MUCH LIKE South Africa’s judicial system when it comes to sentencing, where discretion still comes into play, although there are mandatory minimum sentences for specific severe offences (which would account for discrepancies in sentencing in certain cases), the Johannesburg Stock Exchange (JSE) appears to exercise a similar power of preference as to how it metes out its “punishment” on offenders.
A curious case in point is that of the bourse’s decision to impose a severe five-year ban on two former directors of embattled tech company AYO Technology Solutions.
These censures were issued in Mbuso Khoza and Telang Ntsasa’s personal capacity, AYO having already been fined and censured back in 2020 for what the company called a “misinterpretation of the IFRS rules” on submitting its first set of financials after listing.
Referring to this matter that took place in 2018, revolving around AYO’s 2018 interim accounts, the JSE recently issued the pair with public censures – four years after the fact.
We can agree that censures by their very nature are always after the fact, but four years …
The JSE’s powers to censure are derived from and are limited to what is prescribed in the Financial Markets Act (FMA), and the “JSE may, in accordance with the provisions of the FMA and without derogating from its powers of suspension and/or removal:
– censure the issuer and/or the issuer’s director(s)/officer(s), individually or jointly, by means of private censure.
– censure the issuer and/or the issuer’s director(s)/officer(s), individually or jointly, by means of public censure.
– impose a fine not exceeding such amount as stipulated by the FMA, on the issuer and/or the issuer’s director(s)/officer(s), individually or jointly.
– disqualify an issuer’s director(s)/ officer(s) from holding the office of a director or officer of a listed company for any period of time; or
– issue any other penalty that is appropriate in the circumstances.”
There have been some 38 public censures issued by the JSE between 2014 and the end of 2021.
The two recent ones, issued to Khoza and Ntsasa, are by far the most stringent when compared to other directors’ transgressions.
If one examines the list of directors who have erred and compare their respective censures and fines to that of Khoza and Ntsasa, the discrepancy is quite clear.
Take, for example, Nicki Vontas of Bonatla Property Holdings Limited, who according to the JSE’s own document was censured for “directly and intentionally misleading the JSE and failing to inform the JSE of material events, which formed the basis of the JSE’s decision to lift the suspension of Bonatla at the time”.
He received a public censure and a fine of R500 000. That’s it. He was not barred from acting as a director.
Or Thierry Guibert of Steinhoff International Holdings, who was given a simple public censure for his “failure to comply with the Listings Requirements in respect of the dealings in the company’s securities”.
We all know what happened at Steinhoff, but as a reminder, Steinhoff is one of the biggest scandals ever to hit the stock market – locally and abroad – eroding billions of rand off the share value and racking up significant reputational damage for the JSE and South Africa itself.
However, they continue to trade and, to the best of my knowledge, no director has been prevented from holding an executive or non-executive role.
Neither have any of the directors of EOH or Tongaat Hulett been publicly censured.
De facto they have not been barred from being a director or holding office of any publicly listed company.
EOH and Tongaat Hulett were censured as companies and fined a maximum penalty of R7.5 million in 2020.
This was in relation to “previously published financial information (which) did not comply with IFRS and the Listings Requirements and was incorrect, false and misleading in material aspects,” according to the JSE.
There are other examples, too, of what can only be described as bias and discrimination, such as Bianca Pieters, company secretary of PBT Group Limited (2019), for: “Failure to ensure that the resolutions for a repurchase of shares complied with the Listings Requirements and for failing to procure directors’ resolutions and solvency and liquidity tests for every repurchase conducted from 2014 to 2018.”
Pieters was derelict in her duties for four years and received a rap on the knuckles in the form of a public censure.
While Khoza and Ntsasa, AYO’s former directors, may have acknowledged their inadequacies for their positions, and I agree, ignorance is not above the law, it is those directors who well know the score and who deliberately flout the rules of engagement that should be dealt with on a far stricter and severe basis, don’t you think?
In law, there is fairness and reason as well as discretion. Not so, it would seem, with our country’s largest stock exchange, which has also seen an exodus of de-listings in recent times.
Here it appears as though the slicker the director and the bigger the transgression, the lesser the sentence.
Also intriguingly, when comparing the market’s reaction and the media’s coverage of the JSE’s naughty list, it is AYO that has generated much of the media attention, most of it, of course, linking the directors and AYO to businessperson Dr Iqbal Survé, whose name in the headlines generates those all-important traffic numbers to their pages.
But I digress.
Degrees of censure
The JSE states in its Censures and Penalties document (which can be found on www.jse.co.za) that it assesses each case on its individual merits. However, the JSE also looks at other measures and many of these could perhaps have been considered in Khoza and Ntsasa’s case. They are:
– First-time offence.
– The nature and seriousness of the breach.
– The circumstances and manner in which the conduct giving rise to the breach was committed.
– The market impact and risk of prejudice to investors as a result of the possible breach.
– The nature, duration and severity of the act/omission.
– Share price reaction or shareholder dilution.
– General compliance history of the offender.
– Whether the breach may likely have impacted an investor’s economic decision or decision to trade in the issuer’s securities.
– Whether the offender has shown remorse, co-operated with the JSE, and put procedures in place to avoid a repeat of the transgression.
– The lapse of time between the act/omission and the notification, disclosure, or correction thereof.
– What the most effective deterrent for the particular breach would be in the circumstances, any other mitigating or aggravating factors prevalent at the time of the conduct giving rise to the breach.
Onus on the JSE
According to the Financial Markets Act 19 of 2012, the regulator (the JSE in this instance) “must, as soon as it becomes aware thereof, inform the registrar of any matter that may pose systemic risk to the financial markets”.
Yet, it took the JSE more than four years to do anything about AYO’s directors …
From the JSE’s own website: “The investigative arm of the JSE has adopted an overall approach of ‘credible deterrence’ which includes a commitment to identify and investigate potential breaches of the JSE Listings Requirements (“Listings Requirements”) at an early stage.
“The principal purpose of imposing a censure or penalty is to promote a high standard of regulatory conduct by deterring regulated parties who have committed breaches from committing further breaches and thereby helping to deter other parties from committing similar breaches and demonstrating generally the benefits of compliant behaviour.
“Censures and penalties are therefore the tools which we may employ to achieve our regulatory objectives.”
While I agree that the appointment of directors is a very serious business – whether that organisation is listed or not – the severity of the censures in question have no comparison to those, or the complete lack thereof, on censures imposed on, for example, Marcus Jooste, former chief executive of Steinhoff, who was at the helm of a multibillion-dollar fraud.
The JSE, in October 2020, said it was still looking into the conduct of individuals who presided at the company.
It’s now 2022 – any chance Jooste will be banned from holding any position of authority for life?
Adri Senekal De Wet is Executive Editor of Business Report.
BUSINESS REPORT ONLINE