Not my cup of tea
Legend has it that back in 1998, when ex-Arthur Andersen partner Johan Roets was approached to start an IT company, he responded with a silent sip of his tea and some scepticism. Now, just over four and a half years later, news that the charismatic CEO of the IQ Business Group has resigned has prompted speculation among industry watchers that he might have been forced to swallow a more unpalatable brew.The IQ story is remarkable. With Roets at the helm and a healthy dose of seed capital, the company grew rapidly, from a start-up team of 19 to a 700-strong global business, achieving annual revenues around the R300 million mark.Then came the dot com crash, followed with morbid rapidity by September 11 and the Enron affair. The global economy slipped close to recession and IT was no longer the darling of the markets. Local IT stocks plummeted, once highly touted organisations faltered and sank and trading updates (read profit warnings) became the order of the day.Tough times indeed, yet, to an outsider, the IQ Business Group looks well positioned to ride out the storm. The company has powerful backers. Nedcor holds 23.5 percent, Hosken Consolidated Investments 16.3 percent and Investec Private Equity 15 percent. It has managed to resist the temptation of going public, avoiding the whims of the stock market, appears to have a talented and stable management team and boasts an impressive array of blue chip clients and partners.True, there have been hiccups along the way; most publicly the collapse of the proposed acquisition of the now defunct Spicer and the implosion of Fedsure – a major blow for IQ`s revenue hopes, both at the time and going forward.But Chris Sinclair, CEO of IQ`s South African operations and acting CEO of the group following Roets`s resignation, says the company has been successful in replacing this revenue and turnover has, in fact, remained constant over the past three years – not too bad in an ailing market. Why did he go?Why then the departure of the highly visible Roets, a man who has more than proved his worth in the high pressure world of high stakes deal making? The answer that springs most readily to mind is simple – a clash between the adventurism of the born entrepreneur and the conservatism of shareholders. The quest for profits as opposed to unfettered growth.Sinclair puts it down to the maturation of the business after the first couple of years of building it up.“What Johan is brilliant at is start-up and new deal generation. However, in the past year we have begun to interact more closely with our board in terms of matters such as remuneration and auditing. We basically had to deal with a board that was going through the painful process of forging a relationship with management.“This maturation of a company naturally leads to changes in the role of the CEO. For instance, one minute you can be out there doing the new deals and generating new business, and the next you are in a very formal audit with the board or discussing governance issues and the like.”There can be little doubt that this type of close interaction with shareholders and constant accounting to a board could be constrictive to a man of the entrepreneurial calibre of Roets.He agrees: “Talking to shareholders is not always easy. The fact that you are in the trenches gives you a certain perspective and when you have to sit with the board every three months and dissect the business, things can get difficult.” Differing strategiesRole definition aside, it is clear that differences between Roets and his board over the future strategies of the group arose over the past year.“We have been in discussions with our shareholders from around March this year about the next stage in IQ`s development,” says Roets. “The original plan was to raise R20 million for the start-up and, after three years, go public to raise around R100 million to take the brand international.“Then the markets changed and the prospects of an IPO became unattractive and we were fortunate to raise the capital to enter the business process arena and for internationalisation. The relationship with Nedcor has been very good for us in this regard and we found a lot of kindred spirits there.”Roets believes IQ is now at the crossroads. The Nedcor transaction was concluded in 2000 and, as for most others, 2001 was a tough year for the group.“Our focus changed to operational areas – appropriate behaviour in this economic climate. In our discussions with the board, it became clear that shareholders wanted us to focus on our existing operations, particularly in healthcare, supply chain and financial services.“My strong point has always been getting out there and getting the big deals that take the company to the next level – the Nedcors and the Fedsures. If we are to consolidate around the business we have, that`s a painstaking job, and I`m not a painstaking person – even if I`m an accountant.”Roets, clearly not happy at this prospect, pointed out to senior Nedcor management that his continued role as CEO might prove to be an obstruction.“I moved to the UK some 18 months ago with the goal of chasing the larger outsourcing deals in the UK, the US and, eventually, the continent. The move was not easy for me and I decided if the focus of the business was to be on banking and healthcare then I was not the person to drive it.”Adds Sinclair: “I think what we are looking at here is the realisation that we don`t have to double or triple our growth every year. Also, if you look at the group as a whole, we were involved in anything between 20 or 30 ventures at a time and we are looking to cut that down to the four or five verticals that we know work.