FIRST WORD

A few years ago, when it was published, the revised King code on corporate governance was all the rage. Ja, ja, said the high and mighty, it’s a wonderful document. Of course we welcome it. Of course we’ll comply.

Now, maybe it’s unfair to single out Old Mutual for non-compliance in a particular respect.What it has done is certainly not exceptional. But the official announcements of its BEE deal deserves special mention because of the sheer number of ordinary people affected as policyholders, shareholders and stakeholders.

In a word, how many of them could possibly have understood the announcements? Were the announcements seriously intended to have been read at all?

Throughout the King code, the need for intelligible financial communication is emphasised. The code defines "transparency" as "the ease with which an outsider is able to make meaningful analysis of a company’s actions, its economic fundamentals and the non-financial aspects relevant to that business".

It says that "technical terms and jargon should be avoided, or if unavoidable, simplified and explained". It quotes approvingly from the Global Reporting Initiative that "reporting organisations are asked to ensure that their reports are understandable to a wide range of stakeholders". And so on.

Old Mutual Plc, Old Mutual SA, Nedcor and Mutual & Federal between them took five pages in daily newspapers for mandatory announcement of their BEE transactions. The whopping cost was wasted if the ads were supposed to have been read and understood by any except the most financially literate enthusiasts who had the interest, patience and time on their hands to wade through the quagmire of legalese.

They’d have also needed good eyesight. To nit-pick, the size and density of type hardly enhanced user friendliness. But at least the announcements clearly showed the logos of the deal’s sponsors and advisers, as if these were of such paramount importance as to have justified the cramped space for everything else.

Little is added to the sum of human knowledge when a politically correct sentiment is followed by a rand amount. For example, "acknowledging that the Group is not fully representative and that transformation comes from within, the Group proposes to set aside shares with a market value of R2 726 million to recruit, retain, and incentivise black employees and management". How come it hit on R2,7 billion, not R4,7 billion or R1,7 billion to serve the stated purpose?

That it does affect shareholders’ money, after all, should require that the number be explained in terms other than the generally platitudinous. Imagine its shareholders’ jubilation if Mutual had underpaid R1 billion for an acquisition, or the outcry if it had overpaid by R1 billion. But then Mutual would have been at pains to justify the cost, and armies of analysts would have sweated to calculate whether the price was right. With BEE, a couple of billion here and there passes with unquestioned hoorays.

Neither is there a shortage of technical jargon.

For example:

• "While the Group Transactions are dilutive to earnings and embedded value…."
• "The accounting treatments adopted may require transactions to be accounted for in a different manner to their legal substance and form…."
• "Where control is deemed to remain within the Old Mutual Group, the entities established to support the Group Transactions are regarded as subsidiaries. The issue of Old Mutual plc shares by the consolidated SPVs are regarded as issues of treasury shares, resulting in a reduction in equity…."
• "Where deferred compensation is to be received for the issue of the shares, an adjustment to the embedded value is required to represent the discounted present value…."

There is a lot more where that came from. Gone to sleep yet? Understand enough to vote at the shareholders’ meeting?

Judging by its comprehensive website, Mutual is one of the best communicators of financial information around. Judging by this announcement, it isn’t. But Mutual wasn’t exactly spoiled for choice. The JSE Securities Exchange, which endorses the King code, paradoxically insists that this is how material price-sensitive information be disclosed. The JSE polices such announcements, and doesn’t allow them to go out until it has approved them. Perhaps, then,Mutual is less a perpetrator than a victim.

Poor journalists, assisted by companies alive to the opportunities for spin, are left to summarise the officialese, make it comprehensible and attempt informed interpretation. It’s one hell of a task, rendered the more onerous by companies’ prevalence of ‘tickbox’ compliance and the JSE’s propensity to condone it.

Allan Greenblo
Editorial Director