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Be transparent with funding

10 February 2014   (0 Comments)
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NEW AGE, THE, The Think Section 2014/01/31 12:00:00 AM
Analysis: Ansie Ramalho

SOUTH Africa is getting ready for another round of democratic elections and it is no secret that the cost and the funding thereof is a big cog in the electioneering machine. It is also common cause that public funding and party membership fees are not sufficient and hence political parties look to businesses and other private institutions to supplement. The difficulty is that other than public funding, which is in law overseen by the Independent Electorial Commission of South Africa, private funding is largely unregulated. However, businesses who take this lack of direct regulation as permission for indiscriminate funding do so at their peril.

Without a legislative framework in place, private political funding is open to abuse by those who wish to win political power or influence. This is not to mention the juicy possibility to be favoured on government tenders. What makes the matter even more complicated is that funding does not always take the obvious form of an exchange of funds. It may be disguised as donations in kind, loans, forgiveness of debts, sponsorships, part membership fees and the like. A verite melting pot of the complexity on which corruption thrives! Companies and the directors who bear the ultimate responsibility for these companies actions need to at the very least, firstly, consider and approve policy on political donations prior to embarking upon such practices and secondly, publically disclose the rationale and details of donations made. Failure to do so may lead to significant reputational damage and perhaps even legal liability. The truth is that there are several provisions in place addressing political funding practices and processes and by no means are these entirely without teeth.

The regulations to the Companies Act, 2008, for instance, dictate that social and ethics committees (a board committee that is compulsory for listed and state-owned companies) must "monitor the company's activities, having regard to the Organisation for Economic Co-operation and Development's (OECD) recommendations regarding corruption". One of the recommendations by the OECD is that political contributions should comply with public disclosure requirements. It is unclear on reading the regulation whether it was the intention of the legislator to give legal impetus to what constitutes recommendations by the OECD - but even if it is accepted that it is not the case, it is difficult to envisage how the social and ethics committee and the board of a company will be able to justify not disclosing such donations in the bigger context of the recommendation being specifically incorporated in the regulation.

The King Report on Governance for South Africa, 2009 (King III) similarly recommends that companies should have a code of conduct supplemented by ethics-related policies dealing with matters such as political donations. Application of King III is generally voluntary. However, for companies listed on the stock exchange, which is where one would find those companies which are in the position to provide private funding to political parties, the JSE listings requirements have made application of the King III practice recommendations or an explanation as to why they are not applied, obligatory. The other development to take cognisance of in this regard is that South Africa is a signatory to the African Union Convention (AUC) on preventing and combating corruption. The AUC, a legally binding regional anticorruption convention, has been adopted in 31 countries. It contains amongst others a mandatory requirement of transparency in political party funding. It has been widely acknowledged, at least since 2004, when Institute for Democracy in South Africa (Idasa), lodged a court application to force four of the big political parties to open their financial books to public scrutiny, that private funding needs to be put on legislative footing in order protect the integrity of our democratic process.

Legal enforcement of transparency will be a good start despite protestations that privacy needs to be protected for fear of reprisal. If disclosure as regards both funders and funding becomes common cause, this argument loses it strength to a large extent. Notwithstanding the legality of private political funding or not, in light of the various initiatives and provisions already in place, neither political parties nor funders are able to plead ignorance of the ethical requirements and moral implications. The hope is that business leaders will take the lead on the doing the right thing by being transparent on the rationale for funding in whichever form it may take and the actual value thereof and not wait for government to impose regulation. An idealistic view? Indeed and unashamedly so. It would be a sad day when we start treating our ideals with contempt.

Ansie Ramalho is the chief executive of the Institute of Directors in Southern Africa 

KEY POINTS:
  • Private funding is largely unregulated. However, businesses who take this lack of direct regulation as permission for indiscriminate funding do so at their peril. 
  • Without a legislative framework in place, private political funding is open to abuse by those who wish to win political power or influence. 
  • Companies need to consider and approve policy on political donations prior to embarking upon such practices and publically disclose the rationale and details of donations made. 
  • Failure to do so may lead to significant reputational damage and perhaps even legal liability. 
  • The King Report recommends that companies should have a code of conduct that is supplemented by several ethicsrelated policies dealing with matters such as political donations.

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