KAP: To the Victor belong the spoils

What price do markets pay when legality masks ethical erosion? Once again, South Africa’s capital markets are confronted with a dilemma that reaches beyond insider trading to the heart of corporate legitimacy: when does a director’s approved share sale become a worrying signal?

The case unfolding at KAP offers a cautionary tale. Gerhard Victor, CEO of PG Bison — KAP’s most profitable division — sold R6m worth of shares just days before the group issued a profit warning forecasting a more than 30% earnings decline.

KAP claims the timing was coincidental. But in a governance era shaped by King 4 principles and deepening investor scepticism, “coincidence” might not be a defence. It could be a trigger. As Warren Buffett observed: “It takes 20 years to build a reputation and five minutes to ruin it.” 

To be clear, Victor’s sale complied with paragraph 3.66 of the JSE listings requirements, which requires director clearance. But it sidesteps the broader mandate for “full, equal and timeous disclosure”. In short: permission was granted, but perspective was lacking.

The sequence is troubling. Victor sold shares on June 6. Four days later, KAP disclosed a projected drop in earnings per share of 13.1c. The share price fell 20% in a single trading session.

KAP maintains that “due process was followed”, asserting that Victor, as a divisional executive, “is not involved from a head office trading update announcement perspective” and therefore did not know a trading update would be released on a specific date. But this explanation is particularly worrying given that two of the three reasons cited in the trading update for the group’s earnings decline stem directly from his division.

For the executive overseeing these very pressures to divest shares just days before their disclosure is not merely problematic — it could easily be viewed as a failure of fiduciary awareness. Moreover, the claim that a senior executive at KAP’s most strategically significant subsidiary would be entirely unaware of the group’s investor communication timeline strains credulity. That the board approved this trade, despite the obvious proximity to material news, suggests a governance model where procedural compliance substitutes for sound judgment. 

Victor’s division was central to the drop. PG Bison’s new R2bn medium-density fibreboard plant pushed up operating costs and burdened the income statement with capital-related interest. Can one credibly argue that the man running the division had no insight into the financial turbulence brewing?

Legality is not a fig leaf for betrayal. Respected US investor Carl Icahn, who has spent decades lambasting legal-but-coercive corporate conduct, might see KAP’s board-sanctioned timing as not just an oversight —but a manipulative abuse of process. Hedge fund magnate Seth Klarman has warned that regulatory formality is often used as narrative camouflage — legal checkboxes hiding ethical lapses. KAP’s compliance with JSE protocols seems to echo Klarman’s critique: form over fiduciary substance.

This isn’t uncharted territory. The memory of Transaction Capital’s 2022/2023 unravelling remains fresh: CEO David Hurwitz’s family trust sold R51m in stock just before revealing a collapse in core operations. The stock fell 66% over the following months.

As with KAP, the sale had clearance. As with KAP, investors were assured it was portfolio driven. But investors aren’t auditors. They’re interpreters of intent, and in both cases the message was unmistakable: insiders got out before the market caught up.

Boards are not rubber stamps for insiders. Approving trades without demanding transparency in divisional performance smacks of either incompetence or complicity.

The implications are systemic:

• Governance discount: South African equities already trade at a discount driven by structural and political volatility. Scandals like these only deepen the perception of opacity.
• Procedural myopia: when compliance becomes a shield rather than a standard, even lawful trades corrode confidence. Institutional investors are likely to push for deeper disclosure requirements about director trades.
• Board accountability: that these transactions were approved by the board, so close to material disclosures, reflects either astonishing naivety or tacit tolerance. Neither is comforting. US investment banker Paul Kazarian has argued that governance failures are not just moral lapses but market inefficiencies — indicators of mispriced risk and future underperformance. By that logic, boards asleep at the wheel aren’t just a risk, they’re a flashing red flag for long-term investors.

It is important to compare developments locally with global best practice. In the US, directors typically observe strict blackout periods ahead of earnings announcements. And the UK’s Financial Conduct Authority enforces rigorous disclosure and intent scrutiny. Against this backdrop, South Africa’s pre-clearance protocols begin to look dangerously lenient.

The market runs on trust. Violate it, and you pay a permanent discount. As Icahn has repeatedly warned, governance lapses don’t just stain reputations, they embed a valuation penalty that compounds with every unpunished breach.

It’s unlikely that this will be forgotten or glossed over by the market. Institutional stewards such as the Public Investment Corp and Norges Bank must recognise their role not just as capital allocators but as ethical sentinels. Passivity now is precedent setting.

If KAP’s board fails to confront this breach with rigour, shareholders must do it for them — starting with boardroom change.

If corporate South Africa continues to conflate legality with legitimacy, it will find itself facing a crisis not just of governance but of relevance.