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There are blunders and then there are blunders.
The first type of blunder is the misstep, the miscalculation.
These come in large, medium and small sizes.
There is the small example of Coca-Cola’s Schweppes brand utterly confusing its consumers by rebranding its soda water such that consumers thought it was tonic water.
Then there is the somewhat more serious mistake at clothing store H&M, whose ‘Coolest monkey in the jungle’ advert for hoodies stirred up fierce allegations of racism and ended up with the EFF trashing its Sandton City store.
The second type of blunder is far more serious and has become more prevalent in SA, involving some of the world’s most revered business names.
These include McKinsey, the 90-year old US consultancy, Bain & Co and a number of auditing firms who should be the keepers of all things probe-worthy.
Here, there’s a purposeful, ethical failure that undermines the trust of society and, in the case of SA, has pulled the rug from under the feet of nearly all its institutions.
Here’s a few of the worst offenders in 2018.
TIGER BRANDS
Shares in Tiger Brands are 42% weaker year-to-date as investors still come to terms with the impact of a listeria outbreak at its Value-Added Meat Products (VAMP), specifically those meats of questionable provenance – polony, viennas and ‘Russians’.
More than 200 people died from contracting the bacteria while more than 1 000 were infected.
That was in March. Only by September were the factories − identified as having manufactured and packaged infected food (Polokwane, Pretoria and Germiston) – reopened.
The impact on Tiger Brands’ numbers of a once-off write-down totalling R380m net of insurance was a 26% decline in full-year headline earnings.
But there may be more pain to come.
The High Court in November granted an order certifying a class action as a result of the outbreak, which opens the door to a flurry of other expensive costs and liabilities further down the track.
In an effort to crisis manage the situation, Tiger Brands has invested R10m in food technology and research facilities and has even provided R1m to assist with consumers who may want to join the class action while hastily adding that its decision to do so was an “act of goodwill” and did not imply any recognition of wrongdoing.
MOMENTUM
The life assurance company did neither itself nor its sector any favours this year after refusing to pay out a death claim.
Its contention was that Nathan Ganas, who was killed while protecting his wife from hijackers, failed to declare high sugar levels.
Legally, Momentum is right to refuse the claim lodged by Ganas’ widow, but – as former public protector Thuli Madonsela observed – the company was ethically at sixes and sevens to refuse it.
Momentum later agreed to pay out R2.4m to Ganas’ widow and furthermore changed its rules to guarantee the full death benefit in the case of violent crime, regardless of previous medical history.
But as an act of public relations, Momentum’s legal defence in not paying the claim was a failure of note.
As observed by deputy director-general of Treasury, Ismael Momoniat, the blunder weakened the bond of trust between society and the life assurance industry and uncovered some of the sinister tricks employed by the sector, such as refusing to pay because it collects premiums from people it has not medically investigated.
‘LADY DORITOS’
Last year, we highlighted just one of the many failures experienced by a corporate entity getting its social messaging wrong: that was PepsiCo, whose use of Kendall Jenner in assuaging a public protest with the power of a soft drink outraged online moralists. “We missed the mark,” the company said.
It might well have done the same after suggesting it develop a Lady Doritos chip.
The product was never seriously under development by PepsiCo but that’s not how it at first seemed when CEO Indra Nooyi, who has since resigned, suggested in an off-the-cuff remark during a radio interview that women “… don’t like to crunch too loudly in public”, nor did they want to “… lick their fingers generously” or “… pour little broken pieces and the flavour into their mouth”.
The company very quickly clarified that there were no plans to launch a chip that didn’t crunch too loudly nor had too much flavour dust.
ESKOM
No list of business blunders would be complete without including one of the companies under the department of public enterprises and, quite simply, there are so many to choose from.
But it is Eskom that takes the cake for believing it is still able to trade its way out of the current debt crisis.
Eskom’s request to the National Energy Regulator of South Africa (Nersa) for a 15% increase in the tariff for the next three years comes in the same year Nersa agreed to a 4.1% lift in the tariff that allows Eskom to claw back R30bn in four years.
The argument against the tariff, though, is that systemic problems caused by years of political meddling cannot be fixed by tariff hikes.
What is needed, according to Eskom’s critics, is a restructuring of the organisation perhaps along the lines hinted at by newly appointed finance minister, Tito Mboweni.
He used his medium-term budget policy statement to suggest a relaxation in the ideology that currently separates private from public money.
In other words, privatisation.
This may be flying a red flag in front of the union bulls, but consider the fact that electricity prices rose 350% in the 10 years prior to 2017 – compared to inflation of 74% – and you can see why giving Eskom a get-out-of-jail card at the expense of industry may be a hammer blow to the barely growing SA economy.
RESILIENT
The Resilient Group of companies, which includes Resilient itself, Fortress, NEPI Rockcastle and Greenbay, and which as of the beginning of 2018 comprised 40% of SA’s listed property sector, lost about R120bn in value during a sell-off of its stocks in January.
Since then, ten of SA’s largest investment managers have called for an investigation into the companies for insider trading and that the shares in the companies may have been manipulated.
The Financial Sector Conduct Authority has been investigating the allegations against Fortress since March, but there is as yet no indication as to when it would complete its report.
This comes at a bad time for SA’s commercial property sector, where economic distress is hurting tenants everywhere.
The concern is that the margin pressure in 2018 may be repeated again in 2019. In the meantime, Mark Stevens, CEO of Fortress, has announced plans for his retirement from the company within the next 12 months.
This article originally appeared in the 20 December edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
