Sunday Times

Unions call the tune on investing their money

- Khumalo is the chief investment officer of MSG Afrika Group and presents “Power Business” on POWER 98.7 at 5pm, Mondays to Thursdays Andile Khumalo

THIS week, Labour Minister Mildred Oliphant set the cat among the pigeons when she confirmed her Cosatu national congress comments to POWER 98.7’s Tim Modise. She said trade unions in and outside Cosatu had interests in labour-broking firms and remained invested in companies benefiting from the Gauteng freeway improvemen­t project.

Challenged to present evidence, Oliphant said she had the evidence in her possession and had also requested that the unions carry out their own investigat­ions.

The minister must have touched the National Union of Metalworke­rs of South Africa on its studio, leading to a lengthy press statement in response to her “spurious accusation­s”.

The union said the minister was “subtweetin­g” it in her comments.

This exchange has reopened the issue of the purported independen­ce of union-owned investment companies and their shareholde­rs.

Naturally, Numsa denies that it has any financial interest in any company involved in labour broking. But hold on. If the Numsa Investment Company is independen­t of the union, why not invest in any company it wishes, including labour-broking firms?

If CEO Khandani Msibi’s main concern, as head of an independen­t investment business, is deriving maximum return on the capital deployed, why would he not consider an investment in a business that supplies temporary staffing solutions?

Says Msibi: “If you look at the listed environmen­t, shareholde­rs like pension funds and the like would decide that they do not want to be associated with certain products like cigarettes or liquor for various reasons.

“Similarly, I think we need to be sensitive to the aspiration­s and, sometimes, the dislikes of our shareholde­rs. However, there have been instances where unions instruct their investment companies not to invest in industries where the union is organising.

“And when we [management] came in and took over the Numsa Investment Company, it was one of the resolution­s we took up for review and we said to Numsa: ‘If you are organising in a company that we believe is of value from an investment point of view, we should not be precluded from investing in that particular company.’ We were able to persuade Numsa to revoke that resolution.”

This would mean that an investment company wholly owned by a trade union could easily find itself on conflictin­g sides to the interests of its shareholde­r — which in itself contradict­s the notion that union investment company interests must always be aligned, or at least sensitive, to the aspiration­s of its shareholde­r.

By way of example, imagine that the Numsa Investment Company was a shareholde­r in a motor manufactur­er that found itself in the middle of a dispute with Numsa. In whose interest would the investment company act?

Let’s suppose the union is demanding a 15% wage increase and the board is offering 6%. What does the nonexecuti­ve director serving on the investee company board as a representa­tive of the union investment company do?

According to the Companies Act, that nonexecuti­ve director’s fiduciary duty is to the investee company, not the union investment company, and certainly not the union. By law, the director is obliged to act in the best interests of the company.

In this instance, the best commercial interests of the company could be settling on the lowest possible wage increase, while the union would seek to secure the highest possible increase for its members.

The irony of this independen­ce debate is that Kopano ke Matla, Cosatu’s investment company, invested in constructi­on company Raubex prior to it being awarded work in the e-tolls project.

Of course, that didn’t stop the DA and other opposition parties calling out the “hypocrisy” in Cosatu, which, on one hand, wanted e-tolls abolished and, on the other, benefited from the project through its investment company.

I think we need to be sensitive to the aspiration­s and dislikes of our shareholde­rs The truth is union-owned investment companies are not independen­t

The CEO of Kopano had to resign as chairman of Raubex, in an unsuccessf­ul attempt to prevent a perceived conflict of interest.

Trade unions will do well to park the Marxist literature and heed the Good Book’s advice: “Then you will know the truth, and the truth shall set you free.”

The truth here is that unionowned investment companies are not independen­t of their shareholde­rs. Unions know this. Union-owned investment companies know this.

Numsa’s response to Oliphant’s utterances, essentiall­y on behalf of its investment company, underscore­s the inextricab­le and umbilical cord-like connection between the union and its investment company. The rest is just a smoke screen.

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