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Marketing, Advertising and Communication (MAC) Sector – BEE Ownership Element

1. Introduction and Applicability

1.1 Sector Code Overview: The Amended MAC Sector Code provides a framework for measuring B-BBEE compliance specifically within the marketing, advertising, and communication industry in South Africa. It aims to address the unique characteristics of this sector, including its influence on public opinion and the need for greater diversity and representation.
1.2 Scope of Application: The MAC Sector Code applies to a wide range of activities, including:
- Advertising agencies
- Public relations firms
- Media agencies (planning and buying)
- Digital marketing agencies
- Brand activation companies
- Communication consultancies
- Other related marketing and communication services (as defined in the Code)
1.3 Legal Basis: Section 9(1) of the Broad-Based Black Economic Empowerment Act (No. 53 of 2003, as amended) and the Amended MAC Sector Code (Government Gazette No. 42496, 06 April 2016).
1.4 Effective Date: 06 April 2016
1.5 Precedence: This Sector Code supersedes the Generic Codes for entities within its scope.

2. Ownership Scorecard and Thresholds

Indicator	Weighting	Target

Exercisable Voting Rights (Black People)	6 points	45%
Exercisable Voting Rights (Black Women)	3 points	40% of 45%
Economic Interest (Black People)	6 points	45%
Economic Interest (Black Women)	3 points	40% of 45%
Economic Interest (Black Designated Groups)	2 points	10%
Net Value	8 points	See Below
Total	28 points
		Net Value Target: Based on a phased-in approach, linked to “years of recognition.”

2.1 Ownership Scorecard: As in the table above
2.2 Priority Element Status: Ownership is a priority element.
2.3 Subminimum Requirements: 40% of the Net Value points (i.e., 40% of 8 points = 3.2 points).
2.4 Entity Size Thresholds:
- EME Threshold: Annual Total Revenue of R10 million or less. (Same as the Generic Codes).
- QSE Threshold: Annual Total Revenue between R10 million and R50 million. (Same as the Generic Codes).
- Generic Threshold: Annual Total Revenue above R50 million. (Same as the Generic Codes).
2.5 Automatic Recognition for EMEs/QSEs:
- The usual automatic levels apply.
- Crucially: Are there any conditions or restrictions on this automatic recognition? No. The MAC Sector Code does not have a similar provision to the Construction Sector Code’s Clause 3.1.3 (restricting automatic recognition for BEPs).

3. Specific Ownership Requirements and Interpretations

3.1 Unique Ownership Targets: The MAC Sector Code has significantly higher targets for voting rights and economic interest (45%) compared to the Generic Codes (25% + 1 vote and 25%). It also places a strong emphasis on ownership by Black women, with a target of 40% of the overall Black ownership target.
3.2 Flow-Through and Modified Flow-Through: Standard Flow-Through and Modified Flow-Through Principles apply.
3.3 Exclusion Principle: Standard Exclusion Principle applies.
3.4 Treatment of Specific Entities: The Code provides specific recognition criteria for BBOS and Trusts.
3.5 Multinationals: No specific provisions beyond the Generic Codes. Equity Equivalents would likely apply as usual.
3.6 Ownership by Qualified Professionals/Specific Roles:
- Not a specific requirement.
- Crucially: Are there any requirements for ownership to be held by individuals in specific roles (e.g., executive management, as in the Construction Sector Code for BEPs)? Are there penalties for not meeting these requirements? No.
3.7 Sale of Assets: No specific deviations from the Generic Codes.
3.8 Private Equity Funds: Ownership by B-BBEE compliant Private Equity Funds is possible under the MAC Sector Code, provided the fund meets the requirements outlined in the Generic Codes (Statement 100, paragraph 3.10). No specific provisions prevent or modify this.
3.9 Other Unique Provisions:
- High Ownership Targets: The 45% target for Black ownership is a significant departure from the Generic Codes.

4. Areas of Uncertainty and Interpretation

4.1 Ambiguities: As with the Generic Codes, valuation methodologies and the application of the Flow-Through Principle can be areas of interpretation. The specific rules for BBOS and Trusts may also require careful interpretation.
4.2 Industry Practice: Industry practice is developing, and engagement with relevant industry bodies is important.
4.3 Potential Disputes: Valuation disputes, challenges to the legitimacy of ownership structures, and interpretation of the specific rules for various entities.

5. Deal Process, Parties, and Costs

5.1 Typical Deal Structures: Direct ownership, trusts, and BBOS. ESOPs may be less common due to the often project-based nature of work in some parts of the sector.
5.2 Key Parties Involved: MAC agencies, Black investors, legal advisors, financial advisors, B-BBEE verification agencies.
5.3 Deal Process Overview: Similar to the Generic Codes: due diligence, valuation, negotiation, legal documentation, and implementation.
5.4 Cost Considerations: Similar to the Generic Codes: legal fees, valuation fees, advisory fees, B-BBEE verification fees, and the cost of the ownership transaction itself.

6. Gotchas and Best Practices

6.1 Common Mistakes: Failing to meet the Net Value subminimum, inadequate documentation, fronting, not understanding the specific rules for BBOS and Trusts. (Pay particular attention to any specific requirements like those for BEPs in the Construction Code). Not applicable here.
6.2 Fronting Risks: High risk.
6.3 Best Practices: Thorough planning, expert advice, genuine commitment to transformation, careful structuring of ownership deals, ongoing monitoring of compliance.

7. Alternatives to Ownership
Other elements include:

Management Control
Skills Development
Enterprise and Supplier Development
Socio-Economic Development
Responsible Social Marketing and Communications (unique)

8. Conclusion

The MAC Sector Code significantly raises the bar for B-BBEE ownership compared to the Generic Codes, with a much higher target of 45% for Black ownership. This reflects the sector’s influence on public opinion and the need for greater diversity and representation. Crucially, it does not impose restrictive ownership requirements based on professional registration and executive management roles, unlike the Construction Sector Code for BEPs.

Please contact us for a confidential discussion around your unique BEE ownership needs