Is excessive executive remuneration the flip side of the same coin as enrichment of a few through black empowerment?
Black economic empowerment (BEE) has become an economic and a political reality in South Africa and is here to stay for the long term as a feature in public, and for that matter, private companies. When the African National Congress was swept into power in the historic elections of 1994 it, hardly astonishingly, identified BEE as a vital vehicle for redressing the economic injustices of apartheid.
In the policy document "South Africa's Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment", the government noted that apartheid systematically and purposefully restricted the majority of South Africans from meaningful economic participation. A vast amount has been done to address the problem, including legislative remedies, BEE deals by major companies listed on the JSE, the creation of endless charters and other related measures.
As with any empowerment initiative there will always be critics opposing what they perceive to be redistribution, but few will deny that past injustice has to be addressed. Increasingly, questions are being raised as to whether the current process has resulted in the enrichment of an elite rather than the empowerment of the millions who still remain excluded from participating in the economy and the fruits of the newly won democracy.
As far as shareholders and investors on the JSE are concerned, political and economic stability is a most important factor in ensuring consistent investment performance. A growing economy with international confidence and low levels of unemployment and poverty is a sure recipe to sustainable appreciation of share prices. This is best achieved by drawing as many people as possible into the economy through job creation, education and aspiration. BEE initiatives have a critical role to fulfil in this regard. Clearly, I make no apology for adopting a capitalist stance!
I am growing increasingly cynical towards the implementation of new regulations. It seems to me that we are fast becoming over-regulated with an ever- growing plethora of rules and a seemingly total inability of the policing and judicial departments to enforce them. I prefer the principle that the correct things are done because they are the correct things to do.
It seems to me that the notion that BEE is enriching a few needs to be dispelled at all cost. Companies listed on the JSE could play a pivotal role in this regard. The main source of communication that they have with their shareholders is the annual report. This is evolving into an increasingly complex and detailed document and it would not be difficult to use it as a medium to communicate the company's BEE aspirations, policies and successes.
The kind of information that could be provided is whether or not any BEE initiative is in place. If so, what nature it takes, whom it benefits and to what extent. It is an ideal opportunity for companies to display their credentials and show how well they are doing in terms of job creation, education, healthcare provision, infrastructural development and the like.
Enforced compliance with the remuneration disclosure requirements of the JSE has had a very bizarre, and unexpected and unwelcome, outcome. It seems not to have been a case of name them and shame them, but match them and raise them! Directors seem to have rejoiced in discovering how much their peers and competitors earn and to have used it as ammunition in wrenching up their own, often excessive, packages.
Those decrying the "enrichment of the few" in BEE transactions should also be looking at executive remuneration. Is this not just the other side of the same coin? The issuing of options, all paid for by shareholders, has gone completely out of control, and rewards are being offered far in excess of what should reasonably be expected. It is now a case of taking enrichment to the absurd. Surely there is a limit to the amount of money that any one person can require and amass? It is one of the growing reasons for strikes and it contributes to marginalising the poor even further.
It is very easy for us all to have pet hobby horses, but when dealing with matters of national importance and shareholder wealth, battles should be carefully chosen and fought with dexterity and dignity.
- David Sylvester is the chairman of the Shareholders' Association, telephone (021) 686 7567.
This article was first published in Personal Finance magazine, 4th Quarter 2006. See what's in our latest issue