Interference drives Telkom director away
Jul 18, 2010 12:00 AM | By Business Times
Meddling by Telkom chairman Jeff Molobela is behind the surprise departure of financial director Peter Nelson this week.
Nelson's departure, so soon after chief executive Reuben September left last week, spooked investors. Telkom's shares have shed 10% in that time - losing more than R2-billion in value - as the leadership crisis intensified.
The shock resignation led brokerage First South Securities to slash its "target price" for Telkom shares by 20%.
"Our greater concern is that this signals that the relationship between operational management and the board is close to broken," First South said in a report.
In a separate research report, brokerage BJM said it suspected Nelson's resignation "could be due to frustration over ... government interference in executive decision-making at Telkom".
It said Nelson was a loss to Telkom, adding these events "serve to highlight the risks in Telkom".
Nelson e-mailed his resignation last Friday, but Telkom only informed the market on Tuesday.
In an interview, Nelson said resigning was a "very hard decision", but was done because he was "caught in the middle" of a lot of "issues that are common knowledge".
"These issues take up a lot of time and energy, and frankly, they don't add any value. And that's not me," he said.
He described his 18-months' experience at Telkom as "wonderful at times, and a very hard place to be at times".
However, a source said Nelson had ambitions for September's job, but the signs weren't good that he would get it.
The nominations committee of Telkom's board had actually recommended that Nelson be made acting CEO, while a full-time replacement for September was sought. But ultimately, the full Telkom board, led by Molobela, vetoed that decision. It appointed former Cell C boss Jeffrey Hedberg in the temporary position.
"(Nelson) started by exposing various corporate governance issues and irregular tenders," said one executive. "He was trying to clean up the parastatal. But now he's not getting the job and he's blaming the chairman for interfering," he said.
Insiders have confirmed that all the executive decisions taken by both Nelson and September were blocked at board level.
Perhaps the most crucial of which, according to well-placed executives, was that September's team took a decision to sell Telkom's albatross, the Nigerian company Multi-Links, as long ago as last year.
And yet the board has yet to endorse that decision. Meanwhile, Multi-Links' losses continue to grow, with the company reporting a R659-million loss for the year, and its poor performance led to a R5.1-billion impairment in both goodwill and assets.
The first direct evidence of government intervention to overrule the board was found in the resignation letter of independent director David Barber. Here, Barber complained that Molobela had overruled the board to veto the sale of Telkom's wireless data arm Swiftnet at a meeting on March 31.
"How can it be that management, supported by the majority of the board, cannot make a decision equivalent to 0.5% of Telkom's value? ... the chairman has acted (beyond his powers)."
Crucially, Barber said, Molobela had used government's "golden share", which gives the state, as the 39% shareholder, certain special rights, to overrule the sale of Swiftnet for R100-million. Such "golden shares" are contrary to the King III code, and to JSE rules, which don't like some shareholders to be given priority over others.
Government's "golden share" of Telkom, however, expires next year.
A forensic probe by KPMG into Telkom is nearly complete. It examines the extent to which Molobela interfered in board decisions, including the Swiftnet sale.
KPMG will also explore Telkom's governance, including the fact that it is currently not complying with the King III code of governance, as it has too few independent directors on the board after Barber quit in disgust.
This has left the other independent directors in a tough position, as Molobela's ability to overrule the board, using the "golden share", means their views are virtually irrelevant.
One of those directors, Peter Joubert, told Business Times that the "golden share" makes it difficult for independent directors to have a meaningful say in the company's affairs.
At least Telkom settled one big headache this week, paying US company Telcordia $80-million to settle a decade-long legal dispute.
The case relates to a 1999 deal that saw Telcordia sell a software system to Telkom. Although Telcordia delivered the system according to the agreed specifications, Telkom said it didn't include "all" the features it wanted, so it refused to pay.
But the Telcordia matter again exposed poor management: not only did Telkom initially turn down an offer to settle the case in 2006 for $30-million, but it also initially didn't even set aside any cash for this liability either. Under Nelson's watch, Telkom changed tack and booked a $77-million provision on its books for the dispute last year - which it will now pay.
