Stakeholders > shareholders?

Who do you serve?
The journey of a business leader is often about ego. “I founded this business”, “I closed that deal” or “I employ 350 people”. This stuff may feel true but it turns people off.

Real leaders leave their ego at the door.

Real leaders serve others through their business; they realise that the business they lead now does far more than scratch the itch it was first designed to do…that it serves many different people and that the business has a responsibility to each of these stakeholders.

As a leader of a business so do you.

Stakeholders are far more than just shareholders:
South Africa’s new Companies Act made one very significant but often overlooked change to our corporate landscape. Under the old 1973 Act, a company was there to serve the interests of its shareholders (normally by making them money). Now, it is there for all stakeholders.

Besides looking after shareholders, companies are expected to be model corporate citizens and look after many more stakeholders such as their workers, their customers and society as a whole. This was to make sure they do not abuse the environment that they operate in (as tends to happen with good old-fashioned unadulterated capitalism).

Companies are expected to consider whether they are of public interest and if they are to have Social and Ethics communities. They must look after the environment – both physically, by not directly polluting etc, and the environment including the broader community.

This applies to every company in South Africa, and every company director.

It applies to you.

In racially-skewed South Africa, there are many communities living off corporates, where the corporate’s workers support a big portion of the community. This is therefore necessary, legally required (in terms of the 2008 Act) and simply astute.

The stakeholder approach supports BEE:
Yes, there may be problems with BEE implementation (read corruption on all sides) but the intention is both easy to see and honourable.

No company is obligated to adopt BEE but every company has to consider all its stakeholders, and those with big public interest scores have to have a Social and Ethics Committee which (per Regulation 43) has to consider “social and economic development, including the company’s standing in terms of goals and purposes of BEE”. This Committee is a board committee and each board member needs to consider what the Committee does. Directors also have to act in the best interest of the company, “in good faith and proper purpose”.

So, turning the question around – can a company do nothing about BEE?
You might think so but who can truly say it’s in a company’s interest to ignore it?

At the very least every company should consider BEE and its impact on all its stakeholders in terms of BEE goal and purpose. These are set out in section 2 of the BBBEE Act (and yes, records of this consideration process must be kept).

Doing BEE properly is a directors’ responsibility; doing it wrong carries risk of criminal sanction:
Directors also have to act in good faith and for proper purpose.
BEE cannot just be a tick box exercise and if BEE is done it has to be done properly (as our parents always said “if you’re going to do something, do it right”).

If the purpose is to get a certain contract or land some funding, was it proper purpose? If it was to pretend to empower (front as a BEE-compliant company) it cannot be proper purpose (and the director hasn’t acted in good faith).

Criminal sanction including jail and fines:
Fronting is crime for which the director can go to jail for ten years, and the company could be fined 10% of turnover (not capped) – which is clearly not in the company’s interest – which means the director has also breached his statutory and fiduciary duties to the company (which is also a criminal offence).

Directors should tread very warily.

Are prosecutions happening?
Yes. These are just two recent cases of fronting investigations that have made the press (we know of many more that are happening away from the public eye, so far):

https://www.iol.co.za/weekend-argus/siu-probes-bee-fronting-claims-on-cape-farms-17266974

https://www.tusker.co.za/blog/couple-face-criminal-charges-due-to-fronting/

The most likely complainants in a BEE fronting case will be the empowered partner who feels like they are not getting their fair share of the deal. However your competitors would also love to see you face the cost and distraction of an enquiry…

What to do if you suspect fronting:
You can email either : bee-complaints@beecommission.gov.za or tipoff@beecommission.gov.za (we’re not sure of the difference in purpose between these two email addresses, so try both).

The key message:
The Companies Act requires all companies and their directors to consider all stakeholders, and to consider BEE. No company is required to do a BEE deal (see why we think you should here), but every company must consider it…and if you’re really considering your stakeholders then why would you not do a BEE deal?

In many of the companies we’ve met at Tusker, the key reason to do a BEE deal is to ‘leave something behind for the workers who’ve helped a company achieve X’ or ‘to keep my customers in business because if we leave the country many people there will lose their jobs’.

The stakeholder-approach, as required by the Companies Act may just be more important than specifics of the BEE act…it’s the stakeholders who helped you get here. Your business exists because of, and through them.

What legacy you leave is your choice.

The Companies Act requires all companies and their directors to consider all stakeholders, and to consider BEE. No company is required to do a BEE deal (see why we think you should here), but every company must consider it…and if you’re really considering your stakeholders then why would you not do a BEE deal?

In many of the companies we’ve met at Tusker, the key reason to do a BEE deal is to ‘leave something behind for the workers who’ve helped a company achieve X’ or ‘to keep my customers in business because if we leave the country many people there will lose their jobs’.

The stakeholder-approach, as required by the Companies Act, may just be more important than specifics of the BEE act…it’s the stakeholders who helped you get here. Your business exists because of, and through them.

What legacy you leave is your choice.