Of the ZSE and poor succession planning in corporates
HARARE – There is no doubt that the current economic environment is challenging. However what separates good performing firms from those that are sinking is the way management responds to the environment. It therefore shows that the importance of leadership cannot be over emphasized. The management at the helm of a company can create or destroy shareholder value.
Over the week one of the country’s largest retailers, OK Zimbabwe, announced that Willard Zireva will be leaving the company on the 31st of March 2017 after serving the company for 33 years, 15 years of which he was the company’s CEO. He took up this assignment in 2001 when the retailer was curved out from Delta. Prior to that he was the company’s managing Director, a role he took up in 1990.
Apart from stabilizing the company following unbundling from Delta, Zireva also helped rebuild the company after the 2007 price blitz that left shops empty. The company brought on board Investec as an equity partner after successfully raising $20 million through issue of shares and convertible debentures. This capital raise enabled the group to improve stocking levels, expand product offering to include white electrical goods sourced from Asia as well as entering the mobile money space through OK Money Wave. The Zireva led team also refurbished the shops improving ambiance thereby increasing customer traffic
Management also created value for investors with Investec being the main benefactor. The company’s share commenced trading at 1 cent in the dollarized environment and the rights offer was priced at US 6 cents. Post the capital raise, the stock peaked at 30 cents on 30 July 2013. Investec had also converted their debentures to equity at 6,3 cents.
While acknowledging the positive work by the outgoing CEO, his departure again ignited talk over succession planning within listed companies. A section in the investment community has been skeptical about the trio of Willard Zireva, Alex Siyavora and Albert Katsande for a while now. The view was that they have stayed at the helm of the organization for too long, which in a way was dragging down company performance. One analyst even asked at a financial results presentation if the company had a succession plan in place. It therefore follows that the departure of Willard Zireva and replacement by Alex Siyavora will not change this view. The latter was the company’s Finance Director for the past 16 years and hence is likely to have the same thinking as his predecessor. But is it a proven fact that the trio was weighing negatively on the firm? We are of the view that this was a just a perception which cannot be supported with statistics. The trio managed to recapitalize and rebuild the company quicker than Spar and TM, now Pick ‘n’ Pay.
However now, Pick ‘n’ Pay is now sprucing up its stores, a development that has seen OK losing some ground. It is in this regard, that an outsider would have been the ideal candidate. Fresh thinking would enable the company to view things from a different angle as the retail landscape continues to evolve. The company should also start grooming someone much younger who will have a better understanding of the evolving consumer tastes.
On the other hand, replacing management from within gives company stability and also helps sustain the growth momentum. There are organizations that have successfully replaced leadership internally. This has the main advantage of sustaining momentum and stability on part of the company. CBZH has managed to replace management internally from Gideon Gono, Nyasha Makuvise, John Mangudya to the current incumbent Never Nyemudzo.
One thing that is beyond doubt is the fact that when management stays at one firm for too long two things start to happen. Firstly, corporate governance deficiency issues surface and that company performance starts to deteriorate. CFI during the era of Steve Kuipa is one example that readily comes to mind. When managers entrench themselves in a company they appropriate shareholder value to themselves – hence the need for renewal. However on the flipside, if well incentivized probably through share options then their interests become aligned with those of shareholders thereby acting in the interest of shareholders. In this case, there is need to put in place an effective board of directors that will keep management powers under check. But again, as time lapses, cronies of management find their way to the board thereby reducing effectiveness.
Succession issues are usually sacred on the ZSE more-so in owner managed institutions together with government-linked organizations. On the latter, the poor monitoring of the investment by the shareholder tends to give the CEO too much power. Former ZHL CEO, Albert Nduna only left the company in 2015 after the Rudlands had acquired a majority shareholding following a rights issue that NSSA did not follow.
He had led the company since 1983 when it was created by an act of parliament. ZHL had a complete insurance business comprising short term, life, reinsurance and property. Its performance did not match FML that also had similar business units. ZHL also had an asset management
In owner managed institutions, management seldom changes as long as the founder or owner still feels capable. This is in tandem globally with notable examples being of Warren Buffett who has led Berkshire Hathaway for the past 51 years, while Bill Gates was the CEO of Microsoft for 25 years before assuming the role of Chairman and Chief software Architect. If the owners are to depart, they handpick management whom they believe can drive their agenda. Appointment of Antonio Fourie at Innscor is one such example. Besides having no knowledge of the Zimbabwe environment, he was coming from a company that had just gone into receivership in South Africa. When Tom Brown left under unclear circumstances, Julian Schonken appeared to be the ideal candidate for the job. Hiring and firing at Meikles Africa limited, though it is a listed entity, on the other hand appears to be the responsibility of the executive chairman who has a controlling stake in the company.
Companies with foreign parents appear to have clear succession plans. When Joe Mutizwa left Delta Corporation, he was replaced by Pearson Gowero. Prior to his appointment, the latter had been seconded to Zambian breweries for five years before rejoining Delta Corporation as the Chief Operations Officer during the handover period. Similarly Matts Valela worked as the treasurer before appointment as Finance Director.
We are of the view that management should be given set terms and specific mandates on appointment. The board should also set performance targets that will then be used to review their performance. Management powers should also be kept under check all the times. This can only be achieved if the board is broad enough to represent the interest of all stockholders.