Directors ignored Spar bungle tip-off

• Sales of R1.6bn lost in the botched rollout of SAP software

Retail industry stalwart Spar Group has revealed three directors ignored a whistleblower’s concerns about the botched rollout of SAP software that cost the company R1.6bn in sales.

The whistleblower, who wrote to the board chair in October 2021, expressed concerns about the project and how it would be implemented but the information was not passed on to the full board by the chair and two other directors who knew about it, according to Spar results released on Thursday.

The SAP system, which was introduced in February in Spar’s biggest region of KwaZulu-Natal, caused major disruptions to the supply chain, forcing retailers to order directly from individual suppliers instead of using the software. Spar also had to spend extra on servicing KwaZuluNatal from warehouses in other provinces.

As a result, Spar suffered an estimated R1.6bn in lost turnover and about R720m in profit for the year to end-September, pushing its headline earnings per share, the primary measure of profit in SA, down almost 50% to 606.6c.

The whistleblower contacted the firm in May 2023 asking why the tip-off had not been acted on. Spar then hired a law firm to investigate the allegations, which found that the three directors had breached the Companies Act and their fiduciary duty.

The directors likely to have been involved are Andrew Waller and Jane Canny, both of whom resigned on the same day auditor PwC reported the irregularity to the Independent Regulatory Board for Auditors (Irba). The third director likely to have been involved, chair Graham O’Connor, had already left the company.

GOVERNANCE

The whistleblower’s letter did not indicate there was any corruption but flagged governance concerns, said Spar chair Mike Bosman.

While this is a costly governance failure by Spar, there are no signs that there was any fraud involved. However, it could further tarnish Spar’s name when it has worked since January to clean up its image after the former chair and former CEO stepped down. This was after concerns were raised about a breakdown in relationships between Spar and some black retailers, two fictitious loans, and costly legal battles with its biggest set of retailers, the Giannacopoulos Group.

Spar said in its results it has now “created a register of all whistleblowing complaints which are individually tracked and considered by those charged with governance”.

The R1.8bn software rollout to other provinces has been put on hold until the system is working perfectly in KwaZuluNatal.

In 2022, governance concerns arose around how O’Connor had been appointed chair immediately after working as the CEO and how many of his family businesses were doing work with the firm. He resigned in January. The group has worked to improve its leadership since Spar’s governance issues made headlines and has hired a new CEO, a new chair and new board members.

However, there have been other whistleblower complaints, and firms have been contracted to investigate them timeously, said Bosman during the annual results presentation on Thursday. Bosman did not disclose what the whistleblowing complaints related to.

The annual results report also revealed that a member of management introduced a consultant involved with the SAP project to the firm. However, this senior employee did not declare to the company that he had a family relationship with the consultant.

“The member of management should have distanced himself from any decision-making and/or approvals in respect of the consultant. The conduct of the individual constitutes a perceived conflict of interest and was found to be a reportable irregularity.”

PwC reported this suspected irregularity to Irba on November 17. The manager is no longer employed and the contract with the consultant has been terminated, Spar said.