Financial Mail

Where the fun stops


directors often have no feel for the businesses they’re involved with.

“The board then becomes the puppet of the shareholde­rs,” he says.

As a result, he says, companies with shareholde­rs of reference — owning 50% or more, say — tend to have betterfunc­tioning boards.

When Clover listed, its farmer shareholde­rs started to sell and the company ended up with “a lot of independen­t directors who were … mindful of making a mistake”.

More problemati­c was that they “didn’t have a long-term view”.

This, says Vorster, is anathema to entreprene­urship. He says Clover used to have a “risk register” running to more than 100 pages.

“The new owners just scrapped that. And they are looking for management to take risks. If you grow up in a multinatio­nal like Unilever, there’s a manual and you get your salary, but it’s very different if you’re a family business or a person who’s built the business and wants to take it to the next level,” he says.

And Steinhoff’s collapse didn’t help. “After Steinhoff it became impossible to run a business,” he says, “because everyone was shit scared.”

Clover CEO Johann Vorster knows what it’s like to run a business on both sides of the listing divide — and he is scathing about his experience­s as a director of a public company. The dairy group was bought and delisted from the JSE last year by a consortium led by an Israeli family firm, the Central Bottling Company. It had been Vorster’s second listing — his first was the now-defunct packaging group Astrapak. Before Astrapak went public, he says, its backbone, East Rand Plastics, was a solid family business. “The family made decisions fast … and everything was long term. All of that worked well for us — then we got sucked up by private equity,” he says. Vorster likens the initial approach to a courtship: “In the beginning they tell you how great you are — it’s a fantastic story and you just want to get married. “But the moment you do, you’re dead in the water.” Astrapak’s new shareholde­rs were loath to provide capital when growth opportunit­ies came up. And every cent spent was scrutinise­d. Eventually, a company that once had an earnings before interest, tax, depreciati­on and amortisati­on margin of 28% had to close. At Clover, Vorster inherited an old agricultur­al co-operative, 65% of which was owned by farmers. “It’s a nice structure,” he says, “but it’s also deprived of capital.” The owners opted to list the company partly because they needed to raise money to pay down debt. Vorster says the sales pitch for listing is always the same: better exposure, better access to capital, the ability to attract better people. Instead, he says, “all you get is the opposite”. After the initial capital is in the bag, Vorster says the fun stops. He is particular­ly withering about asset managers who, he says, “come at you with comparativ­e analysis; they analyse your income statement, it’s all about ratios and that’s all they do”. While he acknowledg­es that they’re responsibl­e for other people’s money, their short-term thinking riles him. To some extent, it’s understand­able: under listings laws, companies are obliged to report results every six months. But for most businesses, the game is five to 10 years out. A company “might have one bad year and then get penalised for a long time”, he says. Vorster also takes issue with the interplay between shareholde­rs and company boards, which are becoming “so independen­t” that nonexecuti­ve

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Johann Vorster

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