Saturday, July 4, 2020

CHOPPIES TOTTERING ON THE BRINK OF COLLAPSE

The “Made in Botswana” Choppies supermarket chain is already suffering the ravages of a bitter boardroom brawl with some of its operations in Africa tottering on the brink of collapse.

The suspension of CEO Ramachandran Ottappathu (Ram) is reverberating throughout the business circles in Africa casting a shadow over the future of Choppies Enterprise Ltd.

Sunday Standard investigations have revealed that sales in Kenya and Tanzania have dropped by 60 % and 75% respectively. In Kenya, Choppies has also suffered stock-outs that have almost pushed it over the brink.

A local lawyer who has been tracking the Choppies rupture says there is a strong case for stock owners to launch a class action lawsuit against the board of directors for breaching their fiduciary duties.

He told Sunday Standard that no corporation in the world is immune from the potential damage that can be sustained arising from the alleged ethical lapse or misconduct on the part of their chief executive.  Such incidents need to be addressed proactively and properly.  It has all the potential to destabilize even the most stable of companies.  “Suspending the CEO is not the right way to handle such situations.  The mistake needs to be rectified with the support of the CEO. It can create more trust among the investors.”

He said the Choppies situation is made particularly intractable by the fact that the board abdicated its fiduciary responsibilities. Ram’s contract of employment which was approved by the board gave him a blank cheque to run Choppies as a one man show. According to a report compiled by the Group’s attorneys, Desai Law Group, “the contract contains a number of odd provisions, not typical of such a contract of employment in our experience,” the report by Desai Law Group says.

One of the clauses of the contract which the report took issue with reads:  “The CEO shall have powers to enter into contract on behalf of the company and to do all acts, which in the ordinary course of business he may consider to exercise in the best interest of the company.”

Another clause of the contract further states that “As a subject of the preceding clause (the CEO) is authorised to enter into negotiations, contracts, agreements, MOUs with anybody to enter into negotiations with any board, firm or any legal entity and to execute, rescind, vary or null (sic) any of the provisions or whole of such contract in the best interest(s) of the company.”

Commenting on these clauses, The Desai Law Group said “these clauses give Mr Ottapathu wide powers in relation to the management of the Company and he certainly appeared to use them heavily in all aspects of the business of the Choppies Group.”

The board of directors which is charged with exercising ultimate authority over the organization fell far short of the task because none of the board members posses solid industry insight, product knowledge and operational expertise. Ram who was the CEO was the only one with knowledge about the retail industry and in and out of his company.

“The blowout of Choppies is a natural progression of its history and the subsequent decision of the board. In any one man show, when the one man departs the stage, it’s curtains. The board should have known that”, said the lawyer.

The Choppies board of Directors may find itself on the back-foot as it emerges that they may have been quick on the trigger.

The forensic and legal investigations following Rams suspension from the post of Chief Executive Officer (CEO) was unable to draw any conclusion “one way or the other” on whether Ram conducted any serious offenses. 

The forensic report could not find any fraud, any misappropriation and no personal benefits to Mr Ram.

There were allegations against the Choppies management on money laundering related to unsupported purchases of inventory from suppliers as well as unsupported payment purportedly for store refurbishments being made in Zimbabwe.

It is the responsibility of the corporation’s directors to establish the expectations on the chief executive officer and to exercise appropriate supervision to ensure that those expectations are met. “However, in the case of Choppies, the directors involvement in the crucial decision making process were very limited. At the end, the board put all blame on the CEO”, said the lawyer.

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Sunday Standard June 28 – 4 July

Digital copy of Sunday Standard issue of June 28 - 4 July, 2020.