Rethink the industry

INEQUALITY: GROWTH ALONE NOT ENOUGH

‘Investment sector can drive better corporate behaviour.’

In a representative sample of 10 South Africans, five would earn just 8% of SA’s income and own 5% of the assets and 4% of the net wealth. One person would get 55% of the income, own 70% of the assets and 71% of net wealth.

It’s well known that SA is one of the most unequal societies, but figures shared by independent consultant Dugan Fraser at an investment forum on inclusion at the Gordon Institute of Business Science on Wednesday provide more perspective.

Growth not a magic wand matter

Research supports the notion that significant inequality isn’t only bad for growth, but can fuel political and social instability which may deter investment, Just Share executive director Tracey Davies said.

“Prioritising economic growth as an end in itself – without paying attention to strengthening that growth by ensuring it is more widely and fairly distributed, that it takes place without destroying the environment and unduly burdening future generations – will continue to exacerbate already historically high levels of wealth and income inequality.”

Relative pay for SA executives is among the world’s highest, far exceeding that in similar developing countries when adjusted for purchasing power. But what role can the investment industry play to improve inclusion?

Action plan

Davies’ wish list includes that: Asset managers improve disclosure and address incentive structures;

Analysts interrogate companies’ environmental, social and governance claims and call out misrepresentations;

Investors tackle excessive executive remuneration by asking whether it’s fair and responsible in the context of overall employee remuneration;

Pension fund trustees take their fiduciary duties seriously; and

Regulators seriously up their game in supervising the implementation of responsible investment and corporate governance requirements.

Firm stance

Futuregrowth chief investment officer Andrew Canter said Futuregrowth has engaged very actively with the JSE to improve standards around bond market requirements.

This was after then environmental affairs minister Nomvula Mokonyane fired the entire Umgeni Water board in June 2017 unbeknown to anyone.

Canter, who landed himself in hot water in 2016 when Futuregrowth stopped lending to six state-owned firms, said this was a breach of the Public Finance Management Act, the Water Services Act and probably of the Companies Act, and threw the King Code in the shredder.

JSE CEO Nicky Newton-King said the distinction between equity and debt market disclosure requirements was inconsistent and anachronistic. She said the JSE was about to release new listings requirements providing transparency levels one would expect.

Introspection needed

Witwatersrand University academic and former Treasury budget chief Michael Sachs said the private sector and those who look after wealth accumulation needed to introspect. “It has to be sound structural change in the way we use equity particularly, because people involved in debt contracts are not going to transform anything frankly. We need to look at how equity begins to invest in a form of capitalism that is sustainable away from the one where it is now.”