THE National Social Security Authority (Nssa) has besieged CBZ Holdings (CBZH) executives demanding to know their remuneration packages and more financial disclosures against the backdrop of paltry dividends to its shareholders.
By Bernard Mpofu/Hazel Ndebele
The state-owned social security agency has been under pressure from pensioners and lawmakers demanding strong social safety nets. Government wants Nssa to reduce its exposure on the capital markets and balance its investment portfolio with infrastructure projects and employment creation to help offset an underperforming economy.
The pension authority has a strong exposure on the Zimbabwe Stock Exchange (ZSE) and is one of the top 20 shareholders in CBZH with just over 10%.
Nssa, which has 70% of its investments in the equities market, has interests in over 50 companies listed on the ZSE, holding at least 10% shareholding in 12 counters.
It has since been established that Nssa is now pushing for an extraordinary general meeting (EGM) to elbow out the existing CBZH board. Nssa is also calling for a forensic audit into some CBZH units.
CBZH has since announced an annual dividend of US$3,2 million after releasing its financials for the year ending December 31 2016.
Official figures from the Reserve Bank of Zimbabwe show that the banking sector remained profitable during the year-ended December 31 2016, with an aggregate net profit of US$181,06 million, an increase of 42,36% from US$127,47 million reported for the corresponding period in 2015.
All operating banking institutions, according to the central bank, recorded profits during the period ended December 31 2016. The increase in profitability was largely driven by lower loan loss provisions in line with improving asset quality, lower interest expenses, as well as continued re-alignment of cost structures at most institutions.
The increase translated to improved average return on assets and equity from 2,07% and 11,03%, to 2,26% and 12,64%, respectively.
According to correspondence seen by the Zimbabwe Independent, Nssa chairman Robin Vela wrote to the country’s largest banking group questioning why the institution had not made a pay-out to shareholders despite posting strong earnings.
Nssa, the documents further reveal, wants CBZH to convene an EGM over the non-payment of dividend and executive packages paid to CBZ executives resulting in shareholder value being eroded.
Elliot Mugamu chairs the CBZ board.
As non-executive chairman Mugamu receives executive perks from the bank, on top of board fees. Between January and December 2, he received perks to the tune of US$18 902,35 which include medical aid, security guards, fuel and other motor vehicle expenses, Wi-Fi, newspapers and DStv annual subscription.
“I write as a representative of Nssa, a shareholder of CBZ Holdings Limited (“CBZ”) with in excess of a 10%, shareholding entitling us to call for an Extraordinary General Meeting (EGM) to seek clarification on certain matters relating to CBZ, and in this particular instance the independence of your board of directors (in particular, the group chairman, as required under the new Banking Act) and the remuneration policy for both management and the board of directors,” Vela wrote in a letter dated November 25, which was addressed to CBZH secretary Rumbidzayi Jakanani.
“It has been brought to my attention that it may be the case that your non-executive group chairman earns in the region of US$40 000 per quarter from CBZ. It has also been brought to my attention that the same chairman has had a Mercedes-Benz vehicle purchased for him by CBZ. Both of these are unconscionable for an authority which has received minimal returns in the form of dividend from CBZH.
“I also do not believe there has been full or adequate disclosure, in general, around the remuneration framework and packages for senior management and the board. It is also not clear what hidden benefits in kind, per diems and other are paid. At the core of our concerns is how any individual(s) can remain independent, give strategic oversight, if they are wholly financially dependent on CBZ. We make the broad assumption that the board, which is responsible for all aspects of CBZ, is fully aware of all detailed elements relating to these matters, takes collective responsibility and consciously duly resolved/approved the same.”
Jakanani responded to Vela saying following his letter, the CBZH board convened on December 1 2016 and deliberated on issues raised by Nssa. She dismissed claims that Mugamu’s quarterly fees is in the region of US$40 000.
She further stated that in November of the same year, the group’s human resources and remuneration committee proposed to the board to reduce directors fees due to a weakening economy.
“In response, we would like to state that in May 2016, CBZ Holdings Limited purchased a Toyota Land Cruiser at a cost of US$124 000 for the use by the chairman. The vehicle is registered under CBZ Holdings Limited and its running expenses are paid by the company,” Jakanani responded in a letter dated December 2 2016.
