Paul Janisch

Consulting, opinions and speaking engagements and a few other topics that I know quite a lot about

If you are looking for a realistic perspective of empowerment in South Africa and southern Africa (including Namibia, Zambia, Zimbabwe and Botswana), I am able to provide that perspective at your AGM or any other presentation. It's relatively clear from this blog that I know what I'm talking about. Over the last 20 years I've gained a very thorough understanding of the following topics

• Government procurement
• Parastatal procurement
• BEE trends within Africa
• Impact of BEE legislation
• Multinationals and empowerment within Africa

And I am very happy to provide you with an overview of these topics.

In addition I have consulted to a wide number of public and private organisations throughout South Africa on

• Public Private Partnerships
• Listed shareholding analysis
• Tax advice on BEE initiatives and tax structures (through a partner)
• Opinions on empowerment commitments that may be contractually binding
• BEE plans for tenders
• Joint Venture BEE certificates
• General opinions (similar to this one)

Or if you need someone to come in and find those points within your organisation for your next verification please contact me and we can discuss what is required. You can email me or phone me on (+2783) 227-1375.

There’s talk of fightback against Tau with his legal sector BEE code - Moneyweb article

This is a better version of my last post.  Moneyweb published it.  The word in the hallowed legal chambers is that it's getting a lot of attention.  The whole article is below because Moneyweb has a paywall.  It's a good news publication - please read it.

There’s talk of fightback against Tau with his legal sector BEE code

This could be the last time we are taken for fools (and litigation will show the extent to which the government bulldozes legislation through).

By Paul Janisch 2 Oct 2024  04:05 

‘Taunting the legal sector’ and ‘cocking a snook at business organisations like Busa’ – Minister of Trade, Industry and Competition Parks Tau. Image: GCIS

BeyondWords

There has been very little black economic empowerment (BEE) activity from the Department of Trade, Industry and Competition (dtic) since Rob Davies vacated his post as minister of the then Department of Trade and Industry in 2019. To most of us this was a case of no news is good news.

The good news came to an end when current minister Parks Tau gazetted the legal sector code in September.

Normally this is an unremarkable event; most of the time these codes are received, absorbed and implemented.

This time things are hopefully a little different. There is a backstory behind this code and its gazetting. The Draft Legal Sector Code closed for comments in March 2021.

The code lay dormant until just before the May 2024 elections.

The story goes that John Jeffery, then deputy minister of justice and constitutional development, asked the Big Five law firms whether they would litigate if the draft code was gazetted. This was answered in the affirmative. Jeffery consequently didn’t pull a National Health Insurance (NHI) on the legal sector.

It’s not clear why the Big Five law firms objected to the code, but I am willing to wager a small amount of money that it wasn’t about the transformation of the sector.

Gazetted

Tau has now gone ahead and gazetted the code, which is binding on all entities that operate in the legal sector. It’s very likely all legal firms will need to use this code for their next BEE certificate, so there’ll be no lead-in time for acclimatisation.

This is a very typical ANC stunt, specifically when it comes to empowerment legislation.

The ANC knows that empowerment is a very emotional concept and that it can push through codes and policies because those who have to implement them are unlikely to complain.

But just because the legislation deals with empowerment and transformation doesn’t mean it’s right. Those of us who derive a living from BEE advice know how badly thought-out almost every single BEE code is.

Bursaries for black students 

Davies left South Africa with a requirement for the provision of bursaries for black students at tertiary institutions. It’s obvious that he was trying to solve a ‘fees must fall’ problem.

But he set the targets too high, offered too few points, and didn’t get the South African Revenue Service (Sars) to provide some sort of tax break for compliance. As a result, these points are largely ignored because of the sheer expense of compliance.

I suspect something similar is at play with the Legal Code.

Wordplay

Tau’s press release states:

“This administration has committed itself to accelerating transformation, guided by the preamble of the Constitution of the Republic of South Africa which emphasises the need to correct the injustices of the past. This is captured in the statement of intent of the Government of National Unity (GNU) [author’s emphasis],” Tau said.

This is a smoke screen. He is suggesting that there is an endorsement from the GNU, tacit or express. This is not true.

