Original publish date – Tue, 26 May 2009 10:41:41 +0000, Keith
The more I hear of ownership deals, the more disillusioned I become that ownership is going to contribute to empowerment. To clarify, I’d like to see meaningful participation in the company by any empowerment partner. What is the point in a junior partner have a small stake in a business if they do not learn the ropes and work in the business? Taking it further, I have seen many “deals” where the junior partner earns no dividends (the majority partner ensured that ther was none, or just a tiny handout to satisfy them.), does not participate in the business, and the “empowerment” goes no further than a group of people owing a meaningless asset – shares in a private company. I say meaningless because in truth the majority owner of the company can pretty much do what he wishes with the company and the shares. He can engineer it so dividends are never paid, he can sell portions of the business to another entity which makes the profits and ensure that the BEE entity is only vaguely profitable.
I know the companies act is supposed to protect minority shareholders, and the targets for ownership is 25% plus one vote, which allows the minority shareholders to veto a special resolution. In reality this is often bypassed, even in large businesses, and one has to be pretty legally savvy to avoid a big business from bullying a small/minority shareholder. The regulations around fronting don’t give that much protection in any event.
I often see companies with 17-20 points on the ownership socrecard, but only 1 or 2 points on the management scorecard. This can only mean that the BEE partner has 25% of the shares, but only has 1 or 2 non-executive directors on the board. What a waste of doing a deal if the company is not maximising their scorecard. A good way to find suitable candidates to be executive directors is from the chosen BEE partner. If the partner has no suitable candidates, then maybe they are not the best possible partner.
In conclusion I would like to see a link of the scorecard between owenership and management. High scores on owenrship should be accompanied by high scores on management.