This week’s corporate governance exemplar stems from our brothers down south in Johannesburg. The insurance titan Old Mutual is in a bit of a tizzy after its board, on May 24, 2019, announced the suspension of the Old Mutual CEO, Mr Peter Moyo.
In the wintry three weeks between the suspension and the subsequent termination of employment announcement on June 17, 2019, it would appear that the board was trying to engage in a mutually acceptable separation agreement but talks collapsed spectacularly and culminated in the CEO’s termination of employment. Folks: Good CEOs don’t get fired, their exits are negotiated in a way that ensures that face is saved by the protagonists on the table who are the board on the one hand and the CEO on the other. By the time a CEO is getting fired, head office is ablaze and the fire extinguishers are broken. Or communication has simply broken down.
In Moyo’s case, the board’s announcement last Tuesday and the hot-on-its-heels ensuing response from Moyo blew the lid on the minefield that the board had been navigating with regard to conflict of interest, a perennial corporate governance bug bear.
“Mr Moyo’s conflicting interest in the NMT group of companies was declared upon his employment and was governed by a specific protocol to regulate the conflict of interest in addition to the general obligations flowing from his employment contract.
During the latter half of 2018, the Old Mutual Related Party Transaction Committee (RPTC), a committee of independent OML board members, requested a report on Mr Moyo’s related party transactions, and confirmation that the terms of his employment contract had been adhered to. During this process, various concerns emerged relating to Mr Moyo’s conduct in relation to his conflicting interest.
One of the concerns raised involved two declarations of ordinary dividends by NMT Capital during 2018 totalling R115 million. The resultant benefit to Mr Moyo and his own personal investment company was R30.6 million. These dividends were declared in breach of Old Mutual’s rights as preference shareholder since arrear preference dividends were unpaid at the time and, at the time of the second dividend declaration, the preference share capital was redeemable.
The preference share capital remains unpaid. Mr Moyo chaired the board meeting of NMT Capital at which the second ordinary dividend of R105 million was declared.”
So what has the board done here? Imputed wrong doing on the part of Mr. Moyo and make it appear like he acted alone. In fact, they say as much when the statement continues; “The Board has not been provided with an acceptable explanation why, in clear contravention of the relevant preference share agreement with Old Mutual as well as Mr Moyo’s employment obligations, ordinary dividends were declared whilst debt to Old Mutual was outstanding.”
Well, Peter Moyo didn’t take this lying down. He came out fighting, setting the scene for a Mohammed Ali-esque rumble in the jungle with his own statement on the same day. “The SENS statement released by Old Mutual today contains assertions that at best are incomplete and at worst misleading,” was his opening salvo. He then explained the context of the relationship that was now playing centrestage. “Both Old Mutual and Peter Moyo are shareholders in a company called NMT Capital. The NMT/Old Mutual relationship originated in 2005 and was acknowledged when Peter Moyo joined Old Mutual. A separate protocol was signed by both parties to regulate any potential conflicts.” In simpler words, we were in bed together in one house, and got in bed together at a new house. We knew this may raise eyebrows and cause some distress so we signed a protocol to guide us, as man cannot live on bread alone. Especially not if he’s living in two houses.
Moyo continues, “It is quite correct that NMT Capital declared dividends of R115 million last year. Old Mutual received R23 million (20 percent) of these dividends, in line with their shareholding. Old Mutual was also paid an additional R20 million in preference dividends.
The meeting that Peter Moyo chaired resolved to pay an ordinary dividend of R105 million to the ordinary shareholders (Old Mutual 20 percent, Moyo 26.66 percent, amongst others). In addition the same meeting resolved to pay an addition R37 million to Old Mutual. This included the preference dividend. At all times, Old Mutual had a separate director on the NMT board. Importantly he voted for all these dividends. It is therefore difficult to understand any conflict when Old Mutual were party to these decisions through this director’s representation of Old Mutual’s interest and his voting for both sets of dividends.”
I’m not sure how the said Old Mutual director who sat at the said NMT meeting that declared those dividends slept that night. He was put squarely in the middle of the fight by Moyo’s statement which said: Hey, we made this decision together bro, so you can’t throw me under the bus!
This case brings out, in a beautifully pedagogical nature, the interplay between human personality and the treacherous conflict of interest dynamic within a board. The situation is playing out now and we watch and wait with bated breath at what the outcome will be, particularly since Moyo concluded with the inevitable “see you in court!”