TO THE RESCUE CAN ROB SHUTER FIX MTN?
WHY REDEFINE INTERNATIONAL IS GETTING STINGY WITH ITS DIVIDEND
an expected loss for this financial year due to a whopping fine in Nigeria. An ongoing investigation in that country into the alleged illegal repatriation of money as well as a planned listing in Lagos. A brewing freedom of expression scandal in Cameroon and an ongoing investigation by the Cameroonian government into unpaid taxes.
The purchase of a major stake in an Iranian internet service provider. Angry black shareholders whose payouts have been delayed. A South African market where it has been shedding subscribers and has faced heavy criticism for its decision to appoint a white CEO to take over from acting CEO and current MTN chairperson, Phuthuma Nhleko.
It seems Rob Shuter, who takes the reins as the MTN Group CEO in mid-March, already has a very full inbox.
Nigerian fine hits hard
In October 2015, MTN’s world was turned upside down with the announcement by the Nigerian Communication Commission (NCC) that it was slapping the mobile giant with a 1.04tr naira fine ($5.2bn at official exchange rates at the time), for failing to meet a deadline to disconnect 5.1m unregistered SIM cards in Nigeria.
This was equivalent to more than two years of MTN’s Nigerian profits, while MTN Nigeria accounts for almost a third of MTN Group’s total revenue.
The magnitude of the fine was “astonishing” and it was clear to see the “hand of political interest” at play, said founder of World Wide Worx, Arthur Goldstuck. In the wake of the fine, MTN CEO Sifiso Dabengwa resigned and Nhleko was appointed to act.
Months of intense engagement with the NCC led to a good-faith payment of $250m to the Nigerian government in February 2016, on the basis that this would be applied towards a settlement. The fine was reduced to 330bn naira ($1.1bn) in June 2016.
But even the reduced fine is having a significant impact on MTN’s profitability. Early in February MTN warned the market that it would report a loss for the 2016 financial year as a result of the regulatory fine imposed in Nigeria.
Speaking to finweek, the telecoms giant says it has learnt profound lessons from the events of the past 18 months, most notably the events around the MTN Nigeria regulatory fine.
“We have since taken an in-depth review of our operations and processes to strengthen our governance structures and embed a robust ethics culture.”
Who is Rob Shuter?
Shuter comes to MTN from one of its rivals, the Vodafone Group, which owns the majority stake in Vodacom. Shuter’s most recent position was CEO of Vodafone Group’s European cluster.
After studying commerce at both the University of Cape Town and what is now known as the University of KwaZulu-Natal, Shuter joined Deloitte SA, where he served his articles between 1989 and 1992. In 1994 he was appointed head of investment banking at Standard Bank – it was here that he met Phuthuma Nhleko for the first time.
Goldstuck says the fact that the two have worked together previously would have played a role in Shuter’s appointment: “Nhleko at least knows that they are compatible, that they can have a healthy working relationship.”
In 2000, Shuter was appointed as managing director (MD) for Nedbank Retail and stayed at the bank for almost a decade. But in 2009 he made the jump from banking into telecoms when he was appointed as chief financial officer of Vodacom.
Next came a jump to Europe when Shuter was
appointed as the Vodafone Netherlands CEO in 2012 before being promoted to run the European cluster.
Shuter’s banking experience is an indication that MTN intends to do increased business in the financial sector going forward, says Goldstuck. When MTN announced Shuter’s appointment, it flagged his banking experience as important in developing MTN’s new business strategy.
Goldstuck adds that both MTN and Vodacom failed “dismally” when they attempted to play in the South African mobile banking sector in the past, so they will have to learn from those mistakes.
Shuter’s appointment was announced in June last year and was immediately met with fierce criticism from the Black Management Forum (BMF).
“The BMF’s position is informed by the clear reversal of black representation in top JSE-listed companies,” Mncane Mthunzi, BMF president, said at the time. “There is a general unwillingness for transformation at top management levels which has resulted in the decline in the number of black South African CEOs.
“MTN may put forward reasons it argues to be valid for the appointment of its new CEO, however, the company would undoubtedly agree that it has squandered a good opportunity to reaffirm its commitment to transformation,” said Mthunzi. “Prior to this appointment, MTN had demonstrated exemplary leadership by successively having black CEOs.”
MTN hit back at the criticism, insisting that transformation is a broad process and went on to detail its commitment to black economic empowerment and transformation over the last two decades.
Founder and MD of Lehumo Capital Maudi Lentsoane says he agrees with MTN that empowerment needs to be measured broadly and not with just one position in the company.
MTN argued that Shuter was appointed after an extensive global and local search and is an “internationally-seasoned” CEO. It insisted that empowerment and transformation would remain one of its key deliverables going forward.
New regional vice presidents
Shuter is taking the helm at a company that currently operates across 22 countries in Africa and the Middle East and has a staff complement of 21 000 and a total subscriber base of 230m.
Mergence Investment Managers’ Peter Takaendesa reckons Shuter is joining MTN at a good time. “Fortunately for Rob, most things that could go wrong have gone wrong,” says Takaendesa. “Most of the disasters are behind them now.”
However, he maintains that developments at the mobile giant over the last few years suggest it needs to address its corporate culture.
Given the size of MTN’s footprint, it really needs to step up its corporate governance so it can’t be used as ammunition against the company by governments that are currently hard-pressed to prevent capital outflows, says Takaendesa.
Nhleko essentially built MTN during his term as CEO and was responsible for initially setting up the regional vice presidents, adds Takaendesa. But, according to him, it was the next CEO, Dabengwa, who again removed the regional vice presidents, opting for a governance structure that was run on a country-by-country basis.
