MTN’s empowerment scheme found to be flawed

A commission has found that MTN’s black economic empowerment (BEE) scheme did not comply with the objectives of the Empowerment Act, on the basis of a number of restrictions and limitations placed on the black shareholders.

On Thursday, the broad-based BEE (B-BBEE) commission, which monitors Empowerment Act progress and compliance, issued final findings and recommendations following an investigation into the network giant’s empowerment scheme known as Zakhele-Futhi.

MTN had not responded to requests for comment at the time publication.

The cellphone operator launched the scheme in 2016. The empowerment initiative was valued at close to R10bn, holding approximately 4% equity in the MTN Group. It was intended to afford qualifying black individuals and groups the opportunity to apply for shares at a discounted rate.

But according to the B-BBEE commission, the restrictions and limitations placed on the black shareholders are at odds with the requirements for ownership in the codes of good practice.

The commission has issued remedial recommendations to address the defects identified in the MTN Zakhele-Futhi scheme. These include changes to the governing documents, such as the memorandum of incorporation and the relationship agreement concluded in respect of MTN Group and Zakhele-Futhi to grant black shareholders effective rights, control, participation and economic benefits in respect of their stakes.

The remedial recommendations also call for the black shareholders to be able to nominate representation on the board of MTN and to remove the veto rights that MTN has in respect of the trickle dividend and the general dividend that would flow to black participants. Furthermore, MTN Zakhele-Futhi should be able to appoint its own chair of the board and board members, who need not be MTN appointees or nominees.

In addition, specific officials and members of the board of MTN are required to undergo training on B-BBEE and corporate governance. This training must be extended to fiduciaries of MTN Zakhele-Futhi as the shareholders representing the multitudes of black participants who subscribed to the shares, at the cost of MTN.

MTN is also expected to develop and submit a compliance programme to ensure future compliance with the Empowerment, and to seek prior advice from the commission with respect to any ownership scheme they may wish to implement in the next two-year period.

“MTN has demonstrated co-operation and willingness to remedy the defects identified by the commission, and the commission will monitor the implementation of the recommendations issued,” the commission said.

It said that upon issuance of the preliminary findings to MTN for its response as required by regulations, the company responded and denied engaging in any practice, conduct or arrangement that was contrary to the Empowerment Act, in particular any fronting practice or misrepresentation of their B-BBEE status.

“MTN, however, expressed willingness to co-operate with the commission and implement changes to the MTN Zakhele-Futhi Scheme to address the concerns raised in the preliminary findings,” the commission said.

phakathib@businesslive.co.za