july 2018 – dec 2018

Economic inequality

Economic inequality: Economics and theology in dialogue

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Economic inequality: Economics and theology in dialogue

Economic inequality

Prof Piet Naudé and Prof Stan du Plessis

  • Nov 2018
  • Tags Insights, Leadership, economics

33 minutes to read

SHARE

Prof Piet Naudé and Prof Stan du Plessis

Looking at economic inequality from two different perspectives

What exactly does economic inequality mean? In this essay, a theologian and an economist use an ethics lens to look at the troublesome issue of economic inequality.

The authors have chosen the topic of inequality – specifically economic inequality – as a justice issue to address. To do this, they follow the see-judge-act model.  Firstly, there is a need to undertake a limited descriptive exercise (“see”) to gain a clearer understanding of what economic inequality entails. Secondly, this leads to a moral assessment of economic inequalities (“judge”) by pointing out which aspects of inequality are ethically acceptable or unacceptable from economic and theological perspectives. Thirdly, interventions and actions (“act”) need to be identified in order to reduce morally unacceptable forms of economic inequalities, again putting forward both economic and theological perspectives.

A few notes on classical economics and Reformed theology

Before starting, the economist author would like to acknowledge that his own work has largely been in the invisible-hand tradition, also called classical economics, as explained by Adam Smith. In essence, this tradition says there are limited individual decision makers with remarkable scope for spontaneous (or decentralised, or market) cooperation. Adam Smith’s invisible hand is therefore a metaphor for the coordinating mechanism of a decentralised society, referring to the feedback mechanism – which is often prices, but quantities too – that signals to participants whether their decisions and expectations agree with those of others.

The emphasis on market cooperation does not imply that outcomes will always be socially acceptable or that there is no role for government policy. When this economic perspective is embedded in a larger theory of justice, additional reasons for policy action against inequality are likely to emerge.

The Christian faith is confessed differently in various traditions – Orthodox, Catholic, Protestant and Pentecostal. Also, there is a diversity of opinions on economic inequality within these traditions. In this article, the theological approach is primarily from the Reformed tradition with its normative reference points in Scripture, its confessional orientation, and its social justice strand via Calvin and Barth. This particular trajectory is then subjected to a southern African contextual interpretation. The confessional inheritance refers to the legacy of the Heidelberg Catechism (1563), Barmen Declaration (1934), Confession of 1967, Belhar Confession (1986) and Accra Confession (2004).

A careful reading of these confessions shows that the issue of economic inequality and related themes of justice and the common good have become more pronounced over time. Not all aspects of inequality are addressed in these confessions. However, the benefit of this confessional approach is that it ensures that the theological perspective in the debate is not lost.

A note on the assumptions underpinning this essay: This article focuses on the public meaning and significance of the Christian faith on the assumption that Christian convictions indeed make an impact on and have practical implications for different public spheres of society.

… in a situation of secularism in which the faith perspective is lost and religion is privatised, a social system like the economy tends to lose its transcendent purpose

“See”: How economics and theology understand inequality

The two authors used the see-judge-act model to gain insight into economic inequality. In terms of “seeing”, theologians must acknowledge the moral difference between inequalities arising from relational or exploitative processes rather than achievement processes as well as a tolerable level of inequality arising from differences in God-given talents and the differential use of opportunities. Even under conditions of perfect freedom, fairness and equal opportunities, the ideal of a fully egalitarian and equal society will not be realised because of these achievement differentiations.

So, the assumption that people will realise their full potential under conditions of equal opportunities do not always materialise. When inequalities are then entrenched in certain groups, they can become morally unacceptable, no matter what the sources are. From a theological perspective, then, what might be the sources of an economic system that produces morally unacceptable levels of inequality? What do the Reformed confessions “see”?

The commodification of the world: Firstly, in a situation of secularism in which the faith perspective is lost and religion is privatised, a social system like the economy tends to lose its transcendent purpose. It often permeates other social spheres with the logic and language of commodification which may acquire a totalising and exclusive perspective on all of reality. The primary confession that Jesus is Lord includes the realm of economics and economic systems. The markets have reached a situation where monetised thinking is no longer restricted to the exchange of goods and services. The commodification of every life sphere (such as sport, religion, knowledge and leisure) has extended the logic of the market (including enhanced self-interest, efficiency and return on investment) to become a framework from which all of reality is viewed.

By way of analogy, the church found itself in a position where it needed to confess the lordship of Christ when alternative narratives have assumed a normative significance. The Barmen Declaration was a response to the threat posed to that lordship over church and state by the totalitarian Nazi regime; the Belhar Confession was a response to the disunity, irreconcilability and injustice under apartheid; and the Accra Confession sought to uphold the sovereignty of God over all creation threatened as it was by a specific interpretation of the global economic system. It is the nature of confessing to speak the truth and reject a falsehood. It is from this perspective that one should read Article 10 of the Accra Confession: “This [neo-liberal economic globalization] is an ideology that claims no alternative, demanding an endless flow of sacrifices from the poor and creation. It makes the false promise that it can save the world through the creation of wealth and prosperity, claiming sovereignty over life and demanding total allegiance which amounts to idolatry.”

One should be careful to not deny that God can and does make use of institutions like the state and the economy to care for us. The problem occurs when, from our side, we shift our trust from God to the market in its ideological form, deriving our comfort from other sources than Christ; and when, from the side of the market, it claims our total loyalty to its logic as the only perspective on self, society and the environment. From a theological perspective, an economic system that tends to subject all forms of life to market logic, and in its ideological form claims to be the only valid interpretation of reality, also tends to lose a normative link to moral values like equality, social care and restorative justice. These values lie beyond the system itself, and it is from them that the system should also take guidance in the formulation of economic and social goals.

The commodification of every life sphere … has extended the logic of the market … to become a framework from which all of reality is viewed.

Self-interest versus the common good: Secondly, the belief that it is possible to create a humane society and use nature in an ecologically sustainable way via a system of self-interested (capitalism) or centrally planned cooperation (socialism) is questioned by the confessions as unredeemed persons, because of their corrupted nature, are unable to do good. The Heidelberg Catechism is clear that outside of Christ we live in sin and misery – we are “wholly incapable of doing any good”. In an economic system predicated upon the promotion of self-interest, the common good is often lost. Instead of showing kindness and preventing hurt, a system of envy is created.

From a theological perspective, the relative success of capitalism as a wealth generator lies in its reliance on and promotion of people’s self-mastery, which also leads them to become “exploiters and despoilers of the world”.

Capitalism brings ambiguous results: enormous wealth is created amidst grinding poverty and weak re-distribution mechanisms; industrial cooperation has produced goods on a massive scale but with devastating ecological effect; and commercial advertising spurs on consumer spending but consumerism leads to a joyless economy in which everything has a price but nothing has value. From the confessions’ perception these ambiguities spring from an over-confidence in the notion that, because each person “intends only his own gain”, it will increase the wealth of society.

Theology does not – at a first take – share the optimism underlying human cooperation as set out in the Adam Smith tradition. From the perspective of the confessions, self-interest – even a temporary suspension of natural self-interest for the sake of impartial observation – can hardly be recognised as a virtue. The ambiguities of an economic system built on self-interest find their theological roots in incurvatus in se; it is the turn inward on oneself that bends the gifts of God to seek all things for its own sake and for the promotion of the self.

Three qualifications of this view are necessary. Firstly, redemption by itself does not guarantee good and just outcomes. Christians are often blinded by ideologies and even go so far as to defend injustices and unjust systems on the basis of the gospel. Both the Barmen Declaration and the Belhar Confession recognise that there need not be a direct correlation between Christian faith and the seeking of justice. What should have been confessed as wrong, grows over time into a powerful deception “to seem self-evidently right and to be ideologies foreign to good works”. Hence, confession often requires “the dismantling of structures of thought” that grew over many years. The road to reconciliation and justice is accompanied by pain and sadness. It is never easy to give up a genuinely held, but nevertheless false, belief.

Secondly, what about the good performed by virtuous non-religious people who fight for the rights of the poor, fairer global trade, ecological care, and other worthy causes? Outside of Christ’s justification, the performance of these goods cannot be seen as good works in the narrow confessional definition. Yet, they do contribute to preserve good order in society and nature. As such they should be supported by Christians and the institution of the church. Theologians and the church should indeed endorse efforts by business people to give a more humane and ecologically responsible face to capitalism via, for example, applying codes of good governance, using integrated reporting, subscribing to the Global Compact, creating socially responsible investment indices, and addressing the sustainable development goals.

The third observation flows from the confessions “seeing” that inequality arises from an unjust economic system. The Belhar Confession warned that the powerful and privileged “selfishly seek their own interests and thus control and harm others”. The Accra Confession rightly declares that ecological destruction is the result of pursuing unrestrained growth among industrialised nations. There are hints as to what the confessions mean with an unjust economic system, though the claims are not backed with empirical data. Although there is abundance in the world as a whole, the distribution systems do not benefit the poor. There is a strong power asymmetry among rich and poor, allowing the exploitation of the defenceless and the power to protect the existing order to become embedded in the system. Technology creates further divisions between those who benefit from and those outside the networked society. In addition, the population expansion puts pressure on social systems and the environment.

Instead of showing kindness and preventing hurt, a system of envy is created.

“Judge”: How economics and theology assess the moral qualities of inequality/inequality

Economists are recognising that inequality along various dimensions – such as income, wealth and opportunity – merits both analysis and, possibly, policy intervention.

There are two major theories for why one might not be concerned with inequality. Firstly, it is inequality (in ability, resources, perspectives, etc.) that creates the opportunity for specialisation and cooperation. Since the rise in prosperity depends in part on specialisation and cooperation, inequality seems to play at least a causal role in the process. According to this line of reasoning, one risks stifling the most powerful force for economic progress if one strives to eliminate differences. Secondly, others with forbearance for inequality see it as the consequence of the purposeful action that leads to private and social gains. Some scholars argue that specialisation is productive and requires cooperation and trade. In this line of reasoning, inequality emerges as the consequence and not as the initiating factor of productive specialisation and cooperation.

All the economic arguments about the potentially instrumental value of inequality rely on the assumed fairness of the process by which the inequality emerged. The premise is that the inequality emerging from voluntary exchange is unobjectionable while inequality due to plunder, exploitation, coercion or exclusion does not serve any of the instrumental roles envisaged here.

To ensure the equality of opportunity implied by voluntary cooperation, economists focus on public education as well as the removal of special privileges that artificially protect the incomes and positions of certain individuals and classes. However, they are reluctant to take the step towards ensuring equality of outcomes since such interventions may well undermine the instrumental value of inequality in the process of specialisation and trade – and thus bring about a trade-off between equality and efficiency.

Capitalism brings ambiguous results: enormous wealth is created amidst grinding poverty and weak re-distribution mechanisms

Applying theology

Next, we take a look at the criteria by which the confessions seek to judge morally unacceptable inequalities or unjust economic systems. The first criterion by which the church judges any system or institution is via deep-searching and humble self-criticism. The best example in the confessions is the Accompanying Letter to the Belhar Confession: “Along with many, we confess our guilt in that we have not always witnessed clearly enough in our situation and so are jointly responsible” that certain convictions and actions that are wrong, grew over time “to seem self-evidently right”.

However, the church knows that self-deception might still be at work. Confessing is a humble act. The church, therefore, speaks “pleadingly rather than accusingly”.

The Confession of 1967 makes this self-critical remark: “A church that is indifferent to poverty, or evades responsibility in economic affairs, or is open to one social class only, or expects gratitude for its beneficence, makes a mockery of reconciliation and offers no acceptable worship to God.” The Accra Declaration refers to “the complicity and guilt of those who consciously or unconsciously benefit from the current neoliberal economic global system”. It therefore seems clear that theology should be a humble dialogue partner in the discussion of economic justice.

The second set of criteria is summarised in the concept of justice in its relation to peace or reconciliation with a particular focus on marginalised people. In the Biblical traditions there is an integral link between God (on the one hand) and justice and peace (on the other). The theological judgement of inequality is firstly to be sought in the fact that such an economic situation contradicts the very nature and revelation of God: the Belhar Confession states that God has revealed himself “as the One who wishes to bring about justice and true peace among men”. To allow and defend injustice is tantamount to acknowledging “other events and powers” (including economic theories that would defend injustices) as sources of revelation.

… advertising spurs on consumer spending but consumerism leads to a joyless economy in which everything has a price but nothing has value

From this perspective, theology cannot endorse the arguments for unjust inequality set out above. Although one understands the need for and benefits of specialisation in economic cooperation, all inequality beyond reasonable differences are destructive whether such inequality is the cause for or the result of specialisation. Inequality resulting from voluntary exchange might be defended, but only if the underlying assumption of fair and open processes is realised to a considerable degree. However, this fair access is mostly absent in transitional societies and in the context of global competition between societies.

Secondly, the theological judgement of inequality is related to the fact that inequality is an expression of disunity among people and, therefore, it contradicts reconciliation. Morally unacceptable inequality is an injustice and contradicts peace and social cohesion. The threefold structure of the Belhar Confession is unity, reconciliation and justice. There are reciprocal relations among these three. Reconciliation comes via peace-making in the belief that God, through His Word and Spirit, “has conquered the powers of sin and death, and therefore also of irreconciliation and hatred, bitterness and enmity”, opening up new possibilities of co-existence in society. The Confession of 1967 emphasises that the mission of the church is to be a reconciling community.

What theology terms reconciliation can be linked to the economic argument above that inequality threatens social sustainability which in turn is a prerequisite for trust, business confidence, investment and growth. In divided societies, cooperation suffers, weak institutions cannot facilitate macro-economic processes, and the cost of trade risks increases significantly. In secular terms, reconciliation refers to the social (and ecological) capital required for business to operate efficiently.

The third theological criterion related to justice and inequality is an explicit preferential option for those who suffer and who are often forgotten. There is growing ecumenical consensus that preferential justice is embedded in the Christian tradition. The Belhar Confession states that “… in a world full of injustice and enmity He [God] is in a special way the God of the destitute, the poor, and the wronged”. God brings justice to the oppressed and intervenes on behalf of the marginalised. This refers to those who have fallen out of the job and consumer market, and are, therefore, often without social care and respect. This includes the hungry, the prisoners, the blind, the downtrodden, the strangers (refugees), the orphans and the widows.

“Act”: What remedies do economics and theology offer to alleviate economic inequality?

What economists call the primary income distribution is the labour market outcome in the economy. Policy can affect this income distribution by impacting the factors that cause different rewards in the labour market. The authors of this article argue that churches can play a powerful role in generating more egalitarian primary distribution in unequal societies such as South Africa.

What should have been confessed as wrong, grows over time into a powerful deception “to seem self-evidently right and to be ideologies foreign to good works

Various studies have confirmed the redistributive power of cash transfers such as grants. In South Africa, the social security system – with its social old age pension, disability and foster care grants and child support grants – is well developed. These grants, which have led to a considerable rise in social assistance expenditure by government, are benefitting more than a quarter of the South African population.

But how is social assistance reducing income inequality? The social sector of South Africa’s government budget is progressive. Grants are especially well targeted to the poor. To fund these grants requires taxes. The redistributive impact on the revenue side of a government’s budget is affected by the structure of taxes, the top marginal tax rates and the progressivity of tax scales. The redistributive impact of government revenue therefore depends greatly on different tax vehicles such as income, corporate, consumption, real estate, inheritance, social security and trade taxes.

The revenue side of the South African budget closely resembles that of a developed economy and stands in sharp contrast with the typical budget structure of countries at a comparable level of per capita income. Also, the tax system in South Africa comprises a large tax base.

The road to reconciliation and justice is accompanied by pain and sadness. It is never easy to give up a genuinely held, but nevertheless false, belief.

