AS SMALL and medium enterprises (SMEs) with corporate or public-sector clients have increasingly been experiencing pressure with respect to their black economic empowerment credentials, more and more white-owned small businesses have taken steps to transform in the interests of client retention.

In the absence of guidelines for the implementation of empowerment among SMEs, and with the emphasis on empowerment ownership that has largely prevailed in the market until recently, white small business owners have invariably looked to becoming compliant by means of black equity partners.

These partners are either black employees who are developed to become managers and shareholders, or black entrepreneurs who have bought into the business and have come on board as new managers and shareholders. Large corporations often opt to bring in empowerment consortiums because of the amount of capital required to buy into a large entity, while SMEs may sometimes have the option of developing individuals from within to become empowerment partners.

Is it better to grow partners from within, or to bring them in from outside the business?

A small, previously 100% white-owned law firm opted to source its BEE partner from among its own ranks when it began to see the advantages of being classified as black-empowered. The firm, now 30% black-owned, felt there would be numerous benefits to developing someone internally.

The obvious benefit it identified was the opportunity to assess the performance of the individuals before selling equity. In addition, in a professional services firm, the white partners felt it was imperative that their new partner had existing relationships with clients and was familiar with their firm’s procedures.

Of paramount importance was the fact that the individual would have already learnt the firm’s business philosophy, professional goals and principles. The firm also believed this option was more in line with “true” empowerment as it included various elements of broad-based empowerment: employment equity (by placing emphasis on hiring black employees in the first place); skills development (by training, developing and mentoring individuals for management); management control (by placing the individual in an executive management position following the development process); and ownership (following transfer of equity).

The option of growing someone to partner level internally, however, may also present challenges that would not necessarily be encountered when bringing a partner in from the outside. One such challenge experienced within this law firm is that a fast-tracked rise to partnership can create managerial complexities with the empowerment partner’s former peers and superiors: the new partner may have difficulty in implementing the new-found authority at all, or in asserting this authority in such a way that the transition is a smooth one for all affected parties.

In contrast, a small retail services business decided to invite a black entrepreneur from outside to buy equity. Although it may seem this option would generally be preferred when there are no strong internal managerial candidates with access to capital, bringing in someone from outside has other advantages.

One is that empowerment partners are often able to open new doors: their existing business networks broaden the scope for the newly empowered entity, or previously inaccessible contracts with government are secured.

These advantages were the deciding factor for the owner of this retail services outlet, who would otherwise have achieved empowerment compliance by including his black staff members in an employee share scheme. The introduction of an empowerment partner meant a new and lucrative contract was secured, which the white owner felt would not have been possible had he taken the other route.

In terms of the challenges that come with the introduction of a partner from outside, these are sometimes also connected to relationships with staff. In the case of the retail business, the new partnership turned out to be a good fit at intermanagerial and shareholder level, but the introduction of a new, and in particular, a younger, figure of authority, posed a challenge at junior staff level.

With both approaches presenting advantages and challenges, deciding whether to find or to grow empowerment partners should be based on the unique requirements of the business.

Clow-Wilson is research and special projects manager, Empowerdex.