Paul Janisch

Tawana may fire local workers

So says the Business Day today.  Tawana Resources may dismiss (fire is a harsh word) South African workers at the end of this month because of the delay in getting their mining permit.  Minister of Mineral and Energy, Buyelwa Sonjica,  commented that the intention to dismiss workers  “is pure blackmail and totally unacceptable”. 

Hold on a minute here, if the government is going to delay in processing applications then they must accept the consequences of this delay.  And it would be really nice if they took responsibility for the consequences too.  Businesses cannot afford to pay staff who are not working because of delays like this - they have to make a plan.

Admittedly we don't have all the facts, it is possible that Tawana has left their search for a black partner to the last minute and maybe they are to blame.  But the DME is notorious for its delays and it has faced legal action because it is dragging its feet.

BHP Billiton’s Ingwe went to court before its prospecting rights were granted earlier this month.

The more I look at this issue the more elusive the solution becomes.  There is no doubt that more of the natural resources must find their way into black hands, But by taking a hard stand the government is threatening the livelihood of many people.  And where do these people go when they don't have a job - to Trevor Manuel.

Code comfort

Kim Marr sent me an email today with some news on the codes.  Happarently, happarently the BEE codes went before the Cabinet committee on the 26th of October.  The next move is to present them to the Cabinet on the 8th of November for final approval. 

The mail noted that further significant changes have also been made.

We wait in anticipation.

Testing the regulations

The Johannesburg labour court has found that the Employment Equity Act does not impose an obligation on an employer embarking on a retrenchment exercise to retrench its white rather than black employees.   The Business Day ran this article in this morning's paper (Firms not obliged to retrench white staff).

The case revolves around a black female who was retrenched.  She then asked the labour court to reinstate her because the employer was obliged to consider affirmative action legislation when they employed or retrenched.

The court found that "there was no legal obligation on an employer when making an appointment or dismissal to give preference to suitably qualified employees from a designated group."

This is a very interesting concept. I always regarded employment equity as being about hiring and promoting people from designated groups, and have never thought about terminations.  The article does talk about the legal implications of a company's EE plan that distinctly mentions that the employer must  consider race and gender as factors during a retrenchment selection.  This is still to be tested.   Whilst one never wants to go through a round of retrenchments it is probably a good idea to ensure that the EE plan does not have such a clause.

Don't leave the implementation up to the HR department.

I wrote this article in for the 16th October 2006 edition of Real Business.  I have spoken a bit about music as my ultimate hobby.  Every now and then I incorporate certain musicians into my stories - it keeps them interesting for me.  There are a few characters in this story that are real people, I've hyperlinked their names to sites that tell you more about them. 

-------------------------------------------

Black economic empowerment (BEE) is not purely the responsibility of human resources (HR), says Faritec deputy CEO Hasmukh Gajjar, recognising the trend to lump the implementation of BEE with the myriad other duties HR managers have. He says, correctly, that a successful broad-based BEE implementation and strategy cannot be HR’s sole responsibility.  Let us create a fictitious (and somewhat ridiculous) broad-based BEE implementation.

Webb’s Chicken is a large agricultural company with about 200 employees. It supplies chickens to a wide range of customers from small retailers to government. Some customers are cutting back on orders because they are able to source chickens from other broad-based BEE suppliers. 
Founder and CEO Stan Webb decides it is time to start working on the company’s BEE profile. He tasks group HR manager Christine Perfect with this implementation. “Come back to me when it is done,” Stan tells Christine.

Christine starts off looking at the equity aspect of the scorecard. The first step is to find a suitable investor.  Pablo Ntuli is the only person who seems to have an interest in the chicken industry and the money to do the deal. Christine negotiates the deal, appoints Pablo as a director. and plans to introduce the two shareholders to each other. She hopes Stan and Pablo will get on.
Her next step is to increase the number of black people within the various management levels within the organisation. There is a lot of black talent in the market place, but she has to offer competitive salaries and sign-on bonuses to bring them across.  Christine manages to employ an extra 20 managers. They have come at great expense but the company’s scorecard is starting to take great shape. She will introduce the new managers to Stan at the same time that she introduces Pablo.

