A legislative framework for shareholder approval of political donations and expenditure by companies in South Africa

• Citation: (2023) 140 SALJ 126
• DOI: https://doi.org/10.47348/SALJ/v140/i1a6
• Published date: 17 February 2023
• Pages: 126-169
• Author: Madlela, V.
• Date: 17 February 2023

126

https://doi.org/10.47348/SALJ/v140/i1a6

A LEGISLATIVE FRAMEWORK FOR

SHAREHOLDER APPROVAL OF POLITICAL

DONATIONS AND EXPENDITURE BY

COMPANIES IN SOUTH AFRICA*

VELA MADLELA†

Senior Lectu rer, Department of Me rcantile Law, University of S outh Africa

Political donati ons and expendit ure by companies ra ise serious con cerns due to p oor

corporate gove rnance prac tices, which in clude the lack of a ccountability o f directors to

shareholders. T he shareholders’ r ight to vote is one of the c ompany-law me chanisms

that may be used to cont rol the directors’ disc retion regarding politi cal donations a nd

expenditure. How ever, the Companie s Act 71 of 2008 does not give sha reholders

the right to appro ve a company’s political dona tions or expendit ure. Consequently,

the directors enjo y a wide general dis cretion regarding a com pany’s political donation s

and expenditure. T he article e xamines cer tain key polic y consideration s concernin g

the introduction of p rior shareholde r approval of politi cal donations a nd expenditure

by companies in S outh Africa. I t examines the leg islative requireme nts regarding

shareholder app roval of political donations and ex penditure in the UK under Part 14

of the Companie s Act, 2006, the philosophic al rationale underpin ning these legislative

requirements, an d the extent to whic h the introduction of sh areholder appr oval of

political donati ons and expendit ure in the UK has ac hieved the underlying objectives

of promoting transpa rency and ac countability. The a rticle then advo cates for the

introduction of the r equirement for pr ior shareholder a pproval of politica l donations

and expenditure u nder the South Af rican Compa nies Act, and pro vides detailed

recommendatio ns on how such requir ements could be im plemented.

Political don ations and e xpendit ure – sharehol der approval – propo sed

legislat ion

I IN TRODUC TION

South Afr ican law permits polit ical donations and expenditure by com-

panies, save for state-owned compa nies.1 Under the Compan ies Act 71

* This art icle is based on pa rts of the author’s LLD thesis.

† LLB LLM (W itwaters rand) LLD ( Pretori a). https://orcid.org/0000-0001-

7223-5077.

1 See s 8(2) r ead with item 7 of S chedule 2 to the Polit ical Par ty Fund ing

Act 6 of 2018, which per mits companies th at are registered unde r the Companies

Act 71 of 2008, ot her than st ate-owned e nterpri ses, to ma ke donations to

politica l parties up to a prescr ibed maximum a mount in a nancia l year. Further,

s 3(1) and (3) of the Political Par ty Fund ing Act a llows compan ies to contr ibute

unli mited fu nds to a Mult i-Part y Democrac y Fund that i s establi shed to fund

represented pol itical p arties . Moreover, the abolit ion of the ultr a vires doc trine

and the broaden ing of the ca pacity of a compa ny in s 19(1)(b) of the Compan ies

Act of 2008 h as the eect t hat the board ’s decision to cau se a company to ma ke

politica l donations or i ncur polit ical exp enditure wou ld not automat ically f all

outside the capa city and power s of a company.

