Tongaat Hulett and the two promises nobody checked

Durban, October 2018. A chief executive is retiring after 16 years, and the board has written him a send-off. There is applause. There is probably cake.

Keep that sentence. We will need it later.

Now come forward to this morning. I made my coffee, looked at the sugar bowl and decided against it. Today, October 27, is the last day anyone can trade a share in Tongaat Hulett. Not on the Johannesburg Stock Exchange, where the shares have not moved for four years, but off market, in the back room. Fate has a dry sense of humour: four years earlier to the day, the company had entered business rescue, South Africa’s version of bankruptcy protection. On November 3, the country’s biggest sugar producer leaves the exchange after 74 years. Its shareholders expect nothing. Not a little. Nothing.

How do you get from a standing ovation to nothing in eight years? With two promises, both made to those shareholders, and both of a kind you will have heard in your own boardroom. Neither was kept. Hold on.

Start with what Tongaat sold. Not rockets. Not batteries in the north of Sweden. Sugar, the white stuff humanity has craved since someone noticed it made tea bearable. Listed since 1952, it ran South Africa’s only white sugar refinery, grew cane in four countries and once sat among the exchange’s 40 largest companies. It also owned prime land north of Durban, where cane fields were becoming shopping centres and sea-view flats. It was the kind of share a grandfather leaves a grandchild, with a note: you will never need to worry about this one.

You have to try quite hard to lose money on sugar. Tongaat managed it.

Back to the cake. The man being applauded was Peter Staude. The sentence about integrity is a lovely one. Boards write it the way restaurants write “homemade”. Nobody checks. Meet The Board That Did Not Check, who will be appearing in this column regularly. Sixteen years at the top is long enough to stop being challenged and start being believed.

A year later, somebody checked.

A PwC forensic investigation, summarised by the company in November 2019, found that profits had been overstated for years. Income from land sales had been booked too early. Costs had been dressed up as assets. The value of cane in the fields and of sugar sales in Zimbabwe had been inflated. The company later said land sale agreements had been backdated between 2015 and 2018. A chief executive’s first job is to know where the profit comes from. At Tongaat, a good share of it was coming from next year. Ten executives were named as involved to a greater or lesser extent, Staude and his finance director Murray Munro among them.

The finding I keep returning to is the quietest one. The investigators described a culture of deference, in which staff followed instructions on the accounts without asking why. Johannesburg had seen this film before. Earlier that year, PwC had reported on Steinhoff, where executives had used fictitious deals to inflate profits. Both companies had boards, auditors and audit committees. Both had all the machinery for asking why. What they lacked was anyone willing to use it. That is how giants actually fall. Not with one villain in a cape, but with a hundred clever people in a building, each deciding that today is not the day to raise a hand.

Then the invoices arrived. Tongaat sued Staude, Munro and a former finance executive, and separately the former head of its property arm, Michael Deighton, for about R450mn ($27mn) in all, and withheld Staude’s and Deighton’s pensions. Deloitte, its auditor from 2012 to 2018, paid R261mn ($16mn) to settle. The market regulator fined Tongaat itself R118mn ($7mn). The company, that is. Which is to say, in the end, its owners.

By July 2022 Tongaat could not publish its annual accounts, and its shares were suspended. In October it entered business rescue, owing its banks more than R8bn ($485mn). The shareholders had lost almost everything. Almost. Which brings us to the second promise.

The banks’ debt was bought by Vision, a consortium led by the billionaire Robert Gumede, which won creditor approval in January 2024 for a plan to swap that debt for shares. Before the shareholder vote that August, Vision said it was confident it would create value for all shareholders. Lovely word, “all”. In a rescue plan it is a figure of speech. In practice it meant Vision would take 97.3 per cent and the existing owners would keep 2.7.

The shareholders said no. I understand them. When someone has emptied your fridge, you do not thank them for leaving half a lemon.

Here is the cold part. Their vote changed nothing. Vision would simply buy the businesses instead of the shares, an outcome the rescue practitioners described, drily, as the same, only more laborious. Voting against a creditors’ plan is like voting against gravity. You feel better. You fall anyway.

And the man from the cake? Seven people now stand accused of fraud worth about R3.5bn ($210mn), along with offences under South Africa’s financial markets, companies and organised crime laws: Staude, Munro, Deighton, three other former employees and a former Deloitte audit partner. They have been on bail, passports surrendered, for more than four years. The trial has not begun. In September it was postponed again, to a pre-trial hearing in March 2027.

None of them has been convicted, and in a courtroom they are innocent. But note the order of events. The company has been suspended, sold off and delisted faster than the people who once ran it can be tried. Even Gumede has blamed the collapse on fraud and slow justice.

In fairness to Staude, he put real money into Tongaat shares, once worth about R140 each and now worth nothing. He did not watch the ship sink from the shore. He was on the bridge. Which is rather the point.

Even the rescue would not be rescued easily. This spring Vision refused an unconditional extension, and the practitioners asked a court to put the company into provisional liquidation. On October 12 the JSE called time. Tongaat is the 13th company to leave the exchange this year, against two arrivals. If the JSE were a nightclub, the doorman would be getting nervous.

The sugar lives on. The mills still turn, and the people in the fields and factories still have work to do, which matters more than anything else here. Only the listed shell is being emptied.

If you sit on a board, notice that none of the warning signs was hidden in a footnote. A chief executive nobody had seriously challenged in 16 years. Profits that leaned on land sales booked before they had truly happened. A building full of people who asked how, but never why. None of these shows up in a share price. All of them show up in the end.

So: two promises, six years apart, to the same people. The first said the man at the top could be trusted, and nobody checked. The second said the owners would share in the rescue, though the plan was written to work with them or without them. That is not a promise. It is a courtesy. Never trust a promise that works just as well without you.

Whatever a court eventually decides about guilt, it cannot change one thing: all of this happened on his watch, and keeping watch is what a chief executive is paid for. It took the better part of a century to build a blue chip from cane, sunshine and patience, and a culture where nobody asked why to break it.

Sugar dissolves in hot water. Trust dissolves in bad accounts. The difference is that you can always buy more sugar.

Somewhere in Durban, I imagine, a retired chief executive still has the board’s farewell letter. I would frame it. Not for the praise. For the date.

I have put March 18, 2027 in my diary. Tomorrow: a chief executive who kept every promise he ever made, except the one that counted. You will have heard of him. You may even have shares.