IHS Towers and an internal struggle against corporate transparency

FT journalist Dan McCrum is something of a legend in Governance Risk Compliance (GRC) and anti-FinCrime circles following his takedown of what was once the German fintech behemoth Wirecard.

In his book ‘Money Men: A Hot Startup, A Billion Dollar Fraud, A Fight for the Truth’ where he detailed the process of investigating and reporting on what turned out to be one of the biggest financial fraud operations of all time, something he repeatedly points out is that even without getting his hands on the proverbial mother lode of ‘receipts,’ something clearly did not smell right.

This, he says, is down to a basic principle that every investigative journalist, private investigator, short seller and enforcement/regulation official is taught early on in their career – there is never only one cockroach.

The reasoning is that just as cockroaches become visible in a building after festering in a cluster, symptoms of bad corporate governance almost always indicate that there is some sort of deeper rot potentially going on at a company.

If there is a problem with petty cash and expensing, there will likely also be a problem with the company’s annual report because one cockroach in the Accounting department means that a cluster of cockroaches also exists there – and possibly higher up.

A boardroom tussle and the fairness question

BusinessDay reported recently that telecoms giant MTN, private equity firm Wendel Group, have become embroiled in a public battle with the board of IHS Towers. The company, which was founded in Nigeria back in 2001, and is now traded on the New York Stock Exchange, with MTN and Wendel holding 26 percent and 19 percent of its stock respectively. Somehow, despite holding a combined 45 percent of the total company, neither of these entities has been permitted to nominate a member to the IHS board.

Essentially, despite being majority shareholders, the expectation is for these companies to accept minority voting powers. This would be comparable to investing into owning half of a football club, only to be prevented from having any say in its transfer business or day-to-day running.

When I commented on this weird situation earlier this week, I mentioned that this would seem to violate the most basic principles of corporate governance, by effectively giving privileged minority shareholders control over the company at the expense of those who have the most skin in the game.

What further complicates this picture is that if you take a look at the market performance of IHS Holdings since its IPO, it is down nearly 50 percent from its initial list price. Why would the board of a company whose share price has halved in 2 years be dead set against the injection of new managerial capacity by entities that now own almost half of it, and which have a long and solid history of competent business management behind them?

According to IHS, this refusal is down to a vague and unspecified belief that MTN’s proposal to allocate board seats to every shareholder with at least 10 percent of the company’s holdings “is not in the best interests of IHS Towers as a whole or our collective shareholder base.”

Is there a cockroach problem at IHS?

Blackwells Capital – an activist investor in IHS Holdings – is not having any of it. In a letter sent to the company on Wednesday, Blackwells stated that it will “take all necessary steps to overhaul the current board in the event the status quo persists.”

Clearly, at least one of the significant shareholders does not believe that a board made up of such luminaries as former Texas governor and failed Republican presidential candidate Jeb Bush, and President of defunct CDMA operator Intercellular, Bashir El-Rufai, are capable of arresting the cratering IHS stock price.

Read also: IHS vs Shareholders: What a hostile takeover means

So why is there an unexplained refusal to accede to what looks like a very reasonable and sensible proposal? And why is IHS down 50 percent over a time period where the NYSE as a whole has gone down only about 8 percent?

The answer to that question may lie in the contents of Blackwells’ letter where it states among other things, that IHS is currently incorporated in the Cayman Islands, whose shareholder-disclosure requirements are significantly less stringent than usual jurisdictions like Delaware or Maryland.

Why would this company, which is underperforming badly amidst an environment of murky shareholder disclosure insist on not only maintaining this murky status quo, but also prevent new majority shareholders who are well-run and credible businesses from sitting on its board?

Why also has this company previously rejected similar proposals raised by Blackwells in a prior letter sent in August 2022? Whose interests are protected by maintaining the opaque status quo in what looks to all intents and purposes like a poorly-run company, instead of allowing the formidable capacity of Wendel Group and MTN to right the ship? And why for that matter, is the spectre of a “hostile takeover” being invoked as a bogeyman to oppose this common sense move?

We do not have the answers to any of these questions yet. Possibly nobody outside of the IHS boardroom can answer these questions categorically. What we do know from simple observation and precedent is that there is never only one cockroach.