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Business Landscape

Bonus Bonanza

Their short-term cowboy tactics were in many ways responsible for the current economic mess, yet countless Wall Street executives will be getting bonuses this year. Huge signing fees, retention awards and severance packages are still part of the game – and are still tied only tenuously to performance. Does this throw some light on the compensation saga surrounding former SAA chief executive Khaya Ngqula?

Kevin Bloom




Let’s say it’s the mid-1990s and you’re a senior at an Ivy League college on the east coast of the United States. For most of your undergraduate career, you’ve been debating whether to go into medicine or teaching – you’ve always cherished the idea that one day you’d do some good in the world. In the last few months, though, a third option has crept into the mix. It seems that the most talented people in your year, the half-dozen overachievers who’ve been your competition since you were a freshman, have all signed up for postgraduate business degrees. They want to be investment bankers, they tell you, or go into private equity. They want to measure themselves against the best, they say. They want to work on Wall Street.

You delay the decision for as long as possible, but somehow you know your mind’s made up – you must continue to pit yourself against the elite of your generation. So you enrol at Wharton Business School, and a few years later you leave with a degree that gets you a job as a junior assistant at Merrill Lynch. For almost a decade you put in ten- to fourteen-hour workdays, trying to catch the attention of the partners. You succeed. By the time you’re in your early thirties, you’re a trader earning US$180 000 a year. In 2006, aged 32, you take home a bonus of US$5 million.

Comparatively, that’s not too bad. You’re doing better than many, worse than only a few. According to the New York Times, there are one hundred people at your firm that year –
employees on the salary wrung just below you – who take home bonuses of US$1 million. But at Goldman Sachs, your firm’s major competition, you have it on good authority that fifty people got bonuses of US$20 million. And then there are the guys at the top. Goldman’s CEO, Lloyd Blankfein, is rumoured to have cleared over US$60 million. Your own chief executive, E. Stanley O’Neal, pocketed US$46 million.

Two years later, over a September weekend that will go down in Wall Street history, your 94-year-old firm is sold to Bank of America for US$50 billion, sidestepping the bankruptcy that awaits Lehman Brothers the following Monday. And while it’s plain to every banker you know that something fundamental has shifted on the Street, nobody seriously believes there’ll be no bonus season in 2008. Bonuses, after all, are the entire point of the game.

As for the global consequences of the game, you can’t be expected to take any heat for that. I mean, c’mon, you didn’t invent the system, you just played it, did what was expected. How were you supposed to know that in a country called South Africa, where the income gap between rich and poor is amongst the highest in the world, your industry’s example would compound the problem? What does it have to do with you that executives at a power supplier called Eskom got richly rewarded for failing to do their jobs? How is it your fault that some airline CEO named Khaya Ngqula paid himself monthly retention bonuses on the taxpayers’ dime?

You have nothing to do with any of it, you tell yourself. Like most of your colleagues, what still concerns you most is the size of your annual cheque.

The story of Merrill Lynch’s post-collapse attitude to employee remuneration – and the attendant story of why many Merrill employees still believe they are entitled to their annual windfalls – is worth telling for two reasons. First, it’s an attitude that’s garnered far less press than that of global insurer AIG, whose decision to award staff bonuses soon after receiving US$85 billion in government bailout money provoked the ire of millions of US taxpayers; second, in its under-the-radar manner, Merrill’s attitude appears to be emblematic of the majority of Wall Street banks that have been devastated by the current crisis. Put another way, what makes the Merrill story interesting is that nothing about it is exceptional.

The story starts in 2006, when the company’s earnings were US$7,5 billion, an all-time record. That year, more than half of the revenues were generated by the fixed-income division, which meant that around a third of the total US$6 billion bonus pool got allocated to the division’s 2 000 employees. It didn’t matter that a large percentage of these revenues were linked to financial instruments whereby risky home mortgages had been converted into bonds, or that the fixed-income division (which had devised the instruments) pushed yet further into the mortgage business even as the housing bubble began to burst – it didn’t matter, because by then all the bonuses had been paid.

