Keeping tycoons on their toes

Theo Botha is not your typical activist. He doesn’t carry placards or wear T-shirts with socialist slogans. He is always mild-mannered, well spoken and neatly dressed in standard corporate attire.
All the same, he is probably the most unpopular man in local business, with a knack for asking powerful people uncomfortable questions.

“It [Botha’s questions] makes us look silly,” Neal Froneman complained to in January last year. At the time, Froneman was the chief executive of sxr Uranium One, which was about to merge its gold assets with those of Sub-Nigel to create Aflease. Botha had asked why Sub-Nigel’s half-owner, Pat Glyn, would receive a R1,8-million payout following the merger.

Froneman has plenty of compatriots. Over the past three years, Botha has targeted a string of well-regarded companies, among them Sage, Nedcor, Standard Bank, Liberty, Bidvest, Set Point, JD Group, Astral Foods and JCI. The late, unlamented Brett Kebble was no friend of Botha’s, especially as the activist was the first to expose his shady dealings and poor corporate governance. Brian Joffe had cause to rue Botha’s existence at Bidvest’s AGM last year when persistent questions were asked about the company’s empowerment deal with Dinatla. Absa’s ­previous chairperson, Danie Cronje, also had several run-ins with Botha.

Botha says he is motivated by an investment in financial services company Sage that went downhill when the company refused to disclose its losses in the United States to its South African shareholders. Sage had four directors who also sat on Absa’s board.

In 2002, Unifer, Absa’s micro-lending business, was in deep trouble and the bank was forced to issue a profit warning. Botha says Sage should also have issued a profit warning, since it was bound by GAAP accounting rules, but didn’t. He couldn’t understand why those directors had agreed with Absa’s decision to issue the warning, but hadn’t done the same thing for Sage. Botha ended up reporting them to the JSE himself, which then reprimanded the company.

But, although the JSE’s rules are fair, enforcement is an issue. The stock exchange has little power to ensure companies are in line with its rules and cannot impose penalties if they are not. Botha suggests that there should be a separate body to monitor compliance, and that the ability to bring class action lawsuits should be considered. “The man on the street has no legal recourse. It’s too expensive. I lost money. So did other shareholders,” he says.

The Sage incident also made Botha wonder how the same directors could espouse two conflicting sets of values. Absa’s board issued a profit warning when it should have; Sage’s board did not. He sums it up as: “Either you espouse good corporate governance or not.”

Botha has no shortage of targets at present. Investec’s AGM has been diarised, since the group’s actions with JCI and Randgold are, he says, merely replacing “one set of bad corporate governance standards with another set of bad corporate governance standards”. Investec, he says, are “not allowing what happened with Kebble to come into the public domain”.

Then there are the fund managers, who he accuses of acting out of a profit motive rather than protecting the long-term interests of shareholders. He opposed Johnnic’s sale of its stake in M-Net/Supersport to Naspers—apparently initiated by Allan Gray and Coronation, whose investors own shares in both companies—saying that it may have negatively affected Johncom’s future sustainability.

JD Group and Astral Foods are also in the firing line. He is scathing about the two companies, with “lilywhite management” profiting from mainly black customers.

“I’m getting cynical, but I’m disappointed. BEE is important for black people, and it should start with the workers and the rural people. BEE isn’t working. It’s for anything that’s a fast buck.” Botha toys with the notion of forcing a small donation from all investors and using that to top up pension schemes. He wants to see truly broad-based deals that distribute annuity-based income “so you learn how to use it”.

But community trusts have little influence over boards and offer no incentive for transformation, I suggest. “Then it should be up to the directors’ values,” he says, citing Liberty Group, which in three years has failed to award shares to its empowerment trust.

There is a weariness in Botha’s voice. He’s been offering free advice, as he terms it, unasked, for three years, with little appreciation except from the media. “You do this job, you raise these ­concerns, and who cares?”

Share buy-backs are a no-no, he says, citing Absa’s decision to buy back 20% of its shares. According to Botha, this is a passive way for Barclays to increase its holding from 56% of Absa to 70%, and is unfair because Barclays, as the holding company, has access to monthly updates on Absa’s financial position. If share buy-backs are done, they should be carried out on a pro-rata basis.

Confidentiality is another red flag. He doesn’t like it when his questions are fobbed off with a breezy “sorry, that’s confidential information”. If the business is above board, there should be nothing to hide and financial information made available.

Corporate governance, which is about “checks and balances”, and ethics are key concerns. Companies pay lip service to corporate governance, but “nobody really cares”. JSE-listed Dorbyl’s annual report says it adheres to King I and is looking at implementing King II, which was published in 2002 and is already outdated.

Absa, on the other hand, says it adheres to King II regulations, but its owner Barclays subscribes to the United Kingdom’s Combined Code on corporate governance, which includes recommendations from that country’s Higgs report. “How can you have a holding company with a different set of values?”

One important recommendation from the Higgs report is that independent non-executive directors should be voted in every year and should not serve longer than nine years. “When you think about it, you go to school for 12 years and you establish relationships for life,” he explains. A director who has served for 20 years becomes the dominant person on that board and becomes set in his ways. “It doesn’t stimulate good corporate governance.”

Botha is also disillusioned by the actions of directors who were part of the King Commission. Derek Cooper sits on the boards of Standard Bank, Liberty Holdings and Liberty Group, which are all related companies, and is still listed as an independent director. Michael Katz has spent 20 years on Nampak’s board and 15 as a director of Nedcor, now Nedbank Group. Mervyn King has spent more than 10 years on the JD Group’s board.

Absa director Tokyo Sexwale is the exception in this list. After Absa’s recent AGM, when its directors faced the usual tough questions from Botha, Sexwale invited him to Mvelaphanda’s AGM the following week. He declined, joking that “his bodyguards are helluva big guys!”.

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