Different sets of data suggest long road ahead for broad-based black economic empowerment
Hopefully, the enactment into law of the broad-based black economic empowerment (BEE) Codes of Good Practice has put an end the sometimes senseless blabber that has accompanied SA's attempt to implement a meaningful economic redistribution programme.
Different sets of data, including the results of this Top Empowerment Companies (TEC) survey, suggest there has been too much BEE talk and not enough action since the country committed itself to the principle of equality on April 27 1994.
In his recently published book on BEE, analyst Duma Gqubule says it is widely acknowledged that SA's capital reform policies during the first decade of democracy were a miserable failure.
That is not too different from the view of black business doyen and chairman of the Presidential Black Business Working Group, Peter Vundla.
After a meeting of the group last year Vundla lashed out at the slow pace of BEE implementation, saying: "The situation calls for the adoption of radical corrective measures."
Vundla has welcomed the finalisation of the Codes of Good Practice by the department of trade & industry (DTI) as "a step in the right direction".
According to Polo Radebe, the DTI's director of BEE: "We have watched with interest some of the debates that took place before the finalisation of the codes. One underlying theme was that until the codes were finalised, many companies would not enter into BEE transactions."
TEC data, captured by leading BEE rating agency Empowerdex, could be used as a BEE indicator for the whole economy.
Employing the updated broad-based BEE scorecard, Empowerdex subjected all the companies listed on the JSE's main board to a BEE test and then produced a top 200 list.
The results vary widely between companies and sectors but the general picture is consistent with the recent outcry that BEE is moving at a slow pace.
The average BEE score of the companies ranked here comes to 20%, which under the codes makes them "noncompliant".
The average score for the financial services sector is 26%, and that of the information, communication & technology (ICT) sector is 28%.
Resources, the biggest sector on the JSE, comes in at 17%, while for property it is 4%.
"The conclusion that can be drawn from the data is that the private sector is working towards transformation, but the pace could be faster," says Empowerdex executive director Chia-Chao Wu.
Empowerdex estimates black ownership of the JSE rests at about 10% - which Public Investment Commission CEO Brian Molefe finds unacceptable.
"If we can't transform the top 40 of the JSE, then we're all wasting our time," says Molefe, who is emerging as the pre-eminent BEE champion after he ruffled the feathers of industrial giant Barloworld about its BEE no-show at top-level.
If there were doubts about Molefe's concern about Barloworld, the TEC findings dispel them.
Ranked 166 in this survey, Barloworld achieved a total BEE score of 6,05%. Granted, Barloworld's ranking, like that of many other listed companies, may have been prejudiced by its nonresponse to requests for information for the survey - which in itself may be telling.
Companies that are diligent about BEE implementation and proud of their achievements aren't shy about making them known.
In any event, a qualitative analysis of Barloworld's BEE record is bound to arrive at more or less the same conclusion. That goes for many other low-ranked companies.
A handful of listed companies have done a commendable job on BEE. Interesting is the fact that new kid on the block Enaleni Pharmaceuticals leads the BEE pack in this survey.
Enaleni managed a total BEE score of 79,28% and does well across the seven elements of the scorecard (see story on the overall winner on page 17).
That tells us that the group did not pick and choose easy-to-achieve elements of the scorecard but runs a comprehensive BEE plan. The company, listed in 2005, has amassed a host of other BEE awards.
Enaleni is followed by services group Adcorp and hotel group The Don, which occupy second and third positions respectively.
A visible trend has emerged - the top-ranked TEC companies are those that are already known for their principled commitment to empowerment. TEC's top 10 list is dominated by companies that can be called natural BEE entities.
These are companies established in the post-1994 era under the banner of BEE. They include groups such as Sekunjalo, led by former political activist Iqbal Surve.
Even though Sekunjalo slipped from having been overall winner in last year's TEC rankings, it remains a top empowerment performer with a total score of 69%, placing it in sixth position overall.
It's a similar story for Hosken Consolidated Investments (HCI), which is led by former trade unionists Johnny Copelyn and Marcel Golding.
Established to benefit blue-collar workers, HCI is controlled by the Southern African Clothing & Textile Workers' Union (Sactwu), which has more than 40% of the company's shareholding.
HCI came in at fifth position with a total score of 70,1%.
The top 10 TEC list also features Oceana Group, in fourth position, Cadiz Holdings (7th), Bytes Technology Group (8th), Metropolitan Holdings (9th) and Bidvest Group (10th).
The BEE story of groups such as Bidvest, Metropolitan, Bytes Technology and Cadiz is somewhat different to that of natural BEE groups. They are traditionally white companies that have transformed themselves over time.