As mentioned, at the top of the bonus pile that year was the CEO, E. Stanley O’Neal. Following him (although not too closely) was Dow Kim, head of the fixed-income division, who was awarded a bonus of US$35 million. In third place, at US$20 million, was Kim’s deputy, Osman Semerci. Although the company has since written down its investments by around US$54 billion and subsequent losses have amounted to more than three times the 2006 profit, neither O’Neal nor Kim nor Semerci were ever asked to pay a cent back. In fact, when it became apparent that O’Neal had driven the firm to the precipice through his aggressive and reckless strategies, he wasn’t even fired – he was allowed to resign, which entitled him to a further US$161 million in deferred compensation and stock.

So it came as no surprise when, in December 2008, O’Neal’s replacement, John Thain, requested a US$10 million bonus for ensuring that Merrill didn’t meet the same end as its long-time rival Lehman Brothers. Thain had been lured to the firm by a US$15 million signing fee and a multi-year pay packet that was supposed to be worth between US$50 million and US$120 million, dependent on what he did with the share price. But because of the huge toxic debt he had unwittingly inherited, the ratcheted targets became a mirage – all he had to show for his efforts, after the signing fee, was his US$750 000 salary. Surely he was entitled to a paltry US$10 million for saving the bank; a number, as Vanity Fair writer Michael Shnayerson wryly noted, equivalent to a ‘25-cent tip on the deal’ with Bank of America.

Unfortunately for him, and much to the concern of bankers everywhere, Thain wasn’t entitled. Merrill’s directors couldn’t help noticing that public opinion had turned against them – Bank of America had recently been awarded US$15 billion in taxpayers’ bailout money, and was now about to take the US$10 billion earmarked for Merrill – and a bonus for the new CEO would send the wrong message. Also, there was New York attorney general Andrew Cuomo to consider, a man who was making his name by leading a crusade against outsized executive compensation at firms that had been saved from bankruptcy by the federal government. In October 2008, Cuomo sent a letter to the boards of firms including Goldman Sachs, Morgan Stanley, JP Morgan Chase and Merrill Lynch itself, laying out in emphatic terms his aversion to the awarding of bonuses under current circumstances. In November, apparently succumbing to the pressure, Goldman CEO Blankfein announced his intention to forgo the year-end package that between 2003 and 2007 had netted him over US$210 million; all he would be taking this year, Blankfein said, was his US$600 000 salary. A few weeks later, the chief executive of Morgan Stanley, John Mack, followed suit.

Which begs the question: In December 2008, when Thain insisted on his right to a US$10 million bonus, was he just being stubborn? Or were the ‘magnanimous’ gestures of his peers perhaps a bit too much for him to stomach?

As Vanity Fair’s Shnayerson observes, the 440 partners at Goldman Sachs are taking bonuses this year: ‘Maybe in many cases not the $12 million to $15 million each got in 2007 – more like packages worth $3 million to $4 million.’ Bizarrely, the US$10,9 billion in compensation and benefits that is to be divided amongst Goldman’s 30 000 employees is exactly equal to what US taxpayers have recently handed the firm in bailout money.

A Goldman spokesman, clearly flailing, explained to Vanity Fair that employee compensation comes out of ‘business activities’, meaning a different place on the balance sheet to where the government cheque sits. Either the spokesman’s words betray the fact that investment bankers think non-investment bankers are financially illiterate, or he genuinely believes that despite a US$7,2 billion write down in toxic securities the Goldman staff deserves to be rewarded. Or both.

The story at Morgan Stanley and AIG is much the same. Taxpayers still seem to be footing the bill for the lavish lifestyles of countless financial executives whose short-term thinking (fuelled by irrational reward structures) dragged the United States – and the world – into this crisis to begin with. Examples of Wall Street’s deeply entrenched pathologies abound. At Merrill, for instance, the new head of growth and acquisitions, who started work in September, was retrenched after only three months on the job because of the sale to Bank of America. His contractual severance package, according to the Wall Street Journal, may have been as high as US$25 million. No wonder Thain was embittered by his board’s unwillingness to throw him a meagre US$10 million for actually doing some work.

