Ramachandran Ottapathu, the co-founder and overreaching chief executive officer of Choppies Enterprises, will no longer wield as much power in the retailer’s operations as before. Instead, the power will be returned to the company board, in accordance with the best international practices, Choppies’ Audit and Risk Committee (ARC) has said.
The three-member committee, currently made up of two board members, was appointed last year September in a tense Extraordinary General Meeting (EGM) that put an end to the tussle between Choppies old board and Ottapathu. The previous board, chaired by former president Festus Mogae, had suspended Ottapathu over a series of allegations spanning possible fraud and gross negligence that risked the collapse of the once profitable retail chain giant.
Choppies’s inner dirty workings became public in 2018 when the company failed to publish its full year audited results after new auditors picked up shoddy accounting practices which distorted the true financial position of the company. In the ensuing mess, Choppies lost over 70 percent of its share price, and was later suspended from trading both on the Botswana Stock Exchange (BSE) and Johannesburg Stock Exchange (JSE) for continued non-compliance.
Choppies’ market capitalisation on the BSE dropped from P2.2 billion to P521.5 million after its share price plummeted from P1.69 to P0.40. Mogae who holds about 19.7 million shares or 1.51 percent stake in Choppies was among the stock’s biggest losers – his shares value drastically reduced from P48.9 million to P7.9 million in just nine months.
Furious, Mogae rallied other members of the board to oust Ottapathu during the EGM, accusing Ottapathu who co-founded Choppies in the early 1990s of running a one man show by disregarding the board and taking unilateral decisions. For the first time, the country got to learn that Choppies board was a lame duck, carefully selected when it listed in 2003 to just rubberstamp Ottapathu’s decisions. Mogae, the former recipient of Mo Ibrahim award for good governance, conceded that they allowed Ottapathu to do as he pleases because they trusted him, and he was bringing in the money – well until his ill-fated voyage in markets outside Botswana.
In a bid to bring a strong case against the suspended CEO, Mogae’s board commissioned a legal and forensic report in the operations of Choppies and actions of its CEO. The legal report by Desai Law Group exposed serious deficiency of corporate governance at the sprawling grocer, stopping short of pinning all blame on the all too powerful CEO.
However, Ottapathu who is the biggest individual shareholder, with a 19.54 percent stake, managed to convince Farouk Ismail, the company’s founder and second largest shareholder, to vote with him and frustrate Mogae and his vigilantes. During the EGM, Ottapathu led an on slaughter against Mogae and his allies, replacing the old board with new people seen as sympathetic to him.
Frustrated, Mogae immediately notified shareholders he will be standing down as chairman of the board. Ismail, who holds 15.27 stake in Choppies, was appointed the new chairman of the board, which later lifted Ottapathu’s suspension and reinstated him as CEO. Though this was a major win for Ottapathu, the new board has accepted that there is urgent need and requirement to overhaul the governance structure at Choppies to bring it up to international best practice standards.
The board then appointed its members Carol-Jean Harward and Tom Pritchard to the audit and risk committee (ARC), leaving a vacant post that will filled by a non-executive director sometime this year. The Pritchard led committee has already identified that Choppies’ corporate structure lacks an approvals framework, absence of investment committee, code of ethics and business practices, and that some board committees have to be strengthened.
In beefing up the governance structure of the company, the ARC acknowledged that the board should retain full and effective control of Choppies, and that the board is ultimately accountable and responsible for the performance of the company. The board charter was changed to comply with the King IV requirements, which includes responsibility for reviewing and guiding corporate strategy and risk management.
“The Choppies Board has overall responsibility for the management of the Group and for maximising shareholder value. In discharging its responsibilities, the Board is supported by the executive and senior management, together with the various board committees and other governance forums and panels,” said the ARC, which publicly disclosed these statements in Choppies recently released annual report.
The ARC has also recommended to the board that it be allowed to bolster its own charter by fundamentally changing it to comply with the requirements of King IV. The ARC deals with matters such as recommending approval of financial results, review of the Integrated Report, approval of the internal audit plan, review of internal financial controls and recommendations on dividend proposals and external auditors’ appointment and reports.
In addition, the ARC has asked the board to hatch and implement an investment committee, which they say its overdue. Ottapathu had been accusing of solely making investment decisions, of which some proved costly as they have not turned profitable. Choppies late last year announced that it is exiting the loss-making South Africa and East Africa markets. The investment committee will operate under its own charter and make recommendations to the board in respect of proposed new investments and capital expenditure.
“The committee will monitor progress of major capital investments by way of the investment progress schedule together with post-implementation reviews. In addition, it will approve internal processes relating to capital expenditure and investment proposals, including all documentation required to be completed, and review the funding mechanisms of above investments or capital expenditure,” the ARC said.