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BEE commission ups the ante on voting rights

Among the schemes that could be affected are those operated by Sasol, Barloworld, MTN and MultiChoice.

A finding by the Broad-based Black Economic Empowerment (B-BBEE) Commission last week – regarding MTN’s empowerment scheme’s contravention of the B-BBEE Act – will have wide implications for similar schemes operated by other listed companies. 

The commission, which was set up within the Department of Trade and Industry in 2017 to monitor empowerment compliance, is stepping up its efforts so that BEE share schemes not only have black ownership in their parent companies but also actual voting rights at a board level.

Among those that could be affected are Sasol’s Khanyisa, Barloworld’s Khula Sizwe, MTN’s Zakhele Futhi and MultiChoice’s Phuthuma Nathi. The commission will monitor whether these BEE schemes afford black shareholders, through board representatives, actual voting rights.

Arguably, this is simple to monitor as JSE-listed companies are required under the B-BBEE Act to report annually to the commission on their compliance.

Parent company board representation

Lindiwe Madonsela, head of compliance at the commission, says the commission wants BEE schemes to be allowed to have a nominated representative on the board of their parent company and actual voting rights.

“One of the requirements is that when we look at ownership, there must be equitable voting rights,” Madonsela told Moneyweb. “The black people holding the shares must be able to exercise those rights even at a group board level, even when they hold shares directly or indirectly through another vehicle.”

This is the antithesis of how JSE-listed companies usually structure their BEE share schemes.

These schemes are usually structured to have a broad-based shareholding in their parent company and have their own board of directors that operates separately from the parent/group company. BEE share schemes typically don’t have a member of their board of directors on the board of the parent company.

For example, in 2016, MTN launched its R10 billion-worth BEE share scheme Zakhele Futhi, which has a 4% shareholding in MTN Group. The scheme intended to afford qualifying black individuals the opportunity to apply for MTN Group shares at a discounted rate. Zakhele Futhi doesn’t have a board member that sits on the MTN Group board.

Restrictions, limitations

The B-BBEE commission – which launched an investigation into MTN and found that Zakhele Futhi didn’t meet the requirements for black ownership under the B-BBEE Act based on several restrictions and limitations placed on black shareholders – wants to change this.

“Black people must not only own part of the entity, but they must also have voting rights,” says Madonsela. “We have to monitor whether black people received economic interest that is commensurate to their shareholding.”

In its remedial recommendations, the commission says it wants black shareholders to be able to nominate representation on the board of MTN and to remove the veto rights that MTN has in respect of the trickle dividend and the general dividend that would flow to black participants. It also wants MTN Zakhele Futhi to be able to appoint its own chair of the board and board members, who need not be MTN appointees or nominees.

MTN Group said it has already addressed concerns raised by the commission.

The commission’s recommendations are binding. If ignored, it can seek a court order to interdict a new BEE scheme from operating, issue an administrative penalty of 10% of a company’s annual turnover, and seek imprisonment of a company’s directors for a maximum of 10 years.

After all, an entity that purports to be a BEE scheme but is at odds with the B-BBEE Act can be rendered as fronting, which is illegal.

The B-BBEE Commission’s role is to monitor empowerment transactions that are currently running with a value of more than R25 million – even those that operated before the commission was launched in 2017.

BEE share scheme debt

Madonsela says the commission is also looking at measures to protect black shareholders, especially when they subscribe for shares through debt. These measures would include imposing various conditions on how the debt would be repaid.

Some BEE share schemes that have been launched by JSE-listed companies in recent years have failed to deliver attractive returns to black shareholders because their participation was financed by large debt. Also, the success of BEE share schemes depended on a rise in share prices and volatile commodities. 

Welkom Yizani, the BEE scheme of technology company Naspers that invested in its media business Media24, didn’t deliver on its promises.

Investors in Inzalo, the BEE scheme of oil and chemicals group Sasol, almost walked away with nothing until its share price recovered just months before the scheme expired in 2018.

The 2008 BEE scheme of JSE-listed industrials group Barloworld also didn’t live up to expectations.

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Ah yes Black Elite Entitlement schemes. A complete artificially created economic parasite industry that cannot exist without the host yet provides a round zero in value to the host or the country’s economy and prosperity.
A proudly, uniquely south african creation.

