It’s difficult not to feel sorry for Old Mutual shareholders, for whom the 21^st century has been a pretty grim time.

It’s particularly difficult not to feel sorry for those who became shareholders by dint of the fact they were policyholders back in 1999, when the organisation was demutualised, who might have thought they’d scored a nice nest egg.

Instead, they have looked on as value has drained out of their investment. The sad fact is, the demutualisation and listing triggered a slide into the doldrums from which the 180-year-old company has yet to emerge.

Companies, of course, go through difficult patches. Even Shoprite, that formidable grocer, hit a wobble in 2018. And until Johan van Zyl revived it, Sanlam was considered the underperforming dullard of the insurance sector. But these patches tend to last for just a few years and then signs of recovery are spotted. Or imminent death.

For Old Mutual, it has been 25 long years – with periods of massive value destruction interspersed by periods of barely trundling along.

The still-hard-to-explain decision, taken by then-executive chair Mike Levett, to list on the London Stock Exchange rather than the JSE, was the trigger for a massive spending splurge.

Money generated by Old Mutual policyholders in South Africa was used to soak up financial assets across the globe. Well, not actually the globe, just the “first world” parts of it – the UK, Europe and the US.

Value destruction

It has meant that in the past 25 years, Old Mutual has destroyed more value than almost any other listed South African company, most of it in the first 10 years of its life as a London-listed entity.

Just think what’s on the list.

First, there was Gerrard Private Clients, bought in 2000 for R5bn, then sold in 2003 to Barclays for less than half what it paid.

In 2001, US-based United Asset Managers (UAM) was bought for R15bn just as the US markets plummeted. Two years later, one arm of UAM was fined by the US Securities and Exchange Commission for market manipulation, and Old Mutual had to cough up $100m.

In 2005 the £3.3bn acquisition of Sweden-based Skandia looked like a good buy, but was quickly marked down by analysts. As one analyst said, often Old Mutual bought reasonably good assets, but it always overpaid and invariably failed to integrate them into its unwieldy conglomerate.

In 2008, Jim Sutcliffe, who had taken over from Levett in 2001, was replaced when Old Mutual took a $155 hit on its Bermuda operation. This brought to $500m the losses it had set against the Bermuda business, which had failed to hedge guarantees on investment products.

The new boss was finance director Julian Roberts, and while the pace of acquisitions slowed as he sold assets and trimmed debt, the grief continued. The global financial crisis of 2008 didn’t help, nor did the hefty London head office costs.

By 2015, the board realised the investment community was onto something – Old Mutual was far too big and unwieldy to be knocked into shape. Something radical had to be done.

Cue Bruce Hemphill, the former Standard Bank executive who replaced Roberts. Hemphill was there to do one job: restructure the group.

A pandemic of disaster

Within months, Hemphill had come up with a plan to carve Old Mutual into four pieces. This “managed separation” created Old Mutual Limited, which was the African core; Nedbank; the UK-based operations called Quilter; and Old Mutual Asset Management.

So, in June 2018, Old Mutual Ltd, under the leadership of Peter Moyo, was listed on the JSE at R13.75 a share. For every three Old Mutual Plc shares, shareholders received one Quilter share and three Old Mutual Ltd shares.

Initially, things looked pretty good. In the first half of 2019, the share price hit R20.

But then (and you couldn’t make this stuff up), all hell broke loose.

Moyo was suspended on the grounds of “a material breakdown in the relationship of trust and confidence” and then fired in May 2019. A damaging legal battle dragged on for four years until it was finally settled at the Constitutional Court in Old Mutual’s favour.

It was a remarkably principled action by the Old Mutual board. At the time, all it could have wanted was a peaceful life with steady growth in its earnings and share price. It must have been tempted to look the other way. But no – the board reckoned Moyo had violated the terms of his contract and placed his own interests ahead of the company.

There was much opposition to the board’s stance, particularly by those who probably didn’t put too much store in governance.

The share price went into a spin. And it might have recovered – but, yes, the nightmare continued: Covid. In February 2020, the share price fell through R15 and hasn’t been able to claw its way back since.

Finally in May, Jurie Strydom was appointed CEO to replace Iain Williamson who had assumed the thankless task from the dismissed Moyo six years earlier. When Strydom’s appointment was announced, the share was languishing at R10.87.

Hail Mary

All this is to place the R300m bonus offered to Strydom – which it might just as well have been called the “we desperately need you to make this work” bonus – in context.

Strydom will be paid out proportionately, and after a two year wait, if the share moves above R15, by 2030. The target is an unimpressive R21.74.

And his payout is not limited to R300m; there’s also a chunk of shares that come through the dividends he will get on any of the “bonus” shares he exercises. This is in addition to the R40m-plus he will likely get every year as his remuneration.

Very few people outside Old Mutual like this bonus idea. And there are screeds of reasons why it’s a bad one: a big one is that throughout this nightmare of years of value destruction, the executives took home generous remuneration packages of about R30m every year.

Indeed, Levett, who drove the destructive international expansion strategy, scored a record-breaking R150m pension payout when he retired after just two years in London. This was an appropriate payment for a London-based executive with 40 years of work, Old Mutual explained at the time.

Hemphill scored R200m for completing the “managed separation”, which was essentially neutralising the messes created by earlier executives. Even Moyo received R15.7m for helping with the separation.

You have to admit, there’s not much evidence of shareholder alignment with Old Mutual’s remuneration policy.

Market movements

Another reason why it’s a bad idea is that CEOs, with the partial exception of Elon Musk, have limited influence on the company share price.

Strydom may put every ounce of energy into Old Mutual over the next four and a half years, but the market might crash for no reason related to him and the share could plunge back to R10.87. Or he might coast, and the market booms.

And what is the scope for gaming the outcome? Old Mutual has just announced a R3bn share buyback programme that will help Strydom on his way.

Perhaps more significantly, especially for those who watched Strydom at the recent Old Mutual capital markets day, the R300m could be unnecessary.

From an admittedly superficial viewing, he did seem like the potentially most effective CEO the company has had in some time. But, more critically, he also seemed like the sort of person who might not know how to give less than, say, 100%.

Persuading Strydom to underperform might have been tougher than “performance-bonusing” him to do this best.

Getting back to zero

But there’s one very big reason why the board may have had little choice other than to offer the bonus: it is desperate. Desperate to put the 25-year nightmare behind it, and desperate to get the group and its share price back onto some sort of growth path.

The truth is, when a company is desperate, the incoming CEO can pretty much demand what he likes. The R300m just proves Strydom had a lot of leverage and likes big round shiny numbers.

Of course, describing it as an “outperformance bonus” is laughable. Only in Old Mutual’s traumatised world would a 58% increase over 12 years be described as “outperformance”.

If the share price does drag itself along to R21.74 by May 2030, it’ll represent a 58% increase on the R13.75 at which the share first traded back in 2018. Which illustrates the scale of the nightmare it has had to endure. Let’s hope this ends soon.