BOARDROoM TALK
Alec Hogg
One of Moneyweb’s most popular market commentators, Wayne McCurrie, says he is fortunate to have worked in the investment markets during the past couple of years.
RMB Asset Management’s chief strategist reckons the intense stress that came along with the turbulence was a small price to pay for lessons others might take a generation to learn. It’s been a similar experience for many who frequent South African boardrooms, not least those luminaries gathering in Transnet’s inner sanctum.
More lessons are there to be learned from experiences of the past week at technology group Dimension Data (DiData), failed bank Regal and bankrupt cellphone and car radio supplier Accord Technologies. The value of trust, be it from the suppliers, clients or investors, has once again been driven home.
DiData was the most spectacular casualty. For decades the poster stock of South Africa’s technology sector, the group had defied the odds for so long that few expected this week’s stumble least of all the firm’s executives who must, surely, shoulder much of the blame for not facing market realities sooner.
There was no such confusion in the minds of investors who, on Tuesday, smashed an already weak DiData share price back to levels last seen in the aftermath of the Johannesburg Stock Exchange’s August 1998 crash.
DiData executive director Patrick Quarmby admitted he was surprised at the market’s reaction, but expressed confidence that the share price would bounce back. Time may prove him right, but the omens are ominous. For now, a more cynical view prevails that once the “magic” has gone, it’s almost impossible to regain.
But keeping the magic going relies primarily on holding the investment community’s trust that, once lost, rarely returns. That’s a warning to executives and investors alike especially those now buying DiData shares in the hope of a rapid rebound.
Also emphasising the value of trust was the rapid transformation of Regal from an apparently healthy bank into a basket case. Less than 48 hours after the official notice of founder Jeff Levenstein’s resignation, the company no longer existed as a viable concern. The day after the news, clients withdrew almost a quarter of the total deposits at the bank. The authorities stepped in, freezing further withdrawals.
Banks provide the most direct consequences of what can happen when trust is lost. But they are by no means exceptions.
This week’s demise of Accord is traced by insiders to last October when the company settled a R36-million VAT claim from the South African Revenue Service. A former director said: “Because we agreed to settle the claim, people assumed we were guilty. As a direct result Vodacom, MTN and Telkom withdrew credit facilities worth around R90-million. That meant being at the mercy of the banks [Standard, FNB and BoE].”
Some Accord insiders say Accord’s management had no idea an agent was fraudulently avoiding VAT by claiming to export goods that were sold into the local market. That did not matter to the taxman, who held Accord responsible anyway.
For DiData, how rapidly it is able to regain the trust now lost will depend a great deal on the way its executives handle unpleasant spin-offs which invariably accompany such a fall from grace. Issues easily ignored or glossed over while all is well can be turned into destructive ogres when a company’s enemies smell blood.