BLACK economic empowerment (BEE) deals that work are clear from the outset — either because the parties know each other and know precisely what to expect, or because they have taken the time to set out key deliverables.

Unfortunately, some BEE relationships are plagued by misunderstandings, even recriminations, because the owner of the business sees a mismatch between his expectations and the actual value added by the new partner or partners.

In many cases, black partners — quite rightly — protest that these expectations were never explained and no mechanisms were installed to measure their contribution. If the contract did not formally cover performance issues, how can they be criticised for non-performance?

The majority owner assumed his new partners realised that the business opportunities they had discussed would have to be pursued; that equity had to be earned by a measurable contribution. But nothing was put in writing.

For their part, BEE partners sometimes complain that white executives have little understanding of how black relationships, family connections and levels of “access” work. A wide personal network is one thing; putting it to work to facilitate business is quite another. The process takes time.

The solution is simple. If you want any deal to work, spell it out clearly. Define the expectations. Set out the limits and time frames. Make no assumptions.

The definition process fosters discussion of every issue that might lead to misunderstanding. By covering these subjects in depth, there is greater appreciation of each other’s points of view; of what can reasonably be delivered and what can not.

This is usually new territory for both parties. It is advisable to take it slowly, one issue at a time.

Typically, the business owner is looking for a partner who participates in the business. He does not want a passive shareholder. He wants a director who attends board meetings and helps drive strategy. The owner does not take a partner so he can end up with 75% of the same “cake”. He wants a cake that will grow at a faster rate as a result of the value added by BEE shareholders. These expectations have to be set down, just as a business would itemise performance criteria in any service-level agreement.

A BEE partner usually takes on debt to acquire equity. It is not enough that the asking price has been reduced to facilitate BEE entry. The new stakeholder also needs help in servicing the loan.

The typical pattern, then, is one where financial requirements sit next to performance requirements. It is logical to address both from the outset.

The BEE partner is quite within his rights to request that financial incentives be put in place for achieving the required level of performance. Agreement is needed on how performance will be monitored and measured. Incentives are triggered once targets are achieved. The incentive might be higher dividend payments, further lowering of the purchase price or a performance bonus. Whatever is agreed, it must be precisely defined.

Any transaction, if it is to work, has to be even-handed. Therefore, there also has to be a sanction for cases of egregious nonperformance. This clause could be invoked in situations where the new partner had obviously misrepresented his ability to add real value to the business. In a worst case scenario, this clause could even entitle the original owner to reverse the transaction.

It is unlikely this sanction would have to be invoked. The mere fact that detailed negotiations have taken place on every aspect of performance and reward would give both parties a good insight into what they could do for one another.

BEE is the basis for the sustained growth of our economy through the meaningful participation of all groups. For the policy to work in practice, in business after business, all parties have to be honest and transparent when setting out their requirements. If partners can not be honest with one another, they should not be going into business together in the first place.

Homann is director of Spirit Capital, providers of corporate and structured finance services. This is the first of a series on how to structure BEE deals.