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Corporate report card: Dismal and commendable efforts

The CEO who got almost everything wrong (other than his own deal), the team that’s filling some big shoes, and the company that pulled a rabbit out of the hat, but not in time to keep a major investor from unloading a third of its holding – the week that was.
In eight months at the helm of Woolworths, its former CEO did considerably more damage to the group in financial terms than the pandemic. Image: Supplied

Anyone watching new Woolworths CEO Roy Bagattini’s presentation of the group’s results last week might have been struck by the chilling thought that management appeared to get almost everything wrong in the past five or so years.

Woolworths Food was the only division that did unstintingly well. Australia was a slow-motion nightmare, the Rest of Africa was grim, and Fashion, Beauty and Home flip-flopped from one poorly-judged season to the next. It was down to Food to keep the flag flying.


And, having watched the presentation and then read through the annual financial statements, you might have been stunned by the contents of Note 7. It reveals that Ian Moir received R13.9 million for his eight-month stint as CEO of the group.

The notes to Note 7 further reveal that Moir was paid another R7 million for his subsequent five months as acting CEO of David Jones.

It doesn’t end there. Moir is also in line to receive R22.8 million notice pay whenever he does leave as well as R34.8 million restraint of trade. Lest anyone forget, Moir was the chief architect of the ill-fated 2014 acquisition of David Jones; a move for which he received the enthusiastic support of the board and shareholders.

There’s little doubt that if it had worked out, Moir would now be a retail hero and a wealthy man.

It didn’t work out, and Moir is no one’s hero. But he is a wealthy man.

Read: Rating Ian Moir’s decade at Woolies

No matter which way you look at it, it’s impossible to see the alignment of interests that shareholders are constantly told justifies exorbitant levels of executive remuneration.

The share price is about a third of the level it was five years ago, and the group has been forced to write off around R12 billion of the R21.5 billion it paid for David Jones.

In financial terms, Moir has done considerably more damage to the group than Covid-19 and the lockdown. Bagattini estimates that the latter set them back R2 billion. Shareholders might have hoped to see the board claw back some of the extravagances it bestowed on the former CEO; instead, the board has opted to continue to enrich him.

As one of the few openly critical fund managers said to Moneyweb, he is looking forward to hearing the rationale for the restraint payment, adding: “Somehow I feel we’re wasting our time talking to boards about excessive remuneration, in fact, we may be giving the process credibility.”

As for Bagattini, for his first four months in office, he was paid R15.7 million, which included a sign-on bonus, relocation, rental accommodation, and legal expenses amounting to R9.5 million.

That seemed a bit rich until news came that over at Sanlam the remuneration committee has gifted new CEO Paul Hanratty a potential R500 million award.

It helps to remind us that despite all the country’s challenges, shareholder capitalism is still working for a few.

It’s just that the few are becoming so much fewer, which is, of course, one of our biggest challenges. And it’s a challenge that is hugely compounded by the fact that increasingly it seems the enormous sums of money won by the lucky few individuals are rarely accompanied by value creation that might trickle down to the rest of us.


On a brighter note, the remarkably strong set of results recently released by Shoprite has propelled the share price away from the R100 level it was flirting with for a few months. It was a commendable achievement by Pieter Englebrecht and his team who struggled to persuade the market they were more than able to fill Whitey Basson’s rather large shoes.

Read: Checkers rewards programme attracts over 4.7m customers

The Public Investment Corporation (PIC) is evidently persuaded. Last week it announced it had increased its holding in the company to 15.11%; it didn’t say from what level but the 2019 Shoprite annual report reveals that the Government Employees Pension Fund (GEPF) held 11.85%.

This means the PIC/GEPF are the largest shareholders in Shoprite.

Chaie and group founder Christo Wiese is trailing with 10.7%. Wiese’s stake cannot drop below 10% without triggering implications for his 305.6 million deferred Shoprite shares. Those are high-voting shares, which secures Wiese’s control over Shoprite, but have no economic value. If Wiese’s holding of ordinary shares drops below 10%, the deferred shares automatically lose their voting rights.


There was a little bit of good news on the PPC front, at least relatively speaking. The cement producer, which has been having a torrid time for the past five or six years, announced last week that it has made “positive progress” on its restructuring and refinancing project.

If it goes well enough – the rather loose deadline for completion is end-March 2021 – it might consider a rights issue.

Read: Cement maker PPC weighs rights issue

Sadly for PPC the little bit of good news was too late for the PIC, which unloaded about one third of its holding in early September, leaving it with just 9.5%.



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Who is to blame for executive remuneration?

The CEO’s and Boards that lack character, but mostly the institutions that for decades have voted for these schemes.

The institutions have failed in their fiduciary duty to look after their clients interests.

In the case for Woolworth’s surely if the share price is damaged to the extent that Moir did damage it then the entire board should suffer the same destruction of emoluments as he shareholders have. Seems Woolworth’s has a serious problem in that there is ineffective management even though the management is paid exceptional salaries and benefits. There does not seem to be any penalty for mediocrity

Thankfully I eventually dumped Woolies shares (and will never go back), however I should have done so 5 years ago when there was certain writing on the wall that, to me, indicated a rather obtuse attitude.

Yet still exceptionally well paid.

If I was in charge (is anyone?) I would summarily dismiss Moir for the shareholder damage he did due to such poorly judgeed and overpriced investment into Australia (not any better than Mr Marcus Jooste’s Mattress Firm investment?)
Restraint of Trade? Why? It would actually benefit Woolies if Moir went to a competitor!

These “group CEOs” are increasingly often little more than weasly deal makers with no ability to lead or operate the underlying business. They lure shareholders with the promise of short term gain via balance sheet bleeding or debt fuelled acquisitions. Shareholders reward them in turn with a slice of the promised action. All falls apart when there are real underlying issues requiring hands on management while they masquerade with deals and dodgy accounting to get their 3 year options realised

The problem with many of the share-based incentives is that they are not shares at all…otherwise these directors would be so far out of the money that they would have to pay in for destroying value. Instead, these share-based payments are akin to derivatives, they provide leveraged exposure to the share price and are often hedged out…meaning the participants don’t actually experience any pain if the share tanks. No wonder then that its like gambling with others peoples money. If you win, what a good bet, if you lose, someone else bails you out. Nice job if you can get it!

End of comments.





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