EDITORIAL: Shareholders suffer for past misdeeds of previous EOH execs
They watched in distress as the value of their equity crashed from more than R170 per share to less than R10
When the JSE slapped EOH with a fine almost a year ago for issuing misleading financial results stemming from dodgy dealings between the ICT company and its public sector client, it seemed unfair to shareholders. And it was.
Ultimately, it was they who carried the pain of what an independent investigation painted as a picture of senior executives using their positions to line their pockets at the expense of the company and a culture that enabled or turned a blind eye to financial irresponsibility, corruption and tender fraud.
The investigation by ENSafrica found a hole of close to R1bn in EOH’s accounts springing from the scheme where, among other things, transactions worth more than R600m with no evidence of valid contracts being in place, or for which no work was done, were booked, as well as R90m of loans written off and overbilling of about R180m.
In anticipation of such a horror show, especially after the EOH cleared out senior rank including co-founder and chair at the time Asher Bohbot, the company share price crashed, trashing billions of rand in value for shareholders who had backed its ascent from a small IT outfit in the early 2000s to a darling of investors. Bohbot was CEO from 1998 to 2017, and chair until February 2019.
For shareholders, who watched in distress and shock as the value of their equity crashed from more than R170 per share to under R10, and for EOH employees, some of whom took hefty pay cuts as their company scrambled for cash to fill the hole, the fine — R7.5m — from the bourse operator JSE rubbed salt into the wound.
Aside from the financial setback, the penalty is demoralising to the new leadership team led by Stephen van Coller, drafted in to professionalise the company, restore its battered reputation and finances, and to trawl its empty coffers to pay fines and penalties.
For ideological and political reasons it is easy to go after business as a class and grumble about the failing capitalism system, but the spotlight should be on individual accountability.
It was Bohbot, Jehan Mackay, a former head of the public sector contracts, and the company’s former head of international Ebrahim Laher, and former CFO John King, that were allegedly behind misleading information about the financial health of the company. Regulators such as the JSE should have gone after these individuals before hitting a company that was trashed and left struggling for survival.
EOH has filed a lawsuit against Bohbot and three other executives, demanding a total R6.4bn for either dragging or closing their eyes to the company’s image through the creation of an enabling environment for corruption and financial irresponsibility, broadly speaking. In addition, the company has also applied to have Bohbot declared a delinquent director, meaning he would be barred from serving on a company board for at least seven years.
Bohbot and King were the biggest fish in the suit. The duo are further accused of tarnishing the company’s reputation with governance failures that ensnared EOH in the state capture project and led to the loss of a lucrative supply contract with Microsoft.
It’s a groundbreaking move that should serve as a broader lesson to regulators and law enforcement agencies that for the system to function properly, executives have to be held individually accountable.
For directors who turn a blind eye to fraud and corruption, the prospect of being seriously left out of pocket as punishment should serve as a deterrent to fiddle with the system, whose credibility has taken a beating from a wave of corporate scandals from Steinhoff to Tongaat Hulett.
EOH, which reported 46 people to authorities; including 16 employees who were implicated directly in the wrongdoing, together with 12 government employees, has taken a big step in saving SA capitalism. Law-enforcement agencies, the JSE and other regulators should show the same inclination to go after individuals that tossed the system into a state of crisis
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