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South Africa's Financial Sector Charter

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In 1994, South Africa held its first free elections, marking the peaceful transition from a government controlled by the country’s white minority to a multi-party, multi-racial government. The new government, led by Nelson Mandela and the African National Congress (ANC) party, sought to unify South Africa and overcome the country’s racist past. Rather than pursue criminal recriminations and retribution for past wrongs, the ANC concentrated on reconciliation, unification and nation building. According to most observers, the ANC’s political program led to a strong, forward-looking state, capable of undertaking the significant challenges facing South Africa.

Nevertheless, despite the positive changes in the political landscape, the government believed the long-term stability of South African society depended on a dramatic reduction in the economic inequality between white and black South Africans. More than ten years after the transformation of the government, white South Africans were the disproportionate owners of land and wealth. In contrast, many blacks lived in poverty, with a substantial percentage lacking the resources to participate meaningfully in the economy. Unemployment among blacks was extremely high, and HIV/AIDS was has having a devastating effect on the population, making the lack of access to adequate health services all the more problematic.

To help transform the economy, the government initiated a program called Black Economic Empowerment (BEE) to gradually transfer ownership of enterprises to black citizens while promoting economic growth. Beginning with discussions in 1994, the BEE program went through a series of definitions and redefinitions. The first two waves of BEE focused narrowly on transferring shares of South African companies to black citizens. However, this generally resulted in enriching only a small group of already wealthy black South Africans. A third wave, which was labeled “broad-based BEE,” sought to redress the shortcomings of the first two waves with a more encompassing focus on not only black empowerment, but also standards for corporate behavior that went beyond the dispersal of ownership to black South Africans.

One leader in the third wave was South Africa’s financial sector, which created a national model by voluntarily negotiating industry guidelines. The financial sector created corporate scorecards that laid out targets for black employment, ownership, governance, procurement and financing black enterprises. Companies that scored well could participate in government purchasing programs that favored black-owned companies. Even if a company did not aim to provide goods or services to the government, the targets for procurement from conforming suppliers created a chain of incentives for economic empowerment throughout the economy, since suppliers were scored on the degree to which they in turn relied on conforming suppliers, and so on in turn.

However, in 2007, broad-based BEE remained controversial. There were disagreements about whether the scorecards had looked at the right measures, whether the benchmarks were sufficiently aggressive, and whether the weightings for each target area were appropriate. Some observers thought the process itself was too gradual and argued the government should take a more direct role in developing infrastructure, in land reform, and in the transfer of ownership.

Published Date: 01/05/2007

Suggested Citation:  Jean W. Rosenthal,  Jaan Elias, Joel Podolny, and James N. Baron, "South Africa's Financial Sector Charter: Transforming South Africa through Black Economic Empowerment," Yale SOM Case 07-026, May 1, 2007

Keywords: South Africa, Women in Leadership