Is former Finance Minister Trevor Manuel ‘independent’ enough to be Old Mutual’s chairman?
This question stems from how Old Mutual, without explanation, changed his designation from a non-executive – which he was from 2015 to 2017 – to that of independent non-executive in 2018. This move, along with a strict interpretation of insurance governance regulations for what constitutes independence, suggests that he is not.
The issue of directorial independence and conflicts of interests are thorny ones for Old Mutual, Manuel and its board. They have accused former Old Mutual CEO Peter Moyo of using his holding in NMT Capital, in which Old Mutual also has a 20% stake, to push through a dividend payment that personally benefitted him, at the expense of Old Mutual.
Moyo has denied all wrongdoing and has initiated proceedings to have Manuel and the board declared delinquent directors. He says he was fired after he accused Manuel of being conflicted.
The cloud around Manuel’s ability to act independently comes from his association with the Rothschild Group, which was one of Old Mutual’s advisors when it went through the unbundling of Old Mutual Emerging Markets (OMEM), UK-based Quilter plc (previously Old Mutual Wealth) and Nedbank.
Once-off R1.9bn advisory bill
It is unclear how much business Rothschild does with the insurer, but Old Mutual’s 2017 annual report said the once-off advisory costs associated with its unbundling amounted to at least £100 million or R1.89 billion in today’s currency.
Manuel became a member of the international advisory board of the Rothschild Group and deputy chair of Rothschild South Africa in October 2014, just after he left government.
For his part, Manuel said he recused himself from all meetings and decisions at Rothschild relating to Old Mutual.
Even so, being involved with both Old Mutual and Rothschild seemingly contravenes Prudential Authority regulations that came into effect last year, which state that only independent non-executive directors can be made chairperson.
According to the Prudential Standard GOI 2 (Governance and Operational Standards For Insurers), one of the criteria for an independent director is that this person may not: “have any business or other relationship (contractual or statutory), which could be seen by an objective outsider to interfere materially with the individual’s capacity to act in an independent manner”.
The murkiness of the issue has been compounded by Old Mutual shifting Manuel’s description from non-executive to independent non-executive.
When he joined in January 2016, he was titled a non-executive director, and his relationship with the Rothschild Group was inferred to be that of a related party in subsequent annual reports. But in the 2018 annual report, his title somehow changed, without explanation, to that of independent non-executive director.
Old Mutual stays silent
Despite numerous requests, Old Mutual has yet to clarify how Manuel’s designation changed or if the board considers him independent enough to continue as chairperson.
Having independent directors is essential for sound corporate governance, because they ensure that a person or group does not have unfettered power on the board, according to the King IV governance codes.
They are there to protect minority investors and to provide an outside view to the company.
According to King IV: “A person is independent who, in reality, and appearance, has no interests or position in, or association or relationship with, the company which in the opinion of a reasonable and informed third party would affect that person’s objectivity and impartiality.”
Or, as Dr Andy Schmulow, senior advisor at management consultant firm DB & Associates, puts it: “It is important to have independent directors whose advice is least likely to be tainted by conflicts of interest.”
Schmulow was also an advisor to National Treasury on the drawing up of the Financial Sector Regulation Act.
Independent or not?
For its part, the Prudential Authority, which is housed in the South African Reserve Bank (Sarb), is coy about whether it considers Manuel independent enough to stay on as chairperson. In a statement, all it would say on the matter was:
“The Sarb, as a regulator does not comment on individual institutions.”
However, it pointed out that the Prudential Standards on governance of insurers only became effective on July 1, 2018.
Even taking this into account, when Manuel was appointed as the chairperson of OMEM (which later become Old Mutual) in March 2017, the move seemingly contravened the Governance and Risk Management Framework for Insurers in notice 158 of 2014.
This notice, released by the Registrar of Long-term Insurance, defined an independent non-executive as someone who is: “not a material supplier or customer of the insurer, such that a reasonable and informed third party would conclude in the circumstances that the integrity, impartiality or objectivity of that director is compromised by that relationship.”
All of this means that under both the old and new regulations, there were clear stipulations defining what constituted independence in a director.
In summary, it is unclear whether Old Mutual and the Prudential Authority believe that Manuel, despite being associated with a company that has received hundreds if not billions of rands in payment from the insurer, can still “act in an independent manner” on judgement “by an objective outsider”.
So is Manuel independent enough to continue as chair?
Schmulow is hesitant to make a call on Manuel’s independence. “Ultimately, if the Prudential Authority believed that this individual was not independent, and they or the company disagreed, it would be for the tribunal created under the Financial Sector Regulation Act to decide, and/or a court.”
Schmulow says though Manuel’s relationship with Rothschild can be seen to undermine his independence, it is not as clear-cut as it seems.
“It could certainly be argued, however, that as a board member of a supplier, the individual may face conflicts of interest. But then again, a tribunal or court may decide that he could simply recuse himself from any discussions or decisions that involve that supplier.”
It is also uncertain whether Manuel (or any of the other directors) underwent an independence test.
This test, which is becoming standard practice for many large companies, would have enabled Old Mutual to assess whether Manuel’s relationship with the Rothschild Group prevented him from acting or being seen to be acting in an independent way.
The test, like the ‘bright line’ test enforced by the New York Stock Exchange, would, among other things:
- Determine if a director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organisation that has a relationship with the company).
- Have the board assess the independence of any director who would serve on the compensation committee, and whether directors have a relationship that would affect their ability to act independently from management in connection with the duties of the compensation committee member.
Old Mutual’s 2019 Board Charter does not make any mention of an independence test for its directors.