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I recently came across a “transformed” 51% Black-owned company who flashed their Level-2 Broad-Based Black Economic Empowerment (B-BBEE) credentials to all and sundry as they continued to stand in the front of the line successfully winning tenders and retaining contracts with large corporations that they did business with prior to their “B-BBEE transformation”.

I say “transformed”, because upon closer investigation, their status comes from the 51% shareholding held by a “creatively” registered trust for black employees of the business.  The 49% white shareholders and directors are also the trustees of the trust while the black employees, as beneficiaries, do not have any veto rights or say in the running or decision-making of the trust.  In this case, the actual decision-makers and profit-takers remain white and could now find economic benefit that has flowed through to the trust, since inception more than five years ago.

The disheartening and disappointing part of the aforementioned is how a typical case of fronting has gone undetected for so long while our government has come up with so many programs, regulations and legal requirements to be enforced so as to ensure the freedom, inclusion and transformation that we fought for and still long for.  Yet 27 years later, we remain one of the most unequal countries in the world!

Fronting is a case of “Same script, different cast” … (thank you, Deborah Cox and Whitney Houston)

In 2016, the Department of Trade and Industry (DTI), found that a shocking 70 out of 109 companies surveyed that year were fronting and circumventing the B-BBEE Codes of Good Practice.  In my line of work, there are so many companies that are said to be “Black Owned”, yet the said black owners are not in control of those companies nor gaining the expected economic benefit equating to their shareholding. 

What’s more, in many other cases, black staff are given directorship titles that represent responsibility they don’t actually hold. They realise zero share in the profits being made while, unfortunately, in the event of loss or reputational damage, those very same ‘directors’ will still be held liable.

In fact, two out of ten companies seeking certification with our organisation, the South African Supplier Diversity Council (SASDC), are found to be fronting.  The sad part of these scenarios are that some of the black individuals knowingly get involved in such schemes, while others, unknowingly or through ignorance, fall victim to such practices.  Of course, it is a known fact that ignorance of the law is no excuse. The perpetrators on the other hand are quick to claim that they were advised by their lawyers or accountants to structure the companies the way they have and they believed all was above board.

Begs the question - is B-BBEE the yellow brick road to the much needed empowerment and transformation that we endeavour for as a country? 

The Oxford English Dictionary (OED – 3rd edition, 2018) defines the American-English phrase “yellow brick road” as denoting a course of action or series of events viewed as a path to a particular (especially positive or desired) outcome or goal. 

While the current B-BBEE policy environment aims to include the participation of Black South Africans in the mainstream economy through access to markets and exposure to economic opportunity as a whole, it is sometimes hard for me to see it really bearing any of its intended fruit.  There have been amendments to the B-BBEE Act and its associated Codes of Good Practice to ensure that the scales are tipping more in favour of Black citizens, but in so doing, other loopholes have been created.

I can therefore only conclude that the Yellow Brick Road to Empowerment is paved with good intentions, my adaptation of the common idiom and expression “The road to hell is paved with good intentions”.  Why chose to share my view through this statement you may ask – because this expresses my view that good intentions don’t necessarily guarantee good results, and that good intentions matter little—if at all—if they don’t end in good outcomes.

There are a few ways to interpret this phrase and its application to fronting in the context of B-BBEE:

• People often intend to do good but then fail to do anything at all: Their procrastination and inaction doesn’t produce a good result and, in fact, could actually lead to a bad outcome. In this scenario, good intentions without good actions are at best meaningless and at worst harmful.

Many corporations publicly declare their support and commitment to transformation in the country, including their support of SMMEs and black businesses through their procurement.  Many of them have in the past, and still, continue to promote the ownership transformation of current white owned EMEs and QSEs, very often incentivising them to achieve 51% black ownership.   

Once this is done by these targeted suppliers, the corporates continue to do business with those same suppliers without interrogating the legitimacy of the new ownership structure.  By doing so, they don’t open up opportunities for new legitimate black owned businesses.  These corporates end up achieving better B-BBEE scorecards while failing to do nothing at all.

It is also common practice for procurement or supply chain departments to simply ask for the affidavits or BEE certificates from suppliers that they transact with.  This is the most important document to ensure their own compliance reporting.  Perhaps the biggest problem is that the whole process is driven from a compliance perspective and thus ends up being a tick box exercise by form instead of a transformation objective by substance.

