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Corporate Governance in South Africa

Literature › Works

Pierre Habbard (2010). Corporate Governance in South Africa. Hans-Böckler-Foundation / TUAC discussion paper series. Hans-Böckler-Foundation and Trade Union Advisory Committee (TUAC) to the OECD.
Type report
Scope Post-1994 South African economy
Method synthesis review
Period studied 1950–2010
Regions South Africa, Johannesburg, London
Themes business and state, transition post apartheid, macro fiscal finance debt, inequality poverty unemployment, sanctions divestment, unions strikes, labour markets wages, politics ideology elections
Citation key habbard2010

Argument

The paper reviews South Africa's corporate governance regime from the apartheid-era mining-house conglomerates through the 1990s transition to the new Companies Act of 2010. It argues that the post-apartheid regime is advanced on paper (shareholder, worker, ESG and pension-fund provisions). Yet reforms had little effect on the distribution of corporate and financial power. Conglomerates were unbundled and diluted but ownership remains concentrated and boardrooms white. Black economic empowerment (BEE) enriched a politically connected few through leveraged, opaque deals. The shift from RDP to market-oriented GEAR delivered growth but not employment or redistribution. Method is a literature review of secondary sources, regulation and OECD/IMF/UNCTAD documents, written from a trade-union perspective.

Evidence and method

Secondary literature (Malherbe & Segal 2003, Chabane et al. 2006, Baloyi & Pons-Vignon 2009, Hendricks 2008, Freund 2007, Goldstein 2010), OECD/IMF/UNCTAD reports, statutes (LRA 1995, Companies Act 2008/2010), the RDP document, JSE and FSB data, press reports, and annex tables on market capitalisation, pension assets and BEE holdings.

Findings

  • Sanctions redirected rather than prevented the growth of the mining houses, which diversified domestically. (p. 6)

    The sanctions regime against apartheid, far from preventing growth of the large mining houses, simply re-directed their growth.

  • Mining houses kept control while raising equity via sponsored listings, pyramids and non-voting shares. (p. 6)

    Using pyramid structures and the extensive use of non-voting shares, mining houses were able to raise money on stock markets while allowing the owners to retain control over the companies.

  • State-owned enterprises were a large part of the apartheid-era corporate landscape. (p. 7)

    SOEs grew rapidly in the 1960-70s and accounted for 25% of the country's market capitalisation in 1990.

  • GEAR achieved growth but not employment or redistribution, and inequality rose relative to the apartheid era. (p. 6)

    Ten years after its adoption, only one of the three objectives stated in its title, 'growth', can safely be concluded to have been achieved.

  • Unbundling sharply reduced conglomerate control of top companies after 1994. (p. 11)

    in 1994, 83 of the top 100 companies were owned or controlled by the top six conglomerates; by 2004 the number of companies controlled by these conglomerates had dropped to 47.

  • The number of JSE-listed companies fell sharply as blue chips moved their primary listings to London. (p. 11)

    The number of companies listed on the JSE fell from 732 in 1990 to 403 in 2004.

  • Rand protection and restrictive monetary policy favoured mining groups at the expense of the rest of the economy. (p. 10)

    Protecting the Rand on the foreign exchange markets led to currency appreciation during the 1990s, which favoured the interests of the mining groups but resulted in a loss of competitiveness of the rest of the economy

  • Early BEE deals grew rapidly in share of the JSE but were leveraged buy-outs with the downside risk borne by creditors. (p. 22)

    Creditors – banks and insurance groups – were bearing all the downside risks, while the control rights – the 'upside' risk – were with the black empowerments group

  • Black-influenced listed companies rose from 1% to 16.3% of JSE market value between 1994 and 1999. (p. 22)

    under the control or significant influence of black owners grew from 1% of the JSE market in 1994 to 16.3% in 1999.

  • Black representation in top corporate positions remained very low. (p. 25)

    The study shows that of 269 CEO positions, blacks occupied 9% and whites 91% of the positions

  • Workplace forums, the LRA's worker-participation channel, have been almost unused. (p. 16)

    In practice only a handful of such bodies have been established since 1995 and none has been created in the manufacturing sector.

  • Reforms have not prevented deepening inequality despite institutions for stakeholder participation. (p. 27)

    the improvements made since the end of apartheid have failed to prevent a deepening of social and income inequalities across the economy over the past 15 years.