OUR politics is exhausting. At least, in the midst of President Jacob Zuma’s theatrical and public efforts to save his skin and to push a competent finance minister into a corner, where he will "behave" and not make life too uncomfortable for the thieves in government, a good thing did finally happen. To what effect we cannot be sure, but good nonetheless.
It was the clear enthusiasm of the established business community to put up its hand and work with the state towards not only avoiding what would be a calamitous downgrading of our sovereign debt, but to offer its experience and skills to help turn around the state’s crumbling business empire, a major source of our ills.
There were offers to put competent and experienced people on the boards of state-owned enterprises, offers to partner in infrastructure and operations, offers, such as Bidvest CEO Brian Joffe’s on the announcement of his retirement, to help the government with its efforts to promote and mentor black industrialists.
All of this happened in a flurry, between the World Economic Forum meeting in Davos in January and the budget Pravin Gordhan delivered on February 24. It has since been lost in the swirl of accusation between Gordhan, South African Revenue Service commissioner Tom Moyane, the police minister, the Hawks and the president.
But the mere burst of enthusiasm from business was encouraging. And while it (and we) wait for the dust to settle around Gordhan so those promising conversations can hopefully continue, there is still much business can attend to, perhaps especially in the face of the real threat that the national debt will be downgraded.
For while policy drift, poor implementation and outright lunacy in industrial policy are facts of life for now, saving this economy is still largely in the power and interests of business. Especially big business. All South Africans, from the unemployed poor to the unions and white-collar workers, have an abiding interest in strong companies. They pay the salaries and make the profits that create the taxes with which the state finances itself and pays welfare to 16-million citizens who have nothing. Without robust and profitable companies, we simply have no economy.
The problem is how to sustain it. How to save, or alter, our capitalism so that more people are included in its growth and have more interest in its survival. At the moment, things do not look good for the market economy here.
Even a cursory reading of what I write will tell you that I am a stakeholder capitalist; that is to say I believe we can and must create a consensus about the desirability of a market economy here, provided it is more inclusive. I think the government should enact laws to require that workers have a seat on company boards, even if they think they don’t want one.
I think the government should enact laws to require, within a reasonable time, that workers should own 15% of every listed company. I think the state should at the very least consider, again over a reasonable period, providing to every 21-year-old a large sum of money, invested for them on the day they are born, to set themselves up in life, or to educate themselves, and to claw that back, with interest, from their estate when they die. How they spend it is up to them. And, slowly, to phase out welfare.
That’s just me, but I came across a letter the other day, written by Larry Fink, to the companies his fund management firm invests in. Fink’s firm is called BlackRock, the biggest fund manager in the world, with $4.6-trillion under management. So he is worth listening to.
For Fink, the great danger is short-termism. Put another way, the executives on the companies he funds have their eyes fixed on quarterly reporting and not on strategy over the long-term. Long-term strategy and action are the essence of stakeholder capitalism.
"Over the past several years," he wrote last month, "I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behaviour. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most of whom are saving for retirement and other long-term goals.
"Annual shareholder letters to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future. This perspective on the future, however, is what investors and all stakeholders truly need."
But what about the pressure from analysts to report quarterly?
"Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need," says Fink. "To be clear, we do believe companies should still report quarterly results — ‘long-termism’ should not be a substitute for transparency — but CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS (earnings per share) targets or analyst consensus estimates."
Fink evidently has a healthy suspicion of the power executives have in companies, which we see all the time. He wants to see CEOs "lay out for shareholders each year a strategic framework for long-term value creation" and that they should "explicitly affirm that their boards have reviewed those plans".
Critically, though, the state also plays its part. "Tax policy too often lacks proper incentives for long-term behaviour," he says. "With capital gains, for example … we need a regime that rewards long-term investment — with long-term treatment only after three years, and a decreasing tax rate for each year of ownership after that (potentially dropping to zero after 10 years)."
We also charge a dividend tax in SA. If we want our big companies to stop chasing quick profits, we need to encourage them not to. People who speculate in shares should pay more taxes on their profits and those who hold their investments for longer, should be rewarded. It is shareholders who CEOs spend enormous amounts of time trying to impress.
It would be easy for Gordhan to announce measures such as this in his next budget. The change in behaviour would be immediate and beneficial. It would mean shareholders would think twice about cutting and running at the first hint of trouble. It would protect jobs.
A variation on this would be to discourage the current fairly short-term three-year share incentive schemes companies put in place for their executives. Stretch it to five years (again the state could incentivise it) and management behaviour would quickly change. AB InBev, which is buying out SABMiller, only offers five-year share schemes to its top people.
The point, though, is to change the way we run our companies, for the longer term. In a country where there is so little political stability, these things are harder to contemplate, I know.
But we cannot carry on the way we have been.
