Proposed amendments to the Employment Equity Act include the prohibition of non-compliant companies from doing business with state entities. Of particular interest is that the compliance requirements for small enterprises (i.e. those employing fewer than 50 people) are lighter than those for large companies.

Unsurprisingly the Department of Labour has framed this as a victory for SMEs, but I'd argue it's yet another administrative incentive for staying small instead of scaling up. The Broad-Based Black Economic Empowerment framework, Labour Relations Act, and Small Business Corporation tax structure are just some of the other regulatory initiatives that directly encourage entrepreneurs to dial down their ambition.

South Africa's entrepreneurial environment could not be more schizophrenic. On the one hand, a vast network of government agencies, incubators, and enterprise development programs relentlessly encourage people to start their own business. But those who do, and who survive for long enough, quickly discover that there is an exponential red tape burden beyond a tipping point.

None of this makes any sense.

The cost of starting a business (i.e. actual cash outflows as well as lost opportunity costs and expenditure in kind) is very high, yet the survival rate is very low. So why are wide-eyed entrepreneurs, ill-equipped for the reality of running a business, herded lemming-like to the precipice of economic disaster?

Every other medium of economic participation has an exhaustive framework to protect new entrants from bad actors as well as their own naiveté. Job-seekers are protected by labour laws. Borrowers are protected by the National Credit Act. Investors are protected by a litany of financial regulations and agencies.

There is no safety net for entrepreneurs. Instead, those who are brave, stubborn, smart or lucky enough to beat the odds are rewarded with an avalanche of red tape that punishes them for growing their business, creating jobs and contributing to socio-economic development.

VBS Mutual Bank is slowly collecting debts owed to it and recovering its losses from corruption. Only, it’s slower than it ought to be.

No doubt there’s a morass of bureaucratic processes to be wrangled, but the challenge can’t be solved by simply throwing money and cheap labour at the problem (excuse the irony). The solution to this problem doesn’t scale easily. That’s because, in order to conceal the corruption, convoluted deals were set up to obfuscate what was really going on.

A Gauteng High Court case, Rooplal vs Firmanox (SAFLII, 20 November 2020), anecdotally illustrates how recovering VBS’s losses is not as simple as pushing paper. The real work is in untangling the contractual contingencies and their loops within loops of counter contingencies that were contracted with multiple parties.

VBS’s liquidator, Rooplal, approached the court to have a debtor, Firmanox, liquidated in order to recover a debt of about R24 million. Firmanox countered with a rebuttal of the debt, citing another contract it had with VBS and its baffling variety of conditions that would, somehow, let it off the hook.

The court saw through the smokescreen, but only after legal argy-bargy and concern for “abuse of court processes”. In other words, vast expense and time wasted. The court ordered that Firmanox be placed into final liquidation. For the VBS liquidator, that was only the end of the beginning of recovering its debt from Firmanox.

What makes this case interesting is that the related contract Firmanox relied on in its counter relates to a funding deal with it, VBS and other parties to establish a religious TV program. The complexity was borne out of not only the multifaceted relationships between the parties, but the tenuous conditions attached to each party’s obligations.

When we consult with clients on acquisition growth strategies and how to fund them, we’re mindful of the increasing complexity involved in even simple deals when bringing just one more party to the negotiating table.

Keeping acquisition and related funding deals simple is not only to smooth out the break-up of the relationship, as in the Rooplal-Firmanox case. One of the biggest reasons acquisitions fail is because of poor implementation. Literally, being unable to effectively integrate the merging organisations.

Although acquisitions can be inherently complicated, complex contract terms are anathema to successful acquisitions and funding deals. Keep the number of stakeholders low and minimise the moving parts in the deal.

Two key lessons for business owners emerge from the Western Cape High Court’s recent judgment on the Guardrisk insurance case. Although the story is about insurance, the learning is about any agency or advisory service.

In the case, a restaurant claimed for lost revenue during the COVID-19 lockdown against its business interruption insurance policy with Guardrisk. As reported in the court judgment by SAFLII (26 June 2020), Guardrisk repudiated the claim because the proximal cause of loss was the lockdown and not the disease. However, judge Le Grange ruled that the claim should be honoured.

The court also issued a costs order against Guardrisk to pay the restaurant’s legal costs. Although a costs order is usually given when the case or decision is relatively obvious, to deduce that this case was “cut and dried” against the insurer would be grossly inept.

The case report was lengthy and it referenced many legal facets and precedent case law. What’s more, the judge explicitly stated that this case does not set a clear precedent for similar cases and that each insurance claim must be assessed against the specific wording in the policy.

One of the factors in the restaurant’s success was getting good advice in taking the right actions and arguments to enforce their claim. But could the whole debacle have been avoidable if they got that advice earlier at the inception of the insurance policy?

When insuring against a risk event, a good insurance broker will reduce the risk (ironically!) of getting the wrong insurance. Aside from matching the right product to the client’s needs, this should at least entail deciphering the fine print, exceptions to exceptions, and other legalese. The “right” insurance is where the insured event the policyholder has in mind is, in fact, the same thing the insurer intends covering.

That good advice probably won’t happen in the burgeoning market of cheap insurance products. To attract more clients, many insurers offer direct sales of ever-simpler products that cut out the agent and the value they offer. Some insurance brands are  built on just this appeal, purportedly saving the customer “unnecessary” costs.

While some of these policies have their place, there are plenty of disgruntled people whose insurance claims were correctly rejected. Had they bothered to check the fine print of excluded risk events – with a broker’s help – the pain could have been averted.

The lessons are twofold: 1. you get what you pay for and, 2. if a risk is worth insuring against, don’t skimp on a cheap agent.

Beyond insurance, this parable is relevant to any agency, advisory or brokerage business. Think beyond the obvious financial services like retirement planning, life assurance or funeral schemes. Are you pinching pennies with a budget doctor, architect, or management consultant?

Although a high price doesn’t guarantee expertise, a cheap price almost always promises high costs later.

Last week the B-BBEE Commission released its annual report on the state of broad-based black economic empowerment, and then immediately (and unsurprisingly) lambasted the slow pace of transformation. Which is bizarre, because 80% of sectors have achieved or exceeded their black ownership targets.

Here's the complete table from the Commission's official report:

(Notice the title for that table? Anyone else find it a little odd that the Commission chose to highlight one of only two sectors below target, instead of celebrating the fact that the vast majority have transformed?)

The Commission has also moaned about how changes in black ownership do not always correspond to changes in management control. Which is equally bizarre because ownership, not management control, is precisely what got prioritised when the Codes were amended back in 2013.

What the Commission has conveniently chosen to overlook is that the private sector is light years ahead of government itself. For the third straight year, over 40% of JSE-listed companies submitted B-BBEE reports, while less than 20% of state entities did the same. Furthermore, only 25% of JSE-listed companies are non-compliant, compared to almost 40% of government bodies.

So, in summary:

1. The private sector has almost unanimously achieved their ownership transformation targets.

2. Organs of state don't care about complying with B-BBEE.

3. The B-BBEE Commission is incapable of accurate, objective reporting.

B-BBEE is a dead horse that should be shipped off to a glue factory instead of beaten any further. The convoluted mechanics, racial identity politics, and obsession with wealth redistribution over wealth creation are an anchor to our past instead of a bridge to a better future.