Management Control, Employment Equity and Skills Development

Management Control, Employment Equity, Skills Development
Table of Contents (Jump to)
Introduction
Background
Understanding the Scorecard
Compliance of the Advertising Industry in Cape Town
Conclusion
Bibliography
Introduction
In the case study, Duffett, van der Heever & Bell argue that transformation within the advertising industry is vital due to the influence this sector has over social norms and trends (Duffett, van der Heever & Bell, 2009). They further argue that the advertising industry in Cape Town has implemented BEE and is making progress in complying with the targets set out in the Codes, although admit that there are some challenges that may impact on success of the Codes to achieve transformation goals.

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Compliance with three of the seven elements of the Broad-Based Black Economic Empowerment Codes of Good Practice of 2007 (“Codes”) (namely Management Control, Employment Equity and Skills Development) of the advertising industry in Cape Town, has been critically analysed using the 2009 study by Duffet, van der Heever and Bell. The study looks at factors that hinder or promote transformation in this industry, in relation to the B-BBEE Codes and applicable transformation charters.
The advertising industry falls within the scope of the Marketing, Advertising and Communication (“MAC”) Transformation Charter, gazetted in terms of Section 12 of the Broad-Based Black Economic Empowerment (“B-BBEE”) Act (Act No. 53 of 2003). Under Section 12, a transformation charter is not binding on the industry, unlike the Codes, which were gazetted in terms of Section 9(1) of the B-BBEE Act (B-BBEE Codes, 2007, p15). This is mentioned as one of the factors impeding success of transformation in the advertising industry, as it has created some confusion for scorecard preparation. Furthermore, at the time of conducting the study, SANAS had delayed the process of accrediting Verification Agencies to July 2008. This meant that many companies were performing self-assessments to determine their compliance in terms of the B-BBEE Codes in order to save money on costly verifications. Consequently, the results from the study may not be entirely reliable, but they nevertheless form a useful basis to understand B-BBEE compliance in the advertising industry in Cape Town.
Background
The B-BBEE Act of 2003 was introduced as a model for growth for the South African economy. Encapsulated in this model is the notion that “no economy can grow while the majority of its population are excluded”. (Okharedia, 2014)
The Codes, which were subsequently gazetted in 2007, provided a tool for measuring empowerment (and by implication, transformation) within a company, known as the ‘Scorecard’. Seven elements to this scorecard cover various forms of empowerment, known as direct empowerment (Equity Ownership and Management Control), human resource development (Employment Equity and Skills Development) and indirect empowerment (Preferential Procurement, Enterprise Development and Socio-Economic Development). Specific targets are set for all entities, and these targets are weighted out of 100. Once the scores for each element are added up, they will result in a total number of points out of 100, which indicates the B-BBEE Status (Level 1 to 8) and Procurement Recognition Level (135% – 0%). If a sector-specific code is issued in terms of Section 9(1) of the B-BBEE Act, it may have different targets and weightings to that of the Codes of Good Practice, which are applicable to that industry/sector only). (B-BBEE Codes of Good Practice, 2007, p15).
Due to the focus on the Management Control, Employment Equity and Skills Development elements, the table that follows presents only these three (3) elements, rather than all seven (7).
Understanding the Scorecard
Table 1: the Management Control, Employment Equity and Skills Development scorecards

B-BBEE Element

Total Weighting

Measurement Criteria (Indicator)

Indicator Weighting

Target
(0-5)

Target (6-10)

Management Control

10

Exercisable Voting Rights of black Board members using the Adjusted Recognition for Gender

3

50.0%

50.0%

Black Executive Directors using the Adjusted Recognition for Gender

2

50.0%

50.0%

Black Senior Top Management using the Adjusted Recognition for Gender

3

40.0%

40.0%

Black Other Top Management using the Adjusted Recognition for Gender

2

40.0%

40.0%

Bonus points: Black Independent Non-Executive Board Members

1

40.0%

40.0%

Employment Equity

15

Black disabled employees as a percentage of all employees using the Adjusted Recognition for Gender

2

3.0%

3.0%

Black employees in Senior Management as a percentage of all such employees using the Adjusted Recognition for Gender

5

43.0%

60.0%

Black employees in Middle Management as a percentage of all such employees using the Adjusted Recognition for Gender

4

63.0%

75.0%

Black employees in Junior Management as a percentage of all such employees using the Adjusted Recognition for Gender

4

68.0%

80.0%

Bonus points for meeting or exceeding the EAP targets in each category.