The B-BBEE commission – wow. Do the commissioners have jobs for life? First class international travel? Above inflation salary increases? Must they be black?

Sounds like an onerous job. Any consequences for bad decisions? No. Any rolling back of BEE benefits? No. That’s not the job.

All of this while they figure out more and better ways to kill foreign investment and the local economy. That’s the job.

It’s an effective wealth tax. If you don’t want to pay it, take your money offshore and invest it in a country where there’s no BEE; ie, pretty much the whole rest of the world ( not sure about that other economic powerhouse, Zimbabwe?).

Get not only economic interest, but economic benefit commensurate with the shareholding.

Speaking of those that did not deliver on their promise like Welkom Yizani, some are forgotten for their spectacular failure like Eyomhlaba and Hlumisa.

Seems the market does not support BBBEE.

The market is always right.

The market supported Steinhoff for years, and Tongaat, and EOH, and many other white controlled flops. But hey…let’s not ruin a sarcastic comment with alternative facts

EOH’s share price tanked after a BEE deal with the SANDF caught the eye of Microsoft.

No chance to implement these measures. The Commissioner does not even have teeth to ensure that all Companies on the JSE get a BBBEE Verification.

If you have 4% voting rights how can you want the power to elect board members?!?!?

Would love to hear Theo Botha’s opinion on this…

Either way, the Commissioner has no teeth and is a dying organization

“Some parasites, like malaria, are a common cause of death, while others, like parasitic nematodes, can lead to disfigurement, blindness and severe economic hardship.”

BEE is a crude and opportunistic socialist parasite that infects businesses at their weakest point, namely their vulnerability to laws made by BEE parasites. This parasite moves under the false pretence of entrepreneurship while it does not actually invest any capital, or take any risks. It does not add any value either. Therefore, BEE is not a mutualism symbiotic parasite, it is an economically lethal parasite.
This parasite has now evolved a mechanism to infect the brain of the hoast. When the parasite reaches the boardroom it will turn the company into a zombie, unable to make important, self-preserving decisions.

Eskom is kept on life-support by taxpayers to enable the feeding by BEE coal companies. Shanduka, a BEE company, turned Lonmin, once the second-largest platinum mine in the world, into a zombie and then into a corps.

The interesting fact about this parasite is that it destroys its own habitat at an increasing rate. The more successful this parasite becomes, the greater the negative effects on the economy. The biggest threat to the sustainability of BEE projects is the BEE virus itself.

It is clear that there is only one way to enable the survival of current BEE projects, and that is by banning all future BEE projects. This virus started to consume itself now and this virus will consume the entire Luthuli House.

BEE policies are racist and do not deserve to be part of a functioning economic Democracy…especially after 25yrs.
If you’re given something for free, it has much less value than when you worked hard for it….no matter the colour of your skin.
South Africa will never again be a respected economic player until policies like this are scrapped – they are unfair to those that put their money where their mouths are and demean everything and everyone they are meant to help.
In my opinion..

I have finally (belatedly) come to the conclusion that any investment in a SA company is a toxic deal and should be avoided at all costs.
Will adjust my portfolio accordingly !!!!

Don t buy this share. Much better value elsewhere. MTN is being sucked dry for BEE rubbish-dilution of shareholders through parasitic schemes to empower the unempowerable , operates in gangster jurisdictions where others fear to tread( Nigeria, Iran, Other African states).

ATT pays a 6% dividend yield in USD-Orange 5.25% in Euros. The growth story of MTN in emerging markets is wildly exaggerated-Nigeria’s fines( stealing) wipes all of it out

A truly lethal combination, guaranteed to doom any economy – “communism and racism”…but that has always been the aim of the so called anc liberation of their people!

These commissions that spring up like toadstools have many things in common
They remind one of the greatly feared and immoderate witch hunts of the US McCarthy era,
And leave one wondering how many cadres still have to get top paying jobs whilst killing off the tax paying host.
(The McCarthy Era was marked by dramatic accusations that communists had infiltrated the highest levels of American society as part of a global conspiracy.

Remove BEE from the face of this country and watch our economy explode to new heights…

Agree fully, except that it will never happen since the beneficiaries of a thriving BEE-less economy are bound to be whites and that flies in the face of everything BEE was originally designed for.

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