The DA is not particularly impressed with BEE legislation and would quite happily change it for something more effective. No, this gazetting is the old ANC at play.

Simply put, it’s a shot across the legal fraternity’s bow.

And the legal fraternity cannot ignore it …

I offer a few reasons why a legal challenge would benefit our economy:

1. If John Jeffery asked the Big Five whether they would litigate, then the justice department must be aware of the issues that have been submitted. It is simply daring the legal sector to make the next move. By not reacting we become the pawns the ANC government has always treated us as.
2. Part of the litigation will show whether the dtic and the justice department paid any heed to the comments they received. It’s a known fact that this government (GNU or otherwise) does not pay much attention to comments on legislation. Litigation will show the extent to which the government bulldozes legislation through.
3. The BEE codes are designed to benefit those who least need the benefit. This is an article in itself. Litigation may show that the legal sector codes are exactly the same, where we have certain silks being briefed for cases that they have no intention of winning.
4. Not only is Tau taunting the legal sector, he’s also cocking a snook at business organisations like Business Unity South Africa (Busa) and Business Leadership South Africa (BLSA). Every week both organisations publish articles about the importance of business-friendly legislation and adherence to the rule of law.
5. There is a history of court cases that have been fought in the name of transformation. The B-BBEE Commission has found itself in court on a few occasions because its findings have been devoid of fact. On each occasion the court has found against it. Similarly, the South African National Accreditation System (Sanas) was taken to court by SERR Synergy, and didn’t bother to defend the action. Litigation is nothing new here.
6. Perhaps the most important reason why this code needs to be taken to court is because South African jurisprudence will benefit. Empowerment legislation, like every other piece of legislation in the country, is subject to the Constitution. Thus far there has been a fear to litigate because of the potential negative consequences that such litigation might invite. If anything, South African law needs certainty.

Empowerment-related legislation is a sort of sacred cow. We all suffer as a result.

I have scoured the deepest recesses of the internet to find a copy of the code. Nothing has appeared yet. Perhaps the minister is waiting for the legal papers before he decides to share the code with us.

We’ve been taken for fools for many years. This could be the last time.

Minister approves the Legal Sector Code - dti is just the same

Except this time the risks are potentially a lot higher.

Parks Tau is no better than bolshie bob or slaptjips, which means parks needs a nickname, I'll use parksandrecreation in the interim.  He's approved the Legal Sector Code in spite of the fact that the largest legal firms do not agree with it.

Here's a backstory for the reader.

There was a rumour going around that the dti was going to gazette the legal code before the elections.  John Jeffery (I forget what his position was but he's a waste of space anyway) asked the big four legal firms whether this would invite litigation.  The answer was "most likely".  But parks being an old anc deployee (so good his parents named him in the plural - I certainly hope they weren't thinking about the average park in South Africa when they named him), went ahead and gazetted it.  He's so committed to this process that he hasn't bothered to post it on the dtic's website.

It just smacks of the rod davies playbook.  I'll explain.

davies (bolshie bob to his enemies) was (I really don't know what he's up to now and I don't care) a zealot.  He was steeped in communist ideology and when you mix this with anc incompetence and fuck-you-ness you have an amazing cocktail of uselessness.  He was not interested in what the public thought of his BEE codes.  He paid just enough attention to the comments he received to demonstrate that he might have read them.  Have you noticed that his attempt to contain the fees must fall movement by adding bursaries into the skills development mix has failed.  Failed dismally because no one wants to support a politicised student and you get nothing from SARS for the contribution.  He was so hellbent on pushing this through that he attempted to scuttle the YES project by insisting that you get all the bursary points before you qualify for YES.  That's the level of deludedness we had to deal with.  The old anc.

And parksandrecreation is part of the old system.  He's trying to bamboozle us by saying

“This administration has committed itself to accelerating transformation, guided by the preamble of the Constitution of the Republic of South Africa which emphasises the need to correct the injustices of the past. This is captured in the statement of intent of the Government of National Unity (GNU),” Tau said.

This is safe because the DA is too busy fighting Cyril's arbitrariness to worry about arbitrary lawmaking.  In fact they'll leave BEE alone because they have other plans.  I would do the same.  The problem is that the institution running BEE is useless, in spite of a DA deputy minister.

