Johannesburg — THE management of Blue Label Telecoms have had a rotten year. But it is not a rotten company and its management have weathered worse.

Brett and Mark Levy, the joint CEOs, are brothers in their 30s and they've been in business together since they were teenagers. But they have only been running a listed company for six months and already the experience has come back to bite them.

Blue Label sells airtime and is gearing up to sell a variety of services via mobile devices. It is a big business in a hot industry and pre-listing it raised R1,3bn in an offer that was 10 times oversubscribed.

But on the day the company listed in November last year a director of a Blue Label subsdiary, Graham Prosser, bought shares.

That in itself was a good thing -- investors want to see directors who believe in their own stock. The problem was that despite directorship training, Prosser did not ask a member of the board for approval to trade and he did not report the trades to the JSE within the stipulated 48-hour period.

Prosser's trades may have gone unnoticed if it had not been for the fact that in February, immediately after the company released its maiden interim results, Selwyn Diamond, his wife and Sean Kaplan's wife, also linked to subsidiary The Prepaid Company, did the same thing -- bought and sold shares in contravention of the JSE's listings requirements.

Part of the problem was that the news of these trades leaked out in dribs and drabs but every time there was new news, Blue Label's share price took a pounding.

Shareholders were selling out despite this being a company with revenues of up to R12bn a year and the 80th largest stock on the JSE.

The Levy brothers agree it was a tough time. Brett was on holiday in Australia when the news started making headlines. He says it was not much of a holiday after that. But the brothers had a board with experienced directors and nonexecutive director Neil Lazarus stepped in during the crisis.

"When the trading issue came up we set up a committee of nonexecutive directors and discussed the governance issues and how to focus on the business," Lazarus says. "We asked, 'what about stakeholders' and 'are there integrity issues or was it ignorance'. And if it was ignorance then 'where does the fault lie'."

Ignorance was a hard excuse for the market to swallow, especially since this kind of contravention of JSE rules had never been noted before. Further, the directors were given training ahead of the listing by Blue Label's sponsor, Investec.

But the internal committee started its investigations, while the JSE was conducting its enquiry, and it hauled the CEOs to give evidence. Legal advisers were called in as were the people who had affected the trades. Both individuals and company systems were interrogated. E-mails were read and past instructions on how to trade were examined.

"We needed to deal with it as soon as possible and address all areas of uncertainty," Lazarus says. "We concluded the employees had acted out of ignorance -- there was no deliberate wrong doing or dishonesty. But it was a unanimous decision that if there had been dishonesty we would have fired them. But we weren't going to make people into sacrificial lambs either."

The committee found that Blue Label's internal processes were not defective, so the employees, ignorant or not, were found to be at fault. "The process was good and it was vindicated by the JSE," says Lazarus, adding that at all stages of the crisis the company co-operated fully with the stock exchange.

The JSE ended up fining Diamond R100000 with R60000 suspended if he keeps it clean for the next year. The others were privately censured.

So the company and its directors learnt a lesson and they were confident it would not happen again, but it still had its image and reputation to rebuild.

Up to R1,6bn had been wiped off the company's market capitalisation between February and May. The trick then was to restore market confidence and Blue Label went about in a number of ways. There was rallying around the team and trying to engender loyalty. There was going to stakeholders and assuring them that Blue Label was the same company they had believed in ahead of the listing -- that it would continue to deliver, that its governance processes were sound and that it was trading as normal. Mark and Brett went on road shows to speak to investors in SA, the US and the UK.

Another part of the lesson learnt, says Lazarus, was how not to engage with the press.

As the news worsened the CEOs appointed a spokesperson and took a step back. In hindsight, the directors say this was a bad thing. They are dedicated to keeping the lines of communication open in the future. "We're coming out of hiding," says Mark.

And some of what the company went through, Brett contends, was positive for the company.

"You can't believe the hurt they (the erring directors) felt in letting the team down. But sometimes these things are really good. You can get caught up and forget. You need a klap sometimes and to slow down a bit," Brett says. "Jake White (former SA rugby coach) said at a talk I went to that it's easy to be loyal when things are great. But real inspiration comes out when the chips are down."

The brothers have had more than their share of disasters. When they were youngsters living in Delmas their father died suddenly, leaving them in a difficult financial position. By their teenage years they were making cash -- buying car radios in Pretoria wholesale and selling them to installation companies in Johannesburg.

But in the years following their first business successes they suffered the deaths of both their step father and their sister. All the while, they kept their business running. "We've not had many set backs," says Brett, "but this (the trading crisis) for us was one of the biggest."

Nonetheless Mark says fundamentals haven't changed. The philosophy is for Blue Label to always be invested in its people.

"Our strength is hiring people who are smarter than us. We've learnt that there are people out there who can do some things better than we can," says Mark. "It's a family business."

Blue Label has offices in a handful of countries but has representation in more than 30, with India being one of its hottest markets. And its most important partnership is with technology giant Microsoft.

As Mark tells it, it was just six weeks before the listing last year when Microsoft approached Blue Label. It was looking for the technology Blue Label had developed which allows adverts to be carried on messages going out to cellphones.

Cellphone transactions, like people buying airtime, makes money for Blue Label, while the adverts make money for Microsoft "It's a match made in heaven," says Mark.

Absa is also on board with Blue Label and is preparing for a larger distribution through the use of mobile devices for banking.

"You love your business and you believe you won't make mistakes, but we've gotten a lot smarter. As a group we're bullish that SA can dominate some spaces -- just look at SAB," Mark says. "We're on the right track and if we can get just half of what we hope for, then we'll be a significant global player. I feel like we're only starting, although we've got some scars."

Renée Bonorchis is Business Day's Editor at Large.