The Department of Trade and Industry (DTI) has appointed advisory firm EconoBEE CEO Keith Levenstein to its task team to examine and report on broad-based black economic-empowerment (BBBEE) schemes.
The task team was established as a consequence of the controversy around ownership notices issued by Trade and Industry Minister Dr Rob Davies in May.
Levenstein said there had been concern about employee share option participation schemes and broad-based schemes for some time now.
“There is nothing essentially wrong with broad-based schemes. However, some have been designed in a way that displays no real ownership. What many people forgot is that a broad-based scheme is firstly an ownership scheme and secondly a broad-based scheme. In some cases companies set up broad-based schemes with no ownership, but they were awarded points. This was wrong.
“With no actual ownership accruing to the beneficiaries, the scheme has more of the characteristics of a socioeconomic development initiative than ownership. Imagine spending a small amount of money on a genuinely good cause, but calling it ownership. This is what is happening,” Levenstein noted.
He added that some of the good BEE ownership schemes included telecommunications firm MTN's Zakhele scheme, which also had the characteristics of a broad-based scheme.
“The shareholders bought their shares, took the risk and benefited hugely. Nedbank, long ago, announced its employee ownership scheme, also to the benefit of all.”
“BBBEE remains broad-based: the five elements cover aspects of the business, society and the economy. Even within ownership, the codes encourage a broad-based approach.
“The driver is how points are awarded. Additional points are awarded for black women, not only men. The points encourage involvement of younger entrepreneurs (under 35 years old) and new entrants to the field of investments. A standard ownership deal does not earn as many points as one that properly involves employees, or the broad-based community,” he highlighted.
“We've been concerned about some of these schemes since 2007. It should not have taken so long to start investigating it. Some companies have been awarded ownership recognition points for the past seven years on a dodgy scheme, when it should have been denied upfront.”
“The codes aren’t wrong, they are clear. These strange practices are not supported by the codes. However, the lack of guidelines and lack of policing of verifications by the regulators has enabled this to develop,” he said.