Edition: March / May 2017
Editorials

COVER STORY

A convenient bogey

SA isn’t being spared “alternative facts”. Take a look at one, origin unknown, that confuses and polarises.

‘White monopoly capital’ – so commonly used in the lexicon these days that it’s known by the WMC acronym – is as dated as the gramophone. A figment of social-media parlance, its existence feeds on a conspiracy theory hatched to deceive. Because the modern-day owners of capital are predominantly collective investment vehicles, notably pension funds, WMC is fake in concept and content.

Sure, there are white guys at the head of large corporations who meet with government ministers in attempts to influence policy, as is their right and also their responsibility. That they happen to be white, where they are, is incidental to the B-B BEE compliance and initiatives of their corporations.

Equally sure, there are weighty black guys doing exactly the same. Where they aren’t joined by whites in common cause, as in the ‘Save SA’ campaign, they carry impact for respective lobbies that suit agendas within the governing party.

Hoggenheimer then. WMC now.

It’s a stretch to conclude that skin colour is the differentiator between narrow and national interest. Investor confidence and economic growth are entwined with systemic black inclusivity both in the “commanding heights” and in the fairer distributions of wealth that only enhanced prosperity can generate.

On its own, making the poorer richer by making the richer poorer is a populist formula to address inequality. It is not a means to promote social coherence, on which the philosophy and increasingly-elusive targets of the National Development Plan rely, because it is simultaneously a formula to derail efforts at countering unemployment and poverty as the other two equally-critical elements of SA’s “triple challenge” frequently highlighted.

In an economy that consistently performs below its potential, inequality becomes the most politically expedient element to exploit. Enter the ogre of WMC, an opportunistic distraction if ever there was.

Those who expound it – President Jacob Zuma included – can at least provide evidence of its existence. That they don’t is because they can’t. There’s no such thing. Long gone is the era when the large corporates were controlled by family dynasties that dominated the concentrations of capital. Over recent decades, there’s been a tectonic shift that makes WMC a product of Trump-style denial.

Flashback to May 2012 . . . TT’s long campaign kicks off

Even the term hardly bears scrutiny. People understand the meanings of “white”, “monopoly” and “capital”. Stringing together the three words is to create a term both emotive and meaningless, serving to sow suspicion and discord. More than this, because purported participants in WMC (bad) are mysteriously unidentified, they cannot be cross-referenced to publicly identified participants in the CEO Initiative (good) where there must logically be substantial overlap.

Modern-day company ownership is in the hands of capital accumulated by the public through savings in pension funds, assurance policies and the like. Simply check the share registers of Anglo American, Remgro and Steinhoff for examples. Shareholdings are too diffuse, and the Companies Act too stringent, for board and management control to be asserted except to the extent that myriad shareholders allow.

Bad enough as a concocted fantasy, WMC is uglier for its blatant racism. Perversely, imitation being the sincerest form of flattery, it’s a reinvention of the ‘Hoggenheimer’ image contrived by the National Party of old to garner votes of depression-afflicted Afrikaners in its pre-1948 struggle for power. ‘Hoggenheimer’ was created to portray non-NP leaders as puppets whose strings were pulled by a secretive cartel comprising rich English-speakers and overseas colonialists.

In its present incarnation, the aspirations of historically-disadvantaged Africans are made to appear blocked by finance minister Pravin Gordhan and his supporters. WMC, the new bogey, becomes the scapegoat for the ‘state capture’ frustrations of Zuma and his cohorts. “Monopoly capital and their stooges attacked me,” he recently told a meeting of the ANC Youth League in reference to Nenegate. “I realised that I would not resign on my own because that would be surrendering to white monopoly.”

Thus does a term, which should be discarded for factual inaccuracy, gain traction for political currency. The most fundamental denial is in the ownership by black people of JSE-listed companies (see box).

By far the largest vehicle is the giant Government Employees Pension Fund whose assets are managed by the Public Investment Corporation. The fund, which comprises predominantly black members, has a listed portfolio that represents over 12,5% of the JSE equities market. The agglomerated proportion managed by private-sector investment institutions, acting as fiduciaries for individual savers, would eclipse even this.

Don’t stop there. Were foreign investors excluded from the PIC computation, its proportion would almost double. And were foreign investors to withdraw from the JSE in a doomsday scenario, say in the event of a ratings downgrade, the PIC’s proportion would increase even further – albeit of a much-reduced market capitalisation, which is hardly the optimal way to increase black ownership.

IN BLACK AND WHITE

Delivering his 2017 SoNA, President Zuma said: “Only 10% of the top 100 companies on the JSE are owned by black South Africans, directly achieved principally through black-empowerment codes, according to the National Empowerment Fund.”

Something rings wrong. Two years ago, again according to the NEF, he put the figure at 3%. There must have been a giant leap during a short period, or the NEF’s methodology has changed.

