Get ahead of the game-BEE/Corporate Governance

On buying, managing or expanding a small business it is important not to overlook the whole aspect of Black Economic Empowerment (BEE).

The existing requirements of BEE do not necessarily apply to small businesses, because it was recently announced that BEE would not apply to businesses with a turnover of less than R5m per annum. In practice, however, it is often a major consideration when tendering for government and other contracts, irrespective of the legal requirements. Ten important points for both black and white partners to consider:

1. You must not window dress i.e. falsely implying that you are BEE compliant. It cannot be denied that fronting happens, but if found out, your reputation could be badly tarnished.
2. Do not put names on your business documents (letterheads etc), implying that you have a black director or shareholder, when you have not. This is fraud.
3. A business with an African name does not mean that it is BEE compliant.
4. Before entering into a BEE transaction ensure that you really understand all the requirements such as the scorecard, codes, charters etc.
5. Do the parties add value to each other? Are they who they say they are?
6. Is there a cultural fit and are you able to work with each other? It is important that the BEE partner does not have conflicting interests.
7. Does the BEE partner have the right profile, a good reputation and credibility?
8. Does the BEE partner have a long term view of the business? Is he/she available and accessible?  He/She should ensure that they have something to offer in order to stem any negative criticism, and preferably know the business environment they are entering.
9. If a BEE partner contributes towards payment for the shares in a business, then he/she should aim for minority protection if it is less than 50% i.e. certain decisions need the consent of both parties. If there is no contribution then he/she cannot expect to get such protection. Be careful of deals with a buy now and pay later clause.
10. Both parties must be genuine with each other. Both must get a fair deal.

Information provided to Sanlam Cobalt by Bob Power, Power Corporate Consultants

September 2008