Extended litigation over Moyo is damaging Old Mutual
There has been an alarming decline in the standard of corporate governance in general in SA, with spectacular governance failures in both the private and public sectors.
The combined market capitalisation losses in just five instances of governance failures at JSE-listed companies are almost double Eskom’s entire debt.
It is therefore important to hold the directors of listed companies to account when it comes to issues of corporate governance. Normally our preference is to engage companies privately on matters where we feel change is desirable, but if that engagement does not yield results we are forced to take the matter into the public domain, as in this instance.
As institutional shareholders in Old Mutual Group we at All Weather Capital therefore wish to join the debate on the legal battle between the Old Mutual board and (reinstated) CEO Peter Moyo. The chair of the board has promoted a specific narrative on this dispute, and we wish to provide a different perspective, particularly after the likely related resignation of well-regarded director Nombulelo Pinky Moholi.
From the outset we have been engaging privately with directors on the board of Old Mutual telephonically and have twice written to them (and copied the chair) expressing our views.
Before each date the company has been in court we expressed concern that Old Mutual may not win the case being argued. But we were repeatedly assured Old Mutual had a strong legal case and the board was confident it would prevail. But in each instance Old Mutual lost the matter in court. Perhaps it needs better legal advisers, because its confidence has been misplaced.
The directors of a company have a fiduciary duty to act in its best interests. All Weather Capital is no longer confident that by pursuing the current litigation-orientated strategy the directors of Old Mutual are acting in the best interests of the company. Moholi’s resignation may suggest that some directors are beginning to have misgivings.
In our engagements with Old Mutual we have been at pains to point out that even if there is merit in some of the accusations they have levelled against Moyo, extended litigation is undesirable and damaging to the company. By continuing to litigate despite numerous legal setbacks they are possibly hurting a business they have a clear duty to protect.
As outsiders we do not have all the facts to have an informed view on whether Moyo should be paid any kind of settlement. It is certainly possible that he should not. But it is evident that continuing on the current path is damaging Old Mutual.
The chair was quoted in Business Times saying he has had “massive letters from our shareholders (saying) you can’t put money on the table for this thing” (“Not a snowball’s chance court will declare Old Mutual board delinquent”, September 15).
It is incomprehensible to us that the chair can articulate this one-sided view when we as shareholders have specifically written to the board requesting that they expeditiously settle this matter, even if it does entail some payment.
Again, for the avoidance of doubt, we are not saying Moyo deserves a payout. We are just saying that a settlement was and is obviously in the best interests of the company. The board appears to be fixated on what benefit may accrue to Moyo, rather than focusing (as is its legal duty) on the cost to the company of continued litigation.
It is evident that some of the assertions by the chairperson are either one-sided or just plain wrong. Old Mutual’s legal case cannot be strong (as it says) if it keeps losing in court. And you cannot go to court, lose and suggest the judge somehow got it wrong. A highly regarded director has resigned, which suggests the board is not as united as the chairperson has suggested. We have written requesting that the company settle this matter, yet the chair contends that shareholders do not want a financial settlement.
After the disclosures that Old Mutual has paid for two individual litigation cases involving the chair, and his unfortunate comments on the judge (for which he has apologised), he and the board have lost moral authority in this matter. Add to this the recent legal setbacks and it is hard to conclude that continuing to litigate is a rational strategy.
Unfortunately, reputations are now damaged. Bells cannot be un-rung and things cannot be unsaid. But the board can and should choose to settle this matter before further damage is done to the company.
• Watkins is chief investment officer at All Weather Capital, which has a stake in Old Mutual Group