SUNDAY TIMES - Transformation not pacification
Sunday Times Opinion By Andile Khumalo , 2017-03-19 00:00:00.0

Transformation not pacification

This week's parliamentary hearings on financial-sector transformation seem to have led to agreement that the sector is transforming, but more must be done.

With due respect to the honourable members of the standing committee on finance and the portfolio committee on trade and industry, this is a lame outcome.

The sector leaders' pacifying script goes like this: go there, present our progress, quote big numbers, show what we've done, present it in a way that sounds bigger than it is, then throw in a shot of humility and say, "Yes, we know we can do more, but we are doing the best we can."

A case in point is FirstRand CEO Johan Burger's press release after his presentation in parliament. It reads like a progress report that should convince you to stop pointing fingers at the sector for slow transformation, sprinkled with a few concessions.

"Hopefully, we have demonstrated to the committees that FirstRand takes transformation and inclusiveness extremely seriously, and that we continue to make good progress. We acknowledge that there is still much more to do, but hopefully the information contained in our submission and presentation will address any concerns that we are not fully committed to creating an equal and sustainable society," said Burger.

Then he threw in the billions: R23.5-billion is the value that accrued to black shareholders from their 10-year BBBEE transaction; R53-billion is the value of funding extended by RMB to what it calls "transformational infrastructure in support of government's National Development Plan" and R36-billion was disbursed towards funding of BEE transactions; and (my favourite) R10-billion spent with black-owned businesses in the four years 2012-2016.

But have you ever asked what these billions look like against a yardstick or some form of benchmark? If R23.5-billion accrued to black shareholders in the 10 years they were invested in FirstRand, what is the total that accrued to all shareholders? What is the change in market capitalisation in that period?

What exactly is transformational infrastructure that attracted R53-billion? What is transformational about it? How does transformational infrastructure measure in the context of the overall size of its balance sheet? How does R53-billion compare with total projects funded by RMB? And the R10-billion spent with black-owned businesses over four years? What was the total procurement budget of FirstRand group in that period, and how does this compare as a percentage of overall spend? If we don't do this, how can we determine that the sector has "done its best"?

Burger did raise two key points that should lead to government and black business asking themselves tough questions about their roles in slowing down transformation.

"When applying the FSC [Financial Sector Charter] guidelines, FirstRand's black ownership amounts to 36.5% of the group, which represented a real commitment to transformation," said Burger. While FirstRand didn't fail to share its progress in employment equity overall, it made an important concession that "transformation at top and senior management was still too slow and more work was needed".

I had a robust discussion with Khaya Gobodo, co-strategy leader: Africa public markets, at Investec Asset Management on this topic. His view is that South Africans should stop acting as if they need permission to drive change in our country and financial sector.

"All listed companies in South Africa are by definition public companies. Very few of them have a significant shareholder of reference or majority shareholder. So, for all practical purposes, control of these businesses fundamentally rests on the board of directors and, by extension, management.

"We are tiptoeing around the issue as though we need permission to compel our organisations to transform, as if we need to ask them for permission to change in way that they reflect the aspirations of the society in which they operate. These are public institutions and therefore they have a moral obligation to change. We don't need to be asking for permission but rather for engagement and co-operation.

"The sooner we get over this notion that we are asking for a special favour from public institutions to reflect the demographics of the country, the sooner we make progress."

But how do we enforce this transformation without their permission?

Gobodo says it's our fault. "If you look at the Financial Sector Charter, with its number of pillars for broad-based black empowerment, whether it's ownership, management control and the like, the majority of the large public financial sector institutions are coming in at level 2, which means that, on the basis upon which transformation was articulated and agreed upon, these companies are doing very well.

"The real issue is not their commitment to transformation; it is whether transformation is well articulated and truly reflects the aspirations of our people.

"Given the large sums of public assets that these businesses control, that are important to driving economic activity, the transformation that we really need to drive is the control of the actual levers of how that capital is allocated. It is the senior principals who are responsible for deploying that capital - and not enough transformation is taking place at that level - and again the charters are our most effective tool to use here. We just need to set the bar high enough to achieve our ultimate goals."

I agree with Gobodo. The problem starts with the Financial Sector Charter, and what it says is a good measure of transformation. How else do you call a bank that is level 2 untransformed? The bar is set way too low. Ownership will always be important, but I argue that the most powerful lever for meaningful transformation is changing the face of decision-makers.

FirstRand is 36.5% black-owned. Its management team consists of Johan Burger, white male; Alan Pullinger, white male; Jacques Celliers, white male; James Formby, white male, Chris de Kock, white male; Boshoff Grobler, white male, Andries du Toit, white male; Harry Kellan, Indian male; Sifiso Mthembu, black male.

I rest my case.

Khumalo is chief investment officer of MSG Afrika and presents "Power Business" on Power 98.7 at 5pm, Monday to Thursday