MTN has come under fire from governance pundits for its decision to flout the King code on corporate governance by appointing former CEO Phuthuma Nhleko as chairman to replace Cyril Ramaphosa.
The King code says clearly that “the CEO should not become the chairman until three years have lapsed” and the board “should elect a chairman of the board who is an independent non-executive director”.
Mr Nhleko is not an “independent” director because he still owns a sizeable chunk of shares in the company, and he handed the hot seat to Sifiso Dabengwa only two years ago.
MTN needed a new chairman because Mr Ramaphosa stepped down after he was elected deputy president of the ANC. But Mr Nhleko, who was instrumental in MTN’s growth from 5-million subscribers to 160-million, left the organisation two years ago, and governance experts have raised eyebrows at this appointment.
When asked why MTN had simply picked its former CEO as its new chairman, independent director Alan van Biljon said they couldn’t find anyone better than Mr Nhleko, who knew the business and the industry so well.
David Couldridge of Element Investment Managers said the danger was that Mr Nhleko might still be too close to management so certain investors would not be supportive of the company’s decision.
Mr Couldridge said it was “important for the board to have a balance of power that is independent of the executive team. An independent chairman is an important part of this balance of power.”
Ratings Afrika’s Theo Botha said the fact that Mr Dabengwa used to work for Mr Nhleko suggested a close relationship, which might not be a good thing when what was needed was a chairman of independent mind.
Mr Botha also said the appointment of Mr Nhleko showed poor succession planning on MTN’s part.
“It looks like he just came in quite quickly because Cyril had to leave. So was there succession planning in this process? Well, I don’t think so because they got this guy Mr Nhleko back quite quickly,” he said.
Ratings Afrika’s Charl Kocks said a chairman was supposed to act neutrally so his role did not have any negative impact on the CEO or other executives.
Another potential problem is that Mr Nhleko was central to Turkcell’s corruption claims. Not only was Mr Nhleko the CEO when MTN scored the licence, MTN’s former Iranian head Chris Killowan also claimed that Mr Nhleko authorised bribes to former South African ambassador Yusuf Saloojee.
MTN’s internal Hoffmann inquiry ultimately found no evidence to corroborate this claim, though a report by KPMG found that it was clear the company lavished gifts on Iranian politicians when it was bidding for the licence.
But MTN director Mr van Biljon said that if historical issues such as this arose in future, Mr Nhleko would simply have to recuse himself from the discussion and he (Mr van Biljon) would take over.
Mr Botha said: “If the Turkcell issue has been finalised and resolved, then maybe it’s OK to have Mr Nhleko as chairman, but if the matter has not been finalised then maybe it might not be a good thing to have him there.”
Though Turkcell withdrew the case in the US courts, it has since said it is looking at bringing the case again in other jurisdictions.
Of course, MTN isn’t the only culprit in flouting governance rules this way. Companies such as SABMiller, Sappi and Nampak have also had CEOs step into the chairmanship role with very little cooling-off period.
• This article was first published in Sunday Times: Business Times