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Analysing PDI community trusts as vehicles for BBBEE

16 February 2010

In South Africa, PDI beneficiary trusts are employed in a grander nation-building project, which consciously subscribes to the idea that development must be the responsibility of all sectors of society.

Community Trusts are increasingly popular as a vehicle for driving Broad Based Black Economic Empowerment (BBBEE).  However, there is very limited documented knowledge on the frequency of their use, their fitness for the purpose of furthering BBBEE goals, or the factors that enable and constrain their effectiveness.

Anecdotal evidence suggests that the realisation of the developmental objectives described in the BBBEE Codes of Good Practice persistently eludes Community Trusts and that even the immediate outcome for private enterprise – meeting the Ownership target obligation – is inherently problematic.  Considering the importance of BBBEE to the nation-building project, and the prominent controversies concerning its implementation, it is clear that an evidence base to confirm or contest assumptions about the utility of trust vehicles in realizing BBBEE objectives is sorely needed.

Tshikululu Social Investments has commissioned an in-depth study to investigate the role and effectiveness of community trusts in Black Economic Empowerment transactions.

The broad aim of the study can be specified in four objectives:

• To quantify the frequency of Trusts in BBBEE transactions;
• To explore the role of Trust vehicles in BBBEE;
• To document the factors that constrain or enable the success of Trust vehicles; and
• To distil lessons learned and make recommendations towards optimising the utility of Trust vehicles in realizing BBBEE objectives.

The study is a product of Tshikululu’s commitment to acting as a bridge between the needs of the social and formal economic sectors through thought leadership on the role of the private sector in development.  The research focuses in particular on a policy impact analysis of the Codes of Good Practice and the BBBEE scorecard.

Part One – PDI Beneficiary Trusts – Background and definitions

Corporate sponsored foundations and PDI beneficiary trusts have their genesis in the broader social movements of 19^th century United States and United Kingdom, which also witnessed the birth of modern civil society.  As such, they have contributed to social reform and acted as a cultural force that modernized philanthropy and vitalized aspects of modern society that we now take for granted, such as tertiary education and modern medicine (Chernow, 2002).

In its contemporary guise, the PDI beneficiary trust has proved useful as a vehicle for channelling funding for development, administering development programmes and empowering the victims of underdevelopment.  It represents the manifestation of a current discourse, which holds that business and industry should build society and communities, not only by creating employment and by paying taxes.  These should be supplemented by directly funding the establishment of schools, hospitals and other critical infrastructure; the growth of local economies and small business enterprises; the protection and promotion of the interests and rights of marginalised peoples; and other obligations more readily attributed to the state first, and civil society next.  This notion that social responsibility is part of best practice for business is complemented by a conviction in development theory that communities should take ownership of their own upliftment.

In South Africa, PDI beneficiary trusts are employed in a grander nation-building project, which consciously subscribes to the idea that development must be the responsibility of all sectors of society.  As findings further on demonstrate, PDI beneficiary trusts are a ubiquitous mechanism for the private sector to meet its transformation obligations through BEE, as well as to contribute directly to development and social welfare.

In the theory of common pool resources the literature offers a theoretical framework for not only the analysis of the utility of PDI beneficiary trusts to social transformation and development through BEE transactions, but also to developing workable models for the successful operation of these Trusts.

Download Part One of the study here or visit our Document Archive for this and future releases.

Disclaimer

While the views and conclusions contained in this study do not necessarily reflect those of Tshikululu, who owns the copyright to this work, it is shared with interested parties to encourage debate around and further study into the subject.

Any reference to this work must include acknowledgement of Tshikululu Social Investments.  The authors are members of the Feedback Research & Analytics team that conducted the study.