I was speaking to a friend who knows about the big firms and he says they want to know why they should litigate as opposed to just accepting it.  They don't want to be seen as the whites who are scuppering transformation, however pushing through legislation that is unjust, unfair and absolutely unconstitutional (understand that no BEE code has been tested for constitutionality yet) in the name of transformation doesn't give you a licence to legislate.  Here are my reasons why the big four (and Sakeliga) need to take it on review.

1. If John Jeffery (whatever his name actually is) knew that it had problems that would raise the ire of the legal fraternity (not all of it) then those problems must go beyond the transformation aspect.  Those issues need to cleared in court
2. I suspect that there are certain procedural processes that have not been followed.  This must be interrogated.  I'm absolutely sure that bolshie never followed due process when it came to the codes
3. How are these codes going to accelerate transformation?  BEE has been an abysmal failure because it was never thought through properly.  It was then left to people like me to figure out every single shortcut and work around.  I can't find the code - it's just not anywhere where it should be.  I think that there is a crony aspect here where certain extremely incompetent advocates are going to benefit more than anyone else.
4. parksandrecreation is laying down a challenge to the likes of BUSA and BLSA.   Both of these organisations will save this country in the long term.  He wants to see what they are going to do.  If they blink here then he'll push his luck further
5. It's time that entities other than SAKELIGA stand up.  We've seen some very successful litigation against the BEE Commission - they've lost every case, and SANAS.  There is an appetite for decent legislation and fair processes.  Let this one go and they'll continue.  This is the proverbial shot across the GNU's bow.  It's fair and reasonable
6. How will South African jurisprudence benefit from this litigation?  Probably massively.  I've written before about how the government ignore comments.  If this process is not questioned and ventilated then they'll continue doing what they do. We will be worse off if they don't

 

Even if you spend the money we discussed in last week’s email and still don’t get to a level 8

We’ve been writing about the Property Practitioners Regulatory Authority (PPRA) and their irrational decision to only award or renew a Fidelity Fund Certificate (FFC) to a level 8 BEE contributor, over the last few weeks.

Last week we showed that a level 8 certificate could cost an estate agency whose turnover is R10m about R211,000 per year.  But spending the money doesn’t mean that you will actually get a level 8 certificate.  And it’s very clear that the PPRA, specifically Thato Ramaili have little or no understanding about the workings and pitfalls of BEE. 

BEE Compliance is ridiculously complex and expensive.

The Property BEE code is unnecessarily complex, we’ve simplified it for this email.  It states that if your turnover is in excess of R2.5m then you need to implement a full BEE scorecard to become compliant (unless of course your turnover is between R2.5m and R35m and you are at least 51% black owned – then you are automatically a level 2).  But if you don’t have at least 10.1% black ownership (the target is 25.1%) then you will drop a level.  This means that to get to a level 8 you in fact have to get to a level 7.  A level 8 is 40 points and a 7 is 55 points, that’s a substantial difference in points.  The table below is a summary of the scorecard.

ELEMENT	POINTS	COMMENT
Ownership	27	Target is 25.1%, but you would need a minimum of 10.1% to not drop a level. However 10.1% will give you about 12 points in total
Management Control	9	Requires black people at board level. The target is 50%
Employment Equity	11	Black representation at senior, middle and junior levels in the business. Target is 60%
Skills Development	17	Spend on the training of black people.  We showed last week that this is R180,000
Enterprise and Supplier Development	35	We look at the BEE scorecards of your suppliers and the money you’ve given to help black owned businesses become sustainable
Socio-Economic Development	2	Donations to black charities
Economic Development	4	The good news is that this is not applicable to Estate Agents
TOTAL	105

This is probably what a typical mid-size estate agency could look like

Element	Sub element	Likely points awarded
Ownership		0
Management Control		0
Employment Equity		3
Skills Development		17
Enterprise and Supplier Development	Procurement	10 (out of 25 points)
	Enterprise Development	5 (out of 5 points)
	Supplier Development	5 (out of 5 points)
Socio-Economic Development		4
TOTAL		44 points

That’s 11 points short of the 55 points you need because there is no ownership.

