The B-BBEE commission held a conference to outline the new legislation around fronting.
Here are the things you need to know.
What is fronting?
Fronting in current legislation is described as a process where a company deliberately seeks to circumvent the B-BBEE codes. I.e. producing misleading information so as to not comply.
A typical example of this is when a company puts a junior black employee on official director’s documents. The junior employee may not know they have been added to the documents, they will not have any decision making power in the company, nor draw an income from the position.
2) Why do companies front?
Firstly, so they do not incur the financial expenditure of paying the salary. In addition they do not have to incur the extent of the cost of the other B-BBEE elements on the scorecard like Enterprise and Supplier development and Skills Development.
Secondly, perception. Being partially black owned looks good on paper.
3) What does the new legislation entail?
The B-BBEE commission is clamping down on fronting. They are companies more vigorously and if companies are caught fronting they will face pretty drastic consequences.
4) What are the implications if a company is caught fronting?
Companies caught fronting will either be charged a fine of R10 million or 10% of their turnover depending on which is higher.
They will be placed on a “no trade” list whereby state owned companies will not be allowed to trade with them and they will not be allowed to tender.
5) What if you are trading with a company that is fronting?
Companies who trade with fronting companies will be investigated and could be charged as being an accessory. We are unsure yet what the implications will be here but we assume they will be in the form of a less severe fine.