TO THE RES­CUE CAN ROB SHUTER FIX MTN?

WHY RE­DE­FINE IN­TER­NA­TIONAL IS GET­TING STINGY WITH ITS DIV­I­DEND

Finweek English Edition - - FRONT PAGE - By Lloyd Gedye

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.

Trans­for­ma­tion crit­i­cism

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

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