Christine is not too concerned about earning the points for skills development, because her training schedule is well documented. She then heads off to work on preferential procurement. Her problem is that she is not that familiar with Webb’s suppliers, nor does she understand the concept of supplier-customer relationships. Nevertheless she dives in head first, sending threatening letters to all suppliers, telling them that they have a short time to generate a level-one score (100 points plus) or they will lose the Webb contract. She also manages to replace a few existing suppliers with black ones. The black suppliers’ prices are competitive but they are on the other side of the country; this shoots the unit price up.

There is no shortage of enterprise development and corporate social investment causes and Christine does not hesitate to randomly select a few to support. She chooses causes that have no relevance to the Webb’s Chickens business — in fact they have nothing to do with agriculture at all. She requisitions two hefty cheques and posts them off. 

It has been a productive two weeks. Webb’s Chickens now has a very impressive scorecard. She presents the new shareholder, staff members and latest financials to Stan on a Friday afternoon. Stan is dumbfounded. He and Pablo have met in the past in a bar fight, the staff have shot his overheads through the roof, his company is being sued by 10 very angry suppliers for breach of contract and Webb’s has donated a huge sum of money to causes that make no sense to him.  The only way to solve this problem is to get rid of Pablo at great expense and raise the price of chickens to cover his losses.

I apologise for making this example so ridiculous but there is a strong element of truth that resonates through it. The executives in an organisation cannot simply outsource the BEE implementation to the HR department. Admittedly 40 points on the scorecard has a direct bearing on HR (management, employment equity and skills development), but proper implementation has huge business implications and the correct executives in the firm must be involved in the process.

We theorists have it so easy

Caird was invited to present at a conference in Kayamandi in Stellenbosch on Monday.  It was a complete eye opener for us.  The conference was organised by HOPE Africa and the Finland South Africa Association and included some incredible speakers and delegates.  Speakers included the Finnish ambassador to South Africa, Heikki Tuunanen, Tapani Brotherus of the Finland South Africa Association (Tapani is a former ambassador), Sithole Mbanga CEO of the South Africa Cities Network (a charismatic presenter and very outspoken person), the Rt Rev Jo Seoka (Anglican Bishop of Pretoria) and Lynelle Pieterse of Purple Clover Community Projects (a little more on Lynelle below).

We presented on how the BBBEE codes can be used by NGOs and other charities to raise money for their many causes.  But what I really learned was what it is like actually developing entrepreneurs out of the poorest of the poor.  The challenges run so much further than just finding the entrepreneurial spirit in these people, once this is discovered you have to understand their social and economic environments.  Education levels are poor to non-existent, they live so close to the breadline that it makes building a business even harder.  But there are agencies and people out there who want to assist and they are desperately looking for help from the private sector.  This help is not specifically financial, these entrepreneurs need mentors.  And this mentorship needs to be a long term commitment. 

If any company is looking for a long term enterprise development project then they should consider talking to people like Lynelle (send me an email and I'll forward it on to her).

Lynelle was tasked with ferrying me around for those two days and I was floored by her ideas and commitment, in fact I am down right jealous of this next idea (which is all hers).  She suggested that government tenders should reward companies who have sustainable enterprise development projects on the go.  In other words instead of asking for ownership, ask what the company has done for their local community and how they have assisted in making it sustainable.  I think this is a brilliant idea.

My host was David Meintjies.  I've known Dave for many years, we both worked at UUNET a few years ago.  We were discussing BEE and the most effective way of implementing it.  We all know that it is only binding on the state and the only effective way of getting it down through the private sector is preferential procurement.  This carrot and stick method does have limited efficacy - but if the government starts providing tax breaks to companies who implement it correctly then you might see a greater uptake within the economy.  Unfortunately this was not my idea - it was Dave's and it too is a fantastic idea.

I learned more than I ever anticipated and it was a very worthwhile experience.  Thank Lynelle, Dave and Bronwyn at HOPE Africa.

 

dti giving us the code shoulder

Bad puns for a bad story.  I posted something on the 8th of October about a Finweek (5 October) article on the about-to-be-published BBBEE codes of good practice, this week's Finweek (26 October) tells another story.  The 5th October quoted Lionel October, the new one interviews Polo Radebe.

