The Generic Scorecard for the Chartered Accountancy Sector, part 4 – Ownership

1. Key measurement principles of the Generic Ownership Scorecard

For the CA Sector Ownership Scorecard, the following key measurement principles apply:

An Entity receives points for participation by Black People in its rights of Ownership, using this Ownership Scorecard. Black People may hold their rights of Ownership in a Measured Entity as direct Participants or as Participants through some form of an entity, such as the following:

1.1 A Company as defined in the Companies Act of 2008, as amended;
1.2 A Close corporation;
1.3 A Co-operative
1.4 A Trust;
1.5 A Broad-Based Ownership Scheme;
1.6 An Employee Share Ownership Programme;
1.7 A partnership or other association of natural persons; and
1.8 Any form of juristic person recognised in terms of South African law.

B-BBEE initiatives in the CA Sector aim to significantly increase the number of Black People who manage, own, and control enterprises in the sector, as well as to contribute to a decrease in income inequalities in the country as a whole. This is to be achieved by means of an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa.

As this is a CA Charter, the constituents agreed that at least 20% of the Total Black Ownership must be held by Black CA’s.

NOTE: An extract of a portion of Table 12.2.1 of the Ownership Scorecard is provided at the end of this article (for the indicators referred to below).

2. Sub-minimum and discounting principle

2.1 A Measured Entity must achieve a sub-minimum of 40% the total weighting points of 6 points for Economic Interest (Indicator 1.2.1 and 1.2.2) of Black CA’s and Black People (40% of 6 points).
2.2 Non-compliance with the sub-minimum will result in the overall achieved B-BBEE status level being discounted by paragraph 11.3 of the Code.

3. Flow-through principle

3.1 As a general principle, when measuring the rights of Ownership of any category of Black People in a Measured Entity, only rights held by natural persons are relevant. If the rights of Ownership of Black People pass through a juristic person,
then the rights of Ownership of Black People in that juristic person are measurable. This principle applies across every tier of Ownership in a multi-tiered chain of Ownership until that chain ends with a Black person holding rights of Ownership.
3.2 The method of applying the flow-through principle across one or more intervening juristic persons is as follows:

3.2.1   Multiply the percentage of the Participant’s rights of Ownership in the juristic persons through which those rights pass by the percentage rights of Ownership of each of those juristic persons successively to the Measured Entity; and 
3.2.2   The result of this calculation represents the percentage of rights of Ownership held by the Participant.

4. Modified flow-through principle

4.1 A Measured Entity applying this modified flow-through principle cannot benefit from the exclusion principle.
4.2 The modified flow-through principle applies to a B-BBEE owned or controlled company in the Ownership of the Measured Entity.
4.3 In calculating Exercisable Voting Rights and Economic Interest of the Ownership scorecard, the following applies:

4.3.1   Where in the chain of Ownership, Black People have a flow-through level of participation of at least 51%, and then only once in the entire ownership structure of the Measured Entity, such Black participation may be treated as if it were 100% Black.

4.4 The Modified Flow-Through Principle may only be applied in the calculation of Indicators 1.1.1, 1.1.2, 1.2.1, and 1.2.2 of the Ownership Scorecard. In all other instances, the flow-through principle applies.

For purposes of the CA Sector, Indicator Weightings have the following definitions:

5. Voting Rights

5.1 Voting Rights means a Voting Right attaching to an Equity Instrument owned by or held for a Participant.

5.2 Measurement of Voting Rights: Indicator 1.1

A = B   x   D
    -
    C

Where: A = Score achieved by the Entity for the measured Ownership indicator

B = Voting rights of Black CA’s as a percentage of all Participants holding voting rights in the Measured Entity = Voting rights of Black People as a percentage of all Participants holding voting rights in the Measured Entity = Voting rights of Black Female CA’s as a percentage of all Participants holding voting rights in the Measured Entity = Voting rights of Black Females as a percentage of all Participants holding voting rights in the Measured Entity 

C = Compliance target as specified in Paragraph 12.2.1, Indicator 1.1

D = Weighting points as specified in Paragraph 12.2.1, Indicator 1.1

If an entity gains a score in the formula above that exceeds the Weighting points, that entity will only receive the Weighting points.

6. Economic Interest

6.1 Economic Interest means a claim against an entity representing a return on ownership of the entity, similar to a dividend right. For the CA Sector, it will mean any distribution to a partner or partner equivalent, which includes salaries, drawings, and/or profit share paid to partners. Partner equivalent would include all persons who have an equivalent status to a partner per the IRBA rules; this will include individuals who are not necessarily RAs per the IRBA rules but are directors in the practice (should these individuals be regarded as partner equivalents).

6.2 Measurement of Economic Interest: Indicator 1.2

A = B   x   D
    -
    C

Where: A = Score achieved by the Measured Entity for the measured Ownership indicator

B = Economic Interest of Black CA’s as a percentage of Economic Interest of all Participants in the Measured Entity = Economic Interest of Black People as a percentage of Economic Interest of all Participants in the Measured Entity = Economic Interest of Black Female CA’s as a percentage of Economic Interest of all Participants in the Measured Entity = Economic Interest of Black Females a percentage of Economic Interest of all Participants in the Measured Entity = Economic Interest of Black Natural People as defined in Indicator 1.2.5 as a percentage of Economic Interest of all Participants in the Measured Entity

C = Compliance target as specified in Paragraph 12.2.1, Indicator 1.2

D = Weighting points as specified in Paragraph 12.2.1, Indicator 1.2 

6.3 If an entity gains a score in the formula above that exceeds the weighting points, that entity will only receive the Weighting points.

7. Bonus points

7.1 Measured Entities will score three additional bonus points should their ownership be greater than 50%, in the following ratio:

7.1.1    1 point for Black ownership over 32.5%
7.1.2    3 points for Black ownership over 50%.

Extract of a portion of Table 12.2.1 of the Ownership Scorecard

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The next article will discuss the Management Control aspect of the Generic Scorecard.