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Black Economic Empowerment
Embracing The Process of Black Economic Empowerment In Shell
The Black Economic Empowerment Charter
Mindful of :
- The imperatives of redressing historical, social and economic inequalities as stated by the Constitution of the Republic of South Africa, inter alia Section 9 on Equality (and unfair discrimination) in the Bill of Rights;
- The policy objective stated in the Energy Policy White Paper to achieve "sustainable presence, ownership or control by historically disadvantaged South Africans of a quarter of all facets of the liquid fuels industry, or plans to achieve this";
- The Black Economic Empowerment Commission's definition of empowerment as "an integrated strategy aimed at substantially increasing black participation at all levels of the population";
Shell participated together with the other members of the Petroleum Industry to develop a the Charter to provide a framework for progressing the empowerment of historically disadvantaged South Africans in the liquid fuels industry.
The Charter applies to the privately owned parts of the liquid fuels industry and to all parts of the value chain, inter alia:
- Exploration and production of oil
- Liquid fuels pipelines, single buoy moorings (SBMs), depots and storage tanks
- Oil refining and synthetic fuel manufacturing plants, including lubricants
- Transport, including road haulage and coastal shipping
- Trading, including import and export
- Wholesale and retail assets/infrastructure.
The following terms were agreed in the Charter:
- The term historically disadvantaged South Africans (HDSA) refers to all persons and groups who have been discriminated against on the basis of race, gender and/or disability.
- HDSA companies are those companies that are owned or controlled by historically disadvantaged South Africans, which operate on a basis to meet all aspects of this Charter. These companies, which operate within and supply the industry, submit affidavits to Government reconfirming their ownership status in December of each year. Government publishes this list annually.
- Ownership refers to equity participation and the ability to exercise rights and obligations that accrue under such ownership.
- Control of a business entity can be achieved in a number of ways: (a) a majority shareholding position i.e. 50% + 1 share; (b) an effective controlling shareholding; (c) a majority of a board of directors; and/or (d) a shareholders agreement.
- Sustainability refers to: - medium to long-term viability and adaptability through a presence across all facets of the liquid fuels value chain; ventures with prospects of long-term profitability; requisite levels of skills and access to technology.
- A quarter of all facets of the liquid fuels industry, or plans to achieve this
The 25% ownership and control of all facets of the industry that the parties to this Charter are seeking to bring about over a ten-year period means HDSA's owning in total, by the end of that period, not less than 25% of the aggregate value of the equity of the various entities that hold the operating assets of the South African oil industry.
The parties to the Charter agree that the measurement of the extent of the achievement of this target of 25% of the aggregate value of the equity will be based on the asset values per the audited accounts of the entities concerned.
Shell as a signatory to the Charter, undertook to foster a supportive culture when dealing with HDSA's.
By signing the Charter, Shell subscribe to incorporating and driving a process of transformation and a change of culture in its statement of business principles.
Black Economic Empowerment In Shell
In this document we reflect upon the Empowerment journey that we have traveled in South Africa. We revisit our efforts in respect of the three components of Empowerment - employment equity, diversity management and Black Economic Empowerment. We examine some of the mistakes we have made, the challenges ahead, and our strategy for meeting these challenges
Throughout its long association with South Africa Shell has played an important role in the country, not only as a premier oil company, but also, as a committed corporate citizen and change agent. Today Shell is recognized by all of its stakeholders as a key player in the process of change and transformation of the country.
Shell committed itself to working with the South African Government to achieve its BEE aspirations and Shell's existing BEE programs: employment equity; affirmative procurement; transforming the profile of its retail dealer network and resellers and the development of SMME's is indeed being given impetus.
In a major move to underscore its commitment to South Africa Shell has made available to Historically Disadvantaged South Africans the opportunity to acquire up to 25% of the equity of the Oil Products businesses in Shell South Africa (PTY) Ltd. It is Shell's specific intention that these shares benefit those communities that were disadvantaged during South Africa's Apartheid era and that they form the basis for a sustainable Black Economic Empowerment ("BEE") presence in the oil industry.
