Edition: February/April 2018


Standards to understand

Naspers is immune from stakeholder activism. Retirement funds couldn’t simply pull their investments.

There’s an odour of hypocrisy that surrounds the Gupta imbroglio. Self-appointed judges of commercial morality, who’ve poured opprobrium on accountancy firm KPMG, can be accused of double standards if they don’t apply a similar approach to television company MultiChoice.

Where these judges have been particular asset managers, they cannot be outspoken on the one and not the other. But they have a problem. While they could vent their spleen against KPMG, in which they aren’t invested, they’d need to be constrained on MultiChoice to whose Naspers parent they’re heavily exposed.

Eccentric treatment was extended by both KPMG and Mutichoice to Gupta-controlled entities. In the case of KPMG, it focused on the professionally-flawed audits of Oakbay Resources. In the case of MultiChoice, it focuses on the generosity of multi-million rand payments to ANN7 kept secret from other content suppliers who enjoy no comparable favour for distribution on the DStv bouquet. In the behaviour of KPMG and MultiChoice, there’s moral equivalence.

KPMG was easy meat for the picking. Premised on the analogy that the appropriate way to kill a tumour is to murder the patient, the death of KPMG was sought. Clients were urged to kick out KPMG. Several did.

Rage expels context. In the hullabaloo of KPMG’s censure, sublimated to neglect was the internationally recognised audit principle that it’s the directors of a company who’re responsible for the preparation and fair presentation of its financial statements.

There’s been no Gupta on the Oakbay board. Nonetheless, the company’s vulnerable underbelly could have been in challenging the incumbent directors for personal liability. Yet so far only the auditors have been targeted to suffer financial and reputational penalty.

The shame of KPMG offered the perfect opportunity to demonstrate moral rectitude, the louder the better to score points, without expense to oneself. But now along comes MultiChoice.

Naspers, which owns MultiChoice, is the giant of the JSE’s primary listings. Were it kicked out of institutional portfolios, the impact would be disastrous; not only for the performance of asset managers and clients such as retirement funds invested with them, but for the market as a whole. Such is the dominance of Naspers, because of its holding in a Chinese internet company, that the entire all-share index reflects it. Disinvestment from Naspers is unthinkable.

Thus the paradox. Turn away from KPMG, where there’s no cost to the virtue signalling, but dare not turn away from Naspers where the cost would be huge.

There’s another twist to the morality tail. It’s in the emergence of MultiChoice as part of Naspers, the largest owner of SA print media.

The continued existence of numerous iconic newspaper titles, inside and outside Naspers, rest on shaky viability. The threat to their futures threatens SA’s democratic vibrancy. Such a dismal prospect wouldn’t loom had the cross-subsidisation of print media by electronic – the rationale which gave birth to M-Net, then MTN, then MultiChoice – been immutable.

Back in the mid-1980s, faced with what it described as the “total onslaught”, the National Party government granted the licence for the first pay-TV channel to the M-Net consortium comprising the owners of SA daily and Sunday newspapers. These were Naspers, Perskor (now gone), Argus (later Independent Newspapers) and Times Media (then SA Associated Newspapers which had just closed the Rand Daily Mail).

Their shares were held in roughly equal proportions. Naspers, which had led the initiative, took a slug slightly larger than 25% and the tiny Daily Dispatch group was given a sliver.

The idea was to support print media from revenue losses anticipated by the deflection of advertising to electronic media. Whether there was a subtext to reward or expect political loyalty cannot be said. Although print advertising remained strong after the M-Net launch, government kept moving the goalposts for more free-to-air privilege that boosted the channel’s revenues.

Over the years, ownerships by the “M consortium” extended to other “M” electronic start-ups in mobile telephony and pay television. Then too, except for Naspers, ownerships of the main print media gradually changed. So also did their ownerships of the “M stable”, causing control to concentrate in Naspers and leaving the others bereft of the M association. Where this was of their own doing, as with Times Media prior to the Tiso Blackstar era, they have only themselves to blame.

Once recognised for affinity to the old government, Naspers has adapted its political correctness under the new. Amongst the SA media groups it is today, thanks partly to MultiChoice, the most potent in its ability to remain true to the foundational concept of unprofitable print media being sustained by profitable electronic.

Up for argument is a moral compulsion, to honour reciprocity for favours previously bestowed, that it continues doing so when the print proportion of its assets is valued at below zero. From history to the present, a constant is the intersection of business and morality.

Unlike KPMG, Naspers holds all the cards.

This TT article first appeared on BusinessLive/FM, Nov 28.