Businesses stand to lose B-BBEE credentials under proposed new codes

Several businesses could lose their B-BBEE compliance if the new draft codes proposed by the dti are introduced, according to Keith Levenstein, CEO of consultant EconoBEE.
The new codes will alter the current points rating of most companies. A business that currently earns 65-75 points and is rated level 4, based on the new codes will drop to level 6 or 7. As a result they will need to do additional work to earn more BEE points.
Companies with a current level 8 rating, the lowest level which is between 30-39 points, will become non-compliant on the revised codes.
Currently, to achieve level 6 (which is a rating better than level 8), 45-55 points are needed. Based on the new codes, that company could drop to a level 8 rating.
A business that has 69 points is currently rated at level 4. But under the new draft codes it will be rated at level 7. This is a significant drop in the BEE credentials.
The new codes will make it more difficult to maintain the current levels, so it is expected that numerous companies will lose points and their ratings and will be downgraded or even become non-compliant, he said.
“Companies will need to reach a threshold of at least 40% of the targets for the three elements: ownership; skills development; and enterprise and supplier development. If they fail on even one of the elements, their rating will drop two levels.
“This could imply that a company that has 75 points and is currently rated at level 3, will drop six points if they do not reach the threshold of all three targets. A total of 69 points on the new ratings scale will give a level 7 rating. Alarmingly, if the company does not reach the minimum threshold on all three elements it will drop a further two levels and become non-compliant.”
Levenstein believes the points-to-level table of the current codes were well designed, even from a psychological viewpoint. Level 8 is 30 to 40 points, representing a low level recognition at 10%. Level 7 is 40-45 points, but with a marked increase in the recognition level of 50%.
“All companies on level 8 were striving for a level 7 rating in the following year so as to be able to show an improvement. Often, they would achieve a rating better than level 7 because of its narrow band (5 points) and reach level 6. Level 6 sounded so much better than level 7, and encouraged many companies.
“Unfortunately, the new levels will achieve the opposite. It will decrease confidence. A company that earns 41 points (level 8) needs 15 additional points before it can even get to the next level. This will demotivate rather than encourage the exact businesses that need assistance in the country's transformation activities.
“We have always said that the original targets were too lenient, but we are concerned that a company that drops from level 3 to being non-compliant will become despondent and decide not to continue with its empowerment journey. This will not be good for transformation.”