CURRENTS

Adjudicating the Adjudicator

Bad marks for the new consumer tsar. She who couldn’t run a business will be judging businesses.

Mohlala...’fruitless and wasteful’

It borders on the bizarre that Mamodupi Mohlala is now sounding off on acceptable business practice as if she has the credibility and competence to be its arbiter. The latest annual report from the Office of the Pension Funds Adjudicator (OPFA) indicates that she is terribly good at business practice herself. In her previous life as Pension Funds Adjudicator, she made an ungodly hash of things. In her new life as head of the National Consumer Commission, following a fractious interregnum as director general of government’s Communications Department, she’ll be fighting for consumers against businesses. Both parties require confidence that her abilities are appropriate. Her record in running the OPFA hardly inspires it. Last June the Financial Services Board awarded a tender to Gobodo Forensic & Investigative Accounting for a “forensic investigation into possible fruitless and wasteful expenditure incurred by the OPFA in terms of the Public Finance Management Act . . . as well as Treasury Regulations”. It was then speculated that this related to R600 000 on throwing a party to celebrate the OPFA’s tenth birthday (TT Oct ’10-Jan ’11). But that’s small beer compared with what’s revealed in the OPFA report for the year to end-March 2010. Mohlala’s resignation as adjudicator – a job paying around R1,7m a year – was effective at end-September 2009. The “fruitless and wasteful expenditure” took place under her watch.

Specifically, there was R3,2m spent on leasing a building that the OFPA didn’t occupy. There were also “irregular expenses” of R476 500 that she’d authorised after she’d left office. The Auditor General is scathing in his observations about how the OPFA was run: u

• The accounting authority did not exercise oversight responsibility over reporting and compliance with laws, regulations and internal control; u
• The commitment to quality was not communicated;
• Management’s philosophy and operating style did not promote effective control over reporting. They did not lead by example;
• The risk of material misstatement due to fraud was not considered.

On and on goes the list. It does not speak well of Mohlala’s reign. Opinion is divided on whether she was a good adjudicator, but that’s beside the point. A good administrator she wasn’t. The OPFA is funded by a R37m annual contribution from the FSB, in turn funded by levies on financial institutions and pension funds. The paradox is in a bad manager of public money being appointed to protect the public interest.

Funds at fault

Campher...power, not platitudes

Also in the OPFA report – the swansong of the late Charles Pillai as Pension Funds Adjudicator – a theme hammered again is the failure of funds to communicate effectively with their members. This failure, said Pillai, was evident from the majority of complaints received. “The member should be provided with information that can be trusted and in a language that can be understood,” he said. “In this way there would be no need for the member to approach the OPFA to verify information that has already been provided.” Surely, surely, after all this time the funds and their administrators should have prioritised it. Not only is it patently in everybody’s interest but it would also take much-vaunted consumer financial education to a most practical grassroots level.

Out of the blocks

The first phase of the revised Financial Sector Charter omitted some important commitments that had been included in the original FSC concerning socially-responsible investment (SRI) and the funding of small, micro and medium-sized enterprises (SMMEs). Not to worry. They’ll be in the second phase, with necessary infrastructure by then in place to support it. This is foreshadowed by establishment of the ASISA Foundation “to drive corporate SRI and consumereducation initiatives by the savings and investment industry”. ASISA, the representative body of financial institutions, has also approved a budget to create an Enterprise Development Fund which will channel investments from the industry to help develop SMMEs. The nuts and bolts must still be applied to the concepts, says ASISA chief executive Leon Campher: “By the time the money is ready to flow, there must be a plan.” It should take the next few months to complete. There’ll then be discussions to partner with bodies already involved with SMME financing such as the government-backed Khula Enterprises.

In a sense, this enhances the coherence of industry objectives in the redrafted FSC with Economic Development’s New Growth Path and National Treasury’s policy document on ‘A safer financial sector to serve SA better’. But in doing so, there’s the practical consideration that only the larger ASISA members – generally not the smaller – have the capacity to flesh out SRI projects and monitor SMME exposures. The latter can be particularly time consuming. To mitigate the chances of risk to themselves, and increase the chances of success to SMMEs, lenders will be unable to shy from mentoring. In fact, the more mentoring the more worthwhile the empowerment exercise. It will be complemented by work already underway to consolidate a procurement database that will facilitate use of micro enterprises and other SMMEs. “An industry initiative will have more traction than different institutions acting differently,” Campher believes. “A large, single grouping is much better positioned to oversee governance structures, enter partnership arrangements, engage fulltime practitioners and pull together whatever it takes to make it work.” That’s what matters: to make it work with maximum impact, not to be a trinket of formality in FSC compliance.

GEPF’s lead

To an increasing extent around the world, pension funds are investing directly infrastructure. So too will it be in SA if funds follow what its largest single investor will be doing.

The GEPF has laid out a developmental investment policy that diverts from investments that don’t have an explicit ESG (environmental, social and governance) focus to those that do. And this without inviting greater risks or compromising on market returns.

It actually anticipates potentially superior returns in areas where development needs needs are greatest. These it identifies as energy, commuter transport, broadband, water, liquid fuels, logistics, affordable housing, healthcare and SMMEs.

“It is possible to generate positive sustainable long-term returns while at the same time supporting such socially useful outcomes as making SA more competitive economically, reducing social backlogs, greening the economy, creating jobs and supporting transformation,” it explains.

Another thing

Botha...forever the digger

The GEPF has also sought to lead on disclosure of its voting at shareholder meetings of investee companies. With a few exceptions, this is a lead that appears not to be enthusiastically followed. But then it might not be the best of leads.

For one thing, the website disclosures are way out of date; the most recent are almost a year old. For another, the reason given for voting against a ompany resolution is often scanty; as an example, it will imply say that it voted against the directors’ remuneration but it doesn’t say why. Nothing much in this to make the blood boil, or to entice other shareholders into the fray.

Shareholder activist Theo Botha keenly tracks inconsistencies, as he detects them, in the voting patterns. He can’t understand, for instance, why the GEPF or Public Investment Corporation (its asset manager) has seemingly voted for remuneration policies that include uncapped bonuses in one company and against bonuses unrelated to performance in another. Deon Botha of the GEPF responds that voting often follows engagements with the companies: “We are busy with investigations into a possible generic engagement report, to be published quarterly, indicating all issues raised with companies without mentioning specific companies.”

It should come out in the wash. CRISA, the code for institutional investors which the GEPF was instrumental in drafting, proposes that these investors “demonstrate” their ownership approach not only by voting but by “including the criteria used to reach voting decisions”.