A study that Numsa asked the Corporate Strategy and Industrial Development Research Programme [CSID] at Wits University to carry out, has confirmed what Numsa suspected – transformation is not an imperative for metal industry owners! Neo Chabane* reports.
[Neo Chabane is Numsa’s national researcher]
On June 26 1955 the sound of the people could be heard from all corners of the vast open space known at the time as Kliptown Square: “the people shall govern”, “the people shall share in the country’s wealth” and “the land shall be shared among all those who work it”. These principles of freedom were included along with others, in what became known as the “˜Freedom Charter’. The basic elements of Black Economic Empowerment [BEE] are therefore not new. Recently though BEE, or the more politically correct version, Broad-Based BEE [BBBEE] has taken the spotlight and is being touted as the “˜next big thing’ in terms of doing business in South Africa.
Background to the researchNumsa commissioned the research from CSID because it wanted empirical evidence from both employers and employees on the degree of empowerment and transformation taking place in our sectors so that Numsa could develop a clear, coherent and informed policy on BEE. The research involved interviews with companies [management and shop stewards], employer associations as well as workshops with shopstewards working in the firms interviewed. The questionnaire covered all aspects of empowerment from ownership to procurement as well as employment equity and skills development.
Of the 147 firms invited to participate, only 25 responded positively. At the time of the interviews, these 25 companies were mostly medium and large, employed close to 36 350 workers in total and included two SOEs and two OEMs [car assemblers].
The findings:Ownership and board representation – lily white and little changed Thirteen firms in the study are 100% locally owned while nine are wholly foreign owned. None of the firms that participated in the study were fully black-owned and only six out of the 25 firms were “˜black-empowered’ – meaning that over 25% of their equity is in black hands. The ‘black empowered’ firms were mostly influenced by their relationship with industry empowerment charters [eg the mining and petroleum charters] or by the Preferential Procurement Act and sales to government and/or State Owned Enterprises [SOEs]. However, for one firm the BEE ownership was motivated by the need to source input supplies [of scrap metal] from SOEs. In four cases the sales of black equity were designed to just reach the 25% target for being “˜empowered’ It is interesting to note that none of these firms concluded deals with major emerging black conglomerates such as Shanduka, Mvelaphanda or ARM. The BEE ownership consists of a mixture of employee ownership schemes and smaller BEE groups.
White males still dominate positions at board level. On average 76% of the boards of interviewed firms consist of white males, followed by 12% black males, 9% white females and only 3% black females. When the black race group is disaggregated there is a greater presence of African females at board level compared to coloured and Indian males, this could possibly be attributed to the preference of firms to sell equity stakes to women empowerment groups.
In total, white female representation is greater than black female participation on the boards of interviewed firms, with 75% of all female representation being white. Paradoxical as it may seem, representation of blacks on boards of black-empowered companies is still relatively low. 47% of members on these boards are white males and 20% white females. Black males and females only constitute 24% and 6% of board presentation in these “˜black-empowered’ firms respectively. Generally, irrespective of the source of ownership, female representation at board level is very low, with only 20 women on the boards of firms compared to 120 men.
Participation at board level by race and gender for 2005
Preferential procurement – some doing the right thing for the wrong reason!Most of the firms interviewed did not outline their procurement practices. Many said they were in the process of reviewing their policies to ensure that they reflected an element of preferential procurement. Others were reviewing the BEE status of their suppliers in order to facilitate BEE with the guidance of existing industry charters. It seems that companies are increasingly looking to their suppliers to provide them with scoring opportunities for their scorecards. Firms are quite happy to “˜pass the buck’ to smaller companies.
The metals industry remains largely in white hands.
Firms are happy to sell off 25.1% of equity to BEE partners as long as it betters their chances of obtaining contracts and tenders from state owned enterprises and other government departments. Such “window dressing” practices are unlikely to change the behaviour of firms.
There are no links between skills development and employment equity ensuring that workers in firms will be stuck at those skill levels; training that is provided to black workers tends to be in-house, on the job training that provides little avenue for advancement.
