Why Dloti and Liberty board fell out
New CEO not an insurance man, but he’s a key insider
THE question of just how much longer Thabo Dloti would continue to run the Donald Gordon founded insurer, Liberty, had been doing the rounds for much of the year, following some poor results that many attributed to management problems over and above a struggling South African economy.
While the board initially seemed to have backed its man, this week’s decision by the Standard Bank-controlled insurer to replace him with David Munro did not come as a surprise.
The board, said Dloti in an interview with Business Times, had a different view of future strategy to his.
“It is a difficult place to be where what is expected of you is different from what is agreed to, and you can’t operate in that environment,” he said.
Liberty reported a 38% drop in annual earnings, and coupled with an underperforming share price and continued encroachment by competitors on its core market, the pressure was on Dloti to turn things around.
Dloti said there was an agreed strategy signed off by the board, but there was a difference in what to make a priority during a difficult time and how he and his team were going to balance short-term results with the long-term investments.
“It is balancing those things that really required the board and I to be aligned,” he said.
“If there are points of differences, they need to be cleared in an open and frank manner and I believe very strongly that we needed to continue doing that.”
As a replacement Liberty’s board has brought in someone closer to the group’s largest shareholder, Standard Bank, that owns 54%, rather than an outsider like Dloti, who had come from Old Mutual. Munro headed Standard Bank’s corporate investment banking (CIB) unit, which is far larger than Liberty.
Liberty’s non-executive chairman, Jacko Maree, agreed with Dloti’s reasoning over the departure, saying there was a “difference of opinion with the board on the immediate focus of the company”.
He said at the board meeting in February, after the year-end results, the board was still supporting Dloti. But by May 18, when the board next met, there was a general feeling of unhappiness, Maree said.
The board raised its problems in meetings with Dloti in the weeks thereafter.
The difference of opinion was around what needed to get done first, and the speed of execution, Maree said. The board could not come to an agreement with Dloti on those matters, which led to his departure.
“This was about issues between the board and the chief executive as to how quickly things are happening, as to what was being done when — that is what the discussion was about,” said Maree.
Maree said the board had great confidence in Munro, who had been at Standard Bank for 21 years. He pointed to Munro having run about 50% of Standard Bank’s business as head of CIB.
Maree admitted, though, that Munro was not an “insurance guy” but said there were many insurance experts in Liberty. Munro had a proven track record as a businessman and he was a strong motivator of people.
The challenges that Dloti faced had not left with him and the problems of tougher competition, reduced market share and tighter margins remained. The group had a limited number of directors, Maree said.
An analyst, who could not be named because of his company’s policy, said that Liberty had fallen behind its rivals but not to the point where it could not catch up. He did, however, express surprise that Dloti was not given more time to turn the group around.
It still had a strong brand in South Africa, a strong distribution force and strong market share in its core areas, he said.
There was no reason why it could not regain some of its former glory in segments in which it was still strong, like the more affluent market. It was weaker in segments such as broader financial services, where the group lacked scale compared with its competitors.
“The decision that needs to be made by the new CEO is: does he narrow the focus to strengthen the core business, or does he continue to try to bulk up segments where they are weak,” the analyst said.
On a future relationship with Standard Bank, the analyst said the bank needed to decide whether to integrate Liberty further, or to let it go.
The appointment of a Standard Bank insider, he said, might mean fixing the insurer in preparation for a sale.
Maree said that it was unlikely that anything would change, but did not see the bank increasing its stake, saying he would be surprised if there was any change to the current relationship.
If there are differences they need to be cleared in a frank manner
THE president of the Association of Black Securities and Investment Professionals (Absip), Sibongiseni Mbatha, says former Liberty CEO Thabo Dloti should have received more support from the board and majority shareholder Standard Bank.
Dloti, who was Absip’s CEO of the decade in 2013, resigned last week, three years after being appointed as Liberty’s first black CEO.
Mbatha, who spoke to him afterwards, says he jumped before he was pushed to preserve his integrity.
Dloti told Business Times in March harsh words had been exchanged between him and parent company Standard Bank over the group’s poor performance. Its earnings plunged 37% in 2016, costing its 54% owner R1.5-billion in headline earnings.
“Clearly they’d like to see a better outcome,” Dloti said.
He said Standard Bank joint CEO Sim Tshabalala, a director of Liberty,
Only three of the largest listed financial services companies now have a black CEO
would be introducing a 10-step turnaround strategy to help the life insurer. Explaining Dloti’s departure, Liberty chairman Jacko Maree said the turnaround was not happening fast enough.
Mbatha believes Dloti’s resignation is a significant setback for transformation, which the financial services sector can ill afford. Only three of the largest listed financial services companies now have a black CEO.
His departure comes in the wake of the sudden resignation of senior Barclays Africa executive Phakamani Hadebe in March after he was supposedly overlooked for a top job.
“Dloti is an astute, competent professional who took over the reins in a company that had not been performing with flying colours for a number of years,” says Mbatha.
“Before him there were Myles Ruck and Bruce Hemphill, and Liberty didn’t do well under them either.”
Mbatha says he is not trying to turn an issue of underperformance into one of transformation.
“This has to do with the support given by the shareholder and the board to the executive,” he says.
“Our gripe is two things. One, could the board have supported him differently? And two, what was the board’s succession plan? Why couldn’t they find another black CEO within the Liberty Group?” ’TARGETS AREN’T REALITY’: Sibongiseni Mbatha, president of the Association of Black Securities and Investment Professionals
Standard Bank announced Dloti would be replaced by David Munro, CEO of its corporate and investment banking unit.
Mbatha says this is a backward step for transformation, even though Munro’s deputy, Kenny Fihla, will succeed him. He says that in addition to Dloti himself, he spoke to Tshabalala and Maree about Dloti’s departure: “There was a strategic misalignment between Dloti and the board and shareholder, and he decided that to protect his dignity, integrity and professionalism it would be better if he left.”
He says he does not believe Maree is anti-transformation: “In 2012, Absip honoured Maree as a transformative leader because he had groomed the likes of Tshabalala and many other black executives to take over key strategic positions in the bank . . . We know Jacko as a transformative leader . . . [but he and] his board [don’t have] a succession plan that ensures that, when a black CEO departs, you get another black CEO.”
He is also critical of Maree and the Liberty board for not intervening sooner.
“There should have been an intervention before this thing snowballed into a departure . . . What did they do to ensure there was alignment between the board and the CEO before it got to this point? That is the question.”
Mbatha, who has been highly critical of the slow pace of transformation in the financial services sector, says Barclays Africa missed an important opportunity to accelerate transformation when it failed to appoint Hadebe to succeed Stephen van Coller as head of corporate and investment banking. Twenty black professionals staged a walkout in protest and Hadebe resigned.
He says that when Hadebe left the Land Bank to join Barclays Africa there was an expectation, based on his successful turnaround of the Land Bank, that he would succeed Van Coller. He has not spoken to Hadebe, but says they’d been led to believe that Hadebe — who worked with Barclays Africa CEO Maria Ramos at the National Treasury — would get the position.
“We have many members there and they briefed us on the matter. That he had been led to expect to be CEO and resigned when this did not happen, or when he heard that they were splitting the position.”
There will now be two heads of corporate and investment banking, rather than one.
Mbatha believes this signals a vote of no confidence in the ability of a black executive to do the job.
“That is distasteful to us. This thing of co-CEOs and co-heads when one person can do the job is a problem issue for us. It doesn’t taste well at all.”
The bank’s explanation is that separating the portfolios is “the most optimal option”, but Mbatha says he doesn’t buy it.
Neither is he appeased by the fact that one of the co-heads, Temi Ofong, is a black African.
“The appointment of a black African as co-CEO of [corporate and investment banking] is not transformation because he is not a South African,” he says. However, he says he has no reason to believe that Ramos is antitransformation, either.
“If she felt he was not the right person for the job, we wouldn’t attack her. We would just say to her: ‘Phakamani would have done the job.’ ”
He says he doesn’t expect banks or corporates to reveal the information on which they base top appointments: We don’t want them to say: ‘We have appointed this one and not that one because of this or that.’ We just want them to appoint in a transformative manner, and ensure there is a transparent succession plan in place that ensures black professionals are included in the upper echelons.”
In its submission to the recent parliamentary hearings on transformation in the financial services sec- tor, the Banking Association South Africa said most of the key transformation targets set by the financial sector charter had been met.
“My response is that the targets are too easy,” says Mbatha.
“We would be fooling ourselves to say we had achieved a lot just because those targets have been met. The targets must be reviewed and increased significantly.”
Basa did concede that progress had been slow at board and executive levels, and that the number of black executives and black women in senior management positions had fallen short of the targets.
Mbatha says he hopes the central message of the report that comes out of the hearings will be that the sector must transform faster so that appointments reflect the demographics of South Africa as soon as possible.
Basa conceded that black appointments at executive and board level were going backwards. “Shareholders have been too busy counting rev-
This signals a vote of no confidence in the ability of a black executive to do the job
enue and profits to give more support to transformation,” says Mbatha. He agrees, however, that profits are a necessary condition for transformation, which is why he believes South Africa’s junk status will impede transformation. He says the target of 26% black ownership of banks needs to be met as a matter of urgency.
Questions have been raised about the difficulty of calculating black ownership when black shareholders are not necessarily long term and their holdings fluctuate along with those of other shareholders: “Banks need to watch this and make sure that once black shareholdings drop below the target they do another empowerment transaction,” he says.
In its submission, Basa said a choice must be made between financing black ownership and increasing financing in the economy.
Mbatha says Absip has proposed a black business growth fund to which entities that black shareholders have exited can contribute in lieu of doing another empowerment transaction.
The money would be used to fund black- and woman-owned enterprises within and outside the financial services sector, he says.
Mbatha, 41, is an economist by training who worked at Standard Bank and Absa before joining the Industrial Development Corporation 10 years ago.