Edition: March - May 2015


Grist for King IV

Concomitant to the ANC Gauteng intentions for ‘transformation’ of corporate governance, led by retirement funds, variations of the German two-tier board structure for ‘co-determination’ could be considered in SA.


Makhura...business partnership

Having moved from proposal to policy, there’ll certainly be action over coming months on the intent of ANC Gauteng to activate retirement funds for nomination of directors to JSE-listed companies (TT Dec ’14-Feb ’15). Just wait until campaigning for the 2016 municipal elections hots up. It won’t be a long wait.

On a sceptical view, that no good can come of it, the stated objective for the “radical economic transformation” of boardrooms might be dismissed as a convenient incline to populism. On a less sceptical view, the ANC Gauteng had distinguished itself for independent mindedness. It ruffled the national body by its stance on e-tolls and led the opposition to reelection of President Jacob Zuma at Mangaung.

More recently, Gauteng premier David Makhura has been beating the drum on the need for publicprivate partnerships. Planning to spend R94bn on a specified infrastructure programme over the next three years, and promoting the province’s vision for development over the next 15 years, he’s been meeting with executives of JSE companies. He reports an enthusiastic response. Business-friendly promises to reduce red tape and deal with corruption are parts of the package.

For the necessary buy-in he seeks from the corporate titans, he cannot sweet-talk them on the one hand while the boardroom-transformation policy antagonises them on the other. Look, therefore, at the policy in the context of pragmatism.

It is a means to counter challenges from the Economic Freedom Fighters and probably also a socialist party instigated by the National Union of Metalworkers (Numsa). Whereas they threaten to be heavy on the verbiage, the ANC Gauteng has positioned itself to articulate the high ground for adherence to the 60-year old Freedom Charter 6 Today’s Trustee March/May 2015 Makhura . . . business partnership inclusive of its subsequent “mixed economy” adaptations.

That possibly explains, and foreshadows for these 2016 elections, the revolutionary language in which the policy was couched at the ANC provincial congress late last year. Neither the tone, nor the temptations for political opportunism, need detract from the merits of the policy itself. Much depends, from here on in, on how it will be handled.

The most desirable outcome, undoubtedly to require more thought and less heat than electioneering can generate, is to catalyse a breakthrough in SA’s stereotypical employer-labour stalemate. To the extent that it can herald the introduction of something akin to the German model of corporate governance, which enshrines co-determination with trade unions, well and good. It’s a reason that the German economy has consistently proved successful.

In this initiative, clearly evident from the policy document, critical participants will be retirement funds. They represent swathes of black workers inside and outside trade unions. In turn, these funds potentially wield more power than ever previously asserted as shareholders in the major corporates.

It’s unlikely to be plain sailing. At the corporate level, dyed-in-the-wool directors might take fright that their beloved boardrooms be subjected to “radical economic transformation”. At the level of trade unions, involved with retirement funds, there can be reticence to compromise on the adversarial tradition of class struggle. Both should look beyond the rhetoric, the former to the need for board diversity that King III espouses and the latter to the benefits of highlevel decision making in the companies where their members’ retirement funds are invested.

An enduring SA paradox is that the world-admired processes of Codesa, to agree a new constitutional dispensation, continue to elude the labour dispensation. Were it otherwise, counter-productive strikes wouldn’t be as prevalent. Once it is realised that “the people” already own the economy’s “commanding heights” through their retirement funds, the perpetual calls for nationalisation cannot retain their resonance.

Yet it isn’t to be expected that factions within thefactious union movement will readily reverse their attitudinal comfort zones. This is despite obvious ironies: the proliferation of employee share-ownership plans, the numerous union investment companies (with such outstanding examples as the Mineworkers Investment Company in Primedia and Sactwu in HCI), and of course the black-empowerment schemes where happy recipients of share allocations have included myriad union members.

Overriding all these is retirement funds themselves. With millions of black and white members, they’re the largest single category of investors on the JSE. Some of the largest union provident funds, notably those of the mineworkers and metalworkers, have share portfolios heavily invested in precisely the companies against which their members go on strike (TT March-May ’14).

In attempting to change the confrontational discourse, local adaptations of the German mitbesttimmung (co-determination) model are ripe for consideration. This unique model gives workers a recognised role in company management. Way back in 1976, West Germany (as it then was) passed a general law mandating that worker representatives hold seats on the boards of all companies employing over 500 workers. Did it make Germany any less capitalistic, or impede its advance to economic leadership of the European Union?

Briefly, as the concept of “parity co-determination” has latterly evolved, it refers to two different forms of employee participation. One embraces all companies, of more than five employees, by elected representatives on a “works council”.

The other embraces all big companies, essentially covering all companies listed on the stock exchange. Each is obliged by law to have a “supervisory board”, controlled by shareholders and worker representatives, and each typically has a “management board” which directly runs the company. Both boards have respective lines of authority in what’s become known as a “two-tiered” board structure.




Katz...simply vote

As it stands, there is absolutely no impediment under the Companies Act to implementation of the ANC Gauteng policy for the nomination and election of directors to JSE-listed companies. It’s within the rights of any shareholder, not least retirement funds that frequently comprise the largest single category of shareholders, to exercise them.

Michael Katz, a prominent corporate lawyer and professor of company law at Wits, points out: “Shareholders can requisition company meetings. They can attend general meetings in person or by proxy. All they need for the election of a director is a simple majority of votes. In terms of our Act, it’s easy.”

Actually, it’s easy only to the extent that shareholders get off their backsides. In practice, they’d need to agree on nominations to ensure that a voting majority is mustered. And, since the shares of retirement funds are often held in the names of nominee companies, all the fund trustees need do is instruct those nominees (such as banks and asset managers) on how to vote.

Too much trouble? Then it’s the funds’ own fault. If the ANC Gauteng can’t awaken them from their slumber, to effect the policy, nobody can. The King code has tried. The Code for Responsible Investing has tried. The Financial Services Board’s circular PF 130 has tried. Success, to put it mildly, has been muted.

Will success be a good thing? Once elected, a director is obliged to act in the best interests of the company in the same way that a trustee is obliged to act in the best interests of the retirement fund. It implies levels of skill and awareness in fiduciary responsibility. Equally, it implies a convergence of stakeholder interests. This is the essential glue for a social compact at present conspicuous by its absence.

Contrast this with the King III code on the composition of SA boards: “Given the positive interaction and diversity of views that apply between individuals of different skills, experience and backgrounds, the unitary board structure with executive directors and non-executive directors interacting in a working group remains appropriate for SA companies.”

Whether it still remains appropriate is moot; unless nothing is to be learned from SA’s pervasiveness of industrial unrest and perpetual slide down the global competitiveness rankings. King III is now being reviewed. In the compilation of King IV, drafters have the opportunity to review efficacy of the unitary board; unless they have reason to believe that betterformalised structures for co-determination are unnecessary.

Politically, the policy train of the ANC Gauteng has left the station. With no provision in the Companies Act to obstruct it (see box), chiefs of recalcitrant corporates and unions face the same choice as trustees of retirement funds. They can either climb aboard or lie on the tracks.