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Corpcapital Limited - Report Back On Independent Investigation
Corpcapital Limited
Incorporated in the Republic of South Africa
(Registration number 1983/011384/06)
Share code CPA ISIN ZAE000034260
("Capital" or the "company")
REPORT BACK ON INDEPENDENT INVESTIGATION
On 23 January 2003 the board of directors of Corpcapital appointed Mr Nigel
Payne to conduct an independent investigation into the allegations raised and
corporate governance issues arising from a letter addressed by Mr Frangos to the
chairman of Corpcapital dated 2 December 2002.
Mr Payne delivered his report to the non-executive directors of Corpcapital on
Saturday, 15 February 2003.
Mr Payne has found that there has been no breakdown of corporate governance at
Corpcapital and that Mr Frangos` contentions to the contrary are unjustified. A
verbatim transcript of Mr Payne`s findings and recommendations is set out below.
Mr Payne`s full report is published on Corpcapital`s website
(www.corpcapital.com) and is available at the offices of Corpcapital (2 Arnold
Road, Rosebank).
The board is satisfied that the interests of shareholders have been served and
that the independent investigator`s report brings finality to all of the matters
investigated by Mr Payne.
The board will implement the recommendations made by Mr Payne.
Notwithstanding the vindication of the board `s conduct by the independent
investigator, the board regrets the circumstances relating to its parting of the
ways with Mr Frangos. The board acknowledges that Mr Frangos was a founder of
Corpcapital and that he served the company for a number of years. It is
regretted that there was not some other way that the differences between the
board and Mr Frangos could have been dealt with.
The board remains committed to best corporate governance practice and the
delivery of shareholder value.
THE INDEPENDENT INVESTIGATOR`S REPORT
PAYNE & ASSOCIATES
Corporate Governance Advisors
P O Box 171, Strathavon, 2031
15 February 2003
The Directors
Corpcapital Limited
Attention : Messrs Ellerine, Trengove, Wixley
Dear Sirs
Review of Corporate Governance
I have completed my investigation in terms of the mandate established by the non
executive directors on 23 January 2003. I set out my findings and
recommendations herewith. I have attached a summary of the evidence in relation
to certain key issues. You have undertaken to release this report to
shareholders.
I confirm that I have enjoyed unrestricted access to company directors,
employees, auditors, books and records, and that Mr Frangos gave me similar
access to himself, his advisors, and the documents in his possession. Mr
Grolman was seriously ill during the period of my investigation and was
hospitalised. I am satisfied that his indisposition in no way diminished my
ability to carry out my mandate.
I confirm that the scope of my assignment was unrestricted, that I investigated
all matters evidenced by the resignation letter from Mr Frangos to Mr Ellerine
dated 2 December 2002 and the company`s press release dated 19 January 2003, and
that I expanded my scope where I believed necessary, at my sole discretion.
Matters which I believed did not require additional investigation were
determined at my sole discretion. My investigation covered substantive issues
as well as an analysis of the culture, values, behaviour patterns and
interpersonal issues which formed the milieu for the substantive issues.
I conducted an investigation sufficient in scope, and obtained appropriate
evidence that enabled me to report the facts and express the opinions set out
herewith. I have recommended improvements to corporate governance processes in
areas where I believe deficiencies exist, or where existing procedures can be
improved.
I have not identified any issues where I believe it will be in the interests of
shareholders to conduct further investigations.
I have not interacted with any shareholders (other than individuals I
interviewed in a capacity different to that of a shareholder). Shareholders
will receive my report, and have the opportunity to raise issues at meetings of
the company, or directly with the chairman of the board.
Corporate Governance Best Practice
The period covered by my investigation spanned 1996 to 2003. During this period
the King Committee issued the King II Report (in March 2002) and the JSE
Securities Exchange updated its Listings Requirements. I have compared the
corporate governance practices in evidence to documented best practice at the
time each issue occurred. My recommendations are based upon best practice as
it exists in 2003.
During 2002 the company reviewed its compliance with King II and tasked internal
audit with monitoring progress in areas where improvement is required. I concur
with the company`s assessment. No areas of non-compliance relevant to my
investigation were identified by the company that are not covered in my report.
Findings
There is no evidence of criminal conduct or regulatory breaches by the company,
its directors and management.
There has not been a breakdown of corporate governance at Corpcapital.
The non-executive directors, who are all individuals with impeccable
credentials, effectively control the board of directors.
