South African Reserve Bank Amendment Bill: Further oral submissions & adoption

Meeting report

South African Reserve Bank Amendment Bill [B10-2010]
The Chairperson pointed out that the current process of consideration of the South African Reserve Bank Amendment Bill (the Bill) started on 6 May, 2010, when the Bill was tabled in the National Assembly. The Reserve Bank (SARB or the Bank) had given a presentation on the Bill, and there were public hearings in June, which this Committee had attended. The Committee had also had the opportunity to interrogate the Bank on matters it thought relevant. This Committee was now ready to engage with some public submissions on the Bill.

Mr Mario Pretorius (shareholder) submission
Mr Mario Pretorius, a shareholder of the South African Reserve Bank, noted that this was the first opportunity he had had to engage with the Reserve Bank. He said that the Reserve Bank was the foundation on which the economy was built and was an institution in which the citizens of the country placed their trust. The Bank did not see itself as an entity subject to South African company law. It was formed before that law came into being, but saw itself as an entity that was subject neither to the old, nor the new Companies Act.

Mr Pretorius said it was necessary to ask who would benefit if the present amendments were tabled. He said that he was opposing the Bill, as was his democratic right. He argued that the proposed SARB amendments castrated the powers and functions of the SARB directors by excluding them from the process of decision-making at board level. The amendments would create a cabal of “super-directors” consisting of the Governor and three deputy governors. In particular, the amendment of Section 4, dealing with the powers and functions of the board, emasculated the powers of the directors and rendered their responsibilities all but meaningless. The proposals ran counter to the proposals of every King report by concentrating power away from shareholders and the board.
This created an unaccountable, secretive management committee of four members who were beyond the scope and power of the board. It also made a mockery of the stated functions of directors as “responsible for the corporate governance”. In fact, the governors would no longer be accountable for their decisions to the board or shareholders.

This argument, pointed out Mr Pretorius, had not been opposed by the SARB at the initial SARB hearings.

He further argued that the SARB should be subject to the current and proposed Companies Act 71 of 2008 as it was the only creature of statute not subject to that Act. There were no sound reasons for the exclusion of the SARB from the Act.

Mr Pretorius said that arguments he had previously submitted that the amendments were in conflict with the Constitution had been ignored. He was of the view that these amendments would not pass muster in the Constitutional Court, because they derogated from the rights of all citizens.

Discussion
Mr R Lees (DA, KwaZulu Natal) asked whether, aside from the problems that Mr Pretorius identified concerning the prospect of a cabal of shareholders, he felt that the proposed amendments would be otherwise be justified.

Mr T Harris (DA, Western Cape) asked how Mr Pretorius would propose amending Section 4A to obviate the problem identified.

Mr B Mnguni (ANC, Free State) asked how Mr Pretorius would like to see the Bill determining corporate governance and ethics.

He also asked whether Mr Pretorius, at the time that he bought shares, had not been aware that the bank’s mandate was determined by Government.

Mr Pretorius replied that the fact that there had been a concentration of power in the hands of a “coterie of governors” did not justify its endorsement through legislation. He reiterated that the SARB governors lacked accountability and that there was an absence of management.

With regard to Section 4A, he said he would propose leaving the Bill as it was and in fact would rather change it so that it reflected the pre-1989 state of affairs.

There should be more shareholder representation on the board as the latter had no influence over the bank’s monetary policy, which was after all the bank’s most important business. Hitherto shareholders had, to a disturbing degree, been excluded from the day-to-day management and policy determination of the bank. This was illustrated by the latter’s inability to raise matters at Annual General Meetings. To summarise, he said that he would like to see that SARB was again subject to the Companies Act, and would restore a shareholder majority on the board.
He mentioned that the SARB had recently suffered a R1 billion loss, which had been unaccounted for. Last year the bank’s income had fallen by 60% with no explanation given. The present Bill would take the Reserve Bank “into the dark rather than towards the light”.

Mr M Makhubela (COPE, Limpopo) pointed out that the present problems had existed for some time and wondered why they had not been challenged.

Mr T Chaane (ANC, North West) endorsed the previous question, asking why Mr Pretorius had waited so long to raise these concerns.

Mr Pretorius replied that he had been trying to engage the governor of the SARB, as well as the Minister of Finance, for many years in vain, and attempts to call an extraordinary meeting of shareholders had also failed. He reiterated that if this Bill was passed, his rights as a shareholder would be rendered almost meaningless. In essence the Bill placed the bank in the hands of four appointed officers with no accountability.

Mr Nicholas Lang (shareholder) submission
Mr Nicholas Lang, a shareholder of the South African Reserve Bank, expressed his fervent wish that the Committee had not made up its mind on the Bill but would be open to suggestions from shareholders.