The theological response to inequality

When it comes to interventions to alleviate inequality, a general first point needs to be made: the most urgent cooperation between theology and economics is in the area of policy studies. It is clear that primary income distribution, which is the outcome of the labour markets, can be addressed via budgetary measures on both the income and expenditure side. Policy discourse is for theologians the most difficult of the ethical discourses because it requires compromises between high normative ideals of justice and what is practical and achievable under the constraints of monetary policy and political ideology. It is also relatively easier to express normative principles than actually take responsibility for their interpretation and policy implementation in everyday life.

However, herein lies the most fruitful cooperation: the preferential option for the poor in theology is a powerful rhetorical tool to move public policy while economists can demonstrate that in, say, social security provision, the state is able to target the poorest in a most effective manner. The ideal of greater re-distribution toward a more egalitarian society remains an ideal which theologians and some economists would put forward while the feasibility constraints of public revenue point toward a balancing act with regard to income tax raised. The point of balance in a budget will always be contentious, but the fact remains that such a balance (compromise between private income and public taxation) needs to be found.

What is the task of the church in situations of injustice?

There are three possibilities – the church as confessing, sharing and solidarity community.

The church as confessing community refers to the fact that situations sometimes arise where the very truth of the gospel is threatened. It is important to understand that a confession is always simultaneously addressed to the inside (the public of the church itself) and the outside (the array of other publics, including the economy). A prophetic critique of economic injustices is not adequate for various reasons. Nevertheless, it does not detract from the importance of the continued confessing voice of the church in combination with other forms of ethical discourse.

… fair access is mostly absent in transitional societies and in the context of global competition between societies

Although one understands the need for and benefits of specialisation in economic cooperation, all inequality beyond reasonable differences are destructive whether such inequality is the cause for or the result of specialisation. Inequality resulting from voluntary exchange might be defended, but only if the underlying assumption of fair and open processes is realised to a considerable degree. However, this fair access is mostly absent in transitional societies and in the context of global competition between societies.

Secondly, the theological judgement of inequality is related to the fact that inequality is an expression of disunity among people and, therefore, it contradicts reconciliation. Morally unacceptable inequality is an injustice and contradicts peace and social cohesion. The threefold structure of the Belhar Confession is unity, reconciliation and justice. There are reciprocal relations among these three. Reconciliation comes via peace-making in the belief that God, through His Word and Spirit, “has conquered the powers of sin and death, and therefore also of irreconciliation and hatred, bitterness and enmity”, opening up new possibilities of co-existence in society.

What theology terms reconciliation can be linked to the economic argument that inequality threatens social sustainability which in turn is a prerequisite for trust, business confidence, investment and growth. In divided societies, cooperation suffers, weak institutions cannot facilitate macro-economic processes, and the cost of trade risks increases significantly. In secular terms, reconciliation refers to the social (and ecological) capital required for business to operate efficiently.

The third theological criterion related to justice and inequality is an explicit preferential option for those who suffer and who are often forgotten. There is growing ecumenical consensus that preferential justice is embedded in the Christian tradition. The Belhar Confession states that “… in a world full of injustice and enmity He [God] is in a special way the God of the destitute, the poor, and the wronged”. God brings justice to the oppressed and intervenes on behalf of the marginalised. This refers to those who have fallen out of the job and consumer market, and are, therefore, often without social care and respect. This includes the hungry, the prisoners, the blind, the downtrodden, the strangers (refugees), the orphans and the widows.

“Act”: What remedies do economics and theology offer to alleviate economic inequality?

What economists call the primary income distribution is the labour market outcome in the economy. Policy can affect this income distribution by impacting the factors that cause different rewards in the labour market. The authors of this article argued that churches can play a powerful role in generating more egalitarian primary distribution in unequal societies such as South Africa.

Various studies have confirmed the redistributive power of cash transfers such as grants. In South Africa, the social security system – with its social old age pension, disability and foster care grants and child support grants – is well developed. These grants, which have led to a considerable rise in social assistance expenditure by government, are benefitting more than a quarter of the South African population.

But how is social assistance reducing income inequality? The social sector of South Africa’s government budget is progressive. Grants are especially well targeted to the poor. To fund these grants requires taxes. The redistributive impact on the revenue side of a government’s budget is affected by the structure of taxes, the top marginal tax rates and the progressivity of tax scales. The redistributive impact of government revenue therefore depends greatly on different tax vehicles such as income, corporate, consumption, real estate, inheritance, social security and trade taxes.

The revenue side of the South African budget closely resembles that of a developed economy and stands in sharp contrast with the typical budget structure of countries at a comparable level of per capita income. Also, the tax system in South Africa comprises a large tax base.

The theological response to inequality

When it comes to interventions to alleviate inequality, a general first point needs to be made: the most urgent cooperation between theology and economics is in the area of policy studies. It is clear that primary income distribution, which is the outcome of the labour markets, can be addressed via budgetary measures on both the income and expenditure side. Policy discourse is for theologians the most difficult of the ethical discourses because it requires compromises between high normative ideals of justice and what is practical and achievable under the constraints of monetary policy and political ideology. It is also relatively easier to express normative principles than actually take responsibility for their interpretation and policy implementation in everyday life.

However, herein lies the most fruitful cooperation: the preferential option for the poor in theology is a powerful rhetorical tool to move public policy while economists can demonstrate that in, say, social security provision, the state is able to target the poorest in a most effective manner. The ideal of greater re-distribution toward a more egalitarian society remains an ideal which theologians and some economists would put forward while the feasibility constraints of public revenue point toward a balancing act with regard to income tax raised. The point of balance in a budget will always be contentious, but the fact remains that such a balance (compromise between private income and public taxation) needs to be found.

What is the task of the church in situations of injustice?

There are three possibilities – the church as confessing, sharing and solidarity community.

The church as confessing community refers to the fact that situations sometimes arise where the very truth of the gospel is threatened. It is important to understand that a confession is always simultaneously addressed to the inside (the public of the church itself) and the outside (the array of other publics, including the economy). A prophetic critique of economic injustices is not adequate for various reasons. Nevertheless, it does not detract from the importance of the continued confessing voice of the church in combination with other forms of ethical discourse.

Thus the first intervention in arresting economic inequalities is to confess the counter-truth of justice and peace. It is especially the task of the ecumenical church to address matters of economic injustice in cooperation with policy bodies like the United Nations, International Monetary Fund, World Bank, World Economic Forum, and national and local governments.

It is crucial that economists and theologians work together. This will ensure the credibility of the prophetic voice which is backed by empirical data. There must be a move toward policy alternatives where a balance is sought between what is ideal and what is feasible.

The church as sharing community refers to the ideal that the church demonstrates in its own life the embodiment of justice and peace. In the context of negative individualism, self-centred accumulation of wealth, using power to attain and maintain privileges at the expense of others, and the building of social structures of inclusion/exclusion along class lines, the church community must stand as visible symbol of an alternative life.

Where the church itself is sociologically structured on the basis of class or where a gospel of prosperity is preached, the credibility of the incarnation is compromised. Equally true, where the church itself becomes an exemplar community of alternate altruistic values to the competitive and performance culture of the economy, the incarnation is credibly embodied. Furthermore, the values of justice and peace and sharing must be embodied in the faith community and this embodiment has significance by and for itself: the disciples are a light to the world.

In many countries churches are powerful institutions in civil society. Churches do exceptional work in social services, with or without state support, and often in association with faith-based NGOs. Many of these activities are geared toward poverty relief and empowering people to regain dignity.

However, if economists demonstrate that quality pre-school and primary education are the most powerful long-term forces for redistribution and upliftment, the church must seriously consider (re)establishing and expanding its historical concern with education. This is a form of solidarity beyond the reactive, and will over time alleviate economic inequality in real terms.

… if economists demonstrate that pre-school and primary education are the most powerful forces for redistribution and upliftment, the church must consider … its historical concern with education.

Conclusion

This bi-disciplinary journey is challenging. The two starting points in theology and economics provide a conceptual and empirical grounding for a description of inequality: some economists argue for the positive instrumental value of inequality, others for the negative consequences of inequality for economic growth. From a theological perspective some clarification was provided regarding the optimistic tradition of cooperation. Hence, it was claimed that high levels of inequality remain unacceptable irrespective of its source in relational, exploitative or achievement systems.

It is encouraging to see that theological and economic discourse can find common expression in policy studies: reconciliation and social capital describe the same ideal from different perspectives, including economists’ warning against the creation of patrician societies. The preferential option for the poor finds expression in social grants policies targeting the most vulnerable in society and in progressive tax regimes in which those better off provide the funds to serve those worse off. The discussion of budget policy demonstrated the requirement in applied ethics of compromises between the ideal (a more egalitarian society) and the real (feasibility constraints).

This discourse from two different viewpoints – theology and economics – enables empirical data to be placed in dialogue with ideals of justice and it points to a third way in which economic inequality can be addressed via policy interventions in which the church (can) play a key role.

  • The original article, titled “Economic Inequality: Economics and Theology in Dialogue”, was published in 2018 in the International Journal of Public Theology, 12(1), 73-101. Click here to access the full article.
  • Prof Piet Naudé is Director of the University of Stellenbosch Business School. He lectures in ethics related to politics, economics and business.
  • Prof Stan du Plessis is the Chief Operating Officer and Professor of Economics at Stellenbosch University.

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social media

The impact of social media on recruitment: Are you LinkedIn?

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

The impact of social media on recruitment: Are you LinkedIn?

social media

Tanja Koch, Prof Charlene Gerber and Prof Mias de Klerk

  • OCT 2018
  • Tags Reports, Management

27 minutes to read

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Tanja Koch, Prof Charlene Gerber and Prof Mias de Klerk

Where do you search for top talent?

As the competition for talent increases, organisations need to know where to focus their resources to attract the best talent. Research shows that the so-called ‘spray and pray’ recruitment methods are no longer sufficient. The main reasons are that these methods only focus on the small and limited active pool of potential candidates; they do not give organisations access to sought-after talent in the semi-passive and passive candidate pools.

In the quest to find these candidates faster and cheaper, new sourcing tools have been created through electronic and social media. With the exponential growth in social media users, specifically the social networking sites LinkedIn and Facebook and the microblogging site Twitter, strategic tools were developed to help identify, attract and recruit both active and passive potential candidates.

Many organisations use external recruiters as consultants to source potential external candidates. This is where the specialised use of appropriate processes and technologies becomes an important aspect of the recruitment plan and strategies of recruitment consultants. For this reason, it is important to find out how recruiters use social media in order to gain a better understanding of its use and value. The very nature of social media enables recruiters to lure passive or semi-passive job candidates to attractive employment positions.

It appears that South African researchers have given little attention to how social media has changed recruitment. Hence the question: Is the use of social media in this country is a significant development or is it just a hype?

Research shows that the so-called ‘spray and pray’ recruitment methods are no longer sufficient.

What does the literature say about recruitment?

Recruitment is an essential part of talent management. A failed low-level hire may cost a company double the person’s annual salary, rising to around six times the annual salary at higher levels.

Several studies have shown that organisations with better talent show better performance. An organisation’s ability to attract and retain talent is therefore a key determinant of its effectiveness.

The ‘war for talent’ is not new. The term competency deficit is used to describe one of the reasons why organisations find in difficult to source the right employees. Competency deficit refers to a situation where not enough employees have the skills needed to perform a task. This can be ascribed to, say, inadequate education and training, and a growing demand for new skills and high-level managerial talent. In addition, employees change jobs more frequently, the organisational environment is becoming more complex and the competition for talent is increasing globally. This means the gap between skilled jobs and qualified high performers is growing.

This is why the view of recruitment has shifted from an often-outsourced administrative function to a key differentiator in the competition for talent. In fact, it has become a strategic function.

Potential candidates can be classified into active, semi-passive and passive candidates. Active candidates are those who are actively seeking employment. Semi-passive candidates are those who are interested in a new position but are not actively seeking new employment. Passive candidates refer to those not seeking a different position. Both passive and semi-passive candidates would potentially consider a new job if they are lured with attractive opportunities and enticing conditions.

The act of sourcing candidates is generally performed by an internal or external recruiter. Some researchers say that organisations that excel at the sourcing stage show better recruitment results and, therefore, better financial performance than their competitors.

Still, the best method for recruitment remains debatable. Less than a decade ago, candidate sourcing was still focused on more formal practices, such as job advertisements, employers’ websites and job boards. Until recently, recruitment advertising in newspapers and trade journals and on organisations’ websites were seen as the main tools used to attract candidates. In addition, traditional sourcing activities – such as asking candidates for referrals, visiting job and trade fairs, and using organisations’ own candidate databases – were popular. Now research has shown that placing an advertisement in popular media or on an organisation’s website has a limited chance of attracting the right candidates. Advertisements in popular media usually only attract active candidates, resulting in a small and limited candidate pool.

Research shows that the so-called ‘spray and pray’ recruitment methods are no longer sufficient.

This recruitment method, aimed primarily at active candidates, was also called the ‘spray and pray’ method. It means that recruiters ‘sprayed’ job advertisements across pages of print media and on websites, and job seekers in turn ‘sprayed’ their CVs in the direction of recruiters, with both parties ‘praying’ for a positive outcome.

The impact of the internet and social media on recruitment

The growth of social media and internet capacities and capabilities has changed the recruitment game. Recruiters now have at their disposal internet job boards (internet sites that allow organisations to upload their vacancies and candidates to upload their CVs), internet data mining (the use of Boolean searches) and web crawlers (programmes that search the web for information about employees). They can also use flip searching (a process which identifies employees who link to specific internet sites to search for passive and semi-passive candidates) and social networking (leveraging connections on social media) such as LinkedIn, Facebook and Twitter.

Social media can be defined as the use of web-based conversational media among communities of people who meet online to share information, knowledge and opinions. Four key motivations drive the use of social media: connect, create, consume and control. A wide range of social media platforms are available – such as Facebook, LinkedIn, Instagram and Twitter. However, research has indicated that Facebook, LinkedIn and Twitter are mainly used in the sourcing process. LinkedIn and Facebook could be classified as social networking tools, in other words, tools that allow users to share information about themselves, often through an online profile that they have created themselves. Twitter falls under the subcategory of microblogging tools.

In 2017, Facebook witnessed an average of 1.32 billion active users per day, with more than 14 million users from South Africa. LinkedIn had 467 million members in 2017, of which 5.5 million were from South Africa. Twitter had 317 million users in 2017, with over 7.7 million from this country.

This is why recruitment has shifted from an … administrative function to a key differentiator … In fact, it has become a strategic function.

Social media and recruitment

As the number of users on social media increases, the use of social media channels in recruiting is gaining momentum. This trend is the result of organisations recognising the potential of these channels to attract active as well as passive and semi-passive candidates.

There is evidence that recruiters and organisations are realising that more and better candidates can be discovered quicker and at a lower cost by using social networks. Specifically, a strong association has been found between the use of LinkedIn and the ability to identify and attract passive candidates.

By using social networks for recruiting, access is enabled to a wide range of candidates, at an increasingly lower cost. In particular, social networks give recruiters access to the sought-after pool of highly competent but passive candidates. Social media and networks can therefore give recruiters a competitive edge in reaching their recruitment objectives when this is done effectively.

It is clear that recruiters believe social media enables them to find better quality candidates. Indeed, 93% of recruiters use social media to support their recruiting efforts. It was found that 50% of recruiters use social media in paid-for job advertising while 37% advertise vacancies via tweets or alerts or use free job advertising via targeted social media platforms like Facebook. Furthermore, 30% of recruiters develop a database of followers and/or supporters by posting regular updates while 18% use the social media platform’s job search engines to advertise vacancies or to accept CVs and application forms. Surprisingly, only 7% of recruiters use it to screen the suitability of potential recruits on their social networking pages.

