STUART THEOBALD: Old Mutual clings to its principles, but a Moyo payout may have cost less

Posted in: Economics, i-Blog, South Africa on September 30, 2019

Shareholders can rightfully ask why they’re being forced to pay the cost

This column was first published in Business Day 

It is somewhat easy to demand expedience over principle in the Old Mutual versus Peter Moyo saga. The boardroom battle knocked R10bn off the value of the company in the weeks after it sparked (though it has regained about half that). The dramatic public fallout could have been avoided if the company had negotiated a settlement with Moyo to walk away. He was paid R35.5m by Old Mutual in 2018, and even a multiple of that would be a smidgen relative to the costs of the dispute in lost reputations, leadership paroxysms and share prices.

That logic has supported many golden handshakes across the private and public sector. SA’s labour regulations, particularly the Labour Relations Act’s (LRA’s) unfair dismissal terms, apply equally to workers and capitalists. It is different elsewhere — in the US, for example, if you earn more than $100,000 a year or your job is to supervise people, the Fair Labor Standards Act doesn’t cover you. Rightly, legal protections focus on vulnerable workers, not those earning millions.

In the Moyo case, however, it is not the LRA that is at issue. The battles so far have been about the way Moyo was dismissed in terms of his contract with the company, and whether he was entitled to a hearing first. It is interesting that he has chosen to fight on contractual grounds rather than unfair dismissal.

At the centre is a mess of conflicts of interests. The allegation against Moyo is that he paid himself R31m in ordinary dividends from NMT Capital, a company he co-owns, despite the fact that Old Mutual’s preference share dividend had not been paid. Old Mutual owns a 20% interest in NMT and has extended finance to it via preference shares. Moyo has denied this allegation, saying Old Mutual had previously agreed to a different payment schedule on the preference shares. But this has not been tested in court.

The consequence of the first judgment against the company is that it must reverse its termination of Moyo. Old Mutual could have then held a hearing and again terminated him. Instead of doing that, however, the company issued a new notice of termination on different grounds while appealing the judgment. The second termination is on the grounds that the relationship between Moyo and the company is untenable, because of the way the initial dispute had been handled.

Moyo accused the company of contempt of court for the second termination and refusal to let him access the building after the first judgment, and has applied for a court order to that effect. He is also pursuing damages from Old Mutual for breach of contract. He has used the media to maximise the negative publicity, including dramatic footage of him being barred from entering the building. He has focused on chair Trevor Manuel, airing several claims against Manuel of conflicts of interest regarding the company paying his legal fees in certain disputes and his role as deputy chair of financial advisers Rothschild (which did work for Old Mutual). These allegations seem calculated to maximise Manuel’s (and the rest of the board’s) discomfort with the public glare brought on by the battle. Manuel let that discomfort slip when he publicly derided the judge who found against the company in the first hearing, later apologising.

The subtext to all this seems to be a payout. Moyo wants one and Old Mutual doesn’t want to give it. The Old Mutual board appears hell-bent on not paying out.

The habit of writing cheques to high-powered executives to avoid a fight is a problem. There are many examples. When KPMG fired officials in the midst of the Gupta scandal, it handed them (undisclosed) packages to go. When MTN parted ways with CEO Sifiso Dabengwa in 2015, he took a R23m package with him. Altron CEO Craig Venter was handed R15m when he left in 2015. The public sector has plenty of examples too. Brian Molefe is perhaps most notorious for his R30m pension payment that Eskom then recovered through the courts. SAA paid R9.3m to former CEO Khaya Ngqula in 2009. In the same year, the SABC paid former CEO Dali Mpofu R11m to leave.

Old Mutual could do us all a favour by interrupting this pattern, but that public benefit comes at Old Mutual’s cost. The company’s principled stance is costing it dearly, while the somewhat nebulous benefit, in the form of giving other executives pause before launching tirades against their companies, will benefit everyone else.

It takes a rather pigheaded commitment to principle to tide it out, and shareholders can rightfully ask why they’re being forced to pay the cost. Manuel and the rest of the board have a task ahead to convince shareholders to stay the course.

  • Theobald is chairman of Intellidex.
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