Broad-based/employee ownership schemes


We are pleased that the minister has decided not to implement a blanket ban on broad-based and employee ownership schemes see

As we have said previously the minister would have to retract his notice, because it was wrong. A good analysis of some good broad-based and employee ownership schemes can be read here
The author, Stuart Theobald provides research that shows many black people benefited from some excellent deals. He mentions banks such as Nedbank, Standard Bank, First Rand. He could have included MTN’s Zakhele scheme which has succeeded spectacularly.
A key sentence in the article is “The staff in those schemes are either holding on to the shares they received or have sold them for cash.” The reason for the minister’s original notice (now withdrawn) was NOT to STOP good schemes like those above. What the minister is looking to do is clamp down on bad schemes – schemes where the staff or beneficiaries in those schemes are holding on to the shares they receive but can NEVER sell them”. Schemes where employees lose their shares when they leave or are dismissed. Schemes where beneficiaries lose their shares when they cease to be a beneficiary. Schemes where beneficiaries or employees never get to sell or benefit from the underlying value of their share, no matter how long they hold them. 

Consider anyone who owns a house and chooses to move out. That person would expect to be able to sell the house and be highly upset if the act of moving out causes them to lose the value in their house. Home ownership demands the right to sell the home. Share ownership demands the right to sell the shares owned. If a bond needs to be paid, it will be paid from proceeds of the sale. If shares still carry a debt, that debt will be paid from proceeds of the share sale.

These types of activities should never have been allowed by the verification industry. They do not meet the primary definition of ownership, which states “…only rights held by natural persons are relevant”. Some commentators believe that “Ownership” implies only the right to receive dividends and never participate in the value of the shares. Those same commentators would never stop using their fully paid off motor car and lose the right to sell it. Many “bad” schemes do indeed pay dividends to beneficiaries. We see a dividend as a necessary but not sufficient requirement. Capital appreciation or opportunity for liquidation of shares – even if it is long into the future from now is a requirement for ownership.

There is nothing wrong with the codes as they stand with regard to this issue. The minister does not have to issue clarifications or retractions. All he has to do is ensure that the verification industry verifies broad-based schemes and employee ownership schemes properly. It is a concern that the verification industry has so far verified incorrectly – that they have not looked at the various schemes in detail and awarded points in line with the codes. Companies operating these problematical schemes will say they had been advised to do it this way, and until now their verification agency was only too happy to recognise the schemes. Verification agencies will say they had repeatedly asked their regulators (SANAS and IRBA) for guidance and the dti itself – no guidance was forthcoming. If any one agency had refused to recognise the scheme and award the points, it knew that another one was standing by to issue a better certificate and win business from the client.
There is a simple solution: The verification industry must start to double check that any scheme does indeed meet the substance and principles of Ownership in the codes – both the 2007 and 2013 codes, and must follow it strictly. Any scheme awarded points incorrectly could be seen to be fronting and an offense, for which the B-BBEE Amendment Act makes allowances for serious penalties.
Good, properly constituted and operated schemes, correctly verified, should not have to be concerned about any issues around clarifications or future notices of broad-based and employee ownership schemes.


You may also like...