Why Dloti and Lib­erty board fell out

New CEO not an in­sur­ance man, but he’s a key insider

Sunday Times - - BUSINESS TIMES - PERICLES ANETOS ane­[email protected]­day­times.co.za

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.


FAC­ING THE FACTS: The de­part­ing CEO of Lib­erty Life, Thabo Dloti, ad­dresses the me­dia over re­sults from the pre­vi­ous fi­nan­cial year. The pic­ture he painted was not a good one and led to him leav­ing

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