Feb 08

Trade & Industry Minister supports broad-based ownership schemes

Ditikeni welcomes Trade and Industry Minister Ebrahim Patel’s statement (as reported by Business Day ) clarifying the role of broad-based trusts in BEE. There can no longer be any doubt that organizations like Ditikeni qualify fully with the Codes. We are grateful to the Minister for this clear statement of government policy.

His comments were reported by Carol Paton in the Monday 8 February 2021 edition of Business Day newspaper:

Ebrahim Patel says broad BEE trusts are genuine

Trade, industry & competition minister Ebrahim Patel has come out strongly in support of broad-based ownership schemes including ownership by trusts, which he says are genuine BEE and must be recognised as such.

Patel’s statement, made on Friday at the launch of an expanded worker ownership scheme by Coca-Cola Beverages SA (CCBSA), signals a resolution to the longstanding conflict with BEE commissioner Zodwa Ntuli, who has declared that many broad-based schemes are BEE fronts, which do not qualify as genuine black ownership.

The CCBSA scheme will see a further 10% of equity in the company transferred to its 8,000 employees in a vendor-financed arrangement, in which workers will receive a trickle dividend from day one. Full ownership of the shares will vest in individual employees in 10 years. CCBSA employees already own 5% of the company.

In a groundbreaking move, CCBSA has also included employee representation on its board, which is a measure that Patel is seeking to encourage more widely.

Individual ownership and dividend flows to individuals are among the criteria that Ntuli has insisted on for BEE recognition. CCBSA MD Velaphi Ratshefola said that the company had extensive engagements with Ntuli, who is responsible for monitoring empowerment transactions, when designing the scheme to ensure “the alignment of expectations”.

“This scheme is the real deal and the fact that there is board representation is a big differentiator from what has gone before,” said Ratshefola.

Patel said that there was wide agreement that employee ownership schemes where shares vested in the names of individuals were genuine black ownership.

“There has been no controversy on this, and everyone agrees it falls squarely within the definition of BEE,” he said. “Where the discussion has taken a little bit of reflection is evergreen schemes where a shareholding is vested in perpetuity in hands of employees. There have been some questions as to whether that properly qualifies for BEE rating in terms of the scorecard. I hold the firm view that it does,” he said.

Such schemes, which enabled all employees over time to benefit and not just those who had the good fortune to be employed at the moment that the scheme was created, were also empowering and inclusive. A controversy bigger than that over employee ownership schemes concerns BEE schemes owned by trusts that distribute benefits such as bursaries to beneficiaries. This was the form taken by many of the BEE pioneers in the 1990s as efforts were made to provide wider access to the benefits of direct investment in companies.

These include the Kagiso Charitable Trust, Mineworkers Investment Trust, HCI, WDB Trust, Ditikeni Trust and Wiphold Trust, which engaged some of the first BEE transactions in the market.

The pronouncements by Ntuli that these schemes did not qualify for BEE ownership in terms of the scorecard more than a year ago led to desperate appeals to Patel to provide clarity. On Friday, Patel said that these schemes were “a different model” that promoted inclusivity and deserved recognition.

“On the matter of broad-based trusts that hold equity and their status: again I think that these are the pioneers of BEE and should be recognised appropriately. For example, companies such as Kagiso.”

Broad-based trusts have appealed to Patel to publish a clarification notice that would put an end to the uncertainty, which is affecting their ability to do BEE transactions and access licences and other statutory requirements.

Consultant Ajay Lalu, MD of Black Lite, who has been assisting the trusts, said that ministerial clarity was urgently required.

“We continue to see contradictions between the [department] and the BEE commissioner with regard to BEE schemes, and unless it is resolved [uncertainty will continue], hindering broader participation in transformation,” he said.