Old Mutual can win only Pyrrhic victory
SA business likes to complain about labour market rigidities, especially how difficult it is to fire employees. But having witnessed the battle between Old Mutual and its CEO, Peter Moyo, this view might have to change.
For the past three months, the life insurer has been trying
— and failing — to sack Moyo after a reported breakdown of trust over how he handled a well-known conflict of interest in relation to his private business, NMT Capital, which was enabled by Old Mutual.
In what has become a very public spat, Moyo, formerly an Alexander Forbes CEO, accuses Trevor Manuel, the former finance minister and current chair of Old Mutual, of a triple conflict of interest.
To date Old Mutual has dismissed Moyo twice — first, it suspended him and showed him the door, then it sacked him after a court order had reinstated him. The matter is playing itself out in two courts: the law courts and the court of public opinion. And, so far, Old Mutual is losing in both.
The high court in Pretoria has found in Moyo’s favour twice. As matters stand, he is still an employee and CEO of Old Mutual. In the latest round, he is accusing the board of contempt of court for ignoring the order that reinstated him, and threatens to have board members declared delinquent for not adhering to court orders.
After months of sound bites and media statements, Old Mutual entered the public square with a news conference in which it attacked everyone involved, including the judge who ruled against it. As with previous attempts, this briefing also failed to undo the damage.
A couple of days ago, Nombulelo “Pinky Moholi, formerly Telkom’s CEO, quit as a nonexecutive director of Old Mutual, fuelling talk about divisions in the board. Moholi is known to have been one of a minority of directors who supported an out-of-court settlement with Moyo instead of the protracted legal wrangle favoured by others, including Manuel. Her resignation comes a month after Old Mutual’s board wrote a paid-for open letter to its stakeholders, in effect rallying behind Manuel against Moyo. Moholi’s resignation now casts doubts about the letter.
The battle has not been without cost. As well as the legal fees, shareholders have lost millions as the share price has lost about 10% since the spat started in May. With no end in sight, the costs are rising.
In the short to medium term, Old Mutual will be unable to hire a CEO without facing another challenge from Moyo. Even more challenging will be getting competent black Africans to make themselves available. The skirmishes have deeply divided opinion among professional black Africans.
Incalculable damage has been done to Old Mutual’s reputation — which appears completely lost on some on the board. In theory and in practice, Moyo has zero prospects of returning. In the unlikely event that he does, the rest of the board might have to go.
Old Mutual’s strategy, if one can call it that, appears to be to drain Moyo’s financial resources through a lengthy court process that might end up in the Constitutional Court in 2010 at the earliest. Frankly, this is very short-sighted. It shows the Old Mutual board has a narrow view of its stakeholder universe. Just because shareholders returned the board at the last AGM does not mean they approve of the continuing value destruction.
Also, that shareholder interests are prime is an old view of the world. All stakeholders matter: regulators, employees, financiers and policyholders.
Old Mutual’s board has not only failed shareholders, it has also dismally failed its employees and policyholders by unnecessarily prolonging the divorce with Moyo. Leadership is about putting the interests of others above one’s own. This has been missing from Old Mutual’s fight with Moyo. From day one, it has been hard to identify the principle — other than the egos of individuals — that Old Mutual is fighting for in the costly litigation with Moyo.
Of course, this is not to say that Moyo has an unassailable say in his job. In fact, the labour laws that capital loves to hate, provide an escape clause for employers: once the relationship breaks down, the employer-employee relationship ends. In the case of CEOs, it becomes a matter of how many digits are added to the payout.
Old Mutual’s board might outspend Moyo in the legal tussle. But this will be a pyrrhic victory. In a few years, this debacle will be a case study for universities on how to destroy a brand’s reputation and shareholder value through the messy handling of a CEO exit.
Once Moyo is gone, Old Mutual’s shareholders will have to take a hard look at the board and its mishandling of this matter.
OLD MUTUAL’S STRATEGY APPEARS TO BE TO DRAIN MOYO’S RESOURCES ... A NARROW VIEW OF ITS STAKEHOLDER UNIVERSE