The silence of worker capital is so loud

Fresh political momentum and renewed optimism in the economy at last bring the chance to revisit old challenges with new energy.

There is now focus from all groups to return the economy to high levels of growth and investment. As we push forward with reforms to reignite the economy, it is important to balance the goal of growth with the need for economic justice and a more inclusive economy. One area where there likely to be emphasis is on restructuring of ownership of the economy, especially in favour of workers.

Yet it is easy to forget or deny that black worker ownership is well under way. Black workers own a sizeable chunk of the listed equity sector.

Institutional investment (pension funds, insurance funds and investment schemes) now accounts for between 52% to 58% of the JSE100, by far the largest category of local investment, and overwhelmingly represents the interests of black workers.

Workers’ pension funds have 83% black membership, while the biggest investor on the JSE, the Government Employees Pension Fund (GEPF), owns nearly 40% of reported assets. These primarily represent the interests of ordinary workers.

Moreover, recent reports commissioned by the JSE and National Treasury, find that between 20% to 23% of shares in the JSE100 are owned by black South Africans: about half directly and about half (between 11% and 13% of JSE) indirectly thorough institutional funds.

This can be a foundation on which to build further transformation in our economy.

If there is ownership then the more pertinent question is why workers aren’t using the rights of ownership to push for reform in corporate South Africa.

Consider the issue of corporate leadership. The Steinhoff debacle again highlights the importance of representative diversity in leadership positions of large companies.  Yet, despite progress, few of the boards and senior management teams of big companies are truly representative. As a rough proxy, 90% of CEOs and 85% of board chairpersons of the JSE Top 40 companies are white men.

Why don’t workers, as owners, press companies for more racially diverse leadership? Why don’t they demand better corporate governance, social and environmental performance, or for that matter, shared value business models that could make a meaningful difference in their lives?

The answer lies in intermediary relationship set out in the diagram.



1.     Workers collectively hold huge savings in institutional funds.

2.     They delegate oversight of these savings to trustees, half of whom are worker-nominated. Worker trustees are often workers themselves, elected from the shop floor or through a union. They are not professional investors and rarely have access to financial or commercial networks. Many do not have investment, economic or fiduciary training to be an effective trustee.

3.     Consequently, they delegate most decisions to the professional asset manager industry. This industry is not yet highly transformed. A 2017 survey by 27four Investment Managers found that of the total of R4.7-trillion of savings and investments only 9% is managed by black-owned asset management firms.

4.     Thus, predominantly white-owned or controlled asset managers retain de facto control over the levers of transformation in corporate SA: deciding where capital should be allocated, who should be appointed to boards, and who should be endorsed for senior executive positions.

White asset managers naturally have networks of trust in finance and commerce that remain largely white. They make appointments from these networks, perpetuating the racial patterns in the listed equity sector. 

To be fair, this is not a conspiracy as much as the outcome of a segregated history that makes us more comfortable with those who look, talk and live like us. And there is little incentive for a white fund manager to challenge the status quo if it is not being demanded by clients.

 Here are five solutions that will help to break this cycle.

First, we need to speak more honestly about the benefits and limits of ownership. Ownership does not always create wealth, nor does it always give control.

Second, worker pension funds could organise and vote collectively on investment mandates for a corporate agenda they believe in. They could establish a central coordinating body and common guidelines for trustees.

Third, more investment is needed in training and developing a professional class of black worker trustees.

Fourth, workers’ trustees must hold asset managers to account for the nomination and election of directors and for a meaningful environmental, social and governance (ESG) strategy in every company they invest in. The UN-backed Principles for Responsible Investment already provide a model investment mandate that trustees can use. Funds managers should also be expected to engage actively with companies on their plans to help to solve social challenges.

Finally, to widen the field for senior appointments, black and white business associations could be more proactive in creating platforms for white and black asset managers to identify, meet and build trust with talented black managers and executives.

Worker capital already owns a significant part of the economy but it has not yet grasped the power or responsibility that comes with ownership.  

Oliphant is Chairman of Third Way Investment Partners, All Weather Capital, and RH Bophelo; Short is Partner at Genesis Analytics. Jabulile Mpanza assisted with research.

 An edited version of this article appeared in Business Day on 8 February 2018