CFO Magazine South Africa - 4th issue - 2016 by CFO South Africa

MAG AZINE FOR FINANCE PROFESSIONALS IN SOUTH AFRICA 4 • 2016 CFO.CO.ZA

Finance Indaba Africa Full coverage of SA’s premier finance feast Nopasika Lila CFO EPPF Mastering the boardroom Wayne Beifus CFO BAT South Africa Lessons from a journeyman Barrie van der Merwe CFO Lonmin Finance beyond the scars

Frappuccinos for Mzansi Taste Holdings CFO Evan Tsatsarolakis

From volume to value Kumba’s Nadia Schoeman on integrated excellence

MUSICAL CHAIRS! Seven views on mandatory audit firm rotation

FD COCA-COLA BEVERAGES SA

Walter Leonhardt Finance transformation secrets revealed

Customers are hiding in your data. Do you have the insight to uncover them?

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TABLE OF CONTENTS Audit firm rotation

Walter Leonhardt

Introduction of mandatory audit firm rotation will “dilute the oversight role of audit committees and of shareholder rights”, says Christine Ramon, CFO of AngloGold Ashanti and chairperson of the CFO Forum. Others say rotation will stimulate independence and transformation. In this magazine, we feature a series of seven articles with CFOs and industry leaders arguing for and against the proposal.

The recipe of successful finance transformation is often as mysterious as the formula for Coca-Cola. In this interview with CFO Magazine, finance director Walter Leonhardt steers clear of the age-old Coke recipe, but exclusively reveals his secret ingredients of a successful finance turnaround at Coca-Cola bottler ABI. Keywords: continuous improvement. “If you want a perfect situation before you start moving, you will never move on anything.”

36 Integrated reporting

20 CFO South Africa is the organisation for finance executives in South Africa. Our goal is to connect finance professionals online and off in order to share knowledge, exchange interests and open up business opportunities. CFO South Africa CFO Enterprises PTY ltd 33 Impala Road | Chislehurston | 2196 Johannesburg | South Africa +27 (0)11 083 7515 CFO.co.za

Brutal honesty, a revamped business model and a thorough integrated reporting process, led by a senior member of the finance team. Those have been critical success factors for the integrated report of Kumba Iron Ore. In an exclusive guest article, reporting head Nadia Schoeman explains how Kumba’s report went from good to great.

MANAGING DIRECTOR Graham Fehrsen gfehrsen@cfo.co.za +27 (0)79 898 0227 OPERATIONS MANAGER Sarah Chalmers schalmers@cfo.co.za +27 (0)82 570 9482 MARKETING MANAGER Judith Kamffer jkamffer@cfo.co.za +27 (0)82 859 1245 EDITOR IN CHIEF Joël Roerig

jroerig@cfo.co.za +27 (0)76 371 2856 SENIOR EDITORS Toni Muir tmuir@cfo.co.za +27 (0)82 908 8687 Ebrahim Moolla emoolla@cfo.co.za +27 (0)79 506 4840 DESIGN Cor Lesterhuis PHOTOGRAPHY Patrick Furter, Mpho

40 Mokgadi, Dirk Pieters, Jorina Botha, Liezel Badenhorst, Lizelle Furter (editor), Marelize Pieters (editor) OTHER CONTRIBUTORS Anouk Bommer, Georgi Guedes, Kate Ferreira, Nadia Schoeman, Nathan Desfontaines, Nopasika Lila, Tiisetso Tlelima PRINTING Novus Holdings coenraad.pretorius@novus. holdings +27 (0)11 201 3460

© 2016 CFO Enterprises PTY ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law.

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TABLE OF CONTENTS

Mandatory audit firm rotation 21 Christine Ramon, CFO AngloGold Ashanti: CFO Forum rejects mandatory rotation 24 Bernard Agulhas, IRBA: longer joint-audits 26 Michael Oddy, KPMG: sales culture 28 René Hooft Graafland: firms benefit 30 Mark Kathan, CFO AECI: commoditisation 31 Mitesh Patel, Nkonki: level playing field 32 Fayez Choudhury, IFAC: solution without problem

Compliance 33 Finance Indaba: Mervyn King

Leadership 46 Finance Indaba: public sector CFOs talk politics 48 Finance Indaba: careers on the couch 50 Interview Wayne Beifus, CFO BAT SA: lessons from a journeyman 54 Nopasika Lila, CFO EPPF: mastering the boardroom

Risk 56 Report November CFO event: policeman and enabler 58 Interview Barrie van der Merwe, CFO Lonmin: learning and leading

Technology 65 Nathan Desfontaines, KPMG: cyberthreats vs. the CFO 66 Report September CFO event: disrupt or be disrupted 68 Finance Indaba: Martijn Aslander and Graeme Codrington 70 Finance Indaba: African FinTech Awards #afta16 72 Report September public sector CFO event: Craig Wing

Growth 73 Interview Evan Tsatsarolakis: introducing Starbucks to SA 76 Finance Indaba: McDonald’s and Easy Equities 79 Finance Indaba: CFOs should drive change 81 Finance Indaba: Standard Bank on Africa

And further

6 From the Editor in Chief: leading and learning 8 CFO Awards 2017: tough task for judges 10 On the move: new CFO appointments 14 From the MD: succeeding in 2017 16 Report Finance Indaba Africa 2016 83 Calendar CFO South Africa events 2017

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FROM THE EDITOR IN CHIEF

Leading and learning

n one of the most surprising articles in this issue of CFO Magazine, Heineken’s former global CFO René Hooft Graafland explains that he was initially “strongly against” mandatory rotation of audit firms, but that he has changed his mind “in hindsight”. His about-turn and his reasons provide important third party insight into a South African debate that is becoming more and more polarised by the day. From page 20 onwards, we explore the sense and the nonsense of the mandatory audit firm rotation, as proposed by the Independent Regulatory Board for Auditors (IRBA). With top CFOs and Big 4 firms strongly against it, will the contentious issue end up in court? René’s change of opinion also shows off the stuff that real CFOs are made of: leading and learning. It is the combination of those two characteristics that Barrie van der Merwe knows he needs plenty of as he has started his job as finance executive at the ‘scarred’ platinum miner Lonmin. “I don’t measure my success by rank or money or the size of the company, but I believe it’s all about impacting people’s lives for the better,” says Barrie in an intriguing interview that starts on page 58 and also deals with guitars, triplets and vintage vehicles. All great CFOs are converting learning and leading into practical steps on a daily basis. This goes for journeyman CFO Wayne Beifus (BAT South Africa), who went back to his roots and joined BAT in South Africa after a career spanning from the South Pacific to Eastern Europe – lugging a bag full of lessons back with him (page 50). And it goes for Nopasika Lila, the CFO of the Eskom Pension and Provident Fund (EPPF), whose people-centered, engaging leadership style inspires many (page 54).

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The CFO on the cover of this magazine, award-winning finance director Walter Leonhardt, is probably the very best example of all. Together with his team at SAB Millerowned Coca-Cola bottler ABI, he travelled to many countries to learn, get inspired and sometimes to simply copy best practices. His communicative, inclusive style centers around clarity for all stakeholders (page 40), but that doesn’t mean Walter is a softie: a few years ago it was he who broke the news that people had to be fired – even though ABI has always promised its people that would never happen. Sessions from the Finance Indaba Africa 2016, THE annual finance gathering for leading and learning, feature prominently and proudly in this issue, with topics ranging from Standard Bank’s insight in the rest of Africa (page 81) and KPMG’s big picture presentation on cybersecurity (page 65) to futurists Martijn Aslander and Graeme Codrington confronting us all with the reality of tomorrow (page 68). One of the highlights of the event were the Careers on the Couch CFO sessions – you can find a must-read summary on page 48. Prof Mervyn King’s take on the role of the modern CFO also features prominently (page 33). Leading and learning once again take centerstage in 2017, as CFO South Africa “will look to break all boundaries” next year, as our MD Graham Fehrsen writes on page 14. According to Standard Bank’s CIB CFO Luvuyo Masinda’s glowing review (page 57), our CFO events “sharpen the minds”, provide “a different perspective” and always offer “great ideas”. I trust that this magazine will do the same and more. l Joël Roerig jroerig@cfo.co.za +27 76 3712856

Visit the CFO Awards Summer Place Hyde Park on May 11th 2017. Dumisani Dlamini (CFO National Arts Council of SA) receives the 2016 Public Sector CFO of the Year Award from KPMG Partner Edson Magondo

CFO of the Year

Public CFO of the Year

Young CFO of the Year

Strategy Execution

Transformation & Empowerment

High Performance Team

Compliance & Governance

Finance & Technology

Moving into Africa

Finance Transformation

Meet 300 CFOs, share knowledge and boost business On 11th May 2017 the annual CFO Awards will be held at the beautiful Summer Place in Johannesburg. This prestigious event recognises CFOs of listed companies, large corporations, parastatals and government institutions and awards them for outstanding performance and leadership.

CFO South Africa invites you to buy a table at the CFO Awards, attend the CFO Conference, join the panel of judges and become our partner. Seats are limited, so book now to avoid disappointment. For more information visit CFOAwards.co.za or contact Graham Fehrsen at gfehrsen@cfo.co.za.

Visit CFOAwards.co.za

CFO AWARDS Prof Wiseman Nkuhlu joins panel, first nominees for ‘CFO Oscars’ announced

Tough task for judges 2017 CFO Awards In the last week of January, the panel of judges will start its round of two-hour-long interviews with the nominees for the 2017 CFO Awards. Earlier they got together during a relaxed dinner to discuss this year’s process.

onversation flowed and scrumptious food was enjoyed during an inspirational get-together of the panel of judges for the 2017 CFO Awards. One of the highlights of the evening was the judging panel welcoming Prof Wiseman Nkuhlu, Chancellor of the University of Pretoria, in their midst. Wiseman is South Africa’s first black chartered accountant and an incredibly experienced boardroom expert. CFO South Africa’s managing director Graham Fehrsen thanked him for adding even more gravitas and quality to the – already impressive – judging panel. Continuity is one of the crucial success factors behind the judging panel, with heavyweights like Victor Sekese (CEO SizweNtsalubaGobodo), Claudelle von Eck (CEO Institute for Internal Auditors SA), Prof Ben Marx (University of Johannesburg) and Jonathan Lang (Bowman Gilfillan) involved from the very first CFO Awards in 2014.

Members of the panel of judges Victor Sekese (CEO SizweNtsalubaGobodo), Aarti Takoordeen (CFO JSE Limited) and Prof Wiseman Nkuhlu (Chancellor University of Pretoria).

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The intimate dinner took place in one of the exclusive dining facilities of the Saxon Boutique Hotel and the carefully prepared menu was

CFO AWARDS enjoyed by all. As Graham discussed the awards procedure with the panel, there was as much laughter as there was serious conversation – leaving the evening perfectly balanced. An incredible contribution came once again from former winners Deon Viljoen (Alexander Forbes) and Aarti Takoordeen (JSE Limited), who were added to the panel in 2016 – alongside other winners Simon Ridley (retired group FD Standard Bank) and Brett Tromp (Discovery Health).

to the dossier of each CFO and will be used by the judges to determine their individual votes.

The tremendous success of the awards relies heavily on the calibre of judges, the thorough two-hour interviews with each nominee and the “subjective power of the collective”, as Graham described it.

Each CFO has to answer four basic questions in four compulsory categories: Strategy Execution, Transformation & Empowerment, High Performance Team and Compliance & Governance. The nominees also have to answer four questions in one of the following elective categories: Finance Transformation, Moving into Africa and Finance & Technology.

Besides Prof Wiseman Nkuhlu, the panel of judges is also strengthened with the inclusion of former Vodacom and Remgro CFO Leon Crouse, recipient of the Lifetime Achievement Award at the CFO Awards 2016, alongside Simon Ridley. The panel is completed by experienced global operators Carel Smit (partner KPMG), Sneha Shah (Africa MD Thomson Reuters), Christo Els (Partner Webber Wentzel) and David Fine (MD McKinsey South Africa). Indomitable CFO South Africa founders Alex van Groningen and Melle Eijckelhoff had flown out from The Netherlands to join the dinner. CFO South Africa’s long-serving Editor in Chief Joël Roerig, who facilitates the judging panel’s interviews, was also present.

