Thursday, May 6, 2021

“BIHL Directors should resign”

The recent rumblings about the goings-on at the Botswana Insurance Holdings Limited (BIHL) are yet another manifestation of the extent to which we human beings are willing to go in the name of greed.

Greed, after all, is the hallmark of every human being and unless it is checked by countering it with fear, it stands to consume us all.
You do not need to look very far in history to appreciate the extent of greed in the investment management industry in this country. The advent of the public officers’ pension fund some seven or eight years ago and how it has been managed has a lot to say about the extent to which we are willing to go to take advantage of others as well as the weak regulatory environment in Botswana.

As far as the BIHL saga goes, it is no surprise in a market where the well connected rule, and you do not get the impression that it is the last time we are going to witness such extreme greed on the part of a group of management and board members in cahoots with their majority shareowners. After-all, it is hardly a long time ago when the same company was rocked by allegations of insider trading, which eventually led to the resignation of some senior officers. The tragedy is that BIHL, or shall we say Bifm, is a major player in the local investment management industry and hence any slip on its part is bound to have far reaching implications for the industry as well as for self-regulation.

All corporate governance best practices the world over recognise the importance of good corporate governance as a source of value creation, especially for those companies that are listed on the stock exchanges. It is also a long held tenet of good corporate governance to maximise shareowner value. The role of the board in the bigger scheme of things of corporate management is to delegate authority to management to manage with the ultimate view of maximizing shareowner value and in turn, it is the same board that holds management accountable.

In the case of BIHL, the board, the senior management and the majority shareowner have connived to destroy shareowner value at BIHL to the extent of about 50 percent since the news broke out that some members of management and board of BIHL have clandestinely acquired some 10 percent of the shares of one of the subsidiaries of BIHL, Bifm.
This Bifm/BIHL saga represents a classic case of shareowner value destruction against the backdrop of a company that has otherwise performed relatively well in terms of earnings growth. Since the news broke out about the saga sometime early this year, the BIHL share has lost some 50 percent of its value, which translates to a loss in value of about P2, 5 billion in a few months and yet, its earnings growth as recently reported was about 75 percent; what a stark difference, a difference that can only be mainly ascribed to the greed of a few senior management and some board members.

It can, therefore, be concluded that this sharp destruction in value at BIHL, since the news of the greedy board/management broke out, was almost entirely due to a poor corporate governance culture at BIHL, a phenomenon that has now come to characterize the quality of management. It can also be concluded that while the value destruction affected all shareowners pro rata, it is the minority shareowners who felt the impact the most, hence their outcry.

The asymmetry in the underlying performance of BIHL in relation to the performance of its share price only confirms the general wisdom that it is the quality of the corporate governance climate in any company that explains the shareowner value creation or destruction.

It is the absence of fear and remorse on the part of the culprits which concerns me the most, not least because it is a manifestation of the extent of the damage that has been done to the investment industry and investing community confidence during the last ten years and especially in recent past. It is for this reason that those who appreciate and recognise the importance of the investment management industry and the funds it manages for indigenous talent development and, above all, the diversification of our economy feel that more pressure need to be put on the board and senior management of BIHL to resign. They have failed the investing public; they have had total disregard of the interests of the minority shareowners; and above all, they have shamed the local investment management industry.

The same amount of pressure should be applied on the majority shareowner that knowingly facilitated this loot using its majority shareowner power; this is nothing but abuse of majority shareowner power by a company which knows very well that the regulatory regime in its own country would not have allowed it to go ahead with the transaction in the manner that it did. This is the time to hold the board and senior management at BIHL as well as their erstwhile majority shareowner accountable for this dreadful saga and ask them to do the honourable thing – resign or be fired.

It is absolutely ridiculous for Sanlam to say that they facilitated the transaction in order to enhance shareowner value; well, the opposite happened in a big way and, therefore, how can Sanlam convince minority shareowners that they did all that for them; this is preposterous to say the least.

The other question is: why did Sanlam and the BIHL directors reward the concerned with BIHL shares and not those of Bifm? How could this transaction have facilitated the growth of Bifm in the rest of Africa? Sanlam and BIHL directors have obviously chosen to ignore the corporate governance aspects of the transaction and seem to be harping on its legality or lack of it.

I must say I find this very disappointing because after so many years of hullabaloo about corporate governance and the many instances of corporate governance failures the world over, one would expect a listed company such as Sanlam to be one of the champions of good corporate governance in their own locality as well as beyond.

If they refuse to resign as it would appear to be the case, after-all they have shown little remorse, those that have mandated them to manage their funds, in good faith, should simply withdraw the mandates. In this respect, the Bank of Botswana Staff Pension Fund, who I believe has fired Bifm as its investment managers, did the right thing and it sometimes puzzles me why others who are supposed to be supervised by Bank of Botswana do not follow suit; or are they comfortable with their funds being managed by a firm that does not subscribe to corporate governance best practices; and where is the so-called Institute of Directors, anyway or, for that matter, the Non-Bank Financial Institutions Regulatory Agency? The tragedy in this country is that the so-called sacred cows are so well connected that they can go on and on in their dirty dealings with impunity and without remorse.

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