Private firms resist financial disclosure

Business has strongly objected to proposals in the Companies Amendment Bill that would allow public access to the financial statements of private companies. 

It has also objected to the naming of directors of private companies whose pay is disclosed in terms of the proposals for the disclosure of the wage gap between the highest and lowest paid employees within companies. 

On the other hand, the amaBhungane Centre for Investigative Journalism motivated for greater disclosure of the financial records of companies. 

Parliament’s trade and industry committee held hearings on Tuesday and Wednesday on the bill and has received written submissions by over 40 entities. 

Commercial sensitivity 

Business Unity SA (Busa) said in its written submission that it was concerned about the unintended consequences of the proposed amendment that would effectively allow any member of the public to pay a small fee to access the annual financial statements of any private company with a public interest score of 350 or more, even where that private company sits within a listed corporate group that already publishes its annual financial statements. 

It said that “ready access to sensitive business information in the financial statements of private subsidiaries, including by competitors, would potentially prejudice our commercial interests”. 

“In mature listed group company structures, the financial information of material private subsidiaries is consolidated into the financials of the listed entity. If ready [early] access to financial information at a private subsidiary level is granted to market players, it would cut across the prohibitions on sharing price sensitive/material [and] non-public information, which apply to these listed companies,” Busa said. 

“We propose that a private company that sits within a listed corporate group that already publishes its annual financial statements should be exempted from the proposals. Alternatively, section 26 should make clear that the right to access the company records is fettered by the principles of reasonableness and appropriateness, and that no private company should be obliged to provide the public with access to information that is commercially sensitive or that violates a person’s right to have their personal information remain private (including their remuneration) or which would violate the regulatory obligations of another entity in the group." 

The National Clothing Retail Federation of SA (NCRF) told the committee Wednesday it opposed the proposal to extend the right to access information to include financial statements of private companies to any person without them having to have a beneficial interest.  

NCRF executive director Michael Lawrence said such a measure would increase “the risk of anti-competitive behaviour with competitors being able to obtain financial information (which could include commercially sensitive information and trade secrets) for ill-gotten purposes and gains.” 

The NCRF also strongly opposed the disclosure in the private company’s audited annual financial statements of the remuneration and benefits of individually named directors, which it said was a violation of their right to privacy under the Protection of Personal Information Act (POPIA) and the constitution. 

“This provision would be the equivalent of making a private citizen’s pay slip public information," Lawrence noted. 

Busa said the disclosure of named directors’ remuneration of private subsidiaries as part of their annual financial statements would be commercially sensitive for business (both internally vis-à-vis colleagues, and externally vis-à-vis competitors). This could lead to pay escalation over time, for example, across the investment management industry. 

It said such disclosure could potentially violate the rights of the named directors under POPIA; be potentially hazardous to named directors’ personal safety in a country with a high incidence of wealth-targeted kidnappings; ultimately lead to talented and experienced senior employees resigning from private subsidiary boards; and potentially remove a useful “nursery ground” where senior employees gain important governance experience by serving on private subsidiary boards.  

Nellia Musamba, senior specialist: legislation and regulatory oversight at Banking Association SA (Basa), said the bill should expressly state that the disclosure of wages excludes the names of the employees, unless the highest-paid employee is a director or prescribed officer whose remuneration is in any event disclosed.  

AmaBhungane said the bill did not provide sufficient public access to company information. It called for it to allow the disclosure not only of beneficial interests, but also of beneficial ownership of companies. 

Shareholder activist organisation Just Share SA called for the bill to include the disclosure of gender wage gaps. Women earn approximately 30% less in real monthly earnings compared to men, Just Share executive director Tracey Davies said

ensorl@businesslive.co.za