Awards process Between January and April 2017, the judging panel will interview all nominated CFOs to get a clear picture of his or her drive, motivation, vision and results. Each interview will be conducted by two members of the panel of judges and CFO South Africa’s Editor in Chief. The reports of these interviews will be added

The goal of the thorough interview is to get insight in the CFO’s involvement in the overall success of the company and the way he or she has distinguished himself or herself. To help structure the conversation, and to ensure the panel addresses the same issues in each interview, there is a set of interview questions as a guideline.

Your votes please In the second week of April 2017, CFO South Africa will send the shortlist with all the dossiers to the panel of judges. Judges will be asked to score each CFO on a scale from 1 to 10 in the category for which they are eligible. By adding up all the points, we determine the winner for each award category. The votes for the specific categories will be tallied to determine who wins the Public Sector, Young & CFO of the Year Awards. In the case of a tie in one of the award categories, the nominee who received the highest score in the CFO of the Year vote wins the award in that category. If there is still a tie, the nominee who scores highest in most of the four compulsory categories wins. If there is still a tie, the judges will be asked to vote for one of the tied nominees in a second round. l Visit CFOAwards.co.za to join the event, sponsor a table or for more information.

Nominees CFO Awards 2017 When this magazine went to print, 19 CFOs had been confirmed as nominees for the 2017 CFO Awards, out of a maximum of 30 to be announced. Which one of these finance executives will be crowned CFO of the Year 2017? • Arina McDonald Atlas Mara • Charl Keyter Sibanye Gold • Debbie Ransby Takeda Pharmaceuticals • Elton Bosch Clover • Johan Geel AFGRI • Kevin Jacoby City of Cape Town • Mark Godfrey Spar • Lucas Verwey Distell • Mary Vilakazi MMI Holdings • Nichola Dewar PostBank • Nishlan Samujh Investec • Nopasika Lila Eskom Pension and Provident Fund • Paul Marten Microsoft • Pieter de Wit Afrimat • Raisibe Morathi Nedbank • Rajesh Mahabeer SANParks • Ramasela Ganda Ekhurhuleni Metropolitan Municipality • Robert Katz Peregine Holdings Ltd • Wayne Koonin Omnia Holdings

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MOVERS Greg Davis joins Ecobank, Megan Pydigadu moves to Eazi Access Group

On the move High level CFO moves dominated the last few months, with notable appointments at MTN, Decision Inc, Rockwell Diamonds, Katanga Mining, Ster-Kinekor, Standard Chartered and Ecobank.

ne of the most coveted – and scary – CFO jobs recently went to Ralph Mupita, who was announced as the new group CFO at telecoms giant MTN from April 2017. Ralph made a name for himself as Old Mutual Emerging Markets chief. Acting group CFO Gunter Engling will take a step down and become Ralph’s deputy. The vacancy has been around since experienced MTN executive Brett Goschen resigned as MTN CFO in July, amid the furore about the company’s massive fine in Nigeria, where Brett represented MTN for years.

Megan Pydigadu

Megan Pydigadu surprised many when she recently announced her resignation from MiX Telematics, where

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she was twice nominated for the annual CFO Awards. “I have been at MiX Telematics for seven years. I’ve seen it grow from being a JSE-listed company to a NYSE-listed company – it listed on the NYSE just over three years ago. I thought it was time for a new challenge,” Megan said, following the announcement of her decision to leave MiX Telematics to take up the CFO position at Eazi Access Group, a market leader in the rental, sale and servicing of workat-height solutions.“This is a great opportunity to get involved in a business that is also facing a high-growth opportunity and to be able to transform and grow the business,” she added. Megan says she will serve a three-month notice period, leaving her post in mid-February 2017, to start afresh at Eazi Access Group. At the time of going to print it was not yet clear who would succeed Megan in her role at MiX Telematics. That would definitely not be Lesrick Nayager, who also recently left the MiX Telematics finance team to become the new CFO of Decision Inc., a company which represents leading global technology brands. Lesrick says he will be focussing on helping the company streamline its business processes ad says that, in the short time he has been in his new role, he is having “the best time” of his career. Lesrick credits Decision Inc’s CEO

Grant Karolus

Nick Bell for encouraging him to make the move, saying it was Bell’s “vision and commitment to the future” that inspired his decision to join the company. He said: “It is phenomenal to work with someone who founded this company, took it to new heights and still has impressive plans in the pipeline. Nick is ambitious... It’s going to be an exhilarating journey.” Another former CFO Awards nominee, Bowman Gilfillan CFO Grant Karolus, left the law firm in September to join LeapFrog Investments. Grant is no stranger in the investment space, having previously worked for Investec, Brait and Peregrine Holdings. After a career at Deloitte and Vodacom, Christiaan Engelbrecht recently started his first CFO job as finance chief of Ster-Kinekor. Christiaan is planning to keep a diary of his new role for CFO.co.za and is extremely excited about his new position. “The industry is over-thetop exciting and the quality of leaders at Ster-Kinekor and our holding company, Primedia, are aspirational to say the least. If you ask how I feel about my appointment, it is difficult to put into words how humbled I am to be considered for this role and how excited I am to co-create with and learn from everyone in Ster-Kinekor and Primedia.”

MOVERS Financial and Product Control, as well as tax management across multiple geographies. Previously Jo Pohl fulfilled the role of Africa CFO for Standard Chartered, but she moved to Telesure, partly in anticipation of the consolidation of the CFO role in the Middle-East.

Mining moves

Greg Davis

Banking careers Award-winning finance executive Greg Davis has been named CFO of Ecobank Transnational Incorporated (ETI). That means an exciting and challenging move for Greg and his family, as the new role will have him oversee and ensure strategic management of all financial and fiscal aspects of the bank’s finance operations from its headquarters in the West-African country, Togo. Greg said of his recent move: “I am delighted to join Ecobank to drive forward the execution of the new strategy of this leading Pan-African bank. I look forward to helping enhance the capability of the finance function to deliver its mandate.” Greg received the Moving into Africa Award at the 2015 CFO Awards for his role as CFO at Standard Bank for the whole of Africa outside South Africa. Meanwhile, Mohamed Abdel Bary took on the role of Regional CFO, Africa & Middle East (AME), at Standard Chartered, a company he first joined four years ago as Head of Business Finance UAE and Middle East, North Africa and Pakistan (MENAP), before transferring to his most recent role as Head of Finance, UAE. Having worked for various international banks over the years, Mohamed has specialist expertise in Business Finance,

Patrick Cooke joined Rockwell Diamonds, a company in the business of operating and developing alluvial diamond deposits, in early November as its new CFO. A seasoned finance professional working in the mining industry, Patrick completed his articles with Deloitte in South Africa, before joining Barclays. His career also includes a stint as CFO of Pangea Diamonds, a London (AIM) and Johannesburg inter-listed alluvial diamond producer. Toronto Stock Exchange-listed Katanga Mining Limited, which operates a major mine complex in the DRC, appointed Jacques Lubbe as CFO, effective 15 October 2016. Jacques took over from outgoing CFO Matthew Colwill, who left the role to pursue other opportunities within the Glencore Group. Jacques is a CA(SA) and a 2014 Top 35-under-35 finalist. He previously held the CFO position at Katanga between November 2013 and February 2015. Prior to this he held the CFO position at Mutanda Mining SARL, another company within the Glencore group. He rejoined the company from Glencore, where he was Asset Manager. JSE-listed Eastern Platinum (Eastplats) has appointed Canadian Rowland Wallenius CFO and corporate secretary. He succeeds David Li who served as interim CFO. “We are grateful to David Li for his efforts as our interim CFO in helping us through our transition over the last few months. We are very pleased to

have someone with Rowland’s skills and range of experience joining us as a full-time member of our team,” said CEO Diana Hu. Lafarge Africa appointed Belgian Bruno Bayet, previously the Strategy Director, as CFO. Before joining Lafarge, Bruno was an executive committee member of Enterprise Generale Malta Forrest (RDC) from 2011 to 2013, having gained over 15 years of experience in the construction and materials industry. He was appointed Director of Ashakacem Plc in later 2013, combining the role of CFO in September 2014.

Goodbyes From 1 January 2017, Situl Jobanputra is the new Capital & Counties Properties PLC (Capco) CFO. He takes over from Soumen Das, who announced his plans to leave the company in late July. Situl is an experienced corporate financier, having led Deutsche Bank’s UK real estate investment banking team before joining Capco in January 2014.

Ryan McDougall

Marizanne van Niekerk is the new CFO of the Namibia-based company Trustco. She succeeds Ryan McDougall, a former CFO Awards nominee, who has elected to move back to South Africa with his family. “During my time at Trustco we’ve bought

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MOVERS property companies, banks, mines, opened a radio station, been voted best company to work for… narrowly finished 2nd in the Top 100 companies and seen the share price grow almost tenfold,” Ryan said. “During all this time, I have grown so much as an accountant and a leader, but it is time for a change.” Richemont, a company founded in 1988 by Johann Rupert and his father Anton, announced in November that 64-year-old CEO Richard Lepeu and 56-year-old CFO Gary Saage would retire in 2017. The first CFO of Richemont was Leon Crouse, who won a Lifetime Achievement Award at the CFO Awards 2016. The decision forms part of a company restructure dubbed “the biggest shakeup” at Richemont since 2009, when Johann Rupert returned for a third spell as CEO to steer the company through the financial crisis.

Bikash Prasad

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Recognition Olam’s Bikash Prasad, winner of the Moving into Africa Award at the 2016 CFO Awards, recently celebrated yet another prize. He received Olam’s coveted internal CFO Award, where he beat no less than 111 other Olam CFOs at the firm’s global finance conference in Indonesia. Bikash is a staunch supporter of CFO South Africa. In just a few years, he has grown his CFO responsibility from ‘just’ Southern and Eastern Africa to the entire continent and the Middle-East.

with Shoprite. He is widely referred to as one of SA’s “retail giants”, having spearheaded Shoprite’s pioneering expansion into Africa after 1994, and also successfully acquiring and integrating Grand Bazaars, Checkers and OK Bazaars.

Chief executives Anthony Leeming, CFO of South African hotels and casinos operator, Sun International, will take over as CEO from Graeme Stephens, who is moving to SkyCity Entertainment Group where he will be CEO. Anthony has been with the group for 17 years, having first joined as group financial manager in 1999. He will start his new role in May 2017. At the time of going to print, no announcement had been made regarding who would replace him as CFO. As of 1 January 2017, Pieter Engelbrecht, who has been with the Shoprite group for 20 years, will be making the move from Shoprite chief operating officer to chief executive officer, taking over from long-standing CEO Whitey Basson. Basson’s retirement brings to a close a career of nearly 45 years, virtually all of which was spent

Cobus Grove

Former DigiCore CFO Cobus Grove, who won the Governance & Compliance Award at the 2015 CFO Awards, will be moving to San Diego in the United States in January 2017 to run DigiCore’s flagship brand Ctrack from the head office of Novatel Wireless, which acquired the South African company last year. After DigiCore was purchased, the Americans were immediately keen to offer Cobus a role at executive group level, but it was decided that he would remain based in South Africa and become the CEO of DigiCore for the time being. Now the acquisition has been further embedded, Cobus and his young family are making the move to the US. l

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Experience calm and oversight. Sign your team up today. Contact our training advisor on info@cfo.co.za or +27 11 083 7515.

FROM THE MD

Are you prepared to succeed in 2017?

his has been a year of massive, often unexpected change, leaving many of us scratching our heads about the unpredictability of our time. Will 2017 be more predictable? Unlikely. So how can CFOs prepare themselves for more uncertainty? Three lessons have stood out from our learning with CFOs and leading executives in 2016.

Embrace change Find ways to stretch your own horizons, bring new ideas into your organisation and finance team and, importantly, grow your relational base. What we can learn from seismic changes like Brexit and Trump’s US election victory, is that those who don’t take time to connect with every corner of their business may well be surprised by the attitudes and views of their electorate and ultimately be forced to accept changes they had not anticipated. Whether through social media, traditional organisational structures or taking the time to walk the floor, corporate leaders need to get in touch with their people if they wish to survive and build organisations that thrive on macro-uncertainty.