Current BEE initiatives are based on local S.A. environment and policies of the local government and not a precedent for any other country. However, we foresee that we may have to develop a similar document to cater for the empowerment initiatives for the Shell companies in the other countries within the Shell Southern Africa Cluster.
What Drives Shell's Empowerment Initiatives
Shell has been engaged in BEE initiatives (employment equity, diversity management and black Economic Partnerships) for more than a decade.
Shell's employment-equity programme has been designed to correct past discrimination against designated groups of people, including black people, women and disabled people. Shell actively and proactively recruits black people to fill vacancies at all levels of the company.
This will enable Shell to enjoy the benefits of a workforce comprising people from diverse backgrounds with diverse skills and cultures. Our progress with employment equity is measured in terms of the numbers of people from designated groups in Shell's workforce.
The aim of our diversity-management programme is to create and sustain a work environment that values and builds upon individual differences to create a competitive advantage. We view diversity management as a long-term change process that centres on the organisational culture, systems and demographics of Shell. We recognise that, although people are often drawn together by what they have in common, it is often the differences that stimulate creativity. We recognise also that sound diversity management will remove barriers to the advancement of black people and women, and break down barriers to creative problem solving.
Shell's black economic empowerment policy is directed at redressing economic imbalances within the company, within the oil industry in South Africa, and in the South African business world generally. Our initiatives in this regard focus on:
Developing businesses - developing and empowering integrated black-owned companies; and entering into joint ventures and partnerships with black-owned companies.
Developing suppliers - procuring goods and services from black-owned or black-run suppliers.
Serving customers - serving new retail and commercial customers from black communities.
Social investment - investing in entrepreneurship training, literacy training, various education projects and sustainable development projects.
Employment Equity Philosophy
In South Africa, where the population is racially, culturally and ethnically diverse, Shell has a particularly diverse customer and supplier base. Thus, our employment-equity programme is not driven only by legislative requirements but also by our business needs. We need to have a diverse employee base that can identify and understand customer needs and translate these needs into effective products and services. A diverse workforce will also enable us to inter-act better with our stakeholders. However, we will not gain a competitive advantage if individual differences are not respected and utilized.
Since the early 1980s we have actively recruited from a diverse and talented pool of candidates. In particular, we have sought to attract HDSA's, and sought to be the company of first choice for these candidates. We did indeed succeed in attracting these candidates, but several chose not to stay with us. Shell developed a reputation as the "trainer of first choice" rather than the employer of first choice. With our reputation as a good trainer, we are vulnerable to "poaching" by other companies. Although Shell is among the industry leaders in this respect, we are working hard on improving the representation of black people and women in Shell's management team. The challenge is a tough one, because the environment is highly competitive and becoming increasingly so.
Shell has in place an Employment Equity Consultative Group (EECG), which has been working energetically on employment equity issues since the beginning of 2000. The 10 EECG members are a diverse group of people in terms of race, gender and seniority. They are well informed on employment-equity issues and are dedicated to securing Shell's place as a leader in the future South African economy.
Diversity Management Practices
Shell South Africa is committed to promoting the work of Shell's Global Diversity Practice, the primary role of which is to support the operating companies in achieving their respective diversity objectives. We welcome the advice and assistance promised by the Diversity Practice to:
- influence the integration of diversity into our business and human resources strategies;
- develop and provide processes, tools and consultative services to facilitate implementation and progress;
- add value through leadership, leading-edge practices and subject-matter expertise;
- help build our internal capability and skills through transference of knowledge and sharing of best practices.
- We also welcome the development, by the Shell Group's top management, of a Diversity Commitment and Policy document against which every business unit will be appraised as part of the normal business appraisal.
We will follow the Shell Group Diversity Operational Guide for achieving our diversity vision, which provides overarching direction to the business units in respect of four key areas:
Understanding the business connection: Our aim is to prove that sound diversity management improves financial performance.