In both cases, this complacency and inaction has created an environment that promotes instead of deters fronting.

• People can often hide behind good intentions: they can commit an action that results in a bad outcome under the guise of doing good. A case in point are white businesses owners who transform their business to 51% Black owned by “gifting” 51% shareholding to loyal black employees either directly or in the form of employee trusts.

Once this has happened, nothing else changes in the business – there is no skills transfer and capacity building and economic benefit is minimized to comply with legislation.  In such situations (and I have my experience with those) no economic empowerment takes place but at the same time the white business owner paternalistically feels that they have given their chosen black staff an opportunity that nobody else would have given them.  The business continues to benefit from the fronting practice while such benefits do not accrue to the majority Black shareholders.

• When acted upon, even the best of intentions can have negative unintended consequences: In 2010, the then Minister of Trade and Industry, Rob Davies, made the following statement in relation to fronting:

“It is not just the obvious one, where you take the factory-floor worker and call him the managing director…It’s now beginning to involve accountants, lawyers and verification agents that are giving people ideas of more sophisticated ways to front…Fronting is becoming analogous to tax avoidance and tax evasion”. 

This was largely part of the reason for amending the B-BBEE Act and revising the B-BBEE Codes of Good Practice.

In October 2013, Government implemented amendments to the B-BBEE Act to criminalize fronting practices while revising the B-BBEE Codes to provide Black owned EMEs and QSEs enhanced recognition (Level 1 and 2) and removing B-BBEE compliance cost barriers to small businesses, especially for small and medium sized Black owned businesses, through the introduction of sworn affidavits.  At the same time, these revisions included increased spend targets of measured entities for them to procure more from EMEs and QSEs, and especially Black owned entities. 

This is reasonable and much needed - you would think

But the unintended consequence was the removal of an independent third party to verify ownership and business size credentials while placing responsibility on business owners to self-verify through sworn affidavits.  Bearing in mind that with sworn affidavits the onus lies with the deposer for should he/she be found to have lied under oath, the individual concerned may be charged with fraud as a criminal offence.  

However, how many of these deposers really care or even consider the outcome in the event that they have lied under oath?  

The fact is the reliance on affidavits for confirmation of B-BBEE has made fronting rifer because there is no independent third party asking the hard questions and policing the whole process.  Coupled to this is the failure to appropriately act on the part of many corporates to ensure that they do not transact with fronting businesses – thus once again perpetuating this practice.

Here @SASDCOUNCIL, we aim to achieve the economic inclusion of black businesses by leveraging corporate procurement market access through sustainable supplier diversity.  Because to us real #BlackSuppliersMatter. 

As a supplier diversity advocacy organisation, led and governed by member corporations, the SASDC verifies the key credentials of Black Suppliers and certifies them as Black owned, managed and controlled through our proprietary due-diligence methodology developed in collaboration with our corporates and other strategic partners.  We exceed simply establishing and maintaining a database of certified bona fide black suppliers. Our value proposition is in our network of professionals committed to supplier diversity in South Africa, enabling our members to practice supplier diversity as a strategic business objective.

We encourage business owners, procurement and supply chain managers to partner with us

We encourage bona fide black businesses to certify and become part of the SASDC and for corporates to commit to doing business with them.  Through these linkages, we believe we can bring about the real economic inclusion of black business and economic transformation aligned to the goals of the National Development Plan (NDP).

Even though fronting is a criminal offence - in my view, it is right up there with corruption and therefore a gross violation of human rights – so many still find the loopholes and rob a system that is paved with good intentions. The sad reality, is that these collective acts of selfishness are keeping our country in the doldrums and on the verge of a real socio-economic crisis. One that will continue to affect our children and future generations to come. 

We have just celebrated Human Rights Day, and soon, on 27^th April, we will be celebrating Freedom Day.  That said, I wonder if we even ponder the most obvious question anymore: Are we truly free as Black people when economic opportunity continues to evade most of us due to some of us?

But what can you do? Be aware of fronting.  Look beyond the piece of paper that is being presented and perform a thorough due diligence of the supplier concerned. If you are a procurement officer or supply chain specialist, ask yourself, is the company you are doing business with actually as black as they claims to be?