(2023) 140 SALJ 126

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SHAR EHOLDER APPROVAL OF POLITICA L DONATIONS & EXPENDI TURE 127

https://doi.org/10.47348/SALJ/v140/i1a6

of 2008 (‘the Compa nies Act of 20 08’), directors enjoy a wide genera l

discretion regardi ng a company’s politica l donations and expenditu re.2

The term ‘political donation’ is used in this a rticle to refer to both the

direct or indirect transfer of money and ot her gift s in kind by a company

to a political party, independent candidate or other politica l organ isation,

including the allotment of shares, sponsorships, membership fees, waiver

of debts, as well as the provision of loans, propert y, services or facilitie s

other than on com mercial ter ms.3 The term ‘political expenditu re’ is used

to refer to expenditure incurred by a company, directly or indirectly,

on preparation, publ ication or dissemination of any campa ign mater ial

that may reasonably be regarded as intended to aect public suppor t for a

political party or i ndependent cand idate.4

Political donations and expend iture by compa nies have rai sed serious

concerns in several jurisdictions due to t he poor corporate governance

practices associated w ith these donat ions and expend iture, includ ing

the lack of transparency a nd accountabil ity of di rectors to sha reholders

(and other company sta keholders).5 An exam ination of the l iterature

in various ju risdictions reveal s that corporate politica l donations and

expenditu re are frequent ly associated with weak cor porate governance

practices such as conicts of i nterest within compan ies, direc torial self-

deali ng tendencies, di sregard of sha reholders’ interest s, and mism anagement

of companies.6 T hese donations and expend itures furt hermore pose serious

2 See s 66(1) of the Compan ies Act of 2008 and the d iscussion in part I I below.

3 See s 364(2) of the Compa nies Act, 20 06 as read with s 50(2) of the Polit ical

Parties , Election s and Referendum s Act, 200 0; and the di scussion i n part III

bel ow.

4 See s 365(1) of the Companies A ct, 2006; Ci ara Torres-S pellisc y & Kathy

Fogel ‘Shar eholder-author ized cor porate polit ical spend ing in the Un ited

Kingdo m’ (2011) 46 University of San Franci sco LR 525 at 544–5; Stephen M ayson,

Derek French & Chr istopher L Ryan Mayson, Fre nch & Ryan on Company L aw

25 ed (2008 –2009) 636; a nd the discu ssion in part III below.

5 Torres-Spell iscy & Fogel i bid at 529; Ciara Torres- Spelli scy ‘Corpor ate

politica l spendin g and sharehold ers’ right s: Why the US should adopt the Br itish

approach’ in A bol Jali lvand & A G Mal liaris (eds) Risk Mana gement and Cor porate

Governance (2012) 394.

6 See for exa mple Torres-Spel liscy & Fo gel ibid at 529; Torres-Spel lisc y ibid

at 394 and 398–9; Ad am Wink ler ‘Other people’s money: Co rporation s, agenc y

costs, and c ampaig n nance l aw’ (2004) 92 Geo rgetown LJ 871 at 887–91, 893 –7

and 900 –12; Richard Wi llia ms ‘Regu latin g politica l donations by co mpanies:

Challe nges and m isconception s’ (2012) 75 MLR 951 at 958; Michael Hadani

& Douglas A S chuler ‘In sea rch of El Dorado: The elus ive nanci al retur ns

on corporate p olitica l investment s’ (2013) 34 Strategic Manage ment Journal 16 5

at 166 and 176; Lucian A Bebchuk & Rober t J Jackson Jr ‘Cor porate polit ical

speech: Who dec ides?’ (2010) 124 Harvard LR 83 at 90–3; Luc ian A Bebchuk &

Robert J Jackson Jr ‘ Shini ng light on c orporate pol itical s pending’ (2 013) 101

Georgetown LJ 923 at 942–3; Jonat han Romit i ‘Playing p olitics w ith sharehold er

value: The case fo r applying d uciar y law to corpora te politica l donation s

© Juta and Company (Pty) Ltd

128 (2023) 140 TH E SOUTH AFRICA N LAW JOURNAL

https://doi.org/10.47348/SALJ/v140/i1a6

risks to t he company’s and shareholder s’ interests,7 whi lst the benets of

these donations and expendit ure in enh ancing cor porate value rem ain

uncerta in.8

The requirement for a dvance shareholder approval of polit ical donations

and expendit ure is one of the company-law mechanisms that may be

used to control the d irectors’ gener al discretion regard ing the ma king of

such donations and t he incurr ing of such expenditure.9 Thi s shareholder

oversight mechan ism may protect companies’ and shareholders’ interests

from adverse dec isions by the di rectors regarding political don ations

and expendit ure.10 However, the Companies Act of 2008 does not g ive

post-Citizens United ’ (2012) 53 Boston Coll ege LR 737 at 766; Paul K Ch aney,

Mara Facc io & David Parsley ‘The qu ality of accou nting infor mation in polit ically

connected  rms’ (2011) 51 Journal of Accounting a nd Economic s 58 at 59; John C

Coates IV ‘Cor porate pol itics, gover nance, and va lue before and a fter Citizens

United’ (2012) 9 Jour nal of Empir ical Legal Stud ies 657 at 667 and 690; Mi chael

Hadan i ‘Instit utional ow nership mon itoring a nd corporat e politica l activit y:

Governance i mplicat ions’ (2012) 65 Journal of B usiness Resea rch 944 at 948;

Interna tional Cor porate Governance Net work ‘Political lobbyin g and donation s’

(2017) 4, available at htt ps://ww w.icgn.org/sites/default/les/ICGN%20Political%20

Lobbying%20%26%20Donations%202017.pdf, accessed on 31 August 2021.

7 See the discuss ion in part I I below about the ris ks that un regulated polit ical

donations a nd expendit ure pose to t he company’s interes ts, and the sou rces

cited there.

8 Some scholars h ave argued t hat there are no s ubstant ial connec tions

between pol itical contribution s and the contr ibuting company’s future e conomic

perform ance. See Stephe n Ansolabe here, John M de Fig ueiredo & Jam es M

Snyder Jr ‘Why is t here so litt le money in US polit ics?’ (2003) 17 Journal o f

Economic Perspectives 105 at 117; Philip Hersch , Jery M Net ter & Chr istopher

Pope ‘Do campai gn contr ibutions and lobby ing exp enditure s by rms c reate

“politica l” capita l?’ (2008) 36 Atlantic Economics Journal 395 at 396–7; Michael

Hadan i, Jeane-Ph ilippe Bon ardi & Nicol as M Dahan ‘C orporate pol itical

activit y, public policy uncert ainty, and rm outcome s: A meta-analys is’ (2017) 15

Strategic Organization 338 at 357; S Gray, I Harymaw an & J Nowland ‘Political a nd

government con nections on cor porate boa rds in Aust ral ia: Good for busi ness?’

(2016) 41 Australian Journal of Mana gement 3 at 4– 5.

9 See for exa mple s 366 of the Companie s Act, 2006; Comm ittee on Standar ds

in Public Li fe Fifth Repo rt of the Committe e on Standards in Pu blic Life: The Fu nding

of Political Part ies in the United Kin gdom (October 1998) Cm 4057–I par as 6.26

and 6.34, ava ilable at https://assets.publishing.service.gov.uk/government/uploads/

system/uploads/attachment_data/le/336870/5thInquiry_FullReport.pdf, accessed on

31 August 2021; Ex planator y Notes to the Pol itical Par ties, E lections and

Referendums Ac t, 2000 p ara 246, ava ilable at http://www.legislation.gov.uk/

ukp ga/20 00/41/no tes/di vi sio n/2/9, accesse d on 31 August 2021; Torres-Sp ellisc y

op cit note 5 at 397; Aubrey Siband a ‘“Sanitiz ing” corporate pol itical expendit ure

in South Af rican corporat e governance’ (2016) 37 Obiter 581 at 595; Kath leen van

der Linde & Tseliso T hipanyane ‘The reg ulation of corporate f unding of politic al

partie s and activ ities in Sout h Afr ica: Towards tran sparency, account abilit y and

good corpor ate governa nce’ 2020 TSAR 271 at 28 8.

10 See part II below reg arding t he rationa le for sharehold er approval of

corporate p olitical d onations a nd expendit ure.

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