He said what was most worrying about South Africa was the high number of homeless and poor people in what was after all a prosperous country. He suggested that the cause of this was the “all-pervasive dishonest money system”. He quoted George Orwell, who had said that in an age of universal deceipt, telling the truth was a revolutionary act, and if this was so, then Mr Lang would describe himself as a revolutionary. He said that to date, there had been no meaningful revolution in South Africa and as long as the status quo of the present monetary system, which he said was “this evil, corrupt and destructive system. In turn, it was controlled by the commercial banks and the international money cartel.

Mr S Mazosiwe (ANC, Eastern Cape) interrupted at this point, asking the Chairperson to call Mr Lang to order. So far, Mr Lang had expressed only emotional rhetoric and irrelevant points, whereas the Committee wanted to hear were specific proposals about the Bill.

The Chairperson pointed out that Members of the Committee had been “freedom fighters” and part of a process of transformation that had resulted in the present democratic and free South Africa. He asked Mr Lang to apply himself to the matters at hand.

Mr Makhubela endorsed this, asking for factual, relevant submissions from Mr Lang.

Mr Mashile said that Mr Lang should not attempt to hold Members of this Committee responsible for the errors of previous parties.

Mr Lang apologised for any offence caused, saying that he in no way meant to deny that there had been a revolution, but was rather saying that it had been insufficiently meaningful. The cartel of banks represented a monopoly and that South Africa was being stripped of its national assets. The SARB had intentionally avoided informing anyone and had prevented Parliament from making well-informed decisions concerning the SARB. The “flawed and madcap” Amendment Bill matched an equally flawed SARB Act.

Mr Mazosiwe again asked that Mr Lang be called to order, saying that much of his language was out of order and unacceptable.

The Chairperson again requested Mr Lang to direct himself to the specifics of the Bill.

Mr Lang reiterated that there must be a better way to do things. It was astounding in how many ways the SARB operatives had strayed from the straight and narrow path of correct dealings with their own Act, with regard to shareholders and to good governance. He urged the committee to “stop this farce called the Amendment Bill dead in its tracks”. He suggested that it would be better to amend the whole South African Reserve Bank Act, in line with earlier recommendations presented by Mr Michael Duerr to the SARB. A good starting point would be to replace it with the version that Mr Lang had presented to the Standing Committee on Finance on 2 June this year. He added that the present Bill was definitely in conflict with the Constitution.

Discussion
Mr Harris asked whether Mr Lang had any suggested amendments with regard to the proposals in Clause 3 of the Bill, which dealt with the powers and functions of the board.

Mr Mashile pointed out that Mr Lang’s comments had been based on previous engagements with other structures. He asked Mr Lang whether he had not perhaps reached a point of despair, or whether he was aware that this was a totally different Committee with whom he was engaging.

Mr Makhubela asked Mr Lang whether he could tabulate the issues raised.

Mr Mnguni asked why Mr Lang had been motivated to buy his shares in the bank if he had been aware of the limitations to the influence of shareholders over bank policy.

Mr Chaane asked Mr Lang to be frank with the committee about his intentions and interests in making these submissions.

Mr Lang replied that he had never had a problem with the current Section 3 as it had been constituted. However, it had always been a problem that board members never reported to shareholders. The present Bill sought to prevent shareholder representation, and this was unacceptable. He himself had purchased shares so as to have a passive dividend income, rather than to acquire voting power.

Mr Lang then said that when the South African Mint was privatised it had been sold to the SARB, yet this fact had been omitted from the Annual Report. His attempts to ascertain the reasons for this omission had been futile.

He further said that the Monetary Remuneration Committee (which had not existed previously) had allowed members of the board to enjoy as much as 160% increases in income, with no concomitant increase in responsibility, while directors were poorly remunerated. Shareholders were powerless to change this state of affairs.

The Chairperson thanked Mr Lang for his submissions, pointing out that Parliament strove to be an activist institution and that the Committee always welcomed engagement on such matters.

South African Reserve Bank responses
Dr Johan De Jager, General Counsel, SARB South African Reserve Bank, noted that the submissions made today had been submitted previously in document form and had been considered by the SARB.

He said he would firstly deal with the submissions of Mr Pretorius. In regard to the allegation that the amendment was excluding the powers of directors, Dr de Jager pointed out that the powers and functions of the bank had to be set out in its own Act and that was why this was not contained in the Companies Act.