As we journey along our Yellow Brick Road, I am reminded by the words of President Nelson Mandela (MHDSRIP) in his autobiography, Long Walk to Freedom: “But I can only rest for a moment, for with freedom come responsibilities, and I dare not linger, for my long walk is not ended.”

Let us all become the headlights for lighting up the dark fronting tunnel that obscures the Yellow Brick Road to transformation.

7^th May 2021- Today, the South African Supplier Diversity Council (SASDC) would like to congratulate Swift Worldwide Logistics, a proudly South African Freight Forwarding company with level-1 B-BBEE compliance on successfully partnering with BBC Chartering to move equipment, that will be fitted onto what will become, the world’s largest diamond recovery vessel in the world.

Last week, the multipurpose heavy-lift vessel BBC PEARL, operated by BBC Chartering, successfully loaded two tower units and accompanying accessories in the Port of Tallinn, Estonia. Swift Worldwide Logistics entrusted the German multipurpose and heavy shipping specialist BBC Chartering with the transport of this equipment weighing a total of 423 metric tons from Estonia to South Africa.

Says Trevor Govender, Managing Director of Swift Worldwide Logistics, “This was a great opportunity for us to handle a project shipment of this type providing an end to end solution for our client. Normally the freight forwarding opportunities for these types of shipments are afforded to foreign companies based at the point of origin of the cargo, so it is quite a big thing that a black-owned South African company has been afforded the opportunity to handle this and showcase our capabilities.  Swift Worldwide Logistics has been in operation for 35 years and have grown from strength to strength. I can also say that since certifying with the SASDC, our opportunities and visibility has increased and enabled our mission of growing strong global partner networks which allow us to offer our clients world class end to end freight solutions.”

Says Gary Joseph, CEO of the SASDC, “The primary goal of the SASDC is to promote supplier diversity by encouraging, supporting and assisting its member corporations to open up procurement opportunities and progressively increase their transactions with certified black-owned businesses.  This is an incredible milestone achievement for Swift Logistics and we hope they grow from strength to strength serving as an inspiration for more black businesses to participate and benefit in the opportunities of a global economy.”

Visit  https://www.swiftwl.co.za/news/ for more on this milestone achievement

According to a report released by McKinsey Group, SMEs across South Africa represent more than 98 percent of businesses, employ between 50 and 60 percent of the country’s workforce across all sectors, and are responsible for a quarter of job growth in the private sector. Formal SMEs contribute up to 40% of national income. The importance of SMEs is even higher when informal SMEs are included. One can safely say, SMEs are crucial to meeting the challenges of unemployment, inequality and transformation.

For the past decade, the South African Supplier Diversity Council has recognised the vital role black business can play in supporting the National Development Plan for 2030. As such, the SASDC has made it our mission to facilitate linkages between certified black owned businesses and corporate members who support this cause of creating a diverse, transformed and inclusive economy.  To this end, the SASDC provides a host of different advisory and implementation services to its corporate members for enabling supplier diversity in its supply chains and unlocking procurement opportunities for black businesses.

Making an impact

One such member, intent on making an impact in the transformation mission of the country is C. Steinweg Logistics (Pty) Ltd (C. Steinweg Logistics), a totally integrated logistics service provider with a well-established footprint of blue chip clients in the agriculture, mining and minerals, project cargo, bulk containerised commodities, raw materials, as well as the chemical and plastics industry segments throughout Sub-Saharan Africa countries.

C. Steinweg Logistics had been buying meals for their night staff every day for years.  Although a good initiative, it wasn’t however the most optimised solution – meals available were not always supportive of a healthy, balanced diet and costs would vary making it difficult to control operationally.

A better solution was born

The immediate solution would have been to outsource this requirement to an established catering company for supplying meals to the night staff.

But C. Steinweg Logistics, who is also a corporate member of the SASDC, intent on driving diversity and inclusion in their procurement and supply chains, instead saw an opportunity to empower one of their own. They had for many years, employed Mr Vincent Mathonsi as its chef for cooking meals for the executive team and for all in-house functions. 

This created an opportunity for Vincent to grow from employee to business owner by him continuing to service his original portfolio while also catering for the night staff. Whilst Vincent had the prerequisite culinary skills, he didn’t have experience in running a business.