But which of the social media platforms are the most effective to use? Although Facebook is globally the largest social media platform, it is not the most popular or effective for recruitment. Jobs posted on LinkedIn receive more views from potential candidates than those on Facebook and Twitter combined, and garner twice as many applications per job advertisement in general. Over 95% of recruiters who use social media in their recruitment process indicated that they use LinkedIn, compared to 66% utilising Facebook and 52% engaging with candidates on Twitter.

One of the main reasons for the higher level of use of LinkedIn relates to its being seen by the public as almost exclusively for building professional relationships. Although all three of these social media platforms are being used in the sourcing process, they tend to be used differently. LinkedIn is mostly used for posting advertisements, searching for candidates, and contacting and vetting candidates. Facebook and Twitter, on the other hand, are mostly used to showcase the employer brand, generate referrals and post advertisements.

Advertisements in popular media usually only attract active candidates, resulting in a small and limited candidate pool.

Recruiters believe that LinkedIn gives the most insight into candidates’ employment history, education, years of experience and how they present themselves. Jobvite’s annual Social Recruiting Survey is one of the most comprehensive surveys of its kind. The 2014 survey was completed by 1855 recruiting and human resources professionals. Overall, 79% of recruiters indicated that they placed a candidate through LinkedIn while 26% used Facebook and only 14% used Twitter. Although LinkedIn has one of the highest success rates of any website, it seems that it is still used less than more conventional recruitment platforms like job boards, career portals and corporate websites. One of the reasons why many recruiters still prefer conventional sourcing tools could possibly be ascribed to recruiters’ limited knowledge of how to recruit effectively on social networking sites. Also, although web-based job portals generate many applications, they do not necessarily reach all the candidates, especially passive or semi-passive candidates.

How was the research conducted?

To gain insight into the possible impact of social media on recruitment in South Africa, semi-structured interviews were conducted with 12 recruiters from a range of industries. The participants were selected by means of judgement sampling. The first group consisted of six recruiters with more than eight years of experience. This was done to include experienced recruiters who became involved in recruiting at a time before social media was used. The second group of six recruiters was selected to have less than four years of recruiting experience. This means they have only been recruiting in an age where social media was already in use. Thematic analysis was used to identify themes and subthemes.

What did the study find?

The use of social media in recruitment was found to be high among participants overall. Also, the use of LinkedIn was much higher among the participants than the use of Twitter or Facebook.

There is evidence that recruiters and organisations are realising that more and better candidates can be discovered quicker and at a lower cost by using social networks

Only one of the 12 participants (8%) used Twitter for recruitment, which is much lower than the 52% recorded by the Jobvite survey. The use of Facebook by the respondents was also lower, with only 16% (2 of 12) mentioning the use of Facebook in comparison to the 66% found in the Jobvite study. However, all of the participants used LinkedIn compared to the 94% found by Jobvite. Four main themes were identified, as discussed below.

Theme 1: Twitter has little impact on recruitment

Although Twitter is not the most popular social media platform in recruitment worldwide, a large body of research has shown that Twitter is used extensively internationally by recruiters in the sourcing process. However, participants in this study indicated that, of the three social media tools, they used Twitter the least. This is mainly because they feel they do not have sufficient knowledge of Twitter to use it effectively in recruitment. They also said time constraints, the size of their Twitter network and number of followers prevented them from adding Twitter as a tool in recruitment.

Theme 2: Facebook has little impact on recruitment

Research by Jobvite indicates that Facebook is globally used to showcase the employer’s brand, generate referrals and post advertisements. However, in this study, only 2 of the 12 respondents (17%) mentioned that they use Facebook as a tool for sourcing candidates. When asked why they do not use Facebook more actively, one participant noted that Facebook represents the personal side and not the professional side of one’s life.

… a strong association has been found between the use of LinkedIn and the ability to identify and attract passive candidates

As most of the participants do not use Facebook to source candidates, it cannot be seen as an effective recruiting tool for individual recruiters in South Africa. This is an important new finding, as this private and/or work life distinction has not attracted the attention of international research as far as could be established. Rather, this finding appears to be unique to South Africa and relates to other research which found that it is quite common that employees and organisations do not consider Facebook to be a legitimate work tool.

Theme 3: LinkedIn has an important impact on recruitment

All of the study participants indicated that they always, or often, use LinkedIn for recruitment purposes. This finding is in line with international research. However, the preference for LinkedIn is marginally even stronger for this sample than what has been reported elsewhere.

Participants in this study used LinkedIn for different sourcing activities. Of the participants, 67% (8 of 12) mentioned that they do not place advertisements on LinkedIn, but rather use it to search for potential candidates to approach. Searching LinkedIn for potential candidates is preferred over placing advertisements on LinkedIn. This finding is in line with international trends.

However, one of the limitations mentioned about LinkedIn is that it does not provide access to candidates’ contact details. This forces recruiters to search for these details elsewhere.

LinkedIn is therefore not used as a stand-alone sourcing tool, but more for the identification of potential candidates. Using LinkedIn to identify potential candidates when screening for headhunting purposes is bound to be subject to the risk of profile inflation by candidates. This risk of profile inflation was not highlighted by any of the participants as a concern and is apparently not viewed negatively by recruiters in this sample.

By using social networks for recruiting, access is enabled to a wide range of candidates, at an increasingly lower cost

International research has found that recruiters believe LinkedIn to have one of the highest success rates of any social media platform. However, it appears that LinkedIn is still used less than more conventional platforms like job boards on career portals and corporate websites, or at least in combination with them. This international trend was supported by the findings of this study for South Africa.

Theme 4: Social media forms an important part of recruitment

In the past, research has shown that placing an advertisement in popular media or on an organisation’s website has a limited chance of attracting the right candidates. However, the findings of this study suggest that traditional advertising approaches are still an important recruitment practice. For all of the participants, the first step when recruiting a candidate is to write an advertisement. The only change in this process is where the advertisement is placed. In the past, recruiters would post their jobs in print media. In this study, 33% of the participants indicated that they now post advertisements on their company websites and career portals, as well as on LinkedIn.

All the participants confirmed that they no longer place advertisements in print media. Although they still rely heavily on advertising to find candidates, the sites where they place their advertisements have shifted towards internet media, in particular career portals and social media such as LinkedIn. This finding agrees with previous research that social media is used in combination with more conventional recruitment platforms.

Research indicated that one of the reasons why recruiters often still prefer more conventional sourcing tools is their limited knowledge of how to recruit on social networking sites. The findings of this study show that this holds true only for Twitter. It would seem that the reason why some participants still prefer the more conventional sourcing tools is time constraints and their perception is that social media adds more work.

Participants felt that social media is providing everyone with access to the same candidates, whereas in the past recruiters had to pay for access to search for candidates on career portals or use their own databases. Therefore, social media does not really give them a competitive edge. Instead, it has increased competition as all recruiters now have access to the same information. This finding differs somewhat from notions in the recruitment literature that the use of social media in recruitment provides recruiters with a competitive edge. It appears that the use of social media simply levels the playing field.

In this study, 75% of the participants (9 of 12) agreed that they combine the use of social media with the more traditional recruitment methods when sourcing active candidates. Specifically, participants indicated that when they recruit for more technical, senior passive candidates, they use LinkedIn to identify candidates and then use headhunting to lure them into becoming interested in the position. This could indicate that for lower level and non-technical positions, the sourcing approach has not changed much. However, if recruiters are trying to attract more senior or technical candidates, especially those they classify as ‘passive’, they would search less on career portals and add LinkedIn and headhunting to their sourcing process.

Although Facebook is globally the largest social media platform, it is not the most popular or effective for recruitment.

The growth of the internet and social media has given rise to more ways to connect candidates and recruiters. This benefit adds a large volume of work to recruiters’ desks because of the vast number of candidates whose profiles are available to search and screen. This increase is compounded by the large number of (often unqualified) candidates who have access to job advertisements through social media. Participating recruiters felt that using social media added more strain to their already limited time.

This finding raises an interesting perspective regarding notions in the literature that social media reduces the ‘spray and pray’ approach. Social media may give better access to the passive and semi-passive candidate pool and an improved ability to attract these candidates. However, the sheer volume of work and high number of candidates that emerge from using social media may inhibit the effective use of the acquired pool of potential candidates.

Discussion

The findings of this research confirm that the use of social media for recruitment in South Africa is high among recruiters.

One of the main reasons for the higher level of use of LinkedIn relates to its being seen by the public as almost exclusively for building professional relationships

They recognise the potential of social media to attract active as well as passive and semi-passive candidates. Similar to elsewhere in the world, the use of LinkedIn in South Africa is much higher than the use of Twitter and Facebook. The use of Twitter and Facebook in South Africa was found to be substantially lower for recruitment in comparison to what was recorded elsewhere. Although one can only speculate on the reason for this difference, it appears to be related to the international nature of the Jobvite study and the South African focus of this study. As noted, South African recruiters appear to have a different approach towards the use of Twitter and Facebook for work purposes. One can thus not simply assume that international trends apply to South Africa. All the participants mentioned the use of LinkedIn as central to their respective recruitment processes. Therefore, LinkedIn as a recruiting tool focuses on finding candidates and networking while Facebook and Twitter focus on employer branding.

The size of a recruiter’s personal Twitter network also came into play. It would only work if a recruiter had many ‘followers’. This finding is similar to what was found in research elsewhere. Recruiters’ Twitter activity also relates to their knowledge of its use. The majority of participants mentioned that they do not use Twitter because they do not know how to use it properly. So, this sample of recruiters did not see Twitter as an effective sourcing tool in South Africa.

An important aspect that influences the minimal use of Facebook is its perceived image in South Africa as a communication tool on a personal and private level rather than a business tool. Local recruiters distinguish between their private lives, represented by the use of Facebook for communication; and their professional lives, which is represented by LinkedIn. It is clear that Facebook is not seen as an effective recruiting tool in South Africa for recruiters. This finding is a new perspective that holds important consequences for its use in recruitment in South Africa.

LinkedIn is clearly the most popular social media site in the sourcing process and seems to have taken over from company databases. While recruiters would have searched for candidates on their own database in the past, they now use LinkedIn. Once a candidate has been found on LinkedIn, other sites are used to find the contact details and verify information. Although LinkedIn gives recruiters better access to the passive and semi-passive candidate pool and arguably provides an improved ability to attract these candidates, it also leads to information overload. The sheer volume of candidates that comes from using it restricts the effective use of the pool.

All the participants confirmed that they no longer place advertisements in print media

It appears that social media in the recruitment process is becoming a more modern ‘spray and pray’ approach. Recruiters ‘spray’ their attention to combe through LinkedIn profiles, and job seekers in turn ‘spray’ their CVs through social media in the direction of recruiters, with both parties ‘praying’ for a positive outcome. The main difference is that the process may now be a bit easier and more elegant. This is because it is electronically automated. However, this is where the overload occurs.

Advertising on career portals and corporate websites remains a key sourcing tool for recruiters in South Africa. However, the locations where they advertise have shifted towards the internet, specifically career portals, companies’ own websites and to some extent LinkedIn. This contradicts previous research findings that placing an advertisement in popular media or on an organisation’s website seems to have only a limited chance of attracting the right candidates.

These findings confirm the view of other researchers that, while social media can be seen as opening doors and having a profound impact on the way that recruitment functions, it should not be mistaken as the full recruitment strategy. Indeed, a well-designed recruitment strategy and process, and the effective use of available information about potential candidates, may significantly assist the recruitment of employees who have the most suitable competencies.

Conclusion

By confirming the importance of social media in recruitment in South Africa, at least as a parallel process to more traditional recruitment processes, the study confirms the increasing role and importance of social media within the talent management context in this country. The study demonstrates that recruitment through the use of social media in South Africa differs from what is done elsewhere in the world – at least for this sample. One should therefore be careful not to just assume that the trends reported in international literature indiscriminately apply to South Africa.

The majority of participants mentioned that they do not use Twitter because they do not know how to use it properly

The finding that the main impact of social media on the recruitment process derives from LinkedIn is an important aspect that should be taken note of by researchers, recruiters and job seekers. It suggests that in order to be part of an effective recruitment process in South Africa, recruiters and job seekers have to be ‘LinkedIn’. However, training in the optimal use of social media is essential.

  • The original journal article – titled “The impact of social media on recruitment: Are you LinkedIn?” – appeared in the South African Journal of Human Resource Management, 16. Find the article here.
  • Tanja Koch is an alumnus of the University of Stellenbosch Business School and a recruitment consultant.
  • Prof Charlene Gerber lectures in Marketing Management and Research Methodology at USB.
  • Prof Mias de Klerk is a Professor of Leadership and Human Capital Development, and Head of Research at USB.

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black female actuaries

Black female actuaries: Born or made?

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Black female actuaries: Born or made?

black female actuaries

Lettie Basani Phume and Prof Anita Bosch

  • OCT 2018
  • Tags Insights, Coaching, existential leadership

18 minutes to read

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By Lettie Basani Phume and Prof Anita Bosch

The current context of would-be black woman actuaries

The Science, Technology, Engineering and Mathematics (STEM) disciplines are characterised by a shortage of women. Actuarial science is no exception. This is especially true where black women are concerned. So, why do black females choose to study actuarial science? Why do they persist with their studies, and why do they remain in the profession? More importantly, how can this industry assist with the creation and retention of black female actuaries in South Africa?

Research suggests that individuals’ attitude towards science from school-going age, and also their aptitude and self-concept play an important role in addition to their beliefs about their academic ability and levels of self-efficacy when choosing a major subject at tertiary level. In the South African context, ‘black tax’ has become a major limitation for these individuals. The low socio-economic status of black African families persisting in black communities as a result of the apartheid legacy has meant that students often have to earn an income as soon as they graduate to support their families, more so than their white counterparts. In other words, black students who wish to advance in professions may need to study while being employed.

The active participation of senior scientists as mentors and role models has been found to be a major factor in attracting women to professions in science.

There may be hope in looking at what the research tells us about women in the broader context of science. The active participation of senior scientists as mentors and role models has been found to be a major factor in attracting women to professions in science, along with a supportive spouse. Within this context, however, a lack of black role models in the actuarial profession in South Africa has meant that black actuarial students do not have such mentors to whom they can look for advice, guidance, support and motivation. Also, many black South African students are often from low socio-economic backgrounds with parents who have not had the privilege of higher education and who are therefore unable to fill the gap themselves. The likelihood of South African black women choosing and persisting in actuarial science is therefore very small, unless industries support the attraction and retention of more black female actuaries in these communities.

To gain a better understanding of the factors related to black women entering and persisting in the actuarial profession, an exploratory study was conducted involving six participants and using two data-collection methods – narratives and semi-structured interviews. The findings of this study can indeed help to shed light on the future of black female actuaries in South Africa.

… a lack of black role models in the actuarial profession in South Africa has meant that black actuarial students do not have such mentors to whom they can look for advice …

The birth of the black female actuary

How can we determine if black female actuaries are born or made? What research tells us is that South African black female actuaries believed in their ability to succeed in actuarial studies, even as children. This comes despite the culture and image of a career in science being associated with ‘whiteness’ and masculinity. Men are seen as having a greater aptitude for mathematics and an inherent preference to study objects, whereas women are said to have an inherent preference to study people. Other research suggests that women are socialised and encouraged to pursue more nurturing roles and careers, regardless of their individual capabilities and talents.

However, natural curiosity is not a gender-specific trait, and it has been cited as a key factor in choosing a career in STEM, among other factors. Children from privileged backgrounds who had educated and supportive parents were found to be more likely to choose and succeed in a career in mathematics and science.

What research tells us is that South African black female actuaries believed in their ability to succeed in actuarial studies, even as children.

Conversely, it can be deduced that the participants in this study believed they were born to be actuaries or hold professions in science, having made the following statements, “I was good at all subjects, actually”, and “I used to do well in all my subjects and I just loved numbers … You know, as a child, and being a girl and stuff, you don’t really see yourself going down that path.” All the women interviewed were all-round top performers during their school-going years. It is worth noting, however, that academic performance is also an outcome resulting from inputs such as support, exposure and belief in one’s ability to succeed.

