The success of this year's top empowerment company - fixed-line telecom operator Telkom - cannot be attributed to one factor alone. It was rather the company's focus on a wide range of empowerment projects, such as skills development, equity, management and affirmative procurement, that ensured it topped the FM's 2005 top empowerment companies ranking for the second consecutive year.
Lullu Krugel, a senior research consultant at Empowerdex, the ratings agency that conducted the research for the FM, says that the reason Telkom fared so well again this year is not because it scored exceptionally well in any one of the research categories. Instead, the company performed relatively well in all categories, which lifted its overall score and placed it on top.
"Telkom did well in all seven factors of the broad-based scorecard we used," Krugel says.
It must be noted that for the purposes of the research, the Public Investment Commissioners' (PIC ) 15,1% stake in Telkom, which was bought from the carrier's former foreign partner Thintana for R6,6bn in December, was defined as a black equity shareholding. This is because it has been specifically warehoused for black shareholders - among them, possibly, former communications director-general Andile Ngcaba's controversial Elephant consortium - and will probably be transferred before midyear.
Telkom, of course, already has a significant number of black shareholders at the retail level. However, Telkom corporate affairs executive Belinda Williams says it is hard to calculate the percentage of Telkom's shares that are held by these investors, such as those who bought equity through the discounted Khulisa offer at the time the company listed in March 2003.
"Though we do not have a BEE shareholder group that we can measure at this time, Telkom's success [lies in] a BEE shareholding that is broad based. Through the Khulisa and Diabo shareholdings, we have more than 100 000 retail shareholders," she says.
At the end of March 2004, retail shareholders represented 6% of Telkom's free float. "In the BEE Act, broad-based ownership is stressed as one of the most important issues, yet no-one seems to have an appropriate way of measuring it," Williams says.
Khulisa shareholders owned about 5,2m shares at the time of listing, representing about 1% of the company and 3% of the free float. At the end of October 2004, there were still 4,4m shares in the hands of Khulisa investors, despite an enforced lock-up period that ended in June 2003. On December 22 2004, Khulisa shareholders had seen the value of their investments rise by an astonishing 333%.
"The Khulisa transaction was hugely successful," Williams says, though she concedes more education is needed to help Khulisa shareholders. "They have expressed a need to understand more on share ownership."
The PIC, meanwhile, has given Telkom no specific commitment regarding its stake in Telkom. Williams says: "No communication has been made in this regard. The PIC is still working with the BEE consortium [Ngcaba's] and we understand it is also looking at other possibilities to further broaden BEE ownership."
Williams says that with the PIC stake likely to be sold this year, and with plans by government to further dilute its remaining 38% stake in the carrier, there are huge opportunities to effect meaningful broad-based empowerment transactions in 2005. "Given the size of the Telkom employee base and the fact that 60% are black, it would be a great way to enable broad-based equity ownership."
Telkom will come under growing pressure to increase its black shareholding. The information & communications technology (ICT) industry charter, which requires companies in the sector to sell 30% of their equity to black investors by 2010, is expected to come into force on March 1 2005.
Telkom strategic sourcing and BEE executive Thapelo Petje says whichever black groups eventually take equity stakes in Telkom, they will require deep pockets. He says this means it could "take some time" to conclude BEE transactions.
Telkom's approach to empowerment, however, is about much more that just equity. It wants to empower people as broadly as possible and develop the skills it requires to keep it competitive. The strategy, Petje says, is driven from the top by CEO Sizwe Nxasana. "He has made a commitment to keeping all our empowerment projects on track."
Petje says Telkom developed its empowerment policies long before talks about creating the ICT charter began.
In selecting its suppliers, Telkom considers its ownership structure, employment equity policies, whether they procure affirmatively, what social investment projects they are involved in and whether they subcontract business to smaller, black-owned businesses.
The company's BEE scorecard exceeds most of the department of trade & industry's (DTI) recommended empowerment weightings. "Whereas the DTI applies a 20% weighting to equity ownership for tender consideration, Telkom's weighting is 30% - a deliberate strategy to encourage black ownership in the ICT sector," the company says in its most recent annual report. "Telkom's weighting of 45% on management, employment equity and skills development exceeds the DTI's criteria by 5%, and on enterprise development, Telkom matches the DTI's 10% weighting."
Petje says: "When we procure from suppliers, we require black equity ownership. However, we don't emphasise this because our primary focus is skills development.
" We buy a lot of technology that is not of SA origin. Because of this, we encourage our overseas suppliers to appoint fulfilment agents here and develop local skills."
Petje cites the example of Malaysia's Taihan Electric Wire, from which Telkom buys fibreoptic cables. Taihan, with Telkom's encouragement, has created a local empowerment company called Malisela Technologies. Malisela, which is 49% held by Taihan and 51% by local investors, manufactures fibreoptic cables in SA for Telkom. Taihan, which is one of the world's largest manufacturers of fibreoptic cables, has trained several machine operators and created other jobs.
Given Telkom's annual procurement bill of R7,9bn and its employee expenses of R6,6bn, it makes sense that procurement and enterprise development are areas in which the company can contribute the most to BEE. In its 2004 financial year, it directed R4,6bn to BEE suppliers, including suppliers with significant BEE programmes, making up 57,8% of total procurement spend.
The company has also launched programmes aimed at creating and assisting black-owned small, medium-sized and micro enterprises (SMMEs) (see graphic).
Internally, Telkom has tried to soften the blow of jobs cuts - it has reduced staff numbers by 44% since its peak, as it has sought to become more efficient. It has therefore launched initiatives such as its Agency for Career Opportunities, which helps employees faced with retrenchment to find new jobs.
Further strides have also been made in staff equity. Three-fifths of Telkom's workforce is black and the top management structure, comprising 27 positions, is 80% black and 28% female.
