Are mining company boards failing in their corporate governance duties by not recognising key minority unions?

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Are mining company boards failing in their corporate governance duties by not recognising key minority unions?

14 September 2012

Questions that active investors should be asking South African mining companies

The politicisation of the issues surrounding Lonmin and the platinum sector in general, particularly by former ANC Youth League president Julius Malema, has raised the risk of wildcat strikes and increased wage demands across the sector. The current unrest has multifaceted causes, which include inter-union rivalries, local government failures, remuneration issues, job insecurity in the face of restructuring stemming from weaker resource demand and rifts between complacent union leaders and workers. As the Mail & Guardian notes, Amplats is not Lonmin; the specific dynamics of each situation need to be understood.

It will take time for labour relations to become normalised. Over the next few months, investors should pay particular attention to the progress mining companies have made towards meeting the commitments made in the Mining Charter. These include ownership, employment equity, mine community development, and housing and living conditions. Minister of Mineral Resource Susan Shabangu has already indicated that the government will be tightening enforcement of the various commitments. Kigoda Consulting research underlines the significant cost implications of meeting the targets. However, in the short-term, investors should perhaps focus on how companies perform in two other areas.

1. How stable is the membership of those unions with organisational rights? What thresholds of representativeness are in operation? Have stakeholder relations been prioritised?

A major factor in the unrest at Lonmin’s Marikana mine and other mining sector disputes in the past 12 months has been the battle by minority unions such as the Association of Mineworkers and Construction Union (AMCU) and the Professional Transport and Allied Workers Union (PTAWU) to be recognised by mining companies and gain organisational rights. These membership drives escalate tensions and frequently result in intimidatory tactics by rival unions.

AMCU’s recruitment drive has seen it gain members at, among others, Africa Rainbow Minerals, Lonmin, Impala Platinum, Aquarius Platinum and Xstrata Alloys, where it led a 14-day protected strike in an attempt to gain recognition in 2010. It has also gained membership at mining contractors, which will be another area to watch. Meanwhile, PTAWU led an unprotected strike for recognition at GoldOne in June. Given withering support for the dominant union in the mining sectors, the National Union of Mineworkers (NUM), if these unions are able to demonstrate that they are more serious about workers’ concerns and can achieve higher wage packages for members, NUM will come under growing pressure at other mines too.

As a result, lobbying by rival unions to gain organisational rights will be an important indicator of where future tensions might arise and, as a result, are likely to be increasingly relevant for industrial relations in the mining sector. South Africa’s Labour Relations Act (amendments are under consideration) currently grants considerable powers to those recognised as representative unions, including access to the workplace, deduction of subscriptions, leave for trade union activities and, if a majority is achieved, appointment of trade union representatives and access to information relevant to bargaining. However, an employer and a trade union that represents the majority of workers can also establish “thresholds of representativeness” required for various organisational rights. These thresholds can differ across the different mines of one company. In some case such as Lonmin and Implats, which experienced a six-week strike in March and April, 50% plus 1 thresholds, or closed shops, were in place. While a higher threshold should theoretically provide greater stability to union-management relations, they also make unprotected strike action over organisational rights more likely as minority unions struggle to make their voice heard and achieve recognition.

As a result, the key question is not whether NUM, AMCU or another union is the representative union, but rather how stable is the membership of the unions with organisational rights, what threshold is in place and how does management address shifts towards minority unions? Lower thresholds could complicate union relations and wage bargaining, and companies will be reluctant to recognise upstart unions that resort to violent tactics. However, by ignoring the shifts in union relations and not recognising key minority unions as stakeholders, it could be argued that boards are failing in their duties under Chapter 8: Governing stakeholder relationships of South Africa’s King III Report on Corporate Governance.

2. Is the company a participant to the Voluntary Principles on Security and Human Rights? If not, what framework does it use to address security-related issues?

The deaths of 34 striking workers who were shot by members of the South African Police Service (SAPS) at Lonmin’s Marikana mine on 16 August have deservedly led to much introspection across South African society. While SAPS has taken a more conservative approach since the shootings and the risk of lethal force being used is significantly lower, the risk of violent clashes between police and/or private security and protestors remains.

Threats and intimidation against non-striking workers caused Anglo Platinum to close its Rustenburg mines on 12 September. As noted by Webber Wentzel’s Peter Leon on 30 August, the Voluntary Principles on Security and Human Rights already provide a “guide for companies to maintain security within an operating framework of respect for human rights” in three categories: risks assessment, relations with public security, and relations with private security. AngloGold Ashanti, Anglo American, and Rio Tinto are among the few companies that operate in South Africa that support the principles.

Lonmin is not a participant to the Voluntary Principles, but indicates in its 2011 Sustainable Development report that the Voluntary Principles, along with other standards, inform its human rights policy. Clearly being a participant to the principles does not eliminate the risk of events such as those that took place at Marikana. However, if the framework is implemented and institutionalised, and relevant personnel are giving the necessary training, then investors should have greater confidence in management being prepared for such situations.