Viewed in this context, the compensation saga involving former SAA chief executive Khaya Ngqula is different in degree but not – arguably – in kind. Ngqula was suspended in February, pending the outcome of an investigation into an alleged conflict of interest. The source of Ngqula’s troubles was his assumed interference in the award of a R3,5 billion catering contract to a consortium whose shareholders included his wife and his business partner. While on the surface it may appear that none of the Wall Street CEOs have been tainted with a smell of corruption quite as pungent, at a few levels down it starts getting harder to distinguish the stink. Like hundreds of Wall Street high-flyers, Ngqula appears to have enriched himself at the ultimate expense of the taxpayer – over the last few years, bailout payments to the national carrier from South African government coffers have run into the billions.

Yes, Ngqula took helicopter rides to same-city meetings at the South African citizen’s expense. But we’d do well to remember that one week after AIG was promised US$85 billion from the US government, the firm’s top employees went on a hugely expensive junket where spa charges alone amounted to US$23 000. Yes, Ngqula was paid a R68 000 monthly ‘retention bonus’, his golden handshake is rumoured to be R8 million, and his slice of the allegedly improper catering contract is anyone’s guess. But should such numbers not be viewed in the light, say, of Merrill Lynch’s US$161 million parting gift to E. Stanley O’Neal? Or the US$600 million in ‘retention awards’ that AIG will split amongst 5 000 key employees despite the unprecedented public outcry?

Which of course does not absolve Ngqula or his cronies of charges of undue enrichment. It just begs the question whether the fault’s with the system-at-large, a system that starts on Wall Street and spreads throughout the entire free market world. When the majority of a country’s brightest students aspire to be the 32-year-old in Manhattan who’s pulling down a US$5 million bonus, when pay is decoupled from the long-term health of a firm and anchored only to short-term profit, when humungous retention packages are awarded for just showing up, there’s bound to be a whole lot of collateral damage. Ngqula, it seems, is ours.

Like hundreds of Wall Street high-flyers, Ngqula appears to have enriched himself at the ultimate expense of the taxpayer – over the last few years, bailout payments to the national carrier from South African government coffers have run  into the billions.

Kevin Bloom, an award-winning South African journalist, is currently a writing fellow at the Wits Institute of Social and Economic Research (WISER). His first book, Ways of Staying, a narrative non-fiction journey through selected concerns of contemporary South African life, was released by Picador Africa in May 2009.

Business Landscape

How Schindlers Attorneys Became Involved In The Landmark Cannabis Case

Everything you accomplish accumulates and eventually comes back to assist you further along in your career. This is how a final year LLB assignment became the basis for a Constitutional Court case.

Nicole Crampton




Schindlers Attorneys are the law firm that were involved in the landmark Constitutional Court judgement on cannabis use within a private space. Paul-Michael Keichel, Partner at Schindlers Attorneys shares how they came to be the foremost legal experts on cannabis and how they became involved in the Constitutional Court case:

How the journey began

“In 2005, my first year at Rhodes University, whilst studying for Intro to Law, it occurred to me that there were strong constitutional points that could be raised to objectively justify the decriminalisation of cannabis in South Africa,” explains Paul-Michael Keichel.

“In my final year LLB, 2009, I took Constitutional Litigation as an elective (largely motivated by the creation of a timetable clash, which meant that I’d not have to sit another semester of lectures for a module that I had failed the previous year). This provided me with the opportunity to write an assignment titled “A Critical Analysis of Prince and an Objective Justification for the Decriminalisation of Marijuana in South Africa”, in which I composed my argument (based on the right to equality in our Constitution).”

Related: 7 Top Lessons You Can Learn From The US Cannabis Market

The start of the partnership

“Fast forward to 2013 and the Dagga Couple find themselves at Schindlers (where I am a first-year associate) to register their NPC, “Fields of Green for All”. The attorney handling the registration (who I’d also bored with my argument) suggests to the Dagga Couple that they speak to me. It turns out that they already knew of me, because my assignment had (unbeknownst to me) done the rounds on the underground cannabis networks. We get chatting and I rope-in my brother, Maurice Crespi, the managing partner of Schindlers,” explains Keichel.

