Today was our first day at Edge Growth, a social private equity fund in Johannesburg. To understand what the company does it's important to first understand the country's Black Economic Empowerment (BEE) program. BEE was launched in 2007 in an attempt to address inequality in education, skill development, and overall opportunity as a result of Apartheid.
BEE functions as a scorecard that gives companies points across seven "pillars". Companies earn points in each pillar up to a fixed maximum and receive a total score out of 100. Based on that score they're assigned a rating from Level 1 (best) to Level 8 (worst). Small businesses (annual revenues under R5m, or $588K) are exempt from BEE auditing, and larger companies are assigned automatic BEE scores based on revenue bracket until they complete their own audit. The scorecard pillars are:
1. Ownership - percent of company owned by black individuals (target = 25+%)
2. Management Control - black representation in active senior management (target = 50+%)
3. Employee Equity - percent of black employees overall and in management (target = 60% overall, 40% management)
4. Skill Development - percent of skills development funds spent on black employees (target = 3% of payroll)
5. Preferential Procurement - percent of suppliers who meet a given (high) BEE level (target = 40-50%)
6. Enterprise Development - percent of net profits dedicated to ED (target = 2-3%)
7. Socioeconomic Development - percent of net profits dedicated to SED (target = 1%)
Edge Growth fills a gap created by #6. South African companies must spend 2-3% of net profits on enterprise development in order to maximize their BEE result. Execution is a huge problem. Large companies try their own ED programs and often fail because they lack appropriate ED strategy, expertise, and/or human capital. Smaller companies often lack the time to even think about ED until a week before their annual BEE audit.
Enter Edge Growth.
They design ED strategies and implementation plans for corporations, and manage ED funds for both individual corporations and for groups of corporations. One example of a recent investment was the purchase of two vehicles for a small taxi company focused on women's safety - they hire female drivers to pick up female passengers in trademark pink taxi-cabs. In addition to being incredibly warm and welcoming, the Edge Growth folks also seem sharp and passionate, with strong business backgrounds and personal commitment to job creation. The company was the first of its kind and seems to be doing tremendously well. On to day #2! :)
BEE functions as a scorecard that gives companies points across seven "pillars". Companies earn points in each pillar up to a fixed maximum and receive a total score out of 100. Based on that score they're assigned a rating from Level 1 (best) to Level 8 (worst). Small businesses (annual revenues under R5m, or $588K) are exempt from BEE auditing, and larger companies are assigned automatic BEE scores based on revenue bracket until they complete their own audit. The scorecard pillars are:
1. Ownership - percent of company owned by black individuals (target = 25+%)
2. Management Control - black representation in active senior management (target = 50+%)
3. Employee Equity - percent of black employees overall and in management (target = 60% overall, 40% management)
4. Skill Development - percent of skills development funds spent on black employees (target = 3% of payroll)
5. Preferential Procurement - percent of suppliers who meet a given (high) BEE level (target = 40-50%)
6. Enterprise Development - percent of net profits dedicated to ED (target = 2-3%)
7. Socioeconomic Development - percent of net profits dedicated to SED (target = 1%)
Edge Growth fills a gap created by #6. South African companies must spend 2-3% of net profits on enterprise development in order to maximize their BEE result. Execution is a huge problem. Large companies try their own ED programs and often fail because they lack appropriate ED strategy, expertise, and/or human capital. Smaller companies often lack the time to even think about ED until a week before their annual BEE audit.
Enter Edge Growth.
They design ED strategies and implementation plans for corporations, and manage ED funds for both individual corporations and for groups of corporations. One example of a recent investment was the purchase of two vehicles for a small taxi company focused on women's safety - they hire female drivers to pick up female passengers in trademark pink taxi-cabs. In addition to being incredibly warm and welcoming, the Edge Growth folks also seem sharp and passionate, with strong business backgrounds and personal commitment to job creation. The company was the first of its kind and seems to be doing tremendously well. On to day #2! :)
“Poverty is unnecessary. People are capable of getting themselves out of
poverty. All they need is opportunities. They are not waiting for
charity or handouts. Charity is good, but it is not good enough. If you
turn it into a business proposition, then it’s very powerful, because it
can run on its own steam."
That sounds pretty awesome and very worth-while. How big is the office?
ReplyDeleteWe're not sure, entirely. They had 11 people a few months ago, but it seems they've had a hiring spree, and there are apparently a few interns joining us next week. Maybe 20?
ReplyDeleteHm, interesting and comprehensive scorecard. Can you talk a bit about the definitions of Enterprise Development and Socioeconomic Development - what kinds of programs qualify for each? And are there advantages to a high BEE level other than being favored as a supplier by larger corporations because of the recursive Preferential Procurement part?
ReplyDeleteI believe, in short, ED is generally used to fund for-profit ventures. Think micro to med sized start-ups. SED funds are targeted for non-profit ventures and tend to focus more on addressing issues in areas such as education, access to food, etc. In answer to your second question, all government contracts require good BEE levels, and apparently many corporations have internal policies about what BEE level companies they will work with, above and beyond the Preferential Procurement guidelines.
ReplyDeleteThank you for the definitions! I'm trying to imagine what kinds of corporate social responsibility the US would all-but-mandate if there were a similar program here. Ownership restrictions would be a very tough sell, for example.
ReplyDeleteTrue. The trick is that it's CSR in direct response to years and years of Apartheid. Interestingly, we haven't really heard the term mentioned much (if at all) in our time here so far. Nor have we heard anything much against or even questioning BEE. I spent some time googling phrases such as "Does BEE work?" and was surprised at how few responses there were. I get the sense it might be politically incorrect to question BEE at this point in time.
ReplyDelete