Here's the BEE hymn book
Itumeleng Mahabane -
Late last year, government
released its code of practice on black economic empowerment, the
closest thing to legislation on BEE.
The code spells out government policies and definitions of
empowerment and is primarily a guide to the BEE profile expected
of any company that does business with government. It is also in
effect the framework that guides private-sector best practice.
Its chief impact will be creating certainty and harmonising the
definitions and measurements of BEE.
The code reiterates what broad-based BEE is and may create a
more rational debate about enrichment versus broad-based
It defines equity transactions as narrow BEE and the balanced
scorecard package as broad-based BEE. Equity transactions,
whether or not they include disabled people or large villages,
are not broad-based empowerment.
This prevents deal makers taking short cuts by bringing in
passive, broad groups of shareholders who do not benefit clearly
from the deals.
The advantage is that groups looking to conclude empowerment
deals do not have to worry about whether the consortia buying
into them are broad-based. It also means companies wanting to
deal with government cannot just stick equity deals together.
They must improve the skills and opportunities of their black
The code attempts to widen the circle of deal makers by awarding
bonus points to companies that include black people who have not
previously participated in a deal worth more than R20m. That
encourages business to find new people without government
overtly barring the so-called "usual suspects".
The code defines broad-based empowerment as a "balanced approach
that includes contributions and measures that address ownership,
management, employment equity, skills development, preferential
procurement, enterprise development and other residual elements
of the broad-based BEE scorecard".
It appears from the code that government recognises that direct
ownership may be limited to individuals involved in active
Though the code points to the scorecard as broad-based BEE, the
most substantive issues are definitions and measurement tools of
empowerment equity deals. The key reason is the complex funding
and ownership structures adopted to get around black investors'
lack of money.
The ownership code is potentially explosive as many of the BEE
transactions carried out have deferred voting and sometimes
economic rights. The code makes it clear that points are awarded
to unrestricted voting or economic interest. An example of an
empowerment transaction that would not meet the criteria is
Bidvest's. The code does not recognise options and other
deferred-interest schemes. Bidvest CEO Brian Joffe was away when
the FM tried to contact him but it is apparently waiting for its
empowerment advisers to report on the implications of the code.
Potentially more controversial is the subject of recognition of
equity finance through debt. Debt-financed equity means BEE
parties receive no economic interest until the debt has been
Groups like Mineworkers' Investment Co, which paid for its
interest in Primedia with its own cash, have argued that
applying the same value to paid-up equity as unfunded equity
prejudices them. MIC executive director Kenshan Pillay could not
comment because he had not had a chance to read the code.
One of the key issues dealt with is the question of indirect
ownership. According to the code , government does not recognise
indirect shareholdings such as pension schemes or passive
However, companies can exclude the holdings of pension funds and
state institutions from their total equity when calculating the
percentage of empowerment ownership.
Finally, the code makes provision for and gives guidance to the
establishment of recognised rating BEE agencies, which companies
can use to produce their scorecards.
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