Nonetheless, there’s ambiguity. In terms of his latest pronouncement, what’s meant by “directly”? And does the 10% indicate the proportion including or excluding foreign investors? Similarly, what about pension funds?

Further, two years ago, there were major discrepancies in the methodologies and hence the conclusions between the NEF and the research commissioned from Alternative Prosperity by the JSE (TT June-Aug ’15). AP found that, for the first time, at end-2013 the number of black South Africans holding shares on the JSE had overtaken the number of white.

This was more because of black peoples’ holdings in mandated investments, inclusive of public-sector pension funds, than through BEE structures. Shareholders were determined by economic interest i.e. the right to receive dividends, irrespective of how, from the JSE’s top 100 representing more than 90% of the listed equities’ market capitalisation:

Based on the JSE’s shareholder-weighted (SWIX) index: Of the top 100 companies’ shares that could be traded, 23% were black-owned (10% directly and 13% indirectly) and probably closer to 30% once analysis of some outstanding share registers is completed. The number is perhaps more like 40% of available shares when ownership by non-South Africans (foreign investment) is excluded;

Based on the Department of Trade & Industry method: If foreign operations are excluded as allowed by the DTI’s generic B-B BEE codes – several larger JSE-listed entities significantly earn revenues abroad -- the proportion of black ownership increased to 39%. (The DTI calculation is aligned to the ownership target of 25% set in the amended B-B BEE codes.)

The AP calculation of 13% indirect black ownership is through “mandated investment schemes”, notably pension funds. When it comes to “economic interest”, the difference between direct and indirect shareholding is purely procedural.

The AP research is now being updated.

Taken together, as King III pointed out, pension funds comprise the biggest single category of investors in the top companies. Cumulatively, fund members and dependants outnumber the recipients of social grants and probably even the population registered to vote in parliamentary elections. That’s huge clout, were the funds to use it.

They can. They should. And many do, usually through asset managers acting on their behalf. Shareholder activism and engagement with investee companies take place in accordance with the policies of managers or under mandate from the funds. Either way, they’re informed by the Code for Responsible Investing in SA (now supplemented by King IV), Regulation 28 under the Pension Funds Act and provisions of the good-governance circular PF130 issued by the Financial Services Board.

Asset managers are accountable to their client funds. Some are better than others in public reporting via websites on their engagements with companies and their proxy votes at shareholder meetings. Old Mutual Investment Group stands out amongst the better for identifying companies and explaining outcomes. It also argues for shareholders to have a binding vote on companies’ policy proposals on executive remuneration.

The GEPF, whose assets are registered in its own name, notes in its latest annual report that “ownership rights have an intrinsic economic value and active ownership uses various formal and informal elements of such voting rights to signal, encourage and request change in the corporate behaviour of which the GEPF has invested and which support the development of long-term investment value”.

In the year to end-March 2016, it voted at 225 shareholder meetings on almost 3 000 resolution items. Of the great majority, it voted in favour. Of the 206 where it voted against, 39% were to express disapproval of remuneration policies.

Where managers or funds have voted against the re-election of directors, the instances have been minimal. Moreover, there are only exceptional instances where they’ve nominated and elected directors. Under the Companies Act, all they need for successful election is the majority of votes at a shareholders’ meeting.

Voting collusively, as they can, and being in a majority, when they are, would solely defeat any intimation of WMC at board level. However, without relying on their managers and consultants, pension funds are notorious for not themselves exercising their shareholder rights.

Similarly conspicuous by their absence is fund members, who have much to say about WMC from trade-union and party-related platforms, serving as trustees; or for that matter, to stand in elections for funds’ boards and to undertake the rigours of training that will qualify them as fit and proper. How difficult it would be to reconcile fiduciary duty with blather.

Constrained by their own lethargy, they ignore the door open to them. As shareholders, they can more effectively influence company behaviour through boardrooms than strikes. But few members seem even to realise that they’re often shareholders in the companies they weaken by industrial action; mining companies are a prime example.

Pension funds have fallen down, too, on advancing and protecting members on black empowerment schemes. For advancing, as the largest single depository of black workers’ savings, black members should have been automatic broad-base qualifiers. They weren’t. For protecting, they should have been in the frontline of protest against the dilution of their shareholdings. They’ve been silent. And pension funds, unlike selective B-B BEE consortia, would not be bedevilled by debt in subscribing for shares preferentially offered.

What’s good for pension funds is good for the economy and vice versa. Where they stand to be hit, as after Nenegate and latterly in the contest over the finance ministry, it’s paradoxically been those implicitly tarnished as WMC and their “stooges” (as Zuma would have it) who’ve joined forces as fiduciaries to counter the destruction of peoples’ savings.

If that’s WMC at work, bring on more of it.