Furthermore, the participants in this study noted how their personalities matched the profession since their interest in actuarial science was piqued by the notion that it was difficult and challenging, and that the success rate was low. “I think it’s just my personality that I enjoy challenges … I mean … as soon as something intrigues me and stuff, I’m hundred percent committed, and I’m … willing to drive and finish it off,” was one participant’s sentiment.

Quick facts

  • The actuarial profession involves applying analytical, statistical and mathematical skills to improve decision-making for future activities in business.
  • In South Africa, actuarial science students must complete a total of 16 exams, followed by a three-year work-based skills programme before being recognised as a qualified actuary.
  • It can take anything from two to 10 years (post-degree studies) to qualify.

These women wanted to become the role models they did not have, but they also were fuelled by the prospect of changing their communities.

Making the black female actuary 

How are black female actuaries made? Participants in this study attributed their interest in the field to early exposure through junior mathematics and science-related competitions, and engaging with actuaries and professionals in STEM fields who shared information about the discipline. One participant said, “I first found out about actuarial science … when I was in Grade 7, so I was eleven.” Although the beginning of their journey towards actuarial science may have been activated by these interactions, key themes in this research suggest a combination of factors influencing their persistence and self-efficacy:

Internal themes:

  • Intrinsic belief and commitment to succeed
  • Giving back or the desire to make a difference

External themes:

  • Top performer
  • Early exposure to the field
  • Support by parents, peers and partner
  • Respected or prestigious profession
  • Limited representation of black women in the profession

All of the participants said that, even as children, they believed in their ability to succeed in actuarial science. External factors and outputs served to fuel this belief and, even when they faced challenges, propelled them to persevere and, ultimately, be role models for other students. It can therefore be inferred that, although both internal and external factors are important in contributing towards achieving success in actuarial science, internal factors are pivotal.

It is safe to say that the potential of a black female actuary to succeed and remain in the profession can be made or broken by circumstances that influence self-efficacy.

Making the case for self-efficacy

Self-efficacy describes one’s conviction and belief in one’s ability to perform a particular task. It is created and subsequently altered based on people’s interpretations of relevant information from four primary sources: performance accomplishments or mastery experiences, vicarious experiences (e.g. observing role models), verbal or social persuasion (encouragement from others), and emotional arousal or physiological reaction.

The experience of success can influence one’s self-efficacy, demonstrating that the external factor (i.e. successful performance) influences the internal factor (i.e. self-efficacy). Some researchers have argued that self-efficacy is domain-specific. This means that an individual may be highly self-efficacious in certain areas and less in others. Self-efficacy beliefs are also organised hierarchically, such that students will develop it in a particular area of a subject, and then the next, and then the entire subject, and ultimately, to other subjects – developing into all-round top performers, which is supported by the academic achievements of the participants in this study.

In this study, the presence of female role models in actuarial science did provide encouragement. Role models not only attracted the women to the field, but also aided their persistence to succeed. One participant shared that her sister was her greatest influence as a black doctor, “… always pushing the boundaries and innovating … or doing things that you do not think that black women can do”.

Participants also stated that they looked up to their mothers. “I think … my mom’s been quite a big influence in terms of my journey and that kind of thing, and the type of person I am, because she’s actually quite a determined woman”. It also became clear that the desire to give back, which was influenced by the under-representation of black female role models in STEM fields, bolstered self-efficacy and played a critical role in their attraction to the profession. These women wanted to become the role models they did not have, but they also were fuelled by the prospect of changing their communities.

Longitudinal research has shown that mothers’ beliefs about their children’s capabilities influenced the children’s own level of self-efficacy, irrespective of the children’s academic performance. “But my entire life … it’s been my mum encouraging me, and also, … when I’ve been doing these sorts of Maths Olympiads and this kind of traveling overseas and stuff, she’s supported me a hundred percent,” said one participant.

Concurrently, due to stereotyping, black women are uncomfortable and may feel inadequate relating to the STEM fields, which can be a highly stressful workplace environment to which to adapt. Regardless, this study has proven that some of these women were fuelled by the idea of a challenging work environment.

Employers who wish to increase the participation of black women in actuarial science should therefore invest in brand and career communication to parents of girls.

The point: black female actuaries need support

It is safe to say that the potential of a black female actuary to succeed and remain in the profession can be made or broken by circumstances that influence self-efficacy. If self-efficacy can be positively influenced, nurtured and enhanced during the three key phases of becoming an actuary – namely school learner, student (pre-qualifying) and graduate (post-qualifying) – South Africa could attract and retain more black female actuaries.

The participants, for example, noted that their early exposure to actuarial science had informed their decision to enter the field. With an emphasis on the importance of hard work, effort and self-belief, and sharing information with parents and guardians on their role in supporting and nurturing self-efficacy, interest in actuarial science can be enhanced. The findings of this study hold important implications for the attraction and retention of black women into actuarial careers.

First, employers should recognise that women do not necessarily become interested in mathematics as a natural occurrence in their lives. Therefore, actuarial science can be highlighted as a potential career with good employment prospects for parents of young children. Through the encouragement of parents, young girls may take an interest in the field. Employers who wish to increase the participation of black women in actuarial science should therefore invest in brand and career communication to parents of girls. Furthermore, competitions and maths resources could be sponsored by these employers. This serves to strengthen the potential pipeline of black women actuaries for future employment. Emphasis should be placed on encouraging black girls to not only engage with mathematics but also to follow role models and to compete to become one of the best in a school or district. These measures should aid in building black girls’ levels of self-efficacy, which will ultimately lead to an increase in women’s participation in actuarial science. In addition, researchers have shown that employee workplace performance is linked to self-efficacy.

… the fact that black women actuaries know that they are part of a minority and therefore relatively unique in their career, should be harnessed by employers serious about increasing the number of black women actuaries.

The need for women to mentor and to make a difference to the lives of other black women, and the fact that black women know that they are part of a minority and therefore relatively unique in their career, should be harnessed by employers serious about increasing the number of black women actuaries. Qualified woman actuaries should also make an effort to contribute to early intervention programmes and provide mentorship to aspiring actuaries. Corporates, universities and the actuarial society could make a contribution in this regard by ensuring that they dedicate resources to establishing structured mentorship programmes that provide students with support from role models and mentors.

It has been found that women did not regard mentoring as significant in organisations where gender bias was low. The potential for gender bias may be high in a male-dominant environment such as actuarial science.

This study also highlighted the important role that mothers play in instilling self-efficacy in black women. Attaining the career aspirations that mothers have for their daughters is a big driver of competitive excellence for black actuaries in addition to fulfilling economic support expectations of their families and remaining employed as an actuary.

Being an outsider in mathematics by virtue of being black can be utilised to work in favour of young girls. Girls and women can be energised by the challenge of overturning commonly held notions of what it takes to be an actuary.

When considering an increase in employment for minorities in STEM, employers should recognise that their efforts and interventions should start long before black girls enter university. They should focus corporate and career branding efforts, involve parents, and continue with support throughout schooling, university and early career phases for black girls. With regard to self-efficacy, the power of the encouraging words and a vote of confidence can change the course of a girl’s life. Actuaries are not born, they are indeed made.

  • Find the original journal article here: Phume, L. B., & Bosch, A. (2018). The Attraction and Retention of Black Woman Actuaries. Global Business Review, 21(2), 1-12.

http://journals.sagepub.com/doi/pdf/10.1177/0972150918778908

  • Prof Anita Bosch lectures in Women at Work, Human Capital Management and Leadership at the University of Stellenbosch Business School.

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leadership coaching

Using existential leadership coaching in a medical partnership

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Using existential leadership coaching in a medical partnership

leadership coaching

Eric David Spencer and Dr Ruth Albertyn

  • OCT 2018
  • Tags Insights, Coaching, existential leadership

22 minutes to read

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Eric David Spencer and Dr Ruth Albertyn

Leading in a partnership with no corporate hierarchy

How can leadership be developed in a dynamic partnership context where the usual corporate or public institutional rules of hierarchy and power do not apply?

When specialist physicians partner in private practice, do they perceive each other as leaders equally? Are some seen as subordinate to others? Do they function as teams, or do only some take the lead?

This case study explored the use of existential leadership coaching in a private medical partnership of specialist physicians. The unique context of physician partnerships calls for alternative approaches to leadership development. Applying the tenets of existentialism to coaching for leadership development involves reflecting upon oneself in a given context, relatedness to others, and aligning choices towards purpose.

Leadership in a medical partnership, as in any organisation, involves situational choices that rely on the interactions and relationships with others in the context. One possible developmental mechanism for such a context is that of leadership coaching. Coaching interventions have been described as individualised processes that involve working with personal meaning, allowing individuals to reflect on the way they see themselves engaging in the world, and the way they make meaning in their situations. If approached from the philosophical perspective of existentialism, coaching interventions can focus on individual choice as an exercise of free will in an interrelated world. Existential coaching can provide physicians as leaders with time for reflection, as well as a chance to “unplug” from their busy lives and find a quiet internal environment in which to consider the best way to lead and contribute to their organisation.

Applying the tenets of existentialism to coaching for leadership development involves reflecting upon oneself in a given context, relatedness to others, and aligning choices towards purpose.

Existentialism applied to leadership coaching

A number of existential philosophical assumptions underpinned the coaching of the physicians: all humans are unique; free will exists; humans choose for themselves; inquiry is intrinsic to being human; understanding of reality is constructed and de- or reconstructed; humans are shaped through potentialities and possibilities within contexts and situations; situations in turn require interaction and dialogue with others; and humans further choose to become themselves/create themselves through such encounters and dialogues.

Existentialism holds that by being conscious, individuals are free within the constraints of their wider context, as long as they are able to envisage alternative worldviews and alternatives to the situations in which they find themselves. It is argued that realisation and reflection through a process of coaching in a partnership context can bring a change in the construction of the self and relationships with others, and the organisation as a whole. Existentialism provides an argument that if, while engaged in self-reflection, individuals discover aspects of themselves that are not pleasant, they will reorient their attention towards uncovering past unpleasant events in an attempt to solve the problem. If, however, in self-refection they recall pleasant things, they are more likely to self-reflect constructively and enhance their self-worth. Thus, existentialism, with its tenet of self as construct, provides a means for self-improvement through conscious choice.

In a private partnership, unlike in a public institution or corporate entity, hierarchy and power are not fixed but are relative and negotiable within the collective.

Relatedness in context and the link to leadership

In a private partnership, unlike in a public institution or corporate entity, hierarchy and power are not fixed but are relative and negotiable within the collective. Recent thinking on leadership has a number of implications for such a context. Some researchers refer to leadership as a social activity that involves engagement with the world, and consider it a collective resource, not an individual property, because it involves a symbiotic relationship between leaders and the given context. Other researchers say leadership calls for a collaborative understanding of others and a commitment to motivate rather than control. Leadership is therefore about encouraging colleagues to contribute towards improvement; it is about building relations with others. Leadership needs to embrace new forms of leading that recognise and build on the contributions of all members of a group – an inclusive approach rather than self-aggrandisement. Collaboration and connectivity are essential components of leadership in a partnership.

Through relating to others, we come to encounter and test our surroundings and ourselves, and begin to form shared meaning. It is mainly through dialogue that we relate to others. Consensus building is another critical tenet of a humanistic approach to leadership. Therefore, a holistic perspective approach is called for in a partnership that gives others the opportunity to see their contributions to the organisation within a context. Leaders are only leaders through their relatedness to others. Leadership is thus a result of perceptions from others. Only through awareness of self and others can one develop leadership, and this is especially so in the case of partnerships.

Coaching with perceptions and choice

Viewed from the perspective of existential philosophy, and considering the implications of leadership and relatedness in the context, working with perceptions and choice becomes valuable in the coaching conversation. Leadership has been said to be a process of being perceived by others as a leader, and studies suggest that leaders should indeed understand how they are perceived by others. Such awareness has been shown to be beneficial to leaders, and the encouragement of leader self-reflection has been linked to increased skills that positively affect others.

Humans exist in particular situations and contexts. Our identities are ever-forming in response to these situations and contexts, and we are ever-choosing our situations and contexts. In the process of becoming, we are influenced by our surroundings and others, and we construct our realities as we encounter others and form our truths and biases.

Leadership empowerment has been said to arise when one is perceived to be effective, when the work being undertaken is meaningful, and when one believes one has the power to make decisions and a positive contribution. Trust enables one to be empowered for one’s own development, and being more involved in an organisation can enhance a sense of ownership.

Applying a leadership coaching intervention in a partnership, which works with perceptions and choice, has the potential to raise the awareness of partners about how perceptions influence their choices, and how they can choose to be more empowered to contribute more to their organisation as leaders.

Leadership needs to embrace new forms of leading that recognise and build on the contributions of all members of a group – an inclusive approach rather than self-aggrandisement.

How was this study conducted?

The aim of the study was to explore, in a qualitative case study, how existential coaching conversations that focus on perceptions and choice might facilitate a leader’s awareness of how she or he could contribute to leadership development in a partnership. To gather data, four individual structured coaching sessions of one hour each were conducted with four purposively selected specialist physicians over a period of eight weeks.

The coaching conversations, which were central to the research process, were conducted through the application of the coach’s five-phase existential coaching model: focus, own perceptions, alternative perceptions, imagined perceptions of others, and choice.

Multiple sources of data were collected during this study. Prior to and after the coaching intervention, data in the form of reflective questions were collected from participants in their own words. During and after each session, note-taking using index cards were completed by participants in their own writing. Furthermore, note-taking and participant observations made by the coach/researcher were collected as data and captured in the researcher’s journal. Data collection commenced prior to the start of the coaching sessions using eight guided reflective questions to be completed in a written format. These questions spoke to the existential nature of the inquiry using existential vocabulary to describe perceptions concerned with being, meaning, freedom, anxiety, purpose and choice. The following questions were included:

Q1: What does it mean to be a leader?

Q2: What is the purpose of having leaders?

Q3: What characteristics and values should leaders possess?

Q4: How should leaders relate to others?

Q5: What anxieties (stresses) can result (in you and others) from a lack of leadership?

Q6: What characteristics or values for leadership do you personally possess?

Q7: How could you contribute more to the organisation as a leader?

Q8: What personal choices could you freely make to develop as a leader?

Directly before their first coaching conversation, each participant was requested to respond in writing to the eight pre-coaching reflective research questions. The written format was selected rather than interviews in order to establish the boundary between the verbal coaching conversation and the written data collection. During the conversations and at the conclusion of each of the first three conversations, participants were also asked to write down any matters deemed important to them on index cards. This included any thoughts clarified, any new ideas, new revelations, things they would like to remember, quotes from the conversations or summative words about the conversation. Immediately after the fourth coaching conversation, the participants were requested (not earlier known to them) to respond in writing to the identical set of guided reflective research questions in the same manner as at the start of the process. It was deemed important to document the participants’ perceptions at the end of the process in a consistent way for the data to be as credible and consistent as possible. The written data was analysed using thematic content analysis to identify themes.

Findings and discussion

The argument of this article is that working with perceptions of leadership in existential coaching conversations, and particularly the process of imagining the perceptions of others, can provide a mechanism for specialist physicians in a partnership to realise how they can contribute to leadership development in their organisation. The study’s findings are underpinned by the following assertions:

  • Partnerships are voluntary collectives, and thus leadership contribution therein is unique and a matter of individual free choice.
  • The process of trying to imagine the perceptions of others provided the greatest learnings/realisations in the context of the study.
  • Choices for contributions and hence leadership development can perhaps be made through conscious consideration of “the other”.
  • Purpose and meaning may also be discovered in such an imaginative, reflective and conscious process.

Collaboration and connectivity are essential components of leadership in a partnership.

