African Investor Relations

I usually don’t like posting non-original material but every now and then I really enjoy reading something. The SEC in the USA gets busy with suing anyone and everyone that steps out of line (or appears to). It’s really impressive and the SEC news digest, from which the article below is taken, always contains a few interesting articles tucked away. The SEC has a good alerts service should you be interested. It’s great that our African markets are all squeaky clean, so much so that not alot happens on the regulatory legal-action front.

SEC Charges Snamprogetti Netherlands, B.V. With Foreign Bribery and Related Accounting Violations and ENI, S.P.A. With Books and Records and Internal Controls Violations – ENI and Snamprogetti to Pay Jointly $125 Million in Disgorgement; Snamprogetti also to Pay a Criminal Penalty of $240 Million

The Securities and Exchange Commission today charged Italian company ENI, S.p.A. and its former Dutch subsidiary Snamprogetti Netherlands B.V. with multiple violations of the Foreign Corrupt Practices Act (FCPA) in a bribery scheme that included deliveries of cash-filled briefcases and vehicles to Nigerian government officials to win construction contracts.

Snamprogetti and ENI will jointly pay $125 million to settle the SEC’s charges, and Snamprogetti will pay an additional $240 million penalty to settle separate criminal proceedings announced today by the U.S. Department of Justice.

ENI and Snamprogetti are the latest to be charged in the decade-long Nigerian bribery scheme conducted by a joint venture of companies that also included Technip and KBR, Inc., both named in previous SEC enforcement actions. Technip, KBR and its former parent Halliburton Company paid a combined $917 million to settle FCPA charges. The $365 million to be paid by ENI and Snamprogetti brings the total sanctions against the companies involved in the scheme to more than $1.28 billion.

According to the SEC’s complaint against ENI and Snamprogetti, filed today in federal district court in Houston, senior executives at Snamprogetti and the other joint venture companies authorized the hiring of two agents, a U.K. solicitor and a Japanese trading company, through which more than $180 million in bribes were funneled to Nigerian government officials to obtain several contracts to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria. The Nigerian government exercised majority control over the company that awarded the contracts – Nigeria LNG Ltd.

The SEC’s complaint alleges that senior sales executives at the joint venture companies formed a “cultural committee” to consider how to implement and hide the bribery scheme through sham consulting and services contracts with subcontractors or vendors. After Nigeria LNG awarded the joint venture companies a $2.2 billion LNG-related construction contract in December 1995, the companies sent a total of $60 million to the U.K. agent’s Swiss bank account over the next 52 months. The U.K. agent transferred the money to accounts owned or controlled by high-ranking Nigerian government officials.

The SEC alleges that following a change in Nigerian government in 1999, representatives from the joint venture companies traveled to Nigeria to meet a high-ranking government official to continue the scheme. The official confirmed that the U.K. agent was the correct intermediary, and also appointed his own representative to negotiate the bribe amount. A senior officer from Snamprogetti and others from the joint venture met with the Nigerian official’s representative in London and negotiated an amount of $32.5 million to be delivered through the U.K. agent. Days after the London meeting, Nigeria LNG awarded a contract to the joint venture companies for $1.2 billion.

The SEC alleges that in 2002 and 2003, the U.K. agent used a subcontractor on the Nigeria LNG project to transfer millions of dollars to a Nigerian government official for the benefit of a Nigerian political party. The subcontractor personally hand-delivered U.S. cash in briefcases to the Nigerian official in a hotel room in Abuja, Nigeria. The subcontractor also delivered the bribes to the Nigerian official in local Nigerian currency, the Naira. In these instances, because the Naira was too bulky to deliver by hand, the subcontractor loaded the cash into vehicles that were delivered to the Nigerian official.

The SEC’s complaint also alleges that ENI failed to ensure that its former subsidiary, Snamprogetti, complied with ENI’s internal controls concerning the use of agents, and that the books and records of both companies were falsified as a result of the bribery scheme. After ENI became a U.S. issuer in 1995, it became subject to the FCPA, including the requirement to create and maintain adequate internal controls.

Without admitting or denying the SEC’s allegations, Snamprogetti has consented to the entry of a court order permanently enjoining it from violating the anti-bribery and recordkeeping and internal controls provisions in Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 and Rule 13b2-1, and ENI has consented to the entry of a court order permanently enjoining it from violating the recordkeeping and internal controls provisions in Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Snamprogetti and ENI also consented to the entry of court orders that require them, jointly and severally, to pay $125 million in disgorgement. The proposed settlements are subject to court approval.

In the related criminal proceeding announced today, the U.S. Department of Justice filed a criminal action against Snamprogetti, charging one count of conspiring to violate the FCPA and one count of aiding and abetting violations of the anti-bribery provisions of the FCPA. Snamprogetti has entered into a deferred prosecution agreement with the DOJ and agreed to pay a criminal penalty of $240 million.

The SEC acknowledges the assistance of the U.S. Department of Justice, Fraud Section; the Federal Bureau of Investigation; and foreign authorities in Europe, Asia, Africa and the Americas. [SEC v. ENI, S.p.A. and Snamprogetti Netherlands, B.V., Case No. 4:10-cv-02414, S.D. Tex. (Houston)] (LR-21588; AAE Rel. 3149)

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This notice appeared from Pioneer Africa in the Zimbabwean press today – see below. Here are a few observations:-

- THE ANNUAL REPORT IS NOT ONLINE AS AT THE DATE OF THIS ANNOUNCEMENT – IT IS ONLY THE ABRIDGED ANNUAL REPORT THAT IS – NO PROXY VOTING MATERIAL EITHER – a few more days and shareholders will be able to claim that proper notice was not given

- This notice obviously has the sanction of the ZSE but no mention is made of this

- The notice in the hardcopy press advert does not appear on the website

- There is no mention of why the annual report was not sent – presumably because the company can’t afford it?

