A is for Apple, BEE is for Business (part 1)

In the first of a three part series, John Maxwell, co-founder and administrator of an exciting new venture, the Nkomazi Community Trust, looks at various responses to Black Economic Empowerment strategies in South Africa. He offers a broad introduction to the current BEE landscape, and suggests that companies have a responsibility to societal development and change.

Part 1: The Question

“So…what do you think about Black Economic Empowerment?�

Ask this question of a number of South African businesspeople and you will be surprised at the diversity of opinions and range of emotions it ignites.

At the far left of our opinion scale sit the “Business Cynics�; those who give the BEE initiative their public support while privately lampooning and deriding it. Prominent in this group are the anti-government, anti-black, anti-everything diehards who are still waiting for their opportunity to say “I told you so�. Mingled among them, but less obvious because of their more socially acceptable oratory, are those who continue to cling to the view that the purpose of business is solely to make a profit, and that all this “social rubbish� and triple bottom line reporting should be the exclusive preserve of Greenpeace, tree-huggers and the rest of the bleeding-heart gang. Don’t expect much buy-in from this group that good corporate citizenship is good for business.

On the fringes of this first group is a larger, more vocal contingent of detractors – the “Business Scepticsâ€? who question the authenticity, and doubt the motives behind, the BEE initiative. At best they view it as a kind of economic “Trojan Horseâ€? that will shift the responsibility of social upliftment from the shoulders of Government to that of the corporate sector. At worst they see it as one of the steps in a deliberate campaign to replace our free-market capitalist system with one governed by socialist principles. Their attempt to derail the BEE process comes in the form of intellectual spokes in the wheel, by way of debates on reverse racism, discussions on moral imperatives, and conjectures on the long-term impact of business involvement in social issues. In her book “The Silent Takeoverâ€? Noreena Hertz poses a question typical of this group: “Is there a price that will be exacted for acts of corporate benevolence? Today Microsoft puts computers in our schools; will it tomorrow determine what our children learn…do we want to live in a world in which commercialism takes advantage of shortages in funding and rides off the back of children’s learning?â€?

These leftist views are counterbalanced by the opinions of “Business Evangelists� who occupy the seats on the extreme right of the opinion scale. Here are the people who have embraced all the arguments for social responsibility with the zeal of religious converts, and have committed themselves to a business strategy that focuses all the resources at their disposal to bring about social (and even cultural) change. Their position is primarily founded on a desire to redress the sins of the past, which is either driven by a personal need for absolution, or out of the recognition that ignoring this responsibility is no longer a commercially viable option, but tantamount to business suicide. Don’t expect anyone in this group to say that BEE is unimportant or unnecessary.

The space between these two extremes is taken up by two large groups, possibly equal in size, making up the bulk of our respondents.

The first comprises the “Business Apologists�, the vast majority of which are small businesses. This group has adopted a wait-and-see attitude towards BEE. It vigorously defends its position of doing little about black empowerment by arguing that BEE has nothing to do with them; simply put, they consider it the domain of Government and large corporations. Their case for non-participation is built on the size and impact of their organisations, or on the erroneous belief that BEE is a temporary fad that will disappear, probably by 2014, once sufficient transfer of economic wealth has taken place. They often resort to accusations that the Government is abdicating its social responsibilities to business, and is using strong-arm tactics and discriminatory practices to achieve this goal. The small companies among them believe that they will be able to stay “under the radar� forever. Whatever their stance, this group will generally share a common position on BEE – why react until it becomes absolutely necessary?

The second group is made up of the “Business Pragmatists�, and comprises mainly of large corporations and those smaller companies who have come face-to-face with the realities of BEE compliance. These people have recognised that doing business in South Africa today requires adjustment and a degree of sacrifice. Even if they have not entirely bought into the mantra that being a good corporate citizen is good for business, they have recognised that being a bad corporate citizen will be bad for business. Therefore to them it is unimportant whether a BEE response is prompted by the need to avoid the consequences of not being BEE compliant, or because of a sincere conviction that this is the right way to do business in this country. Their reaction is straightforward – to ignore social issues could pose a considerable risk to one’s commercial success, so just do it and let’s get back to business. Being pragmatists however, some of them will attempt to milk their social philanthropy for all its worth. Every BEE happening is accompanied by much corporate chest-beating and ego-massaging, little realizing that pretending their open-handedness is about anything else other than money and reputation is fooling nobody.

