Why Thabo Dloti and Liberty board fell out

The question of just how much longer Thabo Dloti would continue to run the Donald Gordon-founded insurer, Liberty, had been doing the rounds for much of the year, following some poor results that many attributed to management problems over and above a struggling South African economy.

While the board initially seemed to have backed its man, this week's decision by the Standard Bank-controlled insurer to replace him with David Munro did not come as a surprise.

The board, said Dloti in an interview with Business Times, had a different view of future strategy to his.

"It is a difficult place to be where what is expected of you is different from what is agreed to, and you can't operate in that environment," he said.

Liberty reported a 38% drop in annual earnings, and coupled with an underperforming share price and continued encroachment by competitors on its core market, the pressure was on Dloti to turn things around.

Dloti said there was an agreed strategy signed off by the board, but there was a difference in what to make a priority during a difficult time and how he and his team were going to balance short-term results with the long-term investments.

"It is balancing those things that really required the board and I to be aligned," he said.

"If there are points of differences, they need to be cleared in an open and frank manner and I believe very strongly that we needed to continue doing that."

As a replacement Liberty's board has brought in someone closer to the group's largest shareholder, Standard Bank, that owns 54%, rather than an outsider like Dloti, who had come from Old Mutual. Munro headed Standard Bank's corporate investment banking (CIB) unit, which is far larger than Liberty.

Liberty's non-executive chairman, Jacko Maree, agreed with Dloti's reasoning over the departure, saying there was a "difference of opinion with the board on the immediate focus of the company".

He said at the board meeting in February, after the year-end results, the board was still supporting Dloti. But by May 18, when the board next met, there was a general feeling of unhappiness, Maree said.

The board raised its problems in meetings with Dloti in the weeks thereafter.

The difference of opinion was around what needed to get done first, and the speed of execution, Maree said. The board could not come to an agreement with Dloti on those matters, which led to his departure.

"This was about issues between the board and the chief executive as to how quickly things are happening, as to what was being done when - that is what the discussion was about," said Maree.

Maree said the board had great confidence in Munro, who had been at Standard Bank for 21 years. He pointed to Munro having run about 50% of Standard Bank's business as head of CIB.

Maree admitted, though, that Munro was not an "insurance guy" but said there were many insurance experts in Liberty. Munro had a proven track record as a businessman and he was a strong motivator of people.

The challenges that Dloti faced had not left with him and the problems of tougher competition, reduced market share and tighter margins remained. The group had a limited number of directors, Maree said.

An analyst, who could not be named because of his company's policy, said that Liberty had fallen behind its rivals but not to the point where it could not catch up. He did, however, express surprise that Dloti was not given more time to turn the group around.

It still had a strong brand in South Africa, a strong distribution force and strong market share in its core areas, he said.

There was no reason why it could not regain some of its former glory in segments in which it was still strong, like the more affluent market. It was weaker in segments such as broader financial services, where the group lacked scale compared with its competitors.

"The decision that needs to be made by the new CEO is: does he narrow the focus to strengthen the core business, or does he continue to try to bulk up segments where they are weak," the analyst said.

On a future relationship with Standard Bank, the analyst said the bank needed to decide whether to integrate Liberty further, or to let it go.

The appointment of a Standard Bank insider, he said, might mean fixing the insurer in preparation for a sale.

Maree said that it was unlikely that anything would change, but did not see the bank increasing its stake, saying he would be surprised if there was any change to the current relationship.

anetosp@sundaytimes.co.za