Since allegations of corruption and poor governance started at JSE-listed technology services company EOH, shareholders have lost about R24 billion.
This is according to group CEO Stephen van Coller, in an interview with ITWeb.
Van Coller was responding to how EOH will use the over R6 billion in damages the company is looking to recoup from the previous executives who have been accused of perpetrating corruption at the firm.
EOH confirmed it is suing a number of former EOH executives, including Asher Bohbot, founder and former CEO; John King, former CFO; Jehan Mackay, former head of public sector; and Ebrahim Laher, former head of EOH International, for a total of R6.4 billion in damages.
The company also lodged a criminal case against the four former executives, in addition to the R6.4 billion claim it filed in court.
Van Coller – who, since his appointment, has been looking to clean up the corruption mess at the technology services company – revealed that EOH employees, who had shares in the firm, had also lost big due to the graft perpetrated by the previous management.
However, he likened the situation in which EOH find itself to the Steinhoff case, where investors lost a lot of money but the company does not have the finances to pay them back.
Facing the music
According to Van Coller, the R6.4 billion figure comes from the penalties, fines and losses EOH had on the accounts.
“We are looking at how their alleged bad behaviour cost the company. Whether we get the R6 billion back, it’s a totally different story based on what the court judges will determine,” he said.
“When I recently went to National Treasury, the Department of Public Enterprises and BLSA [Business Leadership South Africa], they gave me five things that we have to do if we wanted to continue doing business.
“This includes that we needed to know and admit what went wrong; we need to put controls and governance measures [in place] to make sure the chance of this happening again was absolutely minimised. Thirdly, we had to deal with the staff that directly did something – all the senior staff who knew about it and did nothing about it.
“They also wanted to know if we were going to put our money where our mouth is and make sure there were consequences for the bad behaviour, and the consequences relate to the prosecution of the people.”
The organisations pointed out that if there were no consequences, it meant the new management is not serious about corruption and chances are it may happen again, Van Coller said.
“The last thing is they also wanted to know if we had done all our regulatory and legal reporting transparently to the authorities. So we were in a very tricky situation, where you are damned if you do something and you are damned if you don’t do anything.
“But for me, if we were to save the business, we had to do something. Together with the board, we then sat down and took counsel from legal firms on the prospects of recovery, the size of the prospect of recovery, and we also put people according to the levels of perpetration – level one to four.”
Infamous four
He pointed out there were people further down who were bag-carriers, who were just assisting with the perpetration.
“We made the decision, as a board, that four main people caused the damage from the top. The main perpetrators were those four people. In my personal view, even if we just get the cost of the investigation, it will be worth it because we restored the reputation of EOH; we are getting new business; people are giving us long-term contracts; we have saved the jobs of 6 500 people.
“If we hadn’t done that and let the company get blacklisted, we would have lost all of that. So in essence, we had to do it,” Van Coller stressed.
He said if there is excess cash from the R6.4 billion, “you must remember that shareholders have lost an enormous amount of money.
“This company had a share value of R175 at one point and it went down to about R7 now. So from a R25 billion market cap, to a R1 billion market cap, shareholders have lost R24 billion. So they also need to get something back.”
At the time of writing, EOH’s share price was sitting at R6.23.
“There is also some people like the staff who were issued share awards at R170; today those shares are worth zero and they have no prospects of making any money. It’s a bit like Steinhoff, where there is a big queue but there is not a lot of money to pay off everyone.”
In the Steinhoff case, the new management at the company lodged an R850 million claim against former CEO Markus Jooste to repay bonuses and salaries, based on the R106 billion fraud at the company.
Spending to recover
Recent reports have suggested the new EOH management team is wasting millions on lawyers and consultants, when employees were hit with salary cuts and retrenchments.
Responding to the allegations during the interview, Megan Pydigadu, EOH group finance director, said: “Coming into EOH, I don’t think a lot of people realised from the outside how things were run internally. For us, we really had to get on top of things very quickly and swiftly if we wanted to save the organisation.”
According to EOH’s latest annual report, the technology services firm spent over R260 million in two years on advisory and other services. Most of this was paid to ENSafrica to conduct a forensic investigation into EOH’s books.
Pydigadu said the company is justified in spending that amount because it had to get an understanding of what the landscape looked like.
“Over time, we have been building our own sustainable team and these costs came down over time where our own permanent team is handling that.
“A lot of what we do is now being insourced, where we do spend money on the auditory and to make sure that we have a tier one audit firm. I think that was a great achievement when we got PwC to become our auditors. That was critical from a confidence and investor perspective.”
The other area where EOH is spending money is on the legal side where the firm is pursuing perpetrators “where we see that there is a reasonable chance for us to recover what we have lost. So we are not just spending money for the sake of spending money, but we have to look at the benefits of spending that money.”
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