I recently caught the episode of Carte Blanche where a specific BEE company was shown to be fronting & claiming beneficiary impact on behalf of its corporate clients. This behavior is NOT new, and anyone that is shocked merely has not been paying attention.
Devi’s story is excellent in the sense that it is specific to an example & highlights a general MO of many fronting companies, but the shortcomings of the story (and to be fair, that is not the format of the show) are that it didn’t speak to the general and standard practices of many companies in the BEE ecosystem.
The facts are that this is not new. And while I am sure the apologists of this theft will find myriad reasons why this was done and even speak to the fact completely legal under the current legislation, you cannot talk about the substance of the law without talking about the spirit of the law.
So what should we be considering when examining this, and many other cases?
a. The flow-through principle
Much of what is intended with the law of BBBEE is that the benefits of the scheme must have a demonstrable “flowthrough effect.” This effect means that for every R1 that spent on a scheme, as much as possible of those funds must be demonstrated to have flown-through to the underlying beneficiaries of the scheme. But much of the funding that gets deployed into BBBEE schemes get trapped in the administrative expenses of those schemes.
So the facilitators of the BEE process, trading off their nuanced knowledge of the law, capture a large portion of the funds that should flow through to beneficiaries of the program. Without price transparency and measurable impact, this is almost impossible to stop.
b. The Impact principle
The challenge (at a thematic level) with many of the BBBEE schemes currently in circulation is that they are based on quantum and volume, not impact.
We had a small business in our mentorship stream that was offered a contract by Barloworld. But the contract was completely devoid of what are standard contractual undertakings. It required of them that they purchase capital equipment worth R3millions (and so they approached me for funding) but didn’t guarantee work, volumes or frequency of loads, routes or even target price levels.
So those entrepreneurs (a husband & wife team) excited at a piece of paper titled “contract” did not look beyond the vanity of the document to the financial undertakings of that document. This tactic is so common, and entrepreneurs are so eager and so hungry that they will take a deal, no matter how bad it is.
I had to explain to them that (this was my calculation) they had been given a service level agreement to make available a 2-ton flatbed truck on 24hrs call-service to Barloworld on a route, schedule & fee structure that the company itself knew was not economically viable. So the company was taking the loss-making routes and converting those BEE opportunities.
What these companies count is that many of the participants of their BEE schemes are so desperate for the opportunities they are blind to the fact that their race is the commodity upon which that company is trading. Without their BEE scorecard, many of them cant acquire the government licences or participate in the tenders so key to their business survival.
c. The shareholding fallacy
Often you will read on the scorecard of any company ownership expressed at a shareholding level. This reporting standard robs us the opportunity to ask the questions:
Who are the shareholders?
How much of the equity is encumbered?
What is the company dividends policy?
In which board committees to those shareholders serve?
Over which management structures do those shareholders exercise influence?
What are the transformation targets & spending undertakings of this company and what measures are put in place to ensure that there are consequences if those targets are not reached?
My view has been and continues to be that black people shouldn’t be purchasing shares in white-owned businesses. Not unless they are employed there. Nowhere in the modern economic world has that been proven to be a meaningful form of asset creation or wealth redistribution.
Black South Africans and I mean this broadly, should be creating their own businesses & then the government should be stimulating those businesses with an efficient state procurement system and affordable state funding regime. The problem is that the former is joke reserved for the speeches of politicians and the latter not attainable unless you know which “comrade” to talk to.
d. The “mentorship” illusion
Finally, there exists this pervasive logic that black people are not yet ready for business, wealth creation, managerial responsibility, and leadership roles.
This logic insists that they must be perpetually mentored into a position of power. This logic also fails to recognise the lived realities of many black people.
Often they are asked to coach and train a new candidate of (a different race) who soon ascends to be their manager in the workplace. At an executive level, black executives are consistently partnered up in Co-CEO roles with their white counterparties while their predecessors owned the role wholly.
None of my thoughts above are new or uniquely mine. And if you are reading or hearing of them for the first time, then you have simply not been paying attention.
The real, meaningful transformation will not happen in South Africa while the siblings as mentioned above incestuously conspire to ensure the enrichment of the few at the exclusion of the many.
Now back to your regular scheduled program.
Speaker | Investor | Dragon Slayer