3

Exceed EAP targets

Exceed EAP targets

Skills Development

15

Skills Development expenditure on black employees as a percentage of Leviable Amount using the Adjusted recognition for Gender.

6

3.0%

3.0%

Skills Development expenditure on black employees with disabilities as a percentage of Leviable Amount using the Adjusted Recognition for Gender.

3

0.3%

0.3%

Number of black employees participating in In-service Training Programs as a percentage of total employees using the Adjusted Recognition for Gender

6

5.0%

5.0%

As one can see from Table 1, each element is further split into sub-elements or indicators. Each indicator has a point weighting, and a target. We will be focusing on the target for years 0 to 5 (since the Codes came into effect in 2007, and the applicable case study was published in 2009, which is within the first 5 years of the Codes).
The Management Control score card measures board participation of black people in general, and black females specifically. Additionally, participation by black people at Senior Top Management level and “Other Top Management” level is encouraged in this element of the Codes. Emphasis is also placed on participation of black Executive Directors.
Participation of black women at board and top management level is further encouraged through the Adjusted Recognition for Gender (“ARG”) provisions of the Codes. This provision places a greater weighting on black women, by dividing the percentage of black people by 2, and then adding the percentage of black females. The enhancement does have a limitation, in that when adding back the black female percentage, this figure cannot exceed 50% of the target for that indicator (in other words, if the target is 40%, then one can add back a maximum of 20% to the total black percentage representation which had been divided by 2.
Similarly, the Employment Equity and Skills Development score cards also utilise the ARG in order to encourage equality between men and women (black females should make up half the target of black people, which is also statistically feasible, as females constitute half of the population in South Africa (Commission for Employment Equity, 2013).
The Employment Equity scorecard measures four areas of employment; Senior Management, Middle Management and Junior Management, as well as disabled employees, while Skills Development measures expenditure on skills training for black employees in general and black employees with disabilities specifically. It also measures the number of employees engaged in Learnerships (or Category B, C or D Learning Programs, as per the Learning Program matrix contained in Annexe 400A of Code 400) as a percentage of the company’s total staff compliment.
Comparison of the Codes and MAC Transformation Charter
Upon closer inspection of the targets contained in the Management Control, Employment Equity and Skills Development Scorecards of the MAC Transformation Charter and the Codes of Good Practice, the weightings are different, and the targets are phased in from 2006 to 2014 such that the 2014 targets match that of the Codes (or are higher than targets contained in the Codes);

Points available under Board participation for the MAC Charter are 5, and targets will be phased in from 25% in 2006, to 50% in 2014 (whereas the Codes offer 3 points for 50% black board participation)
The same target applies to Executive directors,
Senior Top Management and Other Top Management under the MAC Charter set the target to 25% at first, increasing to 30% in 2009 and finally 50% in 2014 (which is higher than the Codes for Senior Top and Other Top Management targets of 40%, un-staggered) while the available points under the MAC charter are higher in all three categories (4 and 3 points available, instead of 3 and 2 respectively).
The target for Independent Non-executives is lower under MAC at 30% (and is phased in from 10% in 2006), as opposed to 40%.
Under Employment Equity, the MAC Charter imposes one target for Senior, Middle and Junior Management of 25% in 2006 gradually increasing to 60% in 2014, unlike the Codes, which indicate 2 phases of targets, for each level of management separately.
The Skills Development element is more similar between the Codes and the MAC Charter, unlike the previous 2 elements, however, the total skills expenditure on black employees as a percentage of the Leviable Amount target phased in from 1% in 2006 to the full 3% (as per the Codes) by 2014.

