Open letter to the chairman of the board of Cipla

The situation at the JSE-listed pharmaceutical group continues to get messier with attorney turned "corporate activist" now trading open letters through the media, with chairperson Sbu Luthuli.

The letter distributed to various business journalists reads:

Dear Mr Luthuli

More than eighteen months ago, on the 4th March 2011 to be exact, the company of which you are Chairman, Cipla Medpro South Africa Ltd. (Cipla) brought a very urgent Application for an Interdict against me in my personal capacity - not as attorney acting on behalf of clients.
In the court papers filed of record it was claimed that “it appeared that I pursued an agenda (in general and seemingly for my own purposes) significantly broader than that of acting on behalf of the interests of my named clients”. I was accused of “making generalised and non-specific allegations” and “embarked on a strategy in terrorem which clearly overstepped the bounds of cordiality which is to be expected of attorneys and officers of the court”.

Apparently I have been in possession of documents about Cipla and its dealings with certain subsidiaries / outside companies which was believed to be highly confidential and allegedly came into my possession in an irregular manner.

Numerous further court applications / actions followed during the ensuing months. Amongst other things complaints were laid against me at the Law Society concerning alleged conduct unbecoming of an Attorney. One of my clients at the time, my firm and I was furthermore subjected to a multi million rand defamation suit for certain claims made in the answering affidavits at the time of defending the First Interdict application against me.

Another urgent court application followed in June 2011, this time against one of my clients (an erstwhile senior employee of the Company whilst he was out of the country at the time). On the instructions of a to date, unnamed client and on his written mandate (supplied to you on 2nd August 2011), I directed a 23 page document to you and all other Board Members in terms of Section 159 of the (New) Companies Act (the Whistleblowers Section) of perceived wrongs in the company. It was followed up by a further 2 page letter and supporting documents on the 12th September 2011.

In internal correspondence, (which later became public in the course of further court proceedings), you responded to your fellow Board Members (on the 12th and 13th September 2011) in a tone indicating that the claims brought to your personal attention (by me) was viewed by you as of no consequence, frivolous and without merit.

All of this culminated in a final Application brought on the 10th October 2011 against Cipla with my erstwhile firm and I as Co-Applicants along with one of my clients – a former senior employee. Your Board vigorously defended the Application bringing 3 esteemed Advocates to Court. In an Affidavit attested to by you personally, dated the 12th October 2011, you stated under oath that there is no wrongdoing by the company and / or any of its Directors, Executives or personnel as alleged. The matter was “Struck of the Roll” for lack of urgency, without the merits considered with cost of 2 counsel.

My client, my erstwhile firm and I had to withdraw all court actions and applications in terms of a settlement agreement. My client even had to tender a written apology; I refused, and a contribution to Cipla’s legal costs was made. I was left with huge legal bills as a result of this and had to set up my own practice due to the fall-out (collateral damage?) within my firm. An intended investigation by Deloitte into the claim of irregularities was withdrawn in the nick of time.

It would appear that the settlement achieved and the apology tendered was indeed predicated on a lie and you perjured yourself.
On the 15th August 2012, under rather mysterious, strange, doubtful, irregular circumstances your Board, under your leadership, suspended the CEO and founder of Cipla – Jerome Smith. Shockingly the suspension took place whilst Cipla traded under a cautionary for some months and the suspension resulted in the Offeror withdrawing its offer. The actions of the Board are now the subject of an investigation by the TRP for transgression of Section 126 of the Companies Act. The reason being that the timing of the suspension of the CEO is viewed by the TRP as interference by the Board aimed at frustrating the Offer.

Your initial charge against Smith, seemingly without foundation, floundering you fell back on the claims brought to you and your Board’s attention during the court proceedings and other events in 2011. It is the exact same charges you claimed under oath not to exist and being without merit, frivolous and vexatious.

At the moment all that is achieved by the present inept actions of the Board is a slump in the share price, serious damage to the Cipla brand (which over many years required an immense amount of money and effort to achieve the pre-suspension level for recognition), an exodus of well trained and loyal staff, low morale, a belated witch hunt which cause major uncertainty and the expected missing of goals, sales targets and resultant profits.

It seems inconceivable that 18 months after events unfolded your Board finally acted – at a critical time – whilst an offer was on the table for acquisition of the company by an overseas firm. It appears that a witch hunt is going on at Cipla. It may make sense to you but it appears to be very strange for the investment community, shareholders, the press and outsiders. There appears to be a
total lack of transparency and information is not flowing, not trickling – as a matter of fact news reports over and over state that they get no feedback from your appointed PR company.

Under the circumstances I believe the only honourable way out is for the whole Board including you (the non-executive members who has not changed since the proceedings of last year) to resign as their stewardship (under your leadership) at the helm of the company do not bode well for good corporate governance, transparency, accountability and lack in the essential requirements as set out in King III. In general the actions of you and your Board leave a lot to be desired and you should be ashamed of yourselves. The actions of you and your Board singlehandedly wiped 25% of the market capitalisation, torpedoed the take-over deal with the Offeror, which could only based on market perceptions have had massive advantages. Your half hearted and belated actions will reverberate through the industry for years to come of how things should not be done.

You and your Board should take a leave from the book of responsible leaders in other countries of whom it was reported of late (eg. the immediate resignations by the Director General of the BBC in the UK, or the head of the CIA in the USA and numerous other reported examples), when they realised they did not discharged their duties at the helm responsibly.

I beg of you and the other non-executive directors to do the right thing; set an example and resign.

There are different ways / options to deal with this letter none for which I am prepared to give you a heads-up for at this time. Obviously the logical action by you would be to pass this on to ENS – your attorneys. However I am awaiting your personal phone call to discuss.



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