Generating a profit in world’s hot spots

“WHO is responsible” declares the introduction of MTN’s corporate governance report. It is a statement of fact, not a question, and goes on to detail the members of the board and the various committees they sit on.

The five members of MTN’s risk management, compliance and corporate governance committee are Peter Mageza (committee chairman), Koosum Kalyan, Lesego Marole, Johnson Njeke and Jan Strydom. This committee was responsible for overseeing the chief business risk officer (Shauket Fakie until February this year, and Suren Sooklal since then) and the 230 specialist staff members who run MTN’s business risk management function.

These are the people who enabled shareholders reading the 2014 annual report to believe MTN faced no exceptional or significant political or regulatory risks that were worth reporting.

Some fund managers have suggested that the circumstances behind the unprecedented $5.2-billion (about R72billion) fine reflects political as much as regulatory risk for MTN. One US-based emerging markets fund manager went as far as to describe the fine as a “shakedown” by the Nigerian regulators. The fine “is outrageous by any rational stretch of punishing the company”, said the fund manager.

Dan Matjila, CEO of the Public Investment Corporation, one of MTN’s largest shareholders, said they were studying the annual report and finalising a meeting with MTN for next week. Following this week’s resignation of CEO Sifiso Dabengwa, the corporation said more people needed to take responsibility for the fine. The duties of the risk management committee, according to MTN’s report, include “identifying, considering and monitoring risks impacting the company . . . and ensuring compliance with prevailing legislation”.

MTN does not take risk lightly. Its corporate governance report describes a complex “set of policies” designed to identify, report and monitor risk that it might face in the 22 countries in which it operates. But the only details identified relate to possible financial risks. There is no mention of regulatory risks or risks associated with operating in some of the most politically unstable countries in the world. Syria, Afghanistan, Iran and Sudan are a few of the countries generating profit for MTN shareholders.

One corporate governance analyst said shareholders often use the report as a fig leaf to shelter behind. “There’s a sort of conspiracy of silence at work, shareholders know the company has secured valuable licences in some of the riskiest countries in the world, but they don’t really want to dwell on the implications. ”

Ansie Ramalho, who is finalising the updating of the King 3 corporate governance guidelines, said: “Rather than companies reporting on what practices they have adopted, it would be more important for them to explain what those practices have achieved.”