Finance Minister Pravin Gordhan arrives to deliver his 2016 budget address at Parliament in Cape Town on Wednesday. Picture: REUTERS/MIKE HUTCHINGS
OUR politics is exhausting. At least, in the midst of President Jacob Zuma’s theatrical and public efforts to save his skin and to push a competent finance minister into a corner, where he will "behave" and not make life too uncomfortable for the thieves in government, a good thing did finally happen. To what effect we cannot be sure, but good nonetheless.
It was the clear enthusiasm of the established business community to put up its hand and work with the state towards not only avoiding what would be a calamitous downgrading of our sovereign debt, but to offer its experience and skills to help turn around the state’s crumbling business empire, a major source of our ills.
There were offers to put competent and experienced people on the boards of state-owned enterprises, offers to partner in infrastructure and operations, offers, such as Bidvest CEO Brian Joffe’s on the announcement of his retirement, to help the government with its efforts to promote and mentor black industrialists.
All of this happened in a flurry, between the World Economic Forum meeting in Davos in January and the budget Pravin Gordhan delivered on February 24. It has since been lost in the swirl of accusation between Gordhan, South African Revenue Service commissioner Tom Moyane, the police minister, the Hawks and the president.
But the mere burst of enthusiasm from business was encouraging. And while it (and we) wait for the dust to settle around Gordhan so those promising conversations can hopefully continue, there is still much business can attend to, perhaps especially in the face of the real threat that the national debt will be downgraded.
For while policy drift, poor implementation and outright lunacy in industrial policy are facts of life for now, saving this economy is still largely in the power and interests of business. Especially big business. All South Africans, from the unemployed poor to the unions and white-collar workers, have an abiding interest in strong companies. They pay the salaries and make the profits that create the taxes with which the state finances itself and pays welfare to 16-million citizens who have nothing. Without robust and profitable companies, we simply have no economy.
The problem is how to sustain it. How to save, or alter, our capitalism so that more people are included in its growth and have more interest in its survival. At the moment, things do not look good for the market economy here.
Even a cursory reading of what I write will tell you that I am a stakeholder capitalist; that is to say I believe we can and must create a consensus about the desirability of a market economy here, provided it is more inclusive. I think the government should enact laws to require that workers have a seat on company boards, even if they think they don’t want one.
I think the government should enact laws to require, within a reasonable time, that workers should own 15% of every listed company. I think the state should at the very least consider, again over a reasonable period, providing to every 21-year-old a large sum of money, invested for them on the day they are born, to set themselves up in life, or to educate themselves, and to claw that back, with interest, from their estate when they die. How they spend it is up to them. And, slowly, to phase out welfare.
That’s just me, but I came across a letter the other day, written by Larry Fink, to the companies his fund management firm invests in. Fink’s firm is called BlackRock, the biggest fund manager in the world, with $4.6-trillion under management. So he is worth listening to.
For Fink, the great danger is short-termism. Put another way, the executives on the companies he funds have their eyes fixed on quarterly reporting and not on strategy over the long-term. Long-term strategy and action are the essence of stakeholder capitalism.
"Over the past several years," he wrote last month, "I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behaviour. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most of whom are saving for retirement and other long-term goals.
"Annual shareholder letters to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future. This perspective on the future, however, is what investors and all stakeholders truly need."
But what about the pressure from analysts to report quarterly?
"Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need," says Fink. "To be clear, we do believe companies should still report quarterly results — ‘long-termism’ should not be a substitute for transparency — but CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS (earnings per share) targets or analyst consensus estimates."
Fink evidently has a healthy suspicion of the power executives have in companies, which we see all the time. He wants to see CEOs "lay out for shareholders each year a strategic framework for long-term value creation" and that they should "explicitly affirm that their boards have reviewed those plans".
Critically, though, the state also plays its part. "Tax policy too often lacks proper incentives for long-term behaviour," he says. "With capital gains, for example … we need a regime that rewards long-term investment — with long-term treatment only after three years, and a decreasing tax rate for each year of ownership after that (potentially dropping to zero after 10 years)."
We also charge a dividend tax in SA. If we want our big companies to stop chasing quick profits, we need to encourage them not to. People who speculate in shares should pay more taxes on their profits and those who hold their investments for longer, should be rewarded. It is shareholders who CEOs spend enormous amounts of time trying to impress.
It would be easy for Gordhan to announce measures such as this in his next budget. The change in behaviour would be immediate and beneficial. It would mean shareholders would think twice about cutting and running at the first hint of trouble. It would protect jobs.
A variation on this would be to discourage the current fairly short-term three-year share incentive schemes companies put in place for their executives. Stretch it to five years (again the state could incentivise it) and management behaviour would quickly change. AB InBev, which is buying out SABMiller, only offers five-year share schemes to its top people.
The point, though, is to change the way we run our companies, for the longer term. In a country where there is so little political stability, these things are harder to contemplate, I know.
But we cannot carry on the way we have been.
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