Unique leaders in the partnership context

When explaining their own and subsequently alternative perceptions of leadership, the participants initially offered lists of characteristics and values that apparently mattered most to each of them. As the conversations progressed, questions of the meaning and purpose of leadership, as well as the underlying meaning and purpose of their individual lives, their responsibilities and obligations, and futures, were discussed. Themes that emerged during the review of the data included the concepts of self and self-awareness as related by the participants, their stated identities and backgrounds as influences on their perceptions of leadership, and leadership purpose and styles. It was clear from the conversations that the participants saw each leader as unique and were aware of the self in leadership. However, their use of self-dialogue and their degrees of self-awareness varied.

The participants chose to draw on their identities and backgrounds as influences on their perceptions of leadership.

The data from the conversations lends support to the existentialist and constructivist views that we are influenced in life and that we can choose how we respond to these influences. The study, although limited in a specific context, supports the concept of self, identities and worldviews that are unique to every individual and his or her personal learning journey, and how exploring these influences are part of the quest to know oneself. It was noted that the views expressed also support the view that leadership is an individual person-based, self-affirming construct. Partnerships are constructed by unique individuals, and leadership in such a context is also unique.

The imagined perceptions of others

The phases of the coaching conversations about imagining others’ perceptions, and especially others’ perceptions of the participants themselves as leaders, were usually more contemplative, serious-toned and introspective. Most of their uncertainties and extended thinking pauses occurred when considering others’ perceptions. These phases of the conversations often stalled or even came to a complete halt for a time. It was also noted that body language, gestures and facial expressions were often nervous or strained. Alternatively, there were bursts of embarrassed laughter. Participants began to fiddle with objects at their disposal, kneading their hands, breaking eye contact and looking around the room or out of the window. Hands scratched heads, rubbed chins or caressed thighs. All four participants expressed at one time or another that the process of imagining the perceptions of others was the most challenging part of the conversations for them.

Researchers in this field do believe that leadership coaching has the potential to generate new understanding and to challenge the values and attitudes of leaders. They believe that knowing oneself is accomplished by also investigating the other, and that we create our perceptions of ourselves via the social world.

Choices for contributions

Themes that dominated the conversations about leadership in the specific context were physicians as leaders; structure and role demarcation; and power and profit. All four participants introduced the matter of physicians as business leaders, even though it was not in response to any specific question, indicating that it was a matter of concern to them. The participants acknowledged that they were trained as doctors, not as business leaders.

The participants were not sure whether they should be running the business or not, or whether they should even be considered leaders. For the most part, there was an acceptance of de facto leadership, and a feeling that they should at least be partly running the business. It was a moot point. They also acknowledged that playing a leadership role in the business, or not, was a matter of choice.

As the conversations progressed, the participants moved from speaking of choice as merely a concept and to specifying how they would choose to contribute to the organisation.

According to the participants, the process of imagining the perceptions of others was the most challenging part of the conversations.

Purpose and meaning

The coaching conversations, in addition to leading to tangible choices being expressed, also saw the participants grapple with deeper questions of purpose and meaning in their lives, and how this related to leadership in the organisation. For instance, overall sustained financial success did not seem, according to the participants, to equate entirely to levels of satisfaction. Three of the four participants expressed concerns that they were perhaps not caring enough. Two could be said to be suffering from a form of existential guilt for, according to them, not caring enough for others and giving back to others. It was interesting to note that caring and a lack of caring appeared to be major factors for the participants, as were concerns around their business profits.

The use of existentialist vocabularies naturally emerged and increased during the coaching process. It was noted that the older participants used more existential language in their discussions, and also indicated choices that were more aligned to meaning than to organisational tangibles. The younger participants, on the other hand, expressed more tangible and more operationally related contributions. Whether this was as a result of age, experience or other factors is not known. The participants began to speak of internal struggles and battles, guilt and shame and matters of individual consciousness. The later conversations particularly saw an increase in such dialogue, and what appeared to be a deeper search for meaning by all four participants.

Evidence from the study speaks to the four assertions stated earlier. The limited application of existential leadership coaching in the unique context of a particular medical partnership illustrates that leadership is merely a figment of the collective imagination that only really lives in relationships with colleagues and their perceptions of each other. Leadership coaching involves an acceptance of relational and social constructivist features of leadership processes and acknowledgement of the potential for growth and development, challenge and change.

This small exploratory study lends support to the views of those researchers who believe that leaders should examine the meaning of leadership in their own lives and contexts, and ask why and for what purpose and on whose behalf leadership should be developed. This calls for a relook at the way leading and following are understood. Therefore, a holistic leadership development perspective approach is called for that provides leaders with opportunities to see their contributions to their organisation in context.

Finding a better way to lead together

Existential leadership coaching can help to address the leadership development needs in a unique partnership context.

Existentialist philosophy was applied as a theoretical base to a coaching intervention, and the findings support the philosophy’s tenets in that the participants acknowledged themselves as unique individuals with an ability to choose. The study was concerned with a particular model of dialogue: one in which a leadership coach conversed with a limited number of specialists who already exist in a specific leadership situation and context. The existential coaching conversations facilitated self-awareness with regard to leadership issues and contributions in their specific context. Their relatedness to others clearly informed their perceptions. The process, conducted within a safe space, also brought to the surface personal battles, frustrations and struggles. Participants indicated choices for pragmatic operational contributions and personal developmental choices.

According to the participants, the process of imagining the perceptions of others was the most challenging part of the conversations. When the participants were encouraged, however, their imaginings allowed them a space to think carefully, and an opportunity to change their perceptions more markedly. These imaginings resulted in new insights and changed perceptions, which led to tangible choices for action.

The study indicated that through a process of structured conversations the participants were able to identify those areas where they can develop and assert themselves, and where they can more actively contribute to the partnership collective and the success of the organisation.

The identification of their developmental areas could then lead to a refocus and further conversations to address specific developmental objectives. This process can be applied in leadership development in partnerships where usual hierarchies do not exist and where leading, or not, is a matter of choice within the context.

In essence, working with perceptions of leadership in existential coaching conversations can provide a mechanism for members of a partnership to find greater purpose, and to choose how they can contribute better to leadership development in their collective. Also, the process of imagining the perceptions of fellow partners can unlock the identification of and choice for developmental actions and contributions to the collective. Leadership coaching, therefore, has the potential to generate new understanding and to challenge the values and attitudes of leaders.

  • Read the original article here: Spencer, E. D., & Albertyn, R. (2018). Existential leadership coaching in a medical partnership. Leadership in Health Services. https://doi.org/10.1108/LHS-04-2017-0023
  • Dr Ruth Albertyn lectures in Research Methodology at the University of Stellenbosch Business School.
  • Mr Eric David Spencer is a PhD student at the University of Stellenbosch Business School.

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fees must fall

While fees must fall, tax exemptions go up

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

While fees must fall, tax exemptions go up

fees must fall

  • Dr Lee-Ann Steenkamp
  • OCT 2018
  • Tags Insights, Finance, #FeesMustFall, bursaries, students,tax

11 minutes to read

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Dr Lee-Ann Steenkamp

Using new tax exemptions to support education

The violent feesmustfall student protests, dramatic cuts in government funding for public universities and failing public school system paint a grim picture of the future of education in South Africa. Yet, while the one hand taketh away, the other hand of government giveth – in the form of an increased tax exemption for employer-provided bursaries. Better still, an added exemption for learners with disabilities has also been introduced to the Income Tax Act (No 58 of 1962).

Why the need for these changes?

The 2017 Budget Review triggered a call to increase the exemption threshold for employer-provided bursaries to relatives of employees. In addition, a new exemption threshold was proposed, acknowledging the limited resources that most of South African schools have to accommodate learners with disabilities. In general, the costs associated with educating students and learners with disabilities tend to exceed the costs faced by their able-bodied counterparts. This is because teaching disabled learners or students often requires special equipment, trained personnel, and specialised methods and modes of instruction and transport.

… while the one hand taketh away, the other hand of government giveth – in the form of an increased tax exemption for employer-provided bursaries

How the current study bursary exemption works

The requirements of section 10(1)(q) of the Income Tax Act have remain unchanged. This means the following requirements have to be met in order for a bursary or scholarship to qualify for this new exemption:

  • The scholarship or bursary must be a bona fide scholarship or bursary.
  • It must be granted to enable or assist a person to study.
  • The student or learner must study at a recognised educational or research institution.

A distinction must be made between a bursary granted to the employee and one granted to his or her relative. In the case of employees, the success or failure of their studies will determine the taxability of the bursary. If the studies are successfully completed, there are no adverse tax consequences. Also, as long as these employees agree to reimburse the employer if they fail to complete their studies (except if due to death, ill health or injury), the bursary is exempt. In short, good academic results lead to career and tax benefits!

Where the bursary is awarded to a relative of the employee, the exemption is determined by the employee’s remuneration in the previous year of assessment, i.e. the ‘remuneration proxy’. If this remuneration proxy exceeds R600 000 for the 2018 year of assessment, the bursary does not qualify for exemption.

For a remuneration proxy of up to R600 000, the exemption depends on the level of the qualification. For school studies or a qualification from a National Qualification Framework (NQF) level 1 to 4, the exemption amount is R20 000. For NQF level 5 to 10 (doctorate), the exemption increases to R60 000.

… a new exemption threshold was proposed … to accommodate learners with disabilities

Figure 1: The different bursary exemption categories and requirements

Non-employee
  • Anyone may apply, not just confined to employees or their relatives
  • Awarded on merit (academic or otherwise)
  • Fully exempt
Employee
  • Successful studies: fully exempt
  • Failed and reimburses the employer: fully exempt
  • Fails, but does not reimburse the employer: not exempt
  • Fails, but due to death, ill health or injury: fully exempt (no reimbursement requirement)
Relative
  • Successful studies: fully exempt
  • Failed and reimburses the employer: fully exempt
  • Fails, but does not reimburse the employer: not exempt
  • Fails, but due to death, ill health or injury: fully exempt (no reimbursement requirement)

The remuneration proxy should exclude the cash value of employer-provided accommodation as set out in the Act. Here, SARS Interpretation Note No 66 gives guidelines on the taxation of scholarships and bursaries. When counselling clients on negotiating with their employers, it is advisable to first consult this Interpretation Note. This is especially true when weighing the merits of loans, reimbursements and bursaries as each has its own tax consequences.

The tax treatment of these amounts should also be considered from the employer’s perspective. For example, the employer might prefer a learnership agreement, which could lead to tax deductions for the employer.

… the costs associated with educating students and learners with disabilities tend to exceed the costs faced by their able-bodied counterparts

How the new ‘disability’ study bursary exemption section works

As from 1 March 2018, the new section 10(1)(qB) applies where an employer grants a bursary to a disabled employee, or to a disabled relative of an employee who is taking care of this relative. In this context, “disability” means a moderate to severe limitation of any person’s ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment if the limitation has lasted or has a prognosis of lasting more than a year, and if it is diagnosed in the way prescribed by the Commissioner.

Prior to the introduction of this section, such a bursary qualified for an exemption under section 10(1)(q). The only difference now is that bursaries granted to a disabled relative of an employee qualify for greater exemption amounts. The remuneration proxy is the same at R600 000. However, for school and NQF level 1 to 4 studies, the exemption increases from R20 000 to R30 000. For NQF level 5 to 10, the exemption has been increased from R60 000 to R90 000.

It is suggested that financial advisers consult the SARS document titled List of qualifying physical impairment or disability expenditure.

What does the future hold for the funding of education?

On 16 December 2017, President (at the time) Zuma announced that the government would introduce full subsides, free higher education and training for poor and working-class undergraduate students. Widely regarded as an opportunistic ploy to win votes for his preferred candidate for the ANC presidency, it disregards the findings of the Heher Commission and puts universities under further pressure. Moreover, the Minister of Finance was caught unawares, and will have to find other tax sources to fund the free education promise.

In short, good academic results lead to career and tax benefits!

Let us hope that this does not impact negatively on the study bursary exemption, and other pro-education tax initiatives.

  • Original article: Steenkamp, L-A. (2018). While fees must fall, tax exemptions go up. Insurance and Tax Journal, 33(1).
  • Dr Lee-Ann Steenkamp is a senior lecturer in Taxation, Financial Planning and Climate Change at the University of Stellenbosch Business School. She is also Head of USB’s Postgraduate Diploma in Financial Planning.

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Why newly appointed senior leaders need support

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Why newly appointed senior leaders need support

Dr Nicky Terblanche, Dr Ruth Albertyn and Dr Salome Van Coller-Peter

  • OCT 2018
  • Tags Insights, Coaching, existential leadership

17 minutes to read

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Dr Nicky Terblanche, Dr Ruth Albertyn and Dr Salome Van Coller-Peter

Managing expectations in the case of new appointments

The fast pace of corporate change requires executives to move to new leadership levels at increasing speeds. While many attempt the transition bravely, many fail to do so or underperform.

When leaders transition into senior positions they face a magnitude of personal and systemic challenges. The consequences of failure can be disastrous both personally and for the organisation.

The South African policy context of fast-tracking transformation and rectifying imbalances filters through to corporate level. While transformation at corporate level is laudable, it can also hold negative consequences for both the intended beneficiaries of change and the organisation if the individual’s transformation does not accompany the transition to a new leadership role.

However, whether through transformation or the individual’s own ambition and desire to succeed, newly appointed senior managers are expected to perform in high-stress contexts, often without clear direction or formal support from the organisation.

When leaders transition into senior positions they face a magnitude of personal and systemic challenges. The consequences of failure can be disastrous both personally and for the organisation.

When people are promoted to leadership positions they are expected to ‘hit the ground running’, deal with higher levels of complexity and uncertainty, exhibit a higher level of emotional intelligence, work with longer time horizons, and step out of the comfort zone of a specialist to take on strategic challenges.

These challenges could at times lead to management derailment and have negative consequences for both the individual and the organisation.

Studies have found that the scope of organisational support given to transitioning executives has a significant impact on the success of their transition. This support allows them to spend their time and energy understanding the issues they are able to influence, not wasting precious time trying to figure things out.

What does it take to fulfil a new role?

What are the experiences of leaders during transition into senior positions? To find out, the researchers of this article interviewed eight recently transitioned senior managers, five coaches, two custodians of coaching in organisations (human resource managers in this case) and one line manager of a recently promoted senior manager (a CEO in this case).

The new position challenges how they have known themselves to be. It is not a case of adapting but transforming into the new role with changes to appearance, knowledge, behaviour, attitudes and values.

Studies have shown that a sense of anxiety can creep in when newly appointed senior leaders do not know what is expected from them in their new position. This can lead to a lack of confidence in their competency, fear of whether they would be able to fill the shoes of their predecessors, and uncertainty about the support they will receive from their new teams and the organisation.

The harsh reality of trying to clarify the new role could lead to emotional suffering and personal distress. This can be exacerbated by a lack of support from the organisation during the transition, the expectation to show results, a lack of skills, a lack of understanding the organisational culture, power plays and finding work-life balance.

This uncovered a number of new realities that are the key deal breakers for new leaders across industries.

Perhaps as a result of their uncertainty, or in combination with the need of highly successful people to show their mettle, the fairly newly appointed senior leaders had the desire to show results. And fast.

However, here too they faced challenges such as not having access to the necessary resources, focusing on the wrong goals, and not doing enough to harvest the low-hanging fruit or early wins. One of the most important activities of a newly promoted senior leader is to identify where to secure early wins. But the need to show results early can cause leaders to move too quickly, not fully understanding the ecosystem, with negative political results. It would therefore seem that a balance between speed and patience is required.

New senior leaders face a triple challenge of having to decide which aspects of their previous roles they need to let go of, which to preserve and which to build on.

To be effective in their new role, participants expressed the need to understand the systemic context of the role. They needed to understand the strategic intent of the organisation, the culture and politics, how decisions were made and who had power in the system.