The board of directors is in control of the company
The executive directors defer to the non-executive directors and have not
deployed intimidatory tactics against them.
Board members are given adequate opportunity to understand and ventilate issues
before decisions are taken.
All the directors, with the exception of Mr Frangos, believe that they have
carried out their fiduciary duties, and that they continue to be able to do so.
Mr Frangos believes that he was in a position to carry out his fiduciary duties
until late 2002.
There is no evidence that the executive directors have conducted the business in
a way that favours their interests over those of shareholders.
A proper system of checks and balances exists to safeguard the interests of
shareholders and to manage conflicts of interest inherent in the conduct and
discharge of their duties by the executive directors.
All material matters have been appropriately disclosed to shareholders in the
annual reports.
Accounting policies comply with Generally Accepted Accounting Practice and have
been applied appropriately.
There is no evidence of a secret plan to delist the company.
There is no evidence to suggest that the governance processes, valuations and
swop ratios relating to the merger were flawed.
Executive directors and management did not receive undue or improper restraint
of trade payments.
Salary and bonus payments to directors were made after due and proper process,
under the control of the non-executive directors by way of the remuneration
committee, and were benchmarked to achieve objectivity.
When share options were repriced this was according to due and proper process,
including appropriate disclosure.
The CEO was not paid a double bonus.
The CEO did not make misrepresentations to Old Mutual Asset Managers regarding
the remuneration process.
The valuations, accounting and disclosure of the investments in Cytech Limited
were made according to proper process and were audited to their satisfaction by
the external auditors, Fisher Hoffman. The reviews performed by other audit
firms in 2001 and 2002 confirmed the valuation model, as well as the valuations
established by management, but did not include an audit of the underlying
information provided by management. There is no reason to review or restate any
of the annual reports.
There was some delay in providing Mr Frangos with the Cytech information he
requested in 2002. There is no evidence that this delay was orchestrated by the
executive directors, nor that it was designed to deny Mr Frangos information to
which he was entitled.
There was nothing improper about the cash distribution to shareholders in
January 2003, nor in the simultaneous share purchase proposed, but later
abandoned by management.
The board endorses the right of directors to seek independent professional
advice, subject only to compliance with a procedure designed to ensure the
maintenance of confidentiality over company information, particularly
information that may be price sensitive. The company has not defined the
procedure that should be followed in this regard.
Mr Frangos contributed to the independent oversight and good governance during
his tenure.
The board, the non-executive directors, and the chairman gave Mr Frangos a
number of opportunities to table his concerns and seek explanations.
The other non-executive directors were all satisfied that Mr Frangos` concerns
had been addressed appropriately. This included substantive issues and
underlying interpersonal issues, behaviour patterns, cultures and values.
The relationship between Mr Frangos and the other directors deteriorated to the
extent that the board asked Mr Frangos to consider resigning.
Mr Frangos considered his position over a number of weeks. His letter of
resignation was not an afterthought.
After due consideration Mr Frangos resigned.
I have investigated each of the above issues in detail. The fact that I do not
address all of them in the attached summary of evidence in relation to certain
key issues is merely a reflection of the huge volume of evidence I have
gathered. The items I have chosen to address in more detail are those where I
believe shareholders will benefit most from a greater understanding of their
company.
Recommendations
The composition of the board of directors deserves urgent attention.
The procedures to be followed by a director seeking independent professional
advice should be documented and approved by the board as soon as possible.
The investment in, and valuation of, unlisted investments are high risk areas
requiring the constant attention of management, the audit committee and the
board. The board should define its information needs in relation to unlisted
investments. Consideration should be given to expanding the scope of internal
audit to specifically include unlisted investments.
Cytech Limited`s year end is one month after that of Corpcapital. The external
auditors should be requested to audit the accounts of Cytech to an earlier date
in order to ensure that this information is available to inform Corpcapital`s
year end audit.
The remuneration committee has made significant progress in its efforts to
establish an appropriate performance bonus system. These efforts should
continue.
Management should investigate the accounting and reporting system in order to
improve, where possible, the timely production of information.
I acknowledge all parties, particularly the directors and Mr Frangos, for the
way in which they permitted me to conduct an unfettered investigation.
Yours sincerely
Nigel Payne
ISSUED BY THE BOARD OF DIRECTORS
OF CORPCAPITAL LIMITED
Date: 17/02/2003 03:30:00 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
