CEOs may soon be liable for BEE

The buck might soon stop with CEOs of financial services firms for the fast-tracking of transformation and black-economic empowerment (BEE), widely considered to be slow.

This is a major recommendation by parliament’s standing committee on finance and the portfolio on trade and industry contained in the first report of the financial sector transformation. It’s the antithesis of the current status quo and a sign parliament is upping the ante on BEE compliance.

The committees have supported National Treasury’s proposal that CEOs should be active in the decision-making processes of the Financial Sector Charter (FSC) Council, which oversees transformation and BEE in the financial services sector, to “ensure sector buy-in”.

CEOs are part of company boards but a dedicated team of directors is part of the social, ethics and transformation committee – a sub-committee of the board driving transformation. The committees’ recommendations place transformation and BEE objectives on CEOs.

This is a positive move, said Cas Coovadia, Banking Association SA managing director.

“We don’t have a problem with this recommendation as we believe transformation needs to be about the way we do our business to ensure we are doing it with cognisance of the environment in which we work.”

The committees recommend the industry be compelled to provide information about their transformation and BEE compliance to the FSC Council, the newly-established BEE Commission and any other relevant state structures. The committee also recommended sanctions for non-compliance.

The BEE Commission is expected to develop a system of fines for non-compliance and present a policy on this by June 2018.

The implementation of BEE by companies since the early 2000s hasn’t had a broad-based focus, with many companies focusing largely on the ownership element while ignoring the other seven BEE elements (management control; procurement; skills development; enterprise and supplier development; socioeconomic development; access to financial services and empowerment financing), Coovadia said. “The concentration of the ownership element is too narrow. BEE is about looking at the demographics of your staff, particularly at management level. And… about ensuring that we finance homes for the majority of the black population and the development of small and medium enterprises and skills. These are central to the businesses of banks.”

In March, the FSC Council signed off on the final amended 2013 BEE code for the financial services sector.

The ownership requirement for previously-disadvantaged individuals in the amended BEE codes is 20% compared with 25% for the generic codes. Another significant recommendation is for state assets to be managed by asset management entities that are at least 51% black-owned.