See risk for the opportunities CFOs face a growing tsunami of risk issues. Can your organisation learn to think about risk in a way that not only manages and mitigates the risk, but also finds opportunities? We have heard this year how many CFOs are engaging with futurists and scenario planning experts to consider alternatives and find that one opportunity that may present itself from an overlying risk. This type of thinking isn’t traditionally a part of the CFO’s DNA, but we predict that those who get this right will be the organisations that

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thrive in the increasingly unpredictable and fast-changing world.

Recharge your batteries We have smarter, faster and altogether better technology which we expect will do more. But ensuring they have sufficient power requires we plug them in and give them a chance to recharge. The same is true of people in our organisations (including YOU), so be sure you are mindful about recharging. CFOs are high performance athletes and when I’ve had the privilege to ask about their success almost all talk about this challenge and how they have become mindful of their energy in relation to performance and success. CFO South Africa has experienced a meteoric year of growth and we are grateful to our partners and to CFOs and FDs across public and private sector for their time and trust as we continue to build a community for the benefit of finance professionals and South Africa as a whole. Looking to 2017, we will host six CFO Summits with a focus on deeper learning and widening the network. The 4th Annual CFO Awards will once again shine a light on those CFOs truly leading the profession forward. After this year’s incredible success of the Finance Indaba Africa, we will look to break all boundaries in 2017 with the biggest learning and networking platform on the continent for finance professionals. We look forward to a great year ahead. l

Graham Fehrsen gfehrsen@cfo.co.za +27 (0)79 8980227

12 & 13 October 2017

“Join us at the Finance Indaba Africa on 12 & 13 October 2017!”

Sandton Convention Centre

Are you part of Finance Indaba Africa?

A1 - 170mm

A2 - 120mm

AFRICA

Visible results.

A3 - 87mm

ORPORATE LOGO PRINT

Finance Indaba Africa is the largest expo and conference for finance professionals. It brings together peers, advisors, technology suppliers, banks, platforms, tools, CFOs and thought leaders. Over 5,000 visitors tap into a wealth of resources, know-how and inspiration.

After the success of the Finance Indaba Africa 2016, you cannot afford to miss next year’s event on 12 and 13 October 2017. Are you enabling businesses to cut costs, boost sales, productivity and profits? Then share your ideas at the Finance Indaba and help the country grow.

Do you want to exibit at the Finance Indaba Africa 2017? Contact Graham Fehrsen on 079 898 0227 / gfehrsen@cfo.co.za or register online at www.finance-indaba.co.za

FINANCE INDABA AFRICA Finance Indaba Africa is here to stay

Mindblowing After the mind-blowing success of the inaugural event on 13 and 14 October 2016 in Sandton, the 2017 Finance Indaba dates are the first ones South Africans who work in finance or accounting are marking in their calendars.

ver two days, nearly 5,000 professionals attended the Finance Indaba, dispersing into its 100-plus learning sessions and the two exhilarating exhibition halls. Diamond partners KPMG, Standard Bank and Old Mutual made an impeccable impression, but the same can be said for the other 70 exhibitors and sponsors. For accountants, the unparalleled insight into finance’s service providers was astounding and many felt like children in a candy store. “We were absolutely spoilt for choice!” said CA(SA) Sharad Gokal. There was “an abundance of networking opportunities available,” said Tyler Palmer (Nedbank).“The topics were relevant and facilitated constructive dialogue,” added Nomcebo Ngcobo

“Simply the best and one of a kind!” 16

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(KPMG), while Philani Mchunu (Standard Bank) called the event “simply the best and one of a kind!” Whether coming from a technological, audit or human resources angle, pretty much all speakers talked about future-readiness, so it was only fitting that maverick investor, disruptor and global speaker Vusi Thembekwayo opened the conference and expo on 13 October with a thought-provoking speech about unlearning what you know and learning what you do not yet understand. He asked: “Are you able to innovate and build a business for the future?” As more and more finance professionals arrived at the Sandton Convention Centre for the much-anticipated two-day event, Vusi took the audience through a journey of innovation. He decried the trend that business development firms are all based in Sandton, Woodmead and the like − while the real entrepreneurs − and the best ideas − are with people in rural areas and townships.

FINANCE INDABA AFRICA

“Will you do the most difficult thing: innovate and build a business for the future?”

Sprinkled with jokes and some pointed jibes at South Africa’s political landscape, Vusi explained how the business development policies of the country are a product of the country’s apartheid past. He then introduced the title of this talk ‘Barbarians at the Gate’, by recounting how the Roman emperor Caesar was caught by surprise when the hordes arrived − as unthinkable as a military taking on the US on its own turf. He challenged the audience: “Most of you will agree with what I say today, but won’t do anything different after you have gone home.” The main message, not only from Vusi but from many other speakers featured elsewhere in this magazine, was that innovation and a dynamic culture are crucial factors in thriving businesses. “All companies started as startups, but eventually get run by managers without a corporate memory of the early days. When the blip happens, do you keep doing what you always did? Then you will die, I don’t care how long it takes. Will you go to finance and try to make the company more efficient? You can succeed, but you won’t grow. Or will you do the most difficult thing: innovate and build a business for the future?” SAICA CEO Terence Nombembe

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FINANCE INDABA AFRICA was quick to reference Vusi, during the opening speech of day two of the indaba. “When we have found a solution to something, we need the courage to do it,” he said “We need to be acting with a greater sense of urgency. Innovation and creativity are key to building a better society and economy. What is stopping us?” Terence called on the participants to “take the lessons and the inspiration from the Finance Indaba Africa with us and use it in our daily jobs”. During an impassioned plea, he called on finance professionals to start contributing more to the future of South Africa, listing several practical steps for CA(SA)s and other finance professionals. “All of us need to be courageous enough,” he said. Terence praised the event for its “amazing setting” and talked at length about the value of the Finance Indaba Africa and the value of collaboration with CFO South Africa that has been realised by the board of the South African Institute of Chartered Accountants. “This is a unifying event that will help us build the nation,” he said, also alluding to SAICA’s continued involvement in indabas to come. “We need to take this wonderful experience with us, use it in our jobs and come back together at Finance Indaba Africa 2017.” As SAICA leader, the former AuditorGeneral brought two important values to the profession: effective collaboration and responsible leadership. “What can we do to help build a better South Africa?” That is how Terence took to the floor of a packed exhibition hall. “My message is one of sustainability,” he said. “As SAICA we have recognised that we have to go beyond our own corridors and collaborate, not only with other accounting bodies, but also with professional bodies of actuaries, medical professionals and others.” l

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Vusi Thembekwayo

Exhibitors line up for #findaba17 Finance Indaba Africa 2017 is going to be bigger and better than the inaugural event in 2016. On 12 and 13 October 2017, over 5,000 finance professionals will gather to learn, share knowledge and network. Many of the 2016 exhibitors are already lining up to ‘renew their vows’, with many tech firms and accounting bodies ACCA, CIMA and SAICA already committed. Register today on Finance-indaba.co.za

www.pwc.co.za

Recognising our role in transforming our nation

We’re proud to announce that we’ve earned a Level 1, AAA+ B-BBEE contributor status, in the 2016 annual certification by Empowerdex. This rating enables us to offer clients added value, by improving their own B-BBEE scorecard. It also reflects our commitment to investing in our people, as well as good procurement practices.

MANDATORY AUDIT FIRM ROTATION

Mandatory audit firm rotation Is it a needless exercise of musical chairs? An expensive merry-go-round that undermines audit committees? Or does it provide increased independence, fresh eyes, a healthier audit market and better chances for smaller, black-owned firms? After collecting feedback, comments and objections, the Independent Regulatory Board for Auditors (IRBA) aims to announce the requirements for mandatory audit firm rotation (MAFR) in March 2017, with the new rules kicking in from 1 April 2023. In this section of CFO Magazine, we speak to CFOs, auditors and regulators about the sense and the nonsense of mandatory audit firm rotation.

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MANDATORY AUDIT FIRM ROTATION CFO Forum chair Christine Ramon (AngloGold Ashanti) speaks out

Why CFOs reject mandatory rotation Introduction of mandatory audit firm rotation (MAFR) will “dilute the oversight role of audit committees and of shareholder rights,” says Christine Ramon, CFO of AngloGold Ashanti and chairperson of the CFO Forum, a lobby group of finance executives for large listed companies and state-owned entities. The forum rejects the decision of the Independent Regulatory Board for Auditors (IRBA) to introduce MAFR, saying the IRBA followed the wrong consultation process and disregarded valid concerns of various stakeholders in order to reach a predetermined outcome. CFO Magazine spoke to Christine about her personal view on MAFR and that of the CFO Forum.

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I am not against audit rotation, but it should be the duty of the audit committee to assess when and if auditor rotation is required. The mandatory part of the IRBA proposal is concerning,” says Christine, adding that cited positive effects on audit quality, transformation and market concentration are unproven at best and highly doubtful or absent at worst. “There are some benefits, like a new pair of eyes reviewing the financial results and a possible reduction in the audit fees. It could also create a platform for smaller companies to audit companies that operate in one jurisdiction, but these potential advantages are far outweighed by the negatives.”

According to Christine, the CFO Forum feels that the IRBA’s research and consultation was done with only one possible outcome in mind. “The process has completely disregarded valid concerns of stakeholders, thus opening up an opportunity for the motives and objectives of the IRBA to be called into question. There has been no process to discuss the IRBA’s conclusions, thus implying that the outcome of this consultation process was predetermined. The IRBA has not made its research available to stakeholders and we feel that the correct way to legislate MAFR is through changes to the Companies Act, as shareholders’ rights are fundamentally diluted. This requires

extensive consultation with businesses, their shareholders and various other stakeholders, including investor groups, both here and abroad.”

“Nobody in favour” The IRBA is the regulator for South Africa’s audit profession and can, by prescribing new regulations, create new rules for the audit firms to comply with. By default, its rulings also affect the businesses which are subject to these audits. “Nobody I know is in favour of this. The outcome appears to have been predetermined and important parties, like the SA Reserve Bank, have

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MANDATORY AUDIT FIRM ROTATION not been appropriately consulted to my knowledge.”

“When I started at AngloGold Ashanti, our auditors were very important for me.” Most members of the CFO Forum feel that transformation and independence are two different issues, which should not be mixed by addressing them through MAFR, says Christine. “The IRBA does seem to be moving ahead with these regulations, which is a concern.” Various sources in the industry have already suggested that legal action could be instituted based on the unstructured process followed by the IRBA. “I don’t want to pre-empt the legal side, because we can’t do anything until it is legislated. First of all, the IRBA’s research needs to be shared and then we need to see a policy paper that all stakeholders, including the CFO Forum members, can com-

ment on. We find it highly unusual that none of those things have happened in advance of such important regulations being passed.” Christine refutes the IRBA claims that management often “gets too cosy” with auditors. “Companies go through corporate restructuring, both audit and company management rotates, so these relationships change all the time. I have been in my role for two years, our CEO for three years. We don’t have the cosy relationships that the IRBA talks about. When I started at AngloGold Ashanti, our auditors were very important for me, because they had years of experience. For me to be able to sit down with them and talk about the issues in the different jurisdictions of our business and about the different management teams, was very valuable.”

Costly and time-consuming Sasol was one of the companies that decided to voluntarily change auditors, given the new regulations in Europe. When that happened, in 2013, Christine was CFO. “Our incumbent auditor was KPMG, for over 60 years, and the change had a lot to do with perception. The process was very structured under the lead of a project manager involving the major international firms and a local firm tendering. This was a costly and time-consuming exercise. Unfortunately, the local firm had not been PCAOB-reviewed, which precluded them from issuing opinions in the US. They also didn’t have the geographic footprint, which would allow for a consistent audit methodology to be applied across all jurisdictions.” Christine is also non-executive director at MTN, which – like Telkom and Discovery – has joint-auditors, a practice the IRBA is keen to encourage, At MTN, the joint audit is done by PwC and SizweNtsalubaGobodo.

