JSE COMPANIES' BOARDS TARGETED

ANC Gauteng proposes "radical economic transformation" of directorships through shareholder power of retirement funds.

Amid the razzmatazz in having provoked the national government on e-tolls, and its earlier stance in having opposed the re-election of President Jacob Zuma at Mangaung, the provincial body of the ANC in Gauteng has offered another input that has so far not received the attention it deserves. Potentially, it's even more momentous.

It opens for consideration in SA something akin to the successful German model of corporate governance. Discarding the revolutionary clichés of party presentation, this could be the desired outcome.

Almost buried in the sectoral discussion paper, tabled at the annual ANC Gauteng conference in October, is a policy proposal focused on retirement funds; specifically, on overcoming the "inaction" of black members to use their rights as ultimate shareholders in the election of directors to the boards of companies where their funds are invested.

This "inaction", says the paper, has contributed to the lack of transformation at the top level of corporate SA: "Hence, policy interventions should include setting up appropriate forums with National Treasury to 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 the boards of JSE-listed companies."

This is a basis for consensus-building because, irrespective of who elects them, directors are responsible to their companies and trustees to their retirement funds alone. Their interests coalesce in that the better the companies perform, the better for the benefits of members whose retirement funds are invested in them. What's needed is not so much assistance from National Treasury as application of available Companies Act procedures for shareholder involvement by the funds themselves.

Properly thought through and refined, implementing the ANC Gauteng policy proposal can positively change the adversarial discourse and promote much needed social cohesion around rhetorical questions for fund members:

Do you prefer to help develop or damage your investments? Do you prefer more jobs or more strikes? Do you prefer to be heard in boardrooms or on the streets? Do you prefer to promote or obstruct a more equitable and stable society? At the end of the day, do you prefer to have more money or less?

Answers invite the sort of social-market model that prevails in Germany. In an address last year, then Reserve Bank governor Gill Marcus noted that the model has mutually-reinforcing aspects from which SA could learn. These are in industrial relations, training and investment in competitive enhancements.

There, both workers and firms take a long-term view of the economy and recognise the importance of continuously raising productivity. Both understand the need to share productivity gains, and appropriate mechanisms are in place to resolve disputes early in a win-win spirit. Also, Marcus added, "we need to find ways that enable the workforce to have greater knowledge of the financial affairs of the company and sector, while management needs to better appreciate the living and working conditions of their employees".

At first blush, a read of the relevant two pages in the ANC Gauteng document can be distracting for the inserts of Marxist jargon and party dogma. Presumably these are needed to demonstrate consistency with convention. But look to the content of the package, not the wrapping, for an approach four-square within the paradigms that are supposed to govern corporate deference to shareholders.

The revolutionary polemic of socialism can be modified by the better practice of capitalism. At the ANC Gauteng, the trigger is pulled on how.

The persistent challenge, the document argues, is that the economic structure of apartheid remains "largely untransformed with monopoly capital still rampant". At the same time, inequality is racialised mainly because "the means of production are still controlled by the white minority largely due to lack of transformation at the top level of corporate SA".

It adds: "The most pronounced and persistent economic fault-line since our democratic breakthrough is the fact that the economic inequality gap is widening...with the commanding heights of our economy still held by a minority that is mainly white and male."

Statements like these create atmosphere. They serve a purpose in motivating the case for shareholders to become active in the nomination of directors. Yet they're kicking at an open door because, as the report admits, "directors are voted by shareholders but rarely does this group of shareholders - retirement-fund contributors who are overwhelmingly black - exercise this right". That they don't, in their mandates to asset managers, is a function of their own neglect.

The report makes another significant admission. Noting that retirement funds own "at least 30% of the companies listed on the JSE" - this 30% would approximate the proportion of SA ownership, counter-productively to shoot up were foreign shareholders to exit - it wants "this group of shareholders to become active and utilise their strength to accelerate transformation of the JSE".

Incidentally, so far as all the atmospheric complaint about "monopoly capital" is concerned, the report makes an oblique reference to the Freedom Charter. Given the context of JSE ownership "and the call for radical transformation as envisaged through nationalisation from other quarters, it should not be far-fetched to state that the people already share in the country's wealth".

Once the reality of retirement funds' capital is recognised, "monopoly capital" becomes an oxymoron. It's contradictory to accept the former and attack the latter.

As with e-tolls, the ANC Gauteng is onto a good thing. Politically, the proposal holds appeal across party divides for a black middle class growing apace (particularly in Gauteng) at the same time that the number of members in factious unions (comprising a putative ANC alliance) is shrinking quickly. Intriguing possibilities are opened for the 2016 municipal elections, perhaps facilitating coalitions where there are no outright victories, with national consequences that can only be speculative.

Economically, the proposal is hard to fault provided the end game assists promotion of the National Development Plan to which the policy document expresses commitment. The purpose in getting "workers/other owners" onto company boards must be to establish common objectives for the common good, along the German lines, where enhanced corporate participation and sustainable economic growth are complementary.

Having taken the lead, it isn't too much to expect of the ANC Gauteng that the proposals don't stop at talk. Over to provincial chair Paul Mashatile and premier David Makhura.

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LOCAL MODEL

The concept of 50/50 employer/employee representation is not new to SA. It was introduced in 1995, largely at the insistence of Cosatu, for the boards of retirement funds. The idea had to do with fostering "co-determination".

In the two decades that have passed, success has been mixed. When considering the introduction of a similar concept to the boards of companies, SA can usefully learn from its own experience.

It has much to do with fiduciary duty. Trustees don't sit on the boards of retirement funds for the sake of demographics and decoration, but to act in the best interests of those funds. Directors have a similar duty to their companies, to enhance their prosperity and sustainability in terms of good-governance principles, solely in the interests of the company and its stakeholders. Social responsibility is a matter for funds and companies alike.

The SA experience with retirement funds indicates a lack of suitably competent trustees to fulfil their roles. That's why National Treasury and the Financial Services Board are now insisting that trustees have minimum "fit and proper" qualifications that enable them to serve. No longer to be elected for popularity alone, appropriate training is being offered and has become a prerequisite.

If the ANC Gauteng proposal is to be seriously considered, then other parties should be invited to help give it legs. Obvious candidates include the Institute of Directors and the Batseta Council of Retirement Funds.

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Allan Greenblo is editorial director of Today's Trustee (www.totrust.co.za), a quarterly magazine mainly for principal officers and trustees of retirement funds, where this article first appeared.

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