Firms pursue preferential procurement practices for different purposes – none of them seem to be linked to a genuine desire to transform. Those that do have a preferential procurement policy are mostly influenced by the Preferential Procurement Act, and the mining and petroleum charters, given the importance of the SOE and the mining and petroleum markets for these firms. Procurement was also viewed as a way to present a “˜BEE-conscious’ image and score highly where firms are not willing to give up any equity. Alternatively, it makes simple business sense to source services from BEE firms, as these are activities with low entry barriers that are outsourced to reduce costs.
Surprisingly, the two SOEs captured in the study were not doing very well in sourcing inputs from BEE firms despite being governed by the Preferential Procurement Act. This is a critical weakness in terms of the BEE legislation. If government cannot get its own institutions to procure from small black suppliers it is hardly in any position to expect the private sector to do so. Reasons given included the unavailability of competent BEE firms to supply highly technical inputs. However, black empowered firms seem to fare much better in sourcing technical input from other black empowered supplier firms.
Employment equity – slow transformationAll the firms that were interviewed were subject to the Employment Equity [EE] Act and therefore obliged to have employment equity targets and submit EE reports. Once again these firms performed dismally in this respect. Despite having more than 600 employees and being a large supplier to local government, one of the firms interviewed had never submitted an EE report since the legislation was introduced. One of the SOEs had not submitted an EE report for the last two years.
The actual number of previously disadvantaged individuals [PDIs] in management positions in the firms also showed up the slow transformation. In this historically male dominated sector, female representation is very poor across the different occupation levels irrespective of race. White males still dominate the decision-making structures of the firms in the metals sector while black representation is insignificant: white males constitute close to 80% of total management; followed by black males [below 20%]; and overall female representation of about 10%. Black female representation in management positions remains incredibly low. The statistics are almost identical for local and foreign owned firms.
What is even more alarming is the fact that when the statistics are disaggregated they show that black representation at the level of top management has in fact declined from 14 to 10% between 2002 and 2004. At senior management, the graph confirms popular belief that very little has been done to employ PDIs in decision-making positions since the advent of democracy. Senior management typically has significant decision-making powers and is still heavily dominated by white males.
Black presence at the middle management level, where decision-making power is generally very limited, is more noticeable although virtually no change has taken place between 2002 and 2004 in terms of increasing the number of blacks in this level. It is however not clear from the interviews the extent to which blacks are actively taking part in the hands-on, operational processes in firms. Despite the desire of the legislature for a genuine process of empowerment, at least one of the local firms interviewed openly admitted to using their black female director as a front in securing contracts with government departments.
Management profile, average across firms’ profile
Skills Development – lack of advanced training for black workersIn terms of skills development, black males are more likely to have received training than other groups. But, on closer inspection, this related mainly to elementary training, carried out on-the-job, such as health and safety. The study also found large non-compliance with the employment equity and skill development legislation. The research found no evidence of an obvious link between employment equity and training.
Even black empowered firms by as much as 49% did very little to provide training opportunities for their black workers. For two of these six black empowered firms, training opportunities were more available to whites compared to blacks. And in the remaining BEE firm that gave details, white males received multiple training opportunities compared to blacks.
Companies are unwilling to train black workers in fields which will help them advance into better paying and more fulfilling areas of work. In one firm interview, the HR manager [white female] made it very clear that training for workers [factory workers who are predominantly black] is restricted to their daily operations. She made an example of the union requesting training in basic computer skills / literacy but said the firm refused because it will not train a forklift driver how to use a computer because his job does not require this. In another instance the HR manager [white male] indicated that the firm had two black workers whom they took through technikon training and management courses but as soon as they reached the level of junior management were poached by other firms that doubled their salaries. This has led to a reluctance to train black workers in fields such as engineering and related skills.
A large equipment manufacturer which spends about 1% of its payroll on training indicated that less than 5% of the training budget is spent on PDIs because the majority of them are at the low end of the organisational structure and the kind of training programmes that they are put on are mostly in-house and not expensive. The white male workers, however, because they are mainly in the middle and upper level of the organisational chart, are sent for more advanced training which is more expensive.
Profile from skilled to unskilled, average across firms
his article is based on the report entitled: “˜An investigation into BEE in the metals sector of the economy’ prepared for NUMSA by the CSID Research Programme.’ For the full report see www.numsa.org.za.