The axing of Old Mutual CEO Peter Moyo has sparked investor worry that SA’s second-largest insurer might use shareholder funds to pay him an exit package that runs into millions of rands.
A group of pension funds with a collective shareholding in Old Mutual of less than 1% want the company’s board – led by chairman Trevor Manuel – to engage with shareholders and put any possible exit package for Moyo through a vote.
If Old Mutual accedes to the pension fund demands, it would be a rare move as there are no rules in SA that give shareholders the right to reject a golden handshake granted by a board to an outgoing CEO.
On Tuesday, Old Mutual told the market that it had sacked Moyo, nearly a month after suspending him over a conflict of interest and governance issues related to investment holding firm NMT Capital, which he co-founded. Old Mutual is also NMT Capital’s only institutional shareholder as Old Mutual Life Assurance Company, a long-term insurance subsidiary of the insurer, owns a 20% stake.
Moyo said there was no wrongdoing on his part as he declared his business interest when he returned to Old Mutual in 2017, first when he headed the company’s emerging markets arm before taking up the group CEO role. However, Old Mutual said it had been unable to reach an agreement with Moyo over the terms of his departure, prompting it to terminate his employment.
Moyo plans to challenge his sacking through court, his lawyer Eric Mabuza confirmed in a statement.
Mehluli Mncube, who represents five pension funds that are invested in Old Mutual, said the shareholders are concerned that Moyo would be given a “big separation pay cheque” even though the board handled the conflict of interest poorly in the first place.
Company thought it could manage the conflict
“Now we know the circumstances around Moyo and the termination. We don’t want shareholder funds to be used for a golden handshake because the company knew about this conflict of interest and thought it could manage it. We are closely watching the pay-out,” Mncube told Moneyweb.
“Old Mutual is a big company and should have strong corporate governance controls.
“You don’t fire a CEO abruptly. This causes volatility in the share price which affects the value of pension funds.”
Mncube was one of the shareholders that voted overwhelmingly against the implementation of Old Mutual’s remuneration implementation report at the company’s annual general meeting in May. About 69% of shareholders voted against its implementation – a non-binding vote to the company that requires its chairman to engage aggrieved shareholders, according to JSE rules.
Mncube’s fears of a golden handshake are based on the fact that Moyo received total compensation of R50.5 million in 2018. The biggest contributor to his compensation was the R15.4 million reward he received from Old Mutual’s incentive plan after the company completed its managed separation in June 2018. This is according to Old Mutual’s remuneration report for the year ended December 2018.
No ‘special conditions’
Old Mutual spokesperson Tabby Tsengiwe said Moyo will only be paid for his notice period, as stipulated in his employment contract. “In this regard, other than Mr Moyo being paid for the notice period, there are no other terms or special conditions,” she said. According to Old Mutual’s 2018 remuneration report, Moyo must serve a notice period of six months and a restraint of trade of another six months.
It is unclear whether Moyo plans to go to court to get his job back or a financial settlement from Old Mutual. Mabuza (Moyo’s lawyer) said Old Mutual’s announcement on Tuesday about Moyo’s sacking contained “assertions that at best are incomplete and at worst misleading”.
Dividend payments at issue
Old Mutual said the conflict of interest also related to ordinary dividend payments made by NMT Capital. As a 20% shareholder in NMT, Old Mutual would enjoy preference share dividends from the firm.
Old Mutual said two payments made by NMT in 2018 – totalling R115 million – were a breach of its rights as a preference shareholder.
This, it said, was because arrear preference dividends were unpaid at the time and preference share capital was redeemable at the time of the second payment. Old Mutual said it had not received an acceptable explanation for this.
Essentially, the payments benefitted Moyo and his firm, excluding Old Mutual.
Mabuza disagreed with Old Mutual’s version of events saying that Old Mutual received R23 million for its 20% shareholding and an additional R20 million in preference dividends.
He argued that Old Mutual and its directors were aware “at all times” that the dividends – ordinary and preference share – were to be paid. They were even aware of the rollover of the deadlines to pay the dividends. He said the preference share capital was initially meant to be paid in July 2010 but the deadline “has been rolled over a number of times”. The latest roll-over was up to June 30, 2018.