The latest news is that the dti is not able to say when the codes will be released.  All that Ms Radebe was able to say was "I can't give you a timeline now.....  we hope they'll be out before year end."  She also denies that the codes have even been presented to cabinet (although other people within the dti say that the cabinet has had a look at them).  I was chatting to Johann Geldenhuys of the SEDA division of the dti yesterday and I asked him about the codes and when they are coming out.  He said perhaps later in November. My money's on the 21st of December - just like last year. 

Surely there is someway to find out whether these things have been shown to the cabinet - I'm not a constitutional law expert but this information must be available.

Rabbitt reissued

Whilst this blog is effectively about BEE and other related issues, the temptation sometimes becomes a little too great to write about other things.  90% of the time, those other things are normally music-related.  And this post is about Rabbitt.

Rabbitt was the first real South African supergroup.  Four very talented musicians (in their late teens) who occupied the TV, press and radio for a few years in the mid-seventies.  The term Rabbitt-mania rolled as easily off the tongue as Beatle-mania did a decade earlier.  Unfortunately they only lasted a very short time with the four members going off in their own directions, but they left us with two fantastic albums and a third not-so-good one.

Rabbitt were Trevor Rabin, Neil Cloud, Ronnie Robot and Duncan Faure.  There is little doubt that the creative force was Trevor Rabin, the third album called Rock Rabbitt was without Trevor and his presence is sorely missed.  Trevor is now best known as the man who brought Yes mass appeal with their 90125 album (remember Owner of a lonely heart?) and now movie soundtracks.  Duncan is still a musician and brought out a greatest hits compilation a few years ago.  Ronnie is in some sort of music production and Neil runs a successful office furniture business. 

Fresh music has just released the first two albums on CD, Boys will be boys and A croak and grunt in the night (they did love their bedroom pictures).  They are available at major retailers or you can get them online.  The online prices are a bit stiff I suggest a retailer.

Once you've listened to the albums send Benjy Mudie an email and tell him to start arranging a reunion concert - it's 30 years overdue!!!!

Fronting and other misadventures

Caird spent an afternoon with a BEE deal maker, a rather successful one at that.  He offered a bit of the dirt on some of the deals he's done in the past, without mentioning names.  If real transformation is your bag then he recommends that you steer clear of some of the bigger deals.  They can either elate or disgust you, he claims that the latter is more common. 

The problem is that the deals (not all I must stress) are done because they are a necessary ticket to fulfilling certain government conditions that might be contained in the mining (see today's Business Day about Anglo Coal eventually being awarded prospecting rights) or petrochemicals charters; or maybe they want to do business with certain narrow-based institutions like Eskom or Telkom.   We enter a willing buyer, UNWILLING seller routine.  The reluctant seller concludes the deal with little or no intention of including the new investor in the management of the business.  The deal however is huge and the PR machine operates overtime, big smiles all round.

I then asked the deal-guy about the buyer's attitude.  He said they tend to take a dismissive approach to the whole thing, at best they could earn some money either through director's fees or through some other flow of cash; at worst they may have wasted some time.

Who then is the rotter in the deal?  Is it the reluctant seller who makes Napoleon seem like a Sunday school teacher, or is it the investor who is the biggest chancer in the world.  I can't really see the difference between the two.  The ridiculous combination makes a mockery of all the best intentions.

The deal-guy suggested that these deals are effectively fronts.  What then is a front?

There is a whole statement (code 000, statement 001) covering fronting.  The statement defines fronting as

any practice or initiative which is in contravention of or against the spirit of any law, provision, rule, procedure, process, system, policy, practice, directive, order or any other term or condition pertaining to BEE.   The practice is most often found in relation to ownership and management and control, but the codes are quite clear that fronting can happen within any of the codes.

There are penalties for fronting, ranging from fraud convictions through to blacklisting (unlike the SABC, this list will be written down and made public).  In spite of the risks I have my doubts whether the practice will stop in a hurry.  I think the reasons for this are:

1. A total lack of understanding of empowerment from government (biggest culprits), to parastatals like Eskom (who write their own ridiculous rules) to many large corporates.
2. It suits many parties; the business owner doesn't really sell anything and the investor gets money for nothing (and doesn't end up in Dire Straits - I couldn't resist that).
3. The more difficult fronting is made the more ingenious the front will be.  I asked Christiaan van der Merwe and Chris van Wyk (CA and lawyer respectively) of Exceed Verification Agency whether they could create a company whose front would never be detected.  They did not think this would be an insurmountable challenge.

