Companies are focusing too much on changing the colour of their shareholders and not enough on broadening the base of Black Economic Empowerment (BEE), warn business analysts.
Of the 10 biggest BEE deals over the past two years only five have made provision to give management and employee stakes in the form of employee ownership trusts, says rating agency Empowerdex. These deals include the Standard Bank, Absa and Investec empowerment transactions.
Besides setting up a black managers’ trust, the Standard Bank deal sets aside an additional 20-million shares for community groupings — although the deal fails to specify who they are.
”In both the Absa and Standard Bank deals the leading partners … are the ones entrusted with the task of finding these broad-based community beneficiaries,” said Nqaba Bucwa, BEE analyst with Frater Asset Management. ”They will most likely approach the organisations that they have relationships with already, so in that sense if you are not connected to them you would be unlikely to benefit as a broad-based BEE partner from these deals.”
The government’s definition of broad-based empowerment includes: a broad shareholding; shares for employees; skills development; affirmative procurement policies; employment equity; and community development through nominated benefi- ciaries. Deal-makers are required to package transactions in a way that incorporates these objectives.
”We are concerned that companies are confusing broad-based empowerment with broad-based ownership. Companies feel that as long as they introduce a broad-based element into their transactions they are fulfilling a successful BEE deal,” said Chia-Chao Wu, executive director of Empowerdex. ”Broad-based ownership means ownership of an entity is shared by a larger group of individuals, but broad-based BEE is an integrated socioeconomic process that contributes to the economic transformation of South Africa.”
”Empowerment at the ownership level is happening largely because it is being driven by the charters,” said William Frater, senior analyst at Frater Asset Management.
”But broad-based transformation really, really does need a lot more focus. Companies need to be taking into consideration, for example, that we have a shortage of skills in this country and this starts with companies getting in at school level. The low number of maths and science passes is going to cause a major problem in seven years’ time.”
Zwelinzima Vavi, the general secretary of the Congress of South African Trade Unions, believes that the broad-based component of BEE is farcical because even when shares are transferred to employees, they still do not have voting rights, nor do they have access to the seller’s cash flow.
”It suits [the seller] to pay their employees a few extra thousand a month because they can go around and say they are doing something,” he said. ”But in reality BEE is not fulfilling the broad-based criteria because it is simply a narrow-based transferral of ownership from white faces to black faces, replicating the first wave of economic empowerment [which collapsed].”