Your B-BBEE level is a board decision

In many South African companies, the B-BBEE level is decided by default. Nobody votes on it. It is set by last year's spend, by whatever procurement happened to buy, by a skills budget drawn up before anyone opened the scorecard and by a verification date that arrived sooner than expected. The board sees the result once a year, as a certificate, notes it and moves on.

That is the wrong way round. A B-BBEE level touches revenue, cost, market access and legal risk. Any one of those would earn a place on a board agenda. Together they make the level a decision the board should take on purpose, fund deliberately and then hold management to.

What the level does to the business

Start with revenue, because that is where most boards feel it first. If your customers measure their own preferential procurement, every rand they spend with you is recognised at your level, provided you qualify as an empowering supplier. At Level 1, R100 of spend counts as R135 on their scorecard. Drop a few levels and the same invoice is worth less to them. They may not tell you. They may simply give the next contract to a supplier whose certificate does more for their score, and you will read the reason in your sales figures a year later.

Then there is access. Under the current preferential procurement regulations, state buyers award preference points for "specific goals", and many still measure those goals through B-BBEE status. Many private buyers weigh B-BBEE status alongside price and capability too. A lapsed certificate, or a level below what a buyer expects, can close a door before your proposal is read. A certificate is valid for 12 months, so this is a question you answer every year, not once.

Then cost. Transformation spend is real money: skills programmes, enterprise and supplier development contributions measured as a share of net profit after tax, procurement shifts that may mean new suppliers and ownership transactions that can take years to fund. Without a board view, each of those budgets is set by a different person who sees only one part of the picture.

Last, risk. Ownership, skills development and enterprise and supplier development are priority elements, and each carries a sub-minimum. Miss one and the level is discounted by one, however well the rest of the scorecard performs. That is a cliff edge, and a board exists to see that kind of risk coming.

Why it cannot sit with one champion

Most companies give B-BBEE to a capable person in HR, finance or procurement and ask them to deliver a level. Many do remarkable work. But the decisions that move a scorecard are not theirs to take.

A champion cannot decide to bring in a Black shareholder. They cannot commit a share of profit to supplier development, change the procurement policy across divisions, join the Youth Employment Service or agree to absorb learners into permanent jobs. Each of those decisions crosses budgets, departments and sometimes the shareholders' agreement. Each is a trade-off between this year's cost and next year's revenue.

A champion can tell you the score. Only the board can decide what the score is worth.

When the board does not decide, the champion is left to make the trade-offs informally, late in the year, with whatever budget is left. That is how companies end up paying for points they could have earned more cheaply, or losing a level they could have protected with one early decision.

Fronting is a governance question

There is a second reason the board must own this. Fronting is an offence under the B-BBEE Act, and the B-BBEE Commission investigates it. It is also rarely planned by anyone. It creeps in: a Black director appointed without real authority, a structure whose beneficiaries never receive a cent, a supplier relationship that exists mainly on paper, a target met by a title rather than a role.

Directors are accountable for what the company signs and claims. A board that never asks how the level was achieved cannot claim it did not know. The questions are not complicated. Do the Black people in our structures hold real rights, receive real benefit and take part in real decisions? Would each claim on our scorecard survive a hard question from someone who did not build it? If the honest answer is "probably", that is the board's problem, not the champion's.

The one page a board should ask for

Most boards receive B-BBEE as a single line: the current level, perhaps the expiry date. That tells you where you stood last year. It does not tell you where you are heading or what it costs. I would ask for one page, every quarter, that covers six things:

• The target and the reason for it. The level the board approved, and in one sentence why: which customers, contracts or tenders it protects.
• The projected score. Element by element against target, with each priority element and its sub-minimum marked on track or at risk.
• Spend against budget. What was committed and what was spent, in rand, against what the board approved, with the gap to target in rand where there is one.
• Evidence status. What is already filed and what is still missing, months before verification, not weeks.
• Risk. Our certificate expiry date and those of key suppliers, any fronting indicators and any structure that depends on a single person.
• Impact. What changed for people: learners absorbed into jobs, suppliers who grew, beneficiaries who were paid.

If management cannot produce that page, the board has learnt something important about how the level is being run. If it can, the board can govern transformation the way it governs any other material part of the business: with a target, a budget, early warning and a record of what the money achieved.

Deciding includes deciding less

Taking the decision does not mean always aiming for Level 1. Some businesses sell to customers who measure them closely and need the strongest certificate they can earn. Others need to hold their level at lower cost. A few will look at the evidence and conclude that B-BBEE does not earn its place in their market. Each of those can be a sound answer, if it is made on facts: your sales, your tenders, your customers' own requirements and the five-year cost of each option.

What is not sound is leaving the answer to chance and the calendar. A level that protects a major contract deserves the same scrutiny as the contract itself.

So my suggestion to any chair is a modest one. Put the level on the agenda this quarter, ask for the one-page report and make one explicit decision: the target, and what you are willing to spend to reach it. If you would like help building that first report from your own data, write to us at sales@bsvision.co.za. We are always glad to sit with a board and work through the question.