Golden handshakes costly to shareholders

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RECENT reports that Telecel CEO Francis Mawindi was demanding a whopping US$1 million handshake from his former employers for wrongful dismissal made interesting reading.

Report by Clive Mphambela

A month or so before these reports, Mawindi was said to have resigned from his job, but fresh evidence suggests he had actually been dismissed and he was challenging the dismissal.
Mawindi’s departure from the helm of one of Zimbabwe’s most visible companies is not the only disengagement of its nature to make headlines in the recent past.

In the last 12 months, Zimbabwe’s corporate landscape has seen the departure of Emmanuel Munyukwi from the helm of the Zimbabwe Stock Exchange following his suspension by the ZSE board, which cited incompetence.

The charges against him were later dropped amid reports the board reached an amicable disengagement deal with him, a euphemism for a golden handshake. Munyukwi is said to have walked away with a US$300 000 package.

A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package if the executive loses his or her job through firing, restructuring, or even scheduled retirement.

This can be in the form of cash, equity or other benefits, and is often accompanied by an accelerated vesting of stock options. Analysts criticise golden handshakes and negotiated exit packages for executives as being costly to shareholders, who ultimately carry the cost.

Fred Moyo, former CEO of Hwange Colliery Company was also reportedly shown the door. Hwange company told the public his contract was simply not renewed, but he reportedly also got away with a substantial amount in severance payments. The story is similar for several other leaders.

Last year, Munyaradzi Kereke left the Reserve Bank of Zimbabwe after a clash with his former boss, central bank Governor Gideon Gono. Kereke reportedly got an award of almost US$1 million. Josh Sachikonye was pushed out of RioZim although details of his exit package never reached the public domain.

Similarly, Pattison Sithole left Star Africa in August last year together with his chief operating officer Tendai Masawi. Mike Manyika also tendered his resignation from Dawn Properties at the end of last year, after a protracted battle with his counterparts at African Sun Limited over the terms of leases held by Afrisun on Dawn’s hotel properties.

The fight had spilled over into the courts but was later resolved after Afrisun bought a controlling stake in Dawn Properties, putting paid to Dawn’s attempts to evict Afrisun from its properties.

Nonetheless, there was a reorganisation at Dawn, culminating in Manyika’s departure. Sithole and Masawi’s departure came at a time when the sugar producing company has been in a loss-making position since the introduction of the multi-currency regime in 2009.

While these golden handshakes have become a part of Zimbabwe’s corporate landscape, with several CEOs in the past year having been paid handsome amounts to leave their jobs, this practice has drawn the ire of management experts, who say it is an expensive and unfair way of dealing with underperforming executives.

Human capital expert, Memory Nguwi told businessdigest that the difficulty in managing out non-performing executives emanated from faulty employment contracts.

“There are two sides to this problem. Firstly, you will find that CEOs are hired on fixed term contracts of between five and 10 years. When an executive is forced to leave earlier, the company must pay out the value of the remaining contract tenure, regardless of the performance of the executive,” Nguwi said.

Secondly, the performance side of executive contracts has been difficult to enforce, making it difficult to ask an executive to leave purely on the basis of non-performance. Boards have often rushed to renew contracts without paying due regard to the individual’s performance in driving the fortunes of the business.

“When one looks at some of the best performing companies on the market, it is not entirely the skills or aptitude of some of the leaders in these companies. Some of the executives are just lucky to be leading well-capitalised companies that are also in monopolistic industries, so they then seem to be doing well. If we were to take some of the CEOs from these companies and give them positions to turn around companies such as Air Zimbabwe or NRZ they would struggle,” he said.

Nguwi said there was an inherent weakness in some boards and also very weak shareholder activism.

“Weak shareholder activism in Zimbabwe emanates from two fronts. On one hand we have very secretive shareholders who do not want to be known or be active in the companies in which they are invested, so half the time they send in proxies to shareholders’ meetings, that is if they attend at all,” Nguwi said.

“Secondly, with pension funds, who are shareholders in most of the listed companies, you will find that the pension fund trustees may not have adequate representation on the boards.

In the instances that pension funds send trustees to shareholders’ meetings, these may not be adequately trained in investments to equip them to ask the difficult questions and demand performance from their investee companies.”

Nguwi said in addition to giving pension fund trustees adequate training to enable them to supervise their investment portfolios, pension funds should appoint professional independent trustees with financial or investment management background on their boards of trustees to complement the employee and employer representatives found on the boards.

 

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