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The incident began with a few ill-chosen words by a clerical worker unhappy with her new seating arrangements and it escalated into a significant racial incident that damaged the reputation of her employer, London-listed insurer Old Mutual, in its biggest country of operation.
The affair featured relentless negative media coverage for more than a week and a threat by trade unionists to picket the company's Cape Town head office. It ended with a public apology by Old Mutual, which says it has radically overhauled its procedures for handling racial incidents.
"In the world in which we live, where these issues are hugely sensitive, you cannot underestimate the reputational damage and in some cases punitive damage things like this can cause," says Roddy Sparks, Old Mutual's managing director for South Africa. The company's handling of the incident, which made news late last year, undid much of the goodwill it had earned as a company that embraced racial transformation.
The mishap -- familiar to many companies with multicultural workplaces in the US or Europe -- highlights the way a company's mishandling of a minor workplace incident can ricochet on its reputation. South Africa's unique history, and the speed of its transformation, make it a laboratory of sorts for how companies handle racial friction. "Race relations is a very sensitive issue in South Africa," says Urin Ferndale, head of human resources at Edcon, the country's largest retailer. "It is not just about one or two people - it can even become an issue for an entire company."
The Old Mutual case dates back to 2003 when a white employee complained about having been moved to sit among black colleagues. Her exact language remains in dispute. By her own account she said she felt as if she was in Khayelitsha, Cape Town's largest black township. A witness said she used the word "kaffirs", a deeply offensive word for black people. A colleague overheard her remark and told the woman's supervisor. She apologised for her language and was given a verbal warning. But an aggrieved employee who felt the company was sweeping the matter under the carpet took the case to his union.
The union successfully pushed for a disciplinary hearing that resulted in the woman's dismissal. She later appealed and was reinstated on technical grounds. Her colleague then launched a civil suit against her and Old Mutual seeking R150,000 (£14,000) in damages.
Old Mutual defended itself against the lawsuit. "We felt we couldn't be sued every time one employee insulted another employee," Mr Sparks says. However, its advocate's arguments in court were widely reported in the media and caused further offence. "One thing I regret is that we didn't have better control over what was said in court," Mr Sparks says. "It was a kind of legal comedy of errors as this thing was compounded in the early days."
Old Mutual's independent counsel argued that name calling of one employee by another did not amount to discriminatory behaviour under South Africa's Employment Equity Act. While the company emphasised that it condemned the language, the media construed its lawyer's argument as indicating that Old Mutual did not find the employee's behaviour offensive. A black editor at City Press, an influential Sunday newspaper, wrote an angry editorial saying that he planned to sell his Old Mutual shares and insurance policy. Union activists threatened to march on the company's headquarters.
In late November Old Mutual made a public apology, after about 10 days of bad press and strained nerves. (The case coincided with the final stages of the insurer's successful $6.0bn (£3.4bn) bid for control of Sweden's Skandia, which should have made for a celebratory mood.) "Old Mutual apologises unreservedly for any impression created that it might condone the use of racist language, and for the hurt arising from this impression," it said. A court also ruled for the employee's dismissal, although she has again appealed.
More importantly, Old Mutual has revised its operating procedures for handling racial incidents. The company has spelled out a policy to its employees that racism and other forms of harassment are a dismissible offence. It also now escalates all complaints of racism or sexism immediately to its executive company. It is writing up the incident as a case study for its internal business school and says it will make it available to other interested companies.
Old Mutual has also reinvigorated its diversity workshops and ensures that all senior managers have completed one. "I put out the clear message that these incidents will be dealt with," says Mr Sparks. "We are also trying to prevent them by making sure people understand it [racism] is as serious as theft."
Old Mutual was closely watched at other South African companies. The case was a sign of changed times in a country that until recently was led by overtly racist governments. "If you look back 10 or 15 years ago, racism was very obvious, people got away with it and victims were afraid to report it," says Mpho Nkeli, head of human resources at Alexander Forbes, the financial services group. "The incident at Old Mutual wouldn't have made the papers 15 years ago."
Companies are now carefully refining their policies on hiring and non-discrimination. Moral or reputational issues aside, hard business factors are at stake: employment equity legislation and rules on black economic empowerment, South Africa's economic affirmative action push, hold companies to high standards on hiring and non-discrimination. These, in turn, can affect their ability to tender for government business or retain talented black staff.
"If you want to attract black people to your organisation, it isn't going to happen if you are known as racist," says Thalita Boikhutso, a Johannesburg-based business consultant.
Edcon, with about 20,000 employees, prides itself on its multicultural credentials. Of its managers, it says 61 per cent are black and 60 per cent are female. Unusually for South Africa, the company aims to reflect the country's demographics within five years, when it says nearly 80 per cent of its managers will be black. Edcon conducts annual employee surveys aimed at pinpointing problems at its nearly 1,000 stores.
However, Edcon faced its own accusation of racism late last year. A Muslim woman in Cape Town claimed she was turned down for a job because she wore a headscarf. The incident made local news in a city with a large Muslim minority. However, Edcon moved quickly and managed to avoid a media circus.
The retailer placed an advertisement in the main local paper stating that it required employees to wear uniforms but did not prohibit head scarves. Within three days a note from the chief executive's office addressing the incident went out to staff. The company also ordered an investigation to ensure that no policies were breached. "We communicated very decisively with the press and with our own staff as well," says Mr Ferndale.
"We got a lot of support our staff wrote to the head office about this, confirming that they were supportive and didn't agree with what they had read."
Under syndication arrangement with FE
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