First National Bank has emerged as the new face of cool business in South Africa. It’s an extraordinary feat, given that the industry is mostly defined by its conservatism. SIPHO HLONGWANE speaks to CEO Michael Jordaan about the bank’s gospel of innovation and other strategies for success.
South Africa’s banking industry sat on the sidelines of the worst of the 2008 financial meltdown. They were spared the fates of their American and European counterparts, and if you ask why, the answer varies. The government spin is that our strict banking regulations saved the banks from harming themselves by imposing strict exchange controls.
But that’s not true, FNB chief executive officer Michael Jordaan says. “A popular conception, and it is a lie propagated by the banks themselves, is that exchange controls saved us,” he says. “And this was a lie we were happy to go with because it was something the man in the street could understand.
“So all these foreign banks were investing in subprime mortgage funds through the exchange controls and South African banks didn’t. It’s a lie because if you wanted to, you could. There are mechanisms to get to CDOs [collateralised debt obligation]. So why didn’t we? And this goes for the whole industry and not just FNB by the way.
“First of all, we are very well regulated. It’s not always nice to be ruled by an iron fist, but we are. The second reason is South African bank management is excellent. That’s why in the World Economic Forum I said we are the sixth-best in the world. The third one is that you’ll find that the banks that took the most risks are those in economies that didn’t grow,” Jordaan says.
For banks to maintain the profit margins demanded by shareholders in those countries with poor economic growth, they began taking on more risk than they should have, Jordaan explains.
The result of all this is it has put South Africa’s banks in the enviable position of holding more capital than their European and American counterparts . Jordaan is confident South African banks will have a higher capital ratio in 2019 than their Western counterparts – even higher than the requirements of Basel III, the global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Standards
The 43-year-old CEO has spent pretty much all his life in the banking industry, starting off at Deutsche Bank and then moving around in different leadership positions within the First Rand group before being appointed to the top of FNB in 2004. Since then, the organisation’s name has cropped up several times as the best bank in the South African and African industry.
Jordaan says the key to that success has been attracting the right type of people to the organisation. He cites their innovation reward scheme, where employees receive a prize of R1 million if they successfully come up with and implement an innovative idea, as an example of the incentives FNB uses to attract the right kind of people to the organisation.
“As CEO, I actually have very little to do,” he says. “It’s completely over-estimated what I do. I create an environment where people can come up with these ideas and do well. We’re blessed with people who can do that. The thing about being good with tech is that we can’t be a staid old bank. Very few people want to work for those. They like cool, hi-tech kind of companies to work for and so all I can do is create the environment and trust in the people to innovate.”
FNB is also somewhat of a telecommunications company these days through FNB Connect. This Internet service company which operates within the First Rand cluster, was an internal employee innovation which FNB implemented and now offers to customers as part of its incentive package.
The FNB CEO describes FNB Connect as an example of “wanting to do cool things for our customers”. The bank was also careful not to position FNB Connect as a competitor to other telecommunications companies.
“How FNB Connect came about is that there was an opportunity in the market for us to apply for a licence,” Jordaan says. “You’ll remember the court case between Altech and the regulator. It really opened the opportunity for us to get a licence about the interpretation of the regulations. We can now negotiate with other ‘telcos’ as a peer, not as a customer. Then the techies said we had a whole network and we should give that to our customers.
“The usage package for us is our customers use it exactly when we don’t use it. It’s a nice value-add for our customers. If you want to know a vision – in a few years time, there must be no rational reason not to bank with us,” he says.
A lot of FNB’s innovation that gets publicity is aimed at its top-end customers (with South Africa’s poor Internet penetration, it is the higher-ups in the ladder who are online). Jordaan says they haven’t abandoned the lower end of the pyramid, and are specifically competing with Capitec for lower-end customers.
“Capitec is a respected competitor. It’s come into the market and innovated. When it first came in, we didn’t take it seriously enough and that was a mistake. Now we’re taking it very seriously and we are rolling out branches faster than it is. We think that our EasyPlan branches are better because they offer more. We’re also price-competitive with Capitec.”
FNB’s African growth is based on three prongs: that of green-field ventures, accelerated green-field ventures and acquisitions. The thrust that would be used in the particular country depends on how easy it is to obtain a banking licence there, among other things. In countries like Botswana and Namibia (where FNB is the biggest company, employer and taxpayer), the company grows from the ground up, just like a start-up would.
This strategy is FNB’s favourite, Jordaan says, as it means the bank can implement its systems and breathe its culture into the organisation right away. When that doesn’t work, they acquire a small bank within the company and then put it on an aggressive growth trajectory (the accelerated green-field venture), as they have done in Mozambique. In countries like Nigeria and Ghana, where there is either privatisation of banks or a narrowing of the banking industry, the company would probably opt for an outright acquisition.
Jordaan is something of a big deal on Twitter, which he says is purely for fun. “What I really like about Twitter is that it’s short – and sometimes there is time for short bursts of conversation. Having started to do it, I can really see the benefit,” he says. He is not the company’s public face, however. That is “RB Jacobs”, a fake persona based on an old FNB ad joke.
Executive salary has been in the news of late, with South Africa’s trade unions throwing a huge fit when it was reported that executives enjoyed a 23,3% pay hike last year. Jordaan says although South African companies are among some of the most socially responsible in the world, he is not opposed to a wealth tax. And a lot of rich business people are actively involved in social responsibility projects.
“Some people choose to do these things and not make a big deal about it,” he says. “Personally I’d like to be in that category. I feel a deep social responsibility for this country. I want my kids to grow up here and I want this to be a successful country. You don’t only do that by working and drawing a salary, although that’s a very important part of it, but also by running a sustainable business and ploughing back into the country. It doesn’t necessarily all have to be in the public eye.”
A salary cap for executives would have mixed results, Jordaan says. “You’d have a lot of skill leaving the corporate sector and doing something else. Some of them elsewhere in the world, but some would become entrepreneurs. You’d just have skill being applied elsewhere. You’d probably have corporations which aren’t being run as well, and you’d probably have some entrepreneurs that do very well. In the end I think you have to pay for skill.
In big businesses that employ thousands of people mistakes are very costly. “If you make a mistake, it’s billions of rands in consequences and other people lose their jobs,” the FNB CEO says. “The real debate there is whether you are delivering value to you stakeholders, not just shareholders. It is actually about inequality and is a separate debate to how you reward people for value that they put into a company.” DM
"Have no fear of perfection - you'll never reach it." ~ Salvador Dalí