Cell C execs paid R219 million while the company burned

Cell C’s top three executives, led by former Cell C CEO Jose dos Santos, were paid R219 million in 2017 when the company was experiencing alleged corruption and poor management decisions.

They continued to receive large bonuses in 2018 despite the fact that staff was told they would not receive bonuses because the company did not meet its targets.

The lucrative salary packages were not the only benefits to Cell C’s top brass following the recapitalisation process in August 2017.

The top four executives at Cell C were also awarded 5% of the company’s total shares issued at a “nominal fee”. Their shareholding in the operator on 30 June 2018 was as follows:

  • Jose Dos Santos (CEO) – 1.875%
  • Robert Pasley (CFO) – 1.25%
  • Graham Mackinnon (Chief Legal Officer) – 1.25%
  • Hilton Coverly (Executive of Informal Channel) – 0.625%

At the time, media reports suggested that these significant rewards were linked to the successful recapitalisation process and putting the company on a sustainable path.

Dos Santos said in February 2018 that the strategic measures put into place to enact the company’s turnaround strategy was beginning to show improved performance.

“The recapitalisation of Cell C last year has really allowed us to create a strong foundation for the business,” he said.

Dos Santos added that they had also strengthened their top management structure and the team they had in place to take Cell C into the next few years was exceptionally skilled.

If Dos Santos and his management team did indeed save the company and grew shareholder value, the large bonuses and share allocations could be justified.

It would also make sense if big pay packages and shares were used as incentives to keep the management at the company to see the turnaround strategy through and list the company on the JSE, as was planned.

Not everyone was, however, convinced Cell C’s bigwigs earned the lavish payments and that the company was on the right path.

Many Cell C employees bemoaned the fact that the company’s executives received millions while they were not getting any bonuses.

Zwelakhe Mankazana, a director at Cell C shareholder Cellsaf, told Business Day in 2018 they felt “defrauded” by these extravagant payments to the top executives.

Looking back

It is now three years after the high pay packages and share allocations to Cell C’s top executives, which is a good time to assess whether they were justified or whether the critics were right.

Executive remuneration can be evaluated through shareholder value and employee benefits, and Cell C fell short in both areas.

The company performed so poorly that its main shareholders, Blue Label Telecoms and Net1, impaired their investment in Cell C to nil.

This means that a great deal of shareholder value was destroyed after Cell C’s recapitalisation in August 2017.

Cell C staff had an equally torrid time. Hundreds of employees lost their jobs and the company closed 128 retail stores.

The job cuts at the company affected many employees, including senior management, junior management, and semi-skilled staff.

As if this was not enough, it has also emerged that there was corruption at the company following the arrest of the former executive head of IT at Cell C in relation to a R64-million tender scam.

“It is alleged that during the period 2012 to 2019, he colluded with a director of a contracted entity responsible for IT and network services at his workplace,” the SAPS said.

He is now facing charges of fraud and corruption, and the SAPS said the investigation is continuing and more arrests are expected.

Dos Santos’ claim of an exceptional top management team to “take Cell C into the next few years” was also misguided.

Cell C’s whole top executive team was replaced within two years of the large bonuses and share scheme.

Former Cell C CFO Tyrone Soondarjee left in May 2018, Dos Santos stepped down in February 2019, and Mackinnon and Pasley left in July 2019.

There is now a new management team which must implement a new turnaround strategy to partly fixed the damage which was done to Cell C over the past few years.

We walked into a mess – Cell C CFO

Cell C’s current chief financial officer, Zaf Mahomed, recently said the company was a mess when they took over from the previous management team.

“When Douglas [Cell C CEO Douglas Craigie Stevenson] and I got into the business two years ago, what we walked into was a mess, frankly,” he said.

“There was a lot of fixing to do. As a mobile network operator we were not profitable, we had stacks of debt on our balance sheet that needed addressing, and we had a business model which was not sustainable,” he said.

So severe were the problems at Cell C that there was a real risk of the mobile operator being shut down.

This is what sparked the current turnaround strategy, where Cell C retrenched a large part of its workforce to cut costs and cut its network infrastructure spend.

Cell C CEO Douglas Craigie Stevenson also criticized decisions made by the previous management team, like the decision to launch their own streaming service.

Cell C launched Black in November 2017 and offered subscribers video streaming, music, concert tickets, and sports betting.

Dos Santos punted the service as the future of entertainment, where you would no longer have to “wait nine months before you can watch the newest movies in South Africa”.

Craigie Stevenson said to think Cell C could compete against players like Netflix in a content play was crazy, which is why they pulled the plug on their Black streaming service.

He said although they had spent R1.5 billion on the Black platform, there was no point in throwing good money after bad.

No comment from Cell C

Cell C told MyBroadband its leadership team is focused on the future of the company and implementing its turnaround strategy.

The company would, however, not answer any questions regarding the bonuses paid to its executives and whether it was justified.

Cell C would also not say whether Dos Santos, Pasley, Coverly, and Mackinnon are still shareholders.

Now read: Former Cell C executive arrested for R64-million tender scam

Sourced from: My Broadband. View the original article here.

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