Big companies – like Old Mutual – and their highly paid bosses need to do better

Business Insider SA
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster. He is a sought after public speaker on the political economy.
  • Old Mutual and its CEO should have sorted out their differences privately.
  • The deal between the company and CEO was always an accident waiting to happen.
  • Boardrooms are fraught with ego and conflict. Everyone needs to do better.
  • For more go to Business Insider.

Should the CEOs of listed companies be allowed to have business interests outside of their day jobs?

Ideally: no.

But this is the real world in which the A-types who become CEOs are generally very capable at delegation and juggling multiple tasks – it’s how they rose up the corporate ladder in the first place.

Peter Moyo’s firing by Old Mutual this week shows just how much better companies and the people who run them need to be at managing the inevitable tensions that arise – particularly when a CEO’s private interests overlap with those of the company that pays that CEO's salary.

See also on Fin24: Old Mutual to fire CEO for breaching dividend payment rules

When Presidents take office, they are expected to park their private affairs and run the country, theoretically without having to worry about the direct impact their decisions will have on their personal well-being once their term in office expires. They do it for a far smaller financial reward than most CEOs are paid.

Business, however, tolerates a more flexible approach and over the years has created a plethora of governance principles to manage potential conflicts of interest.

Those rules clearly failed in the relationship between Moyo and Old Mutual. It’s a messy battle which threatens to head for the courts, but as neither side will want their dirty laundry hung out in public in great detail, it’s more likely to be settled privately with conditions that no-one directly involved may ever divulge the details of the agreement between the parties.

Thankfully it doesn’t have a direct bearing on you, even if you have money parked with Old Mutual, beyond the fact that boardroom battles are juicy and create delicious gossip.

Old Mutual is big enough to weather the storm and the temporary embarrassment of a boardroom fallout at the highest level, provided it makes a smart choice on Moyo’s successor and doesn’t allow fights like this to become a habit. That would serve to undermine confidence in the brand. For now, it’s a noisy, headline-grabbing fight that will be resolved while the thousands of people at its Pinelands office in Cape Town and shiny new HQ in Sandton go about their day jobs. Frankly, those people are more important to your financial well-being than the fate of a single CEO.

Moyo’s sacking reveals a weakness in his and the board’s ability to manage conflicting business interests. It does not in any way suggest there is a fundamental weakness in the way in which the investment and insurance businesses of Old Mutual are run. There is no suggestion of fraud that will gobble up billions in capital here. Nor is there any suggestion that someone has somehow managed to hack the mainframe and steal investor money.

This isn’t Steinhoff.

Still, it is not unreasonable for you as a shareholder in Old Mutual, or as an investor who uses its products or buys its insurance services, to expect the CEO to be wholly focussed on ensuring the firm with which you trust your future is well run.

Just because a CEO has private outside interests, does not mean they are not doing a decent job. Where it does get messy is when those private interests either distract them from doing the best job they can or are in conflict with the operations of the firm. Then you are not well served.

Old Mutual’s relationship with Moyo was more complicated than a simple employment contract. He’d previously worked as a senior executive at Old Mutual and during that time he was allowed to pursue personal business interests partly funded by the company. He created Amabubesi Investments, in which Old Mutual took a stake in 2005. Over time Old Mutual invested in several entities connected to Moyo and its annual report reveal it has a R291 million carrying value on its investments in what is now NMT Capital – a private company with numerous interests.

Some of those interests play in the same space as Old Mutual. WFDR is a Zimbabwe-based insurance broker; Dealcom does private equity; Amabubesi are employee benefits consultants; and Willis is an insurance brokerage. Not direct competitors, but there is still fertile ground for misunderstanding when it comes down to who does business with whom and under what circumstances.

The fact that Old Mutual had a stake in NMT, gives it a host of rights, particularly when it comes down to preference shares. It is here where it should get first dibs on any dividends that might flow from an investment. NMT says in a statement its behaviour in granting R115 million in dividends to directors, including more than R30 million to Moyo, was not only legal and ethical, but was also signed off by Old Mutual’s own board representative.

This is where it gets murky because Old Mutual refers specifically to the role that Moyo played in the process of awarding dividends.

“The board has not been provided with an acceptable explanation for the declaration of ordinary dividends by NMT Capital during 2018 (with the support of Mr Moyo) in the amount of R115m, with a resultant benefit to Mr Moyo of R30.6m, in breach of Old Mutual’s rights as preference shareholder.”

There were agreements, contracts, handshakes, structures and deals in place to make sure that everyone played nice, but inevitably something went wrong.

Conflicts of interest in business are a fact of life. You don’t have highly successful people rising to the top of their profession without some risk that an investment they made at some point conflicts with a project or a company they run today. Generally, professionals will stick to their trade. They will have friends and relations in the sector in which they might become a dominant player and at some point parties are going to have to point out that they cannot be part of the decision making process on a crucial project because relationships exist that remove objectivity from business decisions.

How those conflicts are managed is critical. Moyo in a statement this week was at pains to stress he had done nothing wrong, Old Mutual did not say that he had broken any laws, but stressed his behaviour in at least one transaction in which he was a beneficiary of a substantial dividend payment at the expense of the insurer, is why he and the board fell out.

Old Mutual, freshly back from a failed 20-year global expansion drive needs a reputation crisis and the distractions it brings, like a hole in the head.

Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.

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