Whether you are a member of the first group doing nothing about BEE until forced to, or in the second group that is implementing BEE to look good and/or protect its bottom line, the reality is the same – when it comes to social responsibility issues, the fear of exposure and the need for compliance are the two most powerful forces galvanizing the majority of active corporate citizens.

The fear of exposure is about one’s Brand; and intangible corporate assets such as brand strength, reputation and general goodwill, command huge importance on the balance sheet. For many companies their brands have replaced physical assets, like property and equipment, as the most valuable asset of the business. Indeed, for some companies, their Brand is pretty much all they have got over the long term. According to brand consultancy ‘Interbrand’, 96% of Coca-Cola is accounted for by intangible assets; the company is in effect a brand manager and nothing else – all its bottling and distribution functions are carried out by solely separate companies.

Corporate social responsibility is deeply entwined with brand reputation and the emotional component of the brand’s strength. Therefore it makes sense for companies to adopt a positive approach to BEE rather than risking damage to the Brand through non-compliance. If anything, such an approach is a sensible and potentially cost-effective way of communicating brand value while actually doing some good for society at the same time!

BEE compliance is about economic survival, and the need to attain a balanced BEE scorecard is becoming an increasingly influential factor in the way business is being done in this country. What started in the public sector, whereby most procurement decisions have become dependant on one’s black ownership credentials, has since trickled down into the corporate sector. With one eye on their preferential procurement ratings, many large companies are themselves imposing BEE requirements on their own suppliers, and this is now having a major impact (mainly detrimental) on smaller firms. In the very near future it will become a matter of economic survival for all companies in this country, no matter what size, to be BEE compliant, and failure to do so will probably result in the death of that company.

However, behind this cloud bank named “Economic Necessity� looms an even larger one – that of “Patriotic Necessity�. Those (predominantly white-owned) companies who stubbornly refuse to adopt and implement a black empowerment strategy will be singled out and accused of obstructing the government’s efforts to accelerate the participation of black people in the economy. The form it will take could range from media naming-and-shaming to consumer boycotts, but the nett effect will look like the flip-side to the “Buy South Africa� campaign, a public pillorying followed by being branded a commercial “traitor�.

As if this did not provide sufficient incentive to support the BEE initiative, consider the other pressures that will be increasingly brought to bear on companies.

Triple bottom line reporting has created a permanent window into the social affairs of a public company and serves to encourage ongoing evaluation of its performance. These reporting requirements are based on one simple fact – people are increasingly interested in knowing that the companies they invest in are socially and environmentally responsible. What has also helped is the evidence presented by James Collins & Jerry Porras in their book, ‘Built to Last’, which shows that the world’s most successful companies are those that have some kind of social vision beyond making money, and are prepared to stick to their core values even if that means sacrificing profits in the short term.

This has contributed to the rise of so called “ethical investing� and the growing popularity of ethical investment funds and indices such as the Dow Jones Sustainability Group Index, FTSEGood Index, and our own JSE SRI Index. While corporate responsibility issues may not be on top of every investor’s agenda, it’s there nevertheless and undoubtedly influences investment decisions. Which company is brave enough to risk its share price suffering as a result of non-compliance, or by exclusion from investment vehicles that use social responsibility criteria?

The fear of regulatory control is another compelling reason to become BEE compliant. Companies, like humans, prefer to shape their own destinies rather than to have their destinies shaped for them. While BEE compliance is not a legal requirement at present, who is to say that this will always be the case? Is it not better to act now and head off the dangers lurking in the shadows?

In answering our semi-rhetorical question, it will not pay for you to dwell too long on the esoteric aspects of BEE. The issue at stake is not whether this initiative is right or wrong, but whether your company could be negatively affected by a failure to put BEE strategies in place. And our answer is an emphatic yes!

BEE has the potential to create jobs, boost economic growth and develop global competitiveness – that’s good for business. It will also redress inequality, empower black people and create a better life for all – that’s good for society. The real question you need to ask yourself is whether you are going to participate voluntarily and call it your social responsibility strategy, or whether you are going to be dragged kicking and screaming to the altar of social conscience by the only language you understand – money. Either way, the outcome will be the same.

 
John Maxwell is one of the founders of the Nkomazi Community Trust, an initiative aimed at assisting small and medium sized South African companies to create legitimate and authentic broad-based black economic empowerment, while establishing an endowment fund that benefits one of the most vulnerable and disadvantaged communities in South Africa – the orphaned children of Nkomazi district in Mpumalanga. For more information, contact John at .

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