Edition: June - August 2015
Editorials

CURRENTS

Three strikes

Batters still in. Fielders battered.

McCarthy Godongwa . . . eternal hopes

So much for regulatory certainty. During a matter of days in May, without prior consultation, government took three swipes at it. All were on the codes for black economic empowerment, escalating uncertainty on the costs for companies and hence for investment in them.

First, the Department of Trade & Industry kicked off by a “clarification” notice effectively demoting the ownership points on the BEE scorecard from 25 to three for fully-complaint companies. Second, it backtracked by announcing a task team. It also said in effect that the switch back from broad-based to narrow-based BEE wouldn’t have retrospective effect; thus leaving open the implication that it would apply from May 1.

Third, a short while later, the Department of Mineral Resources told mining houses that they were behind in implementation of the mining charter’s targets. The miners countered that they were ahead. To be behind can threaten their mining licences.

There’s further uncertainty over the principle of ‘once empowered, always empowered’. It remains up in the air.

Were BEE schemes to constrain black participants from selling their shares when they become entitled to do so, they’d be in a class apart and treated unequally from other shareholders able to trade freely. On the other hand, were there to be perpetual replenishment of BEE participants who exit, the companies would theoretically (and practically?) be forced from one BEE transaction into the next until existing shareholders are diluted into infinity.

Pension funds, as significant shareholders in JSE-listed companies, must become acutely aware of the dilution effects through BEE transactions. Dilution results in members – black members being in the numerical majority – receiving proportionately lower dividend payments. There’s a deafening silence from pension funds, even trade unions, on their stance.

Regulatory confusion, as with suspension of retirement reform, seems almost to have become a constant in the environment of the pension-fund industry. It’s in stark contrast to the warm sounds, at the recent Asisa annual conference, where representatives of the public and private sectors stressed the need for partnerships to speed up the National Development Plan.

The greater the chaos, the lesser the chances. Pension funds, as much as domestic companies and foreign investors, are essential providers of capital for NDP goals. They must know where they stand.

ANC economic-transformation cluster head Enoch Godongwana told the Asisa conference that government should consider ways to make infrastructure investment “efficient, financially viable and effortless, especially by providing regulatory certainty and streamlining some of the processes”. Little could he or delegates have anticipated what awaited.

Batting for Batseta

Formed almost two years ago through an amalgam of the Principal Officers Association and the three main trade-union federations, the Batseta Council of Retirement Funds should be the representative body to speak for pension funds. Intended to comprise only principal officers and trustees, its ideal is to be an independent voice; independent, that is, from service providers. This ideal is underlined in its funding model.

But does it work? Perhaps eventually, once member recruitment achieves scale, it will. To judge from the programme of its second annual conference, it doesn’t yet. There appears to be at least some alignment between conference sponsors and speaking slots.

It doesn’t leave sufficient time for burning policy issues, immediately relevant to pension funds, to be openly debated. Critical examples are management committees within umbrella-fund structures and guidelines for payment of trustees.

Also high on the agenda, despite if not because of its political sensitivity, should be the prospective dilution of pension funds’ shareholdings in JSE-listed companies to follow from mooted changes in BEE codes. This baton was dropped years ago, notably by trade unions, to the great cost of their pension-fund members. Unless it is quickly picked up, to resist the sort of exclusion envisaged by the National Empowerment Fund that President Zuma has endorsed, their rights will be further diminished.

At this stage, Batseta is a talk-shop insufficiently strong to claim representativeness for policy inputs. A challenge for the industry is in finding ways to help it become the voice it’s supposed to be, and to have the confidence for asserting trustees’ independence not only from service providers but also from government.

Hard reality

The extent of this challenge, both for Batseta and for the governance of pension funds generally, is highlighted by two bald statistics in the latest Sanlam benchmark survey. They’re no less shocking for being unsurprising.

Hundreds of pension funds were surveyed. On an average of members in respective funds, 87% did not vote for trustees or know who they were. Similarly, 85% could not name a single trustee.
These are the same members who, for the most part, rely on trustee choices for their default investment portfolios. They’re also the same members for whom trustees are supposed to speak.
It’s self-evident that a huge amount of work remains to be done on the education of pension funds’ members about their savings and about their rights. Without the former, they won’t meet retirement targets. Without the latter, representation won’t mean much.

Matter of degrees

Dube Tshidi should be a shoe-in for renewal of his contract, as executive officer of the Financial Services Board, when it expires at end-June. Aged 64, he might as well keep running until the whole FSB structure takes on a new shape. This will be in April when it becomes one of the “twin peaks” in financial-market regulation.

In processing the contract formality, it will be useful to clear the confusion over Tshidi’s academic qualifications. Over the years, he’s claimed in numerous media reports to hold a Master of Laws degree from Frankfurt University. The last few annual reports of the FSB don’t disclose the degrees of any executives, whereas earlier reports have shown them fully.

McCarthy Tshidi . . . a master

In the case of Tshidi, however, he’s been shown only to hold an LLM but not other qualifications or where they’re from. Back in 2004 the annual report did show him to hold B Proc, LLB and LLM degrees.

Recently under examination in the Simon Nash criminal trial, he was asked by Nash’s counsel about his legal qualifications: what they were, from where and when they were obtained. He refused to answer. Later that morning, replying to the prosecutor, he disclosed that he held the degrees of B Juris, LLB and LLM – all from Vista University.

Subsequently questioned by TT via email, Tshidi responded telephonically. He confirmed what he’d told the court, and added: “Then there is the issue of my higher diploma in labour law. I did this under a combination of Vista, RAU (later University of Johannesburg) and the University of Frankfurt in Germany.” So why didn’t he answer in court when asked the first time? “Because I don’t answer malicious questions.”

Remaining unexplained over the LLM is the niggling inconsistency between Frankfurt, as per media reports that Tshidi had approved, and Vista, as per his evidence in court. It leaves a query that shouldn’t exist.