South African business ‘schocked’ by new black ownership rules

Unless South African businesses hand over large chunks of equity to black shareholders, they will no longer be awarded so-called “BEE points” by government, which means that they could be forced out of business. According to the Johannesburg financial newspaper, Business Day, “the Department of Trade and Industry sprung a surprise on business, issuing an unexpected ‘clarification notice’ on Tuesday that broad-based empowerment and employee share ownership schemes will no longer count as much as individual share ownership on the black economic empowerment (BEE) scorecard.”

The notice astounded lawyers and verification agencies and will substantially alter the ratings of companies that have placed a portion of their ownership in the hands of employees or community organisations.

The notice also set out to clarify a range of issues relating to the new codes of good practice, which were due to come into effect on May 1, and explain their staggered implementation.

Of the 25 points on the new scorecard that can be earned for black ownership, broad-based and employee share ownership schemes can contribute only a maximum of three points. They cannot count towards the voting rights of black people or the economic interest they hold in the company, which are the other elements on the scorecard.

Under the previous score-card, broad-based and employee ownership schemes were used in the general calculation of black ownership, provided they were manifested in voting rights and reflected genuine economic interests, such as dividend payments and the ability to trade shares. The change was not canvassed with stakeholders or verification agencies.

Keith Levenstein, CEO of empowerment verification agency Econoserve said it would affect hundreds if not thousands of broad-based schemes.

“It is going to instantly drop these companies on the scorecard by as much as 20 points and imply they do not meet the element of ownership,” he said.

Empowerdex described the news as a “big shocker” and Mazar’s managing partner Tony Balshaw called it “devastating”.

“A significant number of nonlisted multinationals and large-and medium-sized enterprises have done empowerment deals based on employee or broad ownership schemes. The effect on them could be to drop at least three ratings levels of the eight,” said Mr Balshaw.

Chief director of the Department of Trade and Industry Takalani Tambani said the idea behind the change was to ensure that ownership by black individuals was given greater priority by the business community.

“The message is government views the ownership as important to transform the economy. For us to effectively do that, we want to see black people participating meaningfully in the core of the economy.

“Passive shareholding will not be able to transform this economy. Passive shareholders are not the real drivers of the business,” he said.

ANC politicians have previously used their positions to acquire stakes in businesses, sometimes for free. The use of the phrase “private shareholding” might imply that businesses are going to be pressurised to offer risk-free equity deals to the ruling nomenklatura, their family members and friends.

 

  • Rooikop

    A lot of talk about “ownership” but what about contribution? How can you share in the spoils if you haven’t contributed your share?

    • Ferdie

      Easily, this is Africa.

    • Engelsman

      They do not have stories like “The Little Red Hen” where nobody wanted to help her reap the wheat, grind the flour or bake the bread so she didn’t share her loaf of bread.

      No Aesop’s fables about Killing the Goose that laid the Golden Egg either.

      • Rooikop

        Very true, the truth in those fables has not dawned on them.

  • Johan

    This has got nothing to do with positive contribution to progress or meaningful economic participation but everything to do with common property theft and asset stripping by dysfunctional parasites and leeches!

  • P.W.B

    Levenstein getting frightened by his own sham. lol