Minister of Trade, Industry and Competition Ebrahim Patel says the department will soon publish a “practice note” on broad-based worker ownership structures to be used by companies across different sectors of the economy.
Worker ownership is seen as an important catalyst for developing a greater level of partnership between workers, managers and owners of companies. The lack of clarity on whether or not the beneficiaries of such schemes are indeed black and have actual voting rights at board level has had a negative impact on some of the investment strategies and effectiveness of the structures.
The B-BBEE Act makes provisions for various worker ownership arrangements including individual, broad-based groups (youths, communities, consortiums, employee share ownership schemes and cooperatives). There has however been a lack of clarity on the implementation of the sections of the act regarding worker ownership schemes.
For example in 2019, the Broad-Based Black Economic Empowerment (B-BBEE) Commission abruptly announced that the vast majority of transactions involving broad-based trust are not compliant with the law and therefore do not constitute genuine black ownership.
The announcement meant that long-standing empowerment ownership vehicles such as the Kagiso Charitable Trust, the Mineworkers Investment Trust, HCI, the WDB Trust, Ditikeni Trust, and Wiphold Trusts had to undergo reverification of their BEE status or face investigation for fronting.
“Given that there has not been clarity in the market about practices with differences in opinion from market participants and the BEE commissioner, I am preparing a practice note that will be issued that can provide some clarity,” Patel said at a media briefing on Friday.
Patel was joined at the briefing by Pepsico SA CEO Tertius Carstens, Astron Energy CEO Jonathan Molapo, AB InBev SA finance VP Richard Rivett-Carnac and Coca-Cola Beverages SA director of public Affairs and sustainability Nozicelo Ngcobo. These companies have all implemented or agreed to implement worker ownership structures.
Owning the means of production
The past decade has seen an increasing number of JSE-listed companies leverage worker ownership to drive transformation. These include Vodacom, Sasol and Kumba Iron Ore.
Currently over 150 000 workers are beneficiaries of worker ownership structures across various companies, Patel said.
The practice note to be issued by the Department of Trade, Industry and Competition (dtic) will ensure that the “evergreen [broad-based worker-owned] structures which provide longevity in the benefits for workers can also be recognised”.
Also addressing the media briefing was vice president of Business Unity SA Martin Kingston, who noted that although broad-based ownership schemes create much-needed value for companies and have a positive impact on the country’s transformation objectives, the implementation of the schemes is often challenging.
The challenges include educating beneficiaries regarding the risk and benefits involved in share ownership, the costs of putting together the transaction, the duration of implementing the structures, and the appropriate alignment of the structure with regulations.
“Every company wants to ensure that to the extent that it is part of a BEE transaction they are able to secure appropriate recognition in terms of their [BEE] scorecard. It is easily said but not so easily done,” he said.
Changes on the way
Patel also said the dtic is in discussion with business and labour at the National Economic Development and Labour Council (Nedlac) regarding possible changes to the Companies Act that would ensure that employees are represented on company boards.
The discussions, which are still in the early stages, are focusing on the rationale for worker representation on boards, the potential value for shareholders, the challenges presented and other legal considerations, Patel said.
“As soon as we have made sufficient progress for us to feel we have a framework that the government would want to put forward [to the public], they will be known,” Patel said.