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“In some instances it is beneficial to have joint audits to serve a multinational corporate across Africa and the Middle East, as the Big 4 audit firms may be restricted in operating in certain jurisdictions, where local firms may have greater flexibility in these markets. MTN is not listed in the US, which makes it easier for a local firm to get involved. For companies that operate in multiple jurisdictions MAFR is a significant administrative challenge. It requires management to spend additional time, effort and resources on the tendering process and getting the incoming auditors up to speed.” Many measures have been put in place over the years to increase auditor independence, including mandatory audit partner rotation, says Christine, adding that most audit trainees change and will only be on the same client for a few years, all of which helps ensure that an independent, arm’s length relationship is maintained. “The result of the introduction of mandatory audit partner rotation has also already had the desired effect that the client is viewed with a ‘fresh pair of eyes’ on a regular basis. It is doubtful whether MAFR will further enhance independence.” Audit firm rotation also creates concerns, especially in the first two to three years after rotation, because the new auditor takes time to get fully acquainted with the business and industry issues of its new client and sometimes this may result in overlooking of significant matters, Christine argues. “Firm rotation results in significant loss of collective intellectual knowledge of the company that the previous audit firm possessed.”

No evidence While transformation is crucial for the future of South Africa, Christine says it is not clear how

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“It might deter large audit firms from continuing to invest significant funds in driving transformation.”

MAFR will contribute to achieving that goal. “There is no evidence available to suggest that audit firm rotation will accelerate transformation at audit sign-off partner level. In fact, it might deter large audit firms from continuing to invest significant funds in driving transformation in the industry, through funding initiatives like

Thuthuka and also within their own firms. Let’s not forget that the Big 4 firms have the same ratings, as some of the smaller, blackowned firms.” Christine’s view is supported by a number of reputable bodies, including the Global Network of Director Institute (GNDI) and King III. She dismisses the notion that MAFR is an international trend. “There are a number of countries that have considered MAFR and decided not to implement this, mostly notably the USA, Japan, Australia, Canada and New Zealand. Countries that did implement it, but subsequently repealed it include South Korea, Singapore, Spain, Argentina and Brazil. Only the EU, UK, India and China have adopted MAFR, but there has not yet been any evidence

to support the contention that it leads to greater audit quality and auditor independence.” The IRBA often mentions AngloGold Ashanti as a ‘bad example’, with EY’s audit tenure spanning more than 72 years. AngloGold Limited, the forerunner of AngloGold Ashanti, was only formed in 1998 through the combination – and subsequent spinoff – of Anglo American’s global gold portfolio. According to Christine, EY had been the auditor for one of the South African companies that formed the holding company of the current multinational group, but until 1998, the various other entities that merged to form the group had various other auditors, like KPMG who were the auditors at Western Deep Levels and Deloitte who were the auditors at Freegold. l

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MANDATORY AUDIT FIRM ROTATION IRBA CEO Bernard Agulhas “disappointed and surprised” at response from CFOs

Longer tenure mulled for joint-audits The MAFR that will be introduced in South Africa next year might include incentives for Big 4 firms to partner with smaller, black-owned competitors.

he Independent Regulatory Board for Auditors (IRBA) is considering allowing auditors to stay with the same client for a longer period, provided they enter into joint audits when their mandatory tenure comes to an end, says IRBA CEO Bernard Agulhas. In this exclusive interview with CFO South Africa he also notes his disappointment about the negative response from CFOs to mandatory firm rotation.

“It concerns me if CFOs are against this.”

“I have been disappointed and surprised at the response of some CFOs and audit committees, who seem to

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not be happy with mandatory audit firm rotation,” says Bernard. “CFOs should be happy, as new auditors can help them find things that have been missed in the past. It concerns me if CFOs are against this and in the case of audit committees, their very existence should also be geared towards applauding more audit independence.” Disputing that audit rotation will result in high cost to companies, Bernard also denies that audit quality will be compromised in the first few years. “They say it takes years to get to know a client. I find that hard to believe, because any first-year audit opinion has to be solid. What are the firms saying about their own first year opinions on the financial statements?” Many CFOs fear that MAFR will be a musical chairs exercise for the Big 4, something backed by the experience in Europe, according to former Heineken CFO René Hooft Graafland, who does support

audit rotation for providing ‘fresh eyes’. “The former Heineken CFO is probably right,” Bernard concedes. “There will be a lot of rotation between the Big 4, but that will at least address the primary reason of the new regulations and provide the companies with a more independent audit.”

“We fear that auditors are too cosy with their clients.”

Why is MAFR necessary? “The mandate of the IRBA is to protect investors and the public. Responding to audit failures around the world and global concerns about auditor independence,

MANDATORY AUDIT FIRM ROTATION the board started a consultation round in July last year, based on a research plan, which was finalised July this year. We did a lot of research and we fear that auditors are too cosy with their clients. Auditors should not be accountable to management, but to shareholders. We have noticed that audit committees don’t consider independence as important and some companies are working with the same auditor over 90 years. As time goes on, the length of the relationship starts to be a worry.”

during the current implementation consultation? “We might say firms have to rotate every so many years, but if there is a joint-audit between a Big 4 firm and a black-owned firm this period could be extended. All auditors that are registered with the IRBA have the required skills, but big firms often argue that the smaller firms don’t have the skills and experience. If that is the argument, then other firms can never learn the ropes and we would have a big problem if one of the Big 4 firms would fail.”

“Our goal is to ensure that all investors can have confidence that the information upon which investment decisions are made, is not in any way influenced or affected by a close or long-term relationship between the company and its external auditor.”

“We might also consider the length of the current audit tenure. For example, if you have been with one

auditor for 50 years, you may have to start sooner. We are looking at making the starting date dependent on the number of years your current auditor is contracted.” Are you expecting a legal battle over MAFR? “The Big 4 have indicated, and I don’t understand why, that they did not like the process. They have the right to go to court, but we believe we are on solid ground. If they do go to court, we can prove that we have consulted. To me it would be surprising if they would. We have pure motives. We don’t want to be impractical or disrupt business. We will listen.” l

What will MAFR accomplish? “The primary role of MAFR is strengthening of audit independence, while secondary roles are addressing transformation and the current market concentration. We looked at all the listed companies on the JSE and found that only three percent of them have a black African as auditor who signs off. That is not an acceptable number for the IRBA, more than 20 years after the start of democracy. At the same time, the Big 4 audit over 90 percent of all JSElisted companies, with PwC alone having a market share of 47 percent. That means we need to do something to give smaller, medium-sized and black firms an opportunity to enter these markets. What have responses been like? “The Big 4 firms have been very critical of the proposal, and it is recognised that they may stand to lose huge audit fees from certain clients. But the Public Investment Corporation, as the biggest investor in the country, cannot wait.” What rules are you considering

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MANDATORY AUDIT FIRM ROTATION KPMG partner Michael Oddy fears disruption to audit firms

Rotation promotes sales over innovation MAFR will have a negative impact on the audit profession, says Michael Oddy, the partner in charge of audit at KPMG in South Africa. “The process is costly and will result in the promotion of a sales culture, rather than a focus on innovation and sustainable investment in audit quality.”

he Independent Regulatory Board for Auditors (the IRBA) is proposing introducing MAFR for listed companies, effective 1 April 2023, to strengthen the independence of audit firms from their clients. Michael does not agree that this goal will be achieved. “It will be disruptive to audit firms and companies and costly for companies to enforce. It will also disempower audit committees, which are better qualified to independently evaluate the re-appointment of incumbent auditors.”

“Audit committees are better qualified to independently evaluate the reappointment of incumbent auditors.” 26

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Like other firms, KPMG is of the opinion that the Companies Act should be amended if MAFR were to be introduced, as a change in the IRBA code only binds auditors and not their clients, who would have to go out to tender. “A change to the IRBA code would also not allow for an appropriate public consultation process and therefore all affected parties will not have sufficient opportunity to have their views considered before a decision is taken,” he said. Michael feels that current measures to ensure audit independence are sufficient, with audit committees nominating independent auditors and including a statement in the annual financial statements confirming the independence of the auditor through a formal annual assessment of auditor independence. “The audit committee culture is deeply entrenched in South Africa and a mature audit committee culture is one of the reasons that the South African profession has been rated number one in the world for seven years running by the World Economic Forum. This is a strong mechanism for ensuring the independence of auditors.”

Undermining audit committees According to KPMG, the regular external inspections of audit firms by the IRBA have resulted in fundamental and positive changes to audit firm oversight and an improvement in audit quality. Besides that, other regulators like the PCAOB and the JSE have instituted stringent accreditation requirements for auditors. “It is already an IRBA requirement to disclose the number of years that an audit firm has served a client. In addition, audit partners are rotated every five years in accordance with the Companies Act. This provides for a fresh pair of eyes and reinforces independence. MAFR would undermine the audit committee’s ability to select the best auditor for the job and determine whether changing auditors is in the best interests of the company and its stakeholders.” According to Michael, it can sometimes be important to retain an incumbent auditor. “For example, when there are major changes underway at a company like a merger, acquisition or implementation of new financial software.” Market concentration will also not be addressed by MAFR, Michael warns. He says that experiences

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“MAFR may weaken competition.” sees more problems on the horizon. “Imposing MAFR on a South African company that is part of a global group – either as a head office or component, or dual listed – could further complicate the global audit if different rules apply to different components operating in different jurisdictions.” The IRBA has recently issued a consultation paper on MAFR calling for comments by 20 January 2017. Michael notes that based on a recent SAICA-hosted session, many stakeholders will be submitting comments and a significant number are strongly opposed to the implementation of MAFR. A significant number of countries around the world including the United States, Australia and Japan have considered and rejected the implementation of MAFR as a means of enhancing auditor independence. The recent implementation in the EU is also likely to be reviewed. l

in the UK and Europe suggest that whenever the audit firm is changed, the audit is awarded to another large firm, which services the same sector. He also cites Danish research which concludes that MAFR, if implemented, may actually weaken competition as companies gravitate towards a large firm upon rotation. “For multinationals, appointing an audit firm that can perform their

audit in all countries in which they operate, is of paramount importance. This makes it unlikely that many multinational companies would move their audits away from larger firms, especially where a local firm is unknown in the home market of the multinational.”

Complicating global audits For international firms, Michael

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MANDATORY AUDIT FIRM ROTATION Former Heineken CFO René Hooft Graafland changed his mind about MAFR

“European firms benefit from audit rotation” The introduction of MAFR has worked out advantageous for European companies, says René Hooft Graafland, who recently stepped down as global CFO at the Dutch brewing giant Heineken. He says that benefits include lower audit fees, a more efficient audit plan and new insights, as the new audit team approaches the company with fresh eyes. “But I do believe the rotation period should be at least 12 years.”

ené was initially “strongly against” mandatory rotation of audit firms, but has changed his mind “in hindsight”. However, he doesn’t believe that the MAFR has benefited smaller firms like Mazars or BDO, as none of the companies listed on the Dutch main stock market index AEX have moved away from the Big 4. He also warns that rotation requires a lot of investment from companies and auditors. “The process demands a lot of time from the CFO,” he says. “But that is part of the job.” René became Heineken’s first real CFO in 2005. Until then former chairman Freddy Heineken had maintained that finance chiefs should not be part of the executive, as they tend to introduce unnecessarily complicated schemes. Last year René stepped down, but he still serves as non-executive on the board of three multinationals and is a board member at African Parks, the conservation agency with headquarters

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in Johannesburg that helps African governments manage their most important nature reserves efficiently.

Enormous impact The Independent Regulatory Board for Auditors (IRBA) plans to implement MAFR in South Africa and started a “second phase of engagement” with the industry on implementation of the new requirements. Audit firms and listed companies in South Africa are generally not in favour of the change – it is often argued that it will take years before new audit firms can start delivering value. According to René the sentiment in Europe was largely the same before introduction of the compulsory rotation. “You have to realise what enormous impact it has, especially for a big corporate like Heineken. We have many local subsidiaries across the world, which then also need to change auditors. For the company and the auditor, it is a massive investment.”

Still, the regulation change yielded many benefits. “A new auditor looks at your business with fresh eyes. Whereas an existing auditor will change the audit plan incrementally every year, a new auditor can take a step back and look at the most efficient way to execute the audit. It can also grab the opportunity to make use of its latest internal control frameworks and shared services.”

Lower fees According to René audit fees have decreased between five percent and 25 percent after introduction of the mandatory firm rotation in Europe. “One reason for this is that the firms need to pitch their plan and compete during a tender process, in which they go out of their way to land attractive clients like Heineken. Secondly, and to me that is more important, the fees go down because of the fresh eyes they use to look at the work required.” An example is the way Heineken’s new auditor treated the brewer’s new

MANDATORY AUDIT FIRM ROTATION a new contract and take a hard look at the ramifications.”