He said he did not feel it necessary to deal with the comments of Mr Lang, as they had already been canvassed in document form. The nature and ambit of the business of large modern companies dictated that their day-to-day management be entrusted into the hands of the executive officers.
This view was supported by the King III Report. Dr De Jager said that comments in this regard were at any rate not relevant to the amendments under discussion. In terms of Section 3, the board was responsible for the management of the SARB. In today’s corporate world it was impossible for a company to be managed by either its board or its shareholders. The board consisted of executive as well as non-executive members, but the actual management of the institution lay in the hands of the executives, and this was consistent with the King III report.
The current amendments merely sought to reflect the practical realities of corporate governance.
He stressed that the amendments did not seek to remove any powers from the board and the executives were still under the board’s scrutiny.

In regard to the contention that the SARB should be subject to the current and proposed Companies Act 71 of 2008, Dr de Jager said that this was an incorrect statement. The SARB was run strictly in accordance with its constitution. The current amendments sought to address issues that had arisen and to bring the SARB Act into line with modern corporate governance. The Bill had nothing to do in regard to the incorporation of the SARB under the Companies Act.

Dr de Jager then referred to the contention by Mr Pretorius that his previous arguments about the Constitution were “glossed over, at best” and that a Constitutional Court challenge would follow if the abrogation of the rights of citizens was not corrected. He noted that the SARB and National Treasury had sought expert legal advice, including the opinions of Senior Counsel, who had confirmed the constitutionality of the Bill.

Dr de Jager noted that although the Executive could not prevent shareholders from holding an extraordinary general meeting, Regulation 17(2) stipulated that anyone wanting to hold such a meeting should have at least 10% of the voting rights. This requirement could not be waived. The attempt to hold an extraordinary general meeting had sought to establish a quorum, elect a chairperson, a Legal Counsel and an Election Secretary, all of which amounted to a corporate coup.
This meeting also had wanted to pass a resolution that there should be an annual declaration of capital distribution, equal to 10% of profit to shareholders ,with effect from 31 March 2010. There had been an allegation by shareholders that the bank had over-issued two million shares to the market, but internal and external audits had revealed that this was not correct. It was also alleged that the Governor had proposed to Parliament the elimination of the clause that stipulated that someone not ordinarily resident in South Africa would not be allowed to vote. This clause could not simply be changed at an extraordinary meeting of shareholders.

Mr Chris Moraitis response
Mr Chris Moraitis, Independent Legal Advisor to the SARB, noted that both the SARB and National Treasury had earlier addressed many of the submissions made today.

He said that the submission by Mr Lang had not in fact addressed the Bill at all, and his comments about the monetary system should rather be addressed to the Minister of Finance.

SARB did not intend to respond to Mr Michael Duerr’s comments, which he described as “scurrilous, personal and unwarranted attacks, which did not dignify a response”. In addition, Mr Duerr had not proposed a single amendment to the Bill.

Mr Moraitis agreed with Dr De Jager that the governors had in no way sought to emasculate the powers of shareholders but merely to vest the management in the executive, consistent with modern corporate practice.

He referred to a comment of Mr Charl Kocks, of Ratings Afrika, that his institution would support the change from the current provision that the Board should “manage” the affairs of the bank, since this provision was not supported in sound corporate governance. However, he had said that the responsibilities of a board should include review of and agreement to the strategies proposed by management. Mr Moraitis said that in actual fact, the Act already allowed the board to make decisions with regard to the conduct of the business of the SARB. In keeping with King III and modern corporate governance, the board did not manage the institution but merely had oversight responsibilities.

Discussion
Mr Chaane commented that nothing in the submissions had actually spoken to the proposed amendments. Apart from insults and emotional attacks, many of the submissions made by Mr Lang and Mr Pretorius concentrated on history and not on what was now being proposed. He said he supported the amendments as they stood.

Mr Harris added that he was worried that when responding, the SARB might also have stooped to the level of some of the emotional and personal comments made. Many of these cast doubt on the degree to which the persons responsible for such comments represented the citizens of the country.
He supported the proposed amendments.

Mr Mashile agreed, and said he supported the Bill and its amendments.

Mr Mazosiwe also supported the Bill as it stood. He added that in future the legal advisors should advise the Committee on the language used by presenters, and whether submissions such as those heard today should be entertained. Parliament must strive to maintain its elevated status as the highest lawmaking body in the country. He took great exception to the content and tone of Mr Duerr’s comments.

Mr Lees said that despite the language and tone of submissions, the Committee had to be transparent and this meant entertaining all opinions without imposing any restrictions.

Members then proposed, seconded, and adopted the Bill.

The Chairperson summarised that the Select Committee on Finance, having considered and examined the South African Reserve Bank Amendment Bill (B10 – 2010) supported the Bill, without amendment.

The meeting was adjourned.