“We are the only firm out of many approached by the Couple who are willing to take on their trial action against 7 state departments and Doctors for Life to push for a declaration of constitutional invalidity of the laws prohibiting cannabis use/possession/dealing in South Africa. We decide to run the challenge for them pro bono.”

The Cape ruling that started it all

“Prince and Acton et al have their matter heard in the Cape, which resulted in the 2017 Judgment. We run a portion of our trial (including expert evidence from international scientists and doctors – the best in field), but it is rendered part-heard. We then heard that Prince and Acton et al’s matter will be heard by the Constitutional Court in November 2017 and we decide, with the Dagga Couple, to intervene in that matter, upon which it is confirmed that my 2009 assignment forms the on-record basis of a major chunk of Prince and Acton et al’s arguments in support of legalisation.”

“Our involvement in the Constitutional Court was such that we provided clear legal argument and authority to support and expand upon what Prince and Acton et al were trying to say to the Court. Ultimately, much of what we submitted has found its way into the judgment of the Constitutional Court.”

Related: 10 Cannabis Business Opportunities You Can Start From Home

How a final assignment became the foundation for a Constitutional Court case

“So, an idea (bolstered by wanting to create a timetable clash) resulted in an assignment, which provided certain credibility and impetus to cannabis activists. Two of these activists ended up being our clients, which, despite being handled pro bono, has brought Schindlers immeasurable positive publicity, and which, ultimately, contributed to the decriminalisation (and potential future legalisation and commercialisation) of cannabis in our country.”

“Schindlers now has a dedicated “Medicinal and Recreational Cannabis Law” department, through which we will continue to make submissions to parliament, apply for licenses on behalf of our clients, support those who have been arrested and charged.”

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Business Landscape

6 Ways To Win A Better Deal

Be proactive not reactive by working through these six critical elements of your strategy.

Andrew Bahlmann




By far, the majority of our clients start the journey of selling their business by working on a very reactive basis. Most business owners going to market say they just want to ‘see what happens’.  But this means you are starting the process on the back foot.

This approach automatically takes the control of the business sale out of your hands and puts it into the hands of the market. Keeping control is a critical element in selling your business for maximum value.

Letting the market tell you what they think about your business and what they want from you means that straight away the acquirers set the hoops that you need to jump through.

They tell you what they want. Any engagement is on their terms.

You have not defined terms or standards to use as a yardstick for what the market is saying. So you are much more likely to find yourself boxed into a corner, forced into the role of price taker rather than price maker.

Taking the time to define your ‘go to market’ strategy is a critical factor in achieving success for yourself, what you want for your business and how the market aligns to this.

Be proactive not reactive by working through these six critical elements of your strategy:

1. Define your non-negotiables

We all have certain non-negotiables in our lives and you must think through those that you want to apply to the sale of your business.

Spend quality time working out what your personal and business non-negotiables are. Then make sure that they feature prominently in your deal strategy. Examples could be:

  • I am prepared to stay on for only 18 months after the sale conclusion.
  • My staff need to be looked after as they have been with me for 20 years and are like family.
  • I want to sell 100% of my shareholding on Day 1.
  • I am not prepared to warrant future profits.

When you start out on the selling journey, this list will probably be a lot longer. Usually, it will reduce as you travel further and further down this road but you may even add new non-negotiables once you climb into the trenches and take control of the process.

Don’t be shy about presenting your list of non-negotiables to prospective buyers. They will certainly be putting forward their own list as well.

Related: Savvy Business Sale Spells New Life

2. How ready and committed are you to sell your business?

Selling your business is one of the biggest decisions that you will take in your life. It is an emotional rollercoaster. You will face more questions than answers as you progress down this road. Nobody can ever be 100% ready but you can help yourself prepare as much as possible by asking yourself the following questions:

  • Do I know what my business is worth?
  • Is my business ready for acquirers to see?
  • Am I ready to let go of my business?
  • Can my business run without me?
  • What makes my business attractive and enticing to an acquirer?
  • Do I have the time and skills to embark on selling my business myself?

