When you’re right, boast about it. In my first column for the year, I pointed out how misguided the notion was that the FirstRand deal was ”social investment” rather than black economic empowerment (BEE).
The criticism came about because the three BEE participants were all charitable trusts. I argued that one should look beyond this.
”In the FirstRand deal,” I wrote, ”each of the three trusts; Kagiso Trust Investments, the Women’s Development Bank Trust and the Mineworkers Investment Trust, have investment arms run by extremely capable business people … these include Eric Molobi and Paul Nkuna. FirstRand will likely draw from this pool of talent to augment its board.”
Nkuna, Mineworkers Investment Company CEO, has been named as a new board member of FirstRand, as has Kagiso Trust chairperson Yunus Mahomed, and Sonja Sebotsa, an executive director of WDB Investment Holdings.
Another issue I raised at the time was whether these directors needed to be incentivised by FirstRand, given that they were acting for the trusts, not in their personal capacity. This has now been cleared up. According to a recent Stock Exchange News Service statement, the BEE trusts’ directors are specifically excluded from a new, separate trust set up for other black non- executive directors, to reward them for their loyalty.
FirstRand will provide funding so that individual black directors can hold up to one million shares, with rights vesting on a sliding scale at a rate of 10% a year, with full vesting in the 10th year.
The benefits BEE partners are expected to bring to FirstRand are also spelled out in the statement and revolve around fulfilling the other, non-equity parts of the Financial Sector Charter. They will have to enhance corporate governance through the input of BEE directors at board level. And the BEE trusts will have representatives on FirstRand’s transformation committee.
The BEE trusts will also have to spearhead initiatives in areas where they have expertise.
I was also correct that part of the third-party funding for this R8-billion deal would come from foreign sources: Proparco (a company of the French Development Agency Group), the International Finance Corporation and DEG, a German development finance institution, have contributed.
What’s interesting here is that even very cautious foreign development institutions have been persuaded to accept the peculiarly local phenomenon that is BEE equity transfer and the concept of using loans to buy shares, generally not an advisable thing to do.
Those shares cannot simply be handed out, therefore there is a time period where they are ”earned”, just as one buys a house with a mortgage bond over 20 years. The key concept is that the shares must eventually be owned outright by the black partners for the deal to be meaningful. The charters do not oblige established businesses to bring about immediate, outright black shareholding.
Hence the confusion over whether shares pledged as security for the loans means the deal does not count in terms of the new government scorecard. Obviously if this situation continued forever, and the black partners never came to own any shares, that would be false empowerment.
When you’re wrong, correct it — even if you’re not to blame. In my last column, I noted that Masana, the new BEE entity created by British Petroleum (BP) Southern Africa to house its commercial and industrial business, was not 55% black-owned, but 49%. I was told that 70% of the staff was black. It appears that, in contradiction to the information BP gave me, 70% of the management is black, not the entire staff. Masana is therefore majority black-owned.
Reg Rumney is director of the BusinessMap Foundation