Or you could use the Ownershield system to get to level 2 at about 2/5ths of the total cost we discussed last week.

Free Property BEE Seminar – 13 June 2024

Ownershield is hosting a free one hour on-line seminar at 10:00 on Thursday the 13^th of June 2024 discussing compliance complexities and simpler, reversible solutions.  Please email us to book and feel free to invite as many people as you like, if necessary we will arrange a second seminar. We can accommodate 100 people at a time.

Why skills continuity and retaining corporate memory is so important

A recent article in a South African publication discussed how certain public officials fear losing their jobs after the conclusion of the 2024 South African general elections.   The article discussed how certain people had been employed by the most dominant party and this party was likely to lose its dominance.  This has not happened in South Africa for 30 years, most people felt that their jobs were secure.

The problem for the citizens in that province is that if new people in upper management are brought in to replace those political appointees they could  probably have no understanding how that provincial administration is supposed to work.  And because the outgoing administration hasn’t implement an Intraternship programme the employees under them will not know how to train the new appointees.   This has a major impact on the citizens of that province.  This is probably not the impact an incoming political party wants to have on their voters and rate payers at the outset.

Corporate continuity is not only important to government departments.  It is just as applicable to companies that have been subject to a merger or acquisition.  The new owner may want to rationalise jobs and will do so through a series of interviews that don’t actually discuss how that person understands the job that it is interviewing internal people for.  There is a lot more to interviewing a person who is hoping to retain their job after an acquisition.  Traditional interviewing techniques can never covering this.  But examining the records of the Intraternship programme will show how that person works in the team with the people below and above them, and most importantly how adaptable they have been when it comes to innovations proposed by the people in the same Intraternship programme.

Intraternships extend even further than that.  A shareholder may want to know that there is a culture of internal learning in the organisation that encourages innovations that lead to more cost effective delivery of that company’s mandate. 

This is the reason why RISE TRAINING AND DEVELOPMENT issue a  RISE CERTIFICATE OF CONTINUITY (RCC) at the completion of every Intraternship programme.  This offers shareholders and stakeholders assurance that if there any major changes in personnel the work can continue and that the new people will be up and running in a much shorter period of time, whether they occupy executive positions or lower.

A Free Seminar

The response to the emails we have sent out has been incredible with many people requesting a follow-up seminar.  We think this is a good idea and will be hosting a free online seminar on the 20^th of June 2024 at 10:00 Central African time.  If you would like to attend please click on the email link and let us know how many people would like to attend.  We’ll confirm your attendance.  We are restricted to 100 people but will arrange a second seminar if the demand is greater.

Click on the email link to confirm your attendance. 

Training the trainer to respond to innovation

All of us are natural trainers. It’s a talent we were born with. Not all of us are natural trainers when it comes to imparting information in the workplace. This is a learned process.

Imparting knowledge is a vital component of our learning existence. We do this at school when we write exams. As leaders of a sports’ team it’s imperative that we get messages across to the team with urgency and in such a way that the members of the team answer it.

The workplace is different. There are many agendas, egos and positions that needs to be considered. In the past it was simply a matter of transferring knowledge in a one to many fashion. This has all changed because of the pace of change and the multiple means of knowledge acquisition. For a trainer to be effective, that trainer needs to know that they are experts in their field but there are people around them that may have mastered a certain aspect of the job that the trainer and colleagues may not be aware of. This could be critical information that everyone in the seminar room could benefit from. In fact this two way transfer of knowledge must be encouraged and nurtured. It’s not unusual for the trainer to feel threatened by this expertise. Embracing this transfer leads to three desired outcomes.

• It introduces innovations in the workplace
• Creates a greater level of respect between colleagues
• Should lead to efficiencies in the workplace that may not have been considered in the past

We have found that the EXCHANGE method of training the trainer to be the best approach when it comes to developing and encouraging INNOVATIONS in the workplace.

