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Government backs-down on controversial Amended Code notice for Broad-Based and Employee Ownership Schemes

22 May 2015 Tony Balshaw, Mazars
Tony Balshaw, Mazars East London Managing Partner.

Tony Balshaw, Mazars East London Managing Partner.

It seems sanity has prevailed in relation to government’s stance on the treatment of Broad-Based Ownership Schemes and Employee Share Ownership Programmes (ESOP); where government had previously restricted the number of Ownership elements to just three (3) points under the Ownership scorecard, says Mazars East London Managing Partner, Tony Balshaw.

In response to the ground swell of criticism the Department of Trade and Industry (DTI) Minister, Rob Davies, has withdrawn the clarification notice of 5 May 2015 in its entirety, and issued a Revised Notice of Clarification on 15 May 2015 omitting all reference to Broad-Based Ownership Schemes and Employee Share Ownership Programmes (ESOP). So it is business as usual in so far as it relates to these ownership structures.

Prior to this revision the DTI issued a media statement on 8 May stating that all B-BBEE deals concluded prior to 1 May 2015 will not be affected and these deals will have full recognition under Code Series 100. It also stated that the DTI would appoint a Technical Task Team to “explore the appropriate balance between active (direct) and passive (broad-based schemes) ownership. The Technical Task Team will report to the Minister on its recommendations within thirty (30) days, thereafter the Minister will provide further guidance on the implementation of Code Series 100.” It seems, from media statements, that current and future broad-based ownership and ESOP’s will receive full recognition.

“In many ways the horse has bolted in relation to the perceptions of confidence and trust by both the local and international business community. The furore surrounding the retrospective nature of the gazetted notice, the failure to follow due process and the attempt to change legislation through the back-door to favour a few ‘individuals’ was widely reported in local leading and international media. In addition, the recognition of equity equivalents for multinationals has such onerous targets and short investment periods that the majority of multinationals, that we so desperately need to attract and retain, are not considering the Ownership scorecard element,” says Balshaw.

“It is sad that government has failed to recognise and respond to the outcry of business in relation to the Amended Codes as a whole. The effects of which will be hugely detrimental and damaging to doing business in South Africa and, one assumes that government has not considered the unintended consequences. Many businesses, including multi-nationals, will walk away from complying voluntarily with the draconian Amended Codes. Compliance with the ‘old’ Codes was largely driven by the largess of business in South Africa; this will not be the case with the Amended Codes. Goodwill in relation to the B-BBEE scorecards and Amended Codes is waning rapidly with many businesses losing patience and confidence in the scheme,” he says.

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