Edition: September / November 2015
Vision gains traction
In their own interests, and for the broader social good, the role of
pension funds in corporate governance is manifest. Enough of the
lip service as a hard challenge comes to the fore.
Over many months, we’ve been banging on in support of the ANC Gauteng initiative
to promote the shareholder activism of
retirement funds (most recently, TT June-Aug). We’ve
also done what we could to help facilitate the ANC
Gauteng conference, for stakeholders to discuss the
initiative specifically on the nomination and election
of company directors, at the JSE on July 21 (see elsewhere in this TT edition). Potentially, for better or
worse, this engagement marks a turning point.
The ANC Gauteng, undoubtedly the most
innovative and independent-minded of the provincial
bodies, has its own political objectives. These are
couched, taking leaves from its October policy
document, in the language of “radical economic
Immediately relevant, though, is not the jargon but
the upshot. That the initiative is being driven by the
ANC Gauteng, a fresh participant in these matters,
portends clout in the circles that count.
At worst, it can lead to attempts at cadre intrusion
onto the boards of JSE-listed companies.
a sinister interpretation belies the well-publicised intentions and explanations provided by ANC
Gauteng chairman Paul Mashatile. At best, it can fall
four-square into what TT enthusiastically seeks. To
- All the legislation (e.g. the Companies Act),
regulation (e.g. the Financial Services Board
circular PF130 and Reg 28 under the Pension
Funds Act) and governance codes (e.g. King and
CRISA) spring to life for the enhancement of
- The nationalisation debate becomes redundant;
- The penny drops that it’s counter-productive for
workers to strike against companies in which their
pension funds are invested;
- What’s good for pension funds is good for the
national economy, and vice versa, as well as
conversely. The sheer number of fund members
and dependents, perhaps as large as the electorate
as a whole, makes them a potent lobby in the formulation of government economic policy
provided they cohere to articulate their best
- In law, the sole responsibility of company directors
is to their companies and of pension-fund trustees
to their funds. In theory, when it comes to the
nomination and election of company directors by
the representatives of pension funds, their roles
converge for the welfare of both. In practice, this
cannot happen without serious attention to the
training of aspirant directors and trustees;
- The National Development Plan relies on a social
compact. Recognition of the commonality in
objectives between companies and pension funds,
each with their myriad stakeholders, provides the essential linkage to “radically transform” the
adversarial nature of SA’s current discourse.
If there’s another way, let’s hear it. “I don’t know what
new social compact we’ll have,” says Richemont
chairman Johann Rupert, “but we’d better find one.” There’s no overnight wand. Yet it can be waved
sooner than later by the large pension funds where the
commercial and intellectual capacities lie. Funds in the
public sector (ultimately underwritten by taxpayers)
will need to be especially mindful that they aren’t
agents of government (ultimately the ruling party).
And those in the private sector (including many
allied to trade unions) will similarly need being alive
to the likely, hopefully benign, reliance on financial
institutions as service providers.
Not only have smaller pension funds merged into
institutionally-sponsored umbrella arrangements, but
these same institutions also represent many millions
of other savers through collective investment schemes
and assurance policies. The agglomerated voting
power under their control is formidable. Application
of their own self-proclaimed social principles (which
stakeholders can monitor) and the legislatively-backed
Financial Sector Charter (which the Charter Council
will monitor) are the beacons to keep them on track.
Make no mistake that shareholder activism,
properly done, will require research and resource.
What the cost could be, and who’ll pay it, hasn’t yet
spoiled the anticipated nirvana. A means for money
allocation, perhaps, is through adjustments to the
Financial Sector Charter.
Myners . . . ownerless corporates
Alternatively or additionally, larger funds have the
bulk to spread the unit costs over a larger number of members.
At the end of the day, one way or another,
members will pick up the tab. They, and their trustees,
will then need to become much more sensitised to
long-termism in investment priorities. The role of
trustees will consequently elevate from functionaries
Nice as shareholder activism sounds, it requires a
reality check. It should be seen in both a philosophical
and global context. Separately interviewed by
Canadian magazine Listed, two of its most prominent
exponents expressed their views. Some extracts that
should resonate in SA:
Paul Myners, former UK city minister and author
of the landmark Myners report on institutional
COMMUNISM MEETS CAPITALISM
Threads of Marxist cliché continue to pervade ANC polemic, as if they’re prerequisites for ideological consistency and credibility, reflecting how the influence of the SA Communist Party persists.
