Telkom of South Africa to Consider Race When Making Job Cuts

Telkom SA SOC Ltd. (TKG) plans to use government employment policy to target white, male employees when cutting more than 2,600 management jobs at South Africa’s largest fixed-line phone company, according to labor unions.

The carrier will consider “employment equity” when deciding who to dismiss, according to a document two labor unions said they received from Pretoria-based Telkom this week. The Employment Equity Act is a policy seeking to boost black participation in the workforce.

South African companies have to comply with legislation seeking to address racial inequalities that stem from apartheid rule, which ended in 1994. White males account for almost 40 percent of the senior and middle management positions that Telkom wants to reduce, while less than 9 percent of South Africa’s population is white. Solidarity, a union with close ties to the predominantly white Afrikaans community, said it’s considering legal action as Telkom’s cuts may disproportionately target white workers.

“If I was a client I’d try and avoid this situation but I’m not sure that you can,” said Joe Mothibi, a labor lawyer with Norton Rose Fulbright in Johannesburg. “Any discrimination by its nature is unfair, but the question is, is it legally unfair,” he said. “There is a ground for the union to challenge if affirmative action is the sole determinant, but if it’s one of several measures it’s defensible.”

‘Our Obligation’

While employment equity is followed by many companies when hiring staff, it’s uncommon for the policy to be used when making job cuts, Mothibi said. Solidarity will fight Telkom’s plan to reduce its number of white employees “on the highest levels,” the union said yesterday in a statement.

Telkom said May 13 it intends to reduce its “management layer” by about 25 percent. The operator, about 40 percent owned by the South African government, “will consider a number of criteria, one of which is our obligation to comply with the Employment Equity Act.”

The other criteria include qualifications, potential, length of service, and gender, according to a document that the unions, Solidarity and the South African Communications Union, said they received.

“This process is an imperative for the survival of the business into the future and its necessary success,” Telkom spokeswoman Sinah Phochana said in an e-mailed response to questions. She declined to verify the document or address whether the company will make cuts based on race or gender.

White Dominance

Whites, who make up 8.7 percent of the population of 53 million, occupy 63 percent of top business management posts, the Employment Equity Commission said last year. At Telkom, white males account for 38 percent of senior management and 39 percent of middle management, according to its 2013 annual report. That’s higher than the proportion of black employees of any gender and white females.

“Telkom hopes to reduce its number of white employees by means of the restructuring process,” Marius Croucamp, a spokesman for Solidarity, said yesterday. “This is the only conclusion that we can come to, based on the fact that so-called employment equity provisions forms one of the criteria to be applied in determining retrenchments.”

The phone company needs to reduce its approximately 19,200-strong workforce by almost a third over five years to remain financially viable, Chief Executive Officer Sipho Maseko said in December. The cuts may affect 2,635 management employees, according to the document dated May 12.

‘Painful Truth’

“Our human capital cost exceeds that of other benchmarked telecommunication companies of a comparable size,” Telkom said in the document. “We continue to see decline in revenue.”

Telkom plans to cut costs by 5 billion rand ($483 million) by 2019 through staff reductions, it said last month. Sales have fallen for three years and Telkom last year reported the biggest loss ever by a South Africa-based non-mining company.

“The painful truth is that if the current situation continues, even more damage may be caused to the company’s commercial viability which may be impossible to address in the near future,” according to the document.

Telkom shares have gained 42 percent this year, the fourth-best performer on the FTSE/JSE Africa All-Share Index. They rose 0.6 percent to 39.65 rand as of 4:13 p.m. in Johannesburg.

Maseko has said he has faced a staff backlash after hiring management consultants Bain & Co. to advise on a cost cutting plan he says is required to revive the company. Maseko is facing referral to South Africa’s national prosecutor or a fine if he fails to attend a corporate governance course as ordered.

Telkom’s proposal to consider employment equity when making job cuts “is not novel,” Mothibi said. “It’s not used that often but it’s not unheard of.”

To contact the reporter on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net John Bowker, Ville Heiskanen

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