Disclosure of corporate political donations and expenditure to shareholders: Why South Africa should follow the United Kingdom’s legislative approach

AuthorMadlela, V.
Published date23 February 2022
Date23 February 2022
https ://doi.org /10.4734 8/SALJ /v139/i1a4
Senior Lectu rer, Department of Me rcantile Law, University o f South Africa
Whilst cor porate political do nations and ex penditure is legally p ermissible in S outh
Africa, and w hilst some compani es may be making suc h donations and in curring
such expenditu re for valid reasons, cor porate political do nations and exp enditure
is frequently asso ciated with sec recy and poor cor porate govern ance practic es within
companies. On e strategy that some cor porate-law jur isdictions h ave adopted to
regulate corp orate political don ations and expe nditure is to require co mpany boards to
disclose relevant inf ormation about su ch donations an d expenditure dire ctly to their
shareholders. How ever, South Afri can law cur rently does not require c ompanies to
disclose their politi cal donations o r expenditure direc tly to the shareholde rs, either in
the annual na ncial statem ents, or in the direct ors’ report that mu st be included in
the annual na ncial statem ents, or in the annua l report. Follow ing an examinat ion
of key policy co nsiderations rele vant to the disclosur e of corporate politi cal donations
and expenditure t o shareholders, an d an examination of t he legislative app roach in
the UK, the art icle argues for th e eective disc losure of corporat e political donatio ns
and expenditure t o shareholders under the Comp anies Act 71 of 2008. It then makes
detailed recomme ndations on how su ch disclosure require ments could be int roduced
and implemented i n South Afric a.
Corporat e politica l donations a nd expendit ure – di sclosure – Sout h Afric a
– United Ki ngdom
The topic of corporate pol itical donations and ex penditure is controversia l
in contemporar y corporate governance. W hilst m aking such donations
and incur ring such expenditure a re legally permi ssible in some corporate-
law jurisd ictions, including South A frica,1 and whilst some compa nies
LLB LLM ( Witwater srand) LLD ( Pretor ia). https://orcid.org/0000-0001-
7223-5077. The article is ba sed on part s of my LLD thesi s.
1 I n South Af rica, pol itical don ations and ex penditu re is perm issible as p art
of the private f undin g of politica l part ies and indep endent candid ates. The leg a-
lity of the se donation s and expend iture was not e ven in issue in t wo recent
judgments o f the Constit utional C ourt dea ling w ith the disc losure of pri vate
fundi ng of politic al part ies and inde pendent cand idates (of which t he fundi ng
from corpor ate entities constit utes a signica nt part) — that is, in My Vote Counts
NPC v Speake r of the National A ssembly 2015 (1) SA 132 (CC) and in My Vote
Counts NPC v Mi nister of Justic e and Correcti onal Serv ices 2018 (5) SA 380 (CC).
Section 8(2) read w ith item 7 of Schedu le 2 to the Politic al Part y Fundi ng Act
(2022) 139 SALJ 114
© Juta and Company (Pty) Ltd
https ://doi.org /10.4734 8/SALJ /v139/i1a4
may be making political donations and incur ring pol itical expenditure
for valid rea sons,2 such donations and expenditure is frequently associated
with poor corpor ate governance practices within companies. The major
concerns in th is regard include secrecy a nd a lack of transparency to
shareholders about a company’s political donations and expenditure, a s
well as the general lack of accountability of director s when they cause
companies to m ake politica l donations or incur political expenditure.3
Corporate pol itical donations and expenditure is associated with conicts
of interest wit hin compan ies, directorial self-dealing tendencies, potentia l
disrega rd of shareholders’ interest s, and the misma nagement of companies.4
6 of 2018 permits c ompanies t hat are reg istered un der the Compan ies Act 71 of
2008, ot her than st ate-owned e nterpri ses, to ma ke donations to p olitica l partie s
up to a prescr ibed max imum amou nt in a na ncial year, wh ilst s 3(1) and (3)
allows dome stic, and even for eign, compa nies to contr ibute un limit ed funds t o
a Multi-Pa rty Democ racy Fun d establi shed to fund r epresented pol itical pa rties.
See also t he abolition of the u ltra vires doct rine and the wideni ng of the capacity
of the company in s 19(1)(b) of the Com panies Act , which has t he eect that t he
board of di rectors’ deci sion for a company to m ake politic al donat ions or incur
politica l expendit ure would gene rally b e legal, a s it would not automat icall y fall
outside the capa city and power s of a company.
2 The se valid rea sons include e conomic conside rations th at would enha nce
the contribut ing companies’ value a nd advance the interest s of their shareholders ,
such as fund ing a polit ical par ty or ca ndidate w ith a good record on e conomic
manag ement, a polit ical par ty or cand idate they b elieve would provid e a stable
business e nvironment or who se policies they t rust, or in ord er to shape the polit ical,
policy and r egulat ory envi ronments i n which their bu sinesse s can thr ive. See for
example Just in Fisher ‘W hy do compan ies make don ations to pol itical pa rties?’
(1994) XLII Political Studies Association 690 at 692–7; Jean-Ph ilippe Bon ardi, Guy
L F Holburn & R ichard G van den B ergh ‘Nonm arket stra tegy per forman ce:
Evidence from US e lectric ut ilitie s’ (2006) 49 T he Academy of Mana gement Journ al
1209 at 1210–12; Robert Bla ckburn T he Electoral System i n Britain (19 95) 322 .
