You’d think, given the cautionary tales of blundering companies felled by egregiously ill-advised attempts to throw their weight around, that people would have learnt by now. There are many examples of how not to manage a crisis, such as Tiger Brands’s staunch refusal to admit that listeria bacteria at its factories could have led to 218 listeriosis deaths.
Yet now we have grocery group Spar blundering its way through a governance crisis with all the dexterity and nuance of Gwede Mantashe at a renewable energy summit.
After the FM’s Ann Crotty revealed two months ago that Spar was facing a R2.1bn “damages” claim over sordid attempts to bully the Giannacopoulos Group, which owns 45 Spar stores, CEO Brett Botten sent out an “internal memo” on November 28 doing his best to play down the revelations.
“We are considering meeting with the journalist concerned to enlighten her about Spar, our business model, and the fact that it is the great relationships that we have with the overwhelming majority of our retailers that is the bedrock of our business,” he said.
Oh, don’t worry, Brett: the hundreds of court papers were enlightening enough, as was judge Jody Kollapen’s ruling about Spar’s “spectacular failure” to “make the fullest possible disclosure [to the court] and be fair”.
In that memo, Botten also complained of an article written by Business Day’s Katharine Child, saying it was “unfortunate that these matters have ended up in the media”.
Yet if you want a sense of how Spar really operates, consider its ominous response to questions from Child about a 294-page report compiled for Spar by law firm Harris Nupen Molebatsi (HNM) in July 2021, entitled “Investigation into allegations of discrimination, fraud and/or unethical behaviour”.
That HNM report probed allegations that Spar, which sells wholesale products to shop owners who are effectively franchisees, discriminated between white and black retailers in the terms it offered. HNM concluded that “in certain instances, these allegations have been found to be untrue, while in others ... they have been found to be corroborated”.
Far more disturbing, however, was HNM’s finding of dubious accounting. It found that feasibility studies Spar provided to prospective buyers of stores “differed significantly from the actual figures in the management accounts” of those stores.
As HNM said, if the feasibility study figures aren’t a real reflection of turnover and expenses, it was no wonder some Spar owners were surprised when their stores bombed.
Yet when Child asked Spar’s company secretary Kevin O’Brien about one of the loans, he replied: “If you proceed further, given that neither Spar, nor the [store owner], have consented to you doing so, and for the reason that the report that you have in your possession was obtained as a result of [one person’s] unlawful conduct, then you and Business Day would be perpetuating and participating in such unlawful conduct.”
In other words, if we don’t agree to you publicly revealing details of our shoddy governance and suspect accounting, you can’t do it. And just in case his response wasn’t clear enough, O’Brien (who doubles as Spar’s “chief ESG officer”), reiterated: “We reserve all rights to take action based on the breach, and any further perpetuation of the breach.”
Threatening journalists, it must be said, doesn’t often work out fantastically well for those concerned. Just ask former Theranos CEO Elizabeth Holmes, Carl Niehaus or even Jacob Zuma.
But you can see why Spar wouldn’t want that report to come out. Especially since, when you dig deeper into it, such nasty phrases as “fictitious loans” start emerging.
In one case, Spar lent one shop owner, Amaan Sayed, R8m to “assist” him to “purchase the business”, which he had to repay at R169,662 a month. Yet at the same time, Spar also gave him a R171,000 a month “marketing subsidy”.
If that sounds fishy, it’s because it is.
When HNM lawyers asked one of Spar’s staff members whether these sorts of loans amounted to “subterfuge”, she responded that “it was a common practice at Spar.”
HNM concluded that when it came to two specific Spar stores, “those loans were without substance and could be described as fictitious [and] could inflate the profitability of the South Rand distribution centre”.
This is a vital point, since before Botten was promoted to CEO of Spar, he headed the company’s South Rand division.
In a statement on December 9, Spar put no-one’s mind at rest by explaining “this was an isolated matter, and is neither Spar’s accounting policy, nor practice”. This is not “symptomatic of dodgy accounting”, it said.
Now we have grocery group Spar blundering its way through a governance crisis with all the dexterity and nuance of Gwede Mantashe at a renewable energy summit
Spar has now sought a legal opinion on this matter. Yet it should have done so 18 months ago, when it first got that HNM report. That it was only pushed into doing so now underscores precisely why it was important that journalists reported on this.
And yet, in another “internal memo” to staff and retailers, Max Oliva, CEO of Spar Southern Africa, argues that the HNM report was “not for public consumption”.
Manifestly, exposure of dubious accounting and governance and of the full extent of a R2.1bn lawsuit is self-evidently in the public interest. It says much that a JSE-listed retailer somehow doesn’t see this.
Then again, this is a board that thought nothing of shifting Graham O’Connor from CEO to chair in 2021 — even though it infringes just about every governance norm you could think of.
In December, O’Connor stepped down from the chair position, though he remains a director — but this probably wouldn’t have happened were it not for the media scrutiny.
Attention now shifts to Botten, and much rides on what the lawyers say about “fictitious loans” boosting the profits of his former division.
This time, Spar can’t afford to be coy about releasing the opinion. The retailer, you’d hope, will have learnt that threatening journalists not to reveal the truth is a suboptimal strategy.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.