Helping organisations with a broad base of shareholders or beneficiaries buy into a company, with a dollop of employee-share ownership has been very much in favour. It has seemed to be the best riposte to the idea that black economic empowerment (BEE) is a plot to create a buffer class of rich, black capitalists between white capital and the poor.
But questions are being asked about exactly what broad-based equity transfer means. The catalyst was a visceral reaction to the eventual sale of part of the 15% of Telkom warehoused by the Public Investment Commissioner to a consortium headed by Andile Ngcaba. Never mind the other issues, such as allegations of cronyism and conflict of interest, Business Day raised a pertinent point about the women’s investment group Wiphold’s status as a broad-based participant in the group.
The newspaper asserted that its broad-based credentials were untested.
”Wiphold has a healthy black shareholder base but its claims to represent [and therefore to empower] a further 300 000 people are quite untested.”
This astonishing figure arises partly from the 130 000 South African Democratic Teachers Union members in the Wiphold Investment Trust. They have said they will refuse any benefits from the Telkom transaction. But who are the actual shareholders of Wiphold?
At the same time, Old Mutual holds almost a third of Wiphold, so it is no surprise that Wiphold also features in one of the biggest BEE deals done recently, that of Old Mutual and its subsidiaries Nedcor and Mutual & Federal.
But why single out Wiphold? Has there ever been a close scrutiny of the broad-based elements of BEE deals?
What happened, for instance, to the many small members of the consortium that were supposed to benefit from the e.tv licence? Their interests are supposed to be housed in an entity that holds e.tv, but it seems to be accepted that the owners of e.tv are now HCI and Venfin. Will any member of that original consortium please contact me to tell me how he or she has benefited, or is benefiting, from the licence?
The National Empowerment Consortium (NEC), the broad-based grouping put together to buy a controlling stake in Johnnic Holdings, largely unravelled long ago, leaving the NEC with a small fraction of Johnnic.
The debate, which surfaced from time to time in newspapers about enrich-ment and broad-based empowerment, seemed at one stage to have been won by the new BEE capitalists. Their argument, simply put, was that the broad-based BEE transactions of the past simply did not work. For a variety of reasons, mainly an inability to come up with the small amount of money needed to lubricate the transaction, the broad-based consortia fell apart and left the lead player or players solely in charge.
In both the Telkom and Old Mutual deals, the broad-based beneficiaries get only a small slice. The Wiphold consortium, for example, will hold only 1,7% of Old Mutual. And the more broad-based the deal, the less actual money the beneficiaries receive.
Which points to the nub of the problem: are we looking at the correct indicator of ownership transfer of the economy? About two years ago BusinessMap estimated that black ownership of shares on the JSE Securities Exchange was 15%, directly and indirectly. Indirectly here means through retirement funds and unit trusts.
If an organisation representing 300 000 members is going to get a smaller slice of an already small slice of a big listed company such as Old Mutual, would it not be better to return to schemes — such as Telkom’s Khulisa scheme — that spread this among the public more generally? Telkom’s Khulisa exercise was a failure only in that it did not sell enough shares to represent a sizeable chunk of the company.
Most of the beneficiaries of the Old Mutual deal were employees or management. Again, this has its logic, in that workers who own shares tend to be more motivated, though they would want to be able to profit at some stage and so should not be locked in forever.
In any event, the broad-based trend seems set for now. A return to purely narrow-based deals seems unlikely, given the opposition to the Telkom deal’s narrow-based components.
And now that broad-based transactions have become common, expect more scrutiny of exactly who benefits and how. But we should go back to the earlier broad-based deals to see who they benefited, and how, before we assume the broad-based approach will really be empowering.