Empowerment

Senior Business Correspondent

THE revised Companies Act, to be introduced in late 2006, will provide an effective way of exposing fronting in black economic empowerment, Sonnenberg Hoffmann Galombik attorneys associate Marubini Raphulu says.

While the empowerment transactions and affirmative procurement continued , the detrimental practice of fronting was growing, and becoming a huge threat to the empowerment process, commentators said.

The process of drafting a code of good practice by the trade and industry department to prevent fronting and revising the Companies Act was likely to give rise to provisions that would lead to greater transparency.

"The practice of misrepresentation of a company's empowerment credentials, black ownership or empowerment partners can be simple and easy to detect, as in the UShaka Marine Island case, where employees were appointed' as shareholders and directors without their knowledge," Raphulu said.

However, he said complex sets of agreements, which undermined the empowerment process by manipulating voting rights and limiting participation in certain areas of a company, were also common and might be more difficult to uncover. "These agreements are mainly undertaken through joint-venture companies, formed between an established white company and a black-empowered company."

Joint-venture companies were used to tender for empowerment contracts. "As soon as the tender is won, the services are rendered by the established white company, and the black-empowered company collects a cut' for its contribution. No skills transfer or human resources development takes place," he said.

Detecting complex fronting agreements and ensuring that empowered companies remained so meant that a due diligence investigation was crucial.

Empowerment ratings agency EmpowerLogic said many companies seeking an empowerment rating were either fronting, or were trying to manipulate the scorecard in the race to become empowered .

EmpowerLogic business development manager Prince Booi said that in future all companies that were rated should make their status public, because this had a positive effect in the reduction of fronting.

Empowerment SA director Mphuthi Mphuthi said that for a long time innocent companies had appointed empowerment partners and black directors to their boards. These empowerment partners were paid salaries and shared the bottom line without adding value.

Empowerment SA focuses on communicating empowerment strategies and opportunities, but only people who add value can be a part of the network.

One of the agency's functions is to publicise empowerment investment opportunities to the public, and then submit to the client the profiles of interested and credible parties.

"This moves away from the previous system where an opportunity is driven by an internal employee who would, in an effort to gain credibility in the eyes of politically connected circles', approach a politically connected individual' as an empowerment partner," Mphuthi said.