Oceana: Who is steering the ship and why didn’t the board spot the iceberg?
The Financial Sector Conduct Authority confirmed this weekend that it is investigating Oceana for breaching the Financial Markets Act by issuing false and misleading information.
Today marks the third week since the last deadline for Oceana to publish its audited financial results for the year to September. The director of issuer regulation at the JSE, Andre Visser, says the JSE is currently engaging with the company, its sponsor (Standard Bank) and auditor (PwC) on all recent developments.
“The JSE has been in regular contact with the company and its sponsor, at times on a daily basis, with the objective of establishing all the facts, understanding the outcome of the forensic investigation and the circumstances surrounding the departure and suspension of senior executives. This is an important part of the process and once all the facts are established, the JSE will be able to objectively determine whether there are potential breaches of the listings requirements that will warrant a formal investigation,” he says.
Whenever there are irregularities with a JSE-listed company, the Financial Sector Conduct Authority (FSCA) is alerted to investigate. The FSCA confirmed this weekend that it is investigating the company for breaching the Financial Markets Act by issuing false and misleading information, although the Oceana board advised Business Maverick that it is unaware of such an investigation.
Oceana changed auditors at the beginning of 2021 after the appointment of new chief financial officer Hajra Karrim at the end of 2020. This was a good move, in line with best practice of changing auditors at least every three years. Deloitte had been Oceana’s auditor since 1942.
However, since the beginning of this year, the company has been issuing cryptic shareholder statements and hitting the headlines for all the wrong reasons. There has been reference to a whistle-blower, a forensic investigation, suspension of the CFO and a so-called voluntary resignation by the CEO. This is worrying because there is a line of thought that when top management starts leaving suddenly, it’s time to sell out of that stock. In some cases, you may be able to buy into that stock later when the dust settles, but usually when high-level people leave a company suddenly and particularly under circumstances like now with Oceana, it’s a sign that something is very wrong.
The key question now is when the annual financial statements will be published, and there is no doubt that the market and shareholders alike will be going through those statements with an eagle eye.
The other big question is whether or not the JSE will decide to take action and suspend Oceana’s listing. One of the JSE’s key requirements for listed companies is that financial results must be published within three months and audited financial statements within four months from year-end.
If the company is suspended, this would be a temporary measure and the suspension could be lifted once Oceana completes its financial investigation and publishes financial statements. There has been precedent for this. In 2019, Tongaat Hulett revealed that its financial statements for the year to March 2019 would have to be restated, and this could result in a reduction in earnings of R3.5-billion to R4.5-billion. Part of the problem relates to a previous accounting for land and how the company valued its growing sugar cane.
This definitely sounds similar to what is currently unfolding at Oceana. The initial red flag was raised in relation to the accounting treatment of an acquisition in the US – Daybrook Fisheries. The difference is that Tongaat Hulett’s management was quick off the cuff, opting to voluntarily suspend the company’s listing on the JSE and its secondary listing on the London Stock Exchange to protect shareholders while it sorted out the mess.
It makes one wonder why Oceana’s board seems to be dragging its heels, issuing statements every Monday and leaking just a little bit more information each time. On the one hand, it could be viewed as keeping the market updated, while on the other hand, it seems a tad protracted.
In the case of Tongaat Hulett, the suspension gave the board the breathing space to complete a full forensic investigation, the suspension was lifted six months later and trading resumed. To put it more clearly, the board that voluntarily opts for a suspension to complete a forensic investigation is likely to be viewed more kindly than one that seems to be scrambling to cover up a mess and protect a chief executive who “voluntarily resigned”.
Oceana has a policy that group executives have to serve a six-month notice period or the board has the discretion to pay a departing executive director a cash lump sum in lieu of the notice period. Since Imraan Soomra is officially leaving his post as CEO at the end of February, with less than a month’s notice, the assumption is that he is receiving a cash payout.
Voluntary or forced, a suspension will mean that shareholders will retain ownership of their shares but will not be able to trade them. Oceana’s share price has dropped, closing at R54.50 on Friday, down 21% from a year ago, 16% from six months ago, and having lost 5% in the past week.
