VAM­PIRE BAT

To­bacco com­pa­nies have never been great on trans­parency, but BAT’S si­lence over a probe into its al­leged cor­rup­tion is par­tic­u­larly galling

Financial Mail - - EDITOR’S NOTE -

Bri­tish Amer­i­can To­bacco (BAT), the world’s largest global to­bacco com­pany and one of the least ac­count­able com­pa­nies listed on the JSE Se­cu­ri­ties Ex­change, got a jus­ti­fi­able snotk­lap its AGM last week in Lon­don.

It was a pre­dictable turn of events, given how badly BAT has dis­ap­pointed in­vestors in re­cent times. Over the past year, its share price has fallen 29.1% on the JSE — in part be­cause cig­a­rettes have be­come about as socially de­sir­able as Atul Gupta pitch­ing up at a Save SA rally.

Share­hold­ers clearly aren’t im­pressed. Which is prob­a­bly why a quar­ter of them voted against BAT’S re­mu­ner­a­tion pol­icy, which led to CEO Ni­can­dro Du­rante tak­ing home £11.4m (a stag­ger­ing R193m) and fi­nance di­rec­tor Ben Stevens scor­ing £6.6m (R112m) last year.

The 37% rise in Du­rante’s pay is some­thing of a slap in the face, con­sid­er­ing share­hold­ers have seen their wealth di­min­ish by nearly a third. Its UK staff only got a 3% in­crease, so Du­rante is mak­ing out like a bandit.

In­sti­tu­tional Share­holder Ser­vices (ISS), which ad­vises in­vestors on how to vote at AGMS, flagged “con­cerns with the re­mu­ner­a­tion re­port”, in­clud­ing the steep salary in­creases for Du­rante and Stevens, and how the re­mu­ner­a­tion com­mit­tee used its dis­cre­tion to hike ex­ec­u­tives’ bonuses. (BAT’S board, pre­dictably, voted Du­rante’s and Stevens’s per­for­mances as “out­stand­ing” — de­spite what the share price would sug­gest.)

An­other 40% of share­hold­ers also voted against BAT’S pro­posal to re-elect a di­rec­tor, Mar­ion Holmes — seem­ingly ob­ject­ing to the fact she sat on six other boards, and was stretched rather thin to be pro­vid­ing over­sight to a com­pany with so many butts in the fire.

When the FM asked BAT what its share­hold­ers’ is­sues with the pay pol­icy were, spokesper­son Ge­orge Parker didn’t an­swer, say­ing only that the com­pany was seek­ing to “en­gage” with share­hold­ers to “bet­ter un­der­stand their views”. So, they ei­ther don’t re­ally know or they aren’t say­ing — re­veal­ing in it­self.

But then BAT has al­ways strug­gled with trans­parency. at In par­tic­u­lar, it has spent the bet­ter part of two years try­ing to snuff out a foren­sic probe into its al­leged crim­i­nal con­duct in SA, where the to­bacco com­pany has proven alarm­ingly cen­tral to the state cap­ture saga.

The story is that, back in 2014, it emerged that BAT had paid lawyer Belinda Wal­ter £30,500 to spy on ri­vals. In a record­ing, one BAT ex­ec­u­tive pleads with Wal­ter not to “sell us out” by re­veal­ing she was on their pay­roll, say­ing “we will never re­veal who we pay”.

At the time, Sars head of in­ves­ti­ga­tions Jo­hann van Log­geren­berg warned that BAT’S “con­cealed” way of pay­ing Wal­ter amounted to money laun­der­ing. Back then, Sars had a project named “Honey Bad­ger” aimed at tack­ling to­bacco firms who dodged tax. BAT was no ex­cep­tion: in 2015, Sars lodged a R2bn as­sess­ment against it for “debt struc­tur­ing” prac­tices, dat­ing back to 2006.

What hap­pened next was il­lu­mi­nat­ing. Wal­ter, who had a short re­la­tion­ship with Van Log­geren­berg, then laid a com­plaint against him at Sars. This sparked nu­mer­ous in­ves­ti­ga­tions (not least of which was KPMG’S dis­cred­ited re­port into the “rogue unit”, which white­washed BAT’S role out of the story al­to­gether) and ul­ti­mately led to Van Log­geren­berg leav­ing the rev­enue ser­vice.

So guess who BAT’S au­di­tors were? Yes, KPMG — who also, it emerged this month, had been us­ing Wal­ter as a con­sul­tant. And who ended up as a big win­ner from Sars’s much-re­duced in­ves­tiga­tive ca­pac­ity af­ter Van Log­geren­berg’s de­par­ture? BAT.

All the while, rev­e­la­tions of BAT’S be­hav­iour grew in­creas­ingly alarm­ing. For ex­am­ple, Fran­cois van der Westhuizen, who had worked for BAT’S for­mer se­cu­rity con­sul­tant FSS, signed an af­fi­davit de­tail­ing how the com­pany had bribed po­lice and tax of­fi­cials to turn a blind eye to “BAT’S tax eva­sion and money laun­der­ing”.

So, this was the cock­tail of mis­con­duct that Beirut-born So­raya Zouei­hid, who took over as head of BAT SA in

2016, found when she ar­rived. She promised to take the mess “very se­ri­ously”, hir­ing law firm Nor­ton Rose Ful­bright to con­duct a “thor­ough” in­ves­ti­ga­tion.

That was 18 months ago, and there hasn’t been a peep since — de­spite the fact that in­sid­ers say the Nor­ton Rose Ful­bright in­ves­ti­ga­tion is ap­par­ently com­plete.

What­ever Zouei­hid may have found, she’s ev­i­dently re­solved to bury it in the base­ment of BAT’S of­fices in Dock Road, at Cape Town’s V&A Water­front.

Asked this week what Nor­ton Rose Ful­bright found, Zouei­hid’s of­fice didn’t re­ply. When BAT spokesper­son Parker was asked, he said “it would be in­ap­pro­pri­ate” to com­ment on mat­ters “that are sub­ject to ei­ther on­go­ing lit­i­ga­tion or in­ves­ti­ga­tions”. In other words, don’t ask us to come clean about the things we said we would come clean about.

But BAT’S os­trich ap­proach was never go­ing to work. This week, the FM served an ac­cess to in­for­ma­tion re­quest on BAT, de­mand­ing the full Nor­ton Rose Ful­bright re­port.

If that re­port is half as dev­as­tat­ing as many think, BAT’S rep­u­ta­tion is in real dan­ger of go­ing up in smoke. So in­vestors might think they’ve had a hard time in the past year, but the nail-bit­ing is only just be­gin­ning.

In other words, don’t ask us to come clean about the things we said we would come clean about

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