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26 Jun 2008 11:39
Sometimes we don’t give ourselves credit for the changes we’ve been able to bring about. Take Barloworld, the R2,4billion BEE deal of which caps some big changes that encapsulate what has happened to corporate South Africa in the past decade or so.
In the early 1990s attending results presentations of the old Barlow Rand Group conglomerate, out of which Barloworld was born, was like popping into the Rand Club.
I remember a lot of dark wood and middle-aged white faces.
On the other hand, former Truth and Reconciliation commissioner and now Barloworld non-executive chairman Dumisa Ntsebeza paid tribute in the 2007 annual report to the resistance that Barlows, under the leadership of Mike Rosholt, put up against apartheid policies, specifically in recognising black unions.
“Barlows was also a pioneer in corporate social investment in those days and then, during the early 1990s, the company gave measurable support behind the scenes to the negotiation process that led to our transition from apartheid to democracy,” said Ntsebeza.
Barloworld is no longer a conglomerate, having recently stripped out its coatings and cement operations. It is visibly blacker at the operational level, with the appointment of entrepreneur and Rhodes scholar Isaac Shongwe to the board as its first black executive director. Its social investment inclinations are still evident in the recent BEE deal, in line with the trend away from narrow-based enrichment towards broad-based deals.
The deal transfers 10% of the entire company worldwide into black ownership. Strip out the international operations and that is the equivalent of 29% of its South African operations, more than the 25% required by the codes.
Also standard is the cost: the usual 3% or so of market capitalisation, which is the number of shares multiplied by the market price.
As with other deals, the stake is spread around so that no one is seen to be unduly enriched. As well as more than half to black individuals and groups, or “strategic black partners”, a chunk goes to staff, and there is a stake for social investment—an education trust and “community service groups”.
Financing is a mix of cash donations and financing from Barloworld or supported by Barloworld, with the strategic partners and community groups putting down some money to be in. A boon for Barloworld is that, as part of the deal, it will replace R1,5-billion of short-term debt with long-term financing.
The gift of shares to staff is a trend, though the 1% figure in the Barloworld deal is below the 3% or so that seems to be the norm. Another 1,4% goes to black managers and non-executive directors to make up around 2,4% for employees (see table).
The deal reserves the biggest share for strategic black partners, who sometimes really are that.
They include groupings led by Dominic Sewela, CEO of Barloworld Equipment, Litha Nkombisa, CEO of Barloworld Motor Retail, and Ciko Thomas, marketing director of Barloworld Automotive. Also benefiting is the YJ Family Trusts, owned by Yunus Akoo and Jubada Akoo, “who jointly own certain motor dealerships with Barloworld”.
Talk of BEE partners adding value to the business is often hot air. Here people really involved in the business are getting a stake.
However, the strategic partners also include groupings that feature those who could be seen as “the usual suspects”. Hixonia Nyasulu, a Barloworld non-executive director, Sipho Pityana and Bheki Sibiya lead groupings that get a small stake.
The stakes of these groupings vary. For instance, Ayavuna Women’s Investments, led by Nyasulu, is accorded a 1,5% holding, because it can serve on boards. Barloworld must hold Nyasulu in high esteem. The company puts the value of the Ayavuna stake at R353-million.
Ayavuna’s shareholders include the Nyasulu Family Trust (with 25% of Ayavuna), Mawavune Women’s Investments, the Ayavuna Employee Trust and Ayavuna (Community) Trust. The actual beneficiaries of these groups are not stated.
Nyasulu will not benefit from the R9-million worth of shares in total—presumably split three ways—given to the three other black non-executive directors. But Ntsebeza, I understand, will. This will be in addition to his remuneration, which, according to the 2007 annual report, was just less under R1,5-million.
Sibiya’s Moty Capital Partners gets shares in Barloworld worth R176million. The list of shareholders in Moty include, among others, Bridgette Radebe’s Mmakau Investments, a trust for two of Nelson Mandela’s grandchildren, and Ma Afrika Tikkun, a not-for-profit organisation involved in a range of charity projects.
Pityana’s Izingwe gets a like number of shares: shareholders are trusts for Pityana, the CEO and two other directors.
The question now being asked is whether Barloworld would have got this far without the Public Investment Corporation, which used the newspapers to put pressure on the board to introduce changes.
It was only a matter of time. Until the BEE codes of good practice were published, corporations could decide to get the advantage of doing a deal before being forced to or hang on as long as possible. Acting too quickly could have resulted in a deal that did not comply fully. How long can any major corporation now avoid compliance with the codes?
I have argued that the pressure put on Barloworld shows the fundamentally political nature of BEE. The present trend of “broad-based” BEE deals is a result of political pressure too. And the Barloworld deal is another example of the kind of broad-based deal we’ve seen, though it falls short of the benchmark set by the Sasol deal. BEE is not only about boards and equity and Barloworld should also be judged on what else it has achieved, specifically on the other elements of the scorecard.
Read more from Reg Rumney
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