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

• Author: Madlela, V.
• DOI: https://doi.org/10.47348/SALJ/v139/i1a4
• Published date: 23 February 2022
• Date: 23 February 2022
• Citation: (2022) 139 SALJ 114
• Pages: 114-156

114

https://doi.org/10.47348/SALJ/v139/i1a4

DISCLOSURE OF CORPORATE POLITICAL

DONATIONS AND EXPENDITURE TO

SHAREHOLDERS: WHY SOUTH AFRICA

SHOULD FOLLOW THE UNITED KINGDOM’S

LEGISLATIVE APPROACH

VELA MADLELA†

Senior Lecturer, Department of Mercantile Law, University of South Africa

Whilst corporate political donations and expenditure is legally permissible in South

Africa, and whilst some companies may be making such donations and incurring

such expenditure for valid reasons, corporate political donations and expenditure

is frequently associated with secrecy and poor corporate governance practices within

companies. One strategy that some corporate-law jurisdictions have adopted to

regulate corporate political donations and expenditure is to require company boards to

disclose relevant information about such donations and expenditure directly to their

shareholders. However, South African law currently does not require companies to

disclose their political donations or expenditure directly to the shareholders, either in

the annual nancial statements, or in the directors’ report that must be included in

the annual nancial statements, or in the annual report. Following an examination

of key policy considerations relevant to the disclosure of corporate political donations

and expenditure to shareholders, and an examination of the legislative approach in

the UK, the article argues for the eective disclosure of corporate political donations

and expenditure t o shareholders under the Comp anies Act 71 of 2008. It then makes

detailed recommendations on how such disclosure requirements could be introduced

and implemented in South Africa.

Corporate political donations and expenditure – disclosure – South Africa

– United Kingdom

I INTRODUCTION

The topic of corporate pol itical donations and ex penditure is controversia l

in contemporary corporate governance. Whilst making such donations

and incur ring such expenditure a re legally permi ssible in some corporate-

law jurisdictions, including South Africa,1 and whilst some companies

†LLB LLM (Witwatersrand) LLD (Pretoria). https://orcid.org/0000-0001-

7223-5077. The article is based on parts of my LLD thesis.

1 In South Africa, political donations and expenditure is permissible as part

of the private funding of political parties and independent candidates. The lega-

lity of these donations and expenditure was not even in issue in two recent

judgments of the Constitutional Court dealing with the disclosure of private

funding of political parties and independent candidates (of which the funding

from corpor ate entities constit utes a signica nt part) — that is, in My Vote Counts

NPC v Speaker of the National Assembly 2015 (1) SA 132 (CC) and in My Vote

Counts NPC v Minister of Justice and Correctional Services 2018 (5) SA 380 (CC).

Section 8(2) read with item 7 of Schedule 2 to the Political Party Funding Act

(2022) 139 SALJ 114

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CORPORAT E POLITICAL DONATIONS A ND EXPENDIT URE 115

https://doi.org/10.47348/SALJ/v139/i1a4

may be making political donations and incurring political expenditure

for valid reasons,2 such donations and expenditure is frequently associated

with poor corporate governance practices within companies. The major

concerns in this regard include secrecy and a lack of transparency to

shareholders about a company’s political donations and expenditure, as

well as the general lack of accountability of directors when they cause

companies to make political donations or incur political expenditure.3

Corporate political donations and expenditure is associated with conicts

of interest within 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 companies that are registered under the Companies Act 71 of

2008, other than state-owned enterprises, to make donations to political parties

up to a prescribed maximum amount in a nancial year, whilst s 3(1) and (3)

allows domestic, and even foreign, companies to contribute unlimited funds to

a Multi-Party Democracy Fund established to fund represented political parties.

See also the 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 Companies Act, which has the eect that the

board of directors’ decision for a company to make political donations or incur

political expenditure would generally be legal, as it would not automatically fall

outside the capacity and power s of a company.

2 These valid reasons include economic considerations that would enhance

the contribut ing companies’ value a nd advance the interest s of their shareholders ,

such as funding a political party or candidate with a good record on economic

management, a political party or candidate they believe would provide a stable

business e nvironment or who se policies they t rust, or in ord er to shape the polit ical,

policy and regulatory environments in which their businesses can thr ive. See for

example Justin Fisher ‘Why do companies make donations to political parties?’

