Issue: Mar/May 2011


A price for being nice

The number of people on social grants is getting out of hand. Little can be done when the money comes up against the morality of a Conscourt decision.

Deputy President Kgalema Motlanthe recently said that it was "not sustainable" for the state to have more than 13m people on social grants. This number had already been exceeded by the 2009-10 fiscal when it stood at 14m.

And this was before the "regularisation" of the many thousands of Zimbabweans illegally in SA. Nobody can say with certainty whether these people will qualify for social grants. On a reading of the 2004 judgment of the Constitutional Court, where non-citizen Louis Khosa and others had successfully taken on the Minister of Social Development, there's a strong argument that they do.

Either way, the numbers are way up. Not least, it must impact on the "solidarity" principle envisaged for reform of the retirement fund and social security system; in other words, how many (and to what extent) citizens and non-citizens of the proposed national fund (for which membership is to be mandatory) will be supported by its members.

Last year the social benefits paid to households stood at R106bn, having climbed from R72bn in 2006-07 and estimated to rise to R140bn in 2012-13. The largest proportion comprises the social old-age pension.

Contrast these figures with those that National Treasury had submitted to the Conscourt in support of Social Development's opposition to the Khosa application. Excluding costs of administration, said National Treasury, in the three years to 2004 the cost of social grants had increased from R16bn to R26bn. Over the next three years it was projected to rise to R47bn.

The basis of government's opposition was that the extension of benefits to permanent residents would "impose an impermissibly high financial burden on the state" and so undermine "a key pillar of government's strategy to fight poverty and promote human development". The estimate was then that there were 260 000 people in SA, from other African countries, who had been exempted from normal immigration requirements and held permanent-resident status. They'd qualify for social assistance if the citizenship barrier were removed.

Conscourt then proceeded to remove it:

"Through careful immigration policies (the state) can ensure that those admitted for the purpose of becoming permanent residents are persons who will profit, and not be a burden, to the state. If a mistake is made in this regard, and the permanent resident becomes a burden, that may be a cost we have to pay for the constitutional commitment to develop a caring society and granting access to socio-economic rights to all who make their homes here."

Let it be noted, firstly, that "all people who make their homes here" goes further than permanent residents. Secondly, the Conscourt was not persuaded by the numbers that National Treasury had produced.

It calculated at the time that the inclusion of non-citizens would reflect an increase of less than 2% in the cost of social grants. But there's since been a massive increase of immigrants across SA's porous borders, making impossible the "careful consideration" of their admission that the Conscourt had envisaged.

If National Treasury and Social Development are now proved right, it's too late for the Conscourt judgment to be challenged as wrong.

Van Niekerk

Van Niekerk . . . caught

Insider hit

It's possible to jump and be pushed simultaneously. That's what Sasfin probably means by the quaint phrase in its January circular to pension-fund clients that the resignation of Gerhardt van Niekerk, head of asset consulting, had been "mutually agreed".

The circular goes on to say some sweet things about Van Niekerk. It also notes that, to "allow time for an orderly transfer of the service for your account", he'd be leaving Sasfin at end-March. However, by the time that the circular went out, Van Niekerk was already gone.

Having admitted insider trading to the Directorate of Market Abuse, he had to pay the FSB a fine of R16 000 by end-December. This amount represented the profit he'd made on the purchase of Mercantile Bank shares, plus an administrative penalty of three times this profit, when he'd gleaned that a merger with Sasfin was in the offing. He'd instructed a broker to buy the shares through the account of his mother-in-law.

It's not that the payment of R16 000 need be financially hurtful. It's that being found out, for the pursuit of a paltry R4 000 profit, can cost a lot more to his reputation and career prospects.

Tough love

For all the good that the JSE is trying to do with it's Socially-Responsible Investment (SRI) index, it can do better. The JSE admits as much to a group of non-government organisations that haven't taken lying down some of the index's latest inclusions.

The criteria suggest that the index looks for environmental management beyond legal compliance, notes Centre for Environmental Rights executive director Melissa Fourie. The 10 organisations then set out a body of evidence – drawn primarily government reports in the public domain – showing non-compliance amongst companies included in the index.

"This means that either the companies in question are not disclosing this information and the index's verification systems are inadequate, or the entire criteria and weighting used do not recognise the importance of compliance with environmental laws," she says. "These companies are cynically abusing the reputation of the JSE and the index while continuing to flout environmental laws and the principles of responsible environmental management."

Corli le Roux, who heads the SRI index, politely accepts that "where a lack of compliance seems evident following completion, we do need to consider the impact of a company's inclusion". This is insufficient to placate Fourie who insists that at least the index doesn't undermine "the regulatory system put in place by statute". The organisations are adamant that the index:

  • Must, at a minimum, require companies listed on it to be in compliance with the law (in this case, environmental law), and
  • Has an independent method of identifying findings of non-compliance, and actions taken, by the authorities against companies applying for index inclusion.

One company mentioned is ArcelorMittal South Africa. There should be an argument for it to be excluded on governance criteria (see article elsewhere in this TT edition).

But AMSA makes it glowingly onto the index. This is despite numerous official findings, dutifully listed by Fourie, for such offences as non-compliance with waste and air permits as well as other "environmentally harmful activities"

This is apart from civil actions that once featured prominently over pollution of groundwater near its Vanderbijlpark mill. AMSA is reported to have admitted the problem, attributing it to Iscor from whom the operation was purchased. The problem persists.

How does AMSA still manage to be included in the index? Perhaps it's because the company's sustainability report is selective in its disclosures.

Pay compared

It's always fun to look at one set of remuneration scales against another, and then to ask why there are differences. Take the Financial Services Board against National Treasury. Although the FSB isn't a government department – it's funded by levies from financial institutions, including pension funds – but there's nevertheless an apples-to-apples similarity in their roles and responsibilities.

In the year to end-March 2010, the FSB executive officer was paid a basic salary of R2,85m. There were five deputy executive officers each paid basics of around R1,8m. Against this, the range for directors general is from R1,2m to R1,4m and for deputy directors general from R997k to R1,01m.

So who's getting too much and who too little? Does it have anything to do with the FSB retaining senior staff more successfully than National Treasury?

For the hell of it, note that the Financial Services Authority in the UK has three executive directors each with basic salaries of over 400k (about R4,7m) a year.

Boardroom democracy

Activist shareholders worldwide keep an eye on CalPERS, the largest pension fund in the US. Over the past year it's persuaded 20 of 58 selected companies to switch from a plurality-vote to a majority-vote requirement for the election of directors.

The plurality system theoretically allows board members to be elected with a single ‘yes' vote. "Too often board elections are more like coronations," said CalPERS chief financial officer Joseph Dear. "The majority vote is an effective tool for holding directors accountable and encouraging better shareholder-director communication."

It's just a thought.