Paul Janisch

JSE BEE board

We need to talk about this.  It seems as though Russell Loubser's casual comment last week is actually going to happen.  There were two articles about this today.  It apparently is quite a far way down the line in being developed - we can expect it in September. 

South African bourse operator JSE (JSE:JSE) Ltd plans to launch a separate board for black economic empowerment schemes to make trading between black investors more transparent, a spokeswoman said on Tuesday.

South African companies have to meet affirmative action targets on a range of ownerships, employment and procurement as part of the government's drive to give the previously disadvantaged a greater part in the mainstream economy.

Shares issued for ownership deals often need to be held by black people and can only exchange hands between them so companies do not dilute their black economic empowerment credentials.

"This new board would make trading of shares by BEE scheme participants more transparent," JSE's investor relations officer Michelle Joubert said.

BEE schemes' participants commonly trade their shares, which would be subject to the same regulatory procedures, over the counter.

Apparently this board was requested by a listed client

Local bourse operator JSE Ltd has said the idea behind its mooted black economic empowerment board originated from clients seeking a platform to trade shares which form part of empowerment transactions.

"We were approached by a company that wanted to make sure its shares will be traded in a transparent manner once the mandatory lock-in period expired," said JSE deputy CEO Nicky Newton-King on Tuesday, declining to name the firm.

As I said before - I think this is a great idea.  That post sparked a fair amount of debate between Mark and myself.  But being the natural cynic my reasons for liking it are because it will show up the absolute folly that makes up many BEE deals.  And this comes back to the fact that the deal is measured by representativity and not by value - as has often been reiterated often by Mvela's Pine Pienaar. 

If the bourse exists so that black people can trade shares between each other then we are going to experience huge problems.  I'll list a few

1. Limiting the potential market means that there will be fewer buyers - and fewer buyers means less demand.  No institutional/white or other investor can purchase these shares.  Where is the wealth creation here?
2. The JSE is going to have to set up a system that vets the blackness of share purchasers.  And this could lead to litigation or a constitutional challenge.  I can only see this as one administrative nightmare.

What would I do

I would open up the shares to the general market after the lock-in clause has passed.  Can you imagine if these shares were heavily traded - it would be a major endorsement for BEE.  It would tell the market that the black ownership has grown these companies and made their stock attractive to other investors.  In fact this could be the one thing that shows that the entire BEE policy was worthwhile in the first place.

We shall see

http://bit.ly/cnM6rr JSE moots BEE board. The JSE is planning to start a separate board for BEE companies. Will cater for the rule that beneficiaries are only allowed to sell their stakes to other black people.
I think they should do it

Mine talk

We can expect to see the new mining charter in April.  The press is starting to talk a little more about it.  I blogged last year about Pine Pienaar

"The fatal flaw in the Mining Charter is the obsession with measuring black empowerment in terms of percentage equity stakes instead of taking an approach based on value. I think it’s often far better to have a 5% stake in a strong business than 51% of a weak business.

And this issue is now being debated at the Mining Charter review forum.

THE need to dilute black economic empowerment (BEE) stakes in mining companies below legislated levels was under serious discussion with government according to Exxaro Resources CEO Sipho Nkosi

Nkosi also happens to be the president of the Chamber of Mines.

You know things are looking up when Peter Leon is "cautiously optimistic" about the outcome of the charter process

There was initial concern when the government announced last year that the review had been conducted, apparently without input from the mining industry, but the Minister said in November that the Chamber of Mines must be consulted, and that the review would not be released until that happened.  Shabangu appears “much more open to an inclusive process” than some of her predecessors may have been, Leon noted.

Leon is known to be very outspoken about the charter and those dodgy codes they published last year - so cautiously optimistic is probably very positive.

Beside the recommendations of the King III in terms of corporate governance and the competitive advantage that is associated with improved legitimacy, there is now a growing body of evidence to support the idea that building stakeholder relations through specific engagement actually enhances organisational performance.

http://andrewbrough.com/leadership-negotiation-stakeholder-collaboration

Malfunction

Malema sells newspapers.  The press love him - and they want his blood.  I'm not too sure what he did to City Press, but they really hate him.  I think part of this must be Ferial Haffajee - who is their new editor.

City Press alleges that SGL Engineering's tax issues are not in order - in other words they do not have a tax clearance certificate.  In an article published an hour later City Press reported that SGL were awarded four tenders in a month.

The Greater Letaba municipality also handed Malema tenders worth R28m.  "Yes, they submitted a tax clearance certificate," said Mayor Godfrey Modjadji.

If this is the case then we have some very odd workings going on.   A tax clearance certificate is the state's filtering system - if you don't have one your bid is automatically rejected.  PPPFA 101.

I read somewhere years ago about the drug dealers in New York in the 70s and 80s who were the kings of bling who lived the life.  They became easy targets for the authorities and eventually toned it down.  Malema appears to be the same - and might just be his own worst enemy.  Can't wait to see what happens here.

Two new equity equivalent projects

Two new projects were announced last week. 

Liebherr Africa (Pty) Ltd, a Swiss multinational operating in the manufacturing industry, will partner with Ikhaya Fundisa Techniskills Academy (Pty) Ltd (IFTA) to form the  Liebherr Training Academy which will train 75 students per annum over a six year period, where the students will then be placed in gainful employment within the engineering field following completion of the relevant training programmes. 

