Archive for May 26th, 2009
Ownership revisited
Posted by Keith in BBBEE Knowledge, True Empowerment on May 26th, 2009
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.
Socio-economic Development and Publicity
Posted by MPUMULO MAPHOSA in Marketing, Socio-economic development on May 26th, 2009
One of the simplest and effective ways of earning BBBEE points is to increase the level of spending on Socio-Economic Development (SED). SED is one of the seven elements of a BEE scorecard focusing on the extent to which an organization carries out initiatives intended to uplift the South African society. It is worth 25 points for a Qualifying Small Enterprise and 5 points for a Generic company.
Publicity is the deliberate attempt to manage the public’s perception of a company and its products. From a marketing perspective, publicity is one of the variables that comprise the promotional mix where as promotion is one of the variables that comprise the marketing mix.
Therefore, without a shade of doubt, companies stand to gain immensely by channeling significant investment levels towards SED initiatives not only by earning valuable BEE points, but also from a marketing perspective. Investing in SED builds a superb image and an explosive reputation for an organization.
Needless to say, it is of paramount importance for companies to note that modern consumers are incredibly well informed and educated. They identify themselves with reputable organizations. They recognize and appreciate the active involvement of a company in uplifting the society.
It makes sense therefore for companies to engage on those SED projects, which relate to their field of expertise. Amongst other issues, such projects may be targeted towards education, HIV/AIDS, projects for the disabled and other community building initiatives.
However, engaging in SED for the purpose of earning BEE points and building a good image is a misfired and twisted approach. The bottom line is, it does not support the ideal transformation of the society and certainly it is not good enough to create a meaningful and sustainable improvement. Such entities will enjoy in the short-term and definitely not in the long-term. A company’s SED policy should be based on the commitment to contribute to the constructive transformation of the South African society. In this way, an organization gains an enormous amount of publicity at the same time earning priceless BEE points.
To put this into perspective, let us take a company that identifies an orphanage whose walls are an eye’s nightmare. It then invests in painting those walls giving them a fresh and stunning look. Such an initiative does not give back anything physical like money to that particular organization. If those involved in such a project are doing it based on the commitment to make a positive difference, that instant improvement of the orphanage’s walls may be emotionally rewarding but moreover, the community recognizes and appreciates that effort. Through such an investment a company builds a respectable and sustainable image and an explosive reputation whilst at the same time improving on its BEE points.
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