/ 5 April 2019

The Republic of Commissions could need just one more inquiry

The commission of inquiry into state capture
Jacob Zuma’s lawyer argued on Monday at the state capture inquiry that Deputy Chief Justice Raymond Zondo had a “reasonable apprehension of bias” based on comments he had made to “sweetheart witnesses”. (Oupa Nkosi/M&G)


Switch on your television or browse the news these days and a fresh torrent of public sector corruption comes stumbling out. This is innocence lost: we had no idea that it would be possible to so easily steal a country within plain sight and under the noses of regulators, tax, legislative and prosecuting authorities. Everything was for sale, apparently, so long as the right person could be found at whom to throw money.

This destruction of our state entities, as we know, was aided and abetted by the private sector parties that are meant to act as watchdogs — the accounting and auditing professions being cases in point.

We know, too, of prominent cases in the private sector, notably Steinhoff, where malfeasance wiped out hundreds of billions of rands of shareholder value. Business Day columnist Stuart Theobald writes of the rot in Group 5, EOH, Tongaat Hulett, Brait, Aspen and Resilient, which has wreaked havoc on shareholder wealth. “It’s all depressing because the solutions are not obvious.”

Indeed. But for some it’s business as usual. Coronation Fund Managers (CFM), one of our largest asset managers, is a case in point.

Shareholder activist Theo Botha, in February, highlighted the lack of transparency over who the beneficiaries of a R588-million bonus trust fund for its executives are, but CFM missed this opportunity to agree to full disclosure, instead frustrating Botha’s attempts to find out how its remuneration policies work.

Botha told Moneyweb that he asked for the trust deeds, a simple document of rules and regulations of the trust, and was ignored. “Why can’t shareholders see these rules?” he asked. “If changes were made, why weren’t they put to the vote?”

Botha, who has been trying to get details of this scheme since 2015, said CFM’s disclosure has improved “but it should be transparent as the biggest investor on the JSE and one which is holding other companies to account”.

CFM would do well to click over to the Futuregrowth website and download its February 2018 report, SOE Governance Unmasked: A Learning Journey. Futuregrowth was the first asset manager to decide, back in September 2106, that it would no longer be lending to some state enterprises until it had concluded in-depth governance reviews.

It used the next 18 months to interrogate governance in this sector, engaged with the relevant boards and examined its own procedures and approaches. It then published its findings as a comprehensive report.

Not surprisingly, transparency features as a keystone of good governance. CFM chief executive Anton Pillay will do well to read page 10 (“directors’ emoluments should continue to be fully and transparently disclosed”) and page 31 (“sunlight is the best disinfectant”), but Pillay, of course, already knows this and, I hope, demands transparency when making investments. He just thinks, apparently, that a different standard should apply to CFM’s own disclosures.

One of our sharpest minds on these issues, economist Iraj Abedian, told the Raging Bull Awards in February (republished by Daily Maverick in March): “Our national savings, limited and inadequate as they may have been, have been looted and squandered on a massive scale.”

“The asset management industry participated in the capital raising of the private and public entities, including the national treasury’s bond issues, over the past decade,” he said.

“Whether on the equity-investments or fixed-income side of the financial markets, the fact is that hundreds of billions were channelled through this industry into the national treasury, Eskom, Transnet, African Bank, Steinhoff, Resilient, Reit, Fortress Reit, NEPI Rockcastle, EOH, Net1 and many other such entities.

“And, under the asset management industry’s watch, and I would dare to argue that in some cases with its participation, hundreds of billions of the country’s national savings were destroyed, a colossal sum stolen, and untold amounts of people’s life savings were subject to the vagaries of the financial markets’ shenanigans.”

We are already the Republic of Commissions. The PIC inquiry has had its life extended and Zondo appears to get more material to probe by the week. But Abedian reckons we need another commission, for private sector financial institutions or corporate sector practices.

“Such an open inquiry is needed because we have seen a systematic erosion of effectiveness, credibility and legitimacy of the institutions of oversight such as the FSCA [Financial Sector Conduct Authority, replacing the Financial Services Board], JSE, Irba [Independent Regulatory Board for Auditors], Saica [South African Institute of Chartered Accountants] and even national treasury,” he said.