Peculiar appointments and moves

A new CEO for Irba, additions at Naspers, PSG’s Capitec murmurings, bravo to Bidvest, and other market developments.
Strange … the former chair of the audit committee at Tongaat has been appointed to the top position at the regulatory body responsible for enforcing auditing standards. Image: Shutterstock

It’s difficult to keep a firm grasp on what does or does not seem peculiar these days. This might explain why nobody commented on the news that the Independent Regulatory Board for Auditors (Irba) had appointed Jenitha John as CEO to replace outgoing Bernard Agulhas.

On the face of it this does seem like a very peculiar appointment.

John, says Irba, was previously the chief audit executive of FirstRand and was also senior vice-chair on the global board of directors of the Institute of Internal Auditors and its Global Assembly. That sounds suitably impressive. However, what Irba fails to tell us is that John was also chair of the audit committee at Tongaat while all sorts of questionable accounting practices were being signed off by the board.

John, who joined the Tongaat board in 2007, resigned in May 2019, as the extent of the damage caused by accounting oddities became screamingly obvious.

Read:
Tongaat Hulett share price plunge ‘no surprise’
Damning Tongaat Hulett forensic report fingers ex-executives, including Peter Staude

Remarkably, at the same time she was also chair of the audit committees of Nampak, which has gone through a rather troubled period in recent years, and Adcock Ingram. Those were just her part-time jobs. Her full-time job was as chief audit executive at the FirstRand Group.

With the media glare around Tongaat gaining in intensity it was perhaps inevitable that by end-2019 John would have departed from all of these high-profile positions, including FirstRand.

Her appointment to the top position at the regulatory body responsible for enforcing auditing standards in South Africa raises several questions. For one, will she pursue mandatory audit firm rotation with the same commendable vigour that Agulhas did, or might she bend to the enormous pressure of the audit firms and their clients? Currently mandatory rotation is merely an Irba rule; there’s nothing in the legislation enforcing it. Rules can easily be scrapped, particularly if pleadings are backed by some Covid-19 horror stories.

And what will happen to Irba’s interrogation of events at Tongaat? Will having an insider leading the Irba process help? Or not?

When the Covid-19 dust settles this will be a peculiar story to catch up on.

Irba tells Moneyweb that John has not been found guilty of anything by PwC, which did an investigation into Tongaat. Furthermore, it says that its own investigations process is ‘robust’ and protected from interference by any single individual.

Naspers’s new additions

Talking of directorships, but in a wildly different context, Naspers recently announced it will be appointing Xu Ying as an independent non-executive director with effect from late June. Xu Ying is president of Wumei Technology Group (or ‘Wumart’), which Naspers describes as a China-based technology-driven retailer. Regular visitors to Beijing will know Wumart better as China’s Walmart rip-off.

Established all the way back in 1994, its entrepreneurial founder Zhang Wenzhong regularly boasted about it being the Walmart of China. Unfortunately Zhang ended up on the wrong side of the law in 2009. He did jail time for corruption but was exonerated in 2018. Despite his travails, his retail group has gone from strength to strength.

Meanwhile Naspers’s long-serving Ben van der Ross has been shuffled off to the ethics and sustainability committee, after serving many years on the audit and risk committee. It does seem as though the ethics committees of JSE-listed companies are used as either the early-training centre for new directors or the retirement village for older ones.

PSG and Capitec

Of course the big market news last week was that PSG might, or might not, unbundle part, or all, of its 30% stake in Capitec.

Read: Capitec unbundling: Why now?

The initial announcement that it was considering an unspecified transaction provided a nice lift for the share price; subsequent news that Capitec was the target did nothing but support the higher price.

The Capitec share price seemed as unmoved as the Capitec executives seemingly were about the prospect. The Mouton family, the force behind PSG, is likely to emerge as the single largest shareholder in this tightly-held bank, which may in months or years to come become susceptible to a takeover bid. The PSG prefs also seemed unmoved by a possible transaction that could affect their value.

Of course any unbundling of the hugely valuable Capitec stake is likely to increase shareholder pressure on PSG to rein in executive remuneration.

Other company news

Apparently speculation was in the air in Stellenbosch last week as the share price of PSG neighbour Distell seemed to benefit from a resurgence of the long-term rumours about a takeover bid. The company says there is absolutely nothing on the cards, nothing at all about an international beer group making a move. Given how badly it’s been impacted by the terms of the lockdown it’s surprising to see how resilient the Distell share price has been.

Comair’s cautionary will have come as a shock not just to shareholders but to any South African who had hoped life might start returning to something that looks like ‘normal’ within a few months. News that the airline might only start flying again in October or November was decidedly chilling.

Read: Comair Covid-19 cautionary: We may only fly by October

In a separate development, news from Comair’s major shareholder Bidvest was considerably more upbeat. It has just announced that its £495 million (R11.6 billion) acquisition of the PHS Group, a leading hygiene service provider in the UK, Ireland and Spain, has become unconditional. There’s not much we can know for certain about our post-Covid-19 world other than that there will be a huge and sustained demand for hygiene services. Well done to Bidvest.

Much sadder was the inevitable news that Edcon is heading for business rescue. This should have been done several billions of rands ago. It is terribly sad for employees, but making way for more vigorous competitors might help the market.

Read: Edcon to file for voluntary business rescue

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Regarding the Independent Regulatory Board for Auditors’ (IRBA) appointment of Jenitha John as CEO to replace Bernard Agulhas, it is clear that proper due diligence was not done. I suggest that there is a dereliction of duty by the IRBA Board in this regard.

Then need to peruse the Tongaa Tulett Board Meeting Minutes and the entire PwC Report, not the sanitised/censored version.

Since when is it a requirement to only appoint untainted connected persons?

Oh, yes – it used to be

Unfortunately, the audit profession in SA (and World wide) has been so badly tainted, and the reputation of the regulatory body so badly damaged that appointing an untainted person would cause raised eyebrows.

End of comments.

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