The event that triggered Cipla CEO’s suspension
19 August 2012 | SASHA PLANTING
Mark Sardi, currently chief financial officer at Truworths, is Cipla’s deputy CEO designate. He will remain at Truworths until the end of the year at which point he will join Cipla.
Despite having no experience in pharmaceuticals – until January last year he was an investment banker with Nedbank – 43-year-old Sardi was offered a five-year contract.
The board of Cipla, usually highly supportive of Smith – who was also recently ranked as among SA’s ten most overpaid CEOs – took umbrage at not having been consulted.
They argued that an appointment of such significance should have been a board matter.
That this event triggered his suspension was denied by Smith himself, who said the “current matter has nothing to do with Mark’s appointment. Mark will be a fantastic addition to the company and we can’t wait for him to join.”
He could not elaborate on the reason for his suspension.
While this incident is at the core of the board’s disaffection with Smith, it is only part of a broader, more complex scenario which has been playing out for some months.
At the company’s interim results presentation on Thursday last week, chairman Sbu Luthuli was at pains to reassure the market that the issue was under control, but only succeeded in stirring up rumour and concern. “There are a number of allegations against Jerome which I must stress are allegations and have not been proven.” Even if the allegations are proven to be true, he added, “they will not have a material effect on the company’s finances”.
This did not calm the market at all and at one point on Thursday Cipla’s share fell 13%, though it has recovered to some extent.
The problem is that Cipla, despite its best efforts, is still perceived to be a one-man show. In 1993, Smith founded Medpro Pharmaceutica, one of SA’s first generic medicine companies.
But it was only after strategically aligning the business with Cipla, India’s largest pharmaceutical company, the South African company’s growth really took off. It is now the country’s third largest pharmaceutical company.
Smith enjoys close relations with Yusuf Hamied, the chairman and MD of Cipla India, as well as with his brother and joint MD, Muku Hamied. Some analysts are concerned that the company’s fortunes are closely tied to that of Cipla India and, in turn, that this relationship is dependent on Smith.
Others scoff at this, saying that CiplaMedpro SA has become too important to Cipla India to allow relationships to get in the way.
Luthuli allayed fears to some extent by pointing out that the arrangement between the SA company and its Indian partner has been formalised in a legally binding contract. The company is considering making that contract available to concerned fund managers.
Cipla is also trading under cautionary. According to Luthuli, those negotiations are proceeding. “The parties have been kept up to speed and there is nothing to indicate that we are not proceeding.
“We are trying to expedite this matter,” he says.
The current status quo is not good for the reputation of the company, its board or its CEO. The board needs to act swiftly to prevent further erosion of investor confidence.
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