Vodacom hit by Nepotism scandal
Sunday, 17 January 2010 00:00 Written by Times Live by Lihle Z Mtshali and Simpiwe Piliso
Claims that legendary CEO used the company as a family fiefdom
Vodacom is fighting tooth and nail to keep secret a potentially embarrassing and explosive forensic report from KPMG concerning allegations that former CEO Alan Knott-Craig snr exploited the cellular company's resources for the benefit of his family.
Among the charges levelled against Knott-Craig snr are that his son, Alan Knott-Craig jnr, was given office space and millions of rands to build and promote his businesses; that a company owned by his niece and nephew, and which was on the verge of bankruptcy, was awarded an exclusive multi-million three-year marketing and advertising contract without a proper tender process; and that he arranged for Vodacom to pay tens of thousands of rands for a call centre employee to be trained as a magician.
Knott-Craig snr is one of South Africa's most revered corporate leaders, having led Vodacom from inception in 1993 until 2008, and sits on several major boards. Vodacom is now the 16th largest company on the JSE, with a market value of R79-billion.
Vodacom has twice refused to release the KPMG report to the Labour Court and a subpoena was served on the company on January 8.
Knott-Craig jnr, 32, who has since taken a break from active business, has dismissed the allegations as those of "disgruntled former employees", and claims the report "completely exonerated" his father.
However, both Vodacom's current chairman, Peter Moyo, and former chairman, Oyama Mabandla, have told the Sunday Times that the report found there were charges that warranted "further investigation" and that "there were recommendations for areas that needed improvement".
The closely guarded report was compiled by KPMG's forensic department after it probed damaging claims made by whistle-blowers - both senior executives in the company at the time - of nepotism, corporate malpractice, and violations of corporate governance.
Vodacom's former board commissioned the KPMG probe in August 2008 at a cost of R20-million, after Telkom CEO Reuben September and Vodafone CEO Gavin Darby were handed a dossier. KPMG presented its findings to the previous Vodacom board at its last meeting in December 2008. Vodafone and Telkom were Vodacom's majority shareholders at the time.
The probe looked at alleged malpractice that took place between 2002 and 2007, a period when the taxpayer, through Telkom's 15% stake, was a major stakeholder in Vodacom.
Despite the report being central to a Labour Court dispute with one of the whistle-blowers - who the company claims it fired for "grossly inappropriate conduct" - Vodacom has refused to produce it.
In its response to the Labour Court subpoena the Vodacom executive claimed that the report was not in the company's possession - rather that of its shareholders. Moyo, on the other hand, claims that Vodacom can't release the report because KPMG has forbidden it.
The two whistle-blower dossiers that sparked the probe, which the Sunday Times has seen, make damaging claims that Knott-Craig used his position as CEO of Vodacom to ensure that:
• Advertising agency Afrikings, a company that was over R30-million in debt and facing liquidation, was awarded an exclusive R75-million three-year contract to market and advertise Vodacom without going through any competitive tender process. The agency was owned and managed by Knott-Craig's niece Anthea van Heerden (née Knott-Craig) and nephew Ronald Knott-Craig;
• Bizarrely, Knott-Craig arranged for Vodacom to pay for an employee to be trained in the US to become a magician. Although the cost of the training was not disclosed, the network operator spent $71 141 for "magician's props", which the magician apparently still uses to perform at Knott-Craig family events;
• Between 2003 and 2004, Knott-Craig jnr was given office space at the Vodacom headquarters and IT assistance when he launched Look4Me through his company, Cellfind;
• Knott-Craig snr bent over backwards to ensure that a budget overspend of R9-million was created and approved to market and promote his son's Look4Me and Look4Help services at the expense of other Vodacom initiatives; and
• Vodacom bought a 10% stake in Wireless Business Solutions, which owned iBurst, for an amount estimated at more than R200m in 2006. Not only was Knott-Craig jnr the MD of WBS, but Vodacom is alleged to have paid far more for its stake than it should have.