Planning for success: We will show how our diversity aspirations can be achieved through focused effort, and through routine and critical business planning and people-strategy processes.
Leadership and accountability: Diversity objectives will be incorporated into the scorecards of business leaders at all levels. They will be accountable for developing and maintaining an environment that inherently promotes and encourages inclusion of all their staff.
Reputation and business growth: Our diversity work will reinforce Shell's commitment to building a better world. Ultimately, diversity will grow our business by making us more competitive.
In its procurement, outsourcing and contract awarding activities, Shell South Africa endeavors to demonstrate a tangible and deliverable commitment to black economic empowerment principles. SSA aims to empower integrated black owned companies to become viable competitors in the market place.
- affirmative procurement
- promoting subcontracting of HDSA/BEE companies
- developing a supportive culture in dealings with BEE suppliers
Within the SSA Procurement function there is a full-time BEE Procurement Analyst whose function it is to further the above initiatives. He is in regular contact with Empowerment Institutions.
In its Affirmative Procurement, Shell aims to:
- facilitate growth in terms of the efficiency and effectiveness of delivery as well as numbers and size of businesses owned by Historically Disadvantaged South Africans.
- ensure that emerging enterprises are brought into the mainstream economy by way of providing goods and services.
A significant step forward was made recently when the BEE/SMME focal points of Shell, BP, Caltex, Sasol, Engen and Total agreed to:
- share their databases of BEE suppliers
- have regular meetings to exchange ideas on dealing with such Suppliers
- possibly merge evaluation forms from the different companies, this will assist these enterprises to complete one form and be registered onto the databases of each oil company.
- following the implementation of the merging of the application forms, develop a oil industry database
Supplier education and development
Selecting the right supplier is one of the key commercial decisions that Shell regularly has to make. Suppliers which consistently deliver materials or services to specification, on time, and at the right total cost, make an important contribution to our effectiveness and profitability.
It is for this reason that Shell believes that it is important to invest the necessary time, effort and money in identifying, developing and maintaining relationships with Historically Disadvantaged South Africans (HDSA) suppliers who individually and collectively meet the needs of our business.
Currently, Shell spends around R800 million annually on goods and services. Of this amount, an agreed percentage has been set aside to be spent with small, medium and micro enterprises (SMMEs) and Black Economic Empowered (BEE) companies.
Shell and Thebe announced that they have successfully concluded the transaction by which Thebe acquires up to 25% in Shell South Africa Marketing (SSAM).
Following on from the announcement of a Letter of Intent in July 2001, discussions were concluded on 28 March 2002 between the two parties, resulting in Thebe acquiring full (minority) voting rights in the retail and commercial business of Shell. The business includes all the previous Shell retail and commercial marketing operations, including fuels, lubricants, marine and aviation fueling, LPG, Bitumen, and storage and handling. Thebe petroleum marketing asset Tepco Petroleum was acquired by Shell as part of the agreement and will become subsidiary of SSAM.
Dr. Benny Mokaba will head SSAM, and Thebe will have 25% Board representation in the company.
Other Shell interests such as the 50% stake in Durban refiner Sapref, Crude oil supply, trading, Local supply sourcing, Chemicals, Gas & Power, Renewables, Services and Exploration and Production will reside in a second new company, Shell South Africa Energy (SSAE). This company will supply services to the Marketing company via long-term service agreements.
Historical Refinery processing agreement
In August 1998, Shell concluded a refining and processing agreement of its share at the refinery with Tepco, the petroleum subsidiary of Thebe Investments.As Tepco is now a subsidiary of SSAM, this arrangement has been superceded by new agreements.
Shell Aviation and Tepco
Shell Aviation and Tepco formed a JV (Joint Venture) for the provision of aircraft fuels and related services at SA airports. This was a further step by Shell and Tepco to cement Black Economic Empowerment initiatives already begun with the earlier refining agreement. As Tepco is now a subsidiary of SSAM, this arrangement has been superceded by new agreements.
