On Friday afternoon, Minister Rob Davies undid the damage to Broad-Based Black Economic Empowerment (“BEE”) schemes done by acting Minister Lindiwe Zulu on 5 May 2015.  He published a further notice withdrawing the acting Minister’s hugely problematic notice, which purported to limit the number of points that an entity could claim for ownership by an employee share scheme or a broad-based scheme to a maximum of 3 points, where previously these types of shareholders could contribute a full 25 points to the entity’s ownership scorecard.

Considering the major role which employee share schemes and broad-based schemes have played in bringing benefits to a broad range of beneficiaries (for example, Kumba Iron Ore’s employee share scheme which in December 2011 paid its over 6000 strong employee workforce over R500 000 each in their first payment), this is a welcome development.

The criticism of employee share schemes and broad-based schemes that has recently been published in press reports, from people such Sandile Zungu (CEO of investment company ZICO and a member of the Presidential BEE Advisory Council) and Ndaba Ntsele (executive chairman of Pamodzi Investment Holdings and the president of the Black Business Council), stating that such ownership is “passive”, is misplaced as all shareholders play a passive role in companies, by virtue of the limited rights afforded to them in terms of the Companies Act and common law.  It is the directors and executives of a company that manage it and take an active role in its affairs, not its shareholders.  This does not in any way affect the benefit and value that shareholders receive in the form of dividends.  

Shepstone & Wylie are hosting a seminar on 28 May 2015 to update delegates on the new BEE Codes of Good Practice and discuss the various ownership options for companies looking to restructure for BEE reasons.

Erika Petersen-Holmes, Partner and BEE Specialist

Contact: petersen@wylie.co.za or 031 575 7410