BBSL saga settles, but ignites corporate governance debate
Mpho Mokwape | Friday May 21, 2021 16:07
For those who witnessed the highly emotional and strained scenes at BBS Ltd’s recent Annual General Meeting (AGM), the pleas of an elderly shareholder stand out amongst the bouquet of jaw-dropping moments at the occasion.
“I am appealing to all of you, please let us never, ever have what we saw this morning again. Please we cannot go on like this.
It is so disappointing,” the woman said, her voice cracking, to murmurs of approval from other shareholders. The shareholder was referring to a tempestuous period earlier at the AGM, where voices were raised as the old board faced off against its adversaries.
The uproar was the culmination of weeks of a back and forth battle between the board and management over the former’s attempt to hang onto office despite the presence of new director nominees.
At the time, Batswana had a front row seat to a theatre in corporate governance as both sides used public platforms to accuse, deny and counter-accuse in statements that flowed so regularly that sometimes three such were issued in a day.
Commentators have noted that generally in Botswana, the behaviour of corporates and the various structures within them is governed by the Companies Act, other relevant legislation and the King IV Code, an international voluntary set of standards for sound corporate governance.
But some companies go further and adopt corporate or board charters, which further tie their commitment to the highest governance principles. For certain public interest entities, such as banks, regulators will require fit and proper tests for executive and board level appointments.
Ultimately, companies have their own constitutions overseeing governance and laying out the “rules of engagement” within the letter of the various laws and codes of the country.
All these laws, codes, constitutions and regulations however do not mean a boardroom brawl can not explode at a high tier organisation or that executives and directors will not publicly fall out. Sometimes and in fact in the case of BBS Ltd, the fall out was over the interpretation of the laws, codes, constitutions and regulations.
The courts had the final say and in fact, on the morning of the AGM, an urgent High Court order prevented the old board from adjourning elections. Analysts agree that the old board came off worse from the wave of lawsuits filed in the weeks and days preceding the BBS Ltd AGM.
“I find the conduct of the respondents most deplorable and dishonest and the Court has to mark its displeasure against such conduct,” Justice Mercy Garekwe said in her judgement in a case in which a shareholder, Pusetso Morapedi, had sued the board ahead of the AGM.
“Not only did the board fail to immediately communicate to the shareholders and the public at large the crucial information but also failed to advise the applicant upon being served with an urgent application,” said the Garekwe.
Garekwe awarded costs against the old board members, five of them, in their individual capacities, saying there were “advanced reasons” for the imposition of punitive costs.
“I cannot fathom nor trivialise the dishonesty.
“It was blatant and the only intent I can deduce from such conduct (is that it) was to place the opponent at a disadvantage and make her operate in the dark,” the Judge said in a ruling issued mid-morning on the day of the AGM.
The five directors Morapedi was suing were voted out later that day, suggesting they may have to pay the costs of the suit out of their own pockets and not from the cover of the BBS board.
The BBS saga continues a series of high profile corporate governance crises in the country, where the prescribed rules and codes have often failed to achieve peace, leading to disputes being settled at AGMs and in the courts.
Arguably the biggest of these in recent years was the Choppies crisis in which the retail group’s value fell by P1.7 billion in a single day in 2018 on the Botswana Stock Exchange (BSE) after its share price fell 77%.
Forensic and legal investigations would then trigger the suspension of CEO and key shareholder, Ramachandran Ottapathu, leading to a bare-knuckle boardroom brawl, which in turn led to truth-bombs being detonated at a heated Extraordinary General Meeting (EGM).
As with BBS, the corporate governance battle again featured the board against its CEO.
“The structure of Choppies was built around the personality of Ottapathu,” Mogae said at the EGM held in September 2019 and sitting a few metres away from Ottapathu.
“I was appointed years ago but at the time, we did not worry about the institutional governance arrangements and the CEO was everything.
“When they decided to expand to Zimbabwe, South Africa and others, we acquiesced and we did not know the powers or functions of the CEO.
“He could hire, fire, open and close shops all over and that did not look awkward until recently when things went bad.
“The CEO resisted many things such as the establishment of an investment committee and he would say ‘I made this company’ and ‘this is my money’.”
Ottapathu, popularly known as “Ram” was brief in his response at the EGM.
“There’s a scapegoat for all the challenges. I have to take responsibility for that and not runaway.
“But is there anyone talking about the Choppies brand and the damage done?
“I have been saying let’s forget about these things and put in place a plan to rescue this business.”
Today Choppies has resolved its troubles, has a new board and is trading again on the BSE, with its share price having largely held steady from the level it fell to at the suspension in 2018.
Besides Choppies, another listed group, Letlole la Rona, is only now settling down after a tumultuous period in which it fired its CEO, then fought a public legal battle.
The Letlole la Rona board, which previously had adopted a hawkish stance towards its CEO, recently announced a settlement, saying the decision was taken for commercial reasons.
“We believe that the settlement is in the interest of the Company and its shareholders as it avoids the expense burden and uncertainty of litigation and enables the board to focus solely on the business of the Company, which enhances shareholder value,” board chair, Frederick Selolwane said.
BBS Ltd, Choppies and Letlole la Rona are all BSE-listed entities meaning they are required to disclose all information relevant for investor decisions. However, corporate governance disputes and crisis are known to be taking place in many unlisted companies as well as parastatals, also known as State Owned Entities (SOEs).
Prominent corporate executive, Sheila Khama, who is currently authoring a book on corporate governance, says in SOEs, political interference can paralyse a well-structured, suitably composed, professionally competent, committed and ethical board.
“The directors can be reduced to a mere rubber stamp board,” Khama says in the latest chapter of her upcoming book.
“Yet, it is only through empowered individuals able to exercise free will that boards of directors can discharge their duties effectively.
“However, in cases of SOEs, a common dynamic between the government nominee and shareholder is usually one of professional dependency, which does not bode well for independence.”
She continues: “Board effectiveness requires that the process of appointing and/or nominating directors to boards of SOEs and any company with state equity be non-partisan.
“The least effective method is one that centralises power around a political appointee, such as a minister of Cabinet.
“Such discretionary powers breed corruption and cronyism.”
Khama says successful boards have a diversity of individual director competencies, a good balance between executive and non-executive directors, timely receipt of information, regard for confidentiality, individual role clarity and avoidance of personal agendas.
These effective boards feature regular assessment of board performance and a balance between longevity and talent development in the board composition.
Crisis manager and publication relations’ practitioner, Ndaba Nkomo agrees that friction between boards and CEOs, as well as corporate crises are growing at an alarming rate in the country.
He says the advent of social media has meant factions and disputes within organisations can be leaked to a broader public and amplified far more than was previously possible.
“You can have a situation where the CEO has their own interests and the board has their own, then when you add social media to that, it worsens,” he says.
“The CEO runs the board’s strategy, according to King IV, but despite that, there may be factions with people harbouring different interests.
“You can find a CEO saying there’s resistance from the board or the board not carrying out its fiduciary duties properly.
“The theory is that one would want a board that challenges their CEO, but in practice many would prefer a coalition of the willing.”
Nkomo says it is human nature to seek out the path of least resistance and thus prefer a pliable board or equally pliable CEO.
However, the duty to shareholders must come first.
Meanwhile, Khama has thus far published five chapters of her eagerly awaited book, but with trends in the country, it is likely that another corporate governance crisis will explode and grip the public’s attention before the whole publication is finalised.