Though KPMG's findings on these accusations are not known, one of the whistle-blowers says in court papers that he believes the KPMG report will prove "suspicions that (Vodacom) was engaging in activities related to poor corporate governance", and that it "changed its company policies and procedure after the poor governance issues were raised".
Vodacom spokesman Richard Boorman confirmed on Friday that the company had received the subpoena to produce the report.
He said: "Our response to it is that Vodacom's management is not in possession of (the KPMG report). The report was requested by the board and prepared for the shareholders, not the management of Vodacom. The shareholders have the report."
However, this appears to contradict what Moyo told the Sunday Times last month.
Moyo initially denied seeing the report, but after consulting with Vodacom executives he said: "I have now looked at the report. (The board) went through the proper process at the time. It commissioned KPMG to investigate, KPMG did an audit and handed over its findings to shareholders."
He also admitted that: "There were recommendations for areas that needed improvement (and) those were given to management to follow up. Those areas that KPMG found baseless were left alone." He would not disclose any details.
The KPMG report was discussed at the last meeting of the former Vodacom board in December 2008. A press statement regarding the report was compiled but never released.
Allegations that formed part of the report were also presented to the late minister of communications, Ivy Matsepe-Casaburri, by the Communications Workers Union. Matsepe-Casaburri's successor, Siphiwe Nyanda, has denied any knowledge of the report.
But yesterday ministry spokesman Tiyani Rikhotso said that, as a shareholder in Telkom, the ministry would investigate if allegations of corporate governance violations were brought before it.
Several unsuccessful attempts have been made since last month by the Sunday Times to get comment from Knott-Craig snr.
Knott-Craig jnr, who elected to answer questions on behalf of his father, said his father had chosen not to respond to queries due to the "confidentiality order" from the board, and so as not to give the accusers any further credibility.
Confirming that he had been interviewed by KPMG, Knott-Craig jnr said: "Two disgruntled former employees made several allegations against my father over a year ago. The Vodacom board decided to institute an investigation to either confirm the charges or clear my father's name. Upon studying the KPMG report the board decided to completely exonerate my father."
Knott-Craig jnr said that while he has not seen the report's contents: "I have, however, seen written confirmations from both (Mabandla and Darby) confirming that the board had considered the KPMG report and thereupon dismissed all allegations and considered the matter closed."
Knott-Craig jnr showed the Sunday Times a December 3 2008 e-mail from Mabandla which he said exonerated his father. But the e-mail simply said: "The board has looked into the KPMG report. We have decided to close the matter."
Knott-Craig jnr said his father had never been shown the report.
Knott-Craig jnr denied that he and his Wireless Application Service Provider (WASP), Cellfind, received special treatment and financial benefits.
"Cellfind was given office space in a building that was designated for use by WASPs. We shared these premises with several other WASPs. We paid the same rent as any other WASP, and received no additional benefits. With regard to IT assistance, we did not receive anything other than the standard integration assistance afforded by Vodacom to all WASPs," he said.
A highly placed source at Vodacom said the report was "extremely damning". And analysts said that if the report was benign, Vodacom should release it to dispel suspicion over its corporate integrity and that of the Knott-Craigs.
Vodacom insiders insist that the KPMG probe looked at events before the company listed on the JSE in May last year.
Shareholder activist Theo Botha said: "If the (KPMG) document is material, then in the interests of good governance principles - which are fairness; accountability; responsibility and transparency - the company should release the report."
Under the JSE listing rules, Vodacom would have been required to disclose any corporate governance violation risks when it listed.
Andre Visser, general manager of issuer services at the JSE, said if corporate governance issues occurred prior to a company's listing, the JSE had no jurisdiction over those issues, but it would investigate and decide what to do with any information declared upon listing.
At the time of the probe, both Telkom and Vodafone were listed on the New York Stock Exchange where the post-Enron scandal Sarbanes-Oxley law applies. This law requires the disclosure of governance lapses and risks in NYSE-listed entities, and their subsidiaries.
