By the end of the year, the market can expect a leaner, sleeker and –hopefully — considerably blacker Barloworld. The group — under attack from its largest shareholder — announced extensive unbundling, a new empowerment partner, a new interim chairperson, and its first black executive director at its annual general meeting. Barloworld’s shares rocketed to a record high immediately after the announcement.
The stock briefly reached R191,80, compared to R177 before the announcement, before dropping back to R188,02, according to I-Net Bridge. The group’s shareholders are now a collective R3-billion richer, as the price increase propels Barloworld’s market capitalisation to R38-billion, from R35,86-billion.
Barloworld also said its long-awaited black economic empowerment transaction will be implemented after PPC’s unbundling from the group has been concluded. “Participants will include employees, current and future black managers, black non-executive directors, an education trust … and a consortium including broad-based groups led by Ayavuna Women Investments,” chief executive Clive Thomson told shareholders.
Explaining the delay, Thomson said that it didn’t make sense to do a BEE deal at holding company level and then proceed with PPC’s unbundling. But the transaction should be finalised around July or August.
Warren Clewlow, who previously planned to stand for re-election as chairperson, stepped down and Dumisa Ntsebeza has taken over as interim chairperson. Isaac Shongwe will become Barloworld’s first black executive director, and has also been appointed CEO of Barloworld Logistics. Ayavuna’s Hixonia Nyasulu will also join the board. This wiill bring the total number of black Barloworld directors to five: Shongwe, Nyasulu, Ntsebeza, Sibongile Mkhabela and Selby Baqwa. Besides Clewlow, three directors have retired.
Thomson also announced sweeping changes to the composition of the group itself. Its present unwieldy structure will be unbundled and Barloworld itself will be repositioned as a distribution company. It will retain the Caterpillar equipment division, the logistics business, and a downsized industrial distribution. However, separate listings will be considered for the motor division and the coatings business.
Shareholders gathered at Barloworld’s head office in Sandton, anticipating an electric showdown between the board and Public Investment Corporation head Brian Molefe, who had previously promised the meeting would be painful. Instead, Clewlow and Thomson read out a pre-prepared statement outlining a new strategy for the diversification giant, and Clewlow resigned as chairperson. Molefe — who after all had got everything he asked for — stood up and thanked Clewlow for his service.
The controversy kicked off on Tuesday when Molefe lashed out at Barloworld for its lack of transformation. Since the PIC is Barloworld’s largest single shareholder, with 17,6% of the group, Molefe’s words were taken seriously.
Molefe’s concerns centred on the company’s historic failure to appoint a single black executive director — only three of 18 board members are black, and all three are non-executive directors — and Barloworld’s intention to re-appoint chairman Warren Clewlow, the father-in-law of new CEO Clive Thomson.
The PIC, Molefe had said, told Barloworld last October that it wanted the group to appoint black executive directors, but the group apparently said it needed time to prepare people for this position.
Sanlam Investment Management and Stanlib Asset Management, the two next-largest shareholders, had backed the PIC, commenting that transformation was an important process for companies.
“It’s an intensely political debate. Empowerment is an important issue in the country and companies need to take it seriously,” said George Brits, CEO of Sanlam Investment Management. “If Molefe’s comments are based on fact, they seem reasonable.”
Armien Tyer of Stanlib said his company had been engaging with Barloworld “on a number of fronts”, especially with regard to underperforming assets, and that transformation was good for socially responsible reasons, but also for commercial reasons. “When the board is more diverse, there is less of a club, more independence … It’s our duty to be responsible.” He added that Molefe’s public attack might be a signal that the PIC felt it was being ignored.
But a deeper look at Barloworld reveals a company that, until now, talked about transformation but lagged in implementation. While there is no industry charter forcing Barloworld to put a BEE deal in place, its competitor, Imperial, already boasts an empowerment stake at holding company level. By contrast, Barloworld’s own empowerment deal has only just got under way.
The company also lacks an empowerment rating, explaining that the delayed publication of the broad-based black economic empowerment codes of good practice, it “has not been possible” to assess its BEE performance.
Thomson — who was himself appointed chief executive only in December — was upbeat about the group’s new direction. “We’re very excited. There are favourable winds behind us in southern Africa … and we look forward to a very strong operating performance this year. The board is fully committed and fully behind what we’ve said today.”
Independence?
Barloworld’s board of directors was criticised by journalists Ann Crotty and Renee Bonorchis in their remuneration survey, Executive Pay in South Africa: Who gets what and why, published last year. Best practice suggests that there should be more non-executive than executive members of a board.
Barloworld last year had one fewer non-executive directors than executive directors. At present, the board is evenly split. Directors Warren Clewlow, Mike Levett and Eddie Theron “have been on the board for 10 years and more, which means that their independence is questionable. Clewlow was once the chief executive and Theron is also on the board of PPC.”
Although non-executive directors don’t have options, many have shares, the pay survey says.
Corporate governance best practice is that the chairperson should be independent of the CE. Given the relationship between Thomson and Clewlow, Thomson’s appointment was questionable in this light, and, had Clewlow stayed on, would have made the company vulnerable to charges of nepotism.