Embattled Absa Group CEO Arrie Rautenbach “broke down” while addressing the bank’s top executives over recent developments at the bank that left him exposed and with his job on the line.
The Sunday Times has learnt that pursuant to a series of articles about developments at the bank — including criticism over the slow pace of transformation, governance lapses and human resource blunders — that threaten to derail his tenure at the bank Rautenbach called a meeting of the banks top leadership, colloquially referred to as the top 200, in a bid to garner their support.
But this attempt, which included an emotional declaration that he was not anti-transformation, appears to have fallen flat. Instead, the bank leaders responded that they had lost confidence in him, said two insiders with direct knowledge of the meeting held at the Houghton Hotel in Johannesburg this week.
Absa yesterday confirmed that about 250 of its senior leadership met on Thursday 25th July 2024 and said it would “not respond to speculation or misleading claims of an unethical, sensational and inflammatory nature that seek to damage the reputation of the company and its leadership”.
It said the top staff met “to reconfirm the group’s commitment to the execution of its business strategy and transformation amongst other topics”, saying it was “about constructive deliberations of an internal senior leadership meeting”.
The engagement followed a companywide e-mail sent by Rautenbach, in the wake of media inquiries by the Sunday Times last week, in which he said that the “continued attack” was damaging to the company’s reputation, and that there was hard work ahead to put an end to the “adverse headwinds’’.
“Once again, I’d like to urge you not to participate in speculative discussions that aim to undermine the credibility of our organisation ... As difficult as this may be, let’s not be distracted from our focus of delivering to our customers, shareholders, and communities,” he added.
“In their response, the leaders told him that sending the e-mail to the entire business was unprofessional, especially when in reality these issues related to his decisions and not the company,” said one of the insiders.
“Others then told him that they had lost all confidence in him, and wanted a new CEO, while others said they wanted a black African CEO. The general view was that he is weak commercially, and the company has performed poorly under his stewardship.”
“The challenges he is facing are because of his poor decision making as a leader — his actions block the advancement of black leaders [and] is just another reason why he should go,” the other insider said.
Absa, one of South Africa’s biggest banks, is in a bind after payments to its former Chief Executive: Everyday Banking Cowyk Fox for work done while resident in the US.
The root of the crisis is Absa’s potential violation of US tax and social security regulations by paying Fox, now a US citizen, for work undertaken remotely for the banking group while in the US.
Sunday Times understands that the Absa board was in the dark about Fox becoming a US citizen in mid-2022 — a fact only brought to their attention when he resigned almost two years later (on April 22 this year)
Sunday Times understands that the Absa board was in the dark about Fox becoming a US citizen in mid-2022 — a fact only brought to their attention when he resigned almost two years later (on April 22 this year).
What seems to have angered some board members is the fact that the Rautenbach, who had a close relationship with Fox, could not shield Absa from what has become a messy compliance scandal.
The bank has refused to say for how many months it has paid Fox for work done while already a US citizen and in the US. But documents seen by TimesLIVE show Fox worked for a few months before he was hurriedly ordered to stop because Absa was not a registered employer with the US Internal Revenue Service (IRS).
“What got us in this mess is the buddy-buddy arrangements Arrie has with some leaders in the bank. Now we have paid a US citizen but we have not contributed to his tax obligations to the IRS — all the while paying the SA Revenue Service for the same employee. So do we register as a taxpayer post facto and then declare we already paid one employee and then deregister after paying penalties? How do we unentangle ourselves from this unnecessary maelstrom? Who must be undoing the mess the CEO has created? It’s a corporate s***show at another level.”
“Further, how do you successfully run everyday banking for a South African bank while you’re in another country? We then should not be saying to the investors and stakeholders we are surprised this division’s performance in the 2023 financials declined by 17%. How could it not if the leader [Fox], the CEO of Everyday Banking is in the US?” asked a board member.
The compliance violations regarding the payments are said to have been irregularly approved by Rautenbach without board consent. The bank is also trying to figure out if or how to pay Fox the six months gardening leave Rautenbach negotiated. That leave is now being served in the US and could lead to further US compliance complications.
The US Department of Justice’s Internal Revenue Code 7202 deals with “Willful Failure to Pay Over Tax” which makes “failing to meet employment tax obligations a felony” that attracts monetary ($10,000) and prison sentences not exceeding five years or both. Absa’s predicament is not about the fines, but the most senior person (Rautenbach) with fiduciary responsibilities dropping the ball and requiring juniors to mop up after him, says the source.
