BEE firms could warm up to family businesses
September 30, 2009
By Cynthia Mapaure
Family businesses employ millions of black workers yet black economic empowerment (BEE) has made only limited inroads within these companies - leading to impatience in some quarters over the slow pace of change at the core of our economy.
Is now a good time for BEE firms to focus on family business?
After all, difficult trading conditions may have weakened some family concerns, even large ones. They might be in the market for new partners.
Some empowerment companies still have relatively strong balance sheets and solid capital reserves. They might benefit from value opportunities like this.
In my view, however, a spurt of BEE activity among family businesses is unlikely just yet. Many family companies are not yet convinced of the benefits of BEE, while some empowerment players are not sure the timing is right.
At some stage, BEE players will have to grasp the nettle and enter this space, but first the ground needs to be prepared.
There are sound reasons for a slow, deliberate approach. A fire sale is great for bargain hunting if you're not choosy about the state of the assets. But if you have spent years building a quality portfolio, you will be reluctant to compromise it by opportunistic buying near the bottom of the business cycle.
Why would a family business that had stalled on BEE for years suddenly have a change of heart in the middle of a downturn? Chances are the company is in dire need of capital and is embracing a new partner out of necessity.
A reluctant about turn by one party and opportunism by the other make a poor basis for partnership. Transformation works best when a sincere commitment is made.
It is also important to remember that empowerment players have had good reason for first concentrating on major corporates rather than family businesses.
The levels of transparency and financial disclosure are much higher in the formal corporate environment. Governance procedures are strongly embedded, so empowerment companies may be happy to linger a bit longer in the corporate world.
BEE credentials are becoming essential for tendering success with state agencies and the parastatals. Similar trends are evident in the private sector as big business increasingly scrutinises the empowerment status of suppliers.
The alternative to bucking these trends is to sell the business. But selling up when the order book is thin can hardly be value-enhancing for the family. Growth by taking on an empowerment partner looks much more attractive.
With strong empowerment and governance processes in place, a family firm might even be positioned for growth into the corporate sector.
I suspect that strategic reflection like this will occupy more and more time at family businesses over the coming months. Simultaneously, BEE companies will increasingly see the need for closer engagement with family business.
If you are serious about your empowerment mission, there can be no shirking the responsibility of extending transformation to the workers who depend on these businesses for jobs and a regular income.
I foresee a gradual process of relationship building. There's nothing unusual about taking time out for familiarisation ahead of a strategic commitment. When it feels right, the deal's right.
Cynthia Mapaure is the financial director of the Mineworkers Investment Company, a leading BEE company with a 14-year track record
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