Time and attention When Heineken went out to tender to replace KPMG in 2014, it did not invite PwC for this very reason, as the brewer was engaged in an extensive advisory partnership with that firm around the introduction of shared services. Deloitte was eventually chosen as new auditor. “We were given three years to rotate, which was a very short period – as everyone went through the process at the same time. At Heineken we decided to go out to tender as soon as we could, so we still could pick and choose from the best partners.”

shared services centre in Kraków. Where the previous auditor had increased the fee, as it had to check an additional legal entity, the new firm streamlined the entire audit by doing much of the audit work at the source of the data in Poland. Most existing audits are tied to individual partners in the different countries and won’t be keen to shift work to colleagues abroad, whereas a new audit firm can build a new audit plan without any legacy issues.

Twelve years The Netherlands initially introduced mandatory rotation after eight years, but this will be harmonised with the European period of ten years. René feels this is still too quick and fears short mandatory period will limit the investment audit firms do to serve a client. “For me the minimum should be 12 years, with a shorter mandatory rotation for partners. In the first year, the new auditor adds value by asking critical questions, but only after a few years can they start making useful suggestions.”

In South Africa, the IRBA hopes to stimulate diversity among auditors by opening up the tender floor for firms other than the Big 4, notably black-owned businesses SizweNtsalubaGobodo, Nkonki and SekelaXabiso. René warns that the smaller audit firms have barely benefited in Europe. “Multinationals like Heineken need the network of one of the Big 4, so there are only three candidates outside your current auditor. I don’t think smaller global firms like Mazars or BDO have benefitted much. Perhaps it is different for locally-operating firms, but on the Dutch AEX no company has left the Big 4.”

Although Heineken never quantified the cost of the rotation, René says time and attention are the biggest resource needed. “But those are well-spent, as the new auditor asks many questions, which forces you to write new position papers to elaborate on certain decisions. That is a healthy process, which the business can learn a lot from.” All the same it is an elaborate process, René says. “Several auditors come and visit you for a due diligence. The process demands a lot of time from the CFO, but that is part of the job.” l

One of the trickiest parts of firm rotation is the untangling of consultancy services, as the same firm is not allowed to audit and advise a client. “The rule makes sense, as auditors should not check their own advice, but the reality is more complex than many realise. Companies need to assess which consultants they might have to withdraw when they pitch for

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MANDATORY AUDIT FIRM ROTATION

AECI CFO Mark Kathan: Commoditising audit fees AECI CFO Mark Kathan sees no benefits in MAFR, fears commoditisation of audit fees and calls for much more extensive engagement with CFOs, audit committees and boards about the proposal.

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The concerns of JSE-listed companies will need to be addressed very thoroughly if the Independent Regulatory Board for Auditors (IRBA) introduces mandatory audit firm rotation,” says experienced top CFO Mark Kathan of AECI. “I feel that perhaps not all of the possible ramifications of this proposed change have been thought through thoroughly enough.” The IRBA says it wants to regularly force companies to change auditors to encourage audit independence,

transformation and to combat market concentration. Mark says that although good governance is at the forefront of a CFOs’ mind, he doesn’t believe those reasons will necessarily achieve all the desired objectives. “One potential pitfall, for example, is that audit fees could be commoditised. Our company is engaged in tendering processes on an ongoing basis and experience has shown that price is not the only determinant in ensuring the desired level of service.” AECI has had KPMG as an auditor for over 90 years, although some companies in the group have used other firms in the past. That doesn’t mean there is no independence, says Mark, adding that the mandatory rotation of audit partners means the company automatically gets fresh eyes regularly. “Fresh eyes are important, but I would argue that they are even more important in management teams than they are for auditors. Shareholders reappoint auditors at each AGM of a company – and would certainly raise their legitimate concerns on independence if they had any.” Like many other CFOs, Mark feels that more consultation with the IRBA is required: “Independence is already addressed via existing structures, particularly audit committees. To the

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best of my knowledge, there have not been any cases of significance in South Africa where auditors have failed in their duties because their independence was compromised. Our country is among the best in the world when it comes to the quality of the audit profession, including the independence of auditors.” Transformation also won’t necessarily be achieved, Mark thinks. “The large auditing firms have their own transformation programmes so perhaps representation issues could be better addressed with them directly. The reality for a company like ours, which is active in 25 countries, is that a firm with the reach and capacity of KPMG or another of the other Big 4 auditing firms is essential. By definition, then, it is highly likely that any rotation would be among these big firms” That’s not to say that he thinks that smaller auditors don’t have a role that they must continue to play. “From at least the early 90s, there have been smaller auditing firms servicing smaller clients. They had a place in the market then, just as they do now.” The needs of a larger company, such as AECI, however, are likely to continue to require more extensive external audit resources. l

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Nkonki’s Mitesh Patel: MAFR driving transformation “It is simply staggering that of the 353 audit partners who sign off on the financial statements of all JSE-listed companies, only nine are black African – that’s just 2.5 percent,” says Mitesh Patel, managing director of Nkonki, a blackowned audit and advisory firm. “Given the transformation imperative within the broader South African corporate context and our profession as a whole, there can be no doubt that Mandatory Audit Firm Rotation will assist in driving the transformation agenda.”

konki is of the view that MAFR in South Africa will bring tangible benefits for most parties involved. More importantly, it will improve transformation within the auditing profession. “While MAFR is non-existent within the listed sector, it is indirectly implemented, in some respects, within the public sector as most large stateowned entities go out on tender every five years, with a standard clause that the auditor’s appointment is subject to the annual approval of shareholders,” Mitesh says. He adds that there is also the matter of the dominance of the JSE by a handful of audit firms in the country to consider, with over 90% of JSElisted companies audited by a few firms, most notably the so-called Big 4. “MAFR will help to level the playing field, allowing other audit firms access to listed entities, which will in turn drive skills transfer in the profession and bring about true,

broader-based empowerment.” Nkonki believes that the arguments against the introduction of MAFR – namely the loss to a company of industry and knowledge of the business built up by a long-term auditor, and that taking on new auditors requires huge input by the company’s management and thus holds a hidden cost for shareholders – are invalid. “The reason for this is that, in general, firms take on an investment cost when they take over an audit. A recent case is Sasol Limited, which changed its auditors from KMPG to PwC. The audit fee as per the 2013 Annual Financial Statements, the last year of audit for KPMG, was R84 million. In 2014, when PwC took over, the audit fee went up marginally to R86

“MAFR will help to level the playing field.”

million, an increase of just two percent, which could be attributed to inflation. In 2015 the fee remained unchanged at R86 million. It is clear that in this case, the company didn’t pay a premium as a result of changing auditors,” Mitesh explains. Nkonki also supports the argument that commercial pressure to maintain a long-term economic relationship with a particular company may undermine an audit firm’s commitment to the rigour and independence of the audit process. “There is no doubt that a new audit firm will bring fresh eyes to the audit process and is hence more likely to bring a fresh approach,” says Mitesh. As for the argument that transitioning firms can be a risky process, Mitesh concludes that this is simply not the case, as has been demonstrated by Vodacom Limited, Bidvest Limited, Famous Brands Limited, Sasol Limited and ABSA Limited, all of which recently changed audit firms. l

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IFAC: solutions looking for problems MAFR is often a “solution looking for a problem”, says Fayez Choudhury, CEO of International Federation of Accountants (IFAC), the global organisation for the accountancy profession. By Fayez Choudhury, CEO IFAC

to “strengthen auditor independence and enhance investor protection”, also suggesting “we will only see true empowerment when opportunities are provided equally amongst everyone”.

Right question

he South African Independent Regulatory Board for Auditors (IRBA) has announced a timeline for new MAFR requirements—a policy requiring companies to switch auditors periodically. In the same week, Singapore’s Monetary Authority (MAS) announced its intention to discontinue the very same policy. IFAC recently convened roundtables of international business leaders and regulatory agencies on smart regulation, and this contrast is a prime example of two principles the participants urged policy makers and regulators to observe: start with clear objectives, and assemble a clear evidence base. The IRBA has proposed the measures

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MAS found “research studies conducted thus far internationally did not provide conclusive evidence linking mandatory firm rotation with an improvement in audit quality”, and “from MAS’s observations and feedback received from stakeholders, MAS recognises that there are also negative consequences associated with frequent rotation of external auditors”. Business leaders and regulators at IFAC’s recent roundtables suggested that getting regulation right is not just about the answer, but it is all about starting with the right question. Being clear from the outset on what the regulation is trying to achieve is essential. In the case of MAFR, is it trying to address audit quality and investor protection? Is it about competition and an effective market for audit services? Or is it about economic empowerment? These are all important priorities, they all demand their own focus to find the approach most likely to yield the desired result. Many other countries are at various phases of implementing or discontinuing MAFR, with similarly diverse

objectives. South Korea, Argentina and Brazil have implemented and discontinued the policy for certain sectors, the EU is now implementing with numerous variations across member states − some of which, such as Spain and Italy, had previously implemented and discontinued the policy − and the U.S. House of Representatives in 2013 voted 321-62 to prohibit the Public Company Accounting Oversight Board from requiring MAFR.

Patchwork The list goes on. In the meantime, for global businesses trying to coordinate their audits worldwide, the complexity, costs, and risks of trying to navigate this patchwork regulatory environment detracts from their focus on obtaining the highest quality audit − possibly even going so far as needing multiple auditors in different jurisdictions to meet different rotation requirements. IFAC roundtable participants in Hong Kong and London also stressed that research and a clear evidence basis is vital to identify solutions most likely to be effective. This is all the more critical in light of the costs of regulation to businesses trying to operate in a global environment, and possible unforeseen consequences. However, all too often it seems to be the solutions looking for the problems, rather than the other way around. l

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King campaigns for sustainable capitalism After his discussion with JSE Limited CFO Aarti Takoordeen about the role of the CFO, King Committee chairman Mervyn King took the stage for a keynote address and told the Finance Indaba audience about the way integrated reporting brings about sustainable capitalism. By Georgi Guedes

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There have been three major shifts in the corporate world in the 21st century,” said King. “First of all, we have shifted from silo thinking and silo reporting to integrated thinking and integrated reporting. The second is from a financial capital market system to an inclusive market capital system. And the third shift is from short-term profit to sustainable capitalism.” Up until the end of the 20th century, companies were viewed through a financial lens. They were required to deliver value for their shareholders and corporate reporting was only financial. “In automotive terms, this was like driving with a rear-view mirror but no windscreen. It was very dangerous to drive and impossible to steer.”

Then, King said, planet Earth reached a tipping point. Suddenly civil society and investors started to realise that a company cannot operate with just shareholders. “There are many stakeholders and companies must have a long-term strategy in a resource-deprived world that maintains value creation in a sustainable manner.”

Nestlé and Greenpeace He explained that this has played out in many different industries. One example is that no member

of the board of Nestlé would previously have believed that Greenpeace would pose them a risk. But things have changed and the civil society movement started to raise awareness about the deforestation of the orang-utan’s habitat in Malaysia because of the production of palm oil. This had an impact on the company’s public profile and profits. “How we make money has an impact on the three critical aspects of the economy, society and environment,” said King. “If the impact is positive, we create value. If it is negative, we start destroying value.” This thinking inspired a meeting by the United Nations in Geneva, which concluded that sustainable reporting could not take place in a silo. The drivers of change in the 21st century – climate change, using resources faster than they can regenerate, radical transparency through social media, greater expectations from the public, population growth and the fourth industrial revolution – meant that we cannot carry on with business as usual, King explained.

embed in their strategies how they are dealing with critical social and environmental aspects.”

Coca-Cola King gave the example of how CocaCola, a company that had spent 120 years focussing on output, and the planet’s number one brand until Apple took over, had to bend to the demands of society. Three years ago, civil society alleged that Coca-Cola was the cause of obesity. Mexico slapped on a sugar tax and sales started flattening. So, Coca-Cola introduced a new strategy. The beverage company no longer markets to children under

“We have to learn to make more with less. We now have to look at the value of a company through the whole value creation process and whether it’s going to sustain that. Companies are expected to

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“The only thing worse than being blind is having sight but no vision.”

