South African companies will have 12 months to adjust their black economic-empowerment (BEE) plans and reporting to comply with the new BEE codes of good practice (COGP), from the date of their gazetting, says Department of Trade and Industry BEE director Jeffrey Ndumo.

“We have allotted the transition period to allow companies to move from the previous narrow-based regime to the broad-based empower- ment approach as set out in the codes,” he explains.

The first phase of the codes was released last month, following a period of public comment.

The second phase is due to be published for comment during the first half of December, and the two will be gazetted simultaneously, probably in April or May in 2007.

The first phase of the COPG comprises a framework for the measurement of broad-based BEE, the approval, accreditation and regulation of BEE verification agencies, and issues surrounding the measurement of black ownership and management control, as well as an empowerment scorecard.

The second phase will include the remaining five codes on employment equity: skills development, preferential procurement, enterprise develop- ment and the ‘residual element’, as well as statements on multinational groups operating in South Africa, warehousing, Section 21 companies and organs of State.

It will also include a code on fronting and a statement on small, medium-sized and microenterprises (SMEs).

The three key themes of the codes released last month are: the emphasis on substance over form, the broad-based scorecard and the new BEE recognition tiers and anticipated ‘multiplier effect’, Ndumo said.

The BEE scorecard allots points through which a company is measured on several facets of empowerment, including ownership, top management, procurement, and employment equity.

The codes introduce the concept of eight ‘recognition levels’, based on points received on the scorecard.

However, Ndumo added that, if a company is more than 50% black-owned, it is immediately bumped up one level.

Going forward, the DTI will also focus on identifying possible circumventions of the codes, he said, which will be used in drawing up the code on fronting.

On the question of industry-specific empowerment charters, many of which have already been drawn up, Ndumo confirmed that these would not be recognised by government and will have no legal status.

The respective sectors can opt to have their charters gazetted as ‘sector codes’ but Cliffe Dekker director and DTI legal adviser Kevin Lester cautions that they will have to be in line with the codes if this is to happen.

“There will have to be a substantial alignment with the COGP, and no deviations in key themes and definitions of terms will be allowed,” he said.

“Government organs and state-owned enterprises will only recognise the codes in procurement decisions,” he continued.

A notable exception to the rule is the mining sector, which is governed by the Mining and Petroleum Resources Development Act, and its associated mining charter.

Lester said that the legislation would have to be amended if the mining charter was to be brought in line with the COGP, and that discussions are under way on the issue.

However, he does not expect to see any changes to the mining charter for at least five years.

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