Bidvest, for example, ventured into serious BEE initiatives in 2003 when it sold 15% of its shares to a broad-based BEE consortium called Dinatla. Led by politicians-turned-businessmen, Dinatla has helped introduce far-reaching changes to the company. That includes the installation of a number of black board members as well as Cyril Ramaphosa as group chairman.
Bidvest revamped its BEE credentials last year, partly through the refinancing of its Dinatla deal. This boosted Bidvest's BEE ownership standing to 41,1% in the 2007 TEC survey.
It would seem that large and prominent corporations that have dominated the SA economy for ages are struggling on the BEE front. Groups such as Anglo American, Sasol, Old Mutual, Standard Bank, Sanlam, Edcon, Absa and SABMiller are under constant scrutiny and are expected to give the lead.
Though they claim to have been seriously engaged in the broad-based empowerment project for some time, they are not leading by example.
The most highly ranked among this class of companies is insurance giant Old Mutual, in 15th position, with a total score of 62%.
Old Mutual concluded a R7,2bn BEE equity transaction in 2004, which was scheduled to deliver about 13% of Old Mutual SA to a broad-based consortium.
Still in the big league, Sanlam in 19th position has a total BEE score of 60,27%.
Absa is ranked 32, Standard Bank 37, Edcon 41, Sasol 73 and Anglo American 113.
It must be noted that size is a serious factor in the BEE implementation process.
Larger companies face tougher challenges in their BEE plans. One such challenge is the amount of money required to conclude a BEE equity deal.
In the case of Anglo American, for example, because it has a market cap of R533bn (as at February 2007), Anglo's BEE partners will need to raise more than R125bn to get 25% of the mining conglomerate's equity.
On the other hand, Adcorp's 25% equates to R325m on a market cap of R1,5bn (quoted in February).
Another challenge has been the chopping and changing of guidelines over the past few years. Such uncertainty has thrown a number of big BEE initiatives off course. The treatment of broad-based BEE and employee share ownership schemes may have disorientated a number of companies.
Edcon, for example, concluded a BEE equity deal to the exclusive benefit of its employees. Edcon may have hoped to derive a full ownership score from this deal, but the revised codes threw such intentions off course.
With concerns that employee share schemes and broad-based schemes are limited in their capacity to influence broad transformation, the codes curtailed recognition of schemes of this nature to a maximum 40% of the potential points available.
The introduction of a heavier gender factor in key elements of the codes has also unsettled several initiatives. Noting that BEE was becoming a black boys' club, the BEE team at the DTI ensured that women's participation accounted for about 50% of BEE targets.
BEE initiatives which neglect women economic empowerment will draw minimal points from the generic broad-based BEE scorecard. It's worth noting that there is a new emphasis on black women following concerns that previous initiatives tended to favour white women.
The codes call for broad 50% black representation at board level within 10 years of its inception. Together with the gender principle, that means women will have to make up 25% of board representation in the same period.
The same principle applies to other elements of the scorecard, including management, employment equity and skills development. On the ownership element, the women target is 40% of the total.
Radebe says the emphasis on gender equity is meant to end the exclusion of women and black women in particular from the spoils of BEE.
"Before the introduction of the first phase of the codes, a lot of BEE transactions that took place were firstly, male-dominated and secondly, tended to favour the same individuals," she says. "Even when it came to board appointments or executive and senior management appointments, the tendency still favoured black males and to a limited extent involved black women."
When all is said and done, the gazetting of the codes means that BEE has taken its place within an increasingly systematic approach to accountability and responsibility. It is hoped this will entrench BEE as an inseparable element of doing business.
Not everyone agrees. In a paper titled "To BEE or not to BEE", an associate professor at the Wits School of Economic & Business Sciences, Simon Roberts, and his co-authors, say: "The new broad-based' configuration of BEE has become a managerial and technocratic process that may thwart the overall objectives of empowerment'. It is moving the debate from a political terrain, where redistribution is in theory possible, to a managerial terrain, where discussions are technical and set within the limits of codification, measurement intervals and systemic performance."
Research commissioned last year by the Black Business Executive Council (BBEC) under the leadership of Vundla concluded there was huge variance between the formal accounts of BEE and the actual reality.
"Ownership figures in the JSE are far lower than official company reports indicate. When studied closely, employment equity has not reversed white male preference and dominance," said the report by research firm Economic Justice Agency.
Illustrating the latter point, the BBEC research added that on face value, black ownership on the JSE equates to about 4,7% of the bourse's market capitalisation. But when the flow-through principle is applied, the picture changes radically, it says.
Roberts and his co-authors concluded that government has abrogated most of its responsibilities on BEE and left the project in the hands of the emerging industry of accountants, technocrats, auditors and certifiers.
It's an interesting argument but a tough call to make given the concerns over the haphazard approach that marked the problematic pre-codes era.
