Friday, October 30, 2020

Choppies chops Ram’s salary but…

Choppies’ maverick chief executive officer (CEO) Ramachandran Ottapathu is getting a huge pay cut, seen as part of the deal to stay on as CEO of the retailer, while a replacement is being sought.

The company co-founder last year fought a bitter battle with Choppies old board which suspended him for alleged misconduct. Though he managed to swing majority shareholders’ votes in his favour, replacing the old board and being reinstated as CEO, the new board has usurped some of the CEO’s powers and have now reviewed his huge pay. 

Ottapathu’s P10.5 million annual salary has been slashed by 43 percent to facilitate the introduction of short incentives, said the company an update released Thursday. Ottapathu’s monthly salary of over P1 million has been severely criticised by pockets, citing the major pay disparity between the CEO and the lowest paid cashiers and stock packers, who earn less than P2,000. 

The man credited with turning Choppies into a retail powerhouse has previously defended the pay disparity, noting that the company pays its staff according to the country’s prescribed minimum wage. Even with the latest pay cut, Ottapathu remains top in the list of the highest paid CEOs in Botswana. 

For a man of considerable wealth, the pay cut is nothing compared to the bigger picture: acquiring controlling stake of Choppies. Insiders say Ottapathu is willing to compromise for now, bidding his time to acquire more Choppies shares and later take the retailer private to avoid the repeat of the saga that uncovered one of the worst corporate scandal in Botswana, which left him embarrassed and at the mercy of minority shareholders. 

Choppies’s gripping drama unfolded in early 2018 when newly appointed auditors, PriceWaterhouseCoopers (PwC), stumbled upon financial irregularities, and raised the audit concerns with the company’s board. As a result, Choppies failed to publish its audited financial results for 2018 and was suspended on the Botswana Stock Exchange (BSE) and Johannesburg Stock exchange (JSE).

As the drama played itself out, the Choppies board commissioned Desai Law Group (DLG) for legal review of the company’s governance structures, while Ernst & Young accounting firm was tasked with the forensic report. In May 2019, the board suspended Ottapathu on allegations of misconduct, charges which he strongly denied, and labelled the legal and forensic reports as lacking credibility due to inconsistencies. 

As tensions rose in the company, an extraordinary general meeting (EGM) was called in September to end the tussle, and  Ottapathu emerged victorious after launching a massive campaign to draw shareholders to his side, and he was able to replace most of the old board members, constituting a new board team which was seen as largely sympathetic to him. 

A week after the EGM, Ottapathu’s suspension was lifted by the new board, disclosing that it was not in the company’s best interests to pursue disciplinary action against the CEO. The board’s decision prompted a backlash from a large portion of Choppies’ institutional investors who wrote to the new chairman of the board, expressing dismay that Ottapathu had been reinstated and requested that disciplinary hearing against should Ottapathu proceed. 

The institutional investors, made up of pension funds and assets managers, account for 46 percent of Choppies’ entire shareholding, were some of the biggest losers when Choppies share price plunged by more than 70 percent on the BSE and JSE. The board defended its position to retain Ottapathu, explaining that his presence “as CEO for the moment was essential to stabilisation of the business.”

To further assuage the angry investors, the board later appointed South African based advocates to undertake the holistic review of the legal and forensic reports and advise the company if it should proceed with disciplinary action against Ottapathu. Three months later, advocates Mark Meyerowitz, Andrew Redding and Guy Hoffman said that the circumstantial evidence of suspicious conduct currently available does not amount to a conclusive case of serious misconduct sufficient to substantiate the charge of accounting irregularities against Ottapathu, and it is unlikely, based on current evidence, that a finding of fraud or breach of fiduciary duty can be made, and it would be unwise to proceed with that charge based on current evidence.

The board has since announced that it has resolved to follow the recommendation of counsel and “cause a focused investigation by independent counsel to establish the sufficiency and cogency of evidence prior to taking a final decision whether to proceed with a disciplinary enquiry.”

Meanwhile, Ottapathu is stealthy consolidating his power in the company, foregoing the huge pay in return for long term incentives which will include stock options that will increase his shareholding in the company. Furthermore, Ottapathu together with Choppies founder Farouk Ismail, have borrowed Choppies P100 million to reduce capital of the P680 million debt owed by Choppies to creditors. 

The company board has further announced that they have identified a new chief financial officer (CFO) and a deputy chief executive officer. The unnamed CFO is a South African chartered accountant and is expected to start in Mid-April pending work permit approval. The deputy CEO, also unnamed, is said to have over 25 years of grocery retail experience in Southern Africa and will commence duty end of April.

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