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Changes to South Africa’s Companies Act: With greater transparency comes greater responsibility

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Sasha Planting is a seasoned financial journalist and Associate Business Editor at Daily Maverick Business.

We all know the stats. South Africa is the most unequal country globally, as measured by the Gini index. But we don’t need an index to tell us what we observe daily. Whether driving through well-maintained streets of Cape Town, gritty Johannesburg, or on the disgraceful wreck of a road through Flagstaff, Bizana and Port St Johns, it is easy to discern that a tiny percentage of South Africans have a lot, while many have little to nothing.

First published in the Daily Maverick 168 weekly newspaper.

This is so in many societies, but here it is acute. A 2020 paper produced by researchers at Wits University’s Southern Centre for Inequality Studies and the World Inequality Lab noted that the top 10% of South Africans own 86% of the aggregate wealth, while the top 0.1% (3,500 individuals) own close to one-third. We all know that this is not sustainable in any society, let alone one as fragile as ours.

The only way to address this gap is by improving education outcomes and stimulating economic growth. Job creation will follow. But this takes time (and execution), both of which are in short supply. In an era in which impatience is bubbling, regulatory and political interference becomes increasingly tempting. Globally we have seen moves to limit executive remuneration through various means – notably increased disclosure of incentives, and at times legislation.

In this climate, the proposed amendments to South Africa’s Companies Act send an important message. Among the more significant changes in the Companies Amendment Bill – which was released for public comment a week ago – is the requirement that companies disclose not just the average and median remuneration of all employees, but the ratio between the total remuneration of the top 5% highest-paid employees and the bottom 5% lowest-paid employees.

This has provoked a storm of commentary, according to ENSafrica chairperson Michael Katz, who served on the committee advising the Department of Trade, Industry and Competition on the proposed amendments to the Act.

The intention is that increased transparency stimulates debate and makes people more sensitive to the wage differentials in SA. Excessive remuneration is a concern, and there are strong views that this feeds into inequality. We simply cannot ignore it. If we have learned anything during Covid-19, it’s that the poor are hit the hardest in any crisis.

The proposed changes mean that shareholders and activists will be able to analyse the pay gap and act to change it.

But will it? Would it matter to Numsa-aligned workers in the steel industry who have downed tools if the pay gap was 58x, as it was in 1989, or 278x, as it was in 2019, according to the US’s Economic Policy Institute? Or would executives earning 375x the lowest worker, such as those at AVI, be shamed into lowering their salaries?

In practice, disclosing executive remuneration at listed companies worldwide has not resulted in a collective lowering of salaries. If anything, they have grown exponentially in the last two decades. Another significant proposal in the Bill is that the shareholder vote on remuneration policy and implementation report becomes binding for public companies and state-owned enterprises.

It is currently non-binding. This means that although more and more institutional investors are voting on remuneration policies, not many companies are adjusting these policies. But this is a two-way street. If the amendments are adopted, companies will be forced to consider shareholder views. Shareholders who vote against the relevant resolutions will need to furnish their reasons for dissent – something that has not always been forthcoming.

With greater transparency and shareholder power comes greater responsibility – from shareholders, trade unions and other stakeholders. The other remuneration-related proposal in the Bill is that all audited companies must clearly disclose the remuneration of directors and prescribed officers in the annual financial statements.

This is not a new policy; the Bill simply makes it clear that companies cannot hide behind aggregates and pseudonyms such as Director A, B or C.

Remuneration is just one area of focus in the Bill, but the proposals signal that it is an area of great concern. Executive remuneration is a complex issue, more so in SA, where companies and their shareholders have to compete in a global market while confronting extreme levels of societal inequality.

These issues need to be addressed before it leads to negative social consequences or regulatory or political interference, which could ultimately stifle business operations. Greater transparency is potentially one step towards achieving a better balance. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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  • Once again the ANC is tackling a problem that needs to be tackled but by doing the wrong things it will have almost zero impact. I can’t see these disclosures as doing anything to tackle the actual problem which is a problem of poor education and a lack of skills. The biggest problem faced by poor people in SA is that the ANC does not want their circumstances to improve and to simply keep them as subservient, dependent voting fodder. By having a large poor population it gives politicians something to rail against come election time. They should try doing something positive, just something, in between elections. For instance, I would see them keeping their hands in their own pockets as something positive.