Issue: December 2007/February 2008


Sweet Sue

Tiger Brands’ settlement with the competition authorities will ultimately be paid by . . . guess whom. Something isn’t right about indirect shareholders such as retirement funds picking up the R100 million tab. What happens next is up to the direct shareholders.

Mphalwa... okay for civil claim

Were there cause to action shareholder activism – beyond the niceties of “engagement” with company managers and registering protests at shareholder meetings – Tiger Brands offers it. Ultimately, it is shareholders who’ll be hit for the R98,8 million administrative penalty levied against the company by the Competition Commission for colluding to fix bread prices in the Western Cape.

Logically, shareholders aren’t guilty of the collusion. Legally, the company pays the fine. Practically, that means its shareholders.

The two largest single shareholders in Tiger are the Public Investment Corporation (PIC) and Old Mutual (TT Sept-Oct). Both are fiduciaries of people’s savings. Both stand now to be tested on their commitment to the shareholder activism they profess: the PIC by its client mandates and its own high-profile stance; Mutual by compliance with the Financial Sector Charter and the King code.

They’re virtually obliged to seek recourse if the indirect shareholders they represent, notably retirement funds, aren’t to sacrifice a higher dividend than they’d otherwise receive. Not that these investors would be any the wiser, because rarely are they made aware of such impacts.

Spread among many thousands of savers, their individual sacrifices are obscured although the fine itself is huge. In anybody’s language, R98,8 million is a lot of money. For Tiger, it equates to almost 10 percent of the group’s headline earnings for the six months to end-March 2007 and roughly 12 percent of the total dividend it paid on ordinary shares in 2006.

The matter spotlights issues of principle, public policy and practice.

One is whether shareholders will seek recourse and, if so, against whom. In the firing line must be the Tiger directors, at least the executive directors. They are accountable for the business of the company. For accountability to mean anything it implies personal liability (possibly cushioned by fidelity insurance whose premiums the company would have paid, thank goodness).

No matter that the directors blame it on renegade employees who report to them and who they’re remunerated to monitor. It challenges belief that directors aren’t aware of the competitive dynamics in the price increases of a staple foodstuff that contributes significantly to group profits. To have Tiger chief executive Nick Dennis in a witness box, subjected to cross-examination, might prove more insightful than the group’s press releases.

Another is the rumble of a consumers’ class action, earlier intimated by Trade & Industry Minister Mandisi Mpahlwa and more recently threatened by various bread distributors as well as Cosatu. This raises similar problems of recourse. Were there to be a successful action against Tiger as a company, it would inflate the damages of R98,8 million to the further detriment of indirect shareholders who’d include the plaintiffs themselves.

Finally, there’s reputation. Tiger takes pride in corporate social investment. Its flagship programme is “Unite Against Hunger”, which “continues to address the pressing need to provide food to desperately hungry people”. Enough said.

Perhaps more than this paradox, and more than this fine, is the tarnishing of the business establishment. When it cries against corruption in government, its authority is diminished by the guilt admission from one so prominent among its own.

Tiger takes pride in corporate social investment. Its flagship programme is “Unite Against Hunger”, which “continues to address the pressing need to provide food to desperately hungry people”.