How does Absa keep getting transformation so wrong?

ABSA’s sip of Irish coffee…

Twenty years ago in Parliament, the world of old and the demands of the future converged in conflict as the country debated the Mineral and Petroleum Resources Bill. The minerals sector – representing the country’s primary historical economic backbone, found itself deliberating on the question of what its future needed to look like in light of the need to facilitate substantive transformation. The relevance of the sector and its importance was reflected in its economic dominance. A study conducted by George Coakley on the industry in 2002, revealed that South Africa produced 56 different mineral commodities from 778 quarries and mines. These included 57 coal, 33 gold and 17 platinum-group-minerals operations collectively employing around 500 000 people. Getting the industry to transform was crucial to the sector and the economy at large.

The dimensions of transformation have been contested since time immemorial. At the heart of the contestation is what elements need to be prioritised in order to achieve substantive transformation. The elevation of individual BEE players into multimillionaire and billionaire status did much to achieve optical transformation.  Such concentrated ownership stakes, managed to elevate a few black business players into industrialist status but did not result in the type of transformation South Africa needed. The alternative models, which saw wider groups of stakeholders participating in broad-based ownership deals, had the fundamental limitation of lacking in permanence. Black shareholders and groups who participated in such deals, found themselves unable to access the full economic benefits associated with their ownership stakes as the initial dividends paid off the loans that funded the deals.

At the end of the lock-in periods, the disposals of such stakes were motivated by the need to directly access the economic windfalls of ownership; and also to utilise the wealth to diversify investments. As a result, the ownership stakes of this nature did not result in the type of continuous transformation that the country needed. Inevitably for the mining sector, the age of reckoning arrived less than 20 years later when the unwinding of old transformation deals, suddenly left the companies looking less transformed at a time when the expectation was that transformation would have improved. The inevitable reality of transformation programmes focusing on ownership, is that market dynamics always posed the risk that the best-laid plans of all stakeholders, would suffer such setbacks.

The one aspect of transformation that was always more resilient against these market dynamics, is workplace transformation. In 2002, the representation of black executives in JSE listed companies was poor. The representation of black employees at middle and senior management level was poor. When the Minerals Bill was being debated in 2002, Gwede Mantashe – the Secretary-General of the National Union of Mineworkers, cautioned the mining industry against its gravitation towards the Irish coffee syndrome. Such a phenomenon exists when companies have a wide pool of white managers, and a sprinkling of black managers with no tangible plan of transforming their workforce.

Given the traditional pathway of progression within corporate organisation, it was quite clear that organisations that wanted to ensure that they achieved substantive workplace transformation, needed to invest in it and stick to it. Grooming leaders from within, is specifically important in South Africa where the trends are for elevation from within rather than external recruitment. For the banking sector, which has – over the past 20 years – overtaken the mining sector as the primary driver of economic activity, such practices are endemic. From the big banks – Standard Bank, FirstRand, Nedbank, Investec, Capitec – all their current CEOs have been groomed from within. In the rare instances where such banks have sought external talent and made a success of it, the model has been to onboard the desired executive into the leadership structures before the elevation into the CEO role. That model was successfully executed by FirstRand Bank when Sizwe Nxasana moved into the bank from Telkom. The reality of the sector is simply that elevation from within is the preferred option. Executing on this obviously requires a coordinated programme of identifying leaders from within and supporting them adequately on the journey towards executive roles.

All of this makes the case of ABSA such an acute anomaly and grave disappointment for South Africa. The ABSA group has somehow managed to distinguish itself as an outlier in its executive recruitment practices. Given its genesis as an amalgamation of banks that had what was a workforce and a culture dominated by white, Afrikaans-speaking managers, the challenges for cultural and organisational transformation have been clear for ABSA since its founding. The evolution of its competitors into organisations that have tackled the transformation challenge albeit with variable results, should have only elevated the urgency of the challenge. The evidence in front of us though, indicates that this challenge has proved elusive for successive boards of ABSA. Back in 2009, they found themselves having to hunt externally for a new CEO when Steve Booysen left as CEO. That external appointment was a departure from the practice of its peers and reflected that ABSA had yet to muster the twin business imperatives of succession planning and transformation. The choice of an outsider – Maria Ramos, was the evident illustration of this. Remarkably, a decade later when its next CEO reshuffle happened, ABSA still had not found a formula for executing on succession planning, transformation and social leadership. As an organisation whose business transcends all aspects of society, ABSA has an expectation to be responsive to the challenges and objectives of society at large – including transformation.

When the bank appointed Daniel Mminele as CEO – after a year of leadership limbo – it engaged in the risky practice of hoping that it could reap the dividend of transformation without investing in it. By appointing a black leader to run its affairs, ABSA would theoretically profess to be in support of transformation. But that on its own highlighted the bigger problem of ABSA’s continuous failure to invest in transformation in a manner that generates organic outcomes. That does not mean no outsider should ever be considered to lead a banking institution. Rather, even in cases where this is the case, no bank can expect to get away with a failure to invest and plan properly. This week, ABSA announced the appointment of Arrie Rautenbach as the CEO of the group. This comes almost a year after the acrimonious exit of Mminele. Since then, rather than taking time to reflect on how its keeps getting the leadership question wrong, ABSA has found itself in yet another leadership crisis – this time at the non-executive level. This has resulted in ongoing litigation involving the Bank, the regulator and its former lead independent director, Sipho Pityana. As ABSIP, it would me misleading for us to pretend we did not anticipate the appointment of Mr Rautenbach.

In the aftermath of the exit of Daniel Mminele, we engaged with the board of ABSA with a view to understand what had gone wrong in the relationship with Mminele; and more importantly, what the plan was relating to succession planning and transformation – especially at executive level. Regrettably, there was nothing back then that suggested ABSA would get this process right in the short term. Rather, the picture of ABSA as we saw last year, was an organisation whose historic gamble – that it could hurdle itself to transformation rather than investing in it – was coming back to haunt it. The genesis of the crisis has been more than a decade in the making. Black executive leaders that have existed within the bank, have somehow found it easier to exit rather than stay the course. How that has become such an endemic feature of the ABSA executive story, is precisely the type of outcome an organisation that fails to plan can expect to see.

This appointment is the most acute reflection of the Irish coffee effects. When ABSA eventually had to find a leader from within, it found itself unable to balance the business question and the transformation question. The reality of the past week is not as worrying as the fact that in its current form, ABSA has no plan for this dilemma it faces. And until it does, its ability to live up to the transformation commitments it professes to believe in, will remain as hollow as the vacuum it occasionally finds in its CEO office.

Polo Leteka Radebe

ABSIP President

as published in the Sunday Times on 3 April 2022. Click here to access the article