Shareholder requests and the access battle

In this piece, we look at the state of transparency within company ownership and how the law facilitates access to this type of information.

This year, Code for South Africa launched a project that interrogates transparency within the private sector, “Transparent Corporates” (Trace). Our mission is to make corporate data freely and publicly available, and to empower everyone living in South Africa to hold the right people in the private sector accountable when they do things that affect everyday life. Over the next few weeks, we’ll be publishing a series of blogs that highlights some of the work we do, from looking at international shareholding to tax evasion, Trump to paid Twitter and much, much more. In the first of our series, we look at the state of transparency within company ownership and how the law facilitates access to this type of information.

Transparency within company ownership has increasingly been recognised as a vital tool in investigative journalism, the fight against corruption and in supporting and furthering democracy, and unqualified public access is vital in upholding this transparency.

Because “openness” is our project mantra, the Trace team will spend the next few weeks interrogating corporate ownership and shareholding within some of the extractive sector’s frontrunners and underdogs. Part of this will involve submitting biweekly requests to these companies, asking for full shareholder lists. We’ll also be looking at other things, such as their overall corporate compliance, level of transparency and BEE status.

Section 26 of the Companies Act provides that any member of the public, including the media, may inspect the shareholder register of any company. The reason I’m pointing out the media in particular is because in many instances, they act as the bridge between understanding what information is in the public interest and what the public actually knows, or has access to.

The Act says that, “A person who holds or has a beneficial interest in any securities issued by a profit company, or who is a member of a non-profit company, has a right to inspect and copy, without any charge for any such inspection or upon payment of no more than the prescribed maximum charge for any such copy, the information contained in the … records of the company:”

This includes access to the following: memorandum of incorporation, records pertaining to company directors, reports pertaining to annual meetings and financial statements, securities register and meeting minutes, just to name a few.

The standard procedure for acquiring company-related information, according to the Act, is for interested members of the public to fill in a - relatively simple - form asking companies for the opportunity to inspect their shareholder registers and the response time, from the companies, is only meant to take up to about three weeks. On average, you’re looking at approximately R40 per request made, but the full cost depends on what and how many records you’re requesting.

The state of corporate transparency in South Africa

But a 2014 High Court judgment is seriously threatening the entire process. The case involves a battle between Moneyweb and Nova Property group, which owns properties originally acquired by Sharemax, an alleged shell company (or ponzi scheme). Moneyweb, an online financial news service, has been trying to access Nova’s shareholder registers since 2013.

In May 2016. Judge Neil Tuchten, of the South Gauteng High Court, delivered a provisional judgment, holding the view that the right is qualified (ie government interference is permitted, in special circumstances) and that companies may have legitimate reasons not to disclose their ownership.

Investigative journalism unit amaBhungane, who entered into the subsequent appeal (which has since been dismissed) as a friend of the court explained that if confirmed, the judgment will encourage some companies to refuse to disclose and “dare” journalists … to sue them.

The Promotion of Access to Information Act (PAIA) is a process that allows anyone to access information that “is held by another person and that is required for the exercise or protection of any rights”. But PAIA works both ways, and allows for a private body (or company) to refuse access to records for various reasons. In many instances, accessing company records first time can be quite tough and an applicant can be forced to jump through multiple hoops to get the information they want.

Corporate governance in the extractives sector

Corporate governance deals with the framework in which companies are directed and controlled. Here in South Africa, it is regulated by legislation and the common law, and in the past decade or so, the concept of corporate social responsibility has also emerged as a part of both the private and public sectors’ code of governance.

Company leadership is expected to act in a socially responsible manner that relates to important social, safety, health and environmental factors. This is why we’ve chosen to start by focusing on the extractives sector, looking at multiple elements concerning their levels of compliance and transparency. The oil, gas and particularly mining industries continue to dominate in South Africa and are possibly at the greatest risk of corporate governance failures and non-compliance, especially when it comes to being socially responsible.

But with that in mind, we are aware that most of the companies who have experienced these failures did subscribe to principles of good corporate governance, which can be linked to a discussion around focusing on the concept of box-ticking. To simply tick a box does not necessarily mean that a company has complied, which means that our level of accountability here in South Africa is not up to scratch. This is also why we partner with organisations who, through various measures (journalism, the law, extensive academic research, etc) are trying to do just that.

In our case, there are a number of challenges we may face in doing this research and requesting of company shareholder lists. Corporates are generally quite protective when it comes to their shareholders and may invoke the clauses within PAIA that exist to protect commercial and confidential information of third parties. Add to that the fact that we are neither journalists nor lawyers, so corporates may not feel overwhelmingly obligated to comply with our requests. That being said, we’re trying to create a community around corporate data and a strong working relationship with the private sector is near the top of our list of goals.