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Smoke without fire

EOH has been given termination notice of its Microsoft partner agreements. How will it put out the flames? 

Steven Van Coller, EOH Steven Van Coller, EOH

 EOH has been given termination notice of its Microsoft partner agreements. How will it put out the flames?

 If you don't choose to do it in leadership time upfront, you do it in crisis management time down the road.” So says leadership expert Stephen Covey.

And, undoubtedly, EOH, one of the country’s largest IT players, has found itself in crisis management mode in recent months.

Last year, the group’s founder Asher Bohbot suddenly announced he would step down as CEO to go on sabbatical for six months. In his place, long-serving executive Zunaid Mayet was promoted. Many divisional heads were also promoted to the board, says Irnest Kaplan, MD, Kaplan Equity Analysts. “The news in itself wasn't a bad thing, just no one was expecting it and it spooked the stock market,” he says.

A raft of allegations about wrongdoing at EOH followed. “The group hadn't dealt with such situations before, and the more the allegations were denied, the more stories came to light. EOH called in law firm ENSafrica to look into the allegations. It was cleared of most, if not all, of the allegations.”

Further troubles lay ahead, however, when EOH, which has been very acquisitive in its growth strategy, acquired the GCT group of companies. It seems the due diligence wasn’t conducted properly and a few of the GCT businesses were also caught up in allegations of wrongdoing. EOH wasn't making the preagreed targets on the earn-outs and so exited the deal, which impacted significantly on its FY 18 results, says Kaplan.

EOH had never been in this position before; it had always done well financially, and now it had put out a bad result, the management changed, and there was a lingering bad reputation in the media.”

Responding to the troubles, the group was then split into two, with Mayet heading up Nextec, which focused on industrial technology, and another long-serving executive Rob Godlonton heading up the traditional ICT business to be called EOH. Bohbot was to be group chairperson.

In September 2018, Steven van Coller, previously chief executive of Absa’s Corporate and Investment Bank and VP of strategy and mergers and acquisitions at MTN, was appointed as Group CEO of EOH. Kaplan says of Van Coller: “He's got a very good idea of governance procedures and processes, which arguably hadn't been put in place (at EOH), because it had been run by entrepreneurs. So there wasn't the experience there before of how to transition from a large-version of a small entrepreneurial organisation.”
 
Van Collier's appointment was followed in November by that of Megan Pydigadu as group financial director.

 An unprecedented move

Fast forward to February, and the news broke that Microsoft had terminated two agreements with subsidiary, EOH Mthombo, its licence solutions partner agreement, and the Microsoft Partner Network agreement. In short, this was both its volume licensing contract and its gold partner certification, and all associated benefits.

A Microsoft spokesperson told The Margin: “By terminating the agreement, those benefits get removed. It doesn't impact the certifications of the individuals employed by the partner, however.”

EOH claims to be the largest Microsoft partner by skills in the country.

Microsoft is unable to comment on the reasons for terminating the agreements. Media reports claim a whistleblower filed a complaint with the US’ Securities and Exchange Commission (SEC) in relation to a R120 million contract with the Department of Defence.

Van Coller admitted the SEC filings were a ‘big deal’ when talking to Bruce Whitfield in an interview on 702. The Microsoft source says the termination decision wasn’t taken lightly, although the process involved various parties and different viewpoints were considered. “It’s not just global instructing us to terminate.”Kaplan says this termination is an unprecedented move. “The financial impact of losing this agreement isn't so great (estimated at a R10m hit on profits). The problem is that Microsoft is a core pillar of enterprise IT, and if you're an integrator, you must have a good relationship with the gorillas in IT. It doesn't look good when your company as a whole isn’t Microsoft-certified. You can't move forward with a red flag against your name from one of these players. If the termination goes ahead as is, EOH will suffer reputational consequences,” he says.

Cool heads 

  In times of crisis, there are a number of recommended steps that a company should follow, which can essentially be distilled into:

 1. Have a plan

2. Identify a spokesperson

 3. Be honest and open with timely and frequent updates

 4. Keep employees, customers and suppliers informed.

Analysing EOH’s reaction to the Microsoft issue, it seems the systems integrator has followed these steps well. Van Coller has been the identified face of the company’s response, appearing to take charge of the situation by meeting Microsoft to get clarity on the issue, and being the company spokesperson talking to the media Even in the days since the news broke, there’s already clear evidence that a plan is in action. ENSafrica has been drafted in to undertake an initial investigation, as well as perform an independent monitoring and oversight role in all the group's major public sector bids, contracts and engagements, past and present. PwC has also been appointed as an internal auditor.

Van Coller has said any EOH employee found guilty of unethical business practices will not get away with it. He has called for anyone with evidence to come forward.

The company also launched a mobile app for whistleblowers within the group to provide anonymous tip-offs to corrupt activity. There have also been a number of resignations from the group’s board, including Bohbot. His resignation is in accordance with King IV (Report on Corporate Governance): a former CEO should not serve as chairperson of the board until a three-year cooling-off period has been observed. Founding member and non-executive director, Rob Sporen, as well as fellow directors Tshilidzi Marwala and Tebogo Maenetja are all set to leave too.

It’s also expected that the group will be restructured significantly, with different units and separate boards. According to a Bloomberg report, the software side of the group could be split into six to eight separate companies, and the public-sector services business will be separated from the privatesector arm.

Between Van Coller’s media interviews and the SENS (JSE’s Stock Exchange News Service) announcements, the updates appeared quickly after the initial news broke and have been frequent in the following period. The honest and open communication seems to be another box ticked, and reflects the style of leadership Van Coller brings.

“When the previous management was asked about things, they would give the same type of answer, whereas Van Coller’s approach is very open. He brings a fresh mindset, and I think the market quite likes it. I get the sense people are comfortable that he's there – both investors and internal staff,” says Kaplan.

It’s easy to get caught up in the sensationalism of corruption.

Growing so fast, acquiring companies at a rate of approximately one a month for its entire history, under the entrepreneur Bohbot, something had to give. In an interview with TechCentral, Van Coller said: "When you have 11 500 people in 273 legal entities and you’re doing business with the state-captured public sector companies, there’s going to be something…"

The Microsoft news is a big knock to EOH's reputation, but with a change of key business leaders, and with stronger focus on governance and compliance, the group will hope to win back the trust of its customers, the stock market and Microsoft.

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