South African mining companies' investor rationalities when doing BEE equity deals

Abstract

ABSTRACT Black Economic Empowerment is a South African transformation policy aimed at improving the lives of previously marginalised black people. The strategy has been met with much contention owing to a wide gap between its promised deliverables and actual value created, with most criticism levelled against BEE equity deals which are ubiquitously viewed as creating the so-called “black elite”. Some academics assert that BEE is a variant of socially responsible investments which are investments that seek both an economic and social return and a blended value creation, yet rationalities of BEE equity investors in South Africa and their desired outcomes has not been studied. The study uses Weberian ideal type rationalities, as adapted by Nicholls, to understand rationalities and logics of mining companies when doing BEE equity deals. By employing a critical ethnographic paradigm, the study uses an historic lens to highlight the evolution of the BEE policy in the mining sector and the implications the apartheid legacy has on mining companies’ rationalities when doing BEE equity deals. Face-to-face, semi-structured interviews were used to collect the data from 13 respondents representing mining companies, financial institutions and BEE companies. The sample was selected through purposive or judgemental sampling. The study’s results were analysed using thematic content analysis. Key findings were that mining companies prefer BEE equity deals with strategic partners and not broad based schemes, such as employee share schemes and community trusts. Broad schemes are either done to maintain the BEE status if a strategic partner’s position dilutes or to pacify unions, employees and communities because unrest impacts operations negatively. Transformation is not a driver of BEE equity deals, means-end driven rationalities are. 2 The study concluded that mining companies rationalities are means-end driven when concluding BEE equity deals, the premise is not to create blended or shared value, but are compliance driven, hence the lack of value creation, thus BEE equity deals are not socially responsible investments. If mining companies’ intention was to transform the economy and the societies in which they operate, much broader BEE equity schemes would be preferred, which was not found by the study. It is recommended that the government has post and pre BEE equity deal audits ensuring that the deals are done for the right reasons and the financial structure used in financing these deals is sustainable and value accreting on a social and economic level. It is recommended that mining companies should have buy-in and refrain from doing BEE equity deals for compliance reasons. Policy uncertainty or poor policy should not stifle transformation imperatives because excellent institutions can thrive under poor policy but the converse is not possible. BEE beneficiaries should only do BEE deals in industries where they can add value because the distribution of equity through debt funding is neither sustainable nor will it grow the economy. BEE beneficiaries have a responsibility to build innovative entrepreneurial ventures because that is what will grow the economy and uplift societies.