The Urban Legend of Ownership

"An Urban Legend is a modern story of obscure origin, with little or no supporting evidence."

By Tebogo Morare Verification Analyst EmpowerLogic

The element of Ownership within the Revised Codes of Good Practice, forms one of three Priority Elements. It is one of the most misunderstood of all the elements, so much so, that it is the element most affected by Fronting Practices, hence creating only an illusion of Transformation, Empowerment and compliance. The Urban Legend of Ownership has unfortunately emerged as, “In order to gain the full 25 points allocated within Ownership Equity on a generic scorecard; in excess of 50% shareholding must be given to ‘Black’ individuals.” The reality is, there are various criterion within the Ownership element which, when calculated, make up the final score for this element.

The Ownership element was introduced to meaningfully increase the number of ‘Black’ people who own and control enterprises. The core objective of this element is to facilitate Ownership of enterprises to communities, workers, co-operatives and individuals. The criterion for Ownership is broken down into the following sub-elements: Voting Rights – This ensures that Ownership is legitimate, that those qualifying owners are meaningfully integrated within a company. The focus is meaningful participation in the running and decision making process of a company. Economic Interest – Owning a business comes with its benefits, the core one being financial. This criterion concentrates on distribution of dividends, ensuring they are fairly distributed amongst shareholders.

Shareholders qualifying as beneficiaries in this category are

Black Designated Groups :‘Black’ unemployed people not attending, and with no requirement by law to attend, an educational institution. Qualifying ‘Black’ people identified as Youth as per the National Youth Commission Act of 1996 ‘Black’ people who are ‘People with Disabilities’. ‘Black’ people living in rural and/or under-developed areas. ‘Black’ military veterans, as per Military Veterans Act 18 of 2011.

‘Black’ people participating in: Employee Share Ownership Programmes. Broad-Based Ownership Schemes. Co-operatives.

New Entrants : This is characterised as ‘Black’ people holding rights of Ownership in the measured entity and who, before holding equity instrument in that measured entity, had not held equity instrument in excess of R50 million, as stipulated in the 2013 Revised Codes of Good Practice

Realisation Points – These are identified as Net Value, which equates to the percentage of equity held by a ‘Black’ participant that is debt-free. Methods of Measuring Ownership There are three separate measurement methods by which Ownership is measured, acheived through the following principles.

The Flow-through Principle: This is the primary principle of measuring Ownership. The fundamental notion of this principle is based on the theory that a shareholder owning 50% of a holding company, of which that holding company owns 50% of a subsidiary within the group, the shareholder essentially owns 25% of the subsidiary.

The Modified Flow-through Principle : This principle applies solely to voting rights and economic interests within the Ownership element of a scorecard. It is valid in an Ownership chain where ‘Black’ people have a flow through level of participation equating to no less than 51%. On achieving this criteria, the total Ownership structure would be regarded as 100% ‘black’ owned.

The Exclusion Principle : This principle is applied to any portion of Ownership held by Organs of the State and Public Entities relating to the calculation of economic interest or voting rights. Considered the priority calculation, this principle takes priority over any other principle. A generic score is then calculated on the balance of shares which are ‘Black’ owned