Issue: December 2012 / February 2013
Tough choices will have to be made by institutional owners of the mines affected by wildcat strikes. Abstention is not an option.
No sooner does the Code for Responsible Investing in SA (CRISA) look to be gaining traction that it faces a baptism of fire. Effective from earlier this year, institutional signatories will need to decide how they’ll vote at the forthcoming round of shareholder meetings held by Marikana-afflicted mining houses.
Will these direct shareholders support the mining houses’ managements, or won’t they? Will they explain to indirect shareholders (e.g. pension funds on whose behalf they act) why they vote as they do, or won’t they? Will they approve the remuneration and reappointment of directors? It could be a case of damned if they do and damned if they don’t.
In a similar predicament could be the pension funds of trade unions. For they too have votes, either in their own names or through the instructions given their asset managers. Union trustees may have a difficult time of it, making calls in the interests of the funds and not necessarily in accordance with the biases of their respective unions.
If they neither instruct their asset managers nor exercise their votes, they’d be asleep at the wheel. If they complain after the event about how their asset managers have voted or not voted, they’d be ineffectual.
So complex are the issues that the rights and wrongs defy clear delineation. Even the wisdom of the Farlam commission’s hindsight cannot be conclusive on whether one mine was right to have succumbed to the demands of wildcat strikers (undermining collective-bargaining structures) or another wrong to have proceeded with dismissals (upholding legally-binding agreements). Institutional investors will need to make judgment calls, for which they’re poorly equipped, or hold their peace, which CRISA discourages.
Such is the intensity of emotions over Marikana that there’s no saying where or how the aftershocks might ultimately be quelled. Perish the thought that the mining houses’ institutional owners, seeking to apply reason and fairness over expedience and evasion, find themselves at a focus of mob attention; or, less dramatically, that asset managers lose client mandates for sticking their heads above politically-targeted parapets.
All the affected mining houses – Lonmin, Goldfields and Amplats being the first – are significantly owned by institutions. These institutions act as fiduciaries for end-beneficiaries such a members of pension funds, including thousands of mineworkers.
A primary intention of CRISA, signed by the largest SA asset managers and pension funds, is for shareholders to act as owners. CRISA is their tool for directors of investee companies, in this instance the mining houses, to be held accountable for application of environmental, social and governance (ESG) policies that promote business “sustainability”.
The monitoring and oversight roles are with the owners. They have voting power as shareholders over the directors. Marikana focuses the mind, taking owners from the quiet niceties of corporate engagement on ESG to the hard consequences of public gaze. Their pronouncements will carry clout, and risk, as representative responses.
Not only have different mines behaved differently, but one mine could be held to have behaved correctly in one sense but not another. For instance, Lonmin ensured “sustainability” in the sense of rushing to restart production. It did not in the sense of leapfrogging legal process. It did in the sense of applying solid policies of corporate social investment, proudly proclaimed, but not in the sense that the Bench Marks Foundation has dismissed them as “lies”.
Moreover, there’s a long history of what the mines have attempted to do – but contentiously been stymied from doing – notably to improve workers’ accommodation since the abolition of pass laws. Local authorities might not be guiltless either.
Similarly, contention will persist on responsibility for educating workers about the potentially calamitous financial impacts for them of illegal strikes on the risk benefits provided by pension funds. If fingers are to be pointed at the mining houses, they might well be pointed at trustees and trade unions too. If there have been educational processes, constant and not reactive, they patently haven’t worked.
On top of this, from the specific perspective of institutional shareholders, is a lack of clarity on the meaning of ESG investment criteria that they’re committed to advance. Here, to name one, the “governance” criteria go well beyond box-ticking on whether the investee company has separated the roles of chairman and chief executive. Marikana opens unchartered waters throughout the ESG domain, brilliantly illustrating the importance to the long-term “sustainability” of investee companies that these criteria embrace.
It’s easy to pinpoint the problems. Solutions are another matter. To the extent that it’s possible to predict anything, it’s that the looming shareholder meetings won’t be relaxed occasions to enjoy tea and biscuits; unless, that is, the institutions cop out and relegate CRISA – with it King III on corporate governance and Regulation 28 of the Pension Funds Act that also enshrine ESG -- to the scrap heap of nice-to-have theory.