How many top 100 companies are black?
Scrap looms over proportion of shares in JSE-listed companies that black South Africans really own
IT’S pointless for the JSE to keep pussyfooting around with two sets of “research” — only one of which deserves the appellation — on the number of black South Africans invested in the local bourse.
There’s the independent research headed by Trevor Chandler of Alternative Prosperity, which bears the hallmarks of reliable interrogation, and something else by the National Empowerment Fund, which doesn’t. Both cannot be correct in their conclusions because the differences between them are vast.
Either black South Africans, according to Alternative Prosperity, own at least 23% of the JSE’s top 100 listed companies; probably closer to 30% once analysis is completed on outstanding share registers, and perhaps more like 40% of available shares after foreign investors are excluded. Or, according to the NEF, they own 3%.
The debate defies an academic nit-pick through diverse methodologies equally robust. The stakes, in endorsing one side or the other, are high and immediate.
With the government flip-flopping on what it wants BEE to mean, it gets to the root of BEE’s future shape, with profound impacts on corporate governance.
For mandated investments, specifically pension funds that have millions of members, the outcome can also determine whether their shareholdings are at risk of further dilution.
For the first time, according to Alternative Prosperity, the number of black South Africans holding shares on the JSE had overtaken the number of white. This was more because of their holdings in mandated investments, inclusive of pension funds in the public sector, than through BEE structures.
Shareholders were determined by economic interest, that is, the right to receive dividends, irrespective of how.
The Alternative Prosperity research had been commissioned by the JSE. It set out to measure, conclusively and credibly, the extent of transformation in shareholdings. In proudly announcing the findings, JSE CEO Nicky Newton-King could scarcely have anticipated the government’s response. Within days, President Jacob Zuma contradicted them by producing and endorsing the NEF conclusions.
The guardians of political correctness must not be fooled. A person is or isn’t a shareholder. The determinants of fact, not interpretation, are whether that person is entitled directly or indirectly to vote at shareholder meetings of the investee company and to receive dividends from it. Irrelevant is the vehicle through which shares are held.
The only differences between direct and indirect shareholders are procedural.
So either the economic interest of black people through mandated investments should be included (as per Alternative Prosperity), or they shouldn’t (as per the NEF). Only one of them can be right. DO THE MATH: For the first time, according to Alternative Prosperity’s research, the number of black South Africans holding shares on the JSE had overtaken the number of white shareholders
The Alternative Prosperity approach is consistent with realities of modern-day share ownership, emphasised in King 3, which urges the active exercise of voting rights. It is also consistent with the BEE codes and the retirement-fund activism policies of the ANC in Gauteng.
By contrast, the NEF is saying, in effect, that the shares must be held directly by black individuals or a vehicle belonging to those individuals. Otherwise they aren’t recognised. Such an approach ignores the way in which most shares are held and flouts even Companies Act principles.
The contradictions between Alternative Prosperity and the NEF extend beyond mandated investments.
For a start, there’s no way that the NEF can be considered independent. It’s a creature of government, ultimately responsible to Zuma. And whatever the other areas of NEF distinction, research of this nature is not among them.
It smacks of amateurism. Apparently using as its base document the publication Who Owns Whom, which records on- ly larger shareholders with influence in listed companies, the NEF hasn’t attempted to incorporate the legislated BEE criteria.
That it hasn’t taken into account the global share registers of major JSE-listed corporates, such as SABMiller and Richemont, is another obvious omission.
Moreover, it has selectively interpreted different forms of BEE. At the same time, it has ignored the JSE-listed companies most highly valued by market capitalisation that operate variously around the world and are additionally listed on other exchanges.
Overall, the NEF highlights the privileged few rather than all black South Africans who are intended beneficiaries of transformation policies.
Alternative Prosperity, on the other hand, is known to have used a variety of information sources, including share registers of JSE-listed companies, BEE certificates of these companies or their unlisted South African subsidiaries, annual reports and financial statements, and data directly obtained from mandated investors. The different outcomes can be illustrated within a matrix related to the JSE’s shareholder-weighted index.
There might well be imperfections in the Alternative Prosperity research. Given the firm’s reputation, however, they are unlikely to be as blatant or serious. The best way to find out will be for Alternative Prosperity and the NEF, as proxies for the JSE and Zuma, to engage face-to-face in open debate.
Let’s see whether they’re up to it. If the one is and the other isn’t, it will be case proven.
Allan Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), a quarterly magazine mainly for trustees of retirement funds