Lewis shareholders ignore accusations of ‘delinquent directors’

Major shareholders in Lewis Group appeared entirely unfazed by a letter that Dave Woollam, a holder of the stock, sent to the company, in which he called for it to declare as “delinquent” a number of its senior directors.

A former MD of African Bank, Woollam has made his request in terms of section 165 of the Companies Act, which enables a shareholder to request that a company commence proceedings to declare its own directors delinquent.

Specifically, he would like CEO, Johan Enslin; CFO, Les Davies; independent non-executive chairman, Dave Nurek; and independent non-executive director, Hilton Saven declared delinquent.

Woollam is a non-executive director at Summit Financial Partners. He says this campaign is less about governance issues at Lewis and more about the impact that its business practices, and the unsecured credit market as a whole, are having on the poor.

A nominal holder of the stock, he tells Moneyweb he is not bringing this action as a disaffected shareholder, but rather using the channel available to shareholders to “pursue what we [Summit] believe is as significant social issue”.

Despite the serious nature of the allegations made in Woollam’s e-mail – including that the firm’s “prevalent predatory culture” will continue to destroy shareholder value until such time as its directors take responsibility for their lack of leadership – Lewis’s major shareholders appear unmoved.

Lewis issued a stock exchange filing on Wednesday, notifying shareholders of the central demand of Woollam’s letter and stating that, having taken advice from in-company legal advisors, it intended to apply to court for the setting aside of this demand “on the grounds that it is frivolous, vexatious and without merit”.

The company’s share price closed 2.58% higher on the day at R47.73. The rally continued on Thursday, with the share closing 1.15% up at R48.28.

Moneyweb contacted Lewis’s two largest institutional shareholders to query whether they had any concerns about the issues raised by Woollam.

London-based RBC Investor Services Trust, which holds 17.52% of the stock, did not respond to an e-mailed request for comment. A spokesperson for Invesco Ltd, based in Canada and holding 16% of the stock, said the company had no comment on the matter.

The third-largest institutional shareholder is Lewis Stores (9.4%), followed by the Government Employees Pension Fund (GEPF), which holds 7.88% of the company.

Managing more than R1.8 trillion on behalf of public sector entities, the Public Investment Corporation (PIC) is the GEPF’s asset manager. It had not responded at the time of publishing.

The PIC has reduced its shareholding dramatically since this time last year, when it was above 15%.

This is perhaps unsurprising, considering that Lewis’s share price fell from a high of R100 on June 26 2015 to a low of R41.21 in January.

In July last year, Moneyweb noted that both the PIC and Old Mutual were reducing their stakes in Lewis.

The PIC said the sale took into consideration “the macroeconomic outlook as well as intrinsic valuation of the investment”.

Old Mutual noted that it took into account the threat to Lewis’s earnings from regulatory pressures impacting on its insurance business. Old Mutual plc’s shareholding has fallen from 10.54% in August 2014 to 1.27% at market close on Thursday, held across Old Mutual Fund Managers and Old Mutual Life Assurance.

‘Miss-selling due to human error’

Woollam’s letter takes the Lewis directors to task over a wide variety of issues, including the mistreatment of customers and inappropriate accounting policies.

Lewis and subsidiary Monarch Insurance Company recently had to refund pensioners and self-employed individuals to the tune of R69 million for wrongly selling them loss of employment insurance.

This happened only after the National Credit Regulator (NCR) referred the matter to the National Consumer Tribunal (NCT).

Woollam rejects Lewis’s explanation that the miss-selling was due to “human error”. “At a conservative calculation of R1 000 per customer, it means that 46 000 individual human errors occurred over the past 8 years,” he notes.

In an affidavit to the NCT, Lewis’s Davies notes that this cover would have been sold due to Lewis employees mistakenly recording a consumer as being in full-time employment.

Woollam argues that this suggests that Lewis employees either did not do a proper credit assessment of the consumer and extended credit recklessly, or simply committed fraud by knowingly inputting the incorrect data.

He goes on to tackle extended warranty products, which he says Lewis obliges customers to buy in contravention of the National Credit Act (NCA), and makes extensive comments about Lewis’s “various inappropriate” accounting disclosures.

At its AGM in August 2015, Woollam challenged what he believed to be the overstating of income, but was met with denials from the board.

In November of the same year, Lewis announced it had decided to review various of its accounting policies, with the effect that the company’s net asset value fell by R375 million.

“Each one of these changes were precisely related to the issues I had previously raised on numerous occasions,” according to Woollam

Asked to respond directly to the specific issues raised by Woollam, Enslin told Moneyweb, “As we will be taking this matter to court shortly our lawyers have advised that it would not be appropriate to comment on any of Mr Woollam’s issues in the media at this stage, and I hope you will understand our position.”