Empowerment loopholes must be closed

There is an interesting dispute headed for the courts. In essence, a multinational is demanding the return of the shares it gifted to black directors (former employees) as part of a bid to procure a lucrative deal from one of the major state-owned enterprises. The holders of the shares want to be compensated for these.

The dispute has been raging for months and will probably only be resolved by the courts.

It comes to mind because a week ago the high court ruled that companies that lose empowerment partners may enjoy “empowered” status even well after the exit of the black shareholders. This is the continuous recognition principle, or what is commonly known as the “once empowered, always empowered” approach.

Quite rightly, the mineral resources minister has signalled his intention to appeal against the judgment. Unfortunately, he wants to appeal so that in future transactions are dealt with on a case-by-case basis, supposedly by the government.

This will introduce further complication in the adjudication of transactions.

The two instances highlight some of the difficulties that have arisen a decade after the passage of the broad-based black economic empowerment (BEE) law. Among others, we know that many established companies consummated the transactions for cynical reasons, not because it was a business and moral imperative to bring aboard shareholders from previously disadvantaged backgrounds — black men and women, disabled people and rural communities.

It is also true that the sociopolitical environment was conducive to these sinister schemes. Only the politically well-connected thrived — former politicians were recruited to lead empowerment groups that bought minority stakes and won seats on the boards of these companies. With their new shareholders in tow, most continued with their old, untransformed ways. In fact, in most cases they benefited more than their empowerment shareholders — a better scorecard ensured the firm could win government tenders while its executive team remained untransformed in workplaces that were plainly hostile to black managers.

Worse, after enduring a decade of a lock-in period, most black shareholders exited without making money. In the process some deals have remained under water and had to be refinanced.

A few months ago we learned through a court case how one of the most highprofile empowerment businessmen was allegedly financially discriminated against — alongside other black employees — by his erstwhile business partners. In crude cases unsuspecting gardeners and domestic workers were made empowerment shareholders of companies to win state tenders.

Throughout the last decade, especially most recently, the space opened up again for white males to make a stunning return to the senior ranks of corporate SA, and excel there, as if there had never been employment equity or BEE laws in this country.

This was made possible by a lax regulatory environment. In due course the labour department will publish its annual report on employment equity showing, once more, how slow progress has been in appointing and promoting black men, white women and disabled people in the private sector. As has become custom, the government will threaten to take action against the slow movers or those guilty of malicious compliance.

The reason this has been possible is partly because it has been easy to get away with positioning minority shareholding as progress on transformation or empowerment, and when the scorecard deteriorates life continues as if nothing happened. This became worse in the past seven years when empowerment was reduced to two families and their handpicked friends and associates. At a certain point in the recent past — after the first wave of empowerment transactions that were prompted by fears of legislation — empowerment and transformation ceased to be important even for blackowned and state-owned enterprises (SOEs).

A short while ago a large SOE even applied for an exemption from the empowerment laws in its capital projects. Some of this detail will emerge when Parliament’s portfolio committee on public enterprises looks at the localisation practices of some of the big SOEs.

As well as faltering morality and activism fatigue, the state has played a major role in enabling this state of affairs.

For example, it has taken years to set up important enforcement institutions such as the BEE Commission, which is tasked, among other things, with investigating and rooting out malfeasance, including fronting practices.

Of course, in the short term, the courts will provide clarity on the aforementioned share dispute and even help out when disputes arise on the case-bycase application of the “once empowered, always empowered” principle.

However, what’s required is a durable solution.

Instead of doing piecemeal reviews, such as negotiating and agreeing a new Mining Charter, we need a comprehensive review of the base empowerment and transformation laws, taking into account the lessons of the past two decades, including linking it to public policy goals such as growth and employment. All economic regulatory agencies need to close space available to enemies of empowerment and transformation.

IN CRUDE CASES UNSUSPECTING GARDENERS AND DOMESTIC WORKERS WERE MADE SHAREHOLDERS OF COMPANIES TO WIN STATE TENDERS