This article was first published in the Business Day on 10 February 2023.
SPAR Group’s upcoming annual general meeting (AGM) will be closely watched by an unusually wide array of stakeholders. Those with some financial exposure, like shareholders, employees, independent retailers and wholesalers, will want clarity on recent serious allegations – including of creative accounting and discrimination – as well as an indication that the board has a persuasive plan to address these concerning issues. Its customers may also be looking for more reassurance than former CEO Brett Botten presented in a video on the group’s homepage that the future of this significant retailer is in good hands.
It is disappointing that, yet again, South Africa’s large, well-resourced, institutional shareholders appear to have taken little action to address obvious governance concerns at a major JSE-listed company. This approach encourages the cynical view that governance is nothing more than a tick-box exercise that all too frequently ends up sheltering corporate executives and their complicit investors from responsibility.
This approach not only threatens the long-term value of investments, but understandably encourages cynicism about the value of shareholder capitalism. While engaging behind closed doors holds some value, it is time our institutional investors demonstrated a willingness for more robust and transparent engagement in their role as custodians of much of the country’s wealth.
Urgent departures of senior board members
That the situation at SPAR required the board’s two most senior individuals – Graham O’Connor, chairman and CEO Brett Botten – to leave, lends support to allegations of broad corporate governance failure over a sustained period. Those departures should be welcomed, as should the appointment of three new directors.
The urgent circumstances for the new board members’ introduction suggest that the group had done very little succession planning. Mike Bosman’s appointment as executive chairman (and interim CEO), albeit for a limited three-month period, is potentially problematic (but probably unavoidable in this context of inadequate planning).
This starkly demonstrates how important it is for companies not only to undertake meaningful succession planning, but to provide evidence of this – if for no other reason than to assure shareholders that neither the board, nor the company, has been captured by a few key individuals.
Poor disclosures limit accountability
Another critical governance issue recently highlighted is the group’s poor quality of stakeholder communication. While this has improved in recent weeks, it remains unclear from any of SPAR’s SENS announcements, what the precise nature is of the activities requiring the departure of the chair and CEO. The only details provided relate to three “irregular” loans totaling R11m that were made five years ago.
Not only does poor quality disclosure create an enabling environment for low accountability, but it defeats the purpose of integrated reporting: to provide company stakeholders with relevant, material information to understand the business.
Concerningly, SPAR’s reporting suite provides no information about the front-end consumer-facing store workers. A detailed breakdown of store employees’ headcount by employee status (i.e., percentage of full-time, part-time, and fixed-term contract workers) and the disclosure of their hourly wage, would shed light on job security. It would also enable stakeholders to assess whether executives are remunerated fairly and responsibly in the context of overall employees’ remuneration, as per the JSE Listings Requirements. In fact, SPAR committed at its 2022 AGM to disclose the wages of its lowest-paid workers, but has not done so. Transparency about wage differentials is crucial to addressing the severe income inequality in South Africa’s labour markets.
Too many hats
In his role as executive chairman of a beleaguered group, Bosman is heading into entirely new territory. While it is encouraging that Bosman has resigned from one of his directorships (AVI), he may still be over-committed to devote the time, energy and focus clearly needed in this new position. He remains on the Spur, MTN and EOH boards – substantial JSE-listed entities with their own challenges, each needing time and energy from all their directors to ensure effective governance oversight. Bosman is also a non-executive chairman of Vinimark Trading, South Africa’s largest independent wine distribution company.
Similarly, group company secretary, Kevin O’Brien, holds the position of Chief Sustainability Officer and Chief ESG Officer (the distinction between these roles is not entirely clear), and according to CIPC, is company secretary for both the SPAR Guild and Build It Guild of Southern African. These are all demanding roles and call into question the board’s stated commitments to sustainability, ESG and the management of climate risk.
Stakeholders are watching
Bosman, in his first public address as SPAR group chair, has an important opportunity at the upcoming AGM, to clarify the extent of SPAR’s challenges – including those that have received extensive media exposure, but have not yet been openly addressed by the board. While full disclosure might not be appropriate at this stage, it will be disappointing if Bosman fails to adequately address the issues and leaves stakeholders at the mercy of the rumours and speculation that have swept through the market in recent months.
The coming months will be vital for SPAR. It should expect many stakeholders to watch the AGM very closely, and whomever is appointed as the incoming CEO will equally be under close scrutiny. Institutional investors, in particular, should also pay careful attention.