12 and has started to encourage physical activity in that age group. It has also tried to create a beverage with as low a calorie count as possible. “It’s extraordinary. Here is a company that for 120 years had focussed on output, suddenly changing their strategy to deal with outcomes,” said King. This focus on output has not become a business imperative. King IV, the latest iteration of the governance

Prof Mervyn King and JSE Limited CFO Aarti Takoordeen

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recommendations that King’s committee recently launched, says that every board meeting should have an agenda item: “inputs to outcomes”. This is not simply about measuring financial inputs and profits as an outcome, but looking at all aspects of how a company interacts with its environment. Business models should look at the six capital inputs and show how the organisation’s activities transform them into outputs.

Concise and understandable Boards have to be accountable for all of these aspects, argued King, and to be accountable they have to be understandable. “You as a board have to spend more time understanding financial statements, putting them in clear, concise and understandable language.” The guidelines for this are contained

in the International Integrated Reporting Framework, released by the International Integrated Reporting Council – of which King is the chairman. King concluded by saying that just as the concept of limited liability was the driver for the second industrial revolution, the concept of integrated reporting is a concept whose time has come. “The only thing worse than being blind is having sight but no vision. You need to focus on what you know and what you ought to know. And what you ought to know is that you live in a resource-deprived world with a greater demand for output that’s going to increase, so there’s going to be a huge change in the way we drive our companies with the fourth industrial revolution upon us.”

COMPLIANCE

CFOs should be chief VALUE officers Finance industry giant Prof Mervyn King has motivated for a “rebranding” or repositioning of CFOs into chief value officers (CVOs). He made his case during a public discussion with JSE Limited CFO Aarti Takoordeen, on the second day of the Finance Indaba Africa 2016. By Kate Ferreira

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The CFO of today is operating on a completely different paradigm than previously, even compared to the end of the 20th century,” said the professor. In addition to managing and understanding the financial position of a company, King argues, it is the CFO who is responsible for creating value in the business.

“Who is the most skilled person to lead your team in this direction, to guide your company in the creation of value in your company?” King asked. “I think it is critically important to change the minds of the board, to understand that a CFO needs to be a leader. Should CFOs continue to be called that? No, they are not just concerned with the balance statement. I believe they should be the chief value officers,” he said – a statement that was met with appreciative applause from the Finance Indaba participants watching the session. It’s a mission that drives King currently, the subject of a book he is publishing later this year, and the impetus behind several engagements with accounting educators and associations. “Accounting students are being taught to tick the box, to get the chartered qualification. That is not enough. I’m on a campaign to educate the educators,” said King. Given the inclusive, shareholder-orientated thinking that has typified business in South Africa in recent years, he says, the CFO is a public interest function, imbued with a public interest duty to create value – and they need the scope, skills, and mandate to drive this. “Why not the CEO? And isn’t it the role of all the executives to create value?” asked Aarti. “A CFO has both financial training and public interest training. I

think an accountant is well-positioned to move the thinking from profit to leading the team on development of strategy,” King responded. But, he concedes, the organisation as a whole – led by the board – must change their thinking to allow for this. “Globally, this is happening.” The board also needs to change their “collective minds” on how financial reporting is done, argues King: taking a more hands-on approach, really interrogating the numbers, and stripping out the jargon. “How do they come to the party? I know from experience that reports are often prepared by the company secretary. And when you question them on aspects of it, you get that glazed look in response. An integrated report is the report of the board, and the board has to spend more time understanding the financials.” Like the quote attributed to Winston Churchill, “If I had more time, I would have written you a shorter letter”, King argues that the board needs to put in the time to ensure they report in clear concise and understandable manner, so everyone can make an informed decision. He also argues that “inputs to outcomes” should be an agenda item on board meetings, one that requires the board to understand the outcomes of a product when it goes out into society. l

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COMPLIANCE Integrated reporting excellence: a guest article by Kumba Iron Ore’s Nadia Schoeman

From volume to value Brutal honesty, a revamped business model and a thorough integrated reporting process, lead by a senior member of the finance team. Those have been critical success factors for the integrated report of Kumba Iron Ore, a business unit of Anglo American and winner of the EY 2016 Excellence in Integrated Reporting Awards. In an exclusive guest article for CFO Magazine, Nadia Schoeman, who heads up the integrated reporting team since 2015, explains how Kumba’s report went from good to great. By Nadia Schoeman

umba’s 2015 Integrated Report was our fifth such report to the market. In the past years, we have progressively worked on improving the reporting of non-financial metrics and the integration thereof in our story. Every year we have challenged ourselves to better understand the integrated reporting model and to reflect the resources and relationships that Kumba

depends on to create value in a more concise and integrated manner. We had a challenging story to tell in our 2015 report due to plummeting iron ore prices. The market has changed fundamentally from 2014 with a continuation of the oversupply in the iron ore seaborne market, slowing demand growth in China and resilient Chinese domestic supply creating further headwinds for price.

“We wanted stakeholders to understand that the changes in our business model had not been a kneejerk reaction.” The sharp decline and volatility in the iron ore price has been a significant factor for Kumba and the mining industry in general. We have responded decisively to position our business to withstand a longer period of lower iron ore prices. A shift in strategy from volume to value led to a reconfiguration of our mines to reduce the amount of waste and to save costs. All of these changes contributed to the challenging story we had to tell in our integrated report. The most important thing we wanted to accomplish was for shareholders and other stakeholders to understand that the changes in our business model had not been a knee-jerk reaction to the

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COMPLIANCE sudden volatility, but a sequence of well-measured decisions taken over a period of time. We had to realign our strategy to remain sustainable over the longer term. Previously, we were focussed on ramping up production and we had plans to extend our footprint into Central and West Africa. But when the iron ore price fell, from $135 per tonne in 2013 to a low of $38.50 per tonne in December 2015, we had to make some very difficult decisions. Our change of focus from volume to value had a huge impact on the way we run our mines, especially the more matured Sishen mine. We went back to the drawing board to see how we could mine differently and get more value out of our operations. This resulted in a complete redesign of our life-of-mine plans. A slope failure – basically a collapse of a high wall, at our Thabazimbi mine, prompted a decision to initiate closure procedures. Our newer Kolomela mine, near Postmasburg in the Northern Cape, was less impacted by the redesign. Being able to produce an integrated report of high quality while so much is going on, requires strong and consistent support at board level. The Kumba audit committee and board played a crucial role in overseeing the integrity of the data and validating the assurance process of a

“Having a dedicated accountant on the team made collating and verifying the information much easier.”

project of this stature and magnitude. Our parent company, Anglo American also provided structured guidance on the design and theme of the report, and this was critical in ensuring that the business units across the group adopted a standardised approach to the utilisation of the corporate Anglo brand. Since our first report in 2010, we established an internal project team, with members from investor relations, communications, human resources, safety, health and environment, stakeholder relations, company secretariat and finance. The team in turn takes its lead from an executive steering committee. We have had some successes and some learnings during those five years. Every year we ensure that we identify areas of improvement and we work hard to close the gap between the narrative contained in our report and best practice, as defined by reporting industry experts. To produce a high-quality integrated report takes about eight months and the report contains a large amount of financial information. Having a dedicated accountant on the team made collating and verifying the information much easier. Another benefit was to help align the messaging in the integrated report to that of the annual results reported earlier. Attention to detail also ensured that the suite of different reports all contained the same correct information, with appropriate cross-references. At the start of the integrated reporting process, a materiality workshop is facilitated with members of the Kumba executive committee and other key members of senior management. This process is aimed at critically understanding how Kumba creates value and to identify and prioritise those matters that substantively impact on value creation over the short, medium and long

Frikkie Kotzee, CFO Kumba Iron Ore “Integrated reporting has helped companies demonstrate how they create value, both financial and non-financial and for a broader spectrum of stakeholders not just shareholders. This has also helped the providers of financial capital to better understand the organisations strategy and long-term viability.”

term. The first step is to evaluate the business model, key relationships and resources. Once these are established we identify key trends in the external environment that impacts the way in which Kumba creates value. Participants then consider the manner in which Kumba creates or diminishes value across the six capitals in each stage of our value chain and identify specific opportunities for leveraging value creation. The material matters identified are then reviewed against the outcomes of our most recent internal risk assessment and recently identified stakeholder interests. Finally, all

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“If CFOs are interested in reassuring shareholders of the intrinsic value of their companies, publishing a good integrated report is one of the best ways to do it.”

identified material matters are considered against our strategic focus areas or objectives. This process then helps to develop the structure and content of the report. Although we have produced a great report, we are most proud of delivering on the board’s expectations. We were tasked to compile a report that showed how Kumba was responding to the tough operating context in order to remain a resilient business that would continue to deliver value to our stakeholders, and managed to do that in a clear and concise manner. To keep improving, we continue to do a lot of benchmarking and con-

are invested in, whether financially or otherwise, is a sustainable business, with a strong focus on strategic direction. If CFOs are interested in reassuring shareholders of the intrinsic value of their companies, publishing a good integrated report is one of the best ways to do it. l

sider how to best incorporate the aspects we feel will add value to the report. The question to ask is, what do the shareholders really care about? That is what the integrated report should highlight in a graphic manner. A lot of the compliance information can be published on the company’s website. It is easy to write a report of 400 pages. The bigger challenge is to present your story in a concise manner. In the end, a good quality integrated report goes a long way in giving shareholders and other stakeholders comfort in knowing that the company that they

Why did Kumba win? The adjudicators for EY’s Excellence in Integrated Reporting Awards 2016 were associate professor Mark Graham, professor Alexandra Watson and associate professor Goolam Modack, all active at the College of Accounting at the University of Cape Town. This was their verdict about Kumba’s integrated report: Overall, Kumba’s report scored excellently in almost every aspect of the marking process. This crisp and concise report has a clear focus on sustainable value creation and the issues that are material to this value creation. The explanation of the value chain that includes activities, outcomes and strategic focus areas is indeed excellent. The diagrammatic presentation of the business model incorporates appropriate detail on the factors influencing revenue and costs, which is particularly appropriate given the challenging operating context. The six capitals are introduced early on in the report, together with the key inputs and outcomes for each capital. The actions that are required to enhance these outcomes as well as the trade-offs between the capitals are well articulated. We particularly liked the high level of connectivity in this report. The strategy, business model, operating context, material risks and opportunities, and governance and operational performance is well integrated within the report. The explanation of the group’s strategic objectives and the detailed strategies needed to achieve these objectives is informative.

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“To be honest, what meant most was the recognition for the journey of the people at ABI.” 40

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LEADERSHIP How award-winning FD Walter Leonhardt transformed finance at Coca-Cola bottler ABI

The secret ingredients of continuous improvement The recipe of successful finance transformation is often as mysterious as the formula for Coca-Cola. In this interview with CFO Magazine, finance director Walter Leonhardt steers clear of the age-old Coke recipe, but exclusively reveals his secret ingredients of a successful finance turnaround at Coca-Cola bottler ABI. Keywords: continuous improvement. “If you want a perfect situation before you start moving, you will never move on anything.” By Joël Roerig

alter Leonhardt looked like one of the happiest men on Earth when his name was called out twice to collect a CFO Award on 12 May 2016, grinning from ear to ear and even celebrating with a – for top accountants fairly uncharacteristic – Yeehaw! As finance director of SAB Miller-owned Coca-Cola bottler ABI, Walter walked away with both the Finance Transformation Award and the Compliance & Governance Award – and was one of the top contenders for the CFO of the Year title, which was eventually scooped up by Woolworths FD Reeza Isaacs. In July, ABI merged with Coca-Cola and local bottler SABCO into the new entity Coca-Cola Beverages South Africa – and Walter has his transformative work cut out for him once

again (see page 45). In this interview, we speak to the FD about what it takes to establish a culture of continuous improvement, the innovative ways his ABI finance team overcame its challenges and the secret ingredients of a prize-winning leader. “To be honest, what meant most was the recognition for the journey of the people at ABI,” he says a few months after the annual South African ‘Oscars for CFOs’. Walter makes a point of sharing his awards success and threw a party with his finance team to celebrate. “We have been working very hard and decisively, with clear goals in mind. We have been improving all the time and these awards are recognition for a journey well-travelled. I was sorry that the whole team could not be on stage to receive the awards. These are not my awards, but theirs – I have told them that on many occasions.”

Transforming finance With Colin Brown and Bongani Nqwababa as previous winners for their massive accomplishments at Super Group and Amplats, it is clear that the Finance Transformation award is one of the most coveted of the annual CFO prizes. His own biggest accomplishment, Walter says, has been to instill a culture of always wanting to do things better at ABI. “We have established a continuous improvement mindset. Coming from a fixed mindset, that has been a rewarding journey.” That doesn’t mean no restructuring had to take place, with some classic measures like centralisation and the introduction of better technology. “Standardisation has been important, so we could focus on exceptions. The biggest win was in accounts receivable, where we could go from 146 to 71 people in four years, by

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LEADERSHIP centralising the department and introducing a new system.” Perhaps even a bigger ‘trick’ was the close collaborations the finance team started with other departments. “For example, we worked with our sales people and empowered them to have an accounts receivable discussion with customers. We put an app on the phones of the sales people, which immediately shows the limit, account status and overdue amounts of a customer they visit. Instead of only selling, they can now have a factual discussion on overdues where required. That has helped.” Even as Walter sings the praises of his finance team often, he says the real success follows the way his team works intimately with the rest of the business. “We have a clear-stated objective of improved productivity. Technology improvement is important for that and needs to be an integrated approach with sales, distribution and manufacturing. Similarly to our work with sales, we have also worked to improve delivery administration, much enabled through technology. Seven years ago, we had to write off a frightening amount because of multiple process failures in the administration of our deliveries – especially to big national accounts. I had just started when this problem surfaced and I wasn’t sure if I would survive it. It was very bad. But we set out to fix it and today we run a pretty good show, getting excellent administration ratings from our customers, including our big national accounts. In fact, I just recently received a letter from the group creditors manager of one of South Africa’s largest retailers in recognition of the way in which we manage their account and make their lives easier.”

Trouble Walter is a South African Breweries stalwart with 21 years of service, that took him from Bloemfontein to

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“Finance itself has contributed 100 basis points to our profitability while lifting customer service.”

Bethlehem to Johannesburg – and from beer to soft drinks. He clearly remembers those rough days at ABI and without having to think about it, pins the date on 8 April 2010. “Our CEO then was a brutal guy, who was incredibly capable and knowledgeable. ABI was in trouble. I was there for two years. I could have walked away and said it is not my prob-

LEADERSHIP lem; I could have easily found a new role within SAB. I hadn’t created the problem, but I knew what to do and I knew I had good people. Of R1.3 billion in receivables, R730 million was overdue at some stage… Now, in a good month there is less than one percent overdue. To accomplish this, we had to work hand in glove with our distribution colleagues. We used lots of social systems, IT systems and apps. I can’t tell you how proud I am that we have accomplished this. All through great, dedicated and focussed people.” Meanwhile, through natural attrition only, the finance headcount decreased from 304 to 151 between 2010 and 2016. “The cost of the finance team is now only one percent of our total cost, down from two percent, which means that finance itself has contributed 100 basis points to our profitability while lifting customer service. That gives me a real sense of achievement.”

Clarity and buy-in Each finance transformation of this magnitude comes with a recipe for success that sits squarely with the CFO, no matter how much praise they deflect. Whereas Colin Brown used his incredible IT savvy and Bongani Nqwababa firmly took hold of the strategy of the entire company, in Walter’s case his leadership style has been a crucial factor. “I think there are two important aspects: being clear and getting people’s buy-in,” he explains. “If everyone understands, sees and knows what we are working toward, then you are halfway there. And then you need to create excitement about the journey, instead of fear. The keyword here is engagement. As a leader, you need to consistently be in touch with people’s fears, emotions and uncertainties. You have to address them and can’t just ignore it. When someone feels

“As a leader, you need to consistently be in touch with people’s fears, emotions and uncertainties.” threatened, they become less productive. You can’t then say: Don’t stress, don’t panic! You need to continuously reconfirm the end goal of the finance transformation and the fact that we need their contribution and involvement to accomplish and craft that transformation.”

psychological chats to each and every employee, but Walter works around that by consistently setting the tone through conversations and engagements. “We all know companies have corridor talk. If you can have people talk positively, instead of negatively or in a threatened fashion, that can spread your message very effectively. You can’t have personal interactions every day, but if others buy into your journey and start talking about it, they become change agents. It is not an approach I have developed on my own. I am part of a fantastic management team and, in many instances, I have learned from them.”

Field trips In a large organisation it is not possible for a leader to have personal,

“Sugar tax devastating” The sugar tax proposed by the South African government will have a “devastating impact on the soft drinks industry in South Africa”, says Walter. “The proposed sugar tax of 2.29 cents for each gram on all sugar-sweetened soft drinks, means the government taxes R22.90 per kilo sugar. On the shelf a kilo of sugar costs only R15, even less. The tax will lead to a price increase of 25 percent across our portfolio. Driven by tax on sugar content, cans will go up from R8 to R8,90 and two-litre bottles from R16 to R21. Government itself predicted a -1.3 price elasticity, which means that when the price goes up by 25 percent, the volume decline will be 33 percent. Our business could be a third smaller overnight.”

Besides this, ABI’s finance team – up until two levels below Walter – also took some drastically practical steps to improve and travelled to bottling operations in Norway, India, Australia, US and Mexico. “I should confess that as a Coca-Cola bottler we have the advantage that we can use a global network of similar, non-competitive businesses – we are related to them. We benchmarked, picked up good learnings, looked at their shared services centres and sometimes even completely copypasted successful ways of working. There was no need for us to reinvent the wheel for all our changes.” Walter says he is a CFO who rather contacts his peers, through CFO South Africa events or LinkedIn, than using external advisors or consultants. The field visits connect strongly to his belief in continuous improvement. “If you don’t leave your office, you are not going to be exposed to a better alternative. We thought our call centre was pretty good, but when you see alternatives, then the blinkers start falling off. It is one very easy thing that anyone can do.”

Bad news Sometimes, though, the CFO sim-

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LEADERSHIP

“Maybe you are not making it perfect, but are you making it better?”

ply needs to be the bearer – or even driver – of bad news. “One of the toughest decisions I was part of, was retrenching 400 people in 2014 in our business operations. While most were voluntary, between 40 and 50 were involuntarily. I initiated a discussion through asking a very simple question, which while it was right, was hard. For many years, we had told our people we would not retrench while we were making massive productivity improvements and brought our facilities down to five from 23.” While more than a 1,000 people were redeployed during this period, including finance people, Walter says there were “still 400 people too many in 2014”. Then the economy slowed and the price of raw materials like sugar increased, seeing ABI’s profit plummet. “You can’t just be nice, so we offered voluntary exit, even though we had told people: ‘Work with us, your job is safe. We will look after you’. We made it lucrative. Forced retrenchment would have cost us R40 million less, if we had based it on ‘last in, first out’. But we opted for voluntary retrenchment, with many older folk putting their hands up. It was the right thing to do. The impact on the workforce was actually positive. After that, ABI didn’t have people lurking around without having work to do. We even had farewell parties. But our top 150 people got no increase in 2014 while we were retrenching. It was an important signal from our side.” ABI’s reorganisation was massive, with a complete re-engineering of the supply chain to follow demand.

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“Now we can take our product from a manufacturing warehouse to the customer in 24 hours. The key was building more manufacturing capacity and shortening our production runs. This made it possible to keep much lower stock levels and better fulfill demand. Today, for example, we carry about five to six days of stock. That used to be about 20 days. And on our biggest and fastest-moving items, we carry less than one day’s stock. We now have a third of the stock we had six years ago – and our customer service is better. We produce what we need for tomorrow – for ABI that was about 15 million cases per month last year.”

Five-step compliance Walter’s victory in the Compliance & Governance category has made him “smile many times”, he says, referring to some of the legacy procedures and systems he is dealing with after the bottling merger in July 2016. Without publicly quantifying what he encountered at a merger partner, Walter does count himself lucky that he has seen “what good looks like”. And good, once again, comes from an integrated approach. “The one thing that I have to say about the recognition for our excellent governance, is that it is something that runs through the whole business. And it has to. There is not just one person who is accountable for it, each person has a role. Governance is not just about a sequence of events – it’s a state of mind.” A great example of ABI’s integrated approach was its five-step compliance programme, in which all controls are documented and have a control owner. The first step is a manager self-test. The second step is an employee from finance who checks the controls, while also doing ‘blitz audits’. We are continuously modifying controls as they get outdated – they have to be relevant. The third

step is a monthly SOX state of readiness test, related to the compliance regulations for US-listed companies. The fourth step is internal audit, including routine testing. And the fifth step is external audit. “The audit committee gets a report with detailed information on all steps”, says Walter. Monthly reporting is done in the speediest way thinkable. “ABI used to close its books on the 31st of March and we would have our financials at the end of the day on the 1st of April. The next working day we are entirely finished, including tax. We achieved that speed four years ago. We used to only have the numbers four days after closing. You have to change a lot of minds to accomplish that. Once again – all through great people.” Even before the merger tombola started, Walter gained valuable experience in managing an intricate web of stakeholders. Again, clarity and getting buy-in works best, he says. “We engage, understand and confront with facts and analysis. You need to have a relationship with all stakeholders. I have a strong relationship with the board and with SAB and sometimes need to act as mediator.”

Better, not perfect With this evidence of speedy reporting, wise stakeholder management and a solid compliance programme, the award does not come as a surprise. Walter also likes to send his managers on CPD training and he is continuously trying to promote a culture of continuous improvement in governance and compliance as well. “Continuous improvement is a slogan we are using a lot in our business. Maybe you are not making it perfect, but are you making it better? You get to a stage where the majority of the organisation understands this. What sometimes muddies the waters is when urgencies become

LEADERSHIP so pressing that you become a bit blinded and want to take a shortcut. Those are times when you are not the nice guy. Running a business is not a popularity contest. Sometimes you need to make a controversial statement or hold the mirror up: what are we doing here? Can it be all over the Sunday newspapers? A good CFO, Walter assures, needs to be flexible, a word often eschewed by bookish accountants. “You need to strike a balance between being a rigid, hard-assed guy who does what needs to be done and being flexible about the way things get done. Sometimes things can get done differently for the sake of a greater objective and as a CFO it is your role to not let nuisance rules get in the way of speed. At ABI we invested hundreds of millions of rand and invested in competitive pricing. As a FD, I could have said: I need endless analysis, I need absolute certainty. The other option is to acknowledge that growing a business is not a precise science. If you want a perfect situation before you start moving, you will never move on anything.” After such a long career, could Walter apply his skills and experience elsewhere, as a CFO in a completely different industry? He is quick to say that he is very happy in his job. Maybe someday he may be open for alternatives. As the cliché goes, communications is key. “A good CFO starts with engagement. You have to be able to engage upwards to shareholders, the board and your fellow directors. But to play the role of leader, you also have to be engaged and inspiring for people that work with you. I am calm and caring, with a fairly good EQ. I think things through and I am fairly predictable. I empower so people can make their own decisions. There needs to be clarity about what ‘good’ looks like and for that, you first need clarity in your own mind. In the end, you only get results through people.” l

Four owners in one year? Chances are that Walter’s company will be reporting to four different majority shareholders within the space of just a year. Insiders describe the latest discussions about the future of the entity – between AB InBev and Coca-Cola – as “heated” with several parties not seeing eye to eye. The South African government will also watch the talks with great interest, considering its involvement in previous agreements. •

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When Walter came on stage in Johannesburg to receive his awards, he still worked for ABI, the Coca-Cola bottler that was fully owned by SABMiller and was servicing Gauteng, KZN and parts of Free State and North West (57 percent of the SA market). In July 2016, SABMiller merged its bottling operations in Africa with Coca-Cola and local bottler SABCO, majority-owned by the Gutsche family. This process took over 18 months, due to protracted discussions with the South African government and competition authorities. The new entity is called Coca-Cola Beverages Africa and Walter became financial director of its South African operations, Coca-Cola Beverages South Africa. Besides Coca-Cola, it bottles many favourite drinks, like Fanta, Sprite, Appletiser, Valpré and now also Monster. In October SABMiller was eventually bought by AB InBev, the new majority owner of Coca-Cola Beverages Africa. After the SABMiller take-over, The Coca-Cola Company immediately exercised its right to acquire the bottling operations from AB InBev, given the ‘change of control’ clause that had been part of the bottling agreement. This means Coca-Cola is now in discussions with AB InBev about the purchase price of the majority shares of CCBA. According to analysts there is a good chance that Coca-Cola will subsequently sell its shares to another big international bottler. If this happens quickly, it could be four owners in one year for Walter.