Shell and Southern Tankers
In November 2001, Shell and BP signed a deal with Southern Tankers , a joint venture between Dudula Shipping a Black maritime company and Unicorn Shipping, a subsidiary of the listed Grinrod shipping group. Southern Tankers will charter a specialist oil and chemical products tanker to transport petroleum products from the Durban-based SAPREF refinery, jointly owned by Shell and BP to cover their entire coastal shipping requirements in a deal worth R600million.
Other BEE Initiatives
Energy dealers (general dealers & spaza shops)
In 1999 Shell began launching Shell General Dealers who became sellers in their communities of Shell energy products like illuminating paraffin and liquid petroleum gas. Shell upgraded and branded the general dealers' premises, and provided marketing support, business training and safety education to the dealer. The general dealers retains ownership of his dealership.
There are currently 28 Shell General Dealer networks in the southern Africa cluster, and our plan is to expand these to around 60 sites. Shell are also equipping the general dealers to provide branding and training to spaza shops. Each General Dealer supports an average of 30 spaza shops.
Owner- driver scheme
Shell has embarked on an owner-driver scheme whereby people who were formerly truck drivers eventually become owners of the trucks they drive.
Solar home project
In 1999 the Shell Solar Home project was launched in a remote Eastern Cape village, thus supplying lighting to an area where the electricity grid didn't reach. The project created numerous retailing, maintenance and installation opportunities within local communities.
In 1993 Shell introduced an intensive training programme in service-station management to black potential service-station operators. When the newly trained dealer takes over the site, he/she continues to be supported by a network of trained staff until the business is viable. A number of dealers have passed through this programme so far. Black people operate about 25 percent of Shell's 800 service stations.
Entrepreneurship training (LiveWire)
The Shell Livewire Project in South Africa, which has been running since 1995, is aimed primarily at giving basic business training to young people from disadvantaged groups. Over 12,000 young people have been trained to date. The training covers most aspects of starting and running a small business - identifying a business opportunity; analysing the market; testing the feasibility of a product or service; costing and pricing; monitoring cash flow, income and expenditure; developing selling skills; offering good customer service; and drawing up a business plan. After the training workshop, trainees are put into contact with local business service centres and other mentors, which help them to negotiate access to finance and do market research.
Formal education (publications; teaching tools)
Our investment in formal education has focused on the development of teacher capacity. We have sustained our substantial investment in the Centre for the Advancement of Science and Mathematics Education (which develops capacity for Mathematics and Science teaching) and we have developed a range of practical teaching tools for lower-grade teachers. Shell has also built two schools in poor communities in the Eastern and Northern Cape.
Shell's BEE Targets
Shell, together with its partner Thebe Investment Corporation, developed an index to measure its black economic empowerment (BEE) in an objective and consistent manner across companies. Five dimensions of BEE were identified to be critical in measuring any company's effectiveness as a true empower company:
Equity shareholding, Employment Equity, Diversity, Procurement and Other initiatives.
The various BEE dimensions have the following levels of importance:
Equity shareholding 25%
- Equity shareholding 25%
- Employment Equity 30%
- Diversity 15%
- Procurement 25%
- Other 5%
A Fully Qualified Black Economic Empowerment Company
Shell strongly believes that in order to claim to be a true BEE company, one must attain a specified minimum level of measure on each dimension identified on the BEE index. The minimums required are:
Progress is measured as follows :
- Quarterly by the management teams referred to as the ORT (Oil Review Team) and the SRT (Strategy Review Team
- Results are shared and debated quarterly at a senior leadership meeting known as ORT (Oil
- Products Quarterly Review) The Challenges
We must exceed our expectations in terms of quantitative and qualitative targets within all occupational categories and at all occupational levels until Shell's workforce is truly representative of South Africa's demographics.
We must meet and surpass the expectations of the Oil Industry Charter and be recognized by the Society in which we operate as a company that endeavors to demonstrate a tangible and deliverable commitment to this initiative. While at the same time aiming to empower integrated black owned companies so that they become viable competitors in the mainstream of the economy.