SHAREHOLDER ACTIVISM

Transformation from the top

ANC Gauteng wants more action from retirement funds in nominating and electing the directors of SA's big companies. It has launched a potentially ground-breaking policy initiative that needs to be properly understood for the future of corporate governance.

Because of its position in the powerhouse of SA's economy, what the provincial body of the ANC in Gauteng has to say about "radical economic transformation" (RET) can have profound national ramifications. It has now set its RET sights on the boards of JSE-listed companies. ANC Gauteng chair Paul Mashatile explains why.

TT: What motivated the ANC Gauteng policy proposals for retirement funds to become activist shareholders? They seem to have dropped from the sky, or have they been mulled behind the scenes for some time?

Mashatile: They were a long time coming. After 20 years of democracy, and lots of talk, we want more practical steps that will advance RET in Gauteng and the rest of the country. We must also mobilise funding from the private sector to help finance the development agenda.

Why the focus on retirement funds?

Because they have millions of black members and the savings of black workers are held in these funds. They have rights as shareholders, and by exercising those rights they can influence the ways that their money is invested. Their investments should help support the development agenda, not golf resorts and similar projects that do not benefit workers. It's wrong that ordinary workers contribute to retirement funds merely to find that their monies are invested in projects that don't meaningfully change their lives.

Your policy retains the old jargon about the economy's "commanding heights". Isn't it rather out of date?

No. Transformation starts at the top. If you look at the boards of the top 40 companies listed in the JSE, you do see black non-executive directors but not too many executive directors. I'm open to correction, but I think you don't find a single director who's been elected by a retirement fund. This is despite retirement funds being such big shareholders. The lack of board diversity defies SA's democracy and demographics. Retirement funds have it within their power to correct it.

To what end?

First, boards must reflect the diversity of ownership. Diversity enriches boards by broadening and challenging elitist views of the world. Second, retirement funds must invest in ways that benefit the country. By electing directors to company boards, they'll have a strong say in the strategies of those companies to advance the long-term benefits to the company, the country and the fund members themselves. The three go hand-in-hand.

There's surely more to it. These directors will be plunged headlong into the controversial issue of income inequality between bosses and workers?

Indeed they will. But it's not in anybody's interests that they disrupt and destroy companies. It's in everybody's interests that companies are kept on the straight and narrow in terms of fairness, perceived and real. As shareholders, retirement funds can already vote to approve companies' remuneration policies. As directors, they'll be able to serve on companies' remuneration committees that determine executives' pay. We'd also expect the directors to report back on how they address workers' pay. They must be held accountable for policies that worsen inequalities.

It seems that the ANC Gauteng is breaking new ground. Isn't it entering terrain beyond its remit?

We're in the governing party. As such, we have a responsibility to look continually for ways that will improve the lives of people and to increase their participation in democratic processes. There's nothing new. Internationally, there's the German model for "co-determination" between employers and workers at board level. Perhaps we could explore it for possible adaptation. In SA, the King code on corporate governance has for ages been propounding the same approach as we're now propounding.

In essence you're saying that retirement funds must become activist shareholders, that you're trying to awaken what have often been described as "sleeping giants"?

That's what the policy says. Again and again, transformation keeps coming through the ANC agenda. Any conversation over RET must begin with recognition of the significant pool of capital in workers' retirement funds to make a contribution, for example by investment in long-term infrastructure.

Yet you've kicked hard against e-tolls?

That's a case in point because it illustrates our whole philosophy. We have not opposed e-tolls as infrastructure projects. We've opposed the current methodology to collect funds for paying back the debt. Key elements in the methodology must be that tolls be cost-effective, equitable, easy to administer and affordable. To embrace these principles would be consistent with our Gauteng Freeway Improvement Project. It's basic that, unless debts are honoured, the consequences would be dire for future investment in public infrastructure and for our RET goals.

You keep linking infrastructure investment to RET goals. Do we need to create a model unique to SA for investment in public infrastructure?

I don't believe so. Introduction of Basel III, which increased the capital-adequacy requirements for banks, has had a negative effect around the world on the financing of infrastructure. The debate has now moved on to retirement funds taking up the cudgels. As the ANC Gauteng, we fully support views that encourage them.

You surely don't expect investment from the private sector when there are continual references in SA to nationalisation?

Any debate on nationalisation should be within the context of what's already owned by the workers; in fact, how the people of SA through their retirement funds own the means of production. This is the element so far missing from the conversation. It also brings us back to the need for much greater diversity on company boards. A lack of ownership participation on company boards tells us that the boards aren't transforming, fuelling the nationalisation talk. Moreover, it's unlikely that directors elected by retirement funds will want to diminish the value of workers' savings. More likely, they'll want to enhance it.

In many circles, your policy will be contentious. How did it go down at the provincial conference?

Prior to the conference, the policy proposals were sent to all branches as a discussion document so that delegates could obtain mandates. At the conference there was robust debate not only on retirement funds but on RET generally. There was unanimity of the role of retirement funds as vital catalysts in advancing RET.

From the trade unions too?

Cosatu was formally represented. It's part of our alliance. Not only was its leadership at the conference but other unionists were also present as individual delegates. There was general agreement. But it's important to emphasise that we want all stakeholders to have a say on how we move forward on this position. We're not singling out any one category of stakeholder.

So how now, within the ANC structures, do you take further the Gauteng policy on retirement funds? It's presumed that you'd like to see it elevated from provincial to national adoption?

The ANC Gauteng will have to sponsor it as a policy proposal at ANC national fora. There'll be a meeting of the national general council in June, the national policy conference next year and then the national conference in 2017.

Too late for the 2016 local elections?

Don't look at it like that. Look at it as good for SA. The wheels are already in motion.

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

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