When a person is promoted from outside the organisation, understanding the culture of the new organisation is even more difficult. This may be compounded when the person has moved from a different industry.

There are of course advantages and disadvantages to internal versus external promotion.

An internal promotion has the advantage that the person has prior knowledge of the organisational culture, internal politics and power bases. The benefit extends to networking and relying on existing relationships initially to get off to a flying start.

However, these very established relationships could come at a cost.

In their new roles leaders take on new responsibilities that may put strain on existing relationships. Continuing certain existing relationships can come across as favouritism with destructive consequences. Also, new leaders could struggle with former peers now reporting to them. The answer is to view the relationships from the perspective of the new role and to redefine where necessary.

Internally promoted leaders are often neglected in terms of organisational support because the assumption is that they ‘know their way around’.

Being promoted externally brings with it the luxury of a settling-in period – a honeymoon period of 60 to 90 days during which new leaders are allowed to find their feet, enjoy an element of forgiveness and the liberty to experiment. This does not last indefinitely, however.

Studies have shown that a sense of anxiety can creep in when newly appointed senior leaders do not know what is expected from them in their new position.

Ultimately, the organisation has an expectation that leaders will bring new ideas. Building a new network, getting to grips with the organisational culture and influencing people are also more challenging to external promotions.

For many participants, stepping into a new role came with the realisation that they did not possess all the necessary skills to perform the job. This is to be expected because promotion is associated with the need to acquire new skill sets. Managers in transition who rely too heavily on skills and strategies that worked for them in the past are setting themselves up for failure.

Some participants, especially those who had previously performed the tasks themselves, struggled to delegate or to develop the trust required for delegating.

The shift from being part of a team to leading the team and the interpersonal dynamics that accompany such a change are the most challenging aspects of a promotion, along with no longer having the time to think.

Perhaps as a result of their uncertainty, or in combination with the need of highly successful people to show their mettle, the fairly newly appointed senior leaders had the desire to show results. And fast.

Overcoming challenges and making your mark

A testimony to the resourcefulness of the participants in this research, and arguably partly the reason for their corporate success, was their ability to overcome the challenges presented by these shifting realities, despite the lack of organisational support in many cases. They had to gain an understanding of their new environment, show what they stood for, learn, build a network, and manage complexity.

The participants said that if, while trying to make sense of how the organisation functions and how the power plays work, you are unsure of what is expected of you, then insist on defining key performance indicators to gain insight into what is expected of you. It is imperative for senior leaders to produce long-range strategies and it is important to move from operational to strategic mode.

To cope with a perceived or actual skills gap, set out to acquire knowledge. Learning and adaptability are considered the most important actions associated with career success at any level. While learning is an important aspect of growth, most companies find it difficult to address this learning dilemma or are often not even aware that it exists. Senior leaders must have sufficient domain knowledge because if people think you do not know, they will take advantage of your ignorance. Be honest about your lack of domain knowledge and surround yourself with a set of trusted advisors in a transparent manner.

Managers in transition who rely too heavily on skills and strategies that worked for them in the past are setting themselves up for failure.

Executives with the most successful transitions spent more time than others preparing for their roles by researching the organisation, evaluating how top performers in the world managed in similar positions, framing their roles against what a world-class executive would do, and reading blogs and articles written by successful people.

Once in the position, build a strong network with the right people to help you navigate the new environment that comes with the promotion. Find out how decisions are made, who the key stakeholders are in such a department, who shouts the loudest, who should be listened to when they shout, and who should not be given an audience.

A network can span beyond the confines of the organisation. Enlisting the services of external experts such as consultants could help with performance while establishing a network of colleagues as sounding boards could equally be effective. If promoted internally, form a network with previous peers to share concerns upfront.

Deciding who to include in one’s network should not be limited to senior people or people with important titles. Include also the informal influencers who have more power in shifting support levels than many would want to admit. Head-hunt trusted subordinates from your previous organisation to create a strong network in your new environment. But be conscious of the danger of selecting the wrong support networks. If you side with a prominent senior person who gets side-lined or who leaves the organisation, the support structure effectively falls away, leaving you exposed.

Rely heavily on your initial team and listen to them to get to know them. Clarify the team’s role within the larger organisation. When things go wrong, take the hit and be the face of the non-delivery. This will help to unite the team and deepen mutual trust.

The shift from being part of a team to leading the team and the interpersonal dynamics that accompany such a change are the most challenging aspects of a promotion, along with no longer having the time to think.

It is about support

In the current South African organisational context, change and transformation are imperative and a reality. For sustainable development and transformation to occur, strong leadership is required. When leaders are promoted into senior positions they are vulnerable and face the possibility of failure, with negative implications on both micro (individual) and macro (organisational) levels. For leaders to transition successfully, organisations need to understand what challenges transitioning leaders face in order to provide adequate developmental support.

This study highlighted the challenges transitioning leaders face on a personal and systemic level. It also exposed the general lack of organisational support and clarity on what is expected of newly promoted senior leaders. This lack of support seemed to have contributed disproportionality to the anxiety experienced by the participants in this research.

Be honest about your lack of domain knowledge and surround yourself with a set of trusted advisors in a transparent manner.

The findings of this research have implications for organisations and transitioning leaders. Transitioning leaders could prepare themselves for the career move by educating themselves on the types of challenges they are likely to face, seeking clarity on what is expected of them in the new role, and actively building a support network.

Organisations, in the form of line managers and HR representatives, could support transitioning leaders by providing the relevant information they require to navigate the new role, explaining the cultural dynamics of the organisation, exposing transitioning leaders to tailor-made leadership development programmes, providing coaching and mentoring support, and assisting them to set realistic expectations of delivering early results.

For responsible and ethical transformation, it is crucial to address both micro-level and macro-level aspects and to ensure development and support. Ensuring the successful transition of organisational leaders into senior positions may provide the glue on a micro level to ensure sustainable developmental success on the macro level.

 

  • Find the original journal article here: Terblanche, H. D., Albertyn, R. M., & Van Coller-Peter, S. (2018). Developing leaders by supporting their transitions into senior positions. South African Journal of Business Management, 49(1), a12.
  • Dr Nicky Terblanche lectures in Management Coaching and Information Systems at USB.
  • Dr Ruth Albertyn lectures in Research Methodology at USB.
  • Dr Salomé Van Coller-Peter is head of the MPhil in Management Coaching at USB.

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emerging markets

Investor attention to market categories and market volatility: The case of emerging markets

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Investor attention to market categories and market volatility: The case of emerging markets

emerging markets

Jarkko Peltomäki, Prof Michael Graham and Anton Hasselgren

  • OCT 2018
  • Tags Insights, Finance

17 minutes to read

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Jarkko Peltomäki, Prof Michael Graham and Anton Hasselgren

Using investor attention as a way to explore financial market phenomena

In the immediate aftermath of the Brexit vote in the UK in June 2016, various news outlets reported that the most searched words and phrases by individuals in the UK, according to Google Trends, were based on terms related to the vote. This highlighted the usefulness of an important variable garnered to capture individuals’ attention to specific events, thus validating the use of the Google-based search volume index (SVI) to investigate financial market phenomena, like market performance, in finance literature. However, relating SVI to financial market patterns has been empirically problematic because we cannot be certain that trading decisions are made on the basis of information gathered from a Google search.

In this article, we estimated three practical innovations of the investor attention variable that incorporate investors’ trading decisions and applied them to equity and foreign exchange (FX) markets volatility in a specific market category, namely emerging markets (EMs):

  • First, based on the Multiple Resource Theory, we estimated a refined proxy for attention from the search volume index (SVI) and abnormal trading volumes (ATV) in the market. We did this by taking the first principal component of SVI and ATV. Thus, we reinforced an obvious online query with market-based information on trading volumes to increase the possibility that information from an internet search is used when making trading decisions. This maximises the amount of variation captured from both variables and accentuates the signal value regarding investment activity.
  • Second, we disentangled the variation in the SVI variable most likely to affect EM-specific volatility. To do this, we took the first principal component (PCA) of SVI and excess ATV, the difference between abnormal trading volume in emerging markets and the United States.
  • Third, we split SVI and the new PCA-based proxy for investor attention into expected and unexpected attention. This points to the component of attention most likely to impact price behaviour.

An inherent assumption in asset pricing models is that financial markets extract and instantaneously include new information in asset values. Yet, news cannot be reflected in prices until agents pay attention to and act on the information. The Multiple Resource Theory suggests that investor attention to specific events can be broken down into three stages: perception, processing and action. Filtering trading-related attention to any market category is challenging as investor attention to a financial asset does not automatically translate into trading decisions and action.

In this study, we have attempted to capture and apply the full spectrum of the dynamics in the information processing in the innovations we estimate. Proxies for attention in existing literature have mainly focused on the individual stages of investor attention. For example, SVI captures perception and processing while ATV focuses on action, with no links between the two.

Attention is a scarce cognitive resource, implying investors with limited time and effort use only a limited set of information. Implicitly, to efficiently allocate scarce attention, investors categorise assets or markets at the initial step of the portfolio allocation decision. This makes categorisation based on shared commonalities crucial from the viewpoint of information processing as it enables, with reasonable efficiency, the processing of a large volume of information.

Yet, the literature that looks at the important role of investor attention in determining stock price volatility is silent on the impact of attention on the volatility of returns in key market categories.

The emerging market category, which encompasses a wide variety of countries with different characteristics, it is an important market category. The literature has, for instance, established that the EM’s risk profile is inherently different from that of developed markets, and that it is a segregated part of the global stock market. Thus, the EM category merits an in-depth understanding in order to enhance its contribution to global stock portfolio diversification. Therefore, we re-examined the hypothesis that investor attention explains stock market volatility and applied it specifically to the emerging market category using our newly developed measures of attention. We therefore hypothesised that EM equity market volatility increases with investor attention to EM economies.

We also examined whether investor attention exerts any measurable influence on volatility in the EM foreign exchange (FX) market. The focus on the EM currency category has some merits as some EM currencies are currently included in the top most traded currencies. Also, EM currencies are seen as an important risk factor in EM equity returns. In the market itself, the financial press recently speculated about the increase in foreign exchange instability as a result of policy divergence across countries. The Bank for International Settlements has noted significant swings in capital flows to and from EMs, resulting in a reappraisal of its FX market intervention strategies. This suggests important changes in the patterns in the EM category of the FX market. However, empirical evidence on the impact of investors’ information acquisition on currency price dynamics, including volatility, is limited.

Evidence on whether or not investor attention is a significant driver of price behaviour or volatility in EM currency markets should therefore have practical applications for trading and predicting the direction of the EM economies.

What does the literature say?

The theoretical literature on the implications of limited attention for asset pricing shows that attention constraints lead to lagged investor responses to fundamental shocks and predictable consumption changes. In addition, when selecting a portfolio in the presence of rational inattention, investors with greater risk aversion or longer investment horizons tend to update news less frequently, but select more precise news updates. Moreover, the propensity to concentrate on market and industry-level information, rather than firm-specific information, is characteristic of investor inattention.

The empirical literature has examined the relationship between investor attention and asset returns using different proxies for attention. Earlier research looked at the important role that mass media outlets play in disseminating information to investors and inferred indirect measures of attention such as headline news, media coverage and advertising expenses. These proxies all show important effects on financial variables. Other studies inferred investor attention from abnormal trading volumes (ATV). Using these proxies, some researchers provide evidence that investors’ propensity to buy stocks that catch their attention is greater than the propensity to sell.

Recognising the growth and importance of the internet as an information hub for investors, a strand of research has explored internet-based attention proxies. While proxies such Wikipedia updates and blogposts have been used, the literature has lately converged around Google-based search queries (SVI) as a measure of attention. The SVI is correlated to, but different from, other proxies for attention such as trading volume and media coverage. Importantly, SVI is shown to be positively associated with future stock returns. The internet-based proxy for investor attention also shows that an increase in attention improves market efficiency and leads to a significant change in short-term index returns. The literature review for this study has also noted a long-term change in attention following a shock to index returns. There is strong evidence that internet search volumes regarding market states include relevant information about investor attention and that they perform well at predicting future market performance.

The SVI variable actively incorporates expressed interests by economic agents. However, researchers cannot be sure that investors who source their information from the internet use it to make trading decisions. That is why we have measured investor attention by estimating three practical innovations of the investor attention variable to emerging markets. We combine the proxies through principal component analysis (PCA) to extract information from several variables.

In the FX market volatility literature, two important results came to the fore. First, attention and FX market volatility go hand in hand. Second, attention predicts FX market volatility. It was also noted that EM currency return is a significant risk factor of EM equity returns. Given this explanatory role of currency returns for emerging equity markets, we have related our initial hypothesis to EM foreign exchange volatility to test a second hypothesis: FX market volatility in emerging markets increases with investor attention to emerging markets.

What data and analyses were used?

The data used in the empirical analyses were obtained from varied sources. The data on the MSCI Emerging Market Index, the S&P 500 Index and the MSCI Emerging Market Currency Index used to estimate the market returns and return volatilities was drawn from the Thomson Reuters DataStream. Two currencies were pegged in the MSCI Emerging Market Currency Index, namely the Jordanian Dinar and the Chinese Yuan. The data period was 16 April 2004 to 12 December 2014. Various analyses were conducted, including descriptive statistics, pairwise correlations for all pairs of variables and Pearson correlations.

Measures of investor attention and volatility

We used the US Google-based Search Volume Index (SVI), employing the search word emerging markets to represent attention to the EMs category. This search term typically relates to information of a financial nature, which minimises the level of noise in the search word. The Google data is normalised as the probability of a search on the particular search word for a specific region and time measures the probability of a search during an entire week. We labelled this variable the Emerging Market Search Volume Index (EMSVI) and interpreted it as capturing the attention of retail investors. This measures the overall interest in the asset category displayed by potential and actual retail investors. We also split the EMSVI variable into expected and unexpected components. The expected EMSVI, EXPEMSVI, represents expected attention to emerging markets while the unexpected EMSVI, UNEXPEMSVI, represents shocks to attention not anticipated by the market.

We included abnormal trading volume (ATV), defined as the ratio of the daily trading volume over the yearly average, as an alternative proxy for attention in our empirical analyses. This investor attention variable should capture the last stage, action, in the information processing procedure, where investors have paid enough attention to make a buy/sell/keep investment decision. This measure of attention complements the SVI. The trading volumes in emerging markets and the US are represented by the respective trading volumes of the MSCI Emerging Market Exchange Traded Fund and the Standard and Poor Depositary Receipt Exchange Traded Fund, for which the data was accessed from Yahoo! Finance.

However, a measure of investor attention based on an internet search query cannot explicitly state that the agents who searched for the information acted on it to make trading decisions. In this paper we also used a refined measure for investor attention, which increases the probability that internet search results are incorporated into investor decisions, thus taking into consideration action. To do this, we combined measures to capture a wider spectrum of investor attention.

Conclusion

What is the impact of investor attention on stock market and FX market volatility in emerging economies using innovative attention proxies that capture all the dynamics of the information processing stages?

This paper examined whether investor attention has explanatory power regarding emerging market equity and currency volatility. Attention is a scare resource and investors, making portfolio allocation decisions, categorise the market based on shared commonalities to gain incremental knowledge. Thus, from an information processing viewpoint, large volumes of information in certain categories can be processed efficiently to enable efficient trading decisions to be made.

