It turns out the governance wallahs are dead right to be borderline obsessive about ensuring the independence of the chair.
Recommended practice 34 of the King code leaves no room for doubt: “The CEO of the organisation should not also chair the governing body, and the retired CEO should not become the chair of the governing body until three complete years have passed after the end of the CEO’s tenure.”
So, how was it possible that Graham O’Connor seamlessly drifted from Spar CEO to Spar chair, effective from March 2021? It should have set off loud alarm bells.
The group’s two major shareholders, the Public Investment Corp (PIC) and Coronation Fund Managers, are staying shtum. Asked for comment on recent troubling developments at the country’s second-largest grocery group, including O’Connor’s governance-defying slide into chairmanship, Coronation’s curt response was: “Regret that Coronation declines to comment.”
At least it replied. Requests directed to the PIC did not get even the usual cursory response about looking into the situation.
It could be that one or the other of these powerful investors did indicate their concern at the February 2021 AGM, given that 23.37% of shareholders in attendance voted against O’Connor’s appointment as a nonexecutive director. But this was way short of the 50% needed to block the move.
After eight years in the top executive position, it’s impossible not to imagine O’Connor is not regarded as an executive chair by all concerned in the group
— Corporate law expert
And so, the CEO of eight years’ standing became the chair. A perplexed corporate law expert tells the FM there’s a very good reason for ensuring the two roles are kept separate.
“The function of the board is to oversee management; that oversight function is reflected in the fact that board membership is dominated by independent directors with just two positions reserved for executive directors, the CEO and the finance director.” Spar has blurred the distinction and, says the legal expert, “after eight years in the top executive position, it’s impossible not to imagine O’Connor is not regarded as an executive chair by all concerned in the group.”
The view is supported by an industry insider, who believes O’Connor didn’t really step down. “He seems to influence all the board decisions.”
Unsurprisingly, Spar’s nomination committee saw nothing wrong with the move. In December 2020 it revealed in the AGM notice that it had assessed O’Connor’s eligibility as a member of the board and, guess what, the board accepted the result of its colleagues’ assessment. “Accordingly, the board recommends his appointment to shareholders.”
At the time, the members of the nominations committee were long-serving chair Mike Hankinson, Harish Mehta and Phumla Mnganga.
Hankinson and Mehta, who’d been on the board since 2004, have since retired. A large chunk of shareholders now seem to be gunning for Mnganga, who joined the board in December 2015. At the AGM in February 2022, 31.16% voted against her reappointment. In Spar’s life, where about 76% of shareholders attend meetings and anything more than a 10% “no” vote is unusual, the move against Mnganga might be reflecting shareholder concern.
It wasn’t as though Spar shareholders didn’t have time to mount a challenge to O’Connor’s assumption of the chair’s position. In a Sens statement released in early September 2020, the board announced it had “resolved to appoint Graham as a nonexecutive director and chairman of the board”. It also revealed that Andrew Waller, an independent nonexecutive director, would be appointed the lead independent director.
Interestingly, Waller, who joined the Spar board in 2018, is CEO of Grindrod, a position Hankinson had held while he was chair of Spar.
That Spar’s board is now led by someone perceived to be an executive chair has become significantly more troublesome in the wake of growing reports of conflicts between the group and its “franchisee retailers”. These conflicts are no small matter; in many instances they involve the survival of the retailers’ businesses. Of particular concern is the suspicion that some retailers are enjoying preferential treatment from Spar management. “We’re not dealing with a level playing field,” a frustrated retailer, who’s battling Spar’s efforts to “perfect” his stores, tells the FM.
He refers to a number of retailers he knows who have been generously assisted by Spar to see them through difficult trading patches. It’s the sort of support that has underpinned decades of strong growth and, for most of those decades, was reckoned to be available on an even-handed basis.
The Spar Guild is intended to operate as a facilitator between Spar and its retailers, but the guild’s previous balance of power has been upended and it is now regarded as little more than an extension of Spar head office.
Stir into this turbulent mix the fact that O’Connor holds an interest in one of Spar’s major retailers — the Rencken Group — and his position as perceived executive chair becomes deeply concerning. Now, more than ever, an evidently independent chair is needed.
Perhaps by the next AGM in February 2023 the shareholders will have cobbled together some sort of plan to undo the governance debacle they have so far watched over so passively.
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