Hansen Transmissions (Pty) Ltd will establish the Ulwazi Express, which is to deliver knowledge and information to people in disadvantaged communities in both rural and underdeveloped urban areas (particularly the youth) by providing them, amongst other things, access to educational material with a special focus on mathematics, science and life skills, as well as facilitating youth participation for creative industries. More importantly, by enhancing the digital infrastructure in underdeveloped areas, the Ulwazi Express will be making the delivery of other media content possible thus going a long way in bridging the digital divide.

These projects will entitle both multinationals to 20 points under the ownership element of code 100 of the Broad-Based Black Economic Empowerment (B-BBEE) codes of good practice.

What is worth noting is that "the initiatives will be monitored by the Department of Trade and Industry on a quarterly, bi-annual and annual basis, through the Equity Equivalent Investment Committee."

I was unaware that such a committe exists.

If you want to know more about the subject I found Hennie Uys' blog - he's put up a good write up on equity equivalents.  I didn't know about this blog - it looks quite good.

More law

Two different articles came up today

Business Day - Advocates raise the bar on transformation

ADVOCATES in Johannesburg aspiring to attain the highest status in their profession — that of senior counsel or “silk” — will from now on have to display a “demonstrable commitment to transformation” to qualify for selection. This is froma a resolution passed by the Johannesburg Bar Council.

This demonstrable commitment

Now the silks committee had to consider the extent to which a candidate had mentored black and women juniors, his participation in transformation through bar structures, and how often he had involved black and women juniors in cases.

I like this.

FM - GOVERNMENT TENDERS - Sold, to the highest bidder

A sad tale of a person who applied to the court to get a tender decision set-aside.  It took him two years to get the matter to the supreme court.  By the time the court had heard it the contract (winning bidder) had run its course.

The SCA concluded that the question was moot and any judgment would have no practical effect. The appeal was dismissed with costs.

And so says Andrew Donnelly of Shepstone & Wylie

"(I)nterdicts are often hurried and we don't always have all the information, but this is our one bite at the cherry," says Donnelly. "And if it is unsuccessful, it is not practical to take it any further."

The message seems to be that you need to have your act firmly together if you want to pursue this route.  Read the article.

(Group) 5(0) ways to leave your lover

Got this from Business Day this morning

ILIMA Group, a black economic empowerment (BEE) partner to construction giant Group Five , yesterday argued in the high court in Johannesburg that the courts could treat BEE transactions differently from those not underpinned by public policy.

ILima’s counsel, Vuyani Ngalwana, drawing from constitutional case law, said the government had a constitutional mandate to transform the economy, and BEE was one of the ways it had chosen to do so.

He said if strict enforcement of a clause in a contract could result in unfairness or unreasonableness to the BEE partner, a court should not enforce it — even where neither party was an organ of state.

What our esteemed advocate is suggesting is that a BEE partner should have more rights than the other party in the transaction because it is contributing to the transformation of the country.

Does this sound like rubbish to you?  Do you not think that this little pronouncement is a complete and utter waste of the court's time?

ILima has even gone to Rob Davies to moan about this.  And Rob has asked Group 5 to respond within 30 days as to why the DTI should not get involved in this case. What a crock.  Running to the DTI and crying because you can't get your way. 

I remember in the early days of BEE when I was offering BEE courses that didn't prescribe ownership I asked a delegate in Cape Town (Henry Shields of the Marimba restaurant fame) whether a contract could be canceled because it came to light later that empowerment status was significant to the other party.  Henry's answer was in the negative and he spoke of the "sanctity of contract". 

Surely the court will reject this argument because of the implications - viz

1. Messes with the sanctity of contract
2. It's a waste of the court's time
3. It will end all BEE deals because companies won't conclude them because of the potential prejudice
4. It's a monumental waste of the court's time

I suppose because this is a high profile case we'll be hearing more about it.  I'll add it to my Google alerts

Superintendent Barnard, I presume

This debate is not going to go away in a hurry.  Poor Captain Barnard, or should we say, Superintendent Barnard, has become the darling of those who question the odd application of the EE Act within the public sector.  I am one of those people.

To my mind the intention of the act is completely forgotten whilst people like jungle jim chase their own questionnable agenda (racist even perhaps).  Not that I think we need worry about jungle - he'll come bouncing back with some rabble rousing comment which will set us back another ten years. It's not a bad act but it has been wholly let down by the SETAs and the schooling system.

Anyway - the judgment is now available on the internet.  The salient points were summarised on Leadership on-line.

Judge Pretorius among others found that:

• The Employment Equity Act and Employment Equity Plan must be applied with due regard to fairness and the individual's constitutional rights to equality. It is no longer sufficient to simply set up numbers and leave it at that and due regard is to be given in each individual case to the circumstances surrounding that particular case. If the Employment Equity Act and Employment Equity Plan is applicable it should be open to flexibility;
•  Because non-designated groups are adversely affected by equity plans this must be factored in against their rights to equality. In a case like Barnard it should be accepted that she has been adversely affected and that weighed up against the right to equality in reaching a decision;
• "The extent to which the implementation of employment equity plans may discriminate or adversely affect individuals is limited by law." This is where there is going to be a clash between the two schools of thought  - those who believe it's a numbers game as opposed to those who claim that fairness must be factored in as has been the case with Barnard;
• Where a post cannot be filled by a designated group it must fall to other groups;
• There must be a rational connection between the Employment Equity Plan and the measures to implement it; and
• Service delivery must be factored in where appropriate.

Looking at these points it seems almost vital that this does go to the constitutional court.

Mary Rorich's memorial service is on Friday 5 March (2010) at 14:30 at the Holy Trinity Catholic Church, 16 Stiemens St, Braamfontein. It's that Catholic Church attached to Wits