EVA-refusing Nampak disaster a lesson for erstwhile, now Eskom CEO

A sad day in my previous business was when our long-time head of sales, talented cricketer and all-round-great-guy Clive Eksteen, left us to follow a new opportunity. He’d envisioned sports stadium advertising billboards transforming to video and wanted part of it. Any sports enthusiast will tell you that, with hindsight, it was a very smart call.

Not everyone who sees the future enjoys such a rapid return. For decades, New Yorker Prof Joel Stern visited South Africa to evangelise about his firm’s invention of a new way to incentivise company management. Only a few who heard him actually listened. But today Stern’s Economic Value Added (EVA) concept is deeply embedded in thousands of companies worldwide. Including some SA success stories.

Massive wealth destroyer Nampak is not one of them. Asset manager Chris Logan made this point in our interview yesterday, blaming misaligned management incentives and, specifically, a refusal to adopt EVA as the major reason for Nampak’s 90% share price decline in five years. Logan contrasted that with another packaging group, Ball Corp of the US, the EVA-adopter whose price is up 220% over the same period.

This is relevant right now because Nampak’s CEO of the last five years is Andre de Ruyter, recently installed to lead Eskom. Logan says problems at Nampak preceded De Ruyter, who wanted to leave the company three years ago. Hopefully he learnt a lesson from the debacle and implements EVA at his new home. Heaven knows, Eskom’s management sure need measurable incentives to stop wasting taxpayer’s funds.


Comment from Biznews community member Albertus Ziervogel:

Alec,

I enjoyed the column today as it touched on the EVA model developed by Prof Joel Stern.

During the late seventies and the eighties I worked with the EVA’s and spend some time at his software house in New York/Jersey developing the evaluation models. At that stage I was a young and enthusiastic accountant and system developer. The concepts were a bit foreign and threatening for the traditional conditioned accountant and finance professionals. The out of the box thinking is still the Achilles heel of all professions, all have become self-serving, self-controlled, not serving the requirement of the client.

Here in RSA the legal profession have been the biggest State Capture operators. Nobody can tell what the government (read Taxpayer) has spent on legal fees.

I used that knowledge to become a strategy consultant since them, fixing failed businesses and setting up new ventures.

The basic underlying principle still prevails: you can only take out of the system what you have put into the system. The basic law of reciprocity.

All my models, for any type of business, are on a activity line, which really says; Talk is cheap, action buys the whiskey.

May the dear President put an activity plan on the table today.

Regards.