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Ownership, in terms of BEE Codes, may actually be disincentivising

BUSINESS LIVE / 01 JULY 2018 - 10:56 / AMBER VON STEIGER

It is irrefutable that transformation is required across all aspects of South African business.

However, the draft amendments to the black economic empowerment (BEE) Codes, published by the Department of Trade and Industry on March 29 and June 15 2018, undermine the legislation intended to drive this transformative process.

Picture: ISTOCK

It is clear from the draft amendments that the department is prioritising entities that have at least 51% black ownership. It has done this through two key aspects:

• Entitling generic enterprises with a turnover of more than R50m to automatic BEE levels.

• Amending the enterprise and supplier development element to increase the requirement and incentive to procure goods and services from entities that have at least 51% black ownership.

This could be viewed as being against transformation, despite its intention to drive business to entities with majority black ownership. It is imperative to understand that, for the purposes of BEE, a very limited measurement of ownership is used, which only measures voting rights and rights to economic interest (a right akin to receipt of dividends) in the hands of black people.

Incentives for businesses to increase black employees to contribute towards black businesses and suppliers, and to ensure there is appropriate representation within management positions, will be removed.

Ownership, for BEE purposes, is similar to the rights a person would have if they held shares in a JSE-listed company: it does not include any involvement in the operation of the entity, nor does it inherently involve any upskilling of the shareholders. It simply entitles a shareholder to vote on proposed shareholder resolutions, and receive dividends in the event that the company declares any.

When considered together with the remainder of the BEE scorecard — which includes transformative elements, such as including black people on boards of directors and in management positions; skills development of black people and black employees; contributions to black businesses and suppliers — ownership, as defined in BEE, is a poor measurement of empowerment.

Allowing generic enterprises (which are the primary entities required to be measured under all elements of the BEE scorecard) to be entitled to automatic BEE levels will create a clear incentive for entities within this space to stop their current BEE initiatives and simply enter into an ownership transaction to introduce 51% black ownership.

Consequently, incentives for businesses to increase black employees to contribute towards black businesses and suppliers, and to ensure there is appropriate representation within management positions, will be removed.

Companies need to understand how these amendments may impact shareholding structures and transformation and should comment on the proposed amendments.

• Von Steiger is senior associate at Norton Rose Fulbright SA.

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LINK : https://www.businesslive.co.za/bd/opinion/2018-07-01-ownership-in-terms-of-bee-codes-may-actually-be-disincentivising/

Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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