For a while there, it looked as though Spar was going to make South African corporate history. Early on in its recently released annual report, there’s talk of the company chasing down former executives and clawing back some of the inappropriately generous remuneration paid to them.
Success on this score would be a first for South Africa.
Clawback and malus policies arrived on the local remuneration scene about seven years ago, in a bid by remuneration committees to disabuse shareholders of the idea that these committees are actually the enthusiastic drivers of the most generous gravy train in history.
At the time, there were signs that shareholders were fed-up with executives walking away from corporate wrecks with their bank accounts stuffed to the brim. Adding insult to injury, value-destroying executives were even paid tens of millions of rands to go away in many of those cases.
So, the “malus and clawback” policy was invented. The idea was that in future, underperforming or downright incompetent executives would be called to account; their incentives and bonuses were on the line.
As an example, here’s Woolworths’ policy: “Malus provisions apply prior to the vesting or payment of awards, while clawbacks are applicable for a two-year period after the payment of any corporate short-term incentive or vesting of any long-term incentive awards. A trigger event is defined as an event that leads to material reputational damage, material misstatement in the financial statements, or a deliberate misinterpretation of financial targets and gross negligence.”
This is meant to give you the impression that this is a robust process. But look a little closer or invite a lawyer to check it out and it’s clear there’s almost no way a “trigger event” would stand up in court.
A top-rated analyst from one of the blue-chip fund managers said privately, at the time of their launch, that the professionals know how pointless malus and clawback policies are. “They were enthusiastically flogged to shareholders by remuneration consultants in a bid to help justify ever high levels of remuneration,” he said.
Apart from Steinhoff, there has never been mention of actually implementing the policy – no matter how badly a company did.
Then, this year, Spar sparked a glimmer of hope.
Developing a malus and clawback policy was one of the Spar board’s “key deliberations” last year. On page 19 of its annual report – its “reflections” section – shareholders are told a “malus and clawback” policy was developed “to promote executive accountability”.
Nothing too exciting there. Almost every JSE-listed company now makes a big deal of having one of these policies in place, each one more bland than the next.
But then along comes Spar’s near-historic undertaking. The board’s deliberations, they say, involved considering “specific cases for the potential recovery of payments related to reportable irregularities under review”. Here was the possibility that names were going to be named, and reportable irregularities revealed.
It’s not as if Spar’s recent history isn’t full of these sorts of “reportable irregularities”.
For a start, strange stuff had been going on at its building wholesaler Build IT in the Western Cape – “irregular” enough to knock profits from that division for a few years. Then there was the disastrous SAP implementation in KwaZulu-Natal, which caused almost R1bn in losses from which the group has yet to fully recover. It turns out that key executives were conflicted on this project. We know this thanks to a whistleblower.
And that’s before all the irregularities around the behaviour towards some of Spar’s independent retailers, not least of which was the shocking treatment meted out to the group’s single largest franchisee, the Giannacopoulus family.
All in all, no shortages of irregularities to review. And further underscoring this impression, on page 57, shareholders are told the board encourages reporting of “suspected serious misconduct”.
Here at last was a company board that had had enough and was going to push back against executive misbehaviour.
Indeed, to its great credit, in the past few years Spar has parted ways with several senior executives, a number of whom were handsomely paid to leave. The group has also cleared out the old board, whose members had sat idly by.
So, it was a huge disappointment to learn on page 93 of the annual report, under the section dealing with remuneration, that Spar’s new “malus and clawback” policy is as pointless as every other listed company’s.
Seventy-four pages after we first hear about this exciting development we’re told: “We reviewed specific cases for potential recovery related to reportable irregularities but found no grounds for recovery, as enforcement of these matters has proven to be challenging.”
Well done to Spar for at least letting us know it had actually tried. If you interrogate its succinct statement, what it’s saying is that there were no grounds for recovery not because reportable irregularities didn’t happen, but because “enforcement of these matters has proven to be challenging”.
That is, the policies are unenforceable in law.
Not at Spar, not at Steinhoff …
Encouraged by Spar’s better-than-peer transparency, Currency pushed for a little more information. The company tells us the review relates to former employees and no names will be disclosed.
“Our focus is on ensuring transparency and compliance with our policies while maintaining the confidentiality and fairness expected in such processes, therefore we cannot comment on specific individuals,” a Spar spokesperson tells Currency.
So, what did Spar’s review actually involve?
“We sought legal advice on the applicability and enforceability of the malus and clawback provisions, including their retrospective application. What has been disclosed in the integrated annual report reflects the advice of our external legal counsel,” says the spokesperson.
What exactly where the “challenges” Spar encountered? Not much luck, or transparency, there either.
“Due to the sensitive and complex nature of these processes, we prefer not to delve into detailed specifics. Our primary objective remains to address these issues in accordance with our policy and governance standards.”
Spar’s commendable efforts tell you all you need to know about the pointlessness of malus and clawback policies. And it tells you all you need to know about the sheltered legal lives executives enjoy.
It highlights what many have suspected for years: C-suite executives are untouchable; the law is stacked in their favour.
If you’re still unpersuaded, consider the one known case of a company going to court to give effect to its malus and clawback policy. In June 2019 Steinhoff went to court in a bid to claw back more than R1bn from the group’s two former top executives, Markus Jooste and finance director Ben la Grange. It wasn’t just incentives and bonuses the company wanted returned; it was also going for their base salaries.
The claim against Jooste dated from 2009 to 2015 and against La Grange from 2015 to early 2018. In its court papers, Steinhoff argued it was implicit in the employment contract that any payments to executives were based on their “sound and successful management” of Steinhoff. Stéhan Grobler was added to the legal claim in September 2023.
You’d think it would be a shoo-in, since Steinhoff is the poster child of unsound and unsuccessful management, with forensic auditors having uncovered “fictitious and/or irregular transactions” to the tune of R106bn, felling one of the world’s top retailers.
How more certain a case could you get? And yet, it’s a struggle that might prove largely pointless.
Louis du Preez, CEO of Steinhoff (which has since been renamed Ibex) tells Currency that a settlement has been concluded with La Grange but gives no details. The Grobler matter “is ongoing”, says Du Preez, explaining that the former senior executive is defending the claims.
As for Jooste, that matter is still ongoing. While the company’s lawsuit now sits against Jooste’s estate, following his suicide in March last year, the indication from his executor is that Jooste’s estate has very limited funds.
The case of Steinhoff, just like that of Spar, underpins the central point: if you can’t wrestle back the unjustified bonuses paid to executives of these two scandal-wracked companies, when will a clawback provision ever work?
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