CDB’s big fallout: Sleeping on the job

Ideas around Letlole La Rona’s Long-Term Incentive Plan (LTIP) had featured at board meetings between April and November 2019. The first draft was produced by Peo Legal on the 19 September 2019, it has emerged. The lawyers engaged to draft it stressed that in order to avoid disputes, occurrences which were common in matters related to executive bonuses, the LTIP policy should be reduced to a binding legal agreement with one mother agreement and each of management (being the participants in the scheme) signing their own backup agreement with the company. These would be similar to the ‘mother’ agreement with the exceptions of the signing agreements, writes KITSO DICKSON in this second instalment of the ‘CBD’s Big Fallout’ series.

CDB’s big fallout: Sleeping on the job
A general view of the CBD taken on 17 November 2020. (Pic:Monirul Bhuiyan/PRESS PHOTO)

The first draft of Letlole’s Long-Term Incentive Plan that was put before the board had a number of change of control clauses. In the meetings that followed, management, led by then Chief Executive Officer (CEO) Chikuni Shenjere-Mutiswa, worked on the draft. They produced the one which was taken to the board for a closed meeting on 26 September 2019.  The draft presented also had change of control clauses and was shared with then board chair Boitumelo Mogopa.

There were suggestions by the board that the entire LTIP process was a secretive affair being conducted by Mutiswa. In response, Mutiswa argued that the process was transparent, with the CFO Kamogelo Mowaneng sharing the initial draft with auditors on the 20 September 2019 for their input regarding how it would be accounted for in the company’s financial statements. Tiny Kgatlwane, the chair of the Audit, Risk and Compliance Committee (ARAC), had ordered Mowaneng to be clear on the accounting treatment of the LTIP.

Kgatlwane also shared her insights from her own experience as CEO of BIFM, emphasising that management should think clearly, broadly and deeply about all potential outcomes when looking at the LTIP. She wanted assurance that these were incorporated into the LTIP agreement that would be brought to the board for approval.

The LTIP draft was availed to the board for the 26 September 2019 meeting. It became apparent, much later after the furor following the triggering of the LTIP, that only one director had read the draft LTIP document ahead of the 26 September 2019 board meeting. Because of this and limitations of time at this meeting, discussions around this LTIP were deferred to an upcoming strategy session on 2 November 2019.

Mutiswa continued engaging the board while researching on refining the LTIP. A second draft of the LTIP was presented at the strategy session on 2 November 2019 for the board to discuss and approve. It was available and posted on Convene for the directors’ access. Again, only a single director, Kgatlwane in this case, looked at the draft document. Log details show that this was at around 7.49 pm well into the meeting.

While presenting, the board demanded of the CEO that rather than delving into the details of the draft, which they said they had read, his presentation should focus on the on the hard numbers of the document and how those would fit into Letlole’s five-year strategy. As Mogopa said, management could not present a strategy and proposed LTIP agreements without numbers. She was supported by other directors.

At that point, management sought a break to work on preparing a presentation more in line with the board’s expectations.  Executive Assistant Dinah Jonah, who was interacting with the directors during the break, informed management that they had said it should be the CFO, Mowaneng, presenting the financials. And so she did.

Deep into the meeting which had started at 8.10pm, Kgatlwane asked whether modifiers were included in the LTIP agreement. Mutiswa responded in the affirmative and pointed it out to her in the draft. She urged management to consider all scenarios, positive and negative, for themselves, and not to just assume that everything would stay as it was.

Consensus was that the LTIP should ensure that these outcomes were captured in the agreements because this was what they would be looking at every morning and every time they went to bed at night as they drove Letlole so that they could meet the minimum hurdle rate embedded in the LTIP agreement.

The board tasked management to take into the draft LTIP all comments from directors, asked that four specific changes be made and gave more broader instructions that the agreement be made unambiguous and legally binding before being uploaded onto Convene with this LTIP draft to be then brought up for final reading by directors and ratification at the next board meeting.

Mowaneng, Balaakani Nlumbile (the Property Manager) and Mutiswa worked on the agreement together with lawyers in November and early December. One of the changes made from the 2 November 2019 draft LTIP was an amendment to the clause for change of control relating to shareholding reduction which would have triggered on signature of the LTIP had they left the LTIP as it was.

