Asked how bankruptcy happens, one of the characters in Ernest Hemingway’s The Sun Also Rises answers: “Two ways. Gradually, then suddenly.”
The collapse of the Daybreak Farms chicken operation could not have happened suddenly. A business of this scale, founded 25 years ago and now with 3,400 employees across several provinces, must have been seriously neglected for a long time to end up owing R500m, with workers unpaid and birds starving and cannibalising each other.
The National Council of SPCAs reported this month that “hundreds of thousands of broiler and breeder chickens across several Daybreak farms have gone without consistent feed for days at a time. What we witnessed was nothing short of catastrophic.”
Where was the oversight by the directors? The major shareholder is the Public Investment Corp (PIC), whose prime function is to invest on behalf of the Government Employees Pension Fund (GEPF).
The PIC committed R1.19bn to Daybreak when it made the investment in May 2015. The PIC website says its involvement “advances transformation in the agriculture industry, one of the least transformed sectors in the country. It also supports job creation and preservation [and] food production to improve South Africa’s food security, and creates meaningful economic platforms to address poverty in rural communities.”
That is all very well, but of no use to anyone now that the company has no money and has ceased to function. Daybreak had already received an additional R250m from the GEPF — money that could have been at least gathering interest on behalf of pensioners. It is extraordinary how much has been wasted on a company that once supplied 7% of the country’s chicken demand.
As a controlling shareholder in Daybreak, the PIC should have ensured that the board of that company was competent
If a company fails though corruption or incompetence, the shareholders lose their money and really have only themselves to blame for appointing directors who did not exercise their duties of good faith, care, skill and diligence.
But few current and future state pensioners can be expected to interrogate the investment decisions made by the PIC. This means the directors of both the PIC and the GEPF, who themselves are not at financial risk, have far more onerous responsibilities than most boards in monitoring the entities they have invested in. They have clearly been in dereliction of their duties.
The PIC’s website shows that it has 12 directors. Its board, chaired by the deputy minister of finance, has 12 directors and is loaded with lawyers, chartered accountants and MBAs. There is no expert on chicken farming, of course — but then a board has the obligation to bring in expertise if needed when problems arise.
By extension, as a controlling shareholder in Daybreak, the PIC should have ensured that the board of that company was competent. It may say it attempted to do this, by turfing out previous directors who were found wanting, but the fact remains it has now failed completely in its fiduciary duty.
Admittedly, the PIC’s original stake of R1.19bn in Daybreak is a tiny fraction of the total value of R3-trillion in assets under management. It would be understandable if its board views this as small change in the greater scheme of things — understandable, but unforgivable.
Must we assume that the PIC thinks it is above governance?
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