EDITORIAL: Old Mutual urgently needs a new leader

When Old Mutual’s board picked Peter Moyo as CEO-in-waiting in 2017, it knew it needed to put safeguards in place for the corporate governance minefield it had just created.

Two years later, a landmine exploded. The board is distracted by an ugly tussle with Moyo and shareholders are watching their stock fall behind. The company is without a leader at an inopportune time.

Old Mutual is preparing to go to court to oppose Moyo’s legal challenge asking that he be reinstated and that some board members, including chair Trevor Manuel, be branded delinquent directors — a court declaration which, if granted, would disqualify them from being directors of any company. 

It is the latest twist in the ill-timed corporate drama. Old Mutual is in the middle of a reasserting itself as pan-African insurance group under a revamped strategy spearheaded by Moyo following the disentanglement of the 173-year old corporate titan and its primary listing on the JSE in 2018.

But Moyo’s dismissal in June raises questions that his successor and, most likely, the board would stick with his growth blueprint.

Like most politicians, it is most business leaders’ desire to leave a lasting legacy at an organisation. It would be a tough sell for the board to recruit a CEO who will inherit a growth plan devised by someone else.

For the board, it will be difficult to defend a strategy of a CEO with whom it had “a material breakdown in trust and confidence” and one the company accuses of being “disrespectful” to the board. 

The strategy, which include cutting costs worth R1bn and stronger focus on sub-Saharan Africa markets, is probably doomed.   

It leaves the board with few options. The most likely scenario is for the board, and the yet-to-be recruited CEO, to wipe the slate clean and come up with fresh ways of putting the company on a growth path and creating value for shareholders.

Underscoring the risk of Old Mutual navigating without a CEO, a fiercely competitive insurance industry characterised by fast-changing consumer preferences and disruptive new competitors, investors have been reluctant to buy shares in the industry stalwart.

Shares in Old Mutual have barely moved since the fallout, which started in May when the group said it had suspended Moyo. The stock has edged up 0.7%, or just a few cents, lagging behind a 7% rise in bigger rival Sanlam and a similar increase in Discovery Ltd’s share price. That also compares unfavourably with a nearly 10% rise in the blue-chip JSE Top-40 index between then and now. 

The board cannot escape the blame for Old Mutual’s stock market underperformance. True, the 56-year old Moyo boasts impressive financial services credentials that include running the show at Alexander Forbes, and crucially, had a stint at Old Mutual in the late 1990s as a senior executive, hence the reason to hire him. However, he was seriously conflicted, and the board knew their decision to go ahead with the appointment carried risks that could stray into corporate governance problems.

Moyo is a co-founder of a local private equity outfit called NMT Capital Group, in which Old Mutual through one of its subsidiaries holds a stake of about 20%.

To solve the obvious conflict of interest, Old Mutual had put elaborate safeguards in place, including embedding one of their own executives on NMT’s board to ensure Moyo’s self interests as the co-owner of NMT did not eclipse those of Old Mutual.

To say the decision to appoint Moyo and the safeguards that went along with it were ill-fated probably do not go far enough. It has thrown Old Mutual into a leadership limbo, it is forcing the company into splashing out on lawyers and will most likely eat into the board’s time as they need to be around to help attorneys prepare legal documents.

For shareholders, this is not the time for the board to patch itself up for arguably a self-inflicted wound. It is time for it to be putting its energies into the hunt for the new CEO.