Elitism, Meritocracy, and Governance in South African Companies

I want to get back to the messiness of governance.

The issue of meritocracy and elitism in good governance

'Meritocracy' is a key element of most 'good governance' models. The idea behind this is that governments, companies and the like should hire those who are most competent to do the job, not those who are most connected. The assumption is that we can measure—objectively—what it means to be 'most competent'. We say these are the ones who have the 'merit' for the job. Hence meritocracy.

Elitism is often presented as the opposite of meritocracy and is something that many 'good governance' advocates reject. These good governance advocates don't like the idea that some people get key jobs because they are elites—connected, wealthy, enjoying power.

Good governance, as many suggest, requires having principles of meritocracy that replace practices of elitism in key appointments, contracts etc. in governments and the private sector. The idea is to have authority in the hands of those who have the merit, which means that authority is not concentrated in the hands of the elite and is in fact located in a distributed group of agents who enjoy the skills and 'merit' to get the job done.

Meritocracy and elitism in South Africa's listed firms

A few years ago (in 2008) I did some research into the background of directors of South Africa's listed firms. These are people who have the kind of positions many would say matter in society (they have power over how resources are allocated, for instance, and authority). You would want to make sure these folks were appointed on merit, so that they did what was required to keep their companies growing and being successful. South Africa scores pretty well on most good governance indicators (given its income levels) and so one would expect that directors would be appointed based on merit.

Some might expect that this means they have qualifications like advanced degrees, in accounting, engineering and management perhaps. And this is what one finds. As the table below shows, 772 of the 873 directors (89 percent) I looked at in a random sample of 97 listed firms had advanced degrees from universities. 562 of these (64% of the sample) had what I would call targeted advanced degrees (in accounting, law, business, and engineering) that one would expect of directors with 'merit'. There is an issue with gender and racial composition in South African boards, so I broke the data down to show how 'meritocratic' directors in different groups were. One can see that more than half of the directors in all 4 sub-groups I looked at (white women through to non-white men) had these targeted degrees. Over 85 percent of the directors in all sub-groups had tertiary education. The lowest percentage was 86 percent (for white men).

	Tertiary qualification	Chartered Accountant	Law	MBA	Engineer	Targeted degrees (CA, Law, MBA, Engineer, Medicine)
Number	774	285	98	121	78	562
Percent of total	89	33	11	14	9	64
White women (ex 31)	27	6	2	4	1	14
White men (ex 560)	484	219	66	66	58	409
Non-white women (ex 80)	77	16	7	16	4	44
Non-white men (ex 212)	188	44	23	35	15	119

So far, so good. Directors of South African firms seem to reflect the kind of 'meritocratic' profile good governance advocates would support. But this is not the full story.

Directors are not just hired because of their qualifications. Other factors matter, which companies communicate in annual reports to shareholders (which boast about the backgrounds of directors). When one looks at these other factors things get messy and one starts to see the social and political complexities of South African society come out. One also starts to see variables that speak to the presence of 'elites'.

• The primary historic South Africa 'elite' variable must relate to race; one sees this squarely in that 68% of directors were white (592 in total)…14 years after apartheid ended.

• Gender variables also reflect 'elitist' tendencies; 87% of directors were men (762 in total).
  • Interestingly, white men had enjoyed more and more appointment over time. 26 % of the directors in 2008 were white men appointed after 2003. (This is greater than the share of non-white male directors appointed in all periods (23%)). 41 % of directors in 2008 were white men appointed after 1998. (This was greater than the share of non-white directors appointed in all periods (32%)).
• Another 'elitist' variable could relate to age; over 90% of directors were over the age of 40.
  • Interestingly, the average appointment age of a director increased from 41 and 46 between 1994 and 2008. Also, the appointment age of white male directors is significantly higher (statistically) than the age at appointment of other groups in most recent periods (post 2003).
• Another 'elitist' variable could relate to access to capital and ownership of the firm. 36% (317) directors came to their positions in this way.
  • Interestingly, 69% of all non-white directors (183) were members of a Black Economic Consortium that held partial ownership in the firm.

There are some variables I captured to reflect on the many times an annual report would speak of a director's past experience when introducing their profile. I was not sure if many years of experience is a mark of merit or of elitism, but the influence of this variable on director selection mattered a great deal.

• 560 of the 873 directors (64%) had big business background (ten years or more working in a listed company, most often the company in which they became a director or a similar company in a similar industry).
• 167 (19%) had experience in the public sector, which involved a mix of political office and public office (being part of the public administration) (100 had direct, publicly advertised political affiliations). Most of these were non-white directors, over 55% of whom had a past public sector career.

So much data. I know. I'm sorry. Sort of. But let me get to the point.

When one looks at directors of firms in South Africa, one sees a group of people who have both the attributes of meritocracy and elitism. And both sets of attributes seem to matter in getting them where they get to. There are very few white male directors who got to be a director without being able to say that they had merit (lots of experience and advanced degrees). Non-white directors may have found an entry way through the capital of an elite-owned Black Economic Empowerment Company, but most of these directors also had tertiary education and advanced degrees and high level experience working in government.

In short, elites are often also the ones who claim points on meritocracy scales. They go to the best schools, get the most targeted degrees, enjoy opportunities to get lots of work experience, etc. And they often define what it means to have merit as well…. Elitism and meritocracy are thus not mutually exclusive but actually form two sides of the same coin.

Pushing meritocracy as part of a good governance agenda is thus not a simple antidote to concentrated power in societies.

I'd love thoughts on this….

Comments

[David]

Interesting points. Would you say that the "elite" category is fixed? SA might be a good example to challenge this - how many of those who are in the leadership roles would have been outside of the elite in earlier days? They may now be blacks - probably as you note part of the black elite - or whites whose political affiliations/values are liberal but who have access to higher education, so wealth and some connections. Even still, these categories of the elite - both of whom would likely have been excluded from an earlier form of SA elite, as I imagine would most of the women in leadership roles - are an expansion of the category.

On a theoretical level, concentration of power among elites is meaningful only if there is a consistency in who defines the elites - running a major company will presumably always make one rich and powerful, hence by definition part of the elite; the question is whether that elite is comprised of people whose avenues to enter it were closed or open at birth.

Also, there is perhaps some value in most practitioners' eyes in suggesting that meritocracy matters in modulating how elitism happens. Promoting a norm to look to advanced degrees as a notion of merit, for example, is probably seen as valuable even if it is not replacing the current elite's neighbors and relatives with a new population, because it at least lists an objective criteria for inclusion that anyone could attain, and creates a sense that appointments on the basis of kinship to someone without the right degree are in some way sub-optimal or even shameful. To see if it mattered, you'd have to see if norms did change, and if those changing norms affected the decisions of boards of directors over time.