The battle to transform the economy is becoming fierce, using ambush tactics. Yes, I am talking about Broad Based Black Economic Empowerment. It is common knowledge that the Revised Codes of Good Practice were launched on 2 October 2012. These should have come into effect on 11 October 2013, a date amended to 1 May 2015, effectively giving the market about six months to adjust to the changes. Between the period 2 October 2012 and 30 April 2015 and before this date, in fact as early as late 2011 when signs of adjusting set points to the BEE tool were becoming imminent, comments and opinions about the direction BEE was taking had flooded the media space.
Dead Silence!
On 1 May 2015, I ran through the internet to search for new commentaries or latest news on BEE. It was dead silence. As a routine that I do in the morning, I searched on 2 May, it was dead silence. I did it on the 3rd and still drew a blank. There seemed to be such tension, so thick it felt like you could slice or cut through it; I guess two giants sizing-up each other – the State and the Market. Its 5 May 2015, BANG! as if some alien object fell from the sky, the DTI released a statement about the Ownership Element. This effectively throwing “the cat among the pigeons” or if you like “puts a spanner in the works.” Can you imagine the crisis! The market went bERSERK! I mean cRAZY! aMOK! The Broad Based Ownership Schemes and Employee Share Ownership Schemes were downgraded to only 3 points on the BEE rating scale.
No sooner had the pen dried on this amendment, another amendment cancelling it is issued by the DTI on 15 May 2015. Whoo! the market breathes a sigh of relief.
I have often watched my two cats after feeding and giving them milk, and you see them ambush and size each other up albeit in a playful manner, as if to say thank you Boss (no pun intended), you saved our life! BUT NOW THIS IS SERIOUS! It’s no cats’ play hey! It touches the very fundamentals of a Society and its State. The question of who owns productive resources is at stake.
A CLOSER LOOK
The pronouncements above show a somewhat interesting picture. Ms Lindiwe Zulu signed the amended statement downgrading the said Ownership schemes on 22 /04/2015, but this statement is released on 05/05/2015. The statement retracting the latter is signed by the Minster of Trade and Industry, Dr Rob Davies on 15/05/2015 and released the same day. Ms Lindiwe Zulu signed in her capacity as an Acting Minister of Trade and Industry. Now, anytime another Minister is acting in place of another it simply means the incumbent is not available. This begs the question was Dr Rob Davies away? Why is the statement signed on 22 April and only released on 5 May? Now that it is withdrawn, is this because the issue was not discussed internally at least? Is there consensus just at the dti in the way in which BEE must unfold? Was this an ambush tactic or was it just an error? What are we to make of this?
OPINION
If DTI bowed and succumbed to pressure from the market even before the New Codes started, then this sets a bad precedence of the whole BEE journey ahead. The period between the launch of the Revised Codes and the commencement date of 1 May 2015 gave all parties enough chance to tease out and tweak BEE configurations. It does not make sense to make a major announcement that would impact on the entire BEE Code 4 or 5 days after the effective date. I am saying entire BEE Code because Ownership is one of the priority elements and compulsory; it remains the mainstay of the BEE Act; temper with it and you have tempered with the whole BEE Code. More so because it remains an emotive subject because it determines who controls productive assets of the economy. It is of course going to raise tempers and cause a lot of jitters in the market. So you can’t introduce the subject in the way DTI has gone about doing it. You have to be methodical, systematic, resolute and steadfast if we should see gains in this area. An ambush tactic is not going to win this war. It has to be upfront, honest and sometimes confrontational. I must by the way reveal my position on the matter of Broad Based Ownership Schemes (BBOS) and Employee Share Ownership Programmes (ESOP’s) in relation to BEE. Having done BEE audits/ verification, I would recommend that the DTI must come to a point where they phase these out completely. They have no value as ownership instruments, they would rather retain them as a Socio-Economic Development tool, which is what they are. Before we even talk about economic interest that has or has not been paid out to the supposedly intended beneficiaries or investors; let’s talk about the socio-political and geographical proximity to the measured entity. How does a former miner who used to work on the stopes of a mining company now living in the rural Eastern Cape, former Transkei, perhaps now minding his sheep or even frail from the work in the mining industry that sucked, drained him of his health and sacked him now suddenly owns a stake in that company with its Head offices in Sandton, Johannesburg through some BBOS. How is he going to effect change in systems and practices of that company? How is he going to drive new business thinking? For all I care his aspirations are not even known and don’t even matter. Better still nobody knows him in the streets of Sandton, much less the corridors of power of the posh affluent corporate office. He is simply known as a statistic which goes something like this – “so many black people have invested in our company.” The points are awarded to the measured entity.
Yet another question is if ESOP’s were what they are said to be – Ownership instruments for employees, why are there so much strikes. Why would the supposedly owners of the business go on strike against their own business demanding decent pay? Why would business owners revolt against their own business leading to the demise of same. Do they not know that they own the entity or are they just stupid? It’s ludicrous!
Another question is how would an employee of the company, now appointed a trustee of the ESOP, which is how these ownership instruments are usually structured, be expected to sit in the boardroom to debate, discourse and meaningfully engage in mapping out the strategic direction of the company with his or her superiors or actual and real owners of the business?
In the course of doing these verifications I have personally met companies, usually in the QSE band where these structures have been used to house employee benefits rather than ownership schemes and were claimed to be ownership structures. What is even worse is that verification agencies have awarded points to measured entities despite these dodgy structures. I must say that measured entities are usually assisted by lawyers/ attorneys, accountants, BEE consultants and even verification agencies themselves to establish these quasi ownership structures or outright bogus outfits.
So the DTI must consult the market on changing the model of ownership measurement but with one resolve and that is to phase out the BBOS and ESOP. They should possibly look at giving the market, realistically, 3 to 5 years after which they should go full steam ahead to change the face of ownership of the factors of production in South Africa. I would even suggest a reducing balance method in allocating points to phase out the process.
DTI should rather consider strengthening cooperatives as broad based ownership structures. These are more legitimate with clear and traceable flow-through notion of voting rights and economic interest.
The argument about scrapping of the current form of ownership leading to a proliferation of fronting, which I admit will happen, is neither here nor there. It is as good as saying don’t make anymore laws because they will lead to more criminals. Just as good laws need the backing of a strong police force, BEE laws will need a strong verification/audit component to police the system. I am just not sure that this exists with the current dispensation of verification/ audit regime as we have it now. This is the weakest link in the BEE chain irrespective of the principal SANAS or IRBA. We need a robust, watertight verification/ audit system if we are hoping for any gains by 2030.
The author of this article can be contacted for strategic alignment of BEE by small, medium-sized or large companies.
