New B-BBEE charter for marketing, advertising and communications sector

On September 4 2015, the Department of Trade and Industry gazetted the draft Marketing, Advertising and Communications (MAC) Sector B-BBEE Charter, which, once regulated, will apply to all South African businesses that derive more than 50% of their profits from advertising, public relations and communications services. This expressly includes digital media and platforms.

The MAC charter scorecard imposes a handful of new, more stringent compliance standards on affected businesses, most notably in the form of an increase in the target for black ownership from 25% to 45%, and the introduction of “Responsible marketing and communications” as a sixth scorecard element (the generic scorecard contains only five elements).

Advertising and communications agencies should not, however, despair. The new scorecard recognises many of the transformation challenges our industry faces and is in a number of respects more forgiving, providing alternative means of point scoring and enabling businesses to achieve and maintain favourable B-BBEE levels.

The IAB SA recognises the critical importance of meaningful transformation in our country, and is fully supportive of the adoption of a B-BBEE Sector Charter that ensures our industry continues to play a driving role in building a better, brighter future for all South Africans.

Below is a high-level overview by Andrew Allison, the IAB SA head of regulatory affairs, of the draft MAC charter, that sets out some of the more noteworthy differences between the charter and the generic codes and makes some preliminary recommendations for all IAB SA members who will be affected by it.

Introduction to the draft MAC charter

The charter represents the culmination of more than 14 years of discussions between government and industry regarding the pace of transformation in the sector, and is endorsed in principle by the Association for Communication and Advertising, the Advertising Standards Authority of South Africa, the Public Relations Institute of South Africa, the South African Advertising Research Foundation, and the Communication and Advertising Forum for Empowerment.

Transformation, creativity and the development of a “truly South African industry” are the core objectives established in the charter, and these are in turn distilled from five foundational values: inclusivity and diversity; “the Soul of the Nation”; respect and human dignity; business and people’s (sic) needs; and responsible creativity.

The charter also provides for the establishment of a representative MAC Charter Council, which will play a driving role in developing transformation policy in the sector, and which will be charged with monitoring and evaluating compliance with the charter.

Once effective, businesses operating within the MAC sector will need to be verified in accordance with the MAC charter and not in accordance with the generic codes. This applies equally to those who would otherwise classify as qualifying small enterprises (QSEs) or exempted micro enterprises (EMEs).

Although the IAB SA itself is not expressly referenced in the charter, we are supportive of a sector-specific charter for our industry, and of the broad principles and objectives the draft charter espouses.

How do the MAC scorecards differ from the generic scorecards?

The generic annual revenue thresholds for large entities (>R50m), QSEs (<R50m, >R10m) and EMEs (<R10m) remain for all entities with the exception of PR businesses, which are subject to lower thresholds (large, >R10m; QSE, <R10m, >R1m; EME, <R1m).

For large entities, the total weighting points increase to 134 points (from 105 in the generic scorecard), and the number of measurement elements increases from five to six with the addition of a new “responsible marketing and communications” pillar.

Points are allocated between the elements as follows:

ELEMENT MAC SCORECARD GENERIC SCORECARD
Ownership 25 points 25 points
Management control 27 points 15 points
Skills development 30 points 20 points
Enterprise and supplier development 42 points 40 points
Socio-economic development 5 points 5 points
Responsible marketing and communications 5 points
Total weighting points 134 points 105 points

 

For QSEs, the weighting points increase to 105 from 100 under the generic scorecard, and the new “responsible marketing and communications” element is also added.

Points are allocated between the elements as follows:

ELEMENT MAC SCORECARD GENERIC SCORECARD
Ownership 25 points 25 points
Management control 15 points 15 points
Skills development 25 points 25 points
Enterprise and supplier development 30 points 30 points
Socio-economic development 5 points 5 points
Responsible marketing and communications 5 points
Total weighting points 105 points 100 points

 

Compliance targets for 2015 and 2018 are prescribed for both large entities and QSEs, providing clear guidance on where transformation priorities are expected and giving affected businesses a three-year period to start implementing the necessary plans and initiatives.

