The ownership aspect of BEE has always been more complicated in principle than it appears, and often its implementation has required schemes of smoke-and-mirrors and a suspension of common sense.
As governance expert Mervyn King has pointed out, the traditional view that the owners of a company are its shareholders no longer stands up to scrutiny. In large listed companies in particular, shares can change hands frequently — daily or even hourly. The owners of those shares stand to gain when the share price rises and dividends are paid, but they are not the stewards of the company.
That is the role of the directors, whose job is not to make money for shareholders (though that is a likely consequence if the company does well) but to exercise their duties of care, skill and diligence in the best interests of the company and its stakeholders.
The ruling BEE model in South Africa has insisted that ownership is a major element. However, there is a contradiction here. If a black shareholder is prevented from selling his shares, or his options are limited because he is expected to sell only to other black shareholders, the market is distorted.
The company itself may lose its empowerment credentials if its black shareholders sell their shares. It was this predicament that prompted many companies to ask that the idea of “once empowered, always empowered” be accepted as a legitimate contributor to BEE. The concept was rejected by the government.
For years it has been politically incorrect to discuss these issues, which is why the DA’s proposed bill that would change the way BEE is conceived and implemented is welcome, if only for the debate it might stimulate.
Nobody who is sensible contests the need for BEE, given our severely distorted economic and social history based on race — but increasingly it is hard to claim that the BEE model used for the past three decades has succeeded.
South Africa’s BEE model has created a model of corruption because people set up companies just to get a contract
— William Gumede
The DA says its bill “aims to replace years of ineffective ANC empowerment policies that have left the majority of South Africans unemployed, impoverished and hopeless. Around 44-million are stuck in poverty, 12-million are stranded in unemployment queues, and our country remains the most unequal place on earth. This is not the inclusive country we envisioned building when we lined up to vote on April 27 1994.”
The DA talks of “a feeding trough for the ANC’s cadres who have benefited at the expense of the poor and vulnerable”. It quotes Prof William Gumede of the Wits School of Governance: “Conservatively, R1-trillion has been moved between [fewer than] 100 people since 1994. The same people have been empowered and re-empowered over and over. South Africa’s BEE model has created a model of corruption because people set up companies just to get a contract.”
The DA wants “to create a public procurement system that encourages genuine economic empowerment by offering incentives for tangible developmental outcomes such as job creation, poverty reduction, skills enhancement and environmentally sustainable practices”. That all sounds good, but the concept of ownership (however flawed it may be) remains emotionally powerful.
This initiative is perhaps the biggest policy risk the DA has taken since 1994. It has clearly calculated that enough black people no longer regard the ANC as the provider of prosperity and that increasingly the ANC is seen as an enabler of corruption and an obstacle to proper empowerment.
Even if that is so, would the masses be prepared to translate their disenchantment into votes for the DA? Probably not. But at least the BEE conversation has been given fresh stimulus.
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