Why is BEE failing?

Black African male and female executives are being replaced by mediocre white men who won’t rock the boat, writes John Dludlu.

Eskom has many problems, but this week it made an important, albeit clumsy, intervention in the discourse about the future of black economic empowerment (BEE) and transformation in South Africa.

In questioning the decision by Exxaro, the coal miner, to review its empowerment structure, the power utility has exposed the systemic failure of empowerment and transformation that has been going on for years now, mostly owing to poor monitoring by the government.

Until last month, Exxaro was considered an exemplary empowered mining company: it had exceeded the legislated 26% empowerment shareholding, and was both black owned and controlled. Then, late last year, the empowerment scheme’s lock-in period expired, and the company, which supplies coal to Eskom, had to structure a new empowerment transaction.

Courts have yet to rule on whether white firms can enjoy empowerment status even after black shareholders have long sold their shares in these entities. Instead of waiting for this decision, Exxaro chose to redo the transaction. But the new one, approved last week by shareholders, will see its empowerment reduce from above 50% to 30%. This means that Exxaro will become black owned, but not black controlled.

This has rattled Eskom whose empowerment policies require its coal suppliers to have 50% empowerment. Its Twitter-happy interim CEO, Matshela Koko, felt insulted by Exxaro’s actions and has threatened not to recognise the new structure. Exxaro says it can’t afford another 50%-plus empowerment scheme because of uncertainty around commodity prices. Plausible though this might sound, it’s not entirely factual.

Black African male and female executives are being replaced by mediocre white men

But the purpose of this input isn’t to interrogate the commercial viability of a 50%-plus scheme. Rather, it’s to explain how we got here. Put differently, why it is possible for companies like Exxaro to consider reducing empowerment at all?

The answer is simple: Empowerment and transformation are just no longer important in this economy. They’ve not been, at least, for the past seven years. The governing party and its government pay lip service. White companies have noticed this and are taking full advantage of it.

Exxaro isn’t alone in being rogue, for lack of a better characterisation. Routinely, these days, black African male and female executives are being replaced by mediocre white men, not even white women, and/or foreign African men who won’t rock the boat. Examples are plenty. Sizwe Nxasana, one of a handful of successful black African executives to have survived a parastatal without a scandal, was replaced by a white CEO at FirstRand. A look at executive committees of the large banks bears this out. A troubled telecoms company recently replaced a black African CEO with a white man without a word on transformation or succession planning. The very same government has appointed two white men to head strategically important state-owned entities Armscor and the Post Office. The SABC, which we now know doesn’t do any security vetting of its senior personnel, is run by a foreigner.

If Telecommunications Minister Siyabonga Cwele fails to stop the Independent Communications Authority of SA from proceeding to auction off the spectrum to the highest bidder, the contest for the lucrative spectrum will just be between the two bullies – MTN and Vodacom – which have deep pockets, but shallow empowerment credentials.

How did we get here?

A cocktail of factors explain this deprioritisation of empowerment and transformation.

1. First, the state is to blame. Each year, the Employment Equity (EE) Commission issues a report on the shocking state of affirmative action in the workplace, but there are no consequences. Increasingly, empowerment is losing its importance in state procurement decisions.

2. Second, the state’s monitoring and enforcement mechanisms are woefully weak and inadequate. The departments of trade and industry and mineral resources are but two examples of poor enforcement. Instead of resolving the long-running impasse over the mining charter with the industry, Mining Minister Mosebenzi Zwane has been fighting the release of the state capture report and trying to regulate banks on behalf of his friends.

More than a decade after enacting the Broad-based Black Economic Empowerment (BBBEE) Act, the department only set up the Black Economic Empowerment Commission – an agency that is supposed to enforce the act – only last year. Typically, it has an acting head, which means that corporate thugs are continuing to bend the laws while it gets its act together.

3. Third, over time, empowerment and transformation have lost their most vocal, committed and effective high priests. Two examples come to mind. As CEO of the Public Investment Corporation (PIC), Brian Molefe used the PIC’s muscle to force listed entities to embrace transformation and, as head of the EE Commission and Black Management Forum (BMF), Mzwanele Manyi gave untransformed companies a hard time. These voices have since gone silent on this issue.

And lastly, there are serious capacity and resource constraints. Even with the best intentions in the world, it’s doubtful that the BMF has the capacity and financial resources to track, monitor and act against anti-transformation transactions and companies. The same applies to the departments of labour, trade and industry and mineral resources. Even though the BEE Commission is finally operational, we have yet to see whether it is well-resourced to track down and jail any of the many corporate offenders who are flouting the BBBEE Act. This administration’s track record on funding such bodies is uninspiring.

Can the deprioritisation of empowerment and transformation be stopped? Yes, it can – and ought to – be stopped. Problem is, the current administration lacks both the political will and interest to do so. It is just not interested in the management of proper economic empowerment and transformation. This is why, for now, South Africans will have to settle for empowerment activism, Eskom-style.

* Dludlu is a former editor of the Sowetan.