EOH CEO voices frustration over Microsoft contract fallout

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EOH group CEO Stephen van Coller.
EOH group CEO Stephen van Coller.

EOH group CEO Stephen van Coller is still a bit frustrated with Microsoft for its lack of transparency surrounding the fallout over a channel partner agreement between the companies.

The new CEO, who took over at EOH on 1 September 2018, was answering questions on the imploded deal at the group's interim results presentation in Johannesburg yesterday, voicing his frustration with having to deal with the reputational damage the deal cancellation caused.

"Clearly, the big issue is the reputational issue and this is where you have seen that I've been a little bit annoyed with Microsoft because I felt their unilateral decision was a little bit inappropriate because it didn't help me as a new boss actually getting to the bottom of what had happened. I had to rely on third-parties to do that," he said.

EOH has been struggling with bad press since software giant Microsoft in February terminated its channel partner agreement with the IT services company, after an anonymous whistle-blower reportedly filed a complaint with the United States Securities and Exchange Commission (SEC) about alleged malfeasance to do with a R120 million contract with the SA Department of Defence.

EOH previously said the termination would potentially result in a profit impact of approximately R10 million in the current financial year, as EOH Mthombo would no longer be a direct reseller of Microsoft licences.

"I just personally think that actually working together with new management [would have been better]. You know if it was old management I could maybe understand their thinking process, but you have a brand new team and why wouldn't you work with them to get all the information and get the best result? I don't know. That's their decision," he told ITWeb in an interview after the presentation.

"I find it difficult when people are trying to paint a whole business with one brush; these things we are going through are quite complex. You can't be corrupt on your own. It takes more people to get together to collude."

Van Coller did, however, say there is still room for EOH and Microsoft to possibly get back into business down the line.

You can't be corrupt on your own. It takes more people to get together to collude.

EOH group CEO Stephen van Coller

"They said they don't want to chat to us now because they need to go through their own processes. And clearly, they need to demonstrate to the SEC that they are doing all the right things. But basically, they said they will only be able to review our partnership once they've done their own investigation and they said it will take between six and 12 months."

Van Coller said he has spent time with all of the group's other channel partners and they remain committed to the company.

"From a financial perspective, theoretically we could operate without any channel partners, just adding services on top. We have not built our business around reselling, which I suppose is the uniqueness. We are not a box-dropper, we are not an infrastructure player and we are not really a reseller. We have really been an application service provider selling services on top. So from a financial perspective, even if all [the channel partners] terminated, we could still continue."

However, he said the reputational damage from the Microsoft cancellation has been a hard pill to swallow.

"I think for me the biggest thing was, and if I take my emotional reaction to it, it was just the reputational issue of being involved in something like that. I mean, you suddenly start understanding what a McKinsey, a KPMG, or a Bain go through when this happens. And suddenly we had to face up to this. A lot of [the previous allegations] were before I got here, but there were lots of media articles which were all investigated and there was no truth to it, some retractions even.

"And when this came out, if it had just been the Microsoft letter I actually don't know what I would have done. But the whistle-blower came out, we got some detail. We went and looked specifically, we found the issues, and then you can start back-solving because you see the people involved, the companies involved and look into whether they were involved in any other thing in your business. And that's what's allowed me to ring-fence it properly and move forward," he explained.

The JSE-listed company's share price has taken a serious knock, with the stock last month falling to below R10 for the first time in nine years. However, the stock rallied 55% higher yesterday as Van Coller talked up the group's turnaround, and was up another 15.8% this morning, trading at R23.36 per share at around 11am.

Future transparency

EOH has also proactively initiated an internal investigation, supported by ENSafrica, into EOH Mthombo's channel partner business unit and the investigation is expected to be concluded by 31 May and thereafter the findings will be made public.

"In terms of dealing with the implicated staff, we will continue to do that because we have, we are and we will continue to have zero tolerance for people who cross the boundaries," Van Coller said during his presentation.

"I've given ENS a fairly unfettered mandate to review and have a look at any of the whistle-blowing things that we come across, whether it's via the EXPOSEit app or whether it's just through e-mail. We now have a board sub-committee which is dealing with this directly and we meet weekly to discuss anything that comes out of the ENS reviews and we make decisions around it. So, you can be assured that both the management and the board are totally focused on this going forward."

He said the group was prepared to take the correct disciplinary action for any issues that come to light.

"What I'm very careful about is that I don't want to pronounce people guilty before they have gone through a proper constitutional process, but we have two criminal cases out at the moment because that is what we felt was appropriate. We have already issued one section 34 report, which is suspicion of fraud above R100 000, and we will continue with that process and will continue to be transparent," he added.

He told ITWeb the internal investigation has produced quite a few leads which the company is dealing with.

"When you do whistle-blowing and you start doing your own keyword searches you find other stuff and some of it is just the normal day-to-day people stealing money on their credit cards and things like that. So anyone that I've found stealing from us, whether it was stealing stuff out of the canteen, or stealing stuff out of our warehouses, we are prosecuting them for sure," he said.

"Where people have broken company policy, things like taking out tenders and sharing it with competitors and then being the partner for the competitor, we are firing them. So there's a whole range of things that are going on. But in the specific Microsoft case, it is a far more complex issue so that means you've got to go through an investigation, then if you think there's been fraud, you have to report it to the police and the Special Investigations Unit, and then they do their investigation."

When asked how he plans to change the perception people may have of the company, he said that first "you need to obviously deal with the past, call it bad bank, and you need to create good bank, and good bank you can only create by creating new governance gates, which we are creating".

"I've spent a lot of time with customers and a lot of time with partners, and so has ENS, telling them what we are doing, discussing with them what they think we should be doing. Because at the end of the day, I must do what the customers want me to do.

"And to be quite frank, it is not rocket science, it's about putting in the proper processes. We didn't have an internal audit, we didn't have a fully-fledged compliance department, these are the second and third lines of defence one has. We were just a product front-end business that got very big, and so there was some control failings and I just need to close those gaps. So right now, I'm feeling confident we have got the right processes and policies and people in place so that if more stuff gets thrown at me, I know where to channel it," he concluded.

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