Edition: June - August 2015


No room for compromise

Scrap looms over the proportion of shares in JSE-listed companies that black South Africans really own. Zuma’s stance is misplaced.

It’s pointless for the JSE to keep pussyfooting around with two sets of “research” – only one of which deserves the appellation – on the number of black South Africans invested in the local bourse. There’s the independent research headed by Trevor Chandler of Alternative Prosperity (AP), which bears the hallmarks of reliable interrogation, and something else by the National Empowerment Fund (NEF), which doesn’t.


Newton King... dig in heels

Both cannot be correct in their conclusions because the differences between them are vast. Either black South Africans own at least 23% of the JSE’s top 100 listed companies; probably closer to 30% once analysis is completed on some outstanding share registers, and perhaps more like 40% of available shares after foreign investors are excluded (according to AP). Or they own 3% (according to the NEF).

The debate defies an academic nit-pick through diverse methodologies equally robust. The stakes, in endorsing the one side or the other, are high and immediate. With government flopping this way and that on what it wants black economic empowerment to mean, it gets to the root of BEE’s future shape with profound impacts on corporate governance. For mandated investments, specifically pension funds that have millions of members, the outcome can also determine whether their shareholdings are at risk of further dilution.

For the first time, according to AP, the number of black South Africans holding shares on the JSE had overtaken the number of white. This was more because of their holdings in mandated investments, inclusive of pension funds in the public sector, than through BEE structures. Shareholders were determined by economic interest i.e. the right to receive dividends, irrespective of how.

The AP research had been commissioned by the JSE. It set out to measure, conclusively and credibly, the extent of transformation in shareholdings. In proudly announcing the findings, JSE chief executive Nicky Newton King could scarcely have anticipated government’s response. Within a matter of days, President Jacob Zuma himself bounced back to contradict them by producing and endorsing the NEF conclusions.

The guardians of political correctness mustn’t be fooled. A person is or isn’t a shareholder. The determinants of fact, not interpretation, are whether that person is entitled directly or indirectly to vote at shareholder meetings of the investee company and to receive dividends from it. Irrelevant is the vehicle through which shares are held. The only differences between direct and indirect shareholders are procedural.

So either the economic interest of black people through mandated investments should be included (as per AP), or they shouldn’t (as per NEF). Only one of them can be right. There’s no halfway house.

The AP approach is consistent with realities of modern-day share ownership, emphasised in King III (see box) which urges the attendant exercise of voting rights. It is also consistent with the black economic empowerment codes and the retirement-fund activism policies of the ANC Gauteng.

By contrast, the NEF is saying in effect that the shares must be held directly by black individuals or a vehicle belonging to those individuals. Otherwise they aren’t recognised. Such an approach ignores the way in which the overwhelming majority of shares are held and flouts even Companies Act principles. Zuma’s denialism on shareholder realities is as fraught as was Mbeki’s on HIV/Aids.


In a paragraph headed ‘The new constitution of commerce’, the 2009 report on corporate governance for SA observed:

An analysis of the registers of shareholders of the major companies listed on the JSE will show that they are mostly comprised of financial institutions, both foreign and local. These institutions are ‘trustees’ for the ultimate beneficiaries, who are individuals. The ultimate beneficiaries of pension funds, which are currently amongst the largest holders of equities in South Africa, are individuals who have become the new owners of capital. This is a departure from the share capital being held by a few wealthy families, which was the norm until the end of the first half of the 20th century. This is a worldwide trend.

The contradictions between AP and NEF extend beyond mandated investments. For starters, there’s no way that the NEP can be considered independent. It’s a creature of government, ultimately responsible to Zuma. As it happens, also, the NEF chief executive is married to a minister in Zuma’s cabinet. And whatever the other areas of NEF distinction, research of this nature is not amongst them.

It smacks of amateurism. Apparently using as its base document the publication ‘Who Owns Whom’, which records only larger shareholders with influence in listed companies, the NEF hasn’t attempted to incorporate the legislated black economic-empowerment criteria. That is hasn’t taken into account the global share registers of major JSE-listed corporates, such as SABMiller and Richemont, is another obvious omission.

Moreover, it is has selectively interpreted different forms of BEE. At the same time it has ignored the JSE-listed companies, most highly valued by market capitalisation, that operate variously around the world and are additionally listed on other exchanges. Overall, NEF highlights the privileged few rather than all black South Africans who’re intended beneficiaries of transformation policies.

AP, on the other hand, is known to have used a variety of information sources. Amongst them were share registers of JSE-listed companies; BEE certificates of these companies or their unlisted SA subsidiaries; annual reports and financial statements, and data directly obtained from mandated investors. The different outcomes can be illustrated within a matrix related to the JSE’s shareholder-weighted index (SWIX).

There might well be imperfections in the AP research. Given the firm’s reputation, however, they’re unlikely to be as blatant or serious. The best way to find out will be for AP and the NEF, respectively as proxies for the JSE and Zuma, to engage face-to-face in open debate.

Let’s see whether they’re up to it. If the one is and the other isn’t, it will be case proven.



AP study based on SWIX

NEF study restated to be based on SWIX

AP study based on local operations

NEF study restated to be based on local operations

Reconciling difference

Conclusions reached on direct BEE





NEF study excluded:

BEE deals at subsidiaries of listed entities

Smaller blocks of BEE shareholding on local registers

Conclusions reached on indirect BEE*





NEF did not study indirect ownership

*BEE legislation specifically allows for either the inclusion of mandated investments in BEE calculations or its exclusion from both the numerator and the denominator of the calculation.