Paul Janisch

Are equity equivalents a solution to the 30% black ownership requirement for ICASA licenses?

There is a hard and fast rule that must be adhered to when applying for a Electronic communications network services (ECNS) license through ICASA, and that is that 30% of the shareholding must be held by Historically Disadvantaged Groups (HDG).  The simplest definition of HDG is black.  Back is broadly defined as an African, Coloured or Indian person who was born in South Africa with at least one South African born parent.

This requirement has been part of South African telecommunications policy for at least two decades. 

However many multinationals are reluctant to extend their shareholding to any minority shareholder, specifically in the Information Communications Technology (ICT) sector.  To address these concerns the department of trade, industry and competition (dtic) provided for an alternative to actual local ownership.  This alternative is known as an equity equivalent project and is only open to multinationals.   There have been a number of extremely successful projects implemented by the larger ICT companies in the country, namely IBM, Hewlett-Packard and Microsoft.  The equity equivalent projects are a substitute for ownership where the ownership points are awarded without ownership changing hands.

It's with this in mind that the Communications Minister Solly Malatsi announced that his department would look at extending the concept of equity equivalents to multinationals applying for an ECNS licence.  It’s likely that this came as a result of our President meeting Elon Musk recently.  Musk owns Starlink, a service that provides super-fast satellite internet connectivity all over the planet,  almost everywhere.  It’s not available in South Africa, but is available to our closest neighbours. 

We must recognise that this suggestion by the minister is a move in the right direction.   The government may deny this but our employment and empowerment policies have proven to be a major deterrent to foreign-owned companies operating in South Africa.  The question really is, will offering an equity equivalent be an viable incentive for foreign-owned investment, specifically in the ICT space.

Before this answer is tackled it’s important to understand what an equity equivalent project is, how long it takes to implement and what the actual cost is – and anything else that might be worthy of consideration in embarking on one.

The first requirement is that that multinational must have a global policy of not selling shares in a local entity.  This is a difficult one for South Africa because some very large countries, like China, have this requirement but the markets are so big that companies wanting to operate there comply.  South Africa has a very small economy it’s likely that this requirement is overlooked.

The next thing is the project that needs to be undertaken.  The BEE Code covering this offers an idea of the types of project that are acceptable, these range from entrepreneurial to education to agricultural projects.  An amount of money needs to be invested in these projects over a 2 to 10 year period.  To describe the investment values as costly would be an understatement.  The investment can either be 25% of the value of the local entity or 4% of total revenue each year.  The amount invested will determine how long the programme will last. 

If the cost is palatable then the company applying for the EEP had better be prepared to wait for at least two years and deal with an all-powerful department within the DTIC that may or may not approve the project.  Stories abound as to how this department has been known to reject a project because they feel that a project of their choosing is better;  the fees-must-fall project was very popular about five years ago.   They’ll also have to deal with a change in DTIC staff members who come in with their own ideas when the project is quite far down the line.

It doesn’t seem that a person like Elon Musk is going to demonstrate the necessary patience to handle onerous bureaucracy.  It’s likely that in his mind, and in the minds of a number of ICT experts, that South Africa needs Starlink more than Starlink needs the hassle of South African red tape.

It’s too early to celebrate this perceived relaxation of South Africa’s empowerment regulations for multinationals.  The proof lies in how the DTIC and the Communications Department approach the application of an Equity Equivalent programme.  If it’s anything like the past programmes then we won’t expect Starlink to provide connectivity in those South African areas where broadband will never reach.

PEER LEARNING FOR EFFECTIVE CHANGE MANAGEMENT

A story was told to us recently about 42 pupils whose school went bankrupt in their final year of high school.  Not having the financial means to move schools, the pupils decided to teach themselves and look for support in neighbouring schools where it was required.    The pupils identified subject experts, in some cases, sub-category experts, and these people taught their peers.  The person who taught them mathematics is a friend of ours.  In telling the story he made a very strong observation.  People relate very well to their peers when it comes to being taught.  Possibly even better than they do with teachers or experts.  The reason behind this is simple.  That peer has no authority over her fellow classmates, they speak the same language and are able to stand up to the person giving the lesson.  Because there’s no power play, both the pupils and the “teacher” were more relaxed and receptive to the transfer of knowledge.

The broader message here is that peer learning has a bigger impact on the learning of and adapting to new systems than companies may be aware of.

Hareclitus wrote “The only constant in life is change”.  He noted this about 2500 years ago.  Strangely, nothing has changed.  Change still disrupts our existence, in spite of our consistent resistance to it.

This resistance to change remains a massive challenge to the implementation of large software and hardware systems in companies around the world.  So much so that change management, as it is most often referred to, forms a major part of each implementation and is regarded as a critical component of any rollout.  Statistically the odds of success are not expected to be great.   McKinsey and Company noted in 2016 that “Research shows that 70 percent of complex, large-scale change programs don’t reach their stated goals.”  McKinsey observed in the same article that “Common pitfalls include a lack of employee engagement, inadequate management support, poor or non-existent cross-functional collaboration, and a lack of accountability. Furthermore, sustaining a transformation’s impact typically requires a major reset in mind-sets and behaviors—something that few leaders know how to achieve”.

The decision to change or upgrade an existing system is almost always taken by the executive team and IT department.  Service providers put together an implementation plan that inevitably follows the traditional method of senior management directives and so it flows down to the ultimate user.  And at that point the message becomes convoluted.  Some think they could lose their jobs if they don’t use the system.  The fear of the systems extends beyond the technical knowledge to use it.  People may feel their superiors will judge them if they don’t use it.  They may just be plain scared that they might not be able to use the system due to its novelty and complexity. 

Most of the literature covering change management talks about a top-down approach.   Get senior management behind the process and then filter the message down to the users.  If this method worked then the percentage of successful applications would be higher.  Using senior management to “drive” this transformation is antiquated, and contributes to the ultimate lack of success.  This is a type of stick approach.  Relying on (implied or otherwise) intimidation as an incentive to create new behaviours.  Sweetening the deal with a carrot could also be viewed as demeaning and hence counterproductive. 

I'M NOTS

Returning to the school example at the beginning of this article.  Peer learning is an extremely powerful and effective method of the general adoption of complicated systems.   Some might remember the scene in Monty Python’s “Life of Brian” where Brian’s followers wait all night for him outside his house.  When he eventually addresses them, Brian becomes increasingly frustrated with the crowd telling them that they are all individuals and different, a sentiment that is echoed back to him by the adoring crowd.   A lone voice calls out “I’m Not” and is quickly told to keep quiet.   

There’s an “I’m Not” in every organisation, individuals who stand out.  Often these “I’m Nots” are the type of people that embrace change.  In the case of new IT systems, we might call them the early adopters. 

“I’m Nots” are a neglected resource because they can and should be used as flag bearers for the adoption of new technology.  We can’t change a person’s fear of change but we can show that there are people who have risen above that fear and are willing to share their knowledge of the new processes.  In many cases we have found that the same “I’m Nots” relish in the system and have worked out certain efficiencies that the primary vendor is unaware of.

Peer learning in practice

The “I’m Nots” are the key here.  It still remains a complicated matter of encouraging these “I’m Nots” to start teaching their contemporaries but this process pales in comparison to the wider acceptance of a new system.  Whilst peer learning is a very natural process it often lacks that strong element of formality that ensures that it’s taken seriously.  Our method is to create a series of INTRATERNSHIPS in the organisation that formalise this informal process.   INTRATERNSHIPS are a formalisation of informal training.  It sets up times for training with agendas and outcomes, all managed by peers. 

We call these people INTRATERNS because they are in effect interned as employees.  This adds weight to the programme by formalising the training.  At the end of a cycle, which is typically about 12 months each person on the programme is awarded a certificate.  In addition we provide the organisation with a recognition certificate which lets both internal and external stakeholders know that if key people exit the company, tasks. can continue.

The trick is to run a peer learning programme in parallel with the formal change management process.  The terminology used in Oracle’s process is intimidating and somewhat old fashioned, it still looks at the top-down methodology, thereby creating an us-and-them sentiment.  The top down methodology is guaranteed to be more successful if you see the executives learning from the people who are going to actually use the system daily.

And the school.  Forty-one of the forty two people made it through their final exams, one person being thrown out the school for being disruptive.  Those same graduates then started a fund to purchase the school and the land from the government.  It’s almost fifty years since these matriculants took control of their finals and St Charles is one of the top schools in South Africa.

Paul Janisch and Rudolf Rautenbach are South African a peer learning buffs.  Peer learning does not replace formal learning and training, it reinforces it.  It’s a sort of training micro-dosing.  Whether it’s formalised or not, it happens in every organisation.  Formalisation of the process harnesses the power of internal knowledge.

They can be contacted on [email protected]

Why should we do it?

It's a question I hear more often now.  Why should we bother with a BEE certificate?   I know of a large company that went out of its way to get to a level 2 last year that is asking whether their clients and customers are at all concerned about a BEE certificate.  I know of a few companies that have gone with non-compliant BEE certificates because their clients are saying - give us a certificate.  One of the requests was from Vodacom, which is the worst BEE nazi in existence. 

There's something going on and this is a huge threat to the BEE industry.  It's an undercurrent that started with Trump and Musk and was followed by the various legal actions led by the largest law firms (maybe not quite in that order).  I wrote before that when Cyril phoned Musk and Musk told him to change the law to allow Starlink to operate here,  Cyril's only response was that it was the law.  He had no statistics to show that the programme is working for the country.  He has no statistics because there are none.  There are a number of people who have made a lot of money, both legitimately and illegitimately.  We have a government that is more than happy to pay an extreme premium to black service providers, in many cases AN EXTREME premium.

Business has had enough.  I realised this yesterday when I was talking to the client who doesn't know whether they want to do this anymore.  I said to them that I think the conversation this time next year will be very different.  This year I am advising them to go through the process, mostly because they've done a lot of stuff and I can keep the costs right down for everything else.  Next year they may not do it at all, and I'll have nothing to convince them to change their minds.

For BEE to succeed it needs to deliver.  Parks and Recreation's dead in the water BEE fund is not the way to go now.  If BEE is to survive we need major concessions for foreign investment.