[By Duncan McLeod]
Government’s special rights in Telkom expire in six weeks’ time. It must avoid the temptation to install a puppet to lead the group. Facing a growing list of challenges, Telkom needs to hire a CEO who can make tough decisions without interference.
Jeffrey Hedberg’s decision to step down as Telkom ’s (acting) CEO at the end of March is a big blow for a group that has had three CEOs in just five years.
It’s proved unsettling for investors, who again pushed down Telkom’s already depressed share price by as much as 3% on the Friday after TechCentral broke the news that Hedberg was leaving.
Telkom is trading at a big discount to its net asset value, and analysts say uncertainty over government’s involvement in the group is playing a big role in keeping the share in the doldrums.
My sources at Telkom say Hedberg is leaving because he felt government wouldn’t give him the mandate he needed to fix the troubled group. That would have included cutting staff to drive efficiencies. But retrenchments are likely to prove too repugnant for the ruling party to contemplate, especially in an election year where the mantra is “jobs, jobs, jobs”.
The mere concern that government could interfere means Telkom is losing a chief executive who analysts and even unionists say was the best person to lead a turnaround.
The alarm bells should be sounding for communications minister Roy Padayachie, who has ultimate political responsibility for Telkom. Padayachie needs to set out clearly what government’s expectations are of Telkom, what role it wants to play in the management of the group, and what role it sees it playing in the economy.
Already, there are concerns that government will try to extend the special rights it has enjoyed over ordinary shareholders since Telkom was listed in 2003. These special rights — including the right to appoint the chairman and have a say in who will be CEO — expire on 5 March.
Padayachie has said government is displeased about losing the rights. But if it tries to extend them beyond their expiry, it could provoke a damaging showdown with the JSE.
This sort of drama is the last thing Telkom needs right now. It is already facing a perfect storm as large, well-funded rivals eye its markets and as its regulator prepares rules that will provide competitors with access to its “last-mile” network into people’s homes and business premises.
Beyond blind ideology, it’s hard to understand why government insists on retaining its stake in Telkom. It talks of the group’s “strategic national importance”. But I’ve yet to hear a coherent argument of how holding a stake in Telkom helps government achieve its goals.
On the contrary, I’d argue that the state’s control over Telkom has cost both parties dearly. Certainly, its control over the group has done little do bring fixed-line telecoms services to the rural poor.
The lesson from Hedberg’s resignation is clear. If Telkom is going to attract and keep the sort of talent it needs to survive and thrive, then that talent needs to be given a mandate from government — perhaps even a guarantee in writing — that it will be left alone to get the job done.
If not, Telkom will continue to be poisoned by politics. Held back by the dead hand of government, it will find itself increasingly ill equipped to keep pace in a fast-moving and dynamic sector.
Government ought to have sold its remaining shares in Telkom five years ago, when it could have walked away with a handsome profit.
It’s not too late to sell. Unfortunately for Telkom, and for the country, the chances of that happening are next to zero.
- Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail
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