Johannesburg Stock Exchange

B-BBEE Reporting

The Transformation ‘Ripple Effect’

Saul Symanowitz is the Managing Director at Sage BEE123 and holds BCom(Hons),

LLB and LLM degrees. He is a qualified attorney by profession and is rated

amongst South Africa’s leading experts in the field of B-BBEE. Over the past

decade, Saul has worked closely with numerous public, JSE listed and multinational

organisations, guiding their B-BBEE implementation, strategy and policy development.

Highly regarded as a thought leader by his peers, he presents, lectures and writes

extensively on the topic of B-BBEE, transformation, with special focus on Enterprise

and Supplier Development

Businesses listed on the Johannesburg Stock Exchange (JSE) are

viewed by most as being at the helm of the South African economy.

This perception is indeed accurate in terms of the private sector,

despite the relatively low number of such companies. Currently, there

are 370 companies listed on the JSE Equity Board, representing less

than 1% of all businesses operating in South Africa. However, the

combined market capitalisation of JSE listed companies stands at

R13 trillion.

The collective power and influence of JSE listed companies

contribute substantially to the economy. This contribution is both

direct and indirect, inter Alia by funding government coffers through

taxes, offering large-scale employment and investing in much needed

socio-economic upliftment initiatives. Moreover, listed companies,

through their supply chain, have the potential to drive meaningful

transformation, not only through their direct suppliers but indirectly

through the supply chains of their suppliers, this sequence of

value-adding economics creates a ‘ripple effect’ that would drive

transformation.

Therefore, the extent to which JSE listed companies embrace and

comply with B-BBEE legislation has a significant bearing on the

rate of transformation in South Africa. Their collective role is vital,

both substantively and in terms of establishing prevailing business

ethics and culture.

The degree of transformation in JSE listed companies has been

somewhat difficult to quantify and objectively assess. It is for

this reason, in 2017, that for the first time in its 130-year history,

Transformation Reporting was formally introduced as a requirement

for listed companies. This development stems from recent associated

amendments to the B-BBEE Act and Regulations, the JSE Listing

Requirements and The King Code.

The B-BBEE Act and Regulations

Amendments to the B-BBEE Act and its Regulations were gazetted

on 6th June 2016, followed by Explanatory Notice 2 of 2017, which

included a Compliance Report Template that was published in

November 2017, but only became effective on 1st April 2018.

The Regulations oblige all JSE listed companies to submit a

compliance report to the B-BBEE Commission within 90 days of the

organisation’s financial year-end. The content must follow conformity,

be presented in the prescribed form and reflect transformation

initiatives and outcomes for each measured element on the scorecard

on which a company qualifies to be measured.

In 2003, Section 13 of the B-BBEE Act (The Act) paved the way for

the implementation of B-BBEE reporting requirements for JSE listed

companies.

Section13 F(1)(g) of the Act

specifies that it is a function of

the B-BBEE Commission; “to

receive and analyse such reports

as may be prescribed concerning

B-BBEE compliance from

organs-of-state, public entities

and private sector enterprises.”

Section13 G(2) of the Act

requires that; “All public

companies listed on the JSE

must provide to the B-BBEE

Commission, in such a manner

as may be prescribed, a report

on their compliance with

B-BBEE.”

The detail and manner of reporting are contained in the Regulations

(The Regulations), as gazetted in June 2016, Section 12(3) outlines the

requisite format, as well as the information required for submission.

It furthermore specifies that the Report “must be submitted to the

B-BBEE Commission within ninety (90) days of the financial year-end

of the JSE listed company’. A Report must contain1

:

Form B-BBEE-1

> This form is published as a Schedule to The Regulations

and provides the template for reporting. It compels ‘verified’

information, indicating the state of compliance with respect to the

following elements of a B-BBEE Scorecard:

○ Ownership;

○ Management Control;

○ Skills Development;

○ Enterprise and Supplier Development;

○ Socio-Economic Development; and

○ Any other sector-specific requirement.

