Illusion of control in BBBEE ‘clarification’
HOW ironic that the Department of Trade and Industry’s innocuoussounding “clarification” relates to something called the Broad-Based Black Economic Empowerment Codes of Good Practice. And that the unit overseeing the codes is called the Broadening Participation Division.
As one empowerment analyst remarked, in this the department is following the example of the old Nationalist government, which often named its legislative acts in the opposite sense to their intention — Africans, for example, were excluded from “white” universities by the Extension of University Education Act.
And what should we make of the fact that the “clarification” was signed off by Deputy Minister Mzwandile Masina while Minister Rob Davies was out of the country? Is that opportunism or entrepreneurialism?
The discussion over the “clarification” has, as with most issues these days, fallen largely into two predictable and strongly opposing camps.
One camp sees this as a desperate bid by a relatively small black elite to secure easy wealth by eliminating the competition for a share of the BEE spoils.
The other sees this as an essential step towards ensuring the codes lead to more active involvement by black people in the control and management of companies and the economy. As this camp sees it, the obligation to include broad-based entities such as communities and employees has restricted the opportunities for black business people to be actively involved in ownership.
The discussion, which is most focused around large listed entities, raises questions about what exactly comes with a 25% stake in a company. The thinking behind the “clarification” seems to be that an individual will be an active shareholder if he or she has a 25% stake but will not be with anything less than that. Similarly, it assumes a broad-based entity cannot be an active shareholder. Essentially, the proposal conflates individual with active and therefore good, and broad-based with passive and therefore bad.
In the case of JSE companies, this inevitably brings us to the complex issue of how management or control of listed companies ties in to ownership of those listed companies. Twentyfirst-century shareholder capital- ism has seen a widening gap between the real beneficial shareholders (the millions of people who have pensions, provident funds, savings and investments) and the managers of the companies in which they are invested. Between these beneficial shareholders and the managers is a chain of investment advisers and fund managers who behave as though they own the companies but are rarely actively engaged in managing them. The “pro-clarification camp” wants to secure a dominant place in this gap by taking up all of the allotted 25% BBBEE stake.
However, the reality is that 25% of a listed company does not guarantee control; it doesn’t even guarantee an active role. If the pro-clarification camp wants to ensure its members are entitled to an active role in running the companies in which they are invested, they may have to wait until Davies leaves the country again and the BEE level is hiked to 50%. Then they would have an obligation to be active.
The alternative is for the would-be active BEE shareholders not to wait for the codes to change but to engage now with the boards of the companies in which they have a 5%, 10%, 15% or 20% stake.
After all, the Public Investment Corporation has considerable influence, when it chooses, over companies in which it has less than 10%. And, because of his extensive preparation, even Theo Botha is able to exert some influence with his one share.
Of greatest concern is that the pro-clarification camp undervalues the achievements of BBBEE. Brimstone, Wiphold, WDB, Kagiso Tiso, Mineworkers Investment Trust and HCI are just some of thosewho have done extremely well with the old codes.
It is here that we’ll find the next GT Ferreira or Christo Wiese, not among the ranks of those who felt forced to edge out workers and communities so that they’d have room to become active.