Issue: April/May 2007
NEW BEE CODES
Empowerment for the people. VIVA!
Black members of pension funds can now be recognised as company owners for BEE purposes. This breakthrough significantly changes the numbers game for the scorecards, and has numerous other spin-offs that are equally profound. There are very real benefits for all parties, provided they make the effort to realise them.
It’s official: success at last! The cause that TT has vociferously championed over many months – for black members of pension funds to be recognised as owners of companies in which their funds are invested – has been won.
Plough through the detail in the final codes of good practice for broad-based black economic empowerment (BEE), gazetted in February, and the victory is evident. It’s a little belated in that so many of the deals in larger JSE-listed companies – where pension funds are mainly invested – have already been concluded. But more opportunities will come, certainly as new deals are initiated and possibly also as some existing deals unravel.
The paradigms in calculating BEE ownership of companies change significantly by the inclusion of what Trade & Industry minister Mandisi Mpahlwa has described as “indirect ownership”. This is to the undoubted benefit of companies, where they have fund managers representing retirement fund members as the beneficial shareholders, and of the black fund members themselves, where their trustees take the trouble to ensure participation.
The critical clause in the codes is that black participants in “broad-based ownership schemes”, holding rights of ownership in a “measured entity”, may contribute “a maximum of 40 percent of the total points on the ownership scorecard of the measured entity” if they meet certain basic qualification criteria and 100 percent of the total points if additional criteria are met (see box).
The compliance target for “ownership” is fractionally over 25 percent of the votes in the measured entity, and ownership is credited with 20 points (the highest, with preferential procurement) out of 100 on the generic scorecard. Under the codes, BEE must be measured “by substance over legal form”. In turn, ownership is measured “as an entitlement to both voting rights and economic interest”. The codes add: “Any financing structure that passes the test will be able to obtain ownership points.”
To take advantage, what actions should be undertaken?
Mpahlwa . . . never too late
The codes are explicit that ownership schemes must encourage “full participation of beneficiaries in all structures” and “accountability by fiduciaries (trustees and fund managers) to the intended beneficiaries”. Equally, they must discourage “a practice where no real powers of ownership accrue to beneficiaries”.
True, the 40 percent of total ownership points allowed does cap the extent of funds’ recognition. But the principle of recognition is absolutely right. Among other reasons, it
Not entirely clear from the codes is the position of the Government Employees Pension Fund (GEPF). Through the Public Investment Corporation (PIC) as its agent, the GEPF is the largest single JSE investor. The codes provide for an “excluded equity principle” that applies to “government owners”. The sole PIC shareholder is government, and members of the GEPF are government employees.
Yet a GEPF member is no less a beneficial shareowner than any other individual member of any other retirement fund. If an intention of the “excluded equity principle” is to exclude them, or the PIC, it’s inconsistent and therefore wrong.
To satisfy the basic qualifications as a broad-based ownership scheme for 40 percent of total ownership points:
Additional criteria for 100 percent recognition: