MTN echoes African Bank

People who don’t learn from past mistakes are doomed to repeat them. Nhleko’s dominance is not good for MTN

Investors in MTN Group (and I am one of them), already 43% poorer in the past 12 months, will continue to lick their wounds for much of this year. There’s no end to the hard times in sight as chairman Phuthuma Nhleko’s efforts to solve the telecommunications company’s problems in Nigeria have so far proven less than successful.

Now that Nigeria’s government has decided it has more urgent things to deal with, rather than talks with MTN to solve the record US$3.9bn fine it imposed on the company, the board must focus instead on finding a new chief executive.

Nhleko will also need to be replaced soon after the CE has settled in. His continued presence and dominance of the board as executive chairman and CE has disturbing echoes of what happened at African Bank under Leon Kirkinis.

Like Kirkinis, Nhleko has been the dominant figure at MTN since he was appointed chairman for a year in July 2001. Thereafter he served as chief executive for nine years before taking over as chairman again in 2013, after a two-year break.

Admittedly, over this time MTN’s investors increased their wealth hugely, and largely have Nhleko’s genius to thank.

The company grew by taking massive risks, founding or buying mobile phone companies in the unlikeliest of places. From war-torn Afghanistan and Sudan (even the most determined warlords still need to communicate) to the hitherto untouchable Nigeria, Nhleko’s gambles paid off massively. This story is the stuff of legend — MTN is easily democratic SA’s most successful corporation. And Nhleko has been central to this success.

But the record $3.9bn fine imposed on the company by Nigeria’s Communications Commission for its failure to properly register or disconnect unregistered cellphone users was cooked under Nhleko’s watch as CE and then chairman.

Just like at African Bank, MTN’s board failed to ask the correct questions of the executive throughout all this growth, which made MTN the biggest cellphone operator on the continent, with more than 200m subscribers.

For years, cash was rolling in and investors were smiling all the way to the bank.

So what reason did anyone have to be interrogating the back-office systems supporting that growth? And of course, the executive under both Nhleko and his successor Sifiso Dabengwa “had things under control”.

Dabengwa simply continued the systems-light work he had carried out as chief operating officer under CE Nhleko.

Still, allegations of tax evasion through transfer pricing have not abated.

With Nhleko as chair, the board was now headed by an insider, instead of the sharp eye of an independent director, as recommended by the King governance codes.

As with African Bank, the foundations turned out to be wobbly when someone — in this case, the Nigerian government — turned the screws.

Other similarly war-torn countries, Sudan and South Sudan, Uganda, Côte d’Ivoire and Cameroon, are now also insisting on knowing who is using what phone number.

The going is still going to get a lot tougher.

But it need not be this way. Even the most talented of employees are completely replaceable. That is the nature of companies. It is time for a change of jockey.

A new, objective chairman would provide a fresh set of eyes and new ideas. A person less familiar with the company’s processes would be the ideal one to ask tough and uncomfortable questions, to the benefit of all shareholders.

The Myburgh report into the collapse of Kirkinis’s African Bank pointed at his large personality as the main culprit. After being repeatedly told how really great he was, after nearly 20 years Kirkinis naturally believed it.

MTN and Nhleko need not go down that route.