Radical economic transformation: Activism will drive change

2015-03-22 15:00

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ANC Gauteng’s plan to change the face of JSE-listed companies rubbishes the nationalisation debate

The National Empowerment Fund (NEF) and the JSE are at loggerheads. They cannot agree on the percentage of JSE-listed shares owned by black South Africans.

The outcome of their dispute could well affect the future shape of economic transformation and black ­economic empowerment (BEE).

The elephant in the room is the ANC Gauteng, which, at its provincial conference last November, launched a ground-breaking policy ­initiative to intervene.

The NEF, whose calculation has been supported by President Jacob Zuma, puts the black shareholding at 3%. On that basis, the inference is that whites own 97%. It’s a nonsensical premise because it excludes such “mandated investments” as pension funds through which most people – black and white – own shares.

It’s also a dangerous argument because it offers a pretext to rapidly accelerate elitist-type BEE deals that prejudice black and white ­members of pension funds. The more new shares are issued to selected black consortiums, the more existing shareholders are disempowered. Pension funds, whose members are predominantly black, comprise the largest category of JSE investors.

The JSE, for its part, cites independent research that it had commissioned and released in mid-February. It reveals that black South ­Africans own at least 23% of the top 100 listed companies.

Of local South African shareholders only, the proportion increases to at least 30%.

So what?

Enter the ANC Gauteng.

By a timing coincidence, the JSE computation implicitly supports the position taken by the provincial body last November.

It’s for “radical economic transformation” to be ­advanced not by favouring relatively few people at the ­expense of many, but by asserting the power of the many shareholder activists through their retirement funds.

This is now provincial policy.

Seen as critical to “radical economic transformation”, the next move of the ANC Gauteng will be to sponsor it as a policy proposal at ANC national for a June start.

Even before then, ANC Gauteng chair Paul Mashatile will be looking to consult widely with stakeholders, including the JSE, the Institute of Directors, trade unions and financial institutions. This process has already begun.

The cat among the pigeons is in a particular paragraph of the policy document: “Directors [of JSE-listed companies] are voted by shareholders, but rarely does this group of shareholders [retirement fund contributors who are overwhelmingly black] exercise this right.

“This ‘inaction’ somehow has contributed to lack of transformation at the top level of corporate SA ... Policy intervention should ensure that we leverage on the significant worker power to energise our transformation agenda.

“One of the ways of achieving this is to advocate for a 50-50 workers-other owners representation on boards of JSE-listed companies.”

Before the pigeons take fright, which they will when they see how the document contextualises it within the Freedom Charter, they should consider the bright side.

For starters, it rubbishes the nationalisation debate.

There’s an implied acknowledgment that “the people”, mainly through their retirement funds, already own the economy’s ­“commanding heights”.

In fact, excluding foreign investors from the research computation, black ownership of the top 100 listed companies is significantly higher than 23%. Moreover, the research leaves another 16% of shareholders still to be analysed.

The trick will then be in the conversion of investors from passive to active. This will be no mean trick. The concept of 50-50 representation between employer-nominated and member-elected trustees of retirement funds, was legislated almost two decades ago.

It has not been noticeably successful in the encouragement of funds’ activism. Now to be tested is whether the political rocket of the ANC Gauteng has the firepower to hit its target, especially among trade unions involved with retirement funds.

What the ANC Gauteng wants, bereft of its polemic, is there for the taking. The Companies Act enables the nomination and election of directors by shareholders. The King III corporate governance report recommends that funds exercise their rights. The Code for Responsible Investing in South Africa, to which the large asset managers subscribe, underpins it. The Financial Services Board circular PF130 insists that retirement funds compile investment policy statements, inclusive of mandates to asset managers.

What’s then not to like about the ANC Gauteng’s initiative? Perhaps four things, without which it can boomerang:

.?A vigorous programme of consumer financial education so fund members are aware of their ownership stakes and, with particular reference to trade unions, the effect of strikes against companies where they’re invested;

.?Intensive training of aspirant company directors and fund trustees, not only to promote competence but also so that respective roles are recognised, that is the fiduciary responsibility of directors only to their companies, and trustees only to their funds, to ensure a commonality of purpose even on remuneration policies;

.?Acceptance of mutually interdependent relationships, for the sustainability of investee companies, so their prosperity goes hand in glove with the value of shares to the funds’ ultimate beneficiaries; and

.?For the funds themselves to get off their backsides.

Get these right and the proposed “radical economic transformation” can herald a departure from the adversarial us-versus-them discourse that has afflicted South Africa for far too long.

Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), a quarterly magazine mainly for trustees of retirement funds

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