- April 4, 2008
- Posted by: admin
- Category: General
On the face of it BEE deals are mushrooming, but over time some have proven to be misleading
Ownership should be the entry ticket into the black economic empowerment (BEE) game. It’s real ownership that yields real economic value. Those are the views of black business doyen Lot Ndlovu.
Ndlovu says that nothing beats the political control of enterprises. If the board of a company is seriously BEE-inclined, managers down the line are bound to follow those inclinations. If not they can be fired, he says.
Data coming out of the 2008 Top Empowerment Companies (TEC) survey will to a certain extent support Ndlovu’s views. Companies that have significant black ownership tend to perform better across the broad-based BEE scorecard than companies without black shareholders. That is clearly reflected in the TEC’s ownership-focused factor ranking.
The 2008 Top 10 ownership list is dominated by general high BEE performers. Leading the pack is media and entertainment group Hosken Consolidated Investments (HCI), which produced 115% or 23 points in its ownership score. TEC’s top ownership list also includes Adcorp Holdings, which is crowned as the most empowered entity in the 2008 survey with a total BEE score of 81,69%. Adcorp has a total ownership score of 22. There is Tongaat-Hulett, which is ranked fourth in the overall TEC survey with a total BEE score of 75%. Tongaat’s empowerment credentials come with 21,64 ownership points. Oceana Group is another example of how black ownership can filter down to infuse the BEE spirit in the entire business operation. Oceana is ranked seventh in the overall TEC data and commands 21,14 ownership points.
Ownership commands a 20% weighting within the broad-based BEE scorecard. There are 20 points to be had by excellent contributors in the ownership factor. There is a maximum of three additional bonus points available in this factor from the inclusion of designated broad-based BEE beneficiaries. HCI claimed all three bonus points to attain a total ownership score of 23, which translates to that 115% mark. Three other companies Aveng, Mvelaphanda Holdings, and Aspen Pharmacare, also managed to claim 23 points in the ownership factor.
HCI is led by former apartheid activists Johnny Copelyn (CEO) and Marcel Golding (chairman). The group emerged as the third-most empowered company on the JSE within the parameters of the TEC data. HCI commands a total BEE score of 76,8% reflecting an even performance across all six elements of the BEE scorecard.
HCI is set apart by the gender factor. The revised Codes of Good Practice put emphasis on the inclusion of women groups in BEE equity transfer initiatives. The codes require every BEE initiative across the broad-based BEE scorecard to apply a 40%-50% gender equity factor.
HCI registers 51% in black ownership. About 56% of HCI’s black control is said to rest in the hands of black women-influenced interests. This is mostly explained by the SA Clothing & Textile Workers’ Union (Sactwu) factor. HCI was established partly with funds from Sactwu. The union operates in an industry dominated by female blue-collar workers. Therefore the Sactwu influence in HCI comes with a strong gender factor.
Construction group Aveng, which is placed second in the ownership rankings, also registers a strong gender factor in its black ownership element. When Aveng concluded its BEE transaction in 2005 it facilitated the entry of a new black women interest group, Tiso Aveng Women Trust. The transaction that transferred 25% of Aveng Africa to a broad-based consortium also included prominent BEE group Tiso and Aveng Employee Empowerment Trust. TEC data shows black women control of Aveng to be sitting at about 18%.
Black women control in the Mvelaphanda Group, which occupies the third position in the ownership ranking, stands at 8%. Women control is quoted at 10% in both Aspen and Adcorp, 9,8% in Naspers, 6,4% in Sun International, 19% in Tongaat, 11,5% in Raubex and 5% in Oceana.
In order, the top 10 ownership list looks like this: HCI, Aveng, Mvelaphanda Group, Aspen Pharmacare, Adcorp, Naspers, Sun International, Tongaat-Hulett, Raubex and Oceana.
Though the case of HCI, Adcorp, Tongaat and Oceana supports Ndlovu’s assertion that ownership is the ticket to the empowerment game, there are notable exceptions. Depending on how you see things, these may indeed be exceptions to the rule.
The Mvelaphanda Group was born with the black ownership ticket. Indeed the Tokyo Sexwale-led operation does command a respectable black ownership score of 23 points. But Mvelaphanda’s BEE performance across other factors of the broad-based BEE scorecard does not match its excellent ownership score. Mvelaphanda produced a total BEE score of 61,5% in the 2008 TEC survey, placing the group at 32 in the overall rankings. That is not a bad score in the broader scheme of things. But then Mvelaphanda has operated with the black ownership ticket for a long time. If indeed BEE ownership is a facilitator for other factors on the scorecard, as Ndlovu suggests, then Mvelaphanda should be excellent across all the other five BEE factors.
Mvelaphanda is not a shining example by any stretch of the imagination.
There are much worse cases where BEE ownership has not even delivered moderate BEE contributions as in the case of Mvelaphanda. This is a case where black shareholders simply become sleeping partners after earning BEE equity stakes.
It is this fact that made the BEE legislative framework shift emphasis on the ownership factor. In the early days of empowerment, enterprises needed only to produce black ownership certificates to claim full empowerment credentials when the rest of the company, and more so at shop-floor level, remained unempowered.
Moreover, overemphasis on the ownership factor has largely proved to be misleading. This is because of the weakness in the financial structures of many BEE deals. At inception, many BEE deals purport to transfer significant portions of equity to black hands. With time many of these claims are exposed to be simply fronting on behalf of financial institutions and vendor financiers.
Ndlovu does acknowledge this weakness in BEE ownership structures. He calls for the establishment of a BEE deals ombudsman to do quality control.
Source: Financial Mail – Empowerment Factors – OWNERSHIP – Sibonelo Radebe