BEE Partner, South Africa Economy Watch

Direct ownership represents an identifiable natural person who holds an identifiable ownership stake with a right to participate in economic benefits and the right to exercise influence over the business in line with the voting rights owned. In terms of transformation, direct ownership is the first prize. Black beneficiaries, who may be hidden behind multiple layers of corporate structure, are identifiable for measurement purposes and, more importantly, they know exactly what stake they have in the measured entity and what their rights are.

• Direct ownership promotes an active interest in the measured entity by the Black participant, resulting in his or her inclusion in the mainstream economy.
• The key questions when determining direct ownership are as follows:
• Does the benefit accrue directly to natural persons?
• Are those persons able to direct the decision-making processes relative to the equity they hold by exercising their voting rights?
• Does the ownership give stakeholders the opportunity to influence the decision-making processes in the enterprise?
• Does the owner enjoy the corresponding risk and reward of ownership?
• Who holds the risk?
• Direct ownership should present a clear answer to each of these questions regardless of the number of legal entities in the ownership structure between the natural person and the measured entity.

Bee Indirect Leadership (non-fund player)

Indirect ownership is ownership of equity instruments held through a third-party intermediary. Legally, the funds that the third-party intermediary manages belong to the beneficiaries but they have little active involvement in controlling such funds.

The function of the intermediary is to manage the funds in a manner that maximises the return according to the risk mandate granted by the beneficiaries. An auxiliary function of the intermediary is to vote on the equity instruments if there are votes attached to those instruments.

Indirect ownership has many faces:

• Mandated investments such as pension funds and long-term insurance products where the beneficiary hands over funds to a third- party intermediary to manage
• Broad-based ownership such as:
• public benefit organisations that do not specify individual beneficiaries (for example, Kagiso Trust)
• employee ownership schemes
• broad-based ownership schemes that are generally set up by
  an intermediary for the benefit of a specific group of people
• Government ownership that also represents a form of indirect ownership
• Other ownership such as private equity, union funds and stokvels.

The permutations of indirect ownership are a minefield when determining ownership measurement. In indirect ownership there is often an element of direct ownership that needs to be extracted and measured separately from the indirect holding. In the QSE environment most of the indirect complications are unnecessary in this text. The only issues that will surface repeatedly are broad-based ownership and employee ownership schemes.

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