How Serge beat Net1’s shareholders

NEWS ANALYSIS

This week’s revelation of the R263-million payday for now retired Net1 chief executive Serge Belamant is a disaster for those who propose shareholder activism as a way for the corporate sector to self-regulate.

But a civil society organisation hopes it can still salvage from the ongoing social grants fiasco a powerful way to coerce companies into doing the right thing.

Corruption Watch wants at least some of the R1.1-billion profit made by Net1’s subsidiary, Cash Paymaster Services, from the payment of social grants from the last five years to be returned to the fiscus.

It will soon approach the Constitutional Court to start the process, said Corruption Watch’s Leanne Govindsammy.


“It is important to us not only in relation to this particular contract but in reducing incentives for companies to engage in certain conduct,” she said.

Corruption Watch was a friend of the court in the 2014 case that saw the Constitutional Court order Net1 to disclose its profit (as it did this week), while noting that companies should neither lose nor benefit from unlawful contracts, such as the one under which Net1 handles grant payments.

Actually clawing the money back could be a long and expensive legal process, but Corruption Watch hopes it will set an important precedent. Net1 was never found to have been at fault in its unlawful contract; all failures were by the other party, the South African Social Security Agency (Sassa).

But if, at the end of five years of work, Net1 is forced to walk away without a profit, Corruption Watch believes, that would be an enormous disincentive for other companies to hang on to possibly unlawful contracts with the state, whatever the circumstances.

“It would become better to just walk away instead of fighting in court,” said Govindsammy.

It may even become harder for the state to find anyone with which to sign large but dubious contracts, exerting positive pressure on the tender system as a whole.

In the meantime, though, another sort of precedent entirely has already been set.

On Tuesday Net1 told United States regulators that the exit package for Belamant would include $8-million in cash and a 14% premium in buying back his shares. In rand terms it will pay Belamant R263-million. Belamant will also receive a R660 000 a month salary under a two-year consulting agreement that specifies a maximum half-day of work five days a week, work the nature of which Belamant himself will determine.

For Belamant that is a final victory over his recent nemesis, the investment management company Allan Gray — and those who had, Belamant believed, been putting pressure on Allan Gray to act against him.

As a potential problem around the payment of social grants grew into a full-blown crisis in March, public scrutiny of Net1 extended to Allan Gray because of its roughly 16% stake in Net1, held on behalf of clients.

At first the investment company alternated between nonchalant and noncommittal when questioned about its attitude towards allegations that Net1 exploits the poorest of the poor with its financial service offerings, and diverse other allegations of gouging and immorality.

“If the facts change, our view may change. We don’t think it would be good for our investors or for society for us to disinvest at this point,” Allan Gray chief operating officer Rob Dower said in the first week of March about calls to act harshly against Net1.

By the middle of March, Allan Gray was actively seeking out the facts, saying publicly that it was stepping up pressure on Net1. “We are working to fully understand issues around the integrity of management,” said chief investment officer Andrew Lapping on March 17.

None of those involved have disclosed exactly what happened behind the scenes, in what one insider described as meetings with very small attendance lists. But on April 6, Net1 announced it had decided to split the roles of chairperson and chief executive, with Belamant resigning as the former but remaining as the latter.

In effect, a boss had been appointed to oversee Belamant, at the company he had created. Score one for Allan Gray and self-regulation by shareholders.

But victory was fleeting. A month later, on May 7, it became clear that Belamant —whose abrasive and dismissive responses to critics had been cited as a major problem for his company — made it clear he would not be cowed.

“While the company is cognisant of the pressures [that have] been applied to many of the parties who have been outspoken about the way Net1 is managed and the products it offers, we believe factual accuracy need to be respected and acknowledged,” Belamant said in a conference call with investors during which he scrupulously did not name Allan Gray. “Self-interest does not justify demands for the company to make fundamental changes to its management, business model and practices that they’ve proven to be successful, socially responsible and ethical over the last two decades.”

Score one for unapologetic chief executives unwilling to change anything at all.

Another flurry of behind-the-scenes activity followed. Then, on May 24, Net1 announced that Belamant would retire just six days later. It made no attempt to obfuscate the reason for his departure, saying it was to facilitate change and “noting the views expressed by certain of the company’s shareholders”.

Allan Gray openly celebrated, describing it as “a definite step in the right direction”.

It was only late on Tuesday that the full truth emerged: on his way out of the building, Belamant had scooped up well over a quarter of a billion rand, and there seemed to be nothing anyone could do about it.

Allan Gray would not speak directly to the Mail & Guardian this week, but in a statement the company admitted defeat even as it expressed outrage. It had long been concerned that shareholders are unable to block golden handshakes, it said, and had put forward proposals that would require a shareholder vote before such payments could be made.

“As our proposals have not been implemented and we were not privy to the negotiation with Mr Belamant, we regret the settlement reached,” it said.

Game, set and match for the ungovernable chief executive. For now.

“We hope we can change the way things work in the future,” says Corruption Watch’s Govindsammy.  

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Phillip De Wet
Guest Author

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