/ 23 July 2004

How broad-based is BEE?

The criticism that one of the biggest Black Economic Empowerment (BEE) deals ever has elicited must have taken its architects by surprise. The Standard Bank BEE deal is worth about R4,1-billion.

Crucially, the Standard deal reserves 40% of the 10% of the company’s local business for black management and staff. It sets aside another 20% of the empowerment stake for other BEE initiatives.

Yet the spotlight has fallen on the ”enrichment” of the two BEE players who benefit from the remaining 40%, Saki Macozoma’s Safika and Cyril Ramaphosa’s Millennium Consolidated Investments (MCI) companies.

There appears to be a growing resentment about BEE being enrichment of a few politically connected comrades. Cosatu, for example, has not only condemned the empowerment of ”a very small black elite”, but has warned of the danger of the African National Congress being swung right by the dominance of business figures in the organisation’s national executive committee.

Opposition to ”enrichment” or ”narrow-based” empowerment takes at least two distinct forms. Some oppose BEE because it creates a black ”buffer middle class” to prevent a socialist revolution. Others do not oppose BEE, but worry about the creation of a class of oligarchs, as in Russia. They would like to see the benefits of BEE spread among a bigger middle class.

An additional concern is that high-profile members of the ruling party are so often in line for big business deals, raising uncomfortable issues of potential undue influence.

The sums involved in the Standard Bank deal seem to have been the catalyst for resentment — and that the empowerment parties, both influential ANC members, have not put down any cash upfront for the deal. Also, the deal seemingly does not promise operational involvement of the black partners.

It is not unusual for BEE deals to include ”narrow-based” empowerment — that is, the involvement of already-rich black businesspeople, as well as smaller black businesses, staff share trusts, community groupings, charities and NGOs. Indeed, in at least one case, the Simane-Harmony deal, the ”broad base” fell away, leaving black businessman Mzi Khumalo with the entire BEE shareholding.

But should black businesspeople not be expected to behave like white capitalists? Callers to a Cape Talk/702 radio show I participated in this week clearly feel they shouldn’t. Many ordinary people believe the new black tycoons should ”give something back to the community”, and not in a token way.

But one view is that being a BEE company fulfils all social responsibility needs, and that white companies alone should be tasked with Investing in the Future — as the Mail & Guardian’s special supplement on corporate social investment and responsibility is known. Consonant with this view is that BEE companies should rather be allowed to develop to a point where they can take on greater social involvement.

The contrary view is that BEE companies must have greater social responsibility because they owe their existence to a political process. In this view BEE is a politically driven process with economic consequences, rather than simply a business imperative.

What makes this issue especially important is the belief that companies are pushing aside social spending to accommodate BEE.

Here, the Standard Bank deal should have got more recognition for the R1-billion or so that goes to community and educational organisations. So it is a pity that part of the deal that involves the business empowerment partners, Safika and MCI, should detract from that. Two of the Big Four banks still have to do their empowerment deals. Will their approach be shaped by the negative reaction to the Standard Bank deal?

Reg Rumney is director of BusinessMap