Pressure from high-profile clients and a conviction that it was in the best interests of SA kick-started Adcorp's empowerment drive, says CEO Richard Pike. (See table on Services.)
"Our clients include government, parastatals and SA's top 100 companies," says Pike.
Adcorp, which offers staff selection, development and retention services and has a strong corporate communications arm, is listed on the services board of the JSE Securities Exchange.
By far the biggest contributor to group revenue and operating profit is the Flexible Staffing division, though the corporate communications and marketing research operations generate significantly higher operating margins.
"When you apply for a tender from one of these companies or from a parastatal, there is pressure to have fulfilled empowerment requirements," says Pike.
"Companies that are being scrutinised for their empowerment criteria aren't prepared to wait for their service providers to implement BEE deals; they want us to be empowered now. So these groups, as well as government departments, are publishing tenders containing empowerment conditions.
"To get the work, Adcorp must fulfil empowerment criteria. This entails measuring and monitoring the group's BEE initiatives."
Adcorp hit a difficult patch after the 2000 merger with Acumen, the company listed and managed by Pike. However, the group seems to have turned the corner with a R17m pretax profit last year from an R18m loss the previous year.
The main improvements came from Adcorp's corporate communications and marketing research operations, which were in the Adcorp stable before the merger. Pike says through a big restructuring of assets, the group structure has been simplified and nonperforming assets fixed or disposed of. The focus on cash generation has paid off, he says.
Adcorp has decided on the Black Management Forum's Investments arm (BMF-I) as its preferred empowerment partner.
The organisation is an interesting choice. A broad-based development and empowerment organisation "dedicated to placing black managers on an equal footing with managers from other backgrounds and environments", it believes that it has a role to play as an intermediary "between communities and employers".
It aims to "help corporate businesses to identify talent and potential, to take and make them skilled workers and professional managers".
Funds raised through BMF-I help the forum to offer career guidance, bursaries, leadership development programmes and business awareness programmes to young black people.
BMF-I has also invested in Advtech, Gold Reef City Casino and Crux Technologies.
By December Adcorp had earned empowerment credentials following the conclusion of two transactions, said Pike in Adcorp's 2003 results commentary.
"The transactions involve the introduction of a consortium comprising the BMF-I company and Zungu Investments as 25% shareholders in the Flexible Staffing operations, while a consortium comprising BMF-I company and little-known Tshirundu Investment Holdings acquired a 25% stake in the Corporate Communications operations.
"Corporate Communications includes Simeka TWS Communications, Graphicor and PR Connections. Together with the 9% BEE shareholding in Adcorp, these two divisions now have an effective 34% [black] shareholding."
In terms of the agreement, Tshirundu Investment Holdings chairman Thendo Ratshitanga becomes the executive chairman of the new company, while Tshirundu director George Negota will represent the consortium on the Adcorp Holdings Board.
Adcorp, BMF-I and Tshirundu will all have representation on the board of Adcorp Communication Solutions.
Pike says that apart from the need to respond to market pressure, the board embarked on an empowerment drive because of its conviction that this is in the best interests of SA. This is no doubt true, though it is interesting that Adcorp - along with the rest of white corporate SA - has, by and large, discovered its philanthropic desire to step up BEE activity around the same time that empowerment became a requirement of government.
Pike decided to do empowerment deals at the operational level of Adcorp rather than at holding company level.
"We didn't want unacceptable financing vehicles," he says.
This way Adcorp's partners can "participate in the fruits of their endeavours right from the inception of the deals".
Moreover, using this approach, the company's new black partners can add value to the group in influencing policy and bringing in new clients, says Pike. The deals also contain an option to convert their investment in the respective divisions directly into group shareholdings after five years.
