I made the Star Workplace last Monday. The article said that BEE deals should dry up until the new power base in the ANC is known. Stuff I have mentioned before on this blog.
I've made my feelings about BEE deals well known through the years. In fact I started Caird 4 years ago because I wanted to find alternatives to ownership. This was before the dti launched its first draft of the codes (take a look at their original scorecard). Back then I pinned my hopes on the Employment Equity Act which stated in section 53 that companies could attach a certificate to each tender claiming they were compliant with the EE Act. I interpreted this section as an alternative to the ownership requirement. That was then, I am now very disenchanted with the EE Act - it is starting to take on certain apartheid overtones and is not dissimilar to apartheid's disastrous attempts at social engineering. I must write more about this.
The ownership element is still very problematic to me.
Vuyo "Confucius" Jack attempted to liken a BEE deal to the workings of the body in his Sunday column in the Independent a few weeks ago. (Vuyo's philosophical warblings very rarely make for easy or pleasant reading - so read it at your peril, but you should read his column in today's Independent). He writes
The best place to be for the sustainability of the deal is where there is intrinsic intention from both sides which becomes a strategic glue for all parties involved.
The true context of this quote refers to the fact that the various parties need to have a clear idea why they are in business together and what their responsibilities are. A very logical statement that rarely occurs in practice. Almost every BEE deal that I have come across is a reluctant transaction that is being conducted because of compliance. I have yet to find a merger that happens in the natural course of business (although they must exist). I also find most deals are very sterile, they tend to stop at the maximum compliance level (which is typically 25%). Whenever I see the "25% BEE shareholder" tag I automatically assume that this is a BEE deal that has been conducted out of dire necessity.
The next thing that happens is the measurement of compliance. I did some work for a listed company and we attempted to calculate the black ownership of the company based on the shareholders' register as of a certain date. It was the most imprecise measure you can imagine, we took a look at the names and then tried to place a race and a gender to that name. Some were easier than others but we could have missed out on a whole bunch of shareholders because they don't have traditional African, Indian or Coloured names (the new police commissioner, Tim Williams is one example). In the ideal BEE world we should have contacted each one and asked them to identify themselves in terms of blackness (it would offend me completely if I was asked to identify myself because I hold a few shares in a company).
But if you want to prove that you have X percent of black shareholders then you must conduct this research. The question is "who is going to pay for it". It was highly unlikely that my client was going to foot the bill for this research and rightly so, their BEE budget is not unlimited. Bidvest on the other hand was willing to do this and probably paid KPMG a large amount of money to go off and calculate their actual black ownership. Much of that ownership is institutional but I am sure that they must have looked at individuals who own shares as well.
Who is then responsible for ensuring that you have black investors who buy your shares on the open market? What if they don't buy shares. Black ownership has to be either engineered or a happy coincidence.
There is hope for me however
I was invited to Thami Mazwai's farewell from Mafube. He's off to the University of Johannesburg to run their “Centre for Small and Medium Enterprise Development” (CSMED). Mazwai started talking about the need for more black entrepreneurs and then as if he was taking a leaf out of Kevin Lester's book he stressed the need for black-owned Pick 'n Pay-like stores, not black owned franchises, but businesses that are started by black people that grow to the same size as Pick 'n Pay. It's Kevin's Volkskapitalisme!!!!
I was jumping up and down (we'd been listening to speeches for two hours at that point, and I have slipped a disc whilst picking up my son). This is what I wanted to hear - it makes so much sense. Don't get Kevin started on this topic, a one hour lunch will end at a very late dinner (not that Louise and I would mind). But it was Mazwai's apt description of ABSA that really makes this point relevant. I'll paraphrase it a bit.
Even if ABSA was 51% black owned, it will always be remembered as an example of an Afrikaner success story.
I was talking to Obed and Sakkie O'Neil about this. A black owned (100%) bank would certainly pose a threat to the big four/five banks. But this is what BEE is supposed to be about - creating a more competitive economy. I am all for this concept I think it has great ramifications for our collective future.