EXCHANGE is made up eight components

Engage	Start out with an open mind by letting the people in the room that you are an expert but not an expert in everything
eXplore	Look for ways to train and to receive information
Challenge	Put concepts out to the room. Ask for ideas. Debate as to how these ideas can be incorporated in the workplace
Habits	We are looking to nurture new habits and to understand how existing habits can be improved. Habits can lead to complacency. But habits can be removed
Adapt	Adaptation is key. Some adaptations may take a while and require new technology. Most habits require a minor change in attitude
Normalise	Innovations must become a normal part of performing a task or job. Getting the buy-in of all the players requires normalisation
Grow	The trainer wants their team to grow in confidence and in turn they themselves will grow in confidence because everyone is benefiting from the process
ReinforcE	Reinforce these innovations over a 12 month process through seminars and training sessions. Each session looks to improve on the session before

Each person on this programme is regarded as an intern known as an INTRATERN. This is not casual on-the-job training, it is formalised programme that rewards each person with a certificate of accomplishment. Something that makes that person more useful in the workplace. It can be used for promotion purposes too.

To learn more go to Rise Training's website

If you have found this bulletin useful please forward it onto everyone in your organisation that you feel could benefit from these emails

Emulation leads to innovation, this applies to the workplace as well

All of us are a product of emulation. We learn to perform almost every function by copying someone. We’ve been doing this since we were infants. By the same token everyone of us are in fact capable of training other people to perform functions that we are competent in. Training each other is one thing, improving on what we have learned from each other is how we excel.

Studies have shown that 82% of employees to be the most effective training methods. This is because there is already a trust relationship between those doing the training and those receiving the training. There is little doubt that those people who do the work are best equipped to teach people how to perform their functions. But that does not mean that the trainer is receptive to learning from their peers how to do their functions more effectively.

The key lies here in encouraging a free flow of skills transfer and then rewarding and recognising those who have gone through the process. This is done by way of Intraternships ™. Intraternships are a system of internal internships that teaches the trainer to invite innovations from those who are being trained, capturing those innovations and then changing workforce behaviour by adopting those innovations. An Intraternship does not replace formal training it merely reinforces practices within an organisation that could be bolstered by further training. Each person that undergoes this training is then recognised with an Intraternship certificate at the end of the 6-12 month period of learning. The certificate tells the world that not only is the employee skilled in their job but has demonstrated the necessary capability to adapt to the evolving workplace. This is all done at a fraction of the cost of conventional training.

Go to Rise Training to find out more

How much does a level 8 BEE certificate actually cost? PPRA content (Estate Agency dilemma)

Last week we demonstrated that if your turnover is between R2.5m and R35m and you have 51% black ownership then you all you need to do is sign an affidavit that shows that you have requisite ownership and you have a level 2 (100% ownership is a level 1, again with an affidavit).  This is more than acceptable to the PPRA.  PPRA’s legal manager and acting transformation manager, Deli Nkambule, explained that “the PPRA’s position is that it will not issue an FFC unless a compliant BEE certificate accompanies the application.

“The accepted level of compliance is 40 points or more (BEE Level 8). You will not be issued a BEE certificate if you score below 40 (making your BEE certificate non-compliant),” she said.

The reported quote shows a complete lack of understanding of the technical and financial considerations that are required just to get to a level 8.  We’ll discuss this in the next email. 

A BEE scorecard is made up 5 elements.   We’re only going to focus on those points that have a financial consideration to them.  The table below makes a few assumptions

• The cost of labour in a smaller estate agency is 60% of turnover. This is based on the 50/50 revenue split between the agent and the agency.  We’ve added on a further 10% for support staff
• The Net Profit After Tax (NPAT) in the last financial year is 5.62% of turnover. This figure comes from StatsSA.
• The estate agency’s revenue in this example was R10million in the last financial year.

The three elements that require a financial outlay are

1. Skills development (spend only on black people) – 3% of payroll (if the agency does not employ any black people then this will have to be spent on training of black people outside of the organisation)
2. Enterprise and supplier development (assisting black owned businesses to become sustainable) is 1% of NPAT each

• Socio-economic development (financial contributions to charities where the beneficiaries are at least 75% black) is a further 1% of NPAT

We have then added on a further R15,000 for the actual BEE certificate to be issued.