- There is no explanation of the threshold of shareholder votes required to approve the waiver of the receipt of the hardcopy annual report – is it 75% of the votes (in which case a majority shareholder could unilaterally deny minority shareholders) or 75% of the shareholders by number? Or 75% of the number or votes in attendance at the meeting – usually the quorum at an AGM is just a few shareholders

- is putting the annual report on the website enough? Do Directors have an obligation in terms of good corporate governance to make available to shareholders the annual report?

- proxy forms are available at the Head office but not on the website – shareholders have to collect these forms and then forward them to the Company Secretary – if the annual report can be put online why not the shareholder proxy forms? The shareholders that are asked to waive their right to receive hardcopy annual reports

- are the directors reasonably sure that all of their shareholders have a reasonable chance of receiving their shareholder voting material? How can a shareholder vote on something if the voting material is not sent to them. Surely the logical thing to do, assuming that this initiative is legal, is to send all of the hardcopy announcements of the company’s intention to be carried out in the following year.

- How many contact email addresses does Pioneer Africa have of its shareholders? What initiatives has it taken to ensure that the voting material – the stuff that all shareholders are entitled to – is sent to shareholders?

- There is no corporate governance section on the Pioneer Africa website. The 2008 annual report (since the 2009 one is not online) says that the Board endorses the King II Code of corporate governance……mmmmmm…..

- S149 of the Companies Act requires that the balance sheet etc. “be sent to all persons entitled to receive notices” – the penalty if this is not done? s149 (3) of the act says ” If default is made in complying with subsection 1 the company and every officer of the company who is in default shall be guilty of an offence and liable to a fine not exceeding one hundred dollars……….gasp.

- so why havent other companies done this previously?

- which is more or less excusable? Denying the shareholders a reasonable right to receive their voting material or denying them the right to receive the annual report?

- forgetting the bigger picture issue here – if the annual report does not get published in the next day or so the clear 21 day notice period will have been breached – so what? You may ask.

This is a good example of the ignorance of directors when it comes to their obligations associated with shareholder communications. The IOD Zimbabwe and other institutions have high-flying-fluffy-puffy corporate events and training sessions where the oft-stated cliches of progressive corporate governance etc are stated over and over again to a sleeping audience. There should be hands on practical training sessions showing how executives can use the web effectively to communicate with shareholders, interactive sessions with legislators to come up with ways of solving the issues facing Zimbabwe

I hope this does not set a dangerous trend. Pioneer Africa is not a Safaricom and does not have the ability to significantly influence the regulators in turning a blind eye to corporate governance principles that have evolved from the South Sea Bubble days.

Dominic Jones , a world leader in online investor relations, has this opinion about the trends in African markets regarding de-linking the direct communications channel with shareholders:

“Scrapping requirements for companies to mail printed disclosure documents to investors is a global trend, but it has exacerbated shareholder apathy in every jurisdiction where it has been implemented. This is largely because regulators have failed to replace printed disclosures with suitable standards of online disclosures. Apathy and an uniformed investing public is, to my mind, the single worst thing that can happen in any market. It ultimately will lead to market abuses.”

Globally intellectual debate about the end of “shareholder value maximisation” has come to the fore. A recent article in the Economist highlights that “stakeholder values” are emerging as the core objectives of management.

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We have recorded across the board declines in investor traffic in the 23 websites we manage.

We had speculated that the World Cup (I have put in a link here to FIFA as they need help on the traffic to their website – its now up from 20,000,000 a minute to 20,000,001 a minute) might increase traffic. How naive we were. There’s another side though.  A more interesting one – the long term effects of the enhancement of Africa’s image. I think that African leaders are cursing themselves for not taking their soccer more seriously and realising that an event such as this is the biggest PR event they could possibly ask for.

Consider Ghana. The most deserving African nation of anything good. A decent democracy. A nice people. An expensive airport. They did not deserve the idiocy of soccers rules that saw them out of the World Cup. Barack Obama visited them. Ghana is king in Africa. I love Ghana.

But their online investor relations is way behind the rest of Africa? An opportunity lost? Yes. Definitely.

That said, with only the final to go, traffic to our investor websites is picking up again.  We are going to watch the Ghana section of Africanfinancials.com closely to see if soccer helps investment. By the way the Dutch are going to win. Spain were lucky.

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My business partner just spoke to a bloke in the online sales and marketing game – very different to our business but he said some meaningful things – he said the secret to making sales online was trust, likability and knowledge (knowledge in the sense that people believe you know what you are doing).  He has been struggling a little in the online health industry (a massively competitive market).  Anyway he said his experience over the last few years this was the most important thing he ever learnt – “width in inches, depth in miles”!  I thought that said it all!!!

The same thing applies to an online IR programme. Exchange the likability for transparency and you have the same principles that should form the foundation of a communication platform.  Specialise in building an online community from every aspect of your business’s interaction with investors, employees and stakeholders. Width in inches, depth in miles.

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