Inside the high-stakes showdown at the PIC

Up until a day before deputy finance minister David Masondo’s resignation as the Public Investment Corp (PIC) chair, his board was intent on suing finance minister Enoch Godongwana in what could have been an unprecedented legal showdown between a minister and their deputy.

Masondo resigned as PIC chair on Thursday evening, just a day after Godongwana had announced his intention to call a special PIC AGM where he was to propose dissolving the board following the resignations of six non-executive directors in the past week.

The Sunday Times can confirm that relations and trust between Godongwana and the board had broken down to the point where board members had briefed attorneys to approach the courts for an urgent interdict seeking to stop tomorrow’s AGM.

According to several sources with direct knowledge of the crisis at the R3.6-trillion fund, that plan was hastily abandoned once the board learnt that Godongwana had the blessing of President Cyril Ramaphosa.

The unprecedented court challenge was going to centre on the argument that Godongwana had failed to comply with the Companies Act, which requires that 15 days’ notice be given for an AGM. The board’s argument was that by holding the AGM on just six days’ notice, Godongwana was trying to ensure a new board was in place before an application by suspended CEO Patrick Dlamini to have his suspension overturned was heard in court.

In a statement issued on Friday, Godongwana noted Masondo’s resignation, and thanked him for his service. Yesterday he declined request for further comment, saying his focus was now on a Cabinet where a new board would be discussed.

Masondo said: “I am no longer the PIC Chairperson; therefore, I am not in a position to comment on any PIC matters.” Ramaphosa’s spokesperson Vincent Magwenya did not respond to several text messages sent to him.

The PIC is Africa’s largest asset manager, with the fiduciary responsibility of investing trillions of rands in public sector pensions, as well as funds from the Unemployment Insurance Fund (UIF) and the Compensation Fund.

While the Companies Act does prescribe a 15-day notice period for AGMs, it also provides for a shorter period if an entity faces a crisis and there is just one shareholder — which is the case at the PIC.

“The board was ready to fight the minister to protect its voice and explain to the courts why it had taken the decision to suspend Dlamini, but it did not want to be seen to be fighting the president,” the source said.

However another source, also with direct knowledge of the matter, said the intended court action was viewed as one more act of disrespect by Masondo’s board. Godongwana had called the AGM because he “was responding to a board exodus and escalation of the crisis at the PIC”, this source said.

Another high-level source at one of the PIC’s funders said Masondo had been given an ultimatum to resign before tomorrow or be fired. The source also said tensions between Masondo and Godongwana had escalated and their relationship had broken down.

“He was told by the president that if Monday arrives and he hasn’t vacated the chairperson position, he will be removed as the deputy finance minister. So he had to resign,” the source said.

The Sunday Times understands that Ramaphosa informed several stakeholders, including the ANC’s top seven leaders and Cosatu president Zingiswa Losi, of his intention to wade into the impasse between the two Treasury leaders and remove Masondo. This was after he had sought a legal opinion on whether it was possible to temporarily move the PIC from the Treasury to the Presidency to shield the asset manager from the wrangling.

“His initial idea was for the legal opinion to look into the two possible actions he can take — either removing it altogether from the Treasury and having it report directly to him, or alternatively, whether he can appoint someone who will sit in the Presidency as the chair of the board,” one source said.

Ramaphosa is very disappointed that Masondo has been very bad … He would lobby people [board members] to defy the decision to resign, those kinds of things

—  Government source

“But that legal opinion has come back to say it is not possible; basically that would have to be preceded by an amendment of the law governing the PIC and that process will obviously take time,” the source said.

Besides ordering Masondo’s removal, Ramaphosa has also tasked the Special Investigating Unit (SIU) and the auditor-general to investigate the PIC. It is not clear whether this directive to the SIU is separate to last month’s request by Masondo that the SIU probe the PIC’s controversial Acapulco settlement (see Business Times).

Tensions between Godongwana and Masondo centre on the PIC board’s decision to split the chief investment officer (CIO) role into three — property, listed investments and unlisted investments — and on Dlamini’s suspension last Sunday, which was prompted by a whistleblower report last month.

Godongwana wrote to Masondo in late May to express his opposition to the board’s decision to begin the recruitment process for the three CIO positions. The board had decided to do so despite the fact that he was still considering a request to amend the PIC’s memorandum of incorporation (MOI) to allow for this.

“I would appreciate it if the board can consider the implications of implementing the decision to reconfigure the CIO function without necessary approved amendments to the MOI and how such implications, if any, will be addressed,” he said in his letter.

The Sunday Times was told a week later, after the board went ahead and interviewed shortlisted candidates, Godongwana gatecrashed a board meeting to express his concern.

Several insiders said the real issue in the CIO spat was that Masondo and Dlamini — who is seen as a Godongwana person, having worked with him at the Development Bank of Southern Africa (DBSA) — disagreed on candidates. Dlamini favoured two current DBSA officials for the unlisted and property portfolios, while Masondo had lobbied for a senior investment banker whose name is known to the Sunday Times.

One of the insiders, who played a role in the shortlisting and interview process, said: “Both these gentlemen’s candidates were not the best suited. The lady candidate is leading a fund with R10bn in assets under management, and that is about 10% of what the unlisted investments division of the PIC is, while the DBSA guys know f***-all about investments.”

This source said Masondo was far too hands-on in terms of intervening in executive-level operations, including appointments.

“This CEO resisted to a point that he would engage the minister,” the source added.

Contacted for comment yesterday, Masondo said: “I am no longer the PIC chairperson, therefore I am not in a position to comment on PIC matters.”

In a statement on Friday, Godongwana noted Masondo’s resignation and thanked him for his service. Yesterday he declined requests for further comment, saying his focus was now on cabinet discussions about a new board.

While speculation has been rife about who will step into Masondo’s shoes (see Business Times), Ramaphosa is believed to still be considering appointing someone in the Presidency, such as the deputy minister of planning, monitoring & evaluation, Seiso Mohai.

A senior government source said that appointing Mohai would be in compliance with the PIC Act stipulation that the board chair be a deputy from the Treasury or other department in the economic cluster. The Presidency itself was part of the economic cluster, this source argued, because it controlled state-owned enterprises.

“I know for sure that he [Mohai] respects the president, he’s a political animal. We just don’t know what he will do, but I don’t think he will be like a Masondo; he is more mature,” the source said.

Ramaphosa’s spokesperson Vincent Magwenya could not be reached for comment.