While much of the focus has been on the appointment of business heavyweights Maria Ramos, Dr. Reuel Khosa and Sindi Mabaso Koyana to the interim board of the Public Investment Corporation (PIC), a closer look at its composition reveals something unprecedented about board appointments in South Africa.
Three individuals that have been appointed on the board by finance minister Tito Mboweni on Wednesday 10 July are unusual. They are Ivan Fredericks, Zola Saphetha and Mugwena Maluleke, who are all trade unionists at the Public Servants Association, National Education, Health and Allied Workers’ Union, and South African Democratic Teachers Union respectively.
Essentially, the PIC, the manager of about R2-trillion worth of state workers’ pension funds on behalf of the Government Employees Pension Fund (GEPF), will have worker representation on its board for the first time since its incorporation in 2003.
It’s uncommon for board appointments to include worker representation not only at entities such as the PIC but also state-owned entities and corporate South Africa. However, it is considered as best practice in Europe, with Germany often seen as the role-model.
For many years, trade unions – incensed by rampant corruption allegations that have surfaced at companies that employ their members and management that glibly embarks on retrenchments, blaming tough economic conditions – have intensified their demand for worker representation on company boards.
They’ve argued that having trade union affiliated individuals will ensure that workers are privy to decisions taken by management and the board itself. It would also be to their advantage when wage negotiations or labour disputes emerge because worker representatives at a board-level would see – on a first-hand-basis – the financial position of a company and rationale behind decisions taken by management.
The end goal for trade unions would be to bridge the inequality gap in South Africa, which is ranked the highest in the world, and the contentious pay ratio issue between CEOs and their workers. According to a 2018 PwC report, CEOs of South Africa’s largest companies earn, on average, 64 times the wages of entry-level workers. In rand terms, CEOs earn R68, 219 a day, while workers earn a living wage at around R10,000 to R12,000 a month.
In theory, a CEO brings higher and developed skills set than an entry-level worker. In practice, the gap is extraordinary.
The call for worker representation on the board also grew louder at the height of State Capture during Jacob Zuma’s presidency, when state-owned entities such as Eskom, South African Airways, Denel and Transnet became the target for looting and enriching a coterie of politically connected individuals.
PIC cronyism and corruption
The PIC has also had its fair share of scandals linked to allegations of cronyism and corruption. At the centre of these allegations is the PIC’s former CEO Dan Matjila and board members that resigned en masse in February 2019. On a cursory view, Matjila and several board members have been accused of making investment decisions based on favouritism and friendships – and not on commercial viability.
The PIC’s soured investments also didn’t cover the entity in glory. It extended loans to the now-defunct VBS Mutual Bank, invested in embattled retailer Steinhoff and Ayo Technology Solutions, majority-owned by Sekunjalo Investments, which in turn is owned by Iqbal Survé.
In all three incidents, the PIC had to write-off close to R30-billion in the funding facilities it extended or invested. Any loss is quite big even if the figure (nearly R30-billion) represents less than 2% of the R1.2-trillion in pension savings the PIC manages on behalf of GEPF. And the PIC has probably recovered from the losses considering that it has a diverse portfolio of investments – some of which have outperformed the JSE.
Having worker representation on the PIC board will probably result in workers keeping a much closer watch on what goes on with their money. It also has the potential to hold PIC executives and directors accountable for any governance failures and sloppy investment decisions.
However, there’s a caveat. The board worker representative model only works if individuals chosen to the board have the best interests of workers at heart and are highly principled. Otherwise, they’ll become pliable and fall into patronage networks.