In the past we explored the different stages of BEE and how companies exhibited different symptoms in the various

stages. In summary the first is stage is the denial stage where the companies feel that BEE does not affect them and so they do not bother themselves about it, the second is the anger stage where the reality bites and the realization that BEE has direct impact on their business. The third stage is the bargaining stage in which the bottom line for companies is, what is the minimum contribution that can be made to score the maximum points on the scorecard? This stage will be explored in more detail in this weeks column. The fourth and the fifth stages are the depression and acceptance stages respectively, which sets in after companies see the futility of embarking upon initiatives that are unsustainable shortcuts. The bulk of companies are in the bargaining stage of BEE. There is an appearance of buying in to the entire concept but the reality bears different testimony. There is still some difficulty in embracing the spirit of BEE because of the changes that are required within the companies to make it work. This difficulty leads to incongruous behaviors from companies when it comes to the implementation of BEE initiatives. There are various symptoms that are evident during this bargaining stage. The glaring symptom is the obsession with the BEE scorecard. The BEE scorecard is an intellectually sound and simple tool devised to keep track of the progress the companies are making in implementing BEE. It is a healthy habit to want to constantly monitor progress made in actualising BEE but to be obsessed to the point of paralysis is inherently detrimental to the BEE process. The constant preoccupation with the scorecard is like having a menu in a restaurant and never ordering food from it. The menu may have different varieties of food one can consume but in itself it cannot satisfy the hunger we feel. We need to order the food and eat it to be fully sated. Therefore the scorecard is the menu and eating the food from the menu is the real BEE initiatives that would accelerate substantive BEE. The predominant features of this stage are the unsustainable BEE deals, fronting (both intentional and unintentional), and other flimsy initiatives that purport to be BEE contributions. On the BEE deals side there is a trend of including employees in the ownership schemes which is commendable because they are already operationally involved in the business and the ownership gives them an opportunity to participate in the decision-making processes of the companies. However a close examination of these structures reveals that there is no substantive involvement of employees at the decisionmaking levels. This non-involvement by employees is evidenced by management of companies appointing trustees who will manage the schemes; not having full voting rights; terms of vesting rights may be so restrictive that it does not allow the employees receive the shares or the benefit of the units in the scheme. So the bottom line is that companies are seen to be doing something noble but in real terms no change has occurred. There is still that psychological barrier that says, I cannot really be told by my employee how to run the business I started so long ago. Therefore I need to structure this in a way that protects me. Within the realm of BEE deals there is still a lot of fear, which is one of the symptoms of the bargaining stage, which sees a lot of companies and financiers seeking security to the

maximum degree that it renders the deal meaningless. This is done through cessions and pledges, which are normal commercial tools to mitigate risk in a normal business environment. But these tools can be potential poison pills in stifling BEE if applied in a such a restrictive manner. For examples some of the clauses require black people to cede the legal title, the voting rights, the economic benefits and all such other rights that are attached to the shares as long as there are any amounts outstanding on the financing schemes. To give an extreme example you may have a R100 million BEE deal completely financed by third parties, even if you owe R1 after paying down the money owing, the cession and the pledge are still effective with their restrictive terms. When one looks at the resultant effect, it becomes evident that there is no real change in the company.