Impact of the Revised Marketing, Advertising and Communication Sector BEE Code

“I own a marketing company where we do everything from designing websites, running social media campaigns, media advertising and brand development for clients. I understand there are new BEE regulations which I must comply with. How will this affect my business?”

The Revised Marketing, Advertising and Communication Sector BEE Code (“MAC”) was published on 1 April 2016 and applies with immediate effect to all marketing, advertising and public relations companies who will have to be verified in terms of MAC to obtain a BEE certificate. MAC contains considerably higher targets and point allocations for certain elements compared to the previous sector BEE code and introduces some interesting new compliance concepts for companies in this sector, such as responsible marketing. As many service providers within this industry supply services to companies for whom the BEE levels of their service providers are important for procurement, most companies in this sector will feel BEE compliance pressure. 

MAC emphasises that the marketing, advertising and communications industry – although small – has the power to influence large numbers of South Africans. MAC therefore seeks to not only create a framework for BEE accountability but also regulate responsible marketing, advertising and communication.

The main differences between MAC and the Generic Amended BEE Codes of Good Practice (“Generic BEE Codes”) which should be taken note of are:

1. MAC contains an additional 6th BEE element namely Responsible Social Marketing and Communications. MAC refers to responsible creativity by wishing to encourage good behavior and citizenry and discourage behavior that is negative to society like obesity and drunk driving. This principle is enforced by a 5 point allocation under this element for adherence and a monetary contribution to related initiatives.

2. The thresholds for companies in this sector are staggered depending on whether a company is primarily in the public relations, advertising or marketing sectors, with public relations companies in particular having low thresholds:

o An Exempt Micro Enterprise (EME) is any company in the marketing, advertising or communications research sector with an annual turnover of less than R10 million. However an EME in the public relations sector is any company with an annual turnover of less than R5 million.
o A Qualifying Small Enterprise (QSE) is any company in the marketing, advertising or communications research sector with an annual turnover of between R10 million and R50 million. However an EME in the public relations sector is any company with an annual turnover of between R5 million and R10 million.
o A Generic (or “Large” as defined by MAC) Company is any company in the marketing, advertising or communications research sector with an annual turnover of above R50 million. However a Generic Company in the public relations sector is any company with an annual turnover of more than R10 million.

3. A staggered compliance timeframe is provided under MAC with increased targets for some elements applying as of 31 March 2018. This will in particular affect Generic Companies with elements such as Ownership increasing from 40% to 45% black ownership, Skills Development spend increasing from 4% to 6% of leviable amount, Socio-economic Development increasing from 1% to 2,5% of Net Profit after Tax (“NPAT”) and Responsible Social Marketing and Communications increasing from 1% to 2,5% of NPAT.

4. The target for Ownership of Generic Companies is much higher at 40% black ownership than the 25% target under the Generic BEE Codes, with this target further escalating by 2018 to 45% black ownership for Generic Companies. MAC also seems to additionally increase the bar for Ownership by specifically excluding the modified flow through principle in calculating ownership compliance.
 
5. Increased point allocation for management control and skills development. The point allocation for management control is set at 27 points for Generic Companies compared to the 19 points under the Generic BEE Codes. The resultant effect will be that companies under MAC will have to take transformation of the directorships and employees very seriously to be able to be compliant.

6. The point allocation for skills development is set at 30 points for Generic Companies as compared to 25 points under the Generic BEE Codes, with extensive bonus points on offer for the absorption of unemployed employees by a company (10 bonus points).

Companies in marketing, advertising and public relations should not delay to conduct proper BEE planning as most companies are already in their 2017 financial year with the 2018 targets looming. If necessary, obtain the assistance of a BEE specialist to facilitate your planning and ensure that you are properly prepared to be BEE compliant under MAC.

May 9, 2016
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