Takaendesa suggests that if the regional vice president structure was still in place, MTN perhaps would have acted sooner in dealing with the crisis in West and Central Africa. It is notable then that with Nhleko back at the helm, even in an acting capacity, MTN has taken the decision to again implement a regional structure headed by three vice presidents.
The three regions are Middle East and North Africa, West and Central, as well as South and East Africa. MTN told finweek that it would provide an additional layer of governance across the 22 countries it operates in.
Fixing corporate culture
Shuter has a big task ahead of him to steady the ship as MTN is still in a “precarious” position following the Nigerian fine, says Goldstuck. According to him, the company is in need of strong leadership and what Shuter needs to do is establish a new corporate culture at MTN.
“Shuter needs to make sure that good governance and ethics become core to the DNA of the company,” Goldstuck explains. “This seems to have been taken too lightly over the last few years.
“MTN needs to become as transparent as possible, it needs to stick to the regulatory and governance frameworks like a religion,” he adds. “It can’t appear to be a bad corporate citizen.”
Lentsoane says the time for introspection from MTN is now. “MTN is facing a lot of challenges, both reputational and governance,” he states. “Phuthuma Nhleko has been acting for over a year to get them through this difficult period.
“There has been a lot of reputational damage and the share price has reacted negatively.”
Lentsoane also points out that Nhleko recently sold a significant stake of his shareholding in MTN. “He is just realising gains on those shares, but it’s not a vote of confidence. It’s a bit disturbing to see and as a potential investor I would be cautious.”
MTN says it has strengthened its corporate governance by appointing Felleng Sekha as its new executive for regulatory affairs and public policy at group level and by setting up a compliance committee, a sub-committee of the MTN Group board, chaired by MTN chief legal counsel Michael Fleischer.
“We have conducted an independent audit of our compliance and risk functions across all our operating companies,” says MTN. “We have enhanced our reporting mechanisms to ensure improved information flow to senior executives and appropriate board members on a timeous basis.”
More trouble in Nigeria
In September 2016 a Nigerian senator made further allegations that MTN illegally moved $13.9bn out of the country between 2006 and 2016. The allegation was that the telecoms giant had not obtained certificates declaring it had invested foreign currency in Nigeria and so the repatriation of the return on those investments was illegal.
MTN has denied contravening Nigeria’s currency transfer rules, but the new scandal has created further uncertainty for the mobile player in that country. “These allegations are without merit,” said MTN.
When MTN settled with the NCC it announced that it would list the company in Nigeria in 2017, one of the conditions of the settlement. However, MTN maintained that it had always planned to list the company in Nigeria. It
The company is in need of strong leadership and what Shuter needs to do is establish a new corporate culture at MTN.
appointed Citigroup and Standard Bank in July last year to advise it on the Nigeria listing.
Delayed Lagos listing
It does appear, however, as if the new Nigerian investigation is one of the issues causing delays to the proposed Lagos listing. In January this year MTN announced that its Lagos listing may only go ahead in 2018.
Acting CEO Nhleko has stated that the process could take 12 to 18 months. Goldstuck says that the Lagos listing is a sign from MTN that it wants to be a “good corporate citizen” in Nigeria. “MTN is clearly willing to prove its credentials to the Nigerian government.”
Takaendesa believes the listing will ultimately be good for MTN. “It’s a good idea, they need to do that,” he says. “It’s the right thing to do.”
He adds that having a firmer footing in Nigeria may help silence some of the criticism coming from Nigerian politicians who may see MTN as an arrogant South African company.
“If you are just seen as a foreign business, it’s easy to be penalised,” says Takaendesa.
MTN insists that it is committed to list on the Nigerian Stock Exchange as communicated to the market previously. It also said, however, that this is subject to suitable market circumstances and conditions.
“The listing process remains one of our key priorities and, as previously committed, we continue to take comprehensive steps to ensure that the process is completed as soon as commercially and legally possible,” the mobile operator says.
Increased pressure in SA
In its home market, MTN has come under increased pressure.
It has been seen as largely unresponsive to increased competition in the market and has as a result haemorrhaged subscribers, with smaller rival Cell C being the main beneficiary.
Goldstuck says MTN South Africa needs to become a much more market-driven and consumerfocused business, but says of late there have been promising signs under the new CEO, Mteto Nyati.
Takaendesa points out that MTN South Africa has made many mistakes over the last few years. One misstep was the outsourcing of its supply of handsets, which resulted in a huge handset shortage in 2016. It was a move that was eventually reversed.
Goldstuck flags data as the biggest issue for MTN going forward in the South African market. Local telecoms companies are under massive political and public pressure to bring data prices down. “The data issue is the elephant in the room,” says Goldstuck, adding that by 2020 South Africa is expected to have an almost exclusive smart phone market, which will cause an explosion in data usage.
“By 2020 the mobile players will be making more revenue from data than voice,” he explains. “This is going to result in pressure to bring data costs down.”
Goldstuck says South African mobile companies are still offering voice products with data added on, when in fact they need to be thinking in reverse.
Sifiso Dabengwa Former CEO of MTN
Arthur Goldstuck Founder of World Wide Worx
Rob Shuter New group CEO of MTN
Peter Takaendesa Portfolio manager at Mergence Investment Managers
Mncane Mthunzi President of the BMF
Mteto Nyati CEO of MTN South Africa
Phuthuma Nhleko Chairperson and current acting CEO of MTN