But their underlying intents can differ markedly, from the well-worn sloganeering of such officials as Jeremy Cronin to the refreshingly populist-averse analysis of deputy finance minister Mcebisi Jonas. To appreciate the difference, the latest edition of African Communist is worth a read.
The policy document of the ANC in Gauteng, on which its proposals for the activism of retirement funds is based, is similarly rich in the rhetoric of the “national democratic revolution”. Does it matter?
In the 19th century, Karl Marx argued that liberty meant the collective ownership of capital so that the rich could no longer oppress the poor. In the 21st century, pension funds embody the collective ownership of capital.
Thus, on the Marxist argument, collective owners have rights they’re entitled to use. In modern-day capitalism, pension funds have an open door to exercise them.
Changes have been more superficial than
substantive. Governance codes have been rewrittenbut are largely motherhood missives that lack real
enforceability. We’ve seen the emergence of an ineffective governance industry, do-gooders rather than
powerful agents. Not much has changed in
the field of law. The governance community
must reflect critically on why reform hasn’t
penetrated practice. All of us must be
challenged as to what we’ve achieved.
In the last 50 years we’ve seen (corporate)
ownership fragment as a consequence of the
accumulation of people’s savings in large
funds to provide for retirement and health.
Our public companies, owned by these
investment-minded funds, are now effectively
ownerless corporations. In public companies
we’ve seen this fragmentation accompanied
by high portfolio diversification.
The result is that the fiduciary owner– large institutional investors – has interests
in so many companies that it cannot
possibly act as a proper fiduciary. These
institutions don’t think of themselves as
owners. Consequently, they are not equipped
or rewarded for performing the duties of
The debate has missed the relevance
of fragmented ownership on the decisionmaking
behaviour of public companies. Instead of addressing fund-management
companies, debate has focused within
the public company on the board and
management. Even here, where the debate
has tried to address the governance
weaknesses of ownerless corporations, it has
focused more on board structure than on
meaningful advancement in board practice.
We’ve created rules about board structures and
designed a complex set of interlocking committees, but
proof that we’ve missed the mark is (that) audit and
remuneration committees have gotten the attention. The
nomination committee is the most important because
it determines board and committee membership and
thus the behaviour that will define the company and its
ownership mindset. It has been almost totally ignored by
There has been no real appreciation of the need
to redefine the nature of institutional investor
responsibility. There’s been a reliance on fiduciary
precedent, which doesn’t cope adequately with the
complexity of multiple layers of agents. Efforts at reform
in governance have really been an attempt to address
the loss of direct-ownership perspective in corporate
decisions at the board level, by goading boards into
developing efficacious practices in lieu of what really
counts – an owner at the table, or at least on the
Ira Millstein, a professor at the Columbia law and
business schools, who chairs the eminent Millstein
Center for Global Markets & Corporate Ownership:
I respect and admire the corporation and oppose anything that interferes with the productive exercise
of capitalism. Corporations are the best means we’ve
invented to provide value to everyone – goods and
services for all of us as consumers, returns to investors,
taxes to the government and jobs for people – which
provide them with money to invest, pay taxes and spend
in the economy.
Not only do corporations provide such value now,
they hold our future welfare in their share capital– the wealth we will rely on to sustain us. Everything
is at stake here. Corporations protect us, so we have
to protect them. The mechanism of governance offers
the best protection for us all – employees, consumers,
investors and government.
Governance is a necessary defence against
entrenched interests, greed, corruption, incompetence
and indifference. With so much money at play in our
remarkable capitalist system, there’s an open invitation
for abuse. I see significant risks in our future wellbeing,
a future made possible by our money that’s invested in
It is our money that powers the corporate world, and
which corporate governance must protect. That money
doesn’t belong to the banks or the hedge funds or the
pension funds. It belongs to the people it comes from,
Most appalling, the public forgets that it’s their
money. Consequently, there’s little sense of ownership,
stewardship and accountability because most people
aren’t sufficiently aware to care. Pension funds should be
the bulwark of society.
Better than food for thought, it’s food to digest.