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
• Pages: 114-156

114

https ://doi.org /10.4734 8/SALJ /v139/i1a4

DISCLOSURE OF CORPORATE POLITICAL

DONATIONS AND EXPENDITURE TO

SHAREHOLDERS: WHY SOUTH AFRICA

SHOULD FOLLOW THE UNITED KINGDOM’S

LEG ISL AT I V E A PP ROACH

VELA MADLELA†

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

I IN TRODUC TION

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

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CORPORAT E POLITICAL DONATIONS A ND EXPENDIT URE 115

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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;

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

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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.

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