Edition: June - August 2015


Gauntlet from Gauteng

Can the ANC proposal for ‘radical economic transformation’ of company boards prove a win-win? Much depends on the response of JSE-listed companies’ stakeholders, especially institutional investors and representatives of retirement funds.

The National Empowerment Fund and the Johannesburg Stock Exchange are at loggerheads. They cannot agree on the percentage of JSE-listed shares owned by black South Africans.
The outcome of their dispute could well affect the future shapes of economic transformation and black economic empowerment. Elephant in the room is the ANC Gauteng which, at its provincial conference last November, launched a ground-breaking policy initiative to intervene on both (TT Dec ’14-Feb ’15 and March-May ’15).

The NEF, whose calculation has been supported by President Jacob Zuma, puts the black shareholding at 3%. On that basis, the inference is that whites own 97%. It’s a nonsensical premise because is excludes such “mandated investments” as pension funds through which most people, black and white, own shares.

It’s also a dangerous argument because it offers a pretext rapidly to accelerate elitist-type BEE deals that prejudice black and white members of pension funds. The more that new shares are issued to selected black consortia, the more that existing shareholders are disempowered. Pension funds, whose members are predominantly black, comprise the largest single category of JSE investors.

The JSE, for its part, cites independent research that it had commissioned and released in mid-February. It reveals that that black South Africans own at least 23% of the top 100 listed companies (overtaking, for the first time, whites’ ownership at 22%). Of local SA shareholders only, the proportion owned by black South Africans increases to at least 30%.
So what?

Enter the ANC Gauteng. By a timing coincidence, the JSE computation implicitly supports the position taken by the party’s provincial body last November. It’s for “radical economic transformation” (RET) to be advanced not by favouring relatively few people at the expense of many but by asserting the power of the many as shareholder activists through their retirement funds.

This is now provincial policy. Seen as critical to RET, the next move of the ANC Gauteng will be to sponsor it as a policy proposal at ANC national fora starting in October. Even before then, ANC Gauteng chair Paul Mashatile will be looking to consult widely with stakeholders including the JSE, the Institute of Directors, trade unions and financial institutions. This process has already begun.


From proposal to policy

Cat amongst the pigeons is in a particular paragraph of the policy document: “Directors (of JSE-listed companies) are voted by shareholders but rarely does this group of shareholders (retirement-fund contributors who are overwhelmingly black) exercise this right. This ‘inaction’ somehow has contributed to lack of transformation at the top level of corporate SA.... Policy intervention should ensure that we leverage on the significant worker power to energise our transformation agenda. One of the ways of achieving this is to advocate for a 50/50 workers/other owners representation on boards of JSE-listed companies.”

Before the pigeons take fright, which they will when they see how the document contextualises it within the Freedom Charter, they should consider the bright side.

For starters, it defeats the nationalisation debate. There’s an implied acknowledgment that “the people”, mainly through their retirement funds, already own the economy’s “commanding heights”. In fact, excluding foreign investors from the research computation, black ownership of the Top 100 is significantly higher than 23%. Moreover, the research leaves another 16% of shareholders still to be analysed.

The trick will then be in conversion of retirement-fund investors from passive to active. This will be no mean trick. The concept of 50/50 representation, between employer-nominated and member-elected trustees of retirement funds, was legislated almost two decades ago.
It has not been noticeably successful in the encouragement of funds’ activism. Now to be tested is whether the political rocket of the ANC Gauteng has the firepower to hit its target, especially amongst trade unions involved with retirement funds.
What the ANC Gauteng wants, bereft of its polemic, is there for the taking. The Companies Act enables the nomination and election of directors by shareholders. The King III corporate-governance report recommends that the funds exercise their rights. The Code for Responsible Investing in SA, to which the large asset managers subscribe, underpins it. The Financial Services Board circular PF130 insists that retirement funds compile investment-policy statements, inclusive of mandates to asset managers.
What’s then not to like about the ANC Gauteng initiative? Perhaps four things, without which it can boomerang:

  • A vigorous programme of consumer financial education so that fund members are aware of their ownership stakes and, with particular reference to trade unions, the effect of strikes against companies where they’re invested;
  • Intensive training of aspirant company directors and fund trustees, not only to promote competence but also so that respective roles are recognised i.e. the fiduciary responsibility of directors only to their companies and trustees only to their funds, in order that there’s a commonality of purpose even on remuneration policies;
  • Acceptance of mutually-interdependent relationships, for the sustainability of investee companies, so that their prosperity goes hand-in-glove with the value of shares to the funds’ ultimate beneficiaries;
  • For the funds themselves to get off their backsides.

Get these right and the proposed “radical economic transformation” can herald a departure from the adversarial us-versus-them discourse that has afflicted SA for far too long.

Earlier versions of this article, by TT editorial director Allan Greenblo, were originally published in City Press and the Financial Mail.