Good luck with changes, Sasol

Full marks to Sasol for taking what looks to be decisive action to tackle the corporate governance weaknesses that led to delays and steep cost overruns at its Lake Charles Chemicals Project in the US. But less than full marks for the synthetic fuels and chemicals group for providing shareholders with nothing more than “key learnings” from the independent review commissioned by the board, and conducted by an unnamed consulting firm at the direction of Sasol’s legal counsel.

By now SA shareholders are familiar with the process: senior executives oversee the destruction of considerable value; eventually the board realises there is a problem; an independent review is set up; and the board releases a censored version of the review to its now much poorer shareholders, claiming legal privilege. Steinhoff was the first to get away with this tactic, followed soon by Tongaat. To its credit, embattled EOH was much more forthcoming about the results of its investigation into all of its large technology contracts with the state.

The market was impressed by Sasol’s decision to part — amicably — with not just one of the joint CEOs but both. The share price gained almost 12% on the day of the announcement. But it’s difficult not to be left with a deep and growing concern about the value-destroying ineptitude of our corporate leaders and the inability of powerful entities to hold individuals accountable. Neither of the CEOs was deemed responsible for anything. It is troubling that time and again well-paid executives are allowed to walk off into the sunset unscathed by the destruction caused by their poor leadership.

During Monday’s teleconference with analysts, Sasol chair Mandla Gantsho emphasised that the review had been focused on the Lake Charles project and not the company in its entirety. Given the time constraints, that was understandable.

It was also unfortunate. It creates the dangerous possibility that Sasol and its stakeholders will come to believe that its problems are restricted to Louisiana. They are not.

As Gantsho told analysts, the “former leadership” bears primary responsibility for the Lake Charles disaster. But not only was David Constable not mentioned by name, the board believes it has no claim against him because there was no specific criminal activity involved. Not only should Constable be held accountable, so should the directors who were on the board at the time that the final investment decision was taken in 2014. Sasol’s nonexecutives are, after all, about the best paid on the JSE.

If Sasol is to get any benefit from these “key learnings”, it is important it does not assume the “certain governance shortcomings” identified in the review are restricted to Lake Charles. It’s difficult to imagine that the “culture of excessive deference” is only a Louisiana problem. It was surely evident back home in Rosebank at the time the original decision was taken. There was also evidence of it in the remuneration committee’s agreement to pay Constable record-breaking levels of remuneration while he was CEO.

You need look no further than 2018’s annual general meeting for signs of an organisation steeped in excessive deference. At that event the board was on a stage looking down upon the shareholders and seemed for much of the time also to be talking down to them. The entirely legal but tone-deaf decision not to allow a shareholder vote on the external auditor smacked of deference, as did Gantsho’s enthusiastic praise for the joint CEOs.

Though Sasol is the first to have publicly highlighted it, the “culture of excessive deference” is not a uniquely Sasol problem. You will see it in every underperforming company on the JSE, of which there are many. Sasol, which has 30,000 employees, has set itself the task of creating a new culture that will allow for the robust challenge of key decision-making. It will be a huge challenge. If successful, it would be the corporate equivalent of discovering an environmentally neutral source of energy.

TIME AND AGAIN WELL-PAID EXECUTIVES ARE ALLOWED TO WALK OFF INTO THE SUNSET