Connections supported with upskilling make good business sense

As part of the SASDC’s service offering to Steinweg Logisitcs, a selection process to find a youth-owned, township based catering businesses was undertaken. The SASDC selected three companies to compete in a pitch process to a panel of decision makers consisting of C. Steinweg Logistics and SASDC members to be considered for the business.

The Winner is…

Shanko’s, a black-owned gourmet kitchen, run by Zamokuhle Siyabonga Ngema, in the KwaMashu township of KwaZulu Natal was selected through this process.   

By bringing the parties together, an 80/20 joint venture was established with the idea that Zamokuhle contributes his business skills and Vincent his culinary expertise to the new partnership.

Besides C. Steinweg Logistics connecting the two – the organisation also wanted to ensure the success of the partnership and sustainable business growth. As such they have been guiding and supporting the parties throughout the process in several ways:

• Financial support: Covering certain overheads such as electricity, rent, staff salaries for a year. They even covered the cost for Zamakuhle to find a suitable container for the mobile kitchen, the equipment needed as well. This will support the business as they gear up for growth.
• Recruitment of vendors: Steinweg enlisted the SASDC to assist with advertising for potential vendors and conducted and facilitated a series of interviews.
• Appointment of an independent attorney: to provide assistance in getting the business license, council the two partners and draw up the shareholders’ agreement.
• Compliance and Regulation: Then they were also supported in ensuring that compliance and certification of the business was correctly done.
• Meeting Facilitation: to ensure the parties understood and were making decisions every step of the way and understanding their individual accountability to the business and each other.
• Recruitment of staff: They also offered support in recruiting four new staff members.
• Launch of the new business

The Outcome

It has been a month since the launch of Shanko’s Mobile Kitchen at C. Steinweg Logistics premises in Durban. All C. Steinweg Logistics’ employees and partners can now buy Shanko’s meals on-site at discounted rates until 7pm every night and even take-away these warm, hearty home-cooked meals.

This joint venture not only resulted in the first Shanko’s franchising opportunity for Zamokuhle, but also ownership in a new venture for Vincent and the employment of 4 new staff members.

Why is this important?

 “Transformation and inclusion in our supply chains is essential to the development, equality and job creation goals of our country. The SASDC is incredibly proud to have been part of the solution and we further commend C. Steinweg Logistics on the role they have played in creating a new opportunity and market for an emerging black business.  My hope is that more organisations in both the private and public sector are inspired by the difference “thinking-with-a-mission” makes in regard to attaining the change we so desperately need in the country. For us, we continue driving our mission to make opportunities accessible for black suppliers because #BlackSuppliersMatter,” says Gary Joseph, CEO of the SASDC.

Mr Grant Clarke is the Managing Director of C. Steinweg Logistics, a subsidiary of one of the largest exporters of containerised cargo by rail in Southern Africa, C. Steinweg Bridge (Pty) Ltd.  

Mr. Clarke has a wide range of experience in various industries, and has fostered his career at several blue chip South African companies. His strong problem solving and lateral thinking skills has contributed to his success at the helm of C. Steinweg Logistics, a leading and growing Level 1 B-BBEE Clearing and Forwarding business.

Mr. Clarke is a seasoned director who comes with many years of supply chain, transport and logistics expertise that will add tremendous value to the SASDC.  He is a qualified Mechanical Engineer and is in the process of finalising his research report for concluding his MBA at Wits Business School.

“I’m ecstatic at the opportunity to be able to use the skills I’ve been fortunate to acquire over the years to drive change. There is a limited ability within one business to drive transformation, and I believe that the SASDC will expand that reach. I’m also excited to learn even more from my fellow Board Members over the next year,” said Mr. Clarke.

In regard to how his values aligns with the council and its mission, Mr. Clarke adds: “I believe that if I had been asked to write my own set, they could be superimposed on one another. The SASDC has set out to create sustainable transformation and in the process has become trusted in verifying the true credentials of transformed businesses. This eliminates the ability for fronting and unlocks competitiveness for legitimate black businesses.

“Laws and Rules create resistance to change and people tend to push back when they get told they have to. The SASDC changes the approach to one of creating change not forcing change. The more like-minded companies and individuals that work together and prove that transformed businesses are more successful, the more likely people will be to adopt this change.”