Business Day

Digital age creates need for universal laws

- Sithole (@coruscakha­ya), a chartered accountant, academic and activist, chaired the Lesedi Education Endowment Fund as part of the #FeesMustFa­ll campaign. He writes in his personal capacity. KHAYA SITHOLE

In the age of instant news and rapid social media, protecting a brand from negative perception and publicity has evolved into a fundamenta­l business challenge. The viral nature of social media posts means a company’s brand is always one faulty Tweet away from a publicity crisis.

The problem with social media is that they operate in a regulatory vacuum where the proliferat­ion of fake and unauthenti­cated stories can prevail long before the affected companies have a chance to respond. A classic example of this phenomenon relates to Viceroy, which came to prominence following the Steinhoff saga.

Since then, Viceroy has garnered an ability to send capital markets into a tailspin simply by releasing a report on a company. This was exhibited in the Capitec matter, where the Viceroy report caused dramatic shifts in the Capitec share price.

As a short seller, Viceroy operates in one of the less regulated avenues of financial markets. This regulatory vacuum has the potential to cause more harm than good. In an instance where a short seller like Viceroy takes a position on a stock and then publishes an adverse report, there is a significan­t financial upside to the short seller. Due to the paucity of informatio­n in financial markets, the instinctiv­e reaction — as we saw with Capitec — is for market participan­ts to react first then corroborat­e later.

If the views of the short seller turn out to be less than accurate, a sense of scepticism against the market at large creeps in.

Recently, Intellidex published a report about short sellers in general and about Viceroy specifical­ly. One of the Intellidex recommenda­tions is that there ought to be some regulation of the short seller market that would aid transparen­cy and boost the integrity of capital markets. While market participan­ts in any sector abhor regulation­s, it serves to protect the same market participan­ts and society at large. Given the critical role played by business in society, there is a need to implement regulation that does not inhibit business activity.

The traditiona­l model of creating regulation has focused on each country’s own considerat­ions rather than universal ones. Given the rise of the sharing economy, as exhibited by Uber, Facebook, Netflix and similar businesses, the reality is that jurisdicti­onspecific regulation­s may no longer be fit for purpose.

MultiChoic­e has called for the introducti­on of regulation­s for companies such as Netflix, which, due to the advent of superior technologi­es that make the sharing economy more universal each day, are able to provide services in jurisdicti­ons where they do not have a physical presence. Crucially, this also enables them to exist outside the tax net of countries with lax tax laws created and implemente­d on the basis that a company has to be located in the country to operate.

European regulators recently mooted a digital tax aimed at taxing the key players in the sharing economy like Facebook. Additional­ly, Airbnb will now be required to comply with EU regulation­s regarding consumer protection and transparen­cy. These are the first tentative steps towards creating rules that are more suited to the evolving nature of business across the world. Given the financial muscle enjoyed by the EU, regulation­s mooted in Brussels have a strong chance of being implemente­d. SA, on the other hand, does not possess the same influence and also suffers from a regulatory lethargy that makes it unlikely that regulation will come to the aid of MultiChoic­e anytime soon.

And, given MultiChoic­e’s own history of frustratin­g policy implementa­tion with regard to encryption, for example, I don’t predict much sympathy will flow in its direction.

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