The Failings of BBEEE

It is clear to most thinking people that the BBEEE policies have many unwanted problems.  Some of those have already been discussed, and many others will be discussed in coming weeks.  The subject for today’s discussion is the extent to which even a successful BBEEE program has effect in transferring the knowledge and experience needed for the operation of a successful and efficient business.  Many years of Management Consultancy at a high level in large and effective organisations has provided fairly conclusive proof that the chances of this objective being satisfied are very small, except in the largest companies.

It is probably fair to say that most BBEEE projects are carried out in small to mid-sized companies.  Aspirant Black Managers and Supervisors are employed by the company with the main objective to satisfy the regulations.  They are inducted into the company and trained in the systems and procedures, as well as the way of thinking, of the company.  And therein lies the problem.

Most of the small to mid-sized companies have grown from small beginnings, with a very large proportion of them still under the management of the founders or the children of the founders.  It is very seldom that these people have much idea of how professional managers work, of what sort of information they use to make decisions, and of how to make those decisions even if the information is available.  Very few have much understanding of statistical collection and valuation methods, of management accounting, of market analysis.  In many cases, the success of the company is a result of a good idea being promoted by a driven individual who has learned over the years of mistakes and trial and error what brings the results that are desired, more or less.  In many cases, the top managers of these companies fly by the seats of their pants, keeping a rough and general idea of where they want to go in their minds.  The result of this is that their decision-making is unclear and somewhat erratic, with decisions being made as more or less knee jerk reactions to a change in the situation, rather than as a clearly considered response to changes that are clearly identified for what they really are, and with the goal of meeting a long-term objective that has been formulated in advance.

‘Nonsense’, you say.  ‘South Africa has many good and effective businesses.”  It has, but most of them are operated at a sub-optimal level of effectiveness, and those sub-optimal processes, management systems and ideas are being transferred to Black trainees, who do not have the background to recognise the extent to which they are faulty.  As an example, on client company has grown to a turnover of over R40 million per year, employing about thirty people.  A couple of BBEEE candidates were brought in, to facilitate the next stage of the company’s growth.  A Consultant sat in on a number of Senior Management meetings for a purpose unrelated to the training of those persons, and was astonished to hear the Managing Director requesting a ‘Budget for the next three years’, a good sign, but without direction.  It is not possible to undertake a business projection without knowing the current status and the objectives of the company over that period.  A suggestion to the Managing Director after that meeting, that he should provide at a minimum a starting point for the budgeting process and a clear formulation of the strategy of the company, setting out objectives and constraints, was rejected as being too much ‘big corporation’, and a waste of time.  The Consultant had no role in the matter, so continues to observe the developments.  At the next meeting, the BBEEE candidates produced a mush of words, stating what they hoped to achieve, with only the vaguest description of how they would do it.  Unsurprisingly, the ‘Budgets’ were roundly criticised by the Managing Director, who demanded that they be more specific, and that they include a rate of growth amounting to over 30% p.a.  After the meeting, the Managing Director complained to the Consultant that the quality of the two was not up to the desired standard.  The candidates complied, again with many imprecise words.  There was no attempt to quantify any of the objectives, yet the Managing Director seemed to be satisfied with the new effort.  It was clear that the ‘Budgets’ were totally meaningless.  One of the essential ingredients of management is the measurement of results against desires, and that can only be achieved if the objectives are quantified in some manner.  If you can’t measure what you want to achieve, there is no way to know whether you have achieved it.  A subsequent discussion with the Managing Director revealed that he refrained from stating his objectives because that would prevent him realising that he had failed to achieve those objectives.  It did not surprise the Management Consultant to hear nearly a year later that the two BBEEE candidates had been fired for incompetence.  They had never had a chance to develop any competence, or to show what competence they did have.  The cost to them was a total waste of a year, and, probably, the learning of many faulty management lessons.  The cost to the company was in excess of nearly two million Rands as well as the loss of a year, or more, of the growth that the two candidates could have brought.  The loss to the country is probably five times the loss to the company, because two possibly promising people have learned that the way to progress in an organisation is to kowtow to the boss, not to apply the mental capabilities they have.

The case described is not an isolated one, nor is it confined to BBEEE candidates.  It is common to find within South African companies that the level of management capability, in terms of modern management techniques and science, is extremely low.  There are several reasons.  The base reason is probably that there has never been a culture of training management personnel, except in the largest and most competent companies, and most of those trainees have left the country to work in the overseas operations of their employees or, where that has not been possible, they have sought better opportunities abroad, where their capabilities are recognised and rewarded, no matter the colour of their skin.  Another reason is that the process of growing through the ranks in a competent company seems to have been largely abandoned, with people having the barest understanding of the science being elevated to fill much more senior positions than those for which they are qualified.  This is partly a result of the brain drain which has afflicted the country, and partly a result of the Black Empowerment policies, which seem to assume that a Black person with a Matric and the right political affiliations is also magically imbued with the capability to do a competent job in a senior management role.  The lack of the control capabilities has also resulted in an increase in in-company fraud, because the frauds are not easily detected and the fraudsters have acquired the ‘entitlement’ mind-set propagated by Government policies and by Government Ministers and Civil Servants.

The effect of this situation, as with most of the policies introduced by the Government during the past two decades, will bedevil South African commerce and industries for many years to come, even for many years after corrective measures are introduced, as the bad appointees will continue in their positions, spreading the misinformation.  One way to improve the situation is to use a competent, internationally-experienced Management Consultant as a mentor, training BBEEE employees and their managers in the correct way to do their jobs, instituting internationally-recognised systems and ideas and undertaking a survey of the management practices at least every three years, to detect and correct sub-optimal drift.  Consultants should be employed to do routine work only in an emergency or in the process of bringing about a correction.  Any extended employment of a Consultant should be seen for what it is – an admission that the organisation is not capable to do the work required.  In that capacity, they are no better than contract workers.