The Blind Spot in the BEE Code

South Africa’s Gini coefficient is reported at approximately 0.70, reflecting one of the highest levels of income inequality in the world. This represents a widening gap from a baseline of 0.60 in 1993, rising to 0.68 in 2000 and 0.70 in 2008 (Leibbrandt et al., 2010, OECD Social, Employment and Migration Working Paper No. 101).

The Gini coefficient measures economic inequality, and a reading of 0.70 is far removed from the ideal of an equitable society—let alone an egalitarian one.

It would be unrealistic to suggest that Black Economic Empowerment (BEE) was ever designed to produce a perfectly egalitarian society. That would amount to a utopian expectation. However, it is reasonable to expect that BEE should contribute meaningfully to a society that not only proclaims equality and equity as values but actively practices them. The difference between utopia and realistic reform lies in building systems that progressively enable fair access to opportunity and economic participation.

The central question therefore remains: Can BEE deliver on this noble objective?

The Neutrality of the Act — and the Conduct of Its Practitioners

The BEE Act itself is neutral—much like money is neutral. Money does not harm people; rather, it is the love of money and the misuse of it that causes harm. Similarly, the shortcomings associated with BEE are not inherent in the legislation. They arise from how the Act is implemented and interpreted by practitioners, measured entities (MEs), consultants, and verification agencies (VAs).

Collusion, manipulation of scorecards, and the circumvention of the Codes—commonly referred to as fronting—remain persistent challenges within the BEE ecosystem. These practices distort the objectives of transformation and undermine the credibility of the entire system.

Lessons from Corporate Failure

The collapse of Enron and its auditor Arthur Andersen in the United States provides a cautionary parallel. Andersen’s demise in 2002 followed years of declining audit standards and conflicts of interest, where commercial relationships compromised professional independence. When Enron’s financial misconduct surfaced, Andersen’s credibility collapsed alongside its client’s.

While not comparable in scale, similar structural risks exist within the BEE verification environment. Verification agencies sign on clients who become part of their revenue streams. An agency-client relationship develops—not only financially, but often relationally. This dynamic can create conflicts of interest.

In instances where suspicious fronting practices arise, the question becomes: how independent can a verification agency truly be when its commercial viability depends on its client base? In practice, agencies may highlight obvious discrepancies, assist in “correcting” documentation, and ultimately issue certificates that enable clients to tender for business. Once issued—particularly under the SANAS logo—the authenticity of the certificate is rarely questioned.

Systemic Vulnerabilities in the Verification Framework

BEE can be—and in some cases is—manipulated by unscrupulous actors engaging in collusive behaviour to circumvent the Codes. Even where SANAS conducts audits, verification agencies may prepare sampling frames that omit problematic files. Clean records are presented, while questionable files are excluded from review.

In one observed instance during a five-year review, the sampling frame presented to SANAS did not reflect the full universe of verification files. Although random sampling still revealed audit queries, accreditation was ultimately maintained. This illustrates the structural vulnerability of a system that relies on external oversight while operating within a commercially driven environment.

The issue, therefore, is not isolated incidents of misconduct. It reflects systemic risk embedded in the design of the verification model itself.

Can BEE Succeed Under the Current Model?

If fronting and circumvention persist at scale, BEE cannot achieve its transformative objectives. Simply transferring verification responsibilities to audit firms or legal practices does not remove the conflict of interest; it merely relocates it. Market-based verification models inherently carry commercial pressures that may compromise independence.

Transformation is too critical to South Africa’s economic future to be left entirely to market forces.

A Case for Structural Reform

A paradigm shift is required in the BEE verification framework. I propose that government assume direct responsibility for BEE verification through a dedicated department or by expanding the mandate of the B-BBEE Commission to include verification and certification functions—not merely monitoring and evaluation after the fact.

Currently, oversight mechanisms often operate retrospectively—addressing issues once damage has already occurred. What is needed instead is a preventative, integrated quality management system that embeds integrity into the verification process from the outset.

If reform is not undertaken, the BEE verification industry risks remaining the weakest link in South Africa’s transformation agenda. Circumvention of the Codes appears not to be sporadic but systemic. Addressing it requires business process re-engineering and wholesale structural reform.

Conclusion

BEE was designed as a corrective instrument to expand meaningful economic participation. However, its success depends not only on legislative intent but on the integrity of its implementation framework.

If South Africa is to achieve measurable milestones in economic inclusion over the next five years and beyond, the verification system must be strengthened through institutional reform, independence safeguards, and robust quality controls.

Without such reform, the noble objectives of BEE risk being undermined by the very mechanisms meant to uphold them.