Editorial: what about 'once empowered, always empowered'?


Rest assured, I am not going to give a verdict on 'once empowered, always empowered'. The topic is simply too complicated and hotly-debated for me to barge in like a bull in a China shop. Fact is though, that this controversial part of B-BBEE is keeping CFOs more than busy. While the policy is still up for debate and legal wrangling, other sectors already had to deal with the scrapping of the policy.

A CFO of one of South Africa's largest banks told me:

"We had a problem with 'once empowered, always empowered' which is not in place anymore, which means we have dropped back. Our B-BBEE ownership points were halved."

Another CFO - from the packaging industry - experienced a drop from level 4 to level 6 when their black shareholder, in this case Shanduka, left.

"They sold and walked off with lots of money, while we lost points. When people put empowerment deal together they assumed it was a once-off thing. Now we need to look at how to get the points and keep them for a long time, because we'll be around for a 100 years. It is about being relevant in South Africa. As a South African company you cannot happily be level 6."

So what is happening here?

  • B-BBEE wants to stimulate more black ownership of business
  • Company sells shares to black empowerment firm usually at a discount and existing shares dilute
  • Company receives B-BBEE points for that
  • Black empowerment firm receives all the benefits of a normal shareholder
  • Black empowerment firm sells at a profit
  • Company loses points as black ownership has left

It doesn't seem fair that the company will now be forced again to strike another deal with a black empowerment firm - especially if a discount needs to be offered again just to earn points. At the same time it doesn't seem right that companies can just carry on happily being 'white firms' again, after the clever empowerment firms have left the building. That's not transformation either. Luckily most CFOs and other executives have realised these days that true empowerment comes through true partnerships with black investors, managers and suppliers. As the packaging CFO says: "It is about being relevant in South Africa." And luckily there are more and more 'real' black investors, who aren't clamouring for a discount but truly want to play a role in business transformation.

That leaves us with mining. The 2004 mining charter requires mining companies to have 15% black ownership by 2009 and 26% by 2014. "Once the 26% empowerment deal is in place, and shareholders have taken the dilution and the cost, it should be done. It doesn't work if it is an open-ended threat because shareholders simply won't invest," an anonymous analyst recently argued in the Financial Mail. The Department of Mineral Resources is thinking along opposite lines though. The Chamber of Mines has now applied for a court ruling that will have to settle the matter.

Best to conclude with what one of the wisest, award-winning CFOs who have worked in mining, Bongani Nqwababa (now Sasol, pictured above), told me:

"There needs to be clarity around 'once empowered, always empowered'. You cannot be expected to do another discounted BEE deal when the BEE partner cashes in its shares. I expect more clarity to be forthcoming and I also expect the minimum ownership percentage to be raised."

"I think it would be less clumsy if the rules for the mining sector would gravitate towards the general B-BBEE codes. For a foreign shareholder it is also better to have one rule for everything, even if they might not like it."

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