical Flow of the Structure: The Code is structured according to the logical flow of BEE scorecard. • Flexibility of the Structure: It enables the Minister and DTI to expand, amend or remove individual statement as and when required, without having to re-issue the entire Code of Good Practice. • Best Practice: The structure is similar to those used by the Generally Accepted Accounting Practice internationally. 8

  9. Agenda AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT STRUCTURE OF THE CODE OF GOOD PRACTICE CODE 000: IMPLEMENTATION FRAMEWORK CODE 100: EQUITY OWNERSHIP CODE 200: MANAGEMENT 9

  10. Code 000 – Implementation Framework Objective of this Code: This code comprises of statements that: • Establish the conceptual framework • Summarizes the indicators, weightings and targets for each element of the Scorecard BEE elements • Provide application guideline for the generic BEE Scorecard • Establish different institutional framework to facilitate the implementation of the Strategy and the Code of Good Practice. 10

  11. Code 000 – Implementation Framework Statement(s) currently contained in this Code: • Statement 000: Conceptual Framework • Statement 010: Sector Transformation Charters • Statement 020: BEE Advisory Council • Statement 030: Implementation of Broad-based BEE • Statement 040: Glossary • Statement 050: Accreditation Agencies 11

  12. Statement 000 – Conceptual Framework 12

  13. Old scorecard vs New scorecard 13

  14. Statement 010 – Sector Transformation Charter • Outline the process to be followed in • formulating a sector charter • Establish the status of sector transformation • charter • Identify principles to be applied to harmonise • the different charters • Outline the process of constituting Charter • Councils and prescribe the powers of these • Councils 14

  15. Statement 010 – Sector Transformation Charter 15

  16. Statement 030 – Implementation of Broad-based BEE • Identify policy instruments and initiatives that • can promote broad-based BEE • Align the implementation of policy • instruments and initiatives to broad-based • BEE 16

  17. Statement 030 – Implementation of Broad-based BEE 17

  18. Other Statements within Code 000 18

  19. Agenda AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT STRUCTURE OF THE CODE OF GOOD PRACTICE CODE 000: IMPLEMENTATION FRAMEWORK CODE 100: EQUITY OWNERSHIP CODE 200: MANAGEMENT 19

  20. Code 100 – Ownership Objective of this Code: • This code comprises of statements that inform the recognition and measurement criteria for black ownership. • The code also ensures that the BEE process can result in the transfer of genuine, substantive and sustainable ownership to black people. • The Code also aims to reduce ‘fronting’ and misrepresentation of black ownership by companies through the stipulation of a standard set of principles and guidelines for its measurement and reporting. 20

  21. Code 100 – Ownership Statement(s) currently contained in this Code: • Statement 100: Recognition and Measurement of BEE Ownership Objectives • To increase the number of black people that manage, own and control enterprises and productive assets. • Provide recognition and measurement criteria for black ownership • Provide key principles to be used in determining ownership by black people 21

  22. Statement 100 – Ownership 22

  23. Flow Through Principle Effective black ownership in Company C is 51%*51%*51% = 12.5 percent

  24. Determinant of Ownership Score All Black S/H All Black S/H Voting Right Ownership (20% of BEE Scorecard) Determinant of Ownership Score Black Women Black Women Economic Benefit Broad-based Groups Broad-based Groups Unencumbered Interest MEASUREMENT PRINCIPLE: Recognize and reward companies for the ability of black people to exercise and benefit from ownership rights, as well as the extent of the beneficiary base. (2 Ways to allocate scores for BEE Ownership) • Allocation by black people’s ability to exercise ownership rights including: • unrestricted voting right • the right to receive economic interest such as dividends and capital gains • unrestricted and unencumbered entitlement to economic interest • Allocation by the beneficiary base, taking into accounts participation by: • black women • new entrants, and • black designated groups (such as black workers, black youth, black people with disability and black people living in rural areas) New Entrants New Entrants 23

  25. Allocation by categories ensures that only companies with black women and designated group participant get 100%. Ownership Score Allocation Allocation by ownership right differentiate between the rights accrual to black investors 24

  26. 25 Ownership measured through the matrix table, allocating point for different categories of rights and different beneficiaries

  27. Key Principles • Options and Contingent Claims: Where an option is used where the economic interest is contingent upon a future event, the economic interest will be projected on a fair and reasonable basis, but will be recognized as restricted economic interest. • Organs of State, Pension Funds and Superannuation Schemes: The BEE ownership by organs of state, pension funds and superannuation schemes are specifically excluded from the calculation from both numerator and denominator. The amount excluded from total ownership (denominator) is limited to the lower of 25 percent or the level of economic interest owned by black people. An enterprise with more than 75 percent ownership by the state is specifically exempted from the application of this statement. 26

  28. Key Principles (Continued) • Bonus Points: The statement provide for: • one (1) bonus point to be awarded for new entrants, where the black people buying into the enterprise have not entered into a previous transaction where the fair market value of the company exceed R 20 million in value. • The statement also provide one (1) bonus point to be awarded to company who have exceeded the 25 percent target for voting right or economic benefits • Non-Circumvention: The non-circumvention principle allows for identification of fronting or other structures which aims to misrepresent the level of ownership. Rating agencies are required to maintain a database of such structures. In order to ensure that ownership information is not misrepresented, enterprises are required to provide appropriate documentation to evidence their ownership. 27

  29. Agenda AN IMPLEMENTATION FRAMEWORK FOR BROAD-BASED BLACK ECONOMIC EMPOWERMENT STRUCTURE OF THE CODE OF GOOD PRACTICE CODE 000: IMPLEMENTATION FRAMEWORK CODE 100: EQUITY OWNERSHIP CODE 200: MANAGEMENT 29

  30. Code 200 – Management Objective of this Code: • This code contains the statements which guide the recognition and measurement of black management representation. Management represent the second leg of direct empowerment component of the BEE balanced scorecard. Statement(s) currently contained in this Code: • Statement 200: Recognition and Measurement of Management 30

  31. Statement 200 – Management • Provide Recognition and Measurement Criteria for Management 31

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  33. Thank You 33

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