Union companies pose ‘grave risk’

A hard-hitting study has found that trade union investment companies have a prodigious R2-billion asset base but, in general, lack a ‘union agenda”.

If not addressed, this could ‘expose the union movement to grave financial, socio-political and reputational risks”, says the report of the National Labour and Economic Development Institute (Naledi), the research arm of the Congress of South African Trade Unions (Cosatu).

The findings were presented at a Cosatu central executive committee meeting in May and have been kept under wraps. However, a preliminary copy was leaked to the Labour Bulletin, which will print them this week.

Naledi’s mandate from Cosatu was to assess the union investment companies and recommend a coordinated model to ensure that they become fully accountable to the federation’s social agenda.

Cosatu commissioned the research after it became concerned about the behaviour of various unions and their investment companies in relation to a string of black economic empowerment deals.

The forthcoming Labour Bulletin cites various examples, including the recent controversial Elephant consortium empowerment deal.

Cosatu criticised the sale of Telkom shares by the Public Investment Corporation to Elephant, headed by former communications director general Andile Ngcaba and Women’s Investment Portfolio Holdings (Wiphold) head Gloria Serobe. It was later embarrassed when it emerged that the South African Democratic Teachers Union (Sadtu) was involved in the deal through its stake in Wiphold. Sadtu later withdrew from the deal. Asked whether investment companies pursue a union agenda, Naledi says ‘not really”.

It says the companies were originally established to generate a return to the union and its members and to pursue objectives that aim to ‘create social capital, be it in the form of jobs or alternative forms of ownership”.

Yet most of the investments suggested that the primary objective was to generate a return. To that extent, the investment companies were not very different from any other companies.

The report found that the original strategy was to invest in certain sectors ‘identified as being strategic”. Some investment companies, such as that of the National Union of Metalworkers, had avoided investing in their sectors because of possible conflicts of interest. However, union investment companies linked, for example, to the South African Clothing and Textile Workers Union (Sactwu) and the National Mineworkers Union (NUM) argued that investing in the sectors in which they organised enabled them to have a ‘progressive impact”.

Sactwu’s investment company is the oldest, established in 1993, and has the largest asset base (R1,3-billion). This is followed by the Mineworkers Investment Company, which is worth between R350-million and R500-million. These two companies own 90% of the assets of all union investment companies.

The Naledi report found that in five of the seven investment companies, a member of the relevant union sat on the board. But this did not provide sufficient control and allowed for conflicting interests. ‘The technical capacity of most unions to relate to the investment companies appears very limited, and hence results in inadequate substantive oversight … If Cosatu and its affiliates intend to use investment companies strategically and effectively, then capacity within the unions to oversee investment company issues must be built.”

Naledi reveals that the investment companies refused to provide it with the necessary documentation, limiting its analysis of potential conflicts.

While the report identifies problems in the investment companies’ distribution of profits, the ‘lack of disclosure and substantive information sharing” limited its scope for investigation.