As you work through these questions, a whole host of other questions will probably occur to you. Be decisive, objective and critical in asking and answering all these questions.

3. Put a plan together

Like any other business or strategy implementation, selling your business is a project. All projects need a plan of the objectives, timing, resources and risks required to succeed.

Selling your business is by far one of the most important projects that you will ever drive and also one with the least room for error. Your planning cannot control the biggest variable of all – how the market will react to your business. But being as well prepared as possible will help you cope with this.

4.  The market wants a serious seller

The way that your business and personal brands show up in the exit process is critical. Buying or selling a business is a very time-consuming process, with both seller and acquirer committing quantities of effort, energy and resources.

The market therefore wants to deal with a committed and serious seller. Any business owner just dipping his/her toe into the water to see what happens will frustrate them and potentially damage future transactions if that toe is removed from that water.

Related: When Is The Right Time To Sell Your Business?

5. Be ready for the experts

You are brilliant at running your own business, which is why you are considering selling it for maximum value. The acquirers on the other side of the table are, of course, also experts at what they do and how they do it.

Expect them to speak a different corporate language, exude negotiation and transaction skills and have mastered the ability to control the transaction. If you do not have a strategy or blueprint to default to when the heat gets too high, you will lose your way and could be blindsided into the wrong transaction.

6. Bring it all together

Work through the various steps identified above and craft your deal strategy. Let this framework be your compass during the transaction.

Always lean on it when there are too many variables being thrown at you. Having your strategy is the first step. Sticking to it will be your biggest test when the pressure is on.

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Business Landscape

Hooked On Ethics

The business that puts ethics at the forefront of its culture is the one that will shine in a landscape littered with dishonest behaviour.

Howard Feldman




There is significant research into how the work environment influences ethical behaviour. Study after study has shown how the ethical values upheld by management filter down to all employees, affecting behaviour and business practice. The biggest influence on a person’s ethics is their environment. In South Africa, the after effects of the recent political regime continue to shake both country and citizen. Corruption has seeped into almost every part of the government and in some of the country’s most prominent private organisations.

The old saying that the ‘fish rots from the head’ has never been truer, nor more obvious.

The ethical dilemma

The reality is that the government’s flagrant disregard for ethics saw corruption become a part of everyday life. This makes almost everyone ask themselves questions like – why should I pay X utility bill? Why should I pay my TV license? The money is being clearly used fraudulently. Sure, it is the law, but leadership has proven that ethical behaviour isn’t rewarded or recognised.

But it is. The value of building an ethical business and upholding a culture that promotes honesty and integrity cannot be understated.

Related: Developing Your Business’s Ethics Policy

Here are five reasons why…

  1. Those who skirt the edges of ethics almost always get caught.  There has been a steady shift in the country’s moral compass as leadership has taken a far stronger stance on rooting out corruption and already some of the country’s biggest names have been found guilty. KPMG, McKinsey, Bell Pottinger and SAP have all had their names tarnished by the scandals that have rocked the country.
  2. Employees are more engaged and better behaved. A weak ethical culture filters down from the top, influencing behaviour and attitudes. If employees feel that they can get away with bad behaviour that benefits them, or if they feel that their environment encourages this, then they will.
  3. A strong ethical influence will dictate how employees treat customers and one another. If your company enforces and rewards honesty and integrity, then these will be the qualities that clients will perceive. Their lack may also see you lose market share and your reputation.
  4. Like attracts like. If you create a culture that rewards employees that work all hours, deliver the goods and commit themselves then you will attract more people with these qualities. The same applies in reverse – reward bad behaviour and the results will rapidly speak for themselves.
  5. Your business reputation. Trust can’t be bought. It is hard won and easily lost. If you lose your reputation then it is very unlikely you will win it back and it will follow you for the rest of your life. The same applies to your staff. If their behaviour is questionable it could damage your company. Make sure you set the rules of what is or is not tolerated by your company culture and consider investing into ethics courses that allow your teams to stay ahead of the curve.

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