Turnover/Revenue	R10 000 000.00
NPAT	R536 000.00
Payroll	R6 000 000.00
Skills development spend on black people	R180 000.00
Supplier Development	R5 360.00
Enterprise Development	R5 360.00
Socio Economic Development	R5 360.00
Verification costs	R15 000.00
TOTAL	R211 080.00

This is an annual cost of compliance and the costs increase as the turnover increases. 

Next week we’ll show you that even if you do spend this money there is no guarantee that you will arrive at a level 8.

If you would like to know more about level 2 BEE compliance that will cost you a quarter of that amount take a look here.

Staff tenure in South Africa and institutional memory. Emulation and Innovation

Career Junction recently reported that staff retention in an organisation depends on the age of that person. It noted that baby boomers (age 58 to 77) tend to stay in a job for seven years. The length of time in a job tends to decrease in age groups with the most productive age group between 28 to 42 staying in a job for only 2 and half years on average. The report also notes that executive and senior managers stay in their position for four years.

This job fluidity has a huge impact on institutional memory. A corporate entity whether that be private or public relies on a consist level of stability in performance to run optimally. The best way ensuring this level of service is to retain the institutional memory in an organisation. Training plays a vital role in this process. Sending people on courses related to their jobs is an important component of this, but it doesn’t do much to retain corporate memory.

In our experience the most effective method of ensuring corporate continuity is through a series of internal internships, known as INTRATERNSHIPS. These Intraternships encourage staff to exchange information through a series of seminars. They go much deeper than that, the trainers are encouraged to pass on information and receive information that might lead to innovations that could lead to operational efficiencies resulting in streamlining the business.

Trainers are taught to deliver these seminars to both their co-workers and executive and senior managers. Each person on this programme is regarded as an intern. After 12 months of seminars and idea sharing each person, irrespective of position in the company receives a certificate of INTRATERNSHIP. This certificate becomes a negotiation tool for promotion or for future employment.

Over the next few months will breakdown each concept in detail.

Estate agents, licences and BEE scorecards. They want a level 8, let's give them a level 2

Before I launch into why this is a travesty and an application of extremely arbitrary flexing of authority that is not backed by anything related to legislation, I will say the following, in a large font

THE PPRA WANT A LEVEL 8.  WE ARE GOING TO GIVE THEM A LEVEL 2.  YOU STILL RETAIN CONTROL OF YOUR BUSINESS AND THE BEE CODES HAVE NO PROBLEM WITH IT.  MOST IMPORTANTLY THERE ARE NO TAX IMPLICATIONS.  GO TO AANDELE, FILL IN THE FORMS AND WE'LL SORT IT OUT

I agree with Piet le Roux who told Stephen Grootes (who strangely enough was an awful interviewer in this instance) that the BEE requirement for a Fidelity Fund Certificate is a level 8 and that this was wholly unconstitutional and arbitrary.  Piet argues that legal manager and acting transformation manager at the PPRA, Deli Nkambule may want a level 8 now but what's stopping them from asking for a level 7 the year after.

I was messaging Piet at the same time telling him that getting to a level 8 is a very expensive process.  If you haven't got ownership then you'll need skills, ED, SD and SED and you'd better hope that your procurement is OK.  Rudolf and I have just come back from a large QSE that needs a level 8 and they don't get to the level 7 to drop to a level 8. 

What grates me is that both Ms Deli and her boss Thato Ramaili don't understand what it takes to be a level 8.  And I quote

“the PPRA’s position is that it will not issue an FFC unless a compliant BEE certificate accompanies the application. The accepted level of compliance is 40 points or more (BEE Level 8). You will not be issued a BEE certificate if you score below 40 (making your BEE certificate non-compliant).”

Getting to 40 points without ownership means you need 55 points.  And if your business is 51% black owned and you turnover less than R50m then it's an affidavit, not cost and you're a level 2.

I come back to what I said.  This is a game.  You want a solution that gets you to a level 2, costs you a fraction of what it would cost to get to a level 8 and you keep control. I have one - you call now.  It's a game, the rules are never consistent but we are.

Black ownership within 3 weeks, no interference only compliance

This is a repost.  There has been a problem with Feedblitz that has miraculously been solved.

