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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 botherthemselves 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 thatcan 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 ofembarking 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 stillsome 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 intellectuallysound 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 ina 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 thefood 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 (bothintentional 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 operationallyinvolved 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 decision-

making levels. This non-involvement by employees is evidenced by management ofcompanies 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 thatcompanies 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 thisin 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

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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 asuch 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 financingschemes. 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 onelooks at the resultant effect, it becomes evident that there is no real change in the

company.