The BEE Commissioner is doing an excellent job combating fronting. In a short space of time the Commissioner, Zodwa Ntuli has issued Practice Guides, and issued notices to various organisations she felt who were not following the spirit and intention of the codes. The latest media release concerns a consultancy who was advertising easy ways to get ownership points via training courses.
For many years we have been critical of other organisations that were offering trusts as a shortcut to getting good ownership scores. We saw this as contrary to the codes. Many consultants, agencies, legal and accounting firms are complicit in creating trusts that give no real economic interest to the beneficiaries. They say it was created in line with the codes, but they fail to read all the codes. A crucial statement in the codes, that they have missed is:
“1.1.1 As a general principle, when measuring the rights of Ownership of any category of Black people in a Measured Entity, only rights held by natural persons are relevant. If the rights of Ownership of Black people pass through a juristic person, then the rights of Ownership of Black people in that juristic person are measurable. This principle applies across every tier of Ownership in a multi-tiered chain of Ownership until that chain ends with a Black person holding rights of Ownership.“
The important line is “…Black person holding rights of ownership”. The trust experts state that a trust is a natural person. It is of course not a Black person. They all try to use beneficiaries as the owners via this clause, or in some cases have used a definition of ownership as only being “dividends”. Anyone who is prepared to ignore the capital value of a share and regard its value as only being dividends (that some companies don’t even bother to pay) should not be your advisor. A bursary paid to a student, no matter how important lower school fees are is never going to be ownership. If the students have FULL economic interest including the rights to the capital value of the shares, then they have ownership, otherwise this is purely glorified Socio Economic Development.
How can anyone defend a trust scheme that says in addition to a friendly shareholder, it can also offer friendly management. One such scheme states: “Black representation for your Board available without ‘interfering’ with management of your company.” Are they really representing the beneficiaries? Are they neglecting their fiduciary duty to the beneficiary shareholders by stating up front that they will not interfere with management?
The BEE Commissioner is stopping these practices. It is only a media statement by the BEE Commission, but it is a huge step forward. We see the logical progress as the Commission clamping down on verification agencies who have incorrectly awarded points and continue to award ownership points without following the codes and the Act. Any agency who does not follow the Act can lose their accreditation and be fined or given a jail term. The same applies to any company that is currently using an unacceptable mechanism.
We know what is right, and we know how to do it right. Our chairman Keith Levenstein has been fighting this battle for 5 years. Last year the minister of trade and industry appointed a task team to examine these types of activities. Keith was invited to be part of that task team.
Contact us to gather additional information on Ownership or on implementing BEE for your organisation.