SA competition authorities’ role in promoting employee ownership

Published in Bizcommunity – read here.  In recent times, worker ownership has emerged as a key element of South Africa’s transformation agenda. Increased worker ownership provides the opportunity to tackle South Africa’s deep-seated inequality in a way that can enhance business’ commercial interests and help build a bridge between companies’ management and their workers or the unions that represent their workers.

The South African Competition Authorities are beginning to play a vital role in promoting employee ownership and contributing to the greater prominence of worker ownership, within their sphere.

Authority approval

In many cases, when companies pursue mergers or acquisitions, they must obtain approval from the Competition Commission and the Competition Tribunal. These authorities evaluate both the competitive implications of the transaction and its public interest. This dual approach ensures that mergers contribute positively to society, particularly regarding economic participation for historically disadvantaged persons (HDPs) and employees.

Public interest considerations include the impact on employment, supplier access, and ownership opportunities. The Competition Commission assesses these factors individually, requiring businesses to demonstrate how their transactions can enhance employee ownership.

As former Minister of the Department of Trade, Industry and Competition (DTIC) Ebrahim Patel stated, “By participating as owners, workers also develop a deeper understanding of the challenges and opportunities facing their companies.”

Improving ownership outcomes

The Commission’s stance contributes to a shift in how practitioners view employee ownership. It’s no longer seen merely as a compliance requirement but as a positive obligation. Companies must show how their mergers can improve ownership outcomes for workers and HDPs.

Current DTIC Minister Parks Tau has previously emphasised this point, saying, “For South Africa to truly transform, we must ensure that economic participation is inclusive, and employee ownership is a key mechanism to achieve this.”

Moving beyond traditional merger or acquisition review, the Competition Commission insists that companies:

• Examine worker and HDP ownership separately from broader transformation requirements
• Potentially implement Employee Share Ownership Plans (ESOPs) which cover both aspects
• Engage in meaningful discussions about employee and HDP economic participation

Practitioners have traditionally viewed public interest elements as a collective basket. However, the Commission insists on evaluating each factor separately. They ask critical questions: Will employment conditions worsen? Will supplier access shrink? Most importantly, how will the transaction increase ownership opportunities for workers?

Vital to merger strategies

In practice, this means that businesses are expected to engage seriously with ownership outcomes as part of the approval process. The Competition Commission often encourages or requires employee share ownership plans (ESOPs), sometimes suggesting a 5% employee ownership threshold as a remedy for transactions that do not initially meet public interest criteria. This proactive stance prompts companies to view employee ownership as a vital part of their merger strategies.

Minister Patel has consistently highlighted the importance of worker ownership in advancing South Africa’s transformation agenda. He noted in 2024, “This is a paradigm shift, which aims to empower workers not only as wage earners but also as stakeholders with ownership in capital.” This perspective aligns with the broader intent of economic transformation in South Africa.

Addressing inequality, empowering workers

Employee ownership is essential for addressing the deep inequalities that persist in South Africa. It empowers workers and allows them to share in the wealth they help create. Current DTIC Minister Parks Tau stated, “Employee ownership is not just a compliance issue; it is a vital part of our economic transformation strategy that fosters social cohesion and economic stability.” This commitment to inclusive growth reflects the need for businesses to integrate employee ownership into their operations.

To strengthen the impact of these policies, the Competition Commission can enhance its application and rationale. Greater flexibility in decision-making and ownership expectations that consider the specific circumstances of mergers would provide more nuanced guidance for merging parties. This would not only improve the approval process but also encourage broader participation in employee ownership initiatives.

As South Africa navigates the challenges of economic recovery and transformation, employee ownership offers a practical path forward. It recognises workers not only as contributors to success but as rightful beneficiaries of the wealth they help create. The role of the competition authorities has been central to driving this shift.

By prioritising employee ownership, we can foster a more equitable and inclusive economy. Merging parties should view employee ownership as a valuable element that enhances their transactions and contributes to South Africa’s broader transformation goals. Embracing this principle is essential for creating a society where everyone can share in the prosperity of our economy.

About the author 

Tiisetso Masimula, BCom Accounting, is a director at Transcend Capital and an experienced corporate finance advisor. With over a decade of expertise, he specialises in crafting innovative strategies for clients involved in mergers, acquisitions, and corporate transactions. Focusing on Broad-based Black Economic Empowerment (BEE) ownership and Employee Share Ownership Plans (ESOPs), he aligns these strategies with broader business objectives to drive sustainable growth and meaningful transformation. His career began at EY, where he gained extensive experience in Transaction Due Diligence, Valuations, and M&A Advisory across various sectors and regions. 

About Transcend Capital 

Transcend Capital is a specialist Employee Ownership (ESOP) and BEE Ownership transaction advisor, serving South Africa’s leading listed and multinational companies. Founded in 2005, Transcend Capital has successfully advised on over 200 transactions. We utilise our unparalleled expertise and experience to structure and implement value-adding ESOPs and BEE transactions. Our culture and way of working enables us to be trusted advisors to blue-chip corporations and to attract and retain top talent. We deliver high-quality solutions and transactions that benefit our clients and the country.