After Fox’s resignation and his immediate relocation to the US, Rautenbach recommended to the board’s remuneration committee (Remco) that Fox be paid in lieu of his notice, which runs until October 21.
In a memo marked “secret” to the Remco dated May 25, Rautenbach said Fox spent “2-3 months during 2023” working remotely while based in the US . This imposed “potential obligation for Absa to deduct and pay over US employee tax (for time worked in the US), and the employee and employer contribution to social security, workers’ compensation and other statutory contributions (for time physically spent in the US). Both apply at Federal and State level.”
For Absa to comply with US regulations, it will need to register as a taxpayer in the US and to file documents showing its contributions to social security in that country. While Absa has a presence in the US, Fox was not employed by that business unit when he did international remote work from the US.
The GCEO then recommended a way of avoiding further exposure to US regulations by seeking approval for Fox to be paid a lump sum in lieu of notice. “The basis of the recommendation is from the perspective of the risk/implications for Absa of continuing to pay Cowyk (Fox) as an employee, while he is permanently based in the US. This is as opposed to agreeing to pay in lieu of notice for Cowyk’s own convenience,” writes Rautenbach.
The Remco rejected this, noting the GCEO should not have entered into any negotiations with Fox, let alone allowing him to work from home while in the US, thus exposing Absa to regulatory violations in the US.
Rautenbach then wrote to Fox, giving him two options the Remco was willing to consider. This was for Fox to return to SA to serve his remaining notice period as in SA. “This will require that you return to SA as soon as possible, and remain here for the full remaining period of your notice.” The alternative was for Fox not to serve the remaining notice and therefore not be paid, which the bank would welcome, but an option he was displeased with.
In his e-mail to Rautenbach dated June 7, Fox expressed his outrage at the feedback from Rautenbach, telling him it was the “agreed position with you [Rautenbach] and therefore the Bank” on which he based his decision of “signing of lease agreements etc” and that Absa appeared to be reneging on the terms of his departure. Fox said had he known that Rautenbach would reverse his commitment to him, he would not have resigned. He told Rautenbach he knew about his Green Card status for over a year and wondered why he was only being told about these options now.
“Suffice to say I am extremely disappointed with this notice. I’ve been completely transparent on every aspect over the past 18 months and have not done anything without prior discussion and consent of those on this e-mail to do right by Absa but also to make subsequent decisions affecting my life. Prior to my resignation I discussed with you my intent to leave SA post my resignation and it was accepted.” Fox did not respond to repeated requests for comment sent to his cellphone and e-mail.
Another source said it was these gentleman’s agreements between Rautenbach and Fox that have put Absa in a pickle. As the most senior executive, Rautenbach was expected to alert the bank when Fox’s citizenship changed and not deal with it casually and thus compromise the bank’s regulatory compliance.
Asked to comment on this, Rautenbach deferred to Absa’s communications team, which said: “Absa is a systemically important organisation with significant obligations in the markets in which it operates, thus taking its compliance responsibilities very seriously and acts strictly in accordance with regulatory and compliance requirements, including country laws, tax and labour legislation. “Further, as a matter of policy, Absa respects the confidentiality of the employment relationship with its staff and as a result we have an obligation not to divulge any information relating to these matters, especially as it relates to remuneration, leave entitlements, and work arrangements of individuals.”
The latest saga follows Rautenbach’s failed attempt to demote or force out Absa’s chief executive of Africa Operations Saviour Chibiya, whose unit’s headline earnings increased 27%, which translated to a 44% contribution to the bottom line in the 2023 financial results. The board told management Chibiya will remain in his position.
Another source claimed Absa had informed the Prudential Authority, in line with Regulation 42, that Chibiya would be replaced by his Mauritian colleague, Ravin Dajee. “The board’s decision to thwart the move must be followed by a clarification by Absa that the communicated change was no longer happening,” said the source.
Absa said Chibiya was head of the African operations and there was no confusion in the market.
Absa further elected not to respond to compliance issues involving Fox, saying only that it places “the highest value on the privacy and confidentiality of our employees considering it a cornerstone of our organisational ethos. In line with this core value, we maintain a strict policy against public discussion of internal employee matters, reflecting our commitment to fostering a work environment built on trust and professionalism.
“Absa upholds the highest standards of ethical conduct as a core value in every aspect of our business. We are committed to fostering an environment of integrity, transparency, and accountability, where ethical principles guide our decision-making processes and actions.”
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