Andrew Darfoor. Picture: FINANCIAL MAIL
Andrew Darfoor. Picture: FINANCIAL MAIL

Long-standing shareholder dissatisfaction appears to be behind the axing of Alexander Forbes CEO Andrew Darfoor.

Some of Alexander Forbes’s biggest shareholders, including Patrice Motsepe’s African Rainbow Capital (ARC), did not like the direction in which Darfoor was taking SA’s biggest pension fund administrator, which manages assets of about R357bn.

"Being a listed entity ourselves, we are a responsible shareholder and for some time we as ARC Investments have communicated to the board of Alexander Forbes some dissatisfaction with the financial performance and strategic direction of the company," Johan van Zyl, joint-CEO of ARC, told Business Day.

ARC is the second-biggest shareholder at Alexander Forbes with a 17% interest in the company, which has a market capitalisation of about R6.65bn. US consulting firm Marsh & McLennan Companies is the biggest shareholder.

Both have representatives serving as nonexecutive directors on the board, which declared a loss of confidence in Darfoor and fired him just two years after his appointment.

"I am not happy about the outcome and I will deal with this in due course," Darfoor said.

Alexander Forbes’s share price rose as much as 8%, the most in three months, after the announcement before easing back to close 2.27% higher at R4.96.

Almost immediately after his appointment as the CEO, the Ghanaian-born and UK-raised Darfoor lambasted Alexander Forbes for underperforming its potential. He made a number of management changes and implemented a turnaround strategy, which aimed to shift Alexander Forbes’s operating model from a business-to-business interaction to one that predominantly serviced corporate clients and the public sector as well as individuals.

The strategy included expanding Alexander Forbes’s presence into selected sub-Saharan African countries and other emerging markets. Darfoor brought in a number of international consultants to execute the strategy. They included Tony Powis, who headed Willis Employee Benefits in the UK before becoming CEO of Alexander Forbes’s corporate and employee benefits division, and John Mather from Canada’s ManuLife, who took up the chief information officer post.

While the turnaround strategy had set a target to decrease the company’s cost-to-income ratio to below 65%, Darfoor set aside more than R1bn to upgrade the company’s digital infrastructure in 2017.

Alexander Forbes terminated his employment with immediate effect on Tuesday, saying the board had lost "confidence and trust" in him. But it would not be drawn into revealing more details about the breakdown in the relationship with Darfoor.

Karl Gevers, the head of research at Benguela Global Fund Managers, said the relationship between Darfoor and the board must have broken down significantly for him to be fired with immediate effect.

"It is certainly unusual in SA. One has to give the board credit for its prompt action."

He said the market had lost confidence in Darfoor’s leadership long before his axing. This was evident in its share price dropping from R5.82 to R5 — about 14% over the past two years. The company’s return on equity also declined to less than 10% during that period and a number of key personnel left.

"Investors generally questioned his ability to implement his Ambition 2022 strategy, which had lots of targets without details of how these will be achieved," Gevers said.

Darfoor’s strategy included targets such as growing shareholders’ return on equity 12% to 14% annually and maintaining the ratio at which the company’s net income can cover dividends paid to shareholders at 1.5.

When the company reported its annual results for the year ended March, a number of these targets were not met. These included growth in operating income and profit, the cost-to-income ratio and the return on shareholders’ equity.

Gevers said Darfoor required the confidence and continued buy-in of his board and shareholders to meet the targets in his turnaround strategy. Since he seemed to have lost this, there was no moving forward for him.

Alexander Forbes’s board said it was prioritising the search for a new CEO.

In the meantime, independent nonexecutive director Marilyn Ramplin would act as group CEO.

With Bloomberg

buthelezil@businesslive.co.za

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