3 Ciara Torres-Spel liscy & Ka thy Fogel ‘Shareholder- authorized cor porate
politica l spending in the Unit ed Kingdom’ (2011) 46 University of San Fran cisco LR
525 at 529; Ciara Torres- Spelliscy ‘Cor porate politica l spending and sha reholders’
rights: W hy the US shou ld adopt the Brit ish approach ’ in Abol Jal ilvand &
AG Malli aris (eds) Risk Management and Corporate Governance (2012) 394.
4 See Adam Wink ler ‘Other people’s money: Corporation s, agency costs, and
campaig n nance law’ (200 4) 92 Georgetown LJ 871 at 887–91, 893–7 and 9 00–12;
Richard Wi lliams ‘Reg ulati ng politica l donations by companie s: Challenges and
misconcept ions’ (2012) 75 MLR 951 at 958; Michael Ha dani & Dougla s A Schuler
‘In search of el Dor ado: The elusive na ncial ret urn s on corporate pol itical
investment s’ (2013) 34 Strategic Manage ment Journal 165 at 166 and 176; Lucian A
Bebchuk & Robert J J ackson ‘Corporate pol itical speech: Who de cides?’ (2010) 124
Harvard LR 83 at 9 0–3; Lucia n A Bebchuk & Rober t J Jackson ‘Shi ning
light on cor porate polit ical spend ing’ (2013) 101 Georgetown LJ 923 at 942–3;
Torres-Spell iscy op cit no te 3 at 399; Jonatha n Romiti ‘Pl aying pol itics with
shareholder va lue: The case for app lying duc iary l aw to corporat e politica l
donations post-Citizens United ’ (2012) 53 Boston Colle ge LR 737 at 766; Paul K
Chaney, Mara Fa ccio & David Parsley ‘The qua lity of accountin g information in
politica lly connec ted rm s’ (2011) 51 Journal of Ac counting and Ec onomics 58 at 59;
© Juta and Company (Pty) Ltd
https ://doi.org /10.4734 8/SALJ /v139/i1a4
One strateg y that some corporate-law jurisdictions, such as the U K,
have adopted to regu late corporate politica l donations and expenditu re
is to require company boards to disclose relevant inform ation about
such donations and ex penditure directly to their sha reholders.5
In company law, disclosu re, and the transparenc y that results from it,
is frequently viewed as one of the cr itical elements of accountabil ity,6
which encompasses the provision of relevant i nformation by the board
of director s7 and the provision of clear ex planat ions or justic ations for
the board’s decisions and actions.8 The signicance of eect ive disclosure
and tran sparency with respect to cor porate political donation s and
expenditu re lies in that it prevents infor mation asymmetry.9 This enables
shareholders, as well as investors, to assess whether a company’s political
donations and ex penditure are aligned to their i nterests.10 It also enables
John C Coates ‘Cor porate pol itics, gover nance, and va lue before and a fter
Citizens United ’ (2012) 9 Journal of Em pirical L egal Studies 657 at 667 a nd at 690;
Michael Had ani ‘In stitution al owners hip monitor ing and cor porate polit ical
activit y: Governa nce implic ations’ (2012) 65 Journ al of Business R esearch 944 at
948; Intern ational C orporate G overnance Net work ‘Politica l lobbyin g and
donations’ Decem ber 2017 at 4, available a t https://www.icgn.org/sites/default/les/
ICGN%20Political%20Lobbying%20%26%20Donation s%202017.pdf, accessed on
3 May 2020.
5 See s 19 of the Companie s Act, 1967; paras 3 –5 in Part 1 of Sche dule 7 to
the Compan ies Act, 1985; para s 3–4 in Pa rt I of Schedu le 7 to the Compan ies
Act, 1985 as amende d by s 140 of the Politica l Parties, Elect ions and Referendums
Act, 200 0; s 416 of the current UK C ompanies A ct, 2006 , as read wit h paras 3 –4
in Part I of Sche dule 7 to the La rge and Med ium-siz ed Companie s and Groups
(Accounts and Rep orts) Regu lations , 2008, a s well as wit h para 2 of Schedu le 5
to the Smal l Compan ies and Groups (Accou nts and Repor ts) Regul ations, 2 008;
Christ opher J Cowton ‘The d evelopment of legal d isclosu re require ments: the
case of char itable dona tions’ (1989) 20 Accounting a nd Business R esearch 25 –30;
Colin Perk in ‘Politica l fundi ng by compan ies: The new reg ime’ 2001 Busin ess
LR 87–90. India is ano ther a juri sdiction who se company law req uires compa nies
to disclose t heir political cont ributions to their s hareholders in the an nual nancia l
statement s. See s 293A(4) of the Compan ies Act of 1956, as in serted by the
Companie s (Amendment) Ac t of 1985; and s 182 of the Companie s Act of 2013.
6 Andrew Keay & Joa n Loughrey ‘The fra mework for board accountabil ity in
corporate g overnance’ (2015) 35 Legal Studies 252 at 2 72–5.
7 Ibid at 272–3.
8 Ibid at 274–5.
9 Ibid at 272–5.
10 Citizens United v Fede ral Election Comm ission 558 US 310 (2010); Committee
on Disclosur e of Corporate Politica l Spending ‘Petition for r ulemaking ’ 3 August
2011 at 7–8 and at 10, availa ble at https://www.sec.gov/rules/petitions/2011/petn4-
637. pd f, acces sed on 4 May 2020 ; Bebchuck & Jackson (2013) op cit not e 4 at
941; Transparency Int ernation al UK ‘Cor porate Polit ical Eng agement Inde x
2015: Assessi ng the UK’s lar gest public comp anies’ Decemb er 2015 at 12,
available a t https://www.transparency.org.uk/publications/corporate-political-engagement-
in de x- 20 15/, access ed on 4 May 2020.
© Juta and Company (Pty) Ltd

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT