The consumer's expectations of the role of the institutional investor as shareholder of the public companies in South Africa

Abstract

Recent corporate failures, such as the Steinhoff scandal, have caused large financial loss for numerous stakeholders in South Africa. The eventual owner of money that is invested usually has very little say regarding where funds are invested. In an attempt to optimise financial growth for their clients, institutional investors accept the duty of being custodians of their clients' money. The question is: What expectations do consumers have regarding the ideal role that institutional investors should play as shareholders of public companies in South Africa? The assumption is that once their expectations are better understood, further studies could be assisted by these answers, thereby coming one step closer to solving these issues and possibly saving many people from substantial financial loss This study took the form of a quantitative approach. Online questionnaires were distributed to the public at large. A technologically advanced method, namely Google Forms, was used to capture all the survey data. Unusable data was discarded whereafter the 187 usable responses were transferred by this software to a spreadsheet. A statistician used the spreadsheet format to formulate statistical data, which was given to the author to interpret. The main findings were that consumers believe that their pension funds and retirement annuities are being threatened by corporate scandals. Consumers expect institutional investors to do proper research before investing and to invest in those organisations that prioritise environmental, social and governance factors - especially good governance. The study further found that consumers expect the government and institutional investors to do more to mitigate financial loss when corporate scandals do occur. Additionally, consumers expect institutional investors to participate more actively in general meetings of companies they invest in. Institutional investors should further publish a list of companies they intend to invest in. Consumers indicated their willingness to pay a premium to protect their funds against corporate scandals. An interesting incidental finding was that consumers expect government to do more to protect their funds against large corporations that fail by reassessing the ratios of prescribed assets. The practical management implication of these findings is to examine the expected way in which investors should manage companies as custodians and shareholders. Future studies should define what is specifically expected from government, and whether and how investment in prescribed assets, as prescribed by Regulation 28 of the Pension Fund Act (24 of 1956), is to be amended. Further studies should use the findings of this study and establish if, and how, corporate scandals, such as Steinhoff's failure, could be avoided; or, if they are bound to occur, how the institutional investor should foresee the occurrence thereof.