> Verified B-BBEE Certificate - The use of the word ‘verified’

indicates that the information required must be in the form of a

SANAS accredited B-BBEE Certificate issued by an accredited

verification agency.

> Annual Financial Statements.

> Annual Report.

Explanatory Notice 2 of 2017 and the

Compliance Reporting Matrix

As of 1st April 2018, these announcements significantly expanded

the reporting requirements to the B-BBEE Commission for JSE listed

companies to include the following elements of a B-BBEE Scorecard:

Ownership and Management Control

A breakdown of the ownership and management structure must

consist of:

> Percentage of ‘Black’ Shareholders;

> Dividends declared by ‘Black’ Shareholders;

> The number of ‘Black’ Directors and Managers for each of the

following Occupational Levels:

○ Non-Executive Directors;

○ Executive Directors;

○ Senior Management;

○ Middle Management; and

○ Junior Management.

Skills Development

A breakdown of Skills Development expenditure and contributions for

‘Black’ People, which includes:

> Employees;

> Unemployed People;

> Learnerships, Apprenticeships and Internships;

> Total absorption.

Full details pertaining to the value of initiatives must be outlined and

broken down into the following categories.

> Race classification;

> Gender;

> Age in chronological order;

> Location by province; and

> Disability status.

Enterprise and Supplier Development

All contributions towards Supplier Development and Enterprise

Development activities must be itemised, highlighting the total amount

of ‘Black’ Beneficiaries that are EMEs and QSEs by:

> The percentage of ‘Black’ Ownership per Beneficiary; and

> The total value of each contribution.

Socio-Economic Development

All contributions to Beneficiaries must be categorised as follows:

> Total number of ‘Black’ Beneficiaries;

> Race classification;

> Gender;

> Geographical location; and

> The total value of initiatives.

Report Submission

Section 12(9) of the Regulations stipulate that upon receiving a Report,

the B-BBEE Commission will:

> Acknowledge receipt thereof within five days;

> Raise issues of non-compliance within 90 days; and

> Where necessary, grant the affected organisation 30 days to

address concerns. Alternatively, provide notification of

compliance2

.

“The collective power and influence

of JSE listed companies contribute

substantially to the economy.”

JSE Listing Requirements

The modus operandi of good governance and legislative compliance forms the foundation of the JSE. The amendments to the JSE Listing

Requirements, which became effective on 19th June 2017, aim to drive statutory B-BBEE Reporting, as outlined in Section 3.84(i), which regulates

the following ‘Continuing Obligations’:

> With immediate effect, to comply with the Act, a listed company shall publish their B-BBEE scorecard on their website;

> Notification thereof must be given to the JSE; and

> Publish SENS announcement.

Currently, no specific penalties or sanctions for non-compliance have been provided for, other than violating requirements. However, it has been

established that each violation will be evaluated on a case-by-case basis and dealt with under the JSE rules and processes.

Submission Observations

As part of its mandate to track and monitor the ‘ripple effect’ of transformation in South Africa, the B-BBEE Commissioner annually publishes the

‘National Status and Trends on Black Economic Empowerment Report’. In its 2018 edition, a section of this report detailed the compliance of

JSE listed companies based on the 2017 submissions. Out of the 401 JSE listed companies during this period, only 121 reports were received,

representing 30.17% of listed companies. Reports received represent the following sectors3

:

Based on the findings of the B-BBEE Commission report since the Regulations became effective, it is evident that many JSE listed companies have

not as yet adopted compliance reporting as part and parcel of being a listed company. However, this may be a result of these requirements being

newly legislated. Therefore, it is reasonable to expect an increase in submissions over the following reporting period.

At the forefront of the South African economy, it is essential for JSE listed companies to take the lead in transformation to generate the ‘ripple effect’

that will drive the economy and transformation alike. To this end, the transparency of B-BBEE achievements, via reporting obligation to the B-BBEE

Commission and the amended JSE listing requirements, are welcomed.