Responding to the concerns that the company had made limited disclosures, Jakanani said directors’ fees and senior management’s salaries have been disclosed in the company’s financial statements in accordance with International Financial Reporting Standards and ZSE listing rules.
Following this response, Vela wrote to the CBZH human resources and remuneration committee chairperson Roseline Nhamo and risk and compliance committee chair Rebecca Pasi querying why there was no disclosure on the company’s top 10 executives, failure to provide information on insider loans and why Mugamu is paid a retainer as chairman. He said Mugamu’s hefty perks would compromise the independence of the financial services group board.
“Our intention remains to advise the Reserve Bank of Zimbabwe as regulator of our concerns and to call for an EGM to get clarification we are entitled to, but seems woefully lacking and inadequate in the formal financial statements issued by CBZ or in the CBZ response,” Vela said in a letter dated December 15, 2016. He also questioned why CBZ Holdings management bought Mugamu a car without board approval.
On December 21, Nhamo wrote to Vela saying his letter had been brought to the attention of the board and she further advised him that the company would embark on a restructuring exercise in January 2017.
“We fully appreciate the importance and urgency of the issues raised in your letter, but in view of the above factors, we request for an extension of the deadline to respond (23 December 2016) in order to allow us (to) follow due process in convening a full board meeting in terms of the board charter to consider and deliberate on the issues you raised in your letter,” Nhamo said.
Vela later wrote to CBZH demanding that an EGM be convened to address the matter.
“Given the reluctance to provide the requested disclosures timeously, Nssa’s resolve is now to push for an EGM at which, inter alia, the removal of the board will be put forward. Further to the request for an EGM, which will formally be lodged shortly, Nssa, as a CBZ shareholder, is now taking legal advice with a view to calling for a forensic examination of certain CBZ operations with a view to ascertaining what prejudice may have been caused to shareholders by the board and for which personal liability may be attached,” reads a letter dated December 27.
“As noted before, your non-executive board chairman gets retainer fees alone amounting to US$112 000 per annum before sitting fees, business travel allowances, living expenses coverage and the exclusive use of a top-end Toyota Land Cruiser vehicle. The ultimate cost of such largesse is borne by the many voiceless Zimbabweans, especially the poor pensioners who are being paid a miserable US$60 per month after a lifetime of contributing their hard-earned money.”
Asked if her ministry would intervene on the matter, Labour minister Prisca Mupfumira declined to comment.
“I have no comment on that issue,” Mupfumira said in a telephone interview.
CBZH chief executive Never Nyemudzo said the company has been consistently declaring dividends to its shareholders. He said he was not aware of the letters written by Nssa.
“If you check our annual reports, you will see that since 2011, the group has been consistently paying dividends to its shareholders,” Nyemudzo said.
When queried on the hefty executive perks that Nssa is complaining about, he said he was not aware of such developments. Vela, however, confirmed that he had written to CBZH demanding necessary information accountability.
“I can confirm that I have written to CBZ about that issue and I did so on behalf of Nssa as an institution and its board. When we took office (in 2015), we made it clear that our companies or companies that we have shareholdings in must perform on behalf of us and pensioners. If we are only getting paltry dividends from companies, then we must ask pertinent questions on issues relating to management remuneration packages, cost structures and payments to board members,” Vela said in a telephone interview. “For far too long, companies in Zimbabwe have largely existed to serve the interests of management as opposed to shareholders. In deciding to look at the cost structures and remuneration packages in our companies, Nssa recognises that the disclosures made in most of their financial statements are purposely opaque and woefully inadequate for the shareholder to understand things such as management remuneration and insider loans. It is our view that some of the boards in our companies are weak and sometimes allow themselves to be controlled and influenced by management instead of the other way round. Such compromised boards cannot effectively do their job to supervise management and their companies and this results in the shareholder being prejudiced.”
Vela added that any notion that promotes management delinquency and defiance short-changes shareholders.
“Any notion by anyone in management that shareholders have no right to ask or know their remuneration and other related issues puts the shareholder at the risk of being a spectacular failure in corporate governance terms and this results in the incredible remuneration figures like those we saw recently at Psmas,” he added.