Last week the Black Business Council hosted a summit at which the 20-year fortunes of Black Economic Empowerment were assessed. It is clear, on balance, that from what was intended by the legislators — the empowerment of the previously disadvantaged — the policy has, quite frankly, failed. The trouble with its failure is that it has now triggered a false debate about its necessity instead of properly analysing what the fundamental causes of its failure are.
The reality is the lack of thorough economic transformation is a ticking time bomb our society does not need. If anything, the failure of economic change is what is contributing to the deepening inequality we are known for the world over. What's worse, the good intentions of the legislation to change the ownership pattern of the economy remain illusive. The same can be said about other important elements such as employment equity, which has worsened, necessitating further amendment to the law. Preferential procurement seemed poised to make it impossible for emerging black businesses to thrive.
Many companies do not bother with spending their skills and enterprise development funds, these go to waste while there is a huge skills deficit in the country. Finally, the corporate social investment clause that requires companies to spend 1% of their profits after tax is a chequebook exercise that is terribly co-ordinated to make any impact. It only serves as a tax incentive.
It’s worth going through some of the reasons for the overall failure of BEE. At the top of the list is the distortion of ownership patterns of the economy. The over-emphasis on ownership in the early days of BEE was closely linked to political patronage and connections. This saw the usual BEE culprits such as Cyril Ramaphosa, Mathews Phosa, Tokyo Sexwale and other well-connected political higher-ups becoming become overnight billionaires without really lifting a finger. This coterie of political players “owned” 25% of various companies that otherwise remained untransformed. Some of these token owners never showed up for board seats they were entitled to as a result of their new found “ownership”. This is what prompted what was later termed “broad-based” BEE that sought to be a lot more inclusive in terms of participation and broader in dealing with other aspects of company life such as employment equity, enterprise development and preferential procurement. Even this was abused by companies who didn’t want black directors on their boards but were more comfortable with a big group of shareholders who would have little or no say. The likes of MultiChoice and Sasol adopted these questionable BBBEE schemes to dilute the overtly political shareholder influence.
The third source of failure for BEE was poor or nonexistent monitoring. Like many other interventions of the state, implementation was the downfall of this policy too. For a long time there was no BEE Commission.
The second big problem was the tick-box exercise by corporates. Poor understanding of why the need to transform was taking grip of corporate South Africa. This terrible attitude, especially by big business, resulted in unethical practices such as fronting — where any black face could be used by a company pretending to be empowered, sometimes even without their knowledge. This was so bad that it had to be outlawed. This practice distorted the empowerment outlook where companies that didn’t bother to transform were miraculously rated as “level 1 BEE” by colluding with verification agencies and therefore escaping scrutiny of authorities. Businesses were involved in malicious compliance to spite the whole policy. This meant they did not believe in the spirit of redress propagated by the BEE Act.
The third source of failure for BEE was poor or nonexistent monitoring. Like many other interventions of the state, implementation was the downfall of this policy too. For a long time there was no BEE Commission. Companies began to slack on paying attention to empowerment. Around 2007 there was a frenzy to comply after the adoption of the codes of good practice on BEE. All that has now disappeared, and the numbers back this up in terms of the parlous black ownership of the JSE (estimated at 3%) and women ownership in the economy, as well as terrible statistics of employment and equity. In this regard, the situation is worse, with a recent department of labour report showing that 70% of all new appointments and positions are consistently to white people, making the whole affirmative action intervention a big farce.
One more thing, for so-called BEE transactions to happen and afford black people a chance to have a stake in established companies, the white-dominated financial sector, like a god, determines who is worthy of empowerment. This becomes a vicious cycle as the bank ends up being the real owner of the business being purchased. If this transaction collapsed due to a variety of factors, the BEE status of the company would naturally be in danger as it goes back to being an all-white company. This means that empowered companies only needed to use black shareholders to get over the hurdle and then drop them like a hot potato once they achieve empowerment status. To this day I am not aware of any cogent explanation for this ludicrous injunction called “once empowered always empowered”.
As you can see none of these failures suggests that the policy is not workable. The unwillingness of the private sector to transform and the incompetence of the state to monitor the implementation of this law is a conspiracy that has made BEE fail.
To fix this is a bridge too far. We need a bolder government that can mete out consequences and a committed private sector that must make transformation a business imperative. If we don’t achieve these two things, we will have another 20 wasted years of fiddling while Rome burns.
Dr JJ Tabane is editor of Leadership Magazine and anchor at eNCA
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