Edition: June - August 2015
To understand the present, and come to grips with the future, get a handle on the past. It shows a will for unions to become more actively and constructively involved in pension funds.
“Labour has dropped the ball on trustee training.” When those outside the union movement say it, they risk being accused of union bashing. But when somebody with deep credentials within the movement says it, stop to think.
Eddie Webster, a professor emeritus at Wits where for years he headed the Society, Work & Development Institute and serves now as director of the Chris Hani Institute in Cosatu House, made the frank admission when addressing this year’s conference of the Pension Lawyers Association. Take it not so much as an admission of past failure, begging analysis as to why the ball was dropped, as a challenge for the future into whether the unions might still pick up the ball and run with it.
The manner in which it’s addressed has implications. They range from the role of unions in the governance of pension funds to the clout of “organised labour” (latterly an oxymoron) in negotiations at Nedlac over retirement-fund reform (TT Dec ’14-Feb ’15).
It has additional modern-day impact. Particularly to the fore are the initiatives of the ANC in Gauteng to promote retirement funds as shareholder activists (see elsewhere in this TT edition) and the “codetermination” principle (now opposed by some significant unions) that the Cosatu of old successfully motivated almost two decades ago for member representation on the boards of retirement funds to be statutory under the Pension Funds Act.
By coincidence, Webster’s address to the conference was immediately followed by a panel discussion in which the Financial Services Board detailed the extensive training requirements for trustees to be considered “fit and proper”. Heard in isolation, they sound well and good.
Webster . . . open door
Heard in the context of what Webster had outlined, the proposals made mandatory will go down with unions as a lead balloon so long as a perceived effect is exclusion of their representatives. After all, when union-elected trustees must undergo years of training only to be replaced on boards after three years – getting no pay beyond their day jobs for the extra time and attracting personal liability into the bargain – the inducements to become a trustee are hardly overwhelming.
As an academic, Webster set out to show how the past continues to shape the present. So rare is this perspective on public platforms that his presentation was valuable, not least for the stimulation of his arguments. Take his conclusions as you will, but consider them:
Establishment of Cosatu in 1985, he pointed out, was a “strategic compromise” between two broad traditions in the labour movement. On the one hand there were the post-1973 shopfloor-based independent unions; on the other there were those allied to the ANC and the SA Communist Party in the notion of a ‘national democratic revolution’.
“These remain at the core of current divisions in the labour movement,” he observes.
Although significant gains had been made by labour through this alliance, since introduction by the ANC government of the Growth, Employment & Redistribution strategy in 1996, it has been an unhappy marriage. Divorce seemed unthinkable until the National Union of Metalworkers withdrew in 2013 prior to its expulsion in 2014. (Divisions were accentuated by the expulsion of Cosatu general secretary Zwelinzima Vavi earlier this year.)
Previously, Cosatu had played a leading role in shaping the transition to democracy. Examples are the creation of the Commission for Conciliation, Mediation & Arbitration (CCMA) and the National Economic Development & Labour Council (Nedlac) to promote social dialogue.
Also, key post-apartheid leaders came from the labour movement. In fact, the three secretary generals of the ANC had been secretary generals of the National Union of Mineworkers. (They include Cyril Ramaphosa, now the SA deputy president.)
As far back as the early 1980s, Webster recalled, “pension power” had become an industrial-relations issue. Black unions had established provident funds that had allowed for members to exit with their money before retirement. When the apartheid government proposed that black workers withdraw only on retirement, strikes broke out and government scrapped its proposal. (An unintended consequence was the widespread shift from defined-benefit to defined-contribution retirement funds.)
Amongst the reasons for union resistance was that, in the absence of adequate wages, money in the funds should be available to workers when they needed it. At the same time, unions began to win the right for representation on the boards of retirement funds. The idea began to grow that “union trustees” could influence funds to invest in ways that were “socially responsible” e.g. housing finance for their members.
Heated debate ensued on whether union trustees and shareholder activism would encourage sound investment practices. Formation in 1992 of the Community Growth Fund, to invest workers’ savings in companies that complied with socially-responsible criteria, triggered strong criticism from many unionists that participation was “tantamount to managing capitalism”.
Ramaphosa, however, was amongst the union leaders who supported the CGF initiative. By early 2007, investment in the CGF had reached R2,5bn.
But the CGF novelty wore off, Webster contends, when government introduced employment equity and black economic empowerment. Some unions broke ranks as an alternative strategy started to emerge in the form of union investment companies (e.g. the Mineworkers Investment Company and Hosken Consolidated Investments): “This was part of a broader Cosatu failure to realise the potential of workers’ pension power.”
These days, according to Webster, holding out for a National Social Security Fund is more valuable than a reformed pension sector. In spite of 15,8m people on social grants, at a total annual cost of R118bn, SA does not have a comprehensive system of social security, and government is committed to a “social floor” for all citizens.
‘Decent employment’, he suggests, is the best form of social protection and social security: “Pension reform is now being developed in an incremental and strategic way, with the long-term goal of developing a comprehensive social security system.”
To make this path politically feasible and economically sustainable, says Webster, retirement funds have a crucial role to play in encouraging shareholder activism that is vigorous and informed. He quotes colleague Roger Southall: “Such an agenda implies that Cosatu must engage more actively and more innovatively in the running of SA capitalism. Cosatu and its trade unions are already involved in the running of investment arms and the allocation of high-value contracts to suppliers. What matters now is the specification of the principles and practices which should guide it.”
Producing updated research which shows that worker attitudes to nationalisation, regulation, privatisation and profit participation have basically remained unchanged since 1992, he believes that the opportunity now exists for labour’s redistribution demands to be addressed. There’s an open door for retirement funds to engage more actively on socially-responsible investment.
An essential step, Webster insists, is that unions provide training to trustees and union leadership on pension matters. Note the implication that it’s for the unions themselves – not government, not the regulator, not service providers who try their utmost-- to take the initiative.