EDITORIAL: Latest Brait circular reeks of hubris and greed
Brait’s recently released circular outlining the details of its proposed R5.25bn rights issue makes for grim reading. It provides shareholders with a description of the mechanics around the rescue plan for this once, albeit briefly, high-flying investment company.
Long-term Brait shareholders will find it particularly grim reading as they are now sitting with just 5% of the value they thought they had four years ago. The share price has dropped from a high of R174 in 2016 to just more than R8 now.
You would think, given that amount of destruction, there might be talk of legal action and the reclaiming of generous fees paid. At the very least you might expect the Brait advisory team who directed and oversaw that destruction to sneak off into the night and hope to be forgotten. But it turns out that is not how things are done in SA; not by our political leaders or by our business leaders.
At Brait there seems to be no accountability, no sense of embarrassment. Far from it. The circular contains evidence of the hubris and greed that is undermining so much of 21st-century shareholder capitalism across the globe. It describes in the briefest of details a proposal to pay this value-destroying advisory team yet another R200m. It seems the R200m is what was needed to get the team to agree to terminate their existing agreement and walk away as soon as the rights issue is completed, sometime in February.
But it appears, despite the generous directors’ fees, that responsibility amounted to nothing; it was no more than the governance verbiage that so often litters annual reports nowadays
Brait was little more than a mediocre private equity player until 2014 when, with the help of mega-dealer Christo Wiese, it scored a five-fold profit — more than R20bn — by selling 37% of Pepkor to Steinhoff. The transaction helped to make multimillionaires of Brait’s advisory team. The proceeds from the sale were used, by this now-golden team, to finance expensive deals the market loved. The biggest was the R14.4bn acquisition of 90% of UK-based retailer New Look, which was to be the next H&M but has since been written down to zero.
Perhaps the incoming team of advisers, led by Ethos Private Equity, believe the R200m payout was a victory, given that just last year the old advisory team had pushed for a R1.1bn plan to bail out an executive incentive scheme.
Ray of light
And where, might you ask, was the board in all of this. Any potential investor reading through Brait’s 2018 annual report would no doubt have been comforted by the reassurance that the board “is ultimately responsible for any financial loss or reduction in shareholder value”. But it appears, despite the generous directors’ fees, that responsibility amounted to nothing; it was no more than the governance verbiage that so often litters annual reports nowadays.
But it’s not all doom and gloom. Last week a ray of light emerged on the corporate firmament — and in the most unlikely of places. It seems one of the first things Louis von Zeuner did when he was appointed chair of the Tongaat board at the end of 2019 was to cut his fees in half. Some sceptics have dismissed this as nothing more than a gesture given Von Zeuner’s wealth. In doing so they overlook one of the biggest challenges we face when dealing with remuneration — there is no such thing as too much. Each remuneration package must be “more”: more than last year’s, more than the competitors’.
The move by Von Zeuner, who knew of Tongaat’s troubles when he accepted an appointment to the board in December 2018, is all the more commendable given the enormous challenges now facing that company.
Judging by Von Zeuner’s performance at the sugar group’s recent annual general meeting, his first public outing as it were, shareholders can take comfort from knowing they are in excellent hands.
Not that any of the shareholders, other than activist Chris Logan, bothered to attend the meeting. Perhaps, in light of this apathy, it is more significant that employees, suppliers and creditors take comfort from knowing this is probably the best, and definitely the cheapest, chair Tongaat has had for several years.
Von Zeuner has shown it doesn’t all have to be about hubris and greed. Hopefully other business leaders will be encouraged to follow his lead.