South Africa: Let us Not Mince Words on The Subject of Indirect Ownership

Last Updated: 4 August 2005
Article by Kevin Lester

Since minister Mandisi Mphalwa's embargoed briefing on the revised Codes of Good Practice under the Broad Based Black economic Empowerment Act (BEE ACT) on 24 June 2005, much has been made in the media of the purported exclusion of so-called "indirect ownership" in those Codes.

"Indirect ownership" as a BEE concept, is the invention of the financial service sector, which sought to target a level of 15% indirect ownership in their charter. They defined "indirect ownership" as arising when an "institution or other investor owns equity in a company on behalf of beneficiaries and there may not be direct participation by the beneficiaries in the voting rights". That definition is broad enough to encompass ownership by a trustee of a trust, by community ownership schemes as well as ownership by pension funds and private equity funds. Underscoring the considerable opaqueness of what commentators mean when they talk about "indirect ownership" is the fact that notwithstanding the definition in the financial services charter, several financial services entities have purported to recognise as direct ownership, equity participation by staff trusts and similar vehicles.

It is to be noted that that Public Investment Corporation (PIC), the oft-quoted example of an ideal vehicle for "indirect ownership", is purportedly reluctant to permit the recognition of any portion of the funds under their administration as qualifying as black ownership (see "An urgent rethink needed" by Duma Gqubule in Business Day 2 April 2004). Given that 94% of the funds under administration by the PIC are those of public sector pension funds, it would seem clear that the question of "indirect ownership" is hardly a settled issue.

Having said that, it is crucial to understand that many of the reasons offered in the past to justify treating "indirect ownership" as not constituting black ownership are dubious to say the very least. One such reason was reported by Hillary Joffe's opinion piece for the Business Day of 28 June 2005. She quoted the revised Codes as stating that the reason for excluding pension fund ownership was that "it is difficult to determine the ultimate black beneficiaries in a reliable manner". This "reason" was in fact included in an "explanatory note" to the Codes, but be that as it may, the reason offered is not a valid one, since the interest of black beneficiaries should be entirely capable of actuarial determination.

Similarly, it has in the past been suggested that the barrier to recognition lies in the indirect nature of the participation by black beneficiaries in the voting rights exercised by pension fund administrators in respect of their investments. As Hillary Joffe quite correctly points out, if that purported barrier represents the entire substance of the non recognition of pension fund ownership, the same logic could be applied to "trusts and charities serving the aged, disabled or abused". Precisely the point that that the financial service charter sought to overcome in its definition of "indirect ownership". Clearly that reason merits no further discussion.

So what is the truth about "indirect ownership" and the purported exclusion thereof from the Codes? Well firstly, we must not mince our words in this regard. The Codes have expressly included recognition of black ownership arising through equity held by trusts and broad based ownership schemes under very specific circumstances. So to suggest that this is a debate about indirect ownership is factually wrong.

However, more significantly, the exclusion of pension funds is in respect of one of what is anticipated to be a number of statements to be issued under the Code in relation to ownership. In response to a question posed by a representative of the financial services charter council at the minister's 24 June briefing, it was explained that it was not the case that the DTI's wished to permanently exclude black ownership arising from "pension fund" investments from all measurement under the BEE Act, but that Statement 100 (in which the controversial exclusion is contained) would not be dealing with that issue. However, and this was made abundantly clear at that briefing, there was nothing preventing the measurement of black participation in pensions funds under Codes if the financial services sector (the major administrator of pension fund assets), other pension fund administrators (including the PIC and trade unions) and the government could reach an accord as to how best to include this form of "indirect ownership".

The measure of the controversial nature of the recognition of pension fund ownership from a BEE perspective must lie in the unresolved tensions between various pension fund administrators as to the treatment of the funds under their administration from a BEE perspective and the conditions required to ensure that black participation in BEE deals through pension fund investments remain consistent with the BEE Act's stated objective of "achieving a substantial change in the racial composition of ownership and management structures … of existing and new enterprises".

But the debate around the purported exclusion of pension funds from the Codes does not end here. Duma Gqubule, in his aforementioned article, alludes to the fact that there exists a suspicion that many of the demands for recognition of indirect ownership that emanate from large corporates disguise an attempt to actually dilute the effort required from them in achieving the 25% ownership of the economy by black people. This suspicion cannot be simply wished away, it has to be publicly addressed by those corporates

Another, more significant argument often encountered in support of the non-inclusion of black ownership arising from pension fund investments is based upon the fact that pension fund participation is a function of employment and that the gradual transformation of the employment environment over the past 25 years is a function of a basket of previous initiatives ranging from the Sullivan Codes in the 80's to the restructuring of the legislative context of employment law and employment benefits in the 90's. Taken to its logical conclusion, this argument suggest that black participation in pension funds is not part of the transformative agenda of the BEE Act, but rather a result of other previous successful transformative interventions. Thus, the recognition of black ownership arising out of pension fund investment allows businesses to opt out of doing more by relying on that which they had already done in compliance with other imperatives. This view is best reflected by the lament of one high profile black business woman who was overheard saying after the 24 June briefing, "My parents were always beneficiaries of pension funds, how does their inclusion facilitate a transformation of the economy?"

This contention is not without its merits, but it does tend to ignore the fact that there are also is significant imperatives for finding ways to incentivise conduct of pension fund administrators in their support of BEE initiatives. This extends not only to the types of investments that they make, but also to how they empower their members (and black members in particular) in relation to their membership participation.

This was what the financial services charter seemed to be saying when it linked recognition of indirect ownership to the rather oblique concept of "shareholder activism". In this, the financial services charter finds support from the chairman of the PIC, deputy minister of finance Jabu Moleketi, who in his 31 March 2005 address to the Black Management Forum was at pains to emphasise the importance of "shareholder activism".

Recognition of black ownership arising through pension fund investment is not an easy issue, and those who wish to be reductionalist in their thinking need to reconsider this fact. There are many competing views in the marketplace, and it is submitted that the DTI has acted entirely justifiably by placing the ball back into the court of the pension fund industry. It is up to them to come up with a model that addresses the many discordant voices clamouring for a platform to be heard.

Perhaps Reg Rumney of BusinessMap was providing some very useful guidance in his article, ("Decoding the Codes", Mail and Guardian 1 July 2005) when he stated that: "… should we not be using indirect shareholding as part of the eventual, overall target for empowerment, aiming for, say 50% of the JSE Securities Exchange to be owned indirectly or directly by black people in 10 years, rather than the 15% or so present level, or the 25% target in the code?". While many would challenge his proposed target or its limitation to the JSE, the point he (perhaps inadvertently) makes is that indirect ownership need not be part of the subject matter of Statement 100 to be included within the Codes.

There is room here for a substantial and enduring intervention, but who is going to grasp the nettle of making it happen?

Kevin Lester is a director with corporate legal services firm Cliffe Dekker. Lester advised the department of trade and industry in the drafting of the revised Codes of Good Practice. He writes in his personal capacity and does not purport to represent the views of the department of trade and industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.