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A major corporate war has broken out at construction company Group Five, with the outgoing chairman putting it down to a fight against transformation.
Group Five chairperson Philisiwe Mthethwa told City Press on Friday that the fight between the Group Five board and Allan Gray was ultimately a battle against transformation – and, in particular, against the appointment of a black CEO, Themba Mosai, to head the construction company.
This drive against transformation was reflected by the move to appoint former Group Five CEO Mike Upton to the board as Upton’s appointment would undermine and set up Mosai for failure, she added.
Mosai’s appointment was also met with resistance as two executives within the company had indicated that they refused to work with him.
One of the executives had put this in writing. One had left the company and the other was in the process of exiting, Mthethwa said.
All five nonexecutive directors of Group Five, including Mthethwa, have given notice that they would resign next month after pressure from Allan Gray, which holds a 25% stake in the company.
A battle is emerging between Allan Gray and two other shareholders, the Public Investment Corporation (PIC) and Mazi Capital, about which nonexecutive directors should replace the departing ones.
The PIC and Mazi Capital were unable to provide City Press with any comment on Friday afternoon.
Another shareholder battlefront concerns the direction that Group Five is taking, with Allan Gray wanting “significant portions” of the group to be unbundled.
Over the past year, Group Five’s shares on the JSE have lost almost a quarter of their value.
On Friday, the company was valued at R2 billion.
Group Five has three key divisions, and the engineering and construction unit has been suffering losses – including an operating loss totalling R237 million for the company’s 2016 financial year.
In May, Group Five announced that it had received a written demand from Allan Gray for the reconstitution of the company’s board and the removal of all existing nonexecutive directors, namely: Mthethwa, Kalaa Mpinga, Justin Chinyanta, Willem Louw and Vincent Rague.
Mthethwa is the CEO of the National Empowerment Fund. She is the sister of Deputy Finance Minister Sfiso Buthelezi, who is chairperson of the PIC, which holds 15.67% of Group Five shares.
“While all the nonexecutive directors have decided to step down, we are concerned about the approach Allan Gray has taken to date, including a demand for its directors to be nominated as a block,” she said.
“We also question the underlying reasons for this call for a board reconstitution. Importantly, we believe that the reconstitution of the board should not be driven by a single shareholder.”
Mthethwa told City Press that: “We do not think this is part of good corporate governance”.
Allan Gray has put forward five replacement nonexecutive directors: Reitumetse Huntley, Nazeem Martin, Nyami Mandindi, John Job and Michael Upton.
The PIC has put forward Cora Fernandez and Thabo Kgogo, while Mazi Capital has recommended Edward Williams and Keneilwe Moloko to be new directors.
Group Five shareholders will vote on the directors at an extraordinary general meeting (EGM), to be held on July 24.
In its EGM notice, the existing Group Five board members said they believed that it was “inappropriate to appoint Michael Upton as a nonexecutive director of the company, given his role as former Group Five CEO, in light of his being in office at a time when historical industry behaviour was severely criticised and notwithstanding his industry experience and institutional memory”.
“The board believes that his appointment would seriously undermine the authority and vision of the new management team as it seems contrary to the notion of a ‘fresh start’.”
The board added that other shareholders were also concerned about Upton’s appointment to the board.
Upton was Group Five CEO from April 2007 to November 2014.
Andrew Lapping, Allan Gray’s chief investment officer, said in a statement that: “We are pleased the existing nonexecutives have decided to resign. It is unfortunate that they decided to draw out this process to such a degree, given that a lengthy process is not in Group Five’s interests.
“It is odd that the board does not favour the appointment of Mike Upton ... We understand he was well liked and respected by employees during his tenure at Group Five and is highly regarded in the construction industry.
“Allan Gray does not have an agenda with regard to Group Five’s strategy.
“We want an independent board with the relevant skills that will protect and grow value for all stakeholders,” Lapping said.
In its EGM notice the existing board said: “The current board, as well as other shareholders who have been canvassed, are opposed to the manner of Allan Gray’s approach to reconstitute the board.
“The board also does not agree with Allan Gray’s views regarding the future direction of Group Five which involves unbundling significant portions of the group.”
Vanessa Baard, spokesperson for Coronation, which holds a 14.49% stake in Group Five on behalf of investors, said the company would not be commenting.
Sanlam has a 7.77% stake in Group Five, according to Group Five’s latest annual report.
A Sanlam spokesperson was unable to comment.
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