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LEADERSHIP Public sector CFO events explore what it takes to speak truth to power

Politics as important as the numbers CFOs in the public sector have to be as skilled in the art of strategic relationship-building and diplomacy as they are with working with numbers, finance professionals agreed in a breakaway session at the Finance Indaba Africa event at Sandton Convention Centre in Johannesburg on 14 October 2016.

ponsored by Standard Bank, the public sector session aimed to unpack the role of the CFO as the ultimate stakeholder, dealing with boardroom dynamics, extracting truth and building effective relationships while facing the direct, difficult challenges of business. CFOs painted a picture of a stressful, high-pressure environment that required a cool head and for them to go above and beyond the usual finance duties. They described having to deal with ulterior motives, being excluded from executive decision-making and being asked to rubber-stamp proposals without consultation, as well as the additional stress of operating in an acting capacity and enduring a change in administration. “Without a long-term vision, you won’t be able to implement anything in a structured manner. We’ve found that even with a complete change in administration, nothing has actually changed in terms of processes, except for new faces in

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the council and a new vision. The priorities boil down to the same thing. As a CFO, you must be aware of the implications on long-term models at any given moment. You need to give your accounting officer enough foresight and use your longterm vision to talk the politicians through realities on the ground. CFOs must serve as custodians of both the financial and the strategic mandate,” said Umar Banda, CFO of the Tshwane municipality. Ultimately, CFOs in the public sector felt that their success lay not just in technical competence, but the strength to speak out and go against the grain in the boardroom when necessary, while having enough emotional intelligence to be able to gauge sentiment and adapt their approach to suit different personalities and agendas. “I’m a straight-forward person who usually tells it like it is,” said Irene Singo, CFO of the Department of Mineral Resources. “In the boardroom, however, I’ve learnt that this may not always be the best

approach. You’ve got to look at things from the other person’s perspective and understand the reasons behind why they feel the way they do. You have to find a way to ensure compliance without completely alienating people. Say to them: ‘I understand you, but with the budgetary constraints, let’s find alternatives to help you achieve what you want.’

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How the Post Office began its turnaround The South African Post Office has been beset by mismanagement and labour issues over the past few years, though CEO Mark Barnes and Postbank CFO Nichola Dewar have been credited with steering the organisation into calmer waters. The pair discussed their efforts in a CFO SA session sponsored by KPMG and facilitated by CFO SA MD Graham Fehrsen at the Indaba Club in Johannesburg on 10 November 2016.

socio-economic mandate. According to Mark, in South Africa, the Post Office is the closest touchpoint for most people to the formal economy. Helped by the fact that he was new to the public sector and didn’t have any baggage or political master, Mark set about repairing the damaged relationship with labour unions by encouraging a galvanised mentality and coming good on promises that had been broken by his predecessors. He also began looking into questionable contracts and became the first Post Office CEO to visit the massive Witspos mail centre in the south of Johannesburg.

passionate proponent of the modern post office, Mark sees the organisation as an instrument that can be used by government to combat inequality and increase financial inclusion, with its 50 million addresses, 2,800 branches, unparalleled rural distribution network and

In order to restore confidence in a damaged Post Office brand with a downtrodden workforce, outdated structures and processes and a culture of going through the motions, Barnes stressed the importance of telling the truth at all times on taking the helm at the ailing organisation – his first commandment was “one lie, goodbye”. “As you lie, you begin compounding your problems. We began testing everything

through the axiom of truth. When you explore truth, you become ready to exercise judgment. If you don’t make decisions and delegate, you can’t harness the true power of your organisation,” he said. Mark also suggested that successful operators in the private sector be obliged to share their expertise as a national service. “We want to invite the private sector to help us learn, not replace us. Their arrogance is a hindrance to the progress of the country.” Nichola called Mark’s leadership a breath of fresh air in an environment characterised by protocol and “massaging the message”. “Mark is a straightforward leader – he doesn’t have any sacred cows. I had gotten used to the way things were done at the Post Office, even though it was incorrect. Mark challenged assumptions and encouraged his staff to take responsibility.” l

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LEADERSHIP Six CFOs share motivations behind careers at the Finance Indaba

Careers on the couch What is the appeal of working in the public sector? How useful is international experience for a CFO? How can female finance leaders succeed and thrive? Those poignant questions were answered at Finance Indaba Africa 2016 in a series of three extremely insightful interviews in event’s Career Room by Roy Clark, managing director of ClarkHouse Human Capital. By Georgi Guedes

The public sector CFO: a higher purpose On the Public Sector panel, “We’re not there just to get a pay cheque; we’re there for a higher purpose – to deliver to taxpayers and to make people’s lives better,” said Dumisani Dlamini, CFO of the National Arts Council. Dumisani was crowned both Public Sector CFO of the Year and Young CFO of the Year at the 2016 CFO Awards.

able to reward people progressively through their salaries, depending on the value that they add.” However, they said, educational institutions tend to push their students towards employment in the private sector. “Training institutions need so start developing courses in the public sector, and start training public sector accountants,” said Clifford.

Dumisani was interviewed about his ‘calling’ together with Clifford Appel, CFO of the Department of Social Development, who was also nominated for this year’s awards. According to Clifford, it is not all about doing good for others, as working in the public sector is also good for yourself. “Remuneration of public sector officials is high, if you look at an [what an] entry-level chartered accountant [earns], we’re there.”

At the conclusion of the interview, Roy asked both CFOs what the people in the audience should consider about a job in public sector finance. Clifford said that there is always space for innovation and creativity, something echoed by Dumisani: “As public sector finance officials, we look after R1 trillion a year in finances. That’s huge. If you have the courage and are innovative, it’s a great time to be in the public sector!”

Clifford agreed with Dumisani’s statement about serving a higher purpose though. “We know that we are changing lives,” he said, detailing his work at the social services department. “We’re helping substance abusers, and helping people make a livelihood.”

The international CFO: outside the bubble

Dumisani said that there is also a great deal of growth potential in the public sector. “The most important thing is that even if you stay in the same role, there is growth within that environment. And we are

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the one with international experience. “Until you have stepped outside of your bubble, you don’t really understand that you are a global citizen. You learn how to connect, how to get inspiration, you are exposed to different business trends,” he says. “I challenge every up-and-coming CFO to get out of their comfort zone. You need these skills because you can no longer operate on a micro scale and be the best in your career.” However, he said that international opportunities don’t just come along – you have to work for them. “It’s like anything in life, nothing will just happen for you. You have to intervene, drive it, and be passionate about

“The world as we know it is becoming more and more global, and the demand for international experience is growing,” Roy said, before turning to the next panellists to ask why they believe working globally is a must. Wayne Beifus, the head of finance at BAT South Africa, who has had a 20-year international career, said that if he had two CVs on his desk, everything else being equal, he would take

Jo Pohl and Mary Vilakazi

LEADERSHIP what you are trying to achieve.” Bikash Prasad, CFO for Africa and the Middle East at Olam International Limited, and this year’s winner of the Moving into Africa Award at the CFO Awards, added that to get international work, you have to identify the right companies to work for. “You have to ask, is this organisation adding value to my CV? You need to make compromises to work in the right place – even taking a lesser salary. You have to work at the right companies and have the right profile in that company, Bikash said. Once you’ve landed an international job, your ability to harness diversity is your greatest asset, said Wayne. “You’ve got to understand how to connect to the local talent – that is probably one of the biggest learnings you can get from taking your career international.”

The woman CFO: competence and confidence The first question that Roy put to the two women panellists was whether they agreed with the statement that “behind every successful woman is her mind.”

Bikash Prasad, Wayne Beifus and Roy Clark

Jo Pohl, the CFO of Telesure Group Services said that while that’s a part of it, she still believes that no woman is an island, and that it’s important to acknowledge the people who got her where she is today. Specifically, she mentioned her husband, who is a firm believer in shared parenting and other responsibilities. After sharing a high-five with Jo for also being a mother of four, Mary Vilakazi, the CFO of MMI Holdings, said, “I agree with everything that Jo has said, but also believe that behind every successful woman is herself. I have had to overcome the self-doubt I picked up growing up with brothers and cousins that were male, who got to play outside while I had to do the dishes. When I got to a working environment, the biggest thing I had to overcome was that voice in my head.” Jo also pointed out that women sometimes don’t celebrate their successes enough. “We don’t only need competence, but also confidence.” However, this, she said, can also be a double-edged sword because confidence can be construed as aggression. She has, on a number of occasions, been called out by male

colleagues for being “quite tough”. “So I learnt very early on in my career – from a man who coached me – to phone a friend or to talk to people about what you’ve done because we often don’t celebrate our successes.” Mary said that she has been fortunate in the friends that she picked up along the way. “I have professional peers – I met a lot of them at varsity – and they have really become an anchor. When I became a finance director last year, one of my friends asked if I was going to present the results this year. I said no, another time, and she said to me, ‘You WILL present the results. It’s not about you, it’s about all the other women who look at your achievements.’” When asked what their final advice to women would be, Mary said that in addition to trusting themselves, women should accept that it is only through hard work that they can live up to their talents and be recognised for their abilities. Jo, exhibiting the organised mind of a financial professional, listed her five points in order, calling them her personal BBBEE code: Be authentic, be curious, be bold, engage, escape. l

Dumisani Dlamini and Clifford Appel

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LEADERSHIP Lessons from journeyman CFO Wayne Beifus, British American Tobacco

Culture club From the South Pacific to Eastern Europe, to the heart of the Winelands, the CFO career of Wayne Beifus at BAT has spanned four continents and seven regional offices. He speaks to CFO South Africa about navigating diverse workplace cultures and increased uncertainty in globalised business. By Kate Ferreira

ix months ago Wayne Beifus took up his current role as area head of finance at British American Tobacco (BAT) South Africa. It was the culmination of a 20-year journey that has sent him around the world, before landing him right back home again, overseeing the financial fitness of the tobacco giant in his country of birth. The challenges of a highly contested product and a volatile local environment aside, Wayne brings all his cultural experience to bear on the local team, and reconnects with South Africa at the same time.

“There are many opportunities to work overseas. Of course, we want those skills to come back, but a few years’ stint can really open doors.”

Setting sail

Soon though, Wayne was offered a role he couldn’t refuse – BAT Finance Director for the Fiji, Samoa and Tonga region. “A few weeks in, I found myself sitting around a boardroom table with some very senior

In 1996, as a newly qualified chartered accountant, Wayne headed to London for travel and work. “I had just written the board exam the week before. I turned down a partnership to travel, and told my mother to keep my textbooks, saying I’d be back in six months.” Six months turned into four years in the UK, and Wayne established himself first as a chartered accountant, then later a financial controller. “It is something I’d encourage young South African CAs to do,” he says.

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The work was good, and the money (R8 to the pound at the time) exciting, but the next leap awaited, so he quit, and with no job to move for, Wayne and his wife moved to Sydney, Australia – ostensibly to put down roots. “I joined BAT, and I knew that with their global reach there would be travel, but at the time I didn’t want it. I thought I had ‘done that’, and was looking forward to being in one place,” he says.

“If an opportunity moves you forward, we should take the chances we are presented with.”

Tongan government officials debating sustainable approaches to excise duties, and I had this moment of realising how far I had come. Since then, my wife and I have been of the opinion that if an opportunity moves you forward, we should take the chances we are presented with.”

Local insight This view became a guiding principle in many ways, explains Wayne, ‘to move towards things rather than away from something’. A few years on, this thinking would see the family off to Serbia where he worked as finance director for BAT South Eastern Europe, and a year later to the Ukraine where he fulfilled the FD role for the Ukraine, Belarus and Moldova region. Taking these big chances and running with them wasn’t always easy, according to Wayne. “When we first arrived in Kiev, it was -25 degrees. I wasn’t allowed to drive, and had a 90-minute commute in to the office. At those temperatures, there is no one on the roads, it’s abandoned, and