Push for Clarity to Prevent Companies Posing as Indigenous Businesses

Local Indigenous Ngunnawal residents celebrate at the Aboriginal Tent Embassy in Canberra, Australia, on Jan. 26, 2023. Martin Ollman/Getty Images

The call for clearer standards to define and prevent “black cladding” in Indigenous businesses has emerged as a pressing issue within Australia’s economic landscape. Black cladding refers to the misuse of Indigenous identity by non-Indigenous companies to gain unfair access to opportunities, particularly government contracts.

Representatives who provided evidence before the Senate Committee inquiry into economic self-determination and opportunities for Indigenous Australians called for clearer definitions and standards to combat this practice.

They also highlighted challenges in international markets, such as limited product diversity and complex regulations. Access to capital poses another significant barrier, with concerns about equity dilution affecting Indigenous status.

Definitions of Black Cladding

In recent years, the term “black cladding” has garnered attention as a significant concern for Indigenous businesses.

While the concept of black cladding lacks a universal definition, Supply Nation’s CEO Kate Russell explained that Indigenous businesses should be at least 50 percent Indigenous-owned, with certification requiring 51 percent ownership, management, and control.

She urged the committee for stricter criteria, including active involvement in business operations, to mitigate the risks associated with black cladding.

“But I also believe that it receives an unfair amount of attention when the Indigenous businesses, the great majority of Indigenous businesses, are doing the right thing. And I do not want to create a situation where a few bad apples spoil the whole bunch,” said Russell.

The advocates’ push for clearer definitions underscores the need to establish standards that not only protect Indigenous identities but also ensure that businesses are genuinely operated by Indigenous people.

Tiarne Shutt of First Nations Finance said one of the key challenges is that rigid definitions may not reflect the diversity and nuance within First Nations businesses.

For example, she said some businesses might be 51 percent Indigenous-owned on paper but don’t genuinely operate under Indigenous leadership or values, often referred to as “black cladded” businesses.

To address this, alternative frameworks are being supported that go beyond simple ownership percentages.

These frameworks assess deeper criteria such as the presence of Indigenous leadership in key decision-making roles (for example, an Indigenous CEO or managing partner), board governance that reflects Indigenous priorities, and whether the decision-making processes align with Indigenous values.

“This approach aims to ensure genuine participation and control by First Nations people, moving away from rigid or superficial definitions and promoting authentic engagement in the business ecosystem,” said Shutt.

Unique Barriers

Indigenous businesses face unique barriers compared to their non-Indigenous counterparts. Many are small to medium-sized family-owned enterprises that encounter challenges specific to their community dynamics.

One significant hurdle is the expectation for Indigenous businesses to act as social enterprises, creating pressure to give back to their communities in formal ways.

This expectation can result in higher operational costs, making it difficult to compete effectively in the market.

The fear of being associated with black cladding also deters potential partnerships with corporations and government entities, creating additional barriers to success.

The Capital Dilemma for Indigenous Entrepreneurs

Access to capital is another issue for Indigenous business owners.

“They may not have a house that they’re willing to put on the market, to put up for equity, to be able to access that and the unconscious and conscious bias that any Indigenous person would face when trying to grow their business through a formal channel, by accessing finance,” said Russell.

Representatives highlighted that this challenge is compounded by the need for Indigenous businesses to maintain their status under specific definitions.

“Entrepreneurs often face the difficult decision of diluting their equity to secure funding, risking disqualification as Indigenous-owned enterprises,” said Kristy Graham, CEO of the Australian Sustainable Finance Institute.

While some businesses may consider changing their ownership structure, many successful Indigenous entrepreneurs are actively seeking to increase their Indigenous ownership instead.

Shutt cited example of one well-established Indigenous business who is pursuing a buyout of its non-Indigenous partner to enhance its Indigenous ownership percentage.

However, representatives claim even accomplished entrepreneurs struggle with the complexities of these transactions, highlighting a significant gap in financial literacy and confidence within the community.

Targeted Support for Traditional Owners

Graham suggested that the Commonwealth government should offer targeted support to traditional owners in negotiating agreements with project proponents, especially in sectors like clean energy and mining, which often impact Indigenous lands.

Drawing from examples like the First Nations Major Project Coalition in Canada, she said traditional owners need access to fully funded legal and technical expertise, which can be supported by government, philanthropic, or corporate funding.

Russell echoed the need for skills training for Indigenous entrepreneurs. Representatives said that this will ensure that communities have the necessary skills and resources to participate in negotiations, particularly when taking equity stakes in major projects.