Parmi Natesan, chief executive of the Institute of Directors in South Africa, says the loss of the two executive directors at Oceana is concerning as it will leave a vacuum in management.
“A succession plan should be in place. Usually, when a CEO is absent or not able to fulfil their duties, the CFO is next in line and steps up. The chances that Oceana was prepared for both executives to be out of action at the same time are slim,” she says.
Neville Brink, who has a marketing background and is the managing director of the company’s Blue Continent Products division, has been appointed interim chief executive officer. Oceana advised Business Maverick that it has submitted the name of an interim CFO to the JSE for approval and will confirm the appointment as soon as it is finalised.
Who’s on the board and what are they doing?
Good corporate governance requires that a company board is comprised of both executive and non-executive directors, who play different roles.
Executive directors are typically involved in the day-to-day salaried running of the company and have a fiduciary duty to ensure that all information presented to the board is accurate.
Ian Scott, a managing partner at BDO, says non-executive directors usually represent the views of significant shareholders or they may be appointed for their governance, finance or technical skills or to serve on audit committees.
Natesan says the board would have to decide who runs the company in the interim. However, she adds that things can go pear-shaped even if the non-executive directors have played their roles properly.
“Remember, the non-executive directors rely on full information from the executive directors, the risk management team, the compliance team and the auditors. If they are deliberately lied to or not given all the information, then there is scope for things to go wrong,” she says.
Last week, former shareholder Benguela Global Fund Managers called for the entire board to resign, citing that all the irregularities had occurred under its watch.
So, who is on the Oceana board?
First up is the chairman and non-executive director, Mustaq Brey. The chief executive and co-founder of Brimstone Investments, Brey is well liked and respected in business circles and known for his high standard of ethics. Which begs the question as to how the Oceana ship seems to have foundered.
Next up is Soomra, who voluntarily resigned from his post as executive director with immediate effect on Monday, 14 February, and whose role as chief executive officer of Oceana ends on 28 February.
The chief financial officer, Karrim, is currently suspended although the company has not revealed any details regarding her suspension. The highly respected Shams Pather, the former chairman of Coronation, was lead independent director, but he succumbed to Covid-19 last year.
That leaves another eight board posts – four independent non-executive directors and two non-executive directors. The independents are Peter de Beyer, Zarina Bassa, Nomahlubi Simamane, and Bakar Jakoet. Other non-executive directors on the board are Lesego Sennelo and Nisaar Pangarker. Thoko Mwantembe and Peter Golesworthy were appointed non-executive directors in April 2021.
This is worrying because it means that the one executive director left on the board is currently suspended while the other has resigned, most likely under pressure. Business Maverick has it on good authority that when Oceana’s purchase of Daybrook Fisheries was first questioned by shareholders, Soomra was sitting in the meeting, literally biting his nails in a show of nervousness. This does not inspire confidence.
Members of the board who belong to the audit committee, which is responsible for ensuring the integrity of the annual financial statements and other external reports as of the end of September 2020 were the deceased Pather, Bassa, De Beyer and Jakoet.
Now, let’s look at remuneration. Oceana’s annual financial statements for the year to the end of September 2020 reveal that the non-executive directors took home a collective R4.2-million, including the R617,000 paid to Pather. Remuneration for the other non-executive directors was:
- Mustaq Brey – R813,000
- Zarina Bassa – R525,000
- Peter de Beyer – R520,000
- Nisaar Pangarker – R436,000
- Nomahlubi Simamane – R487,000
- Lesego Sennelo – R446,000
- Bakar Jakoet – R409,000
The former chief executive Soomra took home a cool R14.7-million.
The amount of money being paid to the board is no small fry and shareholders should be demanding answers. DM/BM
- An earlier version of this story incorrectly stated that Shams Pather was the lead executive director, and that he succumbed to cancer. In fact, he was lead independent director, and he succumbed to Covid-19. BM apologises for the error.
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