South African companies are shifting from narrow ownership and management control as a measure of their black economic empowerment (BEE) compliance in favour of broader public and employee-based share ownership, according to the KPMG/iQuad 2010 BEE survey.
The survey, now in its fifth year, says companies over the past year have displayed an array of trends in terms of BEE compliance, with a positive trend towards broader public involvement in ownership patterns than in the past.
KPMG and iQuad found that this shift in focus has meant that some ownership structures solely involving BEE investors were being reconsidered to incorporate employee ownership and broad-based public participation schemes which, if properly implemented, could improve the attraction and retention of key black employees or improve the public image and perception of a company.
There has also been a move towards addressing internal BEE people elements such as skills development and employment equity, which have not previously been areas of focus.
The survey was conducted on 2 000 JSE-listed, multinational and unlisted companies.
Sandile Hlophe, the restructuring managing director at KPMG, said: "The ownership trends are welcome developments as they show that companies are displaying a deeper understanding of BEE requirements. Most significantly, we are seeing a trend where the market has begun to shake out the usual BEE investors in favour of broader public and employee participation in empowerment deals, which delivers true broad-based ownership and BEE participation."
He said the reasons for this were complex. On the one hand, the economic downturn has had an impact on the ability of BEE investors to finance deals.
This is largely because the paper billionaires created by the traditional models of BEE deals are now in debt and the expectation of a quick dividend has disappeared.
On the other hand, companies have had diminished funds to pay for complex deals between themselves and potential BEE investors.
Ajay Lalu, the managing director at Black Lite Consulting, felt the shift to skills development was prompted by Jimmy Manyi, the former chairman of the Employment Equity Commission, who last year threatened the non-compliant companies with a fine of 10 percent of their revenues.
"The switch from direct ownership was partly due to lack of funding. But most importantly, companies were not prepared to sell their stakes when their share prices were depressed. They felt they would be giving away value unnecessarily," he said.
However, Duma Gqubule, the founder of KIO Advisory Services, said the problem with many companies was that they got to level four of the Department of Trade and Industry's BEE scorecard by concentrating on skills development, employment equity and preferential procurement in order to avoid ownership.
"The presidential advisory council on BEE must develop mechanisms to close these loopholes. This is urgent because these companies score high without ownership. They pick and choose," he said.
Wade van Rooyen, the managing director at iQuad Verification Services, said the survey revealed that both listed and unlisted companies were likely to obtain an independent verification, indicating that the size of the company played no part in the decision.
A BEE scorecard was considered critical.
Almost 57 percent of all respondents felt that having a verified BEE certificate was essential to business sustainability, while 35 percent felt it was a compliance requirement.