As Telkom's suspended CFO goes into a disciplinary hearing today, questions are being asked about the company's governance procedure related to his R6 million loan and why the unrelated disciplinary has taken so long to start.
Jacques Schindeh"utte's confidential hearing, on a matter of personal misconduct, follows his suspension last October, after Telkom received a tipoff from a whistle-blower. In a statement, which Telkom did not publish on the JSE's news service, the group says it tasked a legal firm to investigate the allegations.
Telkom's statement comes just days after one in which it said Schindeh"utte had to repay a R6 million loan, granted last year, to buy stock in the company. However, its current contention, that its board cannot and did not approve the loan, seemingly contradicts CEO Sipho Maseko's November statement to ITWeb that the loan should have been approved by the board before being issued and that this oversight was later ratified.
The telco now says Schindeh"utte personally oversaw the advancement of the payment of the loan amount to himself. He used that loan to buy 243 700 shares, just eight days before the company issued a trading statement indicating earnings would be at least 20% higher when it reported interim results.
In terms of the disciplinary action, Telkom has not stipulated the exact nature of the charges Schindeh"utte is facing, but has said it has "no connection whatsoever" with the share trade.
Committed to fairness
Telkom says the law firm's report was considered by its board, and - following professional advice - the board decided last year to give Schindeh"utte the opportunity to defend himself in a disciplinary hearing.
However, a Bloomberg article from December quotes Maseko as saying he would have preferred not to have probed Schindehutte's alleged misconduct. "If we were not listed no one would know about this, we would have managed it pretty quietly," Maseko told the news service. "It started off as a whistle-blowing, which the company then duly investigated. I, for one, wasn't keen to investigate it."
Telkom notes, in the interest of ensuring a fair process, all parties to the confidential disciplinary hearing cannot discuss the matter outside the hearing. It will not comment further until the matter is decided.
"Telkom is committed to following the correct principles and processes to ensure that the hearing is conducted in a fair and dignified manner which meets all legal and governance requirements. The outcome of the hearing will also follow the prescribed board processes, before being communicated publicly.
"In the interests of transparency, Telkom is committed to communicating the outcome once all required legal and governance processes have been followed."
Worrying questions
However, concerns are now being raised over why the disciplinary process has taken so long - leaving investors without certainty - and whether the correct process was followed in granting the loan, especially given the apparently contradictory statements.
Chris Gilmour, Absa Investments analyst, says both issues are "very messy indeed". He says both Schindeh"utte and Telkom are under a cloud, because of the long time it took to convene the hearing, although this may be because Schindeh"utte testified in the Pinnacle Point probe.
David Coulridge, senior investment analyst at Element Investments, says Telkom should be more transparent and it does not help to manage disciplinary processes on a "cloak and dagger" basis.
Maseko has said he would not prejudice the matter by commenting on it, but would rather trust the process. Deon Fredericks has been acting as CFO from 24 October, which is when Schindeh"utte was suspended.
However, says Coulridge, if the issues are too sensitive to disclose, Telkom should have moved faster. He says it does not make sense that the matter has yet to be dealt with and there will be speculation among shareholders, which could cause incorrect decisions to be made.
Coulridge says a R6 million interest-free loan is essentially a fringe benefit and should have gone through the board's remuneration committee and properly approved beforehand. "It's not something that you do later."
Allowing interest-free loans to be granted, without proper procedure being followed, is tantamount to executives being able to remunerate themselves, says Coulridge.
Abdul Davids, head of research at Kagiso Asset Management, says while it is difficult to comment on the specifics of this case, in general the company does not support resolutions that authorise the granting of financial assistance to directors to purchase shares. "We are, therefore, perturbed that a loan was granted in the first place."
Gilmour says these issues sound "like a real governance mess". He says loans should go through the proper process and the hearing must be resolved quickly. "It's bad; it's actually very, very bad."
Telkom did not respond to a request for comment.
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