A front page story in today’s Business Day. EmpowerDEX conducted a survey of 99 listed companies and found that "companies with the highest empowerment ratings dramatically outperformed their peers when it came to growth in profit margins over the past three years. By contrast, the least empowered 50 companies saw their profit margins grow a more sedate 19% over those three years".
Chia-Chao Wu, the CEO of EmpowerDEX, stated in the article that “companies who have implemented broad-based empowerment enjoyed a higher improvement in their profit margins between 2003 and 2005. If empowerment was costly, we should have expected the opposite, that is growth in profit margins should slow, or go negative when a company maintains a high empowerment score.”
Good point about the cost vs benefits. I highlighted the words "broad-based empowerment" in the quote because I am not so sure that the measure in this survey was based on broad-based empowerment. I’ll explain.
The survey notes that the trend is most noticeable in sectors where government business plays a role. This is a very significant point. Government procurement is governed by the Preferential Procurement Policy Framework Act (PPPFA) and its accompanying regulations. The regulations use strict narrow-based criteria in determining the empowerment status of a tenderer. (The regulations will change to take broad-based BEE into account – a 2004 draft prescribes a scorecard for the 80/20 and 90/10 rules Download draft_preferential_procurement_regulations_2004.pdf).
If the government is the main customer then this survey was probably not based on strict broad-based criteria. I would like to see the results at the end of next year when broad-based scorecards are the de facto measure of empowerment.