SOUTH AFRICA: BEE CODES OF GOOD PRACTICE

UNCLAS SECTION 01 OF 02 PRETORIA 004856 SIPDIS DEPT FOR AF/S; AF/EPS; EB/TPP/MTA USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND DEPT PASS USTR FOR PCOLEMAN, FLISER AND WJACKSON TREASURY FOR BCUSHMAN SIPDIS E.O. 12958: N/A TAGS: EINV ETRD EFIN ECON USTR SF SUBJECT: SOUTH AFRICA: BEE CODES OF GOOD PRACTICE CODE 200: MANAGEMENT REF: (A) PRETORIA 4854 (B) PRETORIA 4855 ¶1. (U) Summary. On November 1, the Department of Trade and Industry released the final version of the Broad- based Black Economic Empowerment (BEE) Code on Management and Control, i.e., Code 200. One of ten codes, Code 200 sets forth the criteria and methodology for scoring a firm's contribution to BEE objectives in the management of an entity. This portion of the BEE Generic Scorecard accounts for 10% of a firm's total score. In each instance, the actual number of points awarded is calculated by multiplying the fraction of a compliance target (there are seven) achieved by the number of possible points allotted for each BEE target. No excess scoring for exceeding any of the BEE targets is possible. However, a full point may be earned for meeting a bonus target. End Summary. ¶2. (U) This is the third in a series of cables reporting on the final criteria and methodology for scoring BEE contribution, as embodied in the government's BEE Codes of Good Practice. After nine months of consultations, the Department of Trade and Industry released its final version of the Broad-based Black Economic Empowerment (BEE) Code on Management and Control (Code 200) on November 1. The stated goal of Code 200 is to provide an incentive for installment blacks on the board of directors, as senior managers, and as top managers. All BEE Codes of Good Practice, including this one, may be found at the following Internet website: http://www.dti.gov.za/bee/CODESOFGOODPRACTICE 2005.htm The Management Score -------------- ¶3. (U) The portion of the BEE generic scorecard covered by Code 200 accounts for 10% of a firm's total score. Firms may earn a bonus of one percentage point for taking on independent non-executive board members. For a complete understanding as to how this portion of the generic scorecard factors into the rest of the scorecard, please refer to ref A. ¶4. (U) The management section of the BEE generic score card is divided into two parts: BEE participation on the board of directors, and BEE participation in management. When it comes to participation on the board, a maximum of three percentage points is awarded if 50% of the voting rights are in black hands. A maximum of one point is awarded if 50% of executive board members are black. A maximum of one point is awarded if 25% of board members are black women. ¶5. (U) When it comes to participation in management, a maximum of two points is awarded if 40% of senior management (defined as those who have responsibility for the overall direction of the entity) are black. One point is awarded if 20% of senior management are black women. One point is awarded if 40% of top management (defined as those who have responsibility for a portion of the entity's activities) are black. Another point is awarded if 20% of top management is black women. A full bonus point may be awarded if 40% of the independent non- executive board members are black. ¶6. (U) The following table spells out the maximum possible points and BEE targets to be achieved for deriving a score under the management and control section of the BEE generic scorecard: BEE Criteria Points Target -------------- -------------- -------------- Board Member Voting Rights: 3 50% Black people 1 50% Black women 1 25% Management: Senior Top Management: Black People 2 40% PRETORIA 00004856 002 OF 002 Black Women 1 20% Other Top Management: Black people 1 40% Black women 1 20% Bonus: Independent Non-executive 1 40% Black Board Members Scoring -------------- ¶7. (U) In each case, the actual number of points awarded is calculated by multiplying the fraction of the compliance target achieved by the number of possible points in each category. For example, if 25% of the voting rights of a firm are in black hands, then 25% is divided by the compliance target of 50% and, instead of scoring the maximum three points, the firm scores only 1.5 points for that category. Anything over 50% still results in a maximum of 3 points. For example, if blacks hold 75% of the voting rights of a firm, the firm would still only score 3 points as opposed to 4.5 points for that category. Definitions -------------- ¶8. (U) Black is defined as black (i.e., African), "coloured," and Indian South Africa citizens (or those who could have applied for South African citizenship, if permitted) who suffered discrimination under the apartheid regime and their descendents. ¶9. (U) According to Code 200 a "senior top manager" is a person in a key financial and overall management position such as a Chief Executive Officer, Chief Operating officer, or Chief Financial Officer. The term "other top manager" denotes a person who is actively involved in the development and/or implementation of the firm's strategy in their particular area of responsibility, such as a Human Resource Director or Marketing Director. Any employee classified under the management control segment of the generic scorecard cannot also be counted under employment equity segment on the generic scorecard (also worth 10 points) and vice versa. The draft Code of Good Practice on Employment Equity (Code 300, whose goal is to encourage an equitable representation of blacks in all occupations and organizations) is scheduled to be released for comment in December of 2005. TEITELBAUM