Though it is common to describe companies as being listed, this is not technically true. Companies are not listed on the JSE, nor on any other stock exchange. They issue securities, like equities, bonds or hybrid instruments, and it is these securities that are listed on the different “boards” or market segments on the JSE or another stock exchange.
The term “listed” comes from the days when shares were literally written up on a chalkboard, hence the description of a “main board listed share”.
To “list” securities on an exchange, a company must agree to abide by the listing requirements, and these come with ever more onerous transparency specifications. In SA’s case increased disclosure — and, importantly, the cost and effort to provide such disclosure — are given some of the blame for the local delisting crisis of the JSE. The number of companies listed on the bourse has declined from more than 800 to just about 300 over the past 30 years.
Because of the enforced transparency, JSE-listed companies have become something of a government and civil society punch bag. Not only must they practise extensive disclosure, those disclosures are easily accessible online or via subscription services. Information can be conveniently extracted, analysed, sliced and diced, and comparisons can be made.
Everyone, from MBA students to social researchers and accounting firms, uses this access to information to draw often contentious conclusions. In fact, the JSE itself makes a tidy sum as a purveyor of such information. Reports are repeatedly published based on disclosures by the ever diminishing universe of JSE listed companies. These can be about various remuneration trends and pay gaps, environmental performance and carbon emissions, board members’ and employees’ race and sex classification, ownership profiles, tax payments, shareholder rich lists or financial performance — the list goes on.
For example, one recent survey by a top four accounting firm simply ignored the very significant number of directors of JSE top 100 companies who are not SA citizens, often because the companies themselves are not South African. By removing those directors from the denominator for all calculations it was disingenuously skewing the SA racial statistics, which were then widely reported context free in the local press and amplified on social media.
Sometimes government entities decide that the disclosures in terms of the Companies Act and the listings requirements are insufficient, so they go ahead and add their own. A pertinent case is that of section 13G(2) of the Broad-Based Black Economic Empowerment Act 53 of 2003 (the BBBEE act). It requires “public companies listed on the JSE” to provide the [broad-based BEE commission] with a report about their compliance with BEE requirements.
Now, to be fair, we know what the legal drafters meant, notwithstanding that it is technically nonsense. But why do they specifically target only “public companies listed on the JSE”? What does the universe of JSE-listed companies actually represent, besides a small well of light in a morass of opaque state-owned enterprises and below-the-radar local and foreign unlisted companies? It clearly does not represent the companies listed on the new challenger stock exchanges, nor public companies that are not listed on any exchange — there are a number of significant companies whose shares trade over the counter, in particular old-style agricultural co-operatives. It also does not represent large “public interest” companies, which is how the Companies Act defines large, societally important entities, nor companies listed on foreign stock exchanges that have significant operations, or all their operations, in SA.
And then it gets more complicated, when companies that are not South African, or may not even operate in SA, have securities listed on the JSE — companies with “secondary” listings.
Now it may be news to the BEE commission, but in March this year just under two-thirds of the total gross market capitalisation of the JSE was represented by the 51 foreign companies with secondary listed securities on the JSE. Few of these have broad-based BEE obligations. In some instances, they may have listed or unlisted subsidiaries in SA — but surely it should be those subsidiary companies that need to report to SA’s government, not the holding company in London, Frankfurt or Toronto?
It looks increasingly as if JSE listed companies are a soft target. The commission even proposes criminal sanctions for the failure by JSE listed companies to submit BEE reports, while ignoring the rest of the private sector. And the JSE appears to be quite happy to leave its clients undefended; it seemingly takes no steps to rebut, moderate or correct the attack on its clients or the more egregious conclusions being drawn by, quite frankly, the misuse of this public data. It is clearly no fun being a collective punch bag.
However, the question that must arise is: has the regulatory and reporting arbitrage gap grown too large? What started as the shareholder-elected directors publicly reporting on a company’s affairs to those shareholders has now expanded dramatically. It is now fully accepted that listed public companies have a wide reporting obligation to all of society.
What has also expanded dramatically, however, is the yawning gap between what a listed company must report, simply because it has securities listed on an exchange, and what an equivalent unlisted company, with possibly an even larger impact on society, must report — which is, basically, nothing at all.
For example, consider two large SA coal mining companies — Thungela, which must report everything as a listed company, and the unlisted Seriti, which does not need to report anything. Both have exactly the same environmental and climate change risks, the same local community stakeholders and the same high societal impact. This disparity is just wrong.
If companies with securities listed on the JSE are expected to adhere to ever more onerous reporting obligations, opening themselves up to unfair scrutiny relative to equally impactful unlisted or private companies, it is no surprise that more and more companies will opt to go private.
Is it not time for the JSE to come out to bat for its clients and back off from requiring even more disclosure, at least until the rest of society catches up and closes what has become an entirely unreasonable disclosure and transparency gap?
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