Protected: When Executives’ Fraud Became Intellectual Property
In March 2014 Takalani Tshivhase, Pinnacle Holding’s Executive Director, was arrested and charged for attempting to bribe a senior SA police officer with R5 million to secure a contract worth R182 million for the supply of handheld MaxiID devices. While the arrest showed that not all public officials are prone to corruption, the decision by the company’s board to keep the incident quiet for nearly twenty days was indicative of how investors and the public are routinely duped by listed companies. Within that period of silence, Tshivhase sold off his R4million stocks to unsuspecting members of the public.
This executive’s saga is not news to the activist investors and other market watchers who have weighed in on our investigation. When security exchanges and regulators commence inquiries on possible insider trading, they often look only at whether individuals with access to non-public information could have traded stocks and other securities on the companies. What they hardly ever consider are cases where the directors and their respective boards could have withheld crucial information from investors. And that is our concern now.
In the last four weeks, our researchers have been trolling security exchanges to find cases of ‘resignations’ or ‘retirements’ of top executives. Or, as in Tshivhase’s case, those who have suddenly taken ‘leaves of absence’. Among listed companies, the terms ‘resign’ or ‘retire’ seem technically to mean just one thing: ‘sacked’. But the listed companies would never openly state as much for public consumption.
Theo Botha, a Pretoria-based Activist Investor says, “The fanfares that usually accompany appointments of executives is never the same when the same become a disgrace.” Botha looks for the days when misled shareholders would be able to institute class actions against the boards of directors. “Presently, Directors are not being held to account… There is no accountability by directors to the shareholders. There is need for strong civil actions against boards that have allowed their vessel to sink.”
Botha warns that as long as directors are allowed to operate in their own space without serious oversights, more companies would be following the paths of African Bank and several others before them.
We often demand action against government officials who have been linked with improprieties, but corporations and their executives are deemed too important to be thus tainted. Their ‘resignations’ or ‘retirements’ before pensionable ages are graciously accepted, and a fresh leadership quietly appointed.
“The fanfares that usually accompany appointments of executives is never the same when the same become a disgrace.”
When Eidos Plc. got tired of the shenanigans of Charles Henry Delacour Cornwall, the board appeared simply to accept his resignation on the grounds that he wanted to ‘pursue his other interests’ – at least that’s what the public was told; the details of the closed-door board meeting has remained a proprietary information that shall never be made public. This was a grave disservice to the public. Cornwall left Eidos with ‘glory’, - at least that is the impression the company’s board allowed to prevail.
He was even given completely misplaced credit for Eidos’ successes like Lara Croft: Tomb Raiders. And the torrent of misinformation and disinformation followed him wherever he went after that. Some observers have even referred to him as the founder of Eidos, which definitely wasn’t the case. As a result, and just by repeatedly changing his dates of birth, he was gladly accepted into the South African corporate world… The genius of the City was in town.
Of course, once the executives resign, they are no longer the responsibilities of the corporations who previously employed them.
In the first week of August alone, multiple corporate executives have resigned from their positions. With the exception of those who depart after the media has exposed their improprieties, most of the related crimes remain hidden by their boards. This should change. The public deserves to be told the real reasons for their departures; we do not want another Cornwall scam.
Whenever we see ‘resigned with immediate effect’ we should pause and demand more explanation or greater clarity. Such resignations are highly likely to indicate either that the board is tainted and the executives cannot continue working with them, or that the departing executives themselves have been caught doing something very suspect.