BEE is not the problem | Fin24

BEE is not the problem

Feb 14 2018 10:42
Dionne Kerr

Dionne Kerr is the founder and CEO of Siyakha Consulting, a BEE advisory firm. (Picture: Supplied)

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When I tell people that I work in BEE and have done so for 19 years, I am often lambasted by stories of how bad it is for society and what a terrible model it is and questioned on how I can possibly represent such an ill-intended policy. 

I always say that there are two critics of BEE – those that feel that they should have gained more from it, and those that feel that any form of change is a personal threat.  

BEE and its principle of local empowerment is not unique; many foreign-owned companies admit that they have had to address similar issues elsewhere in the world.

Australia, China, Malaysia, Namibia, Botswana, Mozambique, Ghana and Zambia (with as many as 23 African countries) have introduced their own form of localisation requirement to support social targets from foreign companies operating in these regions. 

The principles contained in most of these policies are that if you wish to benefit from operating in that country, then you need to participate in that country’s socio-economic imperatives.   

However, it’s important not to distance ourselves from the difference between these global policies and our South African environment. We have a legacy to redress, whereas these countries do not. 

They introduce these requirements for social stability and for prioritising economic growth through minimum levels of local participation. 

For us, we need to achieve the necessary balance of South African society in order to equalise the issues of our past. 

The Broad-Based BEE (B-BBEE) Codes of Good Practice (CoGP) measure performance against five inclusion indicators with ownership and industrialisation taking centre-stage in most forums. 

In most elements, we have witnessed significant improvement since 2007 when the CoGP were gazetted. However, the ownership element has remained a highly contested area for most organisations and many people have blamed bad BEE deals for loss in shareholder value or market share. 

Personally, I am not sure there is such a thing as a bad BEE deal. 

If your advisers structured it, your lawyers drew it up, your auditors signed it off, your board approved it and your shareholders gave it a “thumbs up”… then I am not sure BEE is to blame for poorly constructed ownership deals that do not hold value for the parties and/or that don’t ultimately achieve the objectives of empowerment. 

A recent research report by Intellidex has found that BEE ownership schemes implemented by the Top 100 JSE-listed companies generated R317bn in net value for the period 2000 to 2014.

According to Alternative Prosperity’s study conducted on behalf of the JSE, the estimated black ownership is 10% through BEE schemes and 13% through institutional funds. 

Both these reports have been challenged on their accuracy; just as many other reports and interpretations have emerged on the subject. 

Several ownership models and options exist. Companies may choose to invest in an equity equivalent programme which sees financial investment into developmental projects as opposed to an actual ownership transaction. 

Trusts have often been used as a means to avoid legitimate ownership and in many cases lack the required assurance that broad-based shareholders have the operational and financial skills to operate as shareholders and therefore benefit from the ownership, management and control of sustainable assets. 

The calculation of ownership for B-BBEE purposes is also complex and has become increasingly stringent and convoluted as more and more complex structures have been put in place, in some instances to dilute the direct beneficial interest to black people. 

If the intention is to see black South Africans own sustainable assets, then the question becomes whether it matters if that is through active or passive investment or whether, as in a normal society, the combination of both is a suitable and entirely appropriate mix to include representation of all facets of society. 

Thus, the conversation should be about actual, direct beneficial ownership for black South Africans which includes both active investors, those who are shareholders, directors and operationally active executives in businesses today; and passive investors who hold shares through the institutional investors, or through broad-based schemes or employee share-ownership schemes.

There is no absolute solution other than for us to sincerely apply our minds to the real challenges in South Africa today and to remain committed to doing business in the right way. 

We need to audit and scrutinise BEE transactions and insist that they are done correctly. 

Trusts are not the problem. However, trusts that are formed as a means to avoid legitimate inclusion of black people are a problem. 

Localisation is critical. The development of black-owned, South African manufacturers in the economy will alter the landscape of ownership. 

If black industrialists own, manage and control their own opportunities, land and assets, the objectives of transformation will be achieved alongside the imperative of economic growth. 

Investors need to call on boards of directors to be accountable for all facets of King IV. 

The recent need for several large BEE transactions to be restructured at large cost is a case in point. 

Investors should be holding executives accountable for their commitment to the transformation agenda. 

An accurate mechanism to measure ownership of assets in South Africa is key. Importantly, to encourage investment, we need to acknowledge that a healthy, productive society is made up of different investors – passive and active, foreign and domestic.

Dionne Kerr is the founder and CEO of Siyakha Consulting, a BEE advisory firm.

This article is part of our February 2018 Collective Insight supplement, which appeared in the 15 February edition of finweek. To download the entire supplement, click here. Buy and download the magazine here

bee  |  bee deals  |  black economic empowerment

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