BEE battle at ad firm

Johannesburg - Y&R South Africa (originally Young & Rubicam), one of the country’s biggest advertising companies, has hauled directors of its black economic empowerment (BEE) partner company to court to stop them from making what Y&R deems defamatory remarks.

In papers filed last month in the South Gauteng High Court, Y&R sought an order interdicting and restraining the directors of its empowerment partner, Memeza QRX, from “disseminating false and/or injurious statements of and concerning Y&R and in particular Y&R’s BEE status and ‘fronting’.”

Memeza QRX’s directors are Mthunzi Mdwaba, who is also vice-president of Business Unity SA, and Ghanian entrepreneur Peter Katuliba.

Netherlands-registered WPP Kraken owns 70% of Y&R in South Africa.

The remaining Y&R shareholding belongs to Memeza QRX through a group of companies called WPP-Memeza.

Y&R South Africa chairperson Yossi Schwartz said in court papers the two had made allegations and “engaged in unlawful and fraudulent misrepresentations as to its status in order to secure business contracts”.

While Mdwaba had been an executive director of Y&R South Africa, Katuliba had served as a non-executive director until they were removed, said Schwartz.

Schwartz argued that though Mdwaba and Katuliba were no longer directors of Y&R, they “as former non-executive directors of Y&R, hold a fiduciary relationship to Y&R and must act in good faith towards (it), for the benefit of (it) and to avoid a conflict between their own interests and those of (the company),” he wrote.

He accused Mdwaba and Katuliba of breaching their Y&R fiduciary duties in the interest of Memeza QRX.

In an answering affidavit, Katuliba said Schwartz was “not allowed” to bring the “untruthful application” because a board resolution had not been taken.

Katuliba said he and Mdwaba were not prepared to “simply allow our reputation and status as a BEE empowerment partner to the WPP-Memeza group of companies to be abused”.

Memeza bought the 30% shareholding in WPP-Memeza through a R24m loan from WPP Finance, a subsidiary of WPP Kraken.

“WPP-Memeza hasn’t produced audited financial statements since 2006 and no dividends had been declared from that date despite the fact that its subsidiaries, such as Y&R and Media Edge, are very successful,” said Katuliba.

“If the dividends are insufficient to repay the loan agreement when it falls due, then the loan agreement will be terminated and Memeza stands to lose its shareholding in WPP-Memeza.

“Memeza has the real concern that this dispute is part of an ongoing campaign to oust Memeza when the loan falls due,” he said.

“At the time of the original ­purchase by Memeza of the shareholding in Y&R, a commitment was made that Y&R would have a South African CEO within three years,” he said.

“Almost 10 years later, Y&R has failed to employ a competent black South African to head the company.”

Katuliba said that the transformation issue and failure to employ a local CEO were central to the ongoing dispute between Schwartz, shareholders and management of WPP Kraken.

He said he and Mdwaba were never consulted about the resignation of former CEO Fraser Lamb in 2011.

Katuliba alleges that he and Mdwaba were invited to a meeting last year in which the agenda was finalised without Mdwaba being consulted.

Announcement on appointments of new board members, CEO and CFO were part of the agenda, though Katuliba and Mdwaba were never given a chance to meet the new appointees, Katuliba claimed.