YACOOB ABBA OMAR: Parallels to state capture era in US corporate governance pushback

The Musk-Trump imbroglio is probably the tip of the conflict-of-interest issue concerning relations between government and business in the US, which in itself is one of the key issues affecting corporate governance. 

According to Eric Lipton and Kirsten Grind of the New York Times, in 2024 alone six of Musk’s private companies received $3.8bn worth of government contracts, and in the last five years $13bn worth of contracts.

They have been doing what the late Pravin Gordhan called “joining the dots”, reporting that at least 11 federal agencies have more than 32 continuing investigations, pending complaints or enforcement actions into Musk’s companies, pointing out that “there really has never been a conflict so broad probably in American history”.

Just as former president Jacob Zuma oversaw the gutting of key state institutions during the period of state capture, we see in the US the firing of the head of the Office of Government Ethics, the effective shutting down of the Consumer Financial Protection Bureau, rendering inoperable the National Labour Relations Board, the removal of 17 inspectors-general across government, and a Trump loyalist appointed to head up the department of justice.   

Similar tactics are being used in the state of Texas.

FT correspondents Myles McCormick, Sujeet Indap and Kristina Shevory have pointed out that apart from the Lone Star state’s vocal pushback against “woke” environmental, social & governance (ESG) policies and diversity, equity & inclusion (DEI) programmes, “the state is also establishing a new corporate governance model that shifts the balance of power towards executives and away from shareholders”.

This is being done through the signing into law of Senate Bill 29 on May 14 by Texas governor Greg Abbott, which has among others established its own business court and keeps judges from finding that a board of directors breached its fiduciary duties. Legislation also discourages shareholders from suing companies or challenging board decisions.

Just as our parliament was complicit during those nine wasted years, the Republican-controlled Congress enables these actions by not initiating any subpoenas or investigations.

Given the feebleness of the Democratic Party response, Lipton concludes that “there really is no-one left outside journalists to be asking hard questions”.

A hopeful sign is that trade unions and civil rights groups are resorting to the courts to fight back against the more egregious elements of the issues in the US.

Another parallel to our situation is the fight against state capture was initiated and advanced by civil society, the media and a few brave whistle-blowers, with business and politicians joining when the writing on the wall was becoming clearer. 

The recent trends in the US may be an indication that policymakers, politicians and business leaders have been rolling back the many gains made in the corporate sector.

The most consequential of these was the US Business Roundtable’s August 2019 statement, signed by 181 CEOs, which declared that companies should aim to deliver long-term value to all of their stakeholders — customers, employees, suppliers, the communities in which they operate and their shareholders. 

Last year, in its five-year review of this approach, the round-table highlighted that “American workers and suppliers have been aided largely by the innovative approaches that financially successful companies are taking to invest in their workers, suppliers and communities”, delivering purpose and profit.

The FT correspondents cited above do point out that by too zealously ripping up the corporate governance playbook or becoming too entangled in culture war issues Texas could turn off the very companies it tries to attract.

The number of companies moving their headquarters to the state reached a peak of 79 in 2021, with just 24 companies making the move last year. 

If SA corporates think they should push for a similar conservative, right-wing approach, they would do well to heed the call of Business Leadership SA CEO Busi Mavuso that “business has failed to fully embrace the transformation agenda aimed at the economic inclusion of poverty-stricken black South Africans. If they are not doing the right thing 30 years into democracy, surely you have to use some force.”

• Abba Omar is director of operations at the Mapungubwe Institute for Strategic Reflection.