These different targets make MAC Charter slightly easier to comply with, in terms of absolute targets.
Compliance of the Advertising Industry in Cape Town
According to Duffet, van der Heever and Bell, the advertising industry in Cape Town reported an increase in black employees from 35.2% in 2004 to 40.2% in 2006. They further reported that black female employees increased from 21% in 2004 to 23.9% in 2006. With regard to management positions, there was a reported increase in black female managers, from 13.8% in 2004 to 17.7% in 2006.
One of the challenges noted from the study, was that there was a shortage of skilled black Previously Disadvantaged People (“PDI”) leading up to 2008, particularly in the advertising industry. Further, the 2007 B-BBEE baseline study referred to in the study also reported a high turnover of black staff, further confirming the desire for black employees in the advertising industry to “job-hop”. This becomes costly, as companies try to offer comparative salaries to retain talent, not only in their company, but in Cape Town, since salaries are known to be higher in Johannesburg than in the Cape. Training programmes would need to be used to improve job satisfaction with the view that they may result in improved staff retention rates. It was reported that the advertising industry has come up with some innovative training and mentorship programs in order to address both skills and staff (Employment Equity/Management Control) requirements.
A further challenge in relation to B-BBEE spoke to attitudes that companies had toward compliance. In one instance, it was noted that some larger companies were more focused on compliance with BEE regulations, than acting in the true spirit of BEE, and that in some instances dishonesty and deceptive practices were used to achieve better scores, as this can result in increased business.
Despite concerns by white males who took part in the study, that they were effectively working themselves out of jobs by embracing B-BBEE, many viewed B-BBEE as an opportunity to engage with their target market. Rather than stifling out diversity, encouraging it could create further business opportunities, especially in terms of growing the target market (through job creation, but also through understanding the new emerging target market of empowered black South Africans, and being able to create purchasing desires that would stimulate the economy during a difficult global financial period). The risk faced by the advertising industry was losing their white employees if these employees felt prejudiced by the opportunities being afforded to black South Africans only. The only possible way for this to succeed would be through growth of the industry, in order to generate more revenues to pay all employees equitable and comparable salaries, regardless of race.
These challenges can heavily impact the compliance of companies for the Management Control, Employment Equity and Skills Development elements; when B-BBEE is seen as a cost, the true potential envisioned in the objectives of B-BBEE is easily lost.
It was however reported that over 80% of advertising agencies had utilised the services of B-BBEE verification agencies, despite the industry being in its infancy, and that a majority of these agencies had positive attitudes towards B-BBEE. This resulted in the advertising industry being ahead of the national B-BBEE status, in terms of their level of compliance achieved. However, compliance within the MAC Charter targets, which as previously discussed is not binding, and has lower, phased-in targets than the Codes, may have led to these higher status levels.
Conclusion
Due to the uncertainties existing in the B-BBEE verification and compliance sphere at the time of the study, it is difficult to assess whether or not meaningful transformation had taken place. Despite this, there are indications of compliance by the advertising industry in Cape Town. While the industry was mostly self-regulated, around 80% of agencies confirmed they had engaged with Verification Agencies to confirm their B-BBEE credentials. Standardising and formalising the verification process may result in greater compliance, along with the imposition of penalties for misrepresenting information in order to achieve a favourable score.
As stated by the authors of the study, “The ratio of success to failure in BEE is determined on a daily basis” (Duffett, van der Heever & Bell, 2009; 109). Regular monitoring is required to continuously assess compliance with the Codes, and to evaluate transformation achievements as a result of B-BBEE. Even with the wrong intentions, B-BBEE can promote changes and improvements in the lives of previously disadvantaged individuals. However, true success for B-BBEE would be to bring about meaningful improvements in the lives of all South Africans, rather than a select few.
Bibliography

R.G. Duffett, I.C. Van der Heever & D. Bell. 2009. ‘Black economic empowerment progress in the advertising industry in Cape Town: Challenges and benefits’, Southern African Business Review, 13(3): 86-118.

South Africa, Department of Trade and Industry. 2003. Broad-Based Black Economic Empowerment Act, No. 53 of 2003, No. 25899, Government Gazette Volume 463. Pretoria: Government Printers.

South Africa, Department of Trade and Industry. 2007.Broad-Based Black Economic Empowerment Codes of Good Practice,No.29617, Government Gazette Volume500,Section 9(1) of the Broad-Based Black Economic Empowerment Codes of Good Practice Act 53 of 2003.Pretoria: Government Printers.

South Africa, Department of Trade and Industry. 2008. Marketing, Advertising and Communication Sector Transformation Charter, No. 31371, Government Gazette Volume 518, Section 12 of the Broad-Based Black Economic Empowerment Act, No. 53 of 2003. Pretoria: Government Printers.

Okharedia, A.A.. 2014. ‘B-BBEE Legislative and Strategic Framework’ [PowerPoint Presentation] 10 March. UNISA Graduate School of Business Leadership. Midrand, Gauteng.

South Africa, Department of Labour. 2013. Commission for Employment Equity; Annual Report 2012-2013, Pretoria: Government Printers. Available at http://www.labour.gov.za/DOL/documents/annual-reports/Commission%20for%20Employment%20Equity%20Report/2012-2013/annual-report-comission-for-employment-equity-report-2012-2013> [Accessed 25 March 2014]