SUID AFRIKAANSE ONDERWYSERUNIE SUBMISSION ON PIC BILL

2004-06-18
The Secretary to Parliament
c/o Messrs A Hermans or J Michaels
Committee Section
Parliament of the RSAPC) Box 15
Cape Town
8000
Fax: (021) 403-3776/3806

Sir/Madam

COMMENT: PUBLIC INVESTMENT CORPORATION BILL, 2004

The General Notice 851 of 2004 as published in the Government Gazette No 26383, dated 20 May
2004, refers.

The SAOU is a registered trade union in terms of the Labour Relations Act, 1995, and an admitted party to the Public Service Co-ordinating Bargaining Council and the Education Labour Relations Council. The Union represents approximately 25,000 educators employed by the State who are all members of the Government Employees Pension Fund (GEPF). It is common cause that the assets of the GEPF are administered and invested by the present Public Investment Commissioners (PIC). Therefore, we contend that we have the locus standi to submit comment on behalf of our members whose benefits are to be affected by the proposed Bill and thus we submit as follows:

The GEPF, which functions in terms of the Government Employees Pension Law, 1996, must function in terms of a Board of Trustees. The Minister of Finance has been acting as the Board of Trustees since inception of the GEPF in 1996, even though the statute expressly provides for an elected Board. The Board is in a process of being constituted and will commence functioning as a Board within three months.

It is trite in terms of the common law fiduciary duty of trustees and as embodied in the
Pension Funds Act, 1956 (as amended), that a Board of Trustees must at all times (a) act in the best interest of members, and (b) avoid all possibilities of a conflict of interest. The Board of Trustees of the GEPF as contemplated in the statute must still formulate an investment policy, and appoint an investment entity. It is our contention that the Minister of Finance has a serious conflict of interest. He is presently acting as the Board, and now as sole shareholder in the Public Investment Corporation, he intends to appoint the Corporation as the investment entity in the absence of an agreed investment policy.

Therefore, we contend that the Bill is premature and request that the proper Board of Trustees be placed in a position to comment on the proposed Bill against the background of their own investment policy. To allow the Minister to continue with the establishment of the Corporation, the de facto determination of an investment policy and appointment of an investment entity, will seriously compromise the fiduciary responsibilities of the proper Board.
Reference is made in clause 2(1) to the fact that the Corporation will be a public company. It is disturbing in the light of the King II Report to note that the Minister intends to legislate a privileged position for the company. This matter requires further public debate.

Clause 6 (3) places the envisaged Board of Directors in an invidious position as they will have to act at all times in terms of the Minister's instruction, in stead of serving the best interests of the public company. The debate regarding the fiduciary duties of directors towards the company in terms of the King II report, vis-a-vis their responsibility towards the shareholder is interesting, and there is evidence that the weight of arguments lean in favour of the company.

Clause 9 is further evidence of the privileged position of the company, as the Minister is prescriptive to the registrar of Companies.

In clause 12(1) mention is made to the transfer of assets to the Corporation. If it is intended that the funds invested by the GEPF with the present PIC, be regarded as PIC assets, the Union voices its strongest objection. Such assets are the assets of the GEPF and only the Board of Trustees of the GEPF can decide in such a matter. It further illustrates the serious conflict of interest of the Minister of Finance.

Despite the Rules of the GEPF regarding membership of the GEPF, the Minister now determines membership, and thus compromises the Board of Trustees.

The declaration of dividends as contemplated in clause 14 needs further clarification. Presently all yields in investments are for the benefit of the GEPF. It is now proposed that the Corporation be placed in a position to make profits and declare dividends to the state as shareholder. It is common cause that private sector investment entities do make profits on funds invested with them, but then it is based on a formal service level agreement. In the absence of a service level agreement according to which the Corporation will be evaluated, which agreement is to be concluded with the Board of Trustees, the transfer of funds can also be regarded as being premature.

In the light of the afore mentioned, we propose that the Bill be regarded as premature, and that the

Board of Trustees of the GEPF be in a position to consider the matter in terms of their fiduciary responsibilities. Promulgation of the Bill will seriously compromise the Board and make them liable to members. Postponement of the debate and establishment will be the responsible route to decide upon.

Yours faithfully

P VD M MARTINS