Board, CEO separation is such a painful divorce

Last year, I spent a lot of airtime on this column commenting on the South African Peter Moyo vs Old Mutual highly publicised wrangle that provided a classic corporate governance case study on director conflict of interest, management of board conflicts and the resultant crisis communication.

Just as a reminder, on May 24, 2019 the board of Old Mutual Limited released a statement to the Johannesburg Stock Exchange that it was suspending the CEO, Mr Moyo. A few weeks later, another statement was released that Mr Moyo’s employment was being terminated. The reason given was concerns that had emerged relating to a conflict of interest in a company in which Mr Moyo was the chairman and in which Old Mutual was a shareholder. Mr Moyo took the company to court suing for wrongful termination thus seeking reinstatement, damages to his reputation and asking the court to declare the Old Mutual board of directors as delinquent. In July 2019, Judge Brian Mashile ordered for his temporary reinstatement as CEO, but the company refused to let him into his former Old Mutual offices, leading Mr Moyo to sue further for contempt of court.

As the case dragged on through the rest of the year, I predicted in December 2019 that the case would be settled out of court due to the high octane nature of the accusations and counter accusations that were best quietly adjudicated in the leather bound armchairs of a country club confines. Well I’m here to tell you that I have had to eat my words. For now.

On January 14, 2020, the South African High Court upheld an appeal by Old Mutual against the reinstatement of Mr Moyo as CEO and then two months later on March 17, 2020, the court dismissed Mr Moyo’s application to prohibit the company from hiring a permanent CEO. However, Mr Moyo’s streak of bad luck didn’t end there. A short week later, the Supreme Court of Appeal dismissed, with costs, his application for leave to appeal the January judgement that overturned the temporary reinstatement. The appeal court justices Wallis and Eksteen said Mr Moyo’s intended appeal had no reasonable prospects of success and that there had been no constitutional interference with Mr Moyo’s right to work, dignity or self-worth and that he was not entitled, as a matter of constitutional law, to employment at a particular employer.

While uncorking champagne bottles in celebration, the Old Mutual board hit the send button on the email to the “Next CEO Recruiters” while the company’s share price ticked upward on the Johannesburg Stock Exchange. As Mr Moyo licks his wounds and seeks other creative ways to approach the constitutional court, if his feisty lawyers are to be believed, he has to be mulling to himself on whether there was some level of egotistic braggadocio that drove him to reject the settlement discussions that had initially taken place upon his termination last year.

However that is neither here nor there. It was the Moyo vs. the Board and the latter won. The window to seek a more gentlemanly out of court settlement has significantly diminished now that both a full bench of the High Court as well as the Supreme Court of Appeal have thrown out his case. It is impressive to see the wheels of justice spinning so fast and herein lies an excellent illustration of why a functioning judiciary is a critical cornerstone of an enabling business environment. But there is still the pending issue of Mr Moyo’s suit for reputational damages amounting to R250 million (Sh1.53 billion) and the delinquency of the 13 member board of directors.

According to Rehana Cassim, a senior lecturer in company law at the University of South Africa, to be declared delinquent, a director must be guilty of serious misconduct. There must be a gross abuse of the director’s position, gross negligence, willful misconduct or a breach of trust. Cassim goes further to say that a delinquency order, under South African company law, will ban a person from being a director for at least seven years or even a lifetime in very serious cases. Such a director’s name is put on a public register of disqualified directors which carries a stigma and reputational damage.

For Moyo, the reinstatement battle has been lost but the war against Old Mutual and its board of directors is still to be won. It will be a bruising and costly fight, especially for the side that doesn’t have deep corporate pockets. I’m not placing any bets on who will win this time.