The CFO had successfully advocated for the amendment of a change of control clause relating to shareholding in the draft LTIP agreement. The clause referred to was amended to eliminate ambiguity in accordance with the board’s instruction of 2 November 2019.  That clause on the draft presented at the strategy session on 2 November 2019 read as follows: “Any change in the ownership of the ordinary shares or voting rights or economic interest in LLR, in one or more related transactions, which results in an existing shareholder who beneficially holds more than 50 percent of the same at the date of commencement of the Performance Period, being 1 July 2019, which at any time during the Performance Period results in same shareholder holding less than a 50 percent beneficial ownership of the ordinary shares or voting rights or economic interests in LLR.”

It was interpreted in these ways:

  1. The trigger date is after all the related transactions are completed, not before or
  2. The triggers is as soon as a transaction results in the shareholding falling under 50 percent, notwithstanding the fact that the set of transactions has not yet been completed
  3. Also it took into no account a shareholder gaining control by now holding more than 50 percent.

The amended one approved on the 9 December 2019 was now much clearer, reading as: “At any time, after the date of signature by the parties of this plan, a change in the beneficial ownership of shares in LLR which results in a single beneficial entity holding at least 50 percent of the shares in LLR.” The change was well within the board’s instruction to remove ambiguity from the LTIP. 

The final draft LTIP agreement was loaded onto Drop Box and the Convene for the 9 December 2019 board meeting. The LTIP was in at least three locations on the Convene platforms. There were three different places at which the final draft LTIP agreement was availed on the Convene platform plus on Drop Box. Additionally board members downloaded the final draft from Convene onto their devices and shared with other directors.

Before the board meeting set for at 10 am on 9 December 2019, all board members accessed the final draft LTIP agreement which was on Convene, downloaded the same onto their devices, as well as printed and emailed it among themselves.

According to the Convene log, these were precise times the board members read the draft LTIP agreements: Curtis Motobolo (9.15am, 8 December 2019), Terence Dambe (9.50, 8 December 2019), Serty Leburu (11.03pm, 8 December 2019), Tiny Kgatlwane (9am, 9 December 2019), Boitumelo Mogopa (10.26am, 9 December). It is important to note that Mogopa’s log in was after commencement of the board meeting. 

During the board meeting, members pointed out that what the draft required was a resolution approving it as opposed to ratifying it. This was because the strategy meeting of 2 November 2019 was not recognised as a formal meeting. As such, the LTIP agreement had never been approved and was now being approved. Mowaneng pointed out that the LTIP was a five-year plan which would vest early if certain events occurred.

Leburu indicated that though she had read the draft LTIP, she was not present at the strategy meeting and needed clarity on certain points, in particular the numbers and modifiers. However, she pointed out that if the rest of the board was happy with the LTIP agreements, she would go along with them. No other board member raised any query. At that point there was no longer any discussion of concept papers or any nomenclatures. Discussions were limited to the draft LTIP. The draft agreement was approved in principle on condition that the CEO would engage with Leburu to bring her up to speed with her queries.

Following their interaction, Leburu expressed satisfaction with the LTIP which had a change of control clause. She did not raise any issues in respect of the clause. But at a later stage, it became clear that she had not read the whole documents. Infact, she claimed that she had gone only to clauses which the board had said should be amended. With 20 odd pages, more than 150 different paragraphs and clauses scattered across various places, to confirm the changes one would have to read the entire document.

Inspite of that, Mutiswa informed the board about this interaction, providing them with information regarding arrangements for them to sign the resolution authorising the agreement together with the resolution related to the nomination of a new director by Botswana Development Corporation, namely Oteng Keabetswe.

It is important to note that when directors sign resolutions related to agreements or any other matter, they should do so with full knowledge of what they are approving. On 11 December 2019, after Jonah returned with the signed resolutions and LTIP agreement, Mutiswa communicated with the chairperson, explaining to her that Leburu was now happy with the LTIP.

The chair then read and signed both resolutions and the LTIP itself, which was also signed by the then CEO. Following this, Mutiswa prepared a ‘subsidiary’ LTIP agreement for him, Mowaneng and Nlumbile to sign as executive managers. Jonah scanned the three LTIPs and the authorising resolution, saving them on Letlole’s various systems and providing each of the participants with both hard and soft copies. The agreement was loaded onto Convene, saved in Drop Box, company laptops and the network hard drive by Jonah.