“The idea is to hone the business and avoid the projects with less potential and greater risk.”Roets is quick to point out that relationships between himself and the shareholders remain good.“The shareholders have been very supportive of me, especially senior Nedcor management and our own chairman, Willie Scholtz. They are, however, set on a three year period of consolidation, while my belief is that we should have raised another tranche and hit the international markets.” The impactStrategic differences and role definition seem feasible reasons for Roets`s decision to call it a day, particularly if you have met the man – he is no penpusher. What, then, is the impact of losing a person who had become the face of the business, both externally and internally?Sinclair adopts a humorous turn of phrase in answering this. If, he says, you place IQ in a Robin Hood-type scenario, Roets is the man in the green tights with a strong following of Merry Men. On a more serious note, he points out that Roets has in fact been removed from the day-to-day operational side of the group`s business since he departed for the UK.Sinclair has had carte blanche to manage the South African arm of IQ and the same generally holds true for the executives in Australia and the US. This, he says, has had the effect of cushioning the blow from an internal point of view.Roets agrees: “My move to London last year saw a complete handover of the South African business to Chris and the team. The staff has become used to me being away and have, in effect, been weaned off me.”The real downside to Roets`s departure, according to Sinclair, is the loss of his deal making capabilities. “Not many people have his ability to swing the big deals, particularly from a relatively small base. I don`t, however, think we`ll be looking to replace him in terms of a ‘deal maker extraordinaire`. The focus will be on developing the flavour of the IQ business and brand.“However, as things progress and if the board identifies a strong need for a deal maker, we would obviously look at bringing someone on board.”Adds Roets: “If you look at it from a client`s perspective, I made it my business to deal with around ten major clients at a macro strategic level. As CEO this was my job. The rest of the clients are handled down the line at both an execution and relationship level.“As far as competitors are concerned, the perception has existed out there that IQ is a one-horse shop. I`m sure they will be predatory in looking to attract both our clients and our people; however, I believe IQ has the innate strength to weather that storm – many people have found a spiritual home at the company.” The successionThis said, the ultimate succession at IQ has yet to be confirmed. While Sinclair`s tenure as CEO of the South African business will add weight to his case, there are others within the group who are probably equally well qualified to lead it down the shareholders` chosen path. Les Horn, head of financial services, is also a leading contender. Founder member Patrick Crooks has by all accounts acquitted himself well Down Under, and co-founder Ricardo Rosa could well throw his cap into the ring.Roets has hinted that the board might be considering following the Jack Welch approach. But the safe bet is that Sinclair will be given some time at least to prove himself.Perhaps the final word here is best left with Sinclair. “We have a lot of strong characters on board, although perhaps none as charismatic as Johan. Filling that gap is going to be the challenge going forward.” What now?As for Roets, what will he be taking on now that he has relinquished parenting what he fondly calls “his baby”?“First I`m going to take a rest and consider my options. I`m certainly going to capture my thoughts on how IQ developed as a business – publish a ‘streetwise guide to entrepreneurship` if you will. This will allow me to close the chapter. Then there`s the option of completing an Advanced Management Programme at Harvard next year, something I`ve wanted to do for some time.“On a personal note, my thoughts around IQ are kind of bitter/sweet and I`m already experiencing withdrawal symptoms. This is the first time since the launch that I have been able to look at it in perspective and it`s remarkable how far we exceeded our own expectations.” Whatever he eventually decides to do, be it a new start-up, joining an existing outsourcing team or even entering the corporate fold, don`t expect Roets to lie dormant for long – deal makers in green tights seldom do.
11 December 2002
Legend has it that back in 1998, when ex-Arthur Andersen partner Johan Roets was approached to start an IT company, he responded with a silent sip of his tea and some scepticism. Now, just over four and a half years later, news that the charismatic CEO of the IQ Business Group has resigned has prompted speculation among industry watchers that he might have been forced to swallow a more unpalatable brew.
Then came the dot com crash, followed with morbid rapidity by September 11 and the Enron affair. The global economy slipped close to recession and IT was no longer the darling of the markets. Local IT stocks plummeted, once highly touted organisations faltered and sank and trading updates (read profit warnings) became the order of the day.
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