Old Mutual battle is draining share value

Muzi Kuzwayo
Muzi Kuzwayo

‘Not sure if you want to write an article using your incorrect interpretation of these definitions and in some way attempt to tarnish the reputation of our directors, or state that our independent nonexecutive directors do not exercise objective judgement and are not of independent mind, without any actual evidence to that effect.”

This was the reply I received from Old Mutual after sending a set of questions pertaining to the fight between the chief executive, Peter Moyo, and the board.

Shareholders have lost more than R5 billion since they started spitting in each other’s faces, yet all the company cares about is how its directors look and smell in public.

In his short story collection titled Stories to Awaken the World, Chinese author and poet Feng Menglong wrote: “Better to be a dog in a peaceful time, than to be a human in a chaotic period.”

Today, it is probably better to be a dog in a Chinese soup bowl than a black director at Old Mutual. After all, the business has lost close to 20% of its value.

Today, it is probably better to be a dog in a Chinese soup bowl than a black director at Old Mutual.

Old Mutual is South Africa’s largest insurer and has been in business for close to 175 years. Throughout this period, it has been run almost exclusively by white people.

Now it has a black chairperson and a black CEO, and the majority of its board members are black. The company has lost value because of the stereotype that black people cannot work together.

An experienced businessperson once said to me: “It is genetically impossible for black people to work together.”

They need the white man, as the Sesotho adage says: “The black man’s medicine is the white man.”

This week, Old Mutual announced it would throw R2.4 billion to buy back shares from the market. In a telephonic conversation, the spokesperson for the company said the Moyo saga was not the only reason it was buying back the shares. But it seems as if the company does not learn, as this is the second buyback programme since it re-emigrated back to South Africa last year.

Some of the directors are bleeding from the Moyo versus Trevor Manuel duel. The hardest hit is retired Old Mutual veteran Marshall Rapiya, who, according to last year’s integrated report, had more than 300 000 shares. He has since lost more than R2.2 million. The next is Itumeleng Kgaboesele, who had 13 500 shares, leading to him lose R89 000.

For Manuel, it is not so serious – it is like losing beer money. Well, almost. At R2 660, it is like dropping and a breaking a bottle of Glenmorangie Signet and a case of Black Label bought on special. And, at R2 310, for Stewart van Graan, it is like losing a bottle of Hennessy cognac.

Share buybacks are proving not to be the solve-all tool that management can trust.

John Authers, a Bloomberg columnist, described this as a “cold-blooded financial manoeuvre that favours shareholders at the expense of all other stakeholders, including employees”.

Read: Old Mutual fights back: Untrue assertions lift Peter Moyo’s reputation

Buybacks reduce the number of shares in circulation, and so increase the number of profits per share.

In the US, ratings agency S&P Global keeps the S&P 500 Buyback Index, and it is underperforming when compared with the market.

Authers cautions: “Using shareholders’ money to buy at inflated prices is a bad deal. The buyback phenomenon could die a natural death.”

The Moyo-Manuel debacle is more than a bloodless boardroom coup.

It is about the relationship between the board chair and the CEO of the organisation.

In an article in the Harvard Business Review entitled How to Be a Good Board Chair, Stanislav Shekshnia wrote that there is a real danger that the chairperson starts acting as an alternative CEO, sowing conflict and confusion among the firm’s top managers. It is hard to exonerate many chairpeople from that, especially in state-owned enterprises.

Kuzwayo is the founder of Ignitive, an advertising agency

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July 2020

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