What then is the solution?  The scorecard contains all the answers.  By rating a company on their total score, irrespective of where the points are generated on the scorecard, you create a situation where empowerment becomes an achievable thing for every company.  I wrote something about this a while ago in Real Business.

Selling off assets

Two recent articles in different publications discuss the sale of a company's assets and the implication this will have on the seller's BEE status. There are different rationales behind each transaction.

The first one was in Business Report on 16 October, 2006.  Caxton may hive off non-core assets in BEE move. 

"Caxton is considering hiving off some of its assets into a separately listed vehicle in a move designed to introduce black economic empowerment (BEE) shareholders to the company. The group's core assets are in newspaper publishing and printing, and magazine publishing. Caxton also has commercial printing operations and academic publishing, packaging and stationery." (my italics - I assume these aren't core assets)

The second one was in today's Business Day - Ngcaba drives BEE spinoff at Didata units

"DIMENSION Data has spun off two small operating entities into a separate company to give them empowerment credentials and growth opportunities."

Sound business reasons are the driving forces behind both transactions.  Caxton is living up to the old  "stick to your knitting" cliché, but they have recognised that these non-core assets do have a business value to a potential buyer.  Dimension Data (or DimDat as we used to call them) are looking for growth opportunities in government and Africa.

And the BEE impact?

Glad you asked.  Code 100, statement 101 allows companies to sell assets or enterprises within the group to generate points on the equity scorecard.  This new entity is known as an associated enterprise.

There are a few rules:

• the transaction must create a sustainable business
• there must be transfer of specialised skills/productive capacity to black people
• the associated enterprise must be able to procure clients other than the initiating enterprise
• there must be no onerous outsourcing arrangements made with the initiating enterprise

Once the transaction is concluded the initiating enterprise (seller) is able to claim points on their own equity scorecard.  These points are based on the percentage that the value of the associated enterprise contributes to the total valuation of the initiating enterprise.  The standard code 100 rules apply thereafter (these refer to voting rights, economic interest etc).

I love this kind of transaction.  The initiating enterprise's emotional attachment to the associated enterprise is diminished and the new owners are provided with a lot more freedom to be owners.  All gain in the short and long term.

If you are considering this kind of transaction read statement 101 carefully.  You can't flog off some old dog and think you are going to get away with it.  Also if you are looking to get involved in a business as an equity partner this is a great introduction.

What's wrong with the Sunday Independent?

I typically blog because of something I've read or heard, this why I don't keep to a strict timetable.  My blog submissions often refer to online articles, and this is why this submission has its title.  Almost every other publication runs parallel print and online stories, the Sunday Independent doesn't appear to do the same.  Today's online page carries last week's paper.  This is stupid - I hope it's an isolated case.

I then thought I'd list those online publications that I read religiously.

Dailies:

• The Business Day - I subscribe to the printed version, that's why I refer to it so often.
• Business Report - a supplement to the Star newspaper. 
• Moneyweb - from what I can gather, this is a very well read website.  It also carries transcripts of Alec Hogg's Moneyweb Power Hour which is syndicated on a few radio stations.  Moneyweb makes its print home in the Citizen.

Weeklies:

• The Business Times - a very good weekly publication, in spite of its parent's somewhat sensationalist and tabloidy nature.
• Sunday Independent - an anomaly. An academic newspaper that takes some intense reading.  It does not seem to have a live online version and its business section is ridiculously short.  The business section is actually part of the Business Report.
• The Financial Mail (or FM) - has a free and subscription-only site.  It's not worth visiting the online version.
• Finweek - part of Fin24.  Same as the FM.  You can subscribe to a newsletter - I inadvertently did.

Fortnightly and monthly:

• It's My Business - a very useful publication.  I've contributed an article to the publication.  The printed version comes out every second week with the Sunday Times.
• Real Business - a monthly supplement to Business Day.  I've been writing for them for a while.  Also very good - tends to be a touch on the academic side of things.

Online:

• Fin24 - Naspers' online newspaper.  In English and Afrikaans too.
• Moneybiz - I didn't know about this one until recently. 
• Sabinet online - good BEE section
• BEE online - they have a weekly newsletter too.
• The Skills Portal - one of the best weekly newsletters around.  They cover most HR aspects of empowerment, from equity to skills development.