USING WORKER POWER TO CHANGE ASSET MANAGEMENT
Workers already own a large part of the economy but do not realise how they can leverage this
As Covid eases its grip, the pressure is on the government to jump-start the economy. But it’s important to remember that SA should, as far as possible, aspire to inclusive growth — especially when it comes to ordinary workers, who have been hard hit by the pandemic.
Since 1994, black workers have been taking more ownership of the economy. More than 150,000 SA workers now own at least part of the company they work for. The most recently available reports, from 2017, show that institutional investors — including pension funds, insurance funds and investment schemes — account for 52%-58% of the JSE’s top 100 companies. This is by far the largest category of local investment, overwhelmingly representing the interests of black workers, as workers’ pension funds have 83% black membership.
The latest research commissioned by the JSE and the National Treasury in 2017 found that 20%23% of shares in the JSE’s top 100 companies are owned by black workers — about half directly and about half of that (11%-13%) indirectly through funds. A more recent study reported that just under 25% of JSE-listed companies are black owned. This is a foundation on which to build further transformation of the economy.
If black worker ownership is clearly progressing, why don’t workers use the rights of ownership to push for more reform in corporate SA?
Consider board diversity. About 80% of CEOs and about 70% of board chairs of the JSE’s top 40 companies are white men. While this percentage is improving, it is still far from being demographically representative.
Why don’t workers, as owners, press companies for more racially diverse leadership? Why, for that matter, don’t they demand higher standards of corporate governance, better environmental performance or the adoption of shared-value business models that could ensure that businesses help solve society’s challenges?
The answer lies in the complex intermediary relationship between worker capital and the listed companies it is invested in.
The way it has traditionally worked is like this: Workers collectively hold savings in institutional funds. They delegate oversight of their investments to institutional trustees, half of whom are nominated by workers. These trustees are often workers themselves, elected from the shop floor or through a union. They are not professional investors and rarely have access to financial or commercial networks. And the truth is, they often don’t have the necessary investment, economic or fiduciary training to be effective trustees.
Because of this, they delegate most decisions to an asset manager — and the asset manager industry is still being transformed. A 2021 survey by 27four Investment Managers found that assets under management by black-owned asset managers account for just 13.5% of market share, and that there are only 55 black-owned asset managers.
The result is that predominantly white-owned and white-controlled asset managers retain de facto control in deciding where capital should be allocated and who should be appointed to boards or endorsed for executive roles. These asset managers have networks in finance and commerce that are still largely white, so they tend to make appointments from these networks. It is the outcome of a segregated history that makes us more comfortable with those who look, talk and live like us. There is little incentive for a white fund manager to challenge the status quo if this is not being demanded by clients or members.
There are several ways to break this cycle.
First, worker pension funds could organise and vote collectively on investment mandates for an agenda they believe in. They could establish a central co-ordinating body and common guideline positions for trustees.
Second, trustees need more training, so that a larger number of professional black worker trustees can become available.
Third, trustees should be encouraged to hold asset managers to account for nominating and electing directors and for creating a meaningful environmental and social impact strategy in every company they invest in. The UN-backed Principles for Responsible Investment already provide a model investment mandate that trustees can use. Fund managers should be expected to engage more actively with companies about how to solve social and environmental challenges.
Fourth, business associations could be proactive in creating platforms for white and black asset managers to identify talented black managers and executives, meet them and build relationships of trust with them.
This is vital. Workers already own a large part of the economy — ownership gives them both great power and responsibility to make a difference.
Short is partner at Genesis Analytics; Oliphant is founder and executive chair of Third Way Asset Management Group. They write in their personal capacity