(1994) XLII Political Studies Association 690 at 692–7; Jean-Philippe Bonardi, Guy

L F Holburn & Richard G van den Bergh ‘Nonmarket strategy performance:

Evidence from US electric utilitie s’ (2006) 49 The Academy of Management Journal

1209 at 1210–12; Robert Blackburn The Electoral System in Britain (19 95) 322 .

3 Ciara Torres-Spelliscy & Kathy Fogel ‘Shareholder-authorized corporate

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: Why the US should adopt the British approach’ in Abol Jalilvand &

AG Malliaris (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 ‘Regulating 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 Dorado: The elusive nancial returns on corporate political

investments’ (2013) 34 Strategic Management 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 90–3; Lucian A Bebchuk & Robert J Jackson ‘Shining

light on corporate political spending’ (2013) 101 Georgetown LJ 923 at 942–3;

Torres-Spelliscy op cit note 3 at 399; Jonathan Romiti ‘Playing politics with

shareholder value: The case for applying duciary law to corporate political

donations post-Citizens United’ (2012) 53 Boston College LR 737 at 766; Paul K

Chaney, Mara Fa ccio & David Parsley ‘The qua lity of accountin g information in

politically connected rms’ (2011) 51 Journal of Accounting and Economics 58 at 59;

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116(202 2) 139 THE SOUTH AFR ICAN LAW JOURNAL

https://doi.org/10.47348/SALJ/v139/i1a4

One strategy that some corporate-law jurisdictions, such as the UK,

have adopted to regulate corporate political donations and expenditure

is to require company boards to disclose relevant information about

such donations and expenditure directly to their shareholders.5

In company law, disclosure, and the transparency that results from it,

is frequently viewed as one of the critical elements of accountability,6

which encompasses the provision of relevant information by the board

of directors7 and the provision of clear explanations or justications for

the board’s decisions and actions.8 The signicance of eective disclosure

and transparency with respect to corporate political donations and

expenditure lies in that it prevents information asymmetry.9 This enables

shareholders, as well as investors, to assess whether a company’s political

donations and expenditure are aligned to their interests.10 It also enables

John C Coates ‘Corporate politics, governance, and value before and after

Citizens United’ (2012) 9 Journal of Empirical Legal Studies 657 at 667 and at 690;

Michael Hadani ‘Institutional ownership monitoring and corporate political

activity: Governance implications’ (2012) 65 Journal of Business Research 944 at

948; International Corporate Governance Network ‘Political lobbying and

donations’ December 2017 at 4, available at https://www.icgn.org/sites/default/les/

ICGN%20Political%20Lobbying%20%26%20Donations%202017.pdf, accessed on

3 May 2020.

5See s 19 of the Companies Act, 1967; paras 3–5 in Part 1 of Schedule 7 to

the Companies Act, 1985; paras 3–4 in Part I of Schedule 7 to the Companies

Act, 1985 as amende d by s 140 of the Politica l Parties, Elect ions and Referendums

Act, 2000; s 416 of the current UK Companies Act, 2006, as read with paras 3 –4

in Part I of Schedule 7 to the Large and Medium-sized Companies and Groups

(Accounts and Reports) Regulations, 2008, as well as with para 2 of Schedule 5

to the Small Companies and Groups (Accounts and Reports) Regulations, 2008;

Christopher J Cowton ‘The development of legal disclosure requirements: the

case of charitable donations’ (1989) 20 Accounting and Business Research 25–30;

Colin Perkin ‘Political funding by companies: The new regime’ 2001 Business

LR 87–90. India is another a jurisdiction whose company law requires compa nies

to disclose t heir political cont ributions to their s hareholders in the an nual nancia l

statements. See s 293A(4) of the Companies Act of 1956, as inserted by the

Companies (Amendment) Act 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 governance’ (2015) 35 Legal Studies 252 at 272–5.

7 Ibid at 272–3.

8 Ibid at 274–5.

9 Ibid at 272–5.

10Citizens United v Federal Election Commission558 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, available at https://www.sec.gov/rules/petitions/2011/petn4-

637.pdf, accessed on 4 May 2020; Bebchuck & Jackson (2013) op cit note 4 at

941; Transparency International UK‘Corporate Political Engagement Index

2015: Assessing the UK’s largest public companies’ December 2015 at 12,

available at https://www.transparency.org.uk/publications/corporate-political-engagement-

index-2015/, accessed on 4 May 2020.

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