New BEE rules = “demographic” quotas for company management – BizNews, 10 June 2015

The Government has long been trying to impose the use of national demographics in the setting of racial targets under the Employment Equity Act of 1998 (the EE Act). Now it seems quietly to have achieved this goal via the revised black economic empowerment (BEE) codes of good practice that took effect on 1st May 2015.

By Anthea Jeffery*

The Government has long been trying to impose the use of national demographics in the setting of racial targets under the Employment Equity Act of 1998 (the EE Act).  Now it seems quietly to have achieved this goal via the revised black economic empowerment (BEE) codes of good practice that took effect on 1st May 2015.

Last month, when the minister of trade and industry, Rob Davies, gazetted various small changes to these codes, media attention focused on his “clarification” that employee share ownership schemes (Esops) and community trusts would in future earn only three points (out of 25) on the BEE ownership scoreboard. As criticism mounted, Dr Davies withdrew his clarification, saying the existing rules would remain.

In the midst of this fracas, few people seemed to notice a key change brought about by Dr Davies to the “management control” element in the revised BEE codes.

Under this element of the new codes, targets for black representation remain much the same as before: at 50%, 60% and 75% respectively for top, senior, and middle management levels. At junior management level, the target has gone up from 80% to 88%, while black women are expected to make up half the relevant target at each tier.

The key difference is that, in the past, there were no binding sub-targets for African, coloured, or Indian representation. This meant that Indian representation, for instance, could exceed the Indian share (3%) of the national economically active population (EAP). This helps explain why Indians – long better educated on average than Africans – currently hold more than 8% of top management jobs and over 10% of senior management posts.

In the past, there was also no suggestion that firms seeking points under the BEE codes needed to use national EAP figures in setting targets for “coloured” representation in the Western Cape or Indian representation in KwaZulu-Natal. This matters because so-called “coloured” people make up 52% of the EAP in the Western Cape, but only 11% of the national EAP. Similarly, Indians make up 11% of the EAP in KwaZulu-Natal, but only 3% of the national one.

Now all this may have to change. The most recent amendments to the BEE codes begin by noting that “the EAP statistics are reported under race groups” that distinguish between Africans, Coloureds, and Indians, and further divide each race group by gender.

The codes add that the available BEE points for senior, middle, and junior management must be “split in proportion to the EAP statistics”, and that “the maximum points per race group need to be adhered to”. Hence, the relevant calculations “need to be repeated for every race group” so as to assess “the maximum score for each race group”.

The codes then lay out the formulae that firms must use in measuring the representation of Africans, Indians, and coloureds, both male and female. These formulae require firms to take into account the relevant “race group” (“RG”) of their employees, and then apply separate targets to “African Males” (“AM”), “Indian Males” (“IM”), “Coloured Males” (“CM”), and their female counterparts.

These detailed racial formulae contradict the Constitution’s commitment to “non-racialism”. In implicitly requiring racial classification and the differential treatment of race groups, they also contradict the Constitution’s prohibition of racial discrimination.

The Government has long been trying to impose “national” demographics on to employment equity targets. Up to now, however, it has always been compelled to back down in the face of stiff resistance.

Media criticism goes back to 2011, when amendments to the EE Act first proposed the introduction of national demographics. This unleashed a furore, which intensified still further when it emerged that Jimmy Manyi, a former director general of labour, had earlier said that coloureds were “over-concentrated” in the Western Cape and should move elsewhere if they wanted work.

This comment prompted Trevor Manuel, then the country’s finance minister, to accuse Mr Manyi of “worst-order” racism, of a kind reminiscent of apartheid’s key architect, Hendrik Verwoerd.

The Government backed down, and changed the amendment bill to remove its insistence on national demographics. However, it also inserted a clause giving the labour minister the power to reintroduce the requirement by means of regulation.

In 2014 the labour minister used this power to put forward draft regulations emphasising the use of “national” demographics in setting racial targets for senior positions across the country. Again, the resulting media outcry compelled her to withdraw these clauses.

However, under the new BEE codes, the Government seems finally to have achieved its aim. The codes are probably deliberately vague in omitting to spell out that national figures are the ones that must be used. However, this seems to be the implication – especially as there is nothing in the codes to suggest or sanction the use of provincial data.

This indicates that the proportions of Indians in senior posts in KwaZulu-Natal and the country as a whole will have to be reduced if firms are to qualify for more BEE points. Coloureds in the Western Cape will also find it harder to gain management jobs.

If the Government does not in fact intend to impose national demographics in this way, the remedy is simple. The BEE codes must be amended to make it clear that provincial figures remain equally relevant.

Better still, the BEE codes should drop any reference to “race groups”, while BEE should be replaced by a non-racial system of “economic empowerment for the disadvantaged” or “EED”. This would focus on helping the poor, rather than a relative elite. It would also put its emphasis on the inputs most important for widespread upward mobility. These include rapid economic growth, excellent education, much more employment, and the fostering of genuine entrepreneurship in place of crony capitalism.

*Anthea Jeffery, the Head of Policy Research for the IRR, Jeffery is also the author of BEE: Helping or Hurting?, which further explains why BEE needs to be replaced by EED.