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Changes to South Africa’s Companies Act: With greater transparency comes greater responsibility

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Source: Sasha Planting, Business Maverick, 11 October 2021, (First published in the Daily Maverick 168 weekly newspaper.) photo credit: Mkenya Ujerumani

We all know the stats. South Africa is the most unequal country globally, as measured by the Gini index. But we don’t need an index to tell us what we observe daily.

Whether driving through well-maintained streets of Cape Town, gritty Johannesburg, or on the disgraceful wreck of a road through Flagstaff, Bizana and Port St Johns, it is easy to discern that a tiny percentage of South Africans have a lot, while many have little to nothing.

This is so in many societies, but here it is acute. A 2020 paper produced by researchers at Wits University’s Southern Centre for Inequality Studies and the World Inequality Lab noted that the top 10% of South Africans own 86% of the aggregate wealth, while the top 0.1% (3,500 individuals) own close to one-third. We all know that this is not sustainable in any society, let alone one as fragile as ours.

The only way to address this gap is by improving education outcomes and stimulating economic growth. Job creation will follow. But this takes time (and execution), both of which are in short supply. In an era in which impatience is bubbling, regulatory and political interference becomes increasingly tempting. Globally we have seen moves to limit executive remuneration through various means – notably increased disclosure of incentives, and at times legislation.

In this climate, the proposed amendments to South Africa’s Companies Act send an important message. Among the more significant changes in the Companies Amendment Bill – which was released for public comment a week ago – is the requirement that companies disclose not just the average and median remuneration of all employees, but the ratio between the total remuneration of the top 5% highest-paid employees and the bottom 5% lowest-paid employees.

This has provoked a storm of commentary, according to ENSafrica chairperson Michael Katz, who served on the committee advising the Department of Trade, Industry and Competition on the proposed amendments to the Act.

The intention is that increased transparency stimulates debate and makes people more sensitive to the wage differentials in SA. Excessive remuneration is a concern, and there are strong views that this feeds into inequality. We simply cannot ignore it. If we have learned anything during Covid-19, it’s that the poor are hit the hardest in any crisis.
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