B-BBEE fronting remains a serious problem that requires urgent and effective intervention. That’s the conclusion reached by B-BBEE Commissioner, Zodwa Ntuli. Addressing the Black Business Council Summit in 2021, Ntuli said any company found misstating their B-BBEE status should have their licence terminated.
Even as things stand, the practice of fronting – which the Department of Trade, Industry and Competition defines as “a deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes” – is not without regulatory risk.
Security company G4S recently made headlines when they were ordered to compensate workers after the company was found to be engaged in a fronting scheme.
While some analysts worry that penalties for fronting are often ineffectual, businesses will need to be vigilant going forward as authorities look to more effectively crack down more effectively on the practice. From a legal perspective, the High Court ruling that fronting is not defined by a deliberate misrepresentation to the relevant body could give authorities more leeway to punish the practice. Simply put, B-BBBE initiatives that do not meet the standards set out by the B-BBEE regulations could land businesses in hot water.
However, a serious analysis of the causes and consequences of fronting should go beyond simply considering potential legal jeopardy. The prevalence of fronting is evidence, in part, of the real challenges businesses face meeting their B-BBBEE goals. Importantly, it’s also a sign that too many businesses are missing out on opportunities to leverage B-BBEE to enhance their operations and make a positive social impact.
Fronting is rarely socially neutral
If we think of B-BBBEE as just another compliance requirement, then we may be tempted to take a relatively sympathetic view of B-BBEE fronting. Sure, fronting won’t advance the goals set out by B-BBBEE policymakers, but in the real world, the occasional empty box-ticking exercise never hurt anyone.
Unfortunately, fronting is invariably actively exclusionary. As Shai et al. crisply summarise in the journal Sustainability, fronting often involves appointing black people to the organisation but then discouraging them from participating in key business activities or decision-making. Moreover, fronting often takes the form of a company secures a competitive B-BBEE rating but diverts investment away from the black participants whose involvement was key to the awarding of the rating.
In both these cases, fronting doesn’t just go against the strict letter of the B-BBEE laws, it’s diametrically opposed to its spirit.
Structural challenges to meeting B-BBEE requirements
However, it would be too simplistic to suggest that fronting is simply the result of lazy managers or corporate malfeasance. Beyond simplistic answers about generalised corruption or not taking regulations seriously, we should appreciate that many businesses encounter real difficulties when trying to implement serious B-BBEE initiatives.
Often these take the form of chicken-and-egg type scenarios whereby the very reasons that make B-BBEE so urgent also make it often difficult to implement. For example, it is still the case that too many Black entrepreneurs lack access to capital. That in turn can pose challenges when businesses are seeking to address the Ownership element of the B-BBEE scorecard.
At a high level, the B-BBBEE codes are designed to address these tensions. By providing tools to grow a more inclusive economy, we can create a virtuous cycle by which even more inclusive growth is possible.
But on a practical level, B-BBEE compliance involves real challenges that need creative insight and strategic vision to overcome.
Build it … and they’ll front?
Surveying the construction industry, Emuze and Adlam lay out many of the practical complexities of practically implementing.
The authors identify a number of obstacles that construction companies face. Unsurprisingly, they found that potential Black partners often lack the capital to account for the transaction costs when engaging in shareholding contracts.
Of course, Ownership is only one element of the Scorecard. However, other elements also pose challenges. In one of the examples analysed by the authors, construction firms are often frustrated by Skills Development initiatives because there is generally no immediate return on investment. In addition, companies report concern about losing skilled Black employees to competitors.
These practical frustrations suggest that companies need to develop B-BBEE strategies that enhance employee talent and help realise each business’s values in a sustainable way that aligns with its strategic goals.
Analysing your own operations and goals
As authorities vow to crack down, businesses are starting to appreciate that there are no simple B-BBEE quick fixes.
The heads of Investigations and Enforcement at the B-BBEE Commission, Moipone Kgaboesele, was recently reported saying that the Commission is taking a much tougher line on fronting, insisting that “we will not hesitate to refer entities for prosecution and the cancellation of licences and contracts awarded.”
Kgaboesele also said that businesses have no excuse for ignorance of the law: “We also provide free advice, so there is no excuse not to do the right thing now”.
However, we should draw a distinction between simply understanding what B-BBEE laws require and knowing how to actually achieve a successful B-BBEE programme. After all, if you’re serious about improving your scorecard and creating a positive impact, you need advice that considers your business at a deep operational level. That’s not something you can get from a disinterested third party, no matter their level of regulatory expertise.
Customised advice to align the B-BBEE framework to your vision
There are no shortcuts to B-BBEE compliance. But that’s because there are no shortcuts to real transformation. That said, the B-BBEE Codes are more flexible than many managers realise. The complexity and apparent administrative hassle can cloud the real opportunities B-BBEE presents, such as upskilling your workforce and enhancing the quality and reliability of your suppliers, while helping build a more inclusive economy.
But while there may not be shortcuts, there are effective, innovative B-BBEE solutions that are especially designed to meet your company’s long-term goals and values. BEE123 was founded on precisely that ethos. We carefully consider our clients’ operations, structure, processes and values and partner with them to devise sustainable and impactful B-BBEE strategies.
Give BEE123 a call to start your journey to genuine transformation and impact.