The upshot is

1. BEE ownership in three weeks
2. Fully compliant with the codes (see below)
3. No shareholder interference
4. No Capital Gains Tax
5. If it needs to go through a verification (this will take longer than three weeks) you will get full recognition for ownership
6. Contact us to learn more

I am not the first to think about the concept of options or warrants. I won't tell you who did it first because theirs is too simplistic; focusing on white owned businesses and only QSEs or EMEs. I was talking to my old friend Rudolf Rautenbach who told me about Ownershield. Rudolf is a little cleverer than most in this industry. We lost Gerhardus Burger to Australia, Chris van Wyk to Mauritius and Kevin Lester to Anglo. These were three of the brightest minds in the BEE business. Rudolf has stepped up and filled the weighty shoes that Mr Burger filled by becoming THE BEE tax expert in South Africa. Part of Rudolf's experience lies in capital gains tax. This is a bugger because if you do an ownership transaction, uncle fascist SARS is going to want its undeserved piece of the pie in the form of CGT.

This is a problem and quite possibly a major deterrent to companies having to undergo a BEE transaction. This does somewhat highlight the punitive nature of the entire BEE system. I would tell the potential partner that they must pay the CGT otherwise no deal. I digress.

Rudolf says that options are a viable vehicle for BEE ownership not only because it doesn't attract CGT. He lists a few benefits

1. It's a top up method. If you have say 25% you could top it with 26% of options and you'll get your level two as an EME or QSE
2. It's a good option for larger companies as well. If this programme exists in the codes then it will pass a verification
3. It can be used by all companies.  The structures may differ slightly but it's widely applicable

I have selected the reference to options and warrants from the Financial Sector Code (the only code that was properly negotiated and drafted) , but the words are exactly the same in the generic codes.

8    OPTIONS AND SHARE WARRANTS

8.1    Exercisable voting rights and economic interest will be recognised where a participant holds an instrument granting the holder the right to acquire an equity instrument or part thereof at a future date, if the following requirements are met:

8.2    The exercisable voting rights attached to that instrument are irrevocably transferred to the holder for the option period and are exercisable by the holder before acquiring the equity instrument.

8.3    The value of any economic interest is irrevocably transferred for the option period and paid to the holder of that instrument before the exercise of that right.

8.4    The value of an instrument must be determined by using a standard valuation method for calculating the net value.

This is where Ownershield appears to be different to other companies. Most target white -owned business that turnover less than R50m. However Ownershield looks at it from the perspective of a prospective black shareholder as well. What if the prospective shareholder (who is black but I'm not going to repeat this) agrees to take an option for 36 months. They get the benefits of ownership because of the voting rights and dividends. They may be able to store up enough money because of that dividend flow to exercise the option when it matures. And they are gaining experience of ownership. Hell there may even be executive employment opportunities. We could call this a long date – where the two parties go out with each other and then decide to marry. As opposed to an arranged marriage at the outset (which is bound to fail).

Having noted that. The option route is still good for white owned companies. There are failsafe mechanisms in the structure that will protect all parties. We can't pretend that that ownership is easy. It's not. It's a hard slog. Different cultures and different expectations get in the way. There's one example of an English speaking white South African working in a very Afrikaans environment in some dorp somewhere and he can't fit in, it's a very poor cultural fit AND THEY ARE ALL WHITE. Also if either party decides this isn't working, cancel the option agreement. Everyone walks away.

I'm not a big believer in the ethical nature of BEE nor do I believe in the spirit of it, mostly because the government's bona fides is not genuine and they have messed it all up. But for some reason I think the option erm.... option is probably the closest to the spirit of these draconian codes.

This is a solution for all businesses, even CCs. Doesn't matter how big or small you are and doesn't' involve preferential shares and a dodgy law firm in Bloem. And the turn around time is quick there's no CIPRO or the master of the high court. None of that. Yes there are a number of documents and agreements that need to be signed, there's also compliance with the Companies Act. Rudolf has got all that sorted. In fact if you don't want to manage it at all, he'll doo that for you too.

You can contact Rudolf here. Hell if I'm nice to him he might include me in the meeting.