Mazars - THE DTI RESPONDS: Broad-Based Ownership Schemes and Employee Share Ownership Programmes backlash:Mazars East London Managing Partner and Head of B-BBEE Services RSS Mazars - THE DTI RESPONDS: Broad-Based Ownership Schemes and Employee Share Ownership Programmes backlash2015-05-15 The Department of Trade and Industry (the dti) issued a media statement on Friday, 8 May 2015 in response to the ground swell of criticism relating to Black participants in Broad-Based Ownership Schemes and Employee Share Ownership Programmes (ESOP) holding rights of Ownership in a Measured Entity who must only score the three (3) points relating Black designated groups under paragraph 2.2.3 under the Ownership scorecard.
In this media statement in relation to the Clarification Notice in Gazette Number 38764 gazetted on 5 May 2015 the dti states that: • "The clarification notice will not have a retrospective effect. This means that all B-BBEE Deals concluded prior to 1 May 2015 will not be affected. These Deals will have a full recognition under Code Series 100. • the dti will appoint a Technical Task Team which will explore the appropriate balance between active (direct) and passive (broad-based schemes) ownership. The Technical Task Team will report to the Minister of Trade and Industry its recommendations within thirty (30) days. • on receipt of the recommendations, the Minister will provide further guidance on the implementation of Code Series 100." In terms of the Amended Codes, Black people may hold their rights of Ownership in a Measured Entity as direct participants or as participants through some form of entity such as a company as defined in the Companies Act of 2008 (as amended); a close corporation; a co-operative; a trust; a broad-based ownership scheme; an employee share ownership programme; a partnership or other association of natural persons; and any form of juristic person recognised under South African law. In such instances the flow principle to rights held by natural persons are relevant. The majority of publicly traded shares are held by investment 'vehicles' controlled by fiduciaries such as trustees and fund managers holding investments such as mandated investments (local and off-shore) pension funds and long term insurers, banks, as well as private equity funds, family and other trusts. Individuals of all races probably own a mere ten percent of all JSE shares directly. What is meant by 'active' versus 'passive' ownership is uncertain. The definition of Broad-based Ownership Scheme is very narrow in the Amended Codes and there are a number of qualification rules and criteria for recognition as being Broad-based. From an ownership perspective contrast pure markets such as the JSE where there is flexibility, mobility and liquidity characterised by speculation in relation to capital movements which generally focus short-term gains and liquidity. On the other hand there are family and closely-held businesses where problems need to be solved characterised by entrepreneurship, unlimited liability, commitment, loyalty and long-term orientation with strong local community commitment. From media reports it would appear that The Dti are convoluting 'active' versus 'passive' ownership and management control. In fact in both the 'old' and Amended Codes ownership and management control are measured as separate elements. Ownership (25 scorecard points), management (8 scorecard points) and governance/board (9 scorecard points) are separate issues. The Board, which is appointed by the shareholders, is the focal point for and custodian of corporate governance monitoring the relationship between management and the stakeholders of the company. Tony Balshaw Mazars East London Managing Partner and Head of B-BBEE Services |
Mazars - THE DTI RESPONDS: Broad-Based Ownership Schemes and Employee Share Ownership Programmes backlash
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