The following differences for large entities are noteworthy:

  • An increase in black ownership targets from 25% to 45%.
  • Initial relaxation of skills development targets, but a 100% increase in the number of points available for absorption of black people into measured entities at the end of learnerships and internship programmes.
  • Higher 2018 procurement targets for qualifying spend incurred with QSEs and EMEs.
  • A 2018 socio-economic development target of 2.5% (as opposed to 1%) of net profit after tax (NPAT).
  • An additional 5 points available for “responsible marketing and communications”, with an initial target of 1% of NPAT and a 2018 target of 2.5% of NPAT. This element measures the “annual value of contributions and participation in sector-specific programs of the entity to promote responsible behaviour changes in line with government’s strategic objectives”. The charter itself is not particularly clear on exactly what this will require, but the ACA has explained that expenditure by entities on initiatives that promote a transformative, responsible and socially conscious industry would qualify here, provided they are in alignment with broader government objectives. We will certainly require – and seek – further clarification on this point.

For QSEs, the following differences are significant:

  • A clear focus on enhanced ownership (from 10% to 12%) and management representation (20% to 25% in executive management; 25% to 30% in non-executive management) by black women.
  • Increased 2018 targets for skills development, but no allocation of points for training of black people with disabilities. Furthermore, no bonus points are available for absorption of black people into the entity at the end of learnership programmes.
  • More points are available – and higher 2018 targets are set – for procurement from black-owned suppliers (up to 20% from 15% of qualifying spend), and for supplier and enterprise development (each up to 2% from 1% of NPAT).
  • A 2018 socio-economic development target of 2% (as opposed to 1%) of NPAT.
  • An additional 5 points available for “responsible marketing and communications”, with an initial target of 1% of NPAT and a 2018 target of 2% of NPAT.

When will the new MAC charter come into effect?

We don’t know right now exactly when the charter will be finalised and come into full effect, but we strongly recommend that all affected IAB SA members consider the impact of the charter on their current B-BBEE plans.

It is possible, although unlikely, that the charter will be finalised this year, and that entities might be required to be verified according to it. We hope that the Department of Trade and Industry (with the support of the MAC Charter Council) would permit entities that are already far progressed with implementation of B-BBEE planning for their current verification periods to submit one final time under the generic codes before moving across to the MAC charter for future verifications.

In all other respects, once finalised, verification under the MAC charter will be mandatory for all businesses operating within the sector.

No formal guidance available at this time

The MAC charter is still in draft form, and no formal guidance on interpretation or application of the charter has been made available by the Department of Trade and Industry or the MAC Charter Council. The process however is that charters are published for commentary for 60 days. Once the 60-day period has lapsed, the commentary is considered for any significant issues that are raised. The draft is then submitted to the minister for gazetting. We will keep members apprised as guidance becomes available, but encourage members to engage their B-BBEE advisers on the charter in the interim.

What should businesses in the MAC sector do?

The revised Codes of Good Practice came into effect on May 1 2015, so presumably most members have already started to consider and indeed implement their strategy in this regard. The sector codes come into effect on November 1 2015 and so in the absence of a finalised MAC sector code, companies will be required to follow the generic scorecard until the sector code is finalised.

We strongly advise that all IAB SA members consult their B-BBEE advisers and establish whether they fall within the MAC sector as defined in the charter, and accordingly whether they would be subject to it.

We also recommend that a comparative analysis be done by each member of its current B-BBEE plans against the 2015 and 2018 compliance targets in the MAC charter to identify areas of relative weakness and strength for the member, and to properly understand the charter’s impact on the member’s B-BBEE verification score and status.

Finally, we recommend that each affected member works with its B-BBEE advisers to develop a three-year, 2018 transformation plan that will see the member achieving and maintaining its desired B-BBEE levels.

Submissions to the Department of Trade and Industry

The draft MAC charter is open for public comment and the department has set a closing date of November 4 2015 for submissions. The IAB SA will be making written representations before this deadline. Substantiated comments or concerns from members are welcome and will be considered during preparation of the representations.

For any other queries relating to the MAC charter, contact info@iabsa.net. Please note that we will not be able to provide B-BBEE planning or verification advice, but will be able to connect members with consultants should they require such assistance.

Click to download the draft MAC charter (PDF).

Disclaimer: the information, opinions and recommendations in this overview are for general informational purposes only, and are not intended or presented as legal advice or a legal opinion. You should seek the advice of your B-BBEE adviser or attorney before acting upon anything set out above. The IAB SA will not be liable for any damages, losses, expenses, claims or liabilities incurred, suffered or sustained arising in any way from use of or reliance on this document.