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FINANCE Minister Pravin Gordhan last week announced proposed changes to the Reserve Bank Act. On the whole, the idea to rein in the rebellious private shareholders is a good thing. But there are some plans that seem like a very bad idea.
Gordhan’s announcement was largely made in response to a small, but very vocal, band of Reserve Bank private shareholders (about 13% of the total) who are out to squeeze more dividends out of the bank. Gordhan, driven I believe by Reserve Bank Governor Gill Marcus, said the overhaul of the Reserve Bank Act might eventually lead to the bank being turned into a public institution – one without private shareholders. If that happens I will cheer, as any reader of this column will know.
But that seems to be a longer-term project. (The person behind the plans must be Marcus - it makes sense that the proposed changes are her brainchild and that they were announced by Gordhan, because it’s his ministry that will have to introduce new legislation to parliament.)
Marcus has decided to make some immediate changes to the way in which the bank’s board is constituted and chosen, and also to clarify the directors’ role. In doing so, she has perhaps not spotted some major pitfalls.
As the Reserve Bank board stands at the moment, four non-executive directors must have a specialist knowledge of finance and/or commerce, one must be from the agricultural sector and two from industry.
Raising vain hopes
The governor and all the deputy governors are the executive directors, who take care of monetary policy, banking supervision and other policy aspects. The non-executive directors’ role isn’t spelt out, but seems to be limited to “corporate governance”, remuneration and the bank’s budget.
Now this situation will be changed by adding one more member to the board, that is, by giving “the public” a representative and finding a mechanism whereby the public can nominate a board member. In addition, it has been decided to reduce the number of finance/commerce specialists, bringing in a labour specialist instead.
These changes may give the public and labour – now suddenly represented – the mistaken impression that they have a real say in what happens at the bank. The way the board is divided into sectors reinforces that impression. But the non-executive board members are powerless when it comes to policy.
What purpose does it serve to have such careful representation on a board whose power largely lies in remuneration and the bank’s Budget? Why go through a whole process of allowing the public to nominate a representative, only for them to find that that person can’t change the course of ordinary people’s lives?
Some of the bank’s private shareholders would like to see the powers of the board members they elect become more extensive. According to the Reserve Bank Act, the role of the directors is to “manage” the bank. The private shareholders have something more in mind than just remuneration and the bank’s Budget. And saying that the board is responsible for “corporate governance” is really very vague. No wonder Marcus wants to clarify the role of the directors - “clarify” them out of a job, that is.
The labour wild card
Now the pitfall that Marcus probably didn’t spot is giving labour representation on the board. True, if business is represented, labour should be too. But will a labour representative be happy to have no power over the areas that really matter at the bank?
The question is all the more relevant because the National Union of Metalworkers of SA (Numsa) last year accused the bank of a “democratic deficit”. Numsa said: “The fact that the monetary policy regime demands that the bank follow a publicly-announced inflation target is not sufficient for it to qualify as transparent and accountable.
“For example, the composition of the monetary policy committee (MPC) remains impervious to democratic processes. The monetary policy statements of the governor are grossly inadequate, because they do not reflect the views that were expressed by individuals in the MPC. Our view is that the reserve bank is held hostage by particular economic interests.”
Is it a good idea to give labour representation on the bank’s board without any further “democratisation” (as Numsa defines it) of monetary policy? Won’t it just open a can of worms? Wouldn’t it have been better to let sleeping dogs lie?
Offering labour and the public non-executive seats on the Reserve Bank board will, at best, achieve nothing. At worst, it will open up a wider debate about democracy on the MPC. One good thing is that Marcus will handle this debate – and possible negotiation – better than her predecessor, Tito Mboweni.
- Fin24.com
