JSE-listed cellphone group Vodacom has come under fire from the Institute of Directors for not disclosing that it was paying former group CEO Alan Knott-Craig a monthly “restraint of trade” fee.

The institute’s CEO, Lindie Engelbrecht (pictured), says the group’s failure to inform shareholders of the payments may be a breach of corporate governance rules and is “not in the spirit of transparency”.

“In terms of good governance principles, one would have expected Vodacom to disclose [Knott-Craig’s payments], if not with the annual financial statements, at least as part of the group’s governance statements,” she says.

But Vodacom spokesman Richard Boorman says the criticism is without merit, saying its deal with Knott-Craig is for consulting services and is not in and of itself a restraint of trade agreement.

“We are absolutely confident that we have followed all the correct disclosure rules in relation to the consulting agreement with Knott-Craig,” says Boorman.

A report in the Sunday Times at the weekend claimed that Knott-Craig was receiving a two-year, R1m/month fee from Vodacom in return for consulting services and to restrain him from working in the technology industry; Knott-Craig has confirmed a deal was struck in March 2009, but says the before-tax payments are “significantly” less than R500 000/month.

Engelbrecht says Vodacom has not broken the law in not disclosing the payments, but she says that under the new Companies Act, which is currently being drafted, the group would have been required to disclose the information.

“Whether this information should have been disclosed in terms of the existing Companies Act is open to question as the current act doesn’t specifically refer to restraint of trade agreements,” she says. “But one could interpret it to include restraint payments in the disclosures that need to be made in the annual financial statements.”

Engelbrecht says one would have expected Vodacom to disclose the payments in terms of the King 2 codes on corporate governance. “Shareholders would then have had the opportunity to have a say about it, even though it would have been after the event.”

However, Vodacom’s Boorman says Engelbrecht is confusing consulting fees with restraint of trade payments. “There’s a fundamental difference in how you treat those two things,” he says.

Also, he says Vodacom’s shareholders were aware of the deal. At the time the agreement was struck with Knott-Craig, the group’s only two shareholders were fixed-line operator Telkom and the UK’s Vodafone, both of which had representation on the board. The group had not yet listed on the JSE, he says. “It was the board that signed off on the agreement with Knott-Craig.”

In addition to this, Vodacom has not yet published its first annual report as a listed company, Boorman says. This report will only be printed in June. “We have an audit committee that will determine what information should be disclosed,” he says. “The topic hasn’t even come up yet as to whether this information should be included.” — Duncan McLeod, TechCentral