Employee share ownership programme that ran for 16 years without paying a cent to its 3,700 participating employees has been found by the BEE Commission to be misrepresenting its BEE status

Employee share ownership programme that ran for 16 years without paying a cent to its 3,700 participating employees has been found by the BEE Commission to be misrepresenting its BEE status

An employee share ownership programme that ran for 16 years without paying a cent to its 3,700 participating employees has been found by the BEE Commission to be misrepresenting its BEE status. The company, multinational security company G4S, claimed it had insufficient distributable reserves to pay dividends, but the Commission determined that directors and key management had themselves been able to receive substantial financial benefits over the years. It also found that employees did not receive relevant information relating to their shares and had never participated in voting their rights, which goes against the requirement for employees to participate in the management of the company as a scheme, even if via their fiduciaries.

The Commission has reportedly recommended a payout of R20m to employees, an amendment to the trust deed, an alignment of the shareholders agreement to the BEE Act, the appointment of trustees by the employees, access by employees to relevant information as well as a written apology to employees.

The alternative to these recommendations is the pursuit of criminal liability in a court of law.

Some have publicly commented that this is a positive step forward to reducing fronting, particularly through employee schemes where fronting is often less subtle and easier to achieve. Others view R20m a poor outcome for workers, with a payout to each employee of about R5,500.

At Simanye, we welcome outcomes like this, because we advocate strongly against fronting, and for meaningful ownership solutions. We are big supporters of the concept of employee participation and broad-based schemes where impact can be in the form of bursaries, outstanding university fees and other impactful projects, and are glad that the dti issued a guidance note earlier this year reiterating that these schemes count, but also that the rules for operationalising them appropriately need to be met. This case is an example of how badly things can go wrong when employee schemes and broad based schemes are not properly implemented and operationalised, and the risks involved financially and reputationally.

We have extensive experience in successfully implementing and operationalising schemes such as this; contact us if you would like assistance in this area.