Gold Reef’s decision to scrap its much-criticised plan to give away 1% of its shares to top brass for 2c each was the right move, but it came only after it was roasted for nearly an hour over its poor by governance pundits.

Typically, few shareholders pitch at meetings to vote on these sorts of proposals. So, it must have been a surprise for CEO Steven Joffe and chairman Maxim Krok to find 17 people squashed into a badly-lit room at the company’s headoffice last week.

Essentially, the plan would have seen Gold Reef’s share scheme changed to allow the company to issue 3m shares to bosses at 2c each, rather than the price at which the company traded on the JSE, which is now around R15.

It says a lot that during the meeting, all those who spoke at one stage mistakenly referred to the stock as ‘free shares’, rather than ’shares granted for a meagre 2c’.

In its stock exchange announcement after the meeting, Gold Reef said that after “useful debate … a shareholder suggested that this resolution be deferred”.

Actually, it was a Gold Reef director — Richard Moloko — who suggested withdrawing the resolution, and the “debate” was more like a multi-pronged attack on Gold Reef’s abysmal governance.

Frater Asset Management’s David Couldridge was especially acerbic: “Governance has been an issue for a while at this company. Your [annual report] has 15 pages of great pictures and only two-and-a-half pages on your corporate governance. Is that appropriate?”.

The problem with the plan, Couldridge said, was that there was no performance criteria attached, and Gold Reef’s bosses “simply had to turn up” to get the shares.

Krok — who got a R12m bonus for “services rendered” this year, even though the takeover panel scuppered a buyout deal because Gold Reef failed to reveal there was  a competing offer — was surprisingly mute.

It was left to director Archie Aaron (who along with Krok served on the board of failed fitness company Leisurenet) to try spin a defence.

“A lot has been said about Gold Reef’s governance. But there’s been nothing wrong with our corporate governance except that we didn’t comply with the King [corporate governance] code on one or two things,” he said.
(that has to be quote of the week)

In fact, it’s a whole lot worse than that. Until a month back, Gold Reef had absolutely no independent directors. When asked, Krok admitted the company has actually never had any independent directors.

This means that, contrary to what King says, the remuneration committee (which is chaired by Krok) that proposed issuing the shares for 2c each and agreed to pay the R12m bonus to Krok was too close to management, or shareholders. 

Shareholder activist Theo Botha said the scheme to simply give away shares when Gold Reef’s stock fell was tantamount to “rewarding staff because the share price has dropped”.

But Krok denied this: “we’re not incentivising management for that. We’re trying to retain them”.

Although Aaron said the 2c offer “was aligned with shareholders interests, Couldridge rejected this as “rubbish”.

“Shareholders aren’t aligned at all. Can I go buy shares for 2c each? No, I can’t,” he said.

The scheme was also initially meant to offer four directors — Joffe, Christian Neuberger, Jarrod Friedman and Bongani Biyela — nearly 1m shares at 2c each. But after shareholders objected in recent days, those four said they wouldn’t participate.

Botha asked why Aaron allowed the other directors to withdraw from the scheme, if he felt so strongly that it was “absolutely appropriate”. Aaron hit back: “I wished they hadn’t withdrawn”.

But perhaps the biggest indictment of the share plan came later in the day, when the gaming company issued results for the six months to June.

There, Gold Reef showed a 29% growth in revenue and a 1% climb in operating profit to R302m from the theme park and its casino’s including the new Silverstar Casino, which cost R1,1bn to build.

But despite the squeeze on its customers, Gold Reef said it was “optimistic that its business can withstand negative economic indicators and continues to position the group for growth”.

Yet, barely a few weeks earlier, Gold Reef painted a much less optimistic picture in its circular justifying giving shares away for almost nothing. There it said the value of existing share options has been “drastically diminished” and “share price appreciation is increasingly uncertain due to various [factors], such as higher interest rates, higher inflation rates and the world-wide sub-prime crisis”.

As Couldridge asked: “do directors have any confidence in this business that they have to issue shares at 2c/each?”.

Now that the controversial resolution has been withdrawn, Gold Reef’s remuneration committee will come up with a new incentive plan. As of this week, Gold Reef now has two independent directors steering its remuneration committee in John Farrant and Zanele Matlala.

Although the decision to change tack should be welcomed, the company wouldn’t have scrapped the plan had shareholders not voiced their objections. Coming so soon after Gold Reef mishandled the Ethos buyout, this will only rattle investors’ faith even more.

As it stands, Gold Reef is spending more of its shareholders’ money fighting the ruling by the Securities and Regulation Panel (SRP) which torpedoed the Ethos bid. The SRP ruled that Tsogo had made a competing offer to Ethos, which should have been disclosed to shareholders.

The outcome of that case has huge implications for Gold Reef’s integrity. Aaron says this case could be heard in court before year-end. But for Joffe’s sake, he’ll be praying he doesn’t come out on the wrong end of yet another decision this year.

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