Ownership, as defined by Broad Based Black Economic Empowerment (B-BBEE) Act, has been a grey area, lending itself to different interpretations by regulators and major entities alike, as well as being viewed by businesses as the most cumbersome component of the B-BBEE scorecard to implement. This has been particularly witnessed in ownership rules for what are classified as Discretionary Collective Enterprises (DCEs), which refer to Employee Share Ownership Programmes (ESOPS), Broad-Based Ownership Schemes (BBOS) and Trusts. Mainly, this is because DCEs differ from the traditional model of share ownership being held directly or indirectly to the name and for account of individuals from the designated groups.
Thus, to clarify the application of ownership rules as regards Discretionary Collective Enterprises, on 17 May 2021, the Minister of the Department of Trade, Industry and Competition, Mr Ebrahim Patel, issued a Practice Note on ownership rules for Discretionary Collective Enterprises, having sought legal advice. The Practice Note underlines the following points:
- A defined class of black beneficiaries satisfies the ownership provisions;
- That specific beneficiaries need not individually be identified, provided the Discretionary Collective Enterprises comply with the provisions in the Practice Note;
- In addition to cash distributions, in-kind also qualifies as ‘Economic Interest’;
- The qualification of minor beneficiaries;
- Measurement of voting rights exercised by a fiduciary on behalf of the participants; and
- Reporting requirements by JSE-listed companies.
Effectively, as interpreted by Quintus Myburgh, the Operations Manager of the National Employers’ Association of South Africa (NEASA), this Practice Note means that means the following entities can satisfy the ownership requirement under the Codes:
- ESOPs (including evergreen ESOPs, which provide everlasting benefit)
- Worker ownership schemes, which provide a benefit for current and future black workers of the firm; and
- BBOS which provide benefits for certain designated groups, such as black students as recipients of bursaries, can satisfy the ownership requirement under the Codes.
“These provisions provide greater clarity for companies who have either effected or plan to effect employee share ownership plans or broad-based ownership schemes,” says Myburgh, recommending that organisations should take time to read the Practice Note, which provides further clarity on the general classification, measurement and evidentiary requirements, as their guide or for their B-BBEE verification agency.
