Corruption-tainted EOH Mthombo to be shuttered

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 18 Jul 2019
EOH Group CEO Stephen van Coller.
EOH Group CEO Stephen van Coller.

Under-fire IT services provider EOH is looking to “ring-fence” problematic contracts into a single entity.

This after law firm ENSAfrica this week found evidence of a number of governance failings and wrongdoing at the JSE-listed company.

EOH asked ENSAfrica to conduct a proactive comprehensive investigation into the IT services company’s contracts to identify any wrongdoing or criminal conduct in the acquisition, award or execution of contracts.

The company says from the probe, suspicious transactions of R1.2 billion have been identified and are being investigated by ENSafrica.

EOH’s problems surfaced after software giant Microsoft in February terminated its contract with the IT services company after an anonymous whistle-blower reportedly filed a complaint with the United States Securities and Exchange Commission about alleged malfeasance to do with a contract with the SA Department of Defence.

The company, this week, held a media briefing where it outlined how the corruption unfolded at the entity as well as the remedial actions it is taking.

In the press briefing, EOH CEO Stephen van Coller blamed eight people for the corruption. He pointed out that corrupt payments were largely related to contracts entered into between 2014 and 2017.

Following these developments, an EOH spokesperson told ITWeb it is anticipated EOH Mthombo, the subsidiary that was largely implicated in the suspicious payments, will be closed within two years.

According to the spokesperson, EOH Mthombo client contracts will be ceded to another appropriate legal entity within the group “to ensure continuity and continued service delivery for our clients, subject to the required regulatory approvals and client consent.

“This forms part of EOH’s reorganisation process for enhanced governance, which includes the ring-fencing of problematic contracts from the past into a single entity to provide focused management and resolution of the issues.”

With respect to the suspicious payments from EOH Mthombo, the spokesperson reiterated the wrongdoing took place between 2014 and 2017, and was limited to eight people, all of whom have exited the group.

In addition, the majority of these contracts have been completed, he said.

“It is also important to note the appropriate remedial action has already been taken across the EOH Group, with robust risk management, mitigation initiatives, increased transparency, accountability and reporting having been a priority.”

Investment analyst Chris Gilmour believes EOH will recover from this setback. “I do believe it will recover. However, it will be in a streamlined form, following the non-core disposals.”

He points out the IT services firm must keep on doing what it has been doing: “It would have been the easiest thing in the world for Stephen van Coller to walk away, but that is not in his DNA.

“He is going to stay the course and get this one right. But it will take time and perseverance. With such obvious deep-seated corruption in the ‘old’ EOH, it will take time to root out all of the perpetrators and ensure this never happens again.

“Putting all the necessary safeguards in place is time-consuming and, in the meantime, the market may continue to be impatient. But Van Coller is sticking to an orthodox approach that appears to be working and it just needs time to prove it,” says Gilmour.

He adds that unlike some of the other JSE-listed companies that have fallen precipitously of late, such as Steinhoff and Tongaat, EOH appears to have the potential to turn around quite swiftly, once the corrective action is seen to have run its course.

“It is currently grinding along the bottom, but if and when former employees are successfully prosecuted for wrongdoing, the trajectory of the share price should be sustainably upwards.”