Transform SA through pension fund activism
SOME years ago, Today’s Trustee, a magazine targeting potentially the most influential people in our economy, suggested that pension funds disclose — to every fund member — the top 12 companies in which they are invested. The idea was as brilliant as it was simple in its effort to get millions of pension fund beneficiaries more involved in what is happening to their companies.
It would, of course, be much simpler if more of our pension money were invested directly in companies rather than in unit trusts, funds of funds or multimanager funds. These investment products intrude layers between the beneficiary — the worker, the saver, the investor — and the asset in which they are invested.
Each layer involves an additional cost, and makes it less likely that the millions of beneficiaries have any sense of ownership of the companies in which they are ultimately invested.
The executives who manage companies are agents supposedly acting on behalf of shareholders and in their best interests. The real shareholders are unknown to them — but the executives may know the fund managers who have invested on behalf of the beneficiaries and who are themselves agents supposedly acting in the best interests of the beneficiaries.
So, in theory, we have all these fund managers and service providers being paid to act in the best interests of the millions of beneficiaries, none of whom has any real power.
If the system worked according to the theory, we wouldn’t have a thriving corporate governance industry that spews out codes aimed at ensuring our captains of industry don’t go rogue. But no initiative has been able to overcome the fundamental flaw in 20th- and 21stcentury shareholder capitalism: the lack of any sense of ownership by the millions of real owners.
This system of layers has created a wall of alienation. Behind that wall the fund managers and corporate executives can get on with doing what they think is best for . . . whomever.
The magazine’s recommendation is aimed at dismantling that wall of alienation, to get the real owners involved. It assumes that if people knew what companies they were invested in, they would become more interested in the oversight of those companies. They might even be interested enough to get involved in the appointment of the directors.
The latest issue of Today’s Trustee takes pension fund activism further. It carries an interview with ANC Gauteng chairman Paul Mashatile on the need for “radical economic transformation” and the ANC Gauteng policy proposals for retirement funds to become activist shareholders.
When asked why the focus was on retirement funds, Mashatile replied: “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 the development agenda.”
And Mashatile said about nationalisation: “Any debate on nationalisation should be within the context of what’s already owned by the workers; in fact, how the people of South Africa, through their retirement funds, own the means of production.”
How does Mashatile’s proposal — since adopted by the Gauteng ANC — fit with the National Empowerment Fund’s claim that “black people own a mere 3% of the economy”? The empowerment fund implicitly denies that black people have any claims to the assets of retirement funds.
Given the fund’s denial of workers’ claims, the two approaches seem headed for conflict.
Mashatile is interested in black workers exercising the ownership they already have. The fund appears interested in black people being given shares they don’t have. His proposal is more likely to lead to the sort of radical economic transformation this country needs. The fund is more likely to create another generation of oligarchs who will effect little transformation but will gratefully funnel some of their new wealth to the ANC.
It’s time we all became more active.