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Is big business pursuing transformation half-heartedly?

In late 2003, the then Sasol CEO Pieter Cox made a serious error of judgment by citing Black Economic Empowerment (BEE) as a risk factor in a document that the company had to compile in terms of New York Stock Exchange (NYSE) regulations, reporting that, “there could be risks to shareholders that value may not be achieved in the case of black economic empowerment equity transactions”.

This serious miscalculation incurred poor Pieter Cox the wrath of President Mbeki who said “It is difficult to understand why any thinking person would categorise the achievement of these goals as constituting a business risk. Sasol … will have to outgrow an outdated mindset that has become entrenched as their own particular and peculiar corporate culture.”

Brian Molefe, the CEO of the Public Investment Commission (PIC), did not concur with Cox when he said: “We see empowerment as a strategy that will bring commercial benefits to South African companies, not something that will be a reason not to invest.”

Sasol recently, under Pat Davies as the CEO, redeemed itself by concluding what has been touted as the biggest BEE transaction that transferred 10% of ordinary shareholding to black investors.

Sasol is back in the news! The Sasol board of directors has appointed a black chairperson, Hixonia Nyasulu, against the principles of good corporate governance. Nyasulu has an interest in Sasol Oil, a subsidiary of Sasol, which gives rise to conflict of interest and undermines the requirement of the code of good corporate governance for independence of the chairperson of the board.

Pat Davies mentions that in addressing this issue of independence the board appointed the former chairman of DaimlerChrysler AG, Jurgen Schrempp, as lead independent non-executive director, whose role would include chairing the board when matters pertaining to Sasol Oil are dealt with at the Sasol board.

Brian Molefe lambasted Sasol for this move, “Transformation should not take place at the expense of good corporate governance. Transformation is as important as corporate governance. You cannot do one at the expense of the other.”

While I agree with Molefe in his criticism of the appointment of Nyasulu given her conflict of interest, I battle to understand his gripe with Schrempp who serves as an independent, non-executive director on the board of Sasol. The concern about transformation is misplaced as the board of directors of Sasol comprises fifteen members, seven of whom are black and five are women. Shareholder activitism is encouraged when it is directed at real issues.

The appointment of Nyasulu as chairperson of the board may be an indication of desperation to advance women in the boardroom, while foregoing the basic dictates of good corporate governance, which a company of Sasol’s stature is expected to uphold and promote. It is the question of upholding the spirit, not the letter of the codes of good corporate governance.

The issue of transformation is important in our current political and economic climate. Sasol, like many other corporate organisations, with all its noble but inadequate attempts to transform, is yet to meet targets as per the DTI Codes. Much emphasis by corporate organisation facing the challenge of transformation has been directed at equity ownership, which accounts for only 20% of the BEE score card weighting, and placing less emphasis on other equally important aspects of the score card.

Sasol has performed dismally in encouraging development and/or expansion of small and medium enterprises (SMEs). Only 0.34% of its transformation endeavours are directed at enterprise development, when the minimum target is 15 per cent. Employment equity is at a pathetic 4.07%, considerably below the minimum target of 15%.

The extent to which Sasol procures from BEE compliant companies, particularly small and micro enterprises and black owned companies, is unimpressive. The minimum target is 20% and the procurement spend is at 10.2%.

Understanding that the DTI targets are within the five to 10 years’ horizon, preferential procurement together with enterprise development nevertheless remain the two most important components of the score card that almost all corporate organisations are tackling with the same vigour as employment equity and ownership.

The role of SMEs in the development and growth of the economy is much more important that is appreciated. A supportive environment for SMEs is inadequate and that is an indictment on corporate organisations, who in spite of incentives to support the development and expansion of SMEs, are dragging their feet.

Government agencies established to provide financial support to SMEs such as the Small Enterprise Development Agency (Seda), the Umsobomvu Youth Fund, the IDC Small Business Initiative, the Apex (Micro-credit) Fund and Mafisa (for agricultural development), appear unhelpful in many instances; and it is even more problematic for these SMEs to raise required funding from banks given the riskiness of their nature. Corporate organisations should be establishing sector specific funds in order to reduce the cost of lending to these SMEs.

Advancing transformation of the second economy half-heartedly undermines government’s interventions and its determination to eradicate poverty and underdevelopment in the quest to provide a better life for all. The success of the government’s growth and job creation strategy, the Accelerated and Shared Growth Initiative of South Africa, rests on the shoulders of big business to fulfill their national duty in respect of transformation.

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  • Sentletse Diakanyo's blogs may contain views on any subject which may upset sensitive readers. Parental guidance is strongly advised.