In this paper we estimated and applied various attention innovations to examine the information processing and actions in relation to emerging markets, namely Google-based search volume index (EMSVI) and abnormal trading volumes (EMATV) in the market:

  • First, we took the first principal component of the EMSVI (Google-based search volume index in emerging markets) and the EMATV (abnormal trading volumes in emerging markets) to form a new attention variable, based on Multiple Resource Theory. We argued that this new attention variable is better in capturing the possibility that retail investors, who see headlines and search for information (proxied by the Google-based search volume index), use that information in their trading decisions (abnormal trading volumes).
  • Second, we disentangled the variation in the SVI variable that is most likely to affect EM-specific volatility by taking the first principal component of SVI and excess ATV. This means the enhanced investor attention variables potentially have stronger economic significance relative to the Google-based search volume index (SVI) proxy.
  • Third, we split attention into an expected and an unexpected component to inform on the component attention that most likely impacts price behaviour. Our results indicated that the economic significance of the enhanced attention variables is higher than the traditionally used Google-based SVI proxy.

We found that investor attention has a significant influence on stock market volatility as well as excess volatility in EMs. This finding has three implications:

  • Categorisation matters, as the emerging market category is linked to investor information processing.
  • Investor attention to the EM category of the global stock market is a relevant determinant of stock market volatility in EMs.
  • EM equities have a segregated role in the global market.

Our results also showed that both expected and unexpected (shocks to) attention are significant when explaining changes in excess EM equity volatility. However, investor attention to EMs does not show any measurable impact on EM FX volatility, which suggests that the predictive power of attention in relation to FX volatility cannot be generalised. This finding implies that information processing about the EM category does not affect FX similar to equities.

Overall, our results showed that investors in emerging market equities should be aware that the riskiness of their investment is exposed to investor attention to the EM category. It is also clear that the measuring of investor attention in research can benefit from adopting a multi-dimensional approach, taking into account various aspects and levels of attention.

  • Original article: Peltomäki, J., Graham, M., & Hasselgren, A. (2018). Investor attention to market categories and market volatility: The case of emerging markets. Research in International Business and Finance, 44, 532-546. Click here
  • Prof Michael Graham lectures in Infrastructure Finance and Corporate Finance at the University of Stellenbosch Business School. He is also head of USB’s Development Finance portfolio of programmes.

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GDP

Why should GDP be the only indicator of progress?

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Why should GDP be the only indicator of progress?

GDP

Ms Grace Garland, Dr John Morrison and Prof Piet Naudé

  • OCT 2018
  • Tags Insights, Entrepreneurship, MBA Research, Motivation, Meaningful Work, Work Meaning

21 minutes to read

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By Ms Grace Garland, Dr John Morrison and Prof Piet Naudé

GDP as the most widely used economic statistic in the world

Gross domestic product (GDP) has been the subject of academic scrutiny for as long as it has existed, largely owing to the common, and problematic, practice of conflating GDP growth with success and shrinkage with failure.

Any common-use mention of GDP invariably carries the same understanding – the bigger, the better. An overall increase is generally understood as an indication of progress at societal level, while an increase per capita implies that the standard of living has progressed at individual level.

GDP remains the most widely used economic statistic in the world, featuring as a topic of discussion from the dinner table to the board room. Changes in GDP have wide-ranging effects for multilateral negotiations, politics, the media, international laws, national policies, institutional investments and individual life choices. In each context, the same implicit understanding is present: the more growth, the better things must be.

However, GDP was never intended to be an all-encompassing progress measure. The concept of progress is far more ambiguous and complex than what the linear logic of GDP was designed to capture. Some argue for the dismantling and replacement of GDP, suggesting that its use as an indicator of progress is an institutionalised mirage at best, or a structural information failure at worst. Many have tried to come up with an alternative. None have succeeded entirely.

The last few decades have witnessed an increasing awareness of the sustainability crisis, magnifying the scepticism that was already surrounding GDP and its exclusively economic parameters. Some of the countries that look the healthiest in GDP terms, and enjoy huge power and prestige as a result, have turned out to be the biggest contributors to climate breakdown, a planet-wide existential threat. Something is amiss.

If the fundamental logic of GDP is based on growth, it can only be an appropriate indicator in a boundary-less context, which is a characteristic the earth does not have. Growth, as an end in itself, is a wrong-headed goal for life on a planet with limited resources. Logically, it is not hard to see why GDP is not fit-for-purpose.

So why has the widespread intellectual critique of this one-dimensional (economic) progress measurement failed to establish a new paradigm in which economic growth is not automatically equated with rightness? A possible framework for understanding this apparent paradox, or stalemate, is Thomas Kuhn’s The Structure of Scientific Revolutions (1962). Kuhn was a physicist who developed a lens for understanding how and why major changes in thinking take place, and why sometimes they do not.

He suggested that no empirical practice exists in isolation from the inherited set of beliefs and values of the prevailing paradigm in which it is practiced. For the practice to change, the paradigm must change too, and paradigmatic change is nothing short of “revolution”. Analogously, prioritising GDP is consistent practice for a society in which material accumulation, industrialisation and consumption are foundational values in policy-making and, indeed, individual life choices. So, it is a revolution of values that is needed, not just a methodological amendment.

Despite historic and mounting criticism of GDP, a revolution in progress measurement has failed to take place, and the paradigm that exclusively conflates economic growth with progress prevails. Using Kuhn’s terms, society is in “crisis”.

Any common-use mention of GDP invariably carries the same understanding – the bigger, the better.

Is GDP a catch-all for societal progress?

Human beings have been committing vast amounts of energy to measure things since the early Enlightenment period, making sense of the world around them through statistics and data. This ability to capture the chaos of multifaceted reality in a few quantitative indicators is useful and necessary for effective decision making.

By reducing a complex reality into a few basic elements, people are able to apply analytical logic to the present and indeed forecast the future, bringing a degree of certainty and comfort. However, this can create an illusion of simplicity which effectively blinds the decision-maker to factors that fall outside of the described measure. In the case of GDP, such factors would include the ecological, social and non-market indicators that can also be measured, though not necessarily in monetary terms.

Because human beings are limited in their ability to comfortably entertain a large and diverse number of informational inputs at the same time, we are predisposed to focus on only one or two in the way we construct the world. This bounded selection process is informed by personal preference of what is convenient, quick or familiar (or ideally, all three).

The GDP calculation and mainstream interpretation thereof fulfil these criteria, making it the obvious choice for progress measurement.

The methodological framework of GDP is narrow, with niche applicability. It was developed by leading economists before and during the Second World War and became an indispensable tool to Allied governments eager to account the impact of military expenditure on their economies. Maximising the production of weaponry and supplies was crucial for strategic planning, and GDP precisely captured those factors in a single statistic. Similarly, production growth, reflected as GDP in the post-war recovery period, was a clear indicator that nations were rebuilding and societal welfare was improving.

In 1953, the UN institutionalised GDP in the System of National Accounts as a way of promoting international comparability among national accounting systems. It made sense to standardise, given that international trade was growing, as was diplomacy on a global scale. However, the choice of GDP has left a legacy; a number of writers have argued that institutionalising a production-based measure of progress has effectively shut the door on alternative, more integrated, indicators.

In recent years, the practice of using GDP as a definitive yardstick is being challenged by the growing consciousness of environmental and human development imperatives – the blind spots of the GDP calculation. The demands of the future require humanity to respond with a paradigmatic shift away from economic growth-centricity and towards a more holistic definition of progress.

In the case of GDP, such factors would include the ecological, social and non-market indicators that can also be measured, though not necessarily in monetary terms.

“Sustainable development” is entrenched as the overarching goal of modern society and acknowledges that the kind of progress mankind should be aiming for in the 21st century is multi-faceted, with a profound number of challenges that must be overcome. Economic growth is a component of this progress, not synonymous with it. In reality, though, the conflation between the two concepts is insidious, and there is no better demonstration of this than the continued predominance and widespread use of GDP as an indicator of how well or how poorly society is doing.

GDP’s shortcomings at capturing the complexity of “progress” have already been hinted at. Yet, some further comments are in order. Importantly, GDP fails to discriminate between welfare-enhancing and welfare-degrading expenditures. Also, it cannot account for environmental and social “externalities” or informal economic activity. Money changing hands between formal entities – that is what it counts. What the money-generating activity looks like makes no difference, and any other form of labour or value-add is ignored.

This gives rise to some counter-intuitive conclusions. Pollution, for example, is computed as a double benefit to the economy: GDP is boosted even if the manufacturing process of some materials releases toxic chemicals, and again when they have to be cleaned up and remediated. Another example is the boost to GDP when an increased number of high-security gates are installed, or more candies containing palm oil are bought, when the former is in fact the result of the social evil of crime and the latter is the result of the environmental evil of deforestation. And what about the family who plants their own vegetable garden, deriving much pleasure in the process? This sort of non-monetary value does not figure in GDP’s definition of progress. Stretching its interpretation beyond production factors is a misrepresentation of reality.

Seeking an alternative

Political leaders and policy makers generally attach extreme significance to GDP in their decision-making.

When economic growth statistics are reported on by statisticians and disseminated in the mainstream media, the positive real growth results tend to provoke an optimistic response, observed in upside trading patterns in financial markets and accelerated retail activity. The opposite scenario is equally true, and the ensuing instability and pro-cyclic effect create volatility which is hair-raising for the majority of working adults with retirement savings.

Central banks formulate their interest policy on growth expectations in GDP terms, as do credit ratings agencies when determining sovereign solvency. Politicians know that a negative GDP forecast may hurt them at the voting polls and therefore subordinate decisions that risk this outcome, even if the investment will have a long-term pay-off, including those relevant to climate breakdown. This is particularly relevant to future planning – by omitting the depreciation of natural capital associated with climate breakdown, as well as the depletion of extractive resources through industrial activity, GDP falsely implies that we are richer than we really are, and that we will continue to be rich into the future.

… a number of writers have argued that institutionalising a production-based measure of progress has effectively shut the door on alternative, more integrated, indicators

The environmental degradation and human under-development crisis has produced a number of challengers to GDP. These include the Human Development Index (HDI), Sustainable Economic Welfare (ISEW) and its later version the Genuine Progress Indicator (GPI), and the Happy Planet Index (HPI). All have all managed to complement GDP to varying degrees of success, but not replace it.

For every new index proposed, dozens of methodological oppositions arise in response. The contentions surrounding these alternatives capture the major challenges that arise in trying to develop a truly holistic measurement, simply because the concept of progress is profoundly complex. None has managed to beat GDP “at its own game”.

Specific difficulties aside, there is the overarching challenge of widespread acceptance and diffusion, without which the impact of a new measurement will remain limited. GDP’s very embeddedness is a source of its resilience. Stalemate.

The obstacles to a paradigm shift

A true paradigm shift, in Kuhn’s conception, is nothing short of a revolution, and it requires three things: (1) logical evidence that the current paradigm is wrong, (2) a community of supporters promoting the change, and (3) sufficient promise that the alternative paradigm is attainable and desirable.

The strength of a paradigm lies in its universality, providing the fundamental explanation for the world which allows scientists to experiment with the details and make new discoveries within the bounds of its truth. Part of the process of discrediting the prevailing paradigm is to make explicit its invisible assumptions and fundamental truths. This can be applied to our fixation with GDP growth.

(1) Making the case through evidence

The single-minded pursuit of economic growth has had a disastrous impact on both the environment and humanity, to the extent that the long-term future of both is threatened. Threatened by the assumption that money is really all that matters, the prevailing system can be said to be in “crisis” with the potential for revolution.

Instead, the major supranational entities responsible for global decision-making have responded by prioritising what they call “sustainable development”. In so doing, society has embraced the environmental and social challenges without really altering from a growth course. The solutions proposed by sustainable development are not revolution but rather a more responsible version of growth. The argument that economic growth can be “decoupled” from environmental and social damage, that the environment can be accounted for in monetary terms, and that the resources of the earth exist for human use, still places human economic interests front and centre. Nothing very fundamental is going on here.

Technology is regularly hailed as the flagship of sustainable development due to the improvements it can bring. It must however be acknowledged that we do not fully understand the impact of technology on society. Also, it would be disingenuous to view its capabilities in isolation from the humans who use it. The deeper point is that, so long as material and wealth accumulation are valued as the signifiers of success, resource depletion and inequality will not be averted by technological intervention. The economies of scale afforded by digital production will just make us more efficient at producing the stuff we desire.

Economic growth is a component of this progress, not synonymous with it.

Therefore, while the logical strength of the evidence to discredit the prevailing paradigm is acknowledged, the mainstream discourse of sustainable development has successfully expanded to include it. Attaching “responsible” or “inclusive” to “growth” is a welcome improvement, but it is not the deep sort of change that brings about shifts at the paradigmatic level.

(2) Power of the people

The community calling for the amendment or replacement of GDP has grown substantially in recent decades and, since the global financial crisis, with greater vehemence. However, far from presenting a coherent alternative, this community is characterised by fragmented efforts in multiple directions with few sharing the same interpretation of core ideas.

Ecologists have a limited understanding of institutional power and social change, while social scientists lack an appreciation of the ecological context of social skills. Silos in academia, business and other institutions also do not assist with presenting a “united front”.

The general population is the largest and arguably the most powerful community of followers of the growth paradigm. The invisible conflation of success and wealth has a profound influence on virtually all spheres of life including employment choices, voting patterns and interpersonal relationships. The picture of what a good life looks like – one defined by wealth and its associated social status – is reinforced ad infinitum through mainstream advertising and entertainment media. This is despite the fact that research into human happiness has added empirical weight to the notion that consumption for consumption’s sake brings with it certain dissatisfaction.

There are of course alternative lifestyles that foreground meaning over wealth and material accumulation, but whether they will spread to the extent that they convert a large portion of the general public away from a growth-centric worldview remains to be seen. Even then, the challenge would likely remain, as it is those who have benefited most from the growth paradigm who have the power and status to draft new policies to change it. It would require truly visionary global leaders to push for policies that go against their own interests for the betterment of all. Unfortunately, not many of those type of leaders seem to be around.

Therefore, while the movement for a new progress measure to shift the focus away from economic growth has gained significant momentum, it lacks the necessary coherence to convince the mainstream that change is necessary, worthwhile and achievable. It may be that the deeply complex nature of the crisis itself renders the articulation of a coherent solution impracticable.

(3) The future picture

The scale, depth and multi-dimensional nature of the sustainability crisis has meant, to some, that efforts to develop a new progress indicator that reflects this complexity will not be achieved, and it will take more than a new statistical measure to bring about societal change.

Importantly, GDP fails to discriminate between welfare-enhancing and welfare-degrading expenditures.

Positive projections of a sustainable future are, at best, guarded, while prognoses for the environment are pessimistic, even frightening. This leaves the sustainability crisis without a promising alternative, and the resilience of GDP then can possibly be attributed to “rather the devil you know, than the devil you don’t”. This apathy has a powerful de-motivating effect on the will required to embrace deep changes.

If it is only the next generation of decision-makers who will have the knowledge, networks and future plans to bring about a different paradigm, then it is up to today’s adults responsible for their education to ensure they are familiar with what is at stake. The most powerful community to advocate for change today, then, are the educators who recognise the paradoxes of modern life and decide to do something about it. They can make an ethical commitment to empower their students with the tools and values to disrupt the stalemate when it is the student’s turn to make the important decisions.

The solution lies in resisting the urge to be satisfied by technologically-driven solutions under the sustainable development banner, and to rather reach across disciplinary boundaries to amass a more unified and coherent counter-community in order to imagine and promote a different way of living. This will harness the three forces necessary to bring about a revolution. No young person who completes formal schooling this side of the release of the Sustainable Development Goals should be without a clear understanding of the nuances of society and the interconnected vulnerabilities of mankind, peace and planet.

The invisible conflation of success and wealth has a profound influence on virtually all spheres of life including employment choices, voting patterns and interpersonal relationships.

If future decision-makers can be conscientised to appreciate the complexity of the concept of progress to the extent that they reject the notion that any singular indicator could capture it, the advocates of this generation will have succeeded. It will be no small achievement – nothing short of revolutionary – and it is not an exaggeration to say that the future depends on it.

  • Read the original journal article here: Garland, G. M., Morrison, J. M., & Naudé, P. (2018). Economic growth and progress: A paradigmatic conflation. African Journal of Business Ethics, 11(2), 37-55.
  • Ms Grace Garland holds an MBA from USB and is currently completing a Master of Applied Ethics at the University of the Witwatersrand. She is a freelance thinker and writer, and is an Associate at The Ethics Institute.
  • Dr John Morrison is a senior research consultant at USB, specialising in project management, research methodology and research coaching.

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unit trust fees

Paying the high price of active management: A new look at unit trust fees

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

Paying the high price of active management: A new look at unit trust fees

unit trust fees

DC. Janse van Rensburg and Prof Niel Krige

  • OCT 2018
  • Tags Insights, Coaching, existential leadership

17 minutes to read

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DC. Janse van Rensburg and Prof Niel Krige

Are the high fees of actively managed unit trusts acceptable?
All over the world, investors are debating whether actively managed funds provide superior returns net of fees when compared to exchange traded funds (ETFs). It has been shown that numerous actively managed American unit trusts are in fact “closet” index funds which charge fees much higher than that of exchange traded funds tracking the same index. This trend is also evident in South Africa.

Are high fees still justifiable in the case of actively managed unit trusts? What is the true cost of active management?

The cost of active management is termed the active expense ratio. To determine the cost of active management, and using the method described by Ross Miller (2007), a selection of unit trust portfolios were split into a passive component, which is the portion of the portfolio that is equivalent to investing in one or more index-tracking funds, and an active component, which is the portion that is uncorrelated with the benchmark. In addition, by isolating the active component of the unit trust, performance measures such as alpha can be adjusted to determine the effect of active management on performance (termed the active alpha).

Using Miller’s method, the active expense ratio and active alpha can be calculated without any knowledge of the underlying assets in the unit trust portfolio. The approach uses the R2 (R square) of the unit trust (performance variance that can be explained by the benchmark) to determine the active expense ratio and active alpha of the fund. According to Miller, the active expense ratio, as a gauge of fund costs, is a better measurement than the traditional total expense ratio (TER) because the explicit cost of indexed alternatives is recognised.

… numerous actively managed American unit trusts are in fact “closet” index funds which charge fees much higher than that of exchange traded funds tracking the same index

What does the literature say?

Some researchers found that, on average, it is not worthwhile investing in actively managed funds. One study found that systemic risk factors could account for 82% of return variances in US funds over a period of 40 years up to 2003. The high percentage of returns being attributed to indices shows that there is very little room for active management to add value to the portfolios beyond that of market indices.

A number of studies found that the level of active management in portfolios has declined throughout the world. In one South African study, active management declined from 55% to 15% over the period being investigated, with the researchers concluding that there was no evidence of successful active management to justify the higher fees charged by fund managers. The increase in exchange traded fund (ETF) investments has led to a decrease in active share investment. As a result, many unit trusts are now seen as closet index funds. Some studies reported that the level of active management is higher in the developing markets than in the developed world.

In reality, many actively managed unit trusts have returns closely correlated with comparable ETFs, but the fees charged are significantly higher.

A number of studies found that the level of active management in portfolios has declined throughout the world.

How was the study conducted?
This study started off by dividing the fund management expenses of actively managed South African general equity unit trusts into active and passive management portions. This was done to calculate the implicit cost of active management. The active expense ratio of a unit trust can be calculated by using the published total expense ratio (TER) of the unit trust, its correlation relative to its benchmark and the expense ratio of a comparable exchange traded fund (ETF) tracking the benchmark of the unit trust.

This study focused on actively managed South African equity unit trusts available to retail investors for the period March 2007 to February 2015. Unit trusts were included in this study if they had data available for at least 36 months, if at least 80% of their assets were invested in equities, and if they were only sold to individual investors. No fund-of-funds unit trusts were included. The active expense ratios of these unit trusts were calculated on the basis of three-, five- and eight-year analysis periods.

The Association for Savings and Investment South Africa (ASISA, 2015) published data for 841 unit trusts classified as South African unit trusts on 31 December 2014. After applying the criteria listed above, the three-year unit trust sample included 87 unit trusts, the five-year sample 72 unit trusts, and the eight-year sample 52 unit trusts. The unit trusts were classified as either Financial funds, General funds, Industrial funds, Large Cap funds, Mid and Small Cap funds or Resources and Basic Industries funds.

The published fact sheet of each unit trust was sourced from the website of the managing company and scrutinised to obtain the benchmark, TER and inception date of each unit trust. To analyse the performance of the unit trusts, the individual unit trust Net Asset Value (NAV) prices were sourced from the iNet BFA database. The NAV price calculated at the close of business on the last working day of each month was used for unit trust performance calculations.

The month-end NAV prices for each benchmark, corresponding with the date of the unit trust NAV price data, were also sourced from the iNet BFA database. In the case where a benchmark was not a JSE Index, the fund was regressed against the different benchmarks used by the category peers. The JSE Index that produced the highest R2 value was then used as the benchmark for this particular unit trust. The 91-day Treasury Bill rate was used as a proxy for the South African risk-free rate.

The monthly performance of the unit trusts was calculated based on raw percentage returns between the start and end of the month being reviewed. The increase in NAV per unit in the unit trust was then calculated.

It has been argued that unit trusts bundle alpha and beta which, simply stated, means that an actively managed unit trust is a combination of a pure hedge fund (the alpha component) and an index tracking fund (the beta component). The relative size of the alpha and beta components can be estimated by regressing the historical returns of the fund with the historical returns of the benchmark, after subtracting the risk-free rate from both returns. The results of the regression analysis indicate what proportion of the performance of a unit trust can be attributed to passive investment choices and what proportion to the active choices of the unit trust manager.

Through the regression analysis, the coefficient of determination (R2) represents the component of the total returns of the fund that is as a result of index returns. The value given by 1-R2 therefore indicates the returns of the fund as a result of the actively managed component.

The active expense ratio can be calculated by only having access to the values for the coefficient of determination (R2), the TER of the unit trust being evaluated and the TER of the comparable ETF. The active expense ratio increases with both an increase in R2 relative to the benchmark and an increase in the TER of the unit trust. When the cost of investing in an ETF increases, the active expense ratio will decrease.

Similar to the active expense ratio calculation, the active alpha can be calculated by only having access to the values for the coefficient of determination (R2), the alpha of the unit trust being evaluated and the TER of the comparable ETF.

… there was no evidence of successful active management to justify the higher fees charged by fund managers

What did the study find?

The results show that most of the South African unit trust funds have actively managed portions in excess of 30%, or relatively low coefficients of determination when compared to the benchmarks. The exception is the Resources and Basic Industries category, where the R2 value exceeds 90%, indicating a lower actively managed portion in these funds. The Mid and Small Cap category contains the unit trust funds with the highest actively managed portion compared with the rest of the funds classified as Equity funds.

The different unit trust categories have similar mean TERs (sample average of 1,61%), but the active expense ratios differ significantly. The active expense ratios in the three-year analysis range between 1,53% and 8,71%, with a mean of 4,14% and a median of 3,99%. In the five-year analysis the active expense ratios range between 1,69% and 7,39%. The mean is 4,29% and the median 3,96% . The eight-year active expense ratios range between 1,01% and 7,22%, with a mean of 4,25% and a median of 4,28%.

Although the South African actively managed unit trusts have higher published TERs than their American counterparts, the active expense ratios are lower due to a higher degree of active management being employed in South Africa.

The results show that active management contributed positively to the average performance of the funds. The funds in the three-year analysis have active alphas ranging between -2,11% and 3,45%, with a mean of 0,69% and a median of 0,76%. The active alphas in the five-year analysis range between -1,38% and 3,41%. The mean active alpha is 1,09% and the median 1,05%. The eight-year active alphas range between -0,79% and 3,25%, with a mean of 0,93% and median of 0,81%.

The results also indicate that the actively managed portion increased over the past eight years. This is due to the fact that the sample average R2 values decreased from 81,36% over the past eight years to 79,19% over the last five years and 74,64% over the last three years.

However, it should be noted that the increase in active management did not, on average, result in improved unit trust fund performance. This is seen from the overall fund alphas being close to 0% for all the analysis periods. It can be concluded that the unit trust fund managers were hardly able to earn back their fees as reflected in the mean fund alphas.

Although the amount of active management has increased over the eight years, it would appear that the quality of the active management has decreased. This is evident from the results observed in the three-year analysis; a significant number of funds had large negative active alphas, compared to only four funds with negative active alphas in the eight-year analysis. It is also evidenced by the fact that the mean active alpha decreased from 0,93% in the eight-year analysis to 0,69% in the three-year analysis.

Some studies reported that the level of active management is higher in the developing markets than in the developed world.

Impact of fund size

To determine whether fund size had an effect on the degree of active management, the three-, five- and eight-year individual unit trust R2 values were compared with the fund sizes (expressed as total assets under management). The results for all the review periods indicate that the large funds have high R2 values, therefore low active management. Smaller funds provide a higher degree of active management (lower R2 values).

Based on this study, most of the largest South African unit trust funds (over R6 billion of assets under management) have higher active expense ratios than mid-sized unit trust funds. However, there is no direct correlation between fund size and active expense ratios: the smaller funds (less than R100 million) generally also have higher active expense ratios than mid-sized unit trusts.

The largest South African unit trust funds have positive active alphas when compared with the small unit trust funds (which tend to have negative active alphas). The mid-sized unit trust funds have a large spread of active alphas, ranging from -2,0% to 3,5%.

… it should be noted that the increase in active management did not, on average, result in improved unit trust fund performance.

Conclusion

This study used a practical way to calculate the true cost of active portfolio management. This was done by splitting the expenses of an actively managed unit trust into a passive and active portion.

The study showed that the mean total expense ratio (TER) of the sample of actively managed South African equity unit trusts was 1,60%, 1,61% and 1,61% respectively in the case of the three-, five- and eight-year periods of investigation. In contrast, the mean active expense ratios amounted to 4,14%, 4,29% and 4,25% in the case of the three-, five- and eight-year periods of investigation.

These active expense ratios are lower than those obtained in comparable American studies, despite the fact that mean South African TERs are higher than those of the American funds studies. This is due to a higher degree of active management employed in the case of the South African unit trusts.

This study shows that the mean active expense ratio is more than 150% higher than the comparable mean reported TER in each period of investigation. In addition, the mean South African TER of approximately 1,60% compares unfavourably with the comparable American TER of 1,20%. Finally, unit trust managers were hardly able to earn back their fees as reflected in the mean overall fund alphas being close to 0% for all analysis periods.

These facts strengthen the case for investing in ETFs rather than in actively managed South African equity unit trusts.

  • Miller, R. (2007). Measuring the true cost of active management by mutual funds. Journal of Investment Management, 5(1), 29-49.
  • Read the original article here: Janse van Rensburg, C., & Krige, J. D. (2018). Paying the high price of active management: A new look at unit trust fees. Studies in Economics and Econometrics, 42(1), 23-39.
  • Prof Niel Krige lectures in Portfolio Management and International Finance at the University of Stellenbosch Business School.

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What drives great entrepreneurs?

It’s not just about the money: What drives great entrepreneurs?

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

It’s not just about the money: What drives great entrepreneurs?

What drives great entrepreneurs?

  • David Krige, USB MBA alumnus
  • OCT 2018
  • Tags Insights, Entrepreneurship, MBA Research, Motivation, Meaningful Work, Work Meaning

11 minutes to read

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David Krige, USB MBA alumnus 

Start by finding your purpose

Starting your own business is certainly not for everyone. Yet there are many people who embark on this challenging journey not out of necessity due to poverty, downscaling or retrenchment, but more out of a desperate desire to find meaning in their work and to make a difference.

Research done by USB MBA alumnus David Krige recently found that, following on the philosophy of Viktor Frankl that the search for meaning in one’s life is the primary motivation of man, most entrepreneurs are motivated by purpose rather than money.

This insight is important because the creation of new ventures is of critical importance for economic growth. It is equally important to gain a better understanding of the motivations behind entrepreneurial intent. Results from studies like this will help to improve venture creation and influence the success of entrepreneurship by understanding how to motivate individuals.

Krige’s research shows that to become an entrepreneur requires extraordinary levels of motivation to weather the storm of uncertainty, change and daily challenges. His research also shows that what drives this motivation is meaning and purpose.

… to become an entrepreneur requires extraordinary levels of motivation to weather the storm of uncertainty, change, and daily challenges and what drives this motivation is meaning and purpose.

His study found that some people who want to become entrepreneurs are indeed driven by financial rewards and that it is not an uncommon phenomenon that people are frustrated with their work and the role that it plays in their lives. However, not everyone starts a new venture as a result thereof. Nor do they venture off with a new business simply because they feel they are not being paid their worth. Ensuring that their work plays an important role in finding meaning in their lives is the largest contributor.

So what is meaning?

Meaning is an incredibly subjective experience. People have different priorities during different stages of their lives – such as providing for a family, starting a career, dealing with a difficult divorce or planning to have a family.

People also define meaning differently; for some it is to make a difference in the world, doing work that is valuable to others, solving a problem or helping others. For others it is the opportunity to make their own decisions, to provide a unique service to the industry, to make a difference in their own lives or to be autonomous.

In his study Krige says for many who ventured on their own, work was just a means to an end, receiving a salary at the end of the month and doing what they were told to do. He says they experienced no meaningfulness in their work. Doing only the bare minimum required from them caused them to stagnate in their careers as they were not challenged to grow.

For other entrepreneurs, although they found meaning in their work, they felt that they could achieve more by starting their own venture.

Krige says one’s regular work could make a difference but on the other hand you could be hindered since you cannot make the decisions that you feel would have a bigger impact. In addition, experiencing a sense of purpose in one’s work or starting a business that has purpose could positively enhance one’s own sense of meaning.

If one’s purpose is to develop things that one believes will add value, one’s work would contribute to a sense of purpose and meaning. Finding the significance in one’s work will translate into life becoming significant.

Finding the significance in one’s work will translate into life becoming significant.

When is the right time to start your own venture?

Krige suggests it is time to consider entrepreneurship when you are struggling with the following:

  • Feeling demotivated at work: The biggest reason why employees regard their work as lacking meaning is the feeling of insignificance, which leads to high levels of frustration. The feeling that the work you do does not matter in the bigger picture of the organisation is demotivating.
  • Feeling that your job does not contribute to the greater good: This happens when work is just a means to an end. Work really is just about earning a salary and doing what you are told to do, which leads to you doing the bare minimum that is required. This can leave you feeling stagnated in your career as you are not challenged to grow.
  • Feeling that your work does not provide you with a sense of meaning: Work is unfulfilling due to the feeling that work is meaningless. Employees have a sense that they cannot do anything that could have a real impact because things are out of their control. This could also be as a result of working for a big corporation that has specific characteristics. The environment in which work is done has a major impact on the sense of how meaningful the work actually is.

Feeling that you need to do something with more purpose: Some employees find a lot of purpose when they develop things that they believe would add value. Their work needs to contribute towards something new that will add value. In essence, the world will improve and evolve when you are doing meaningful work. If you are not practising that calling, it leaves a gaping hole in the world.

An entrepreneur, highly motivated by finding meaning, is in a better position to bring about change.

Finding meaning in the work we do

Understanding one’s meaning in life is an everlasting quest for some of us. With the important role that work plays in one’s life, it seems to be the logical place to start this understanding and search for meaning. For some, work might never provide that opportunity; for others it will.

After all, one needs to be the change one wishes to see in the world, according to Gandhi. An entrepreneur, highly motivated by finding meaning, as demonstrated in Krige’s study, is in a better position to bring about that change.

  • This article is based on research done by USB MBA alumnus David Krige. His supervisor was Prof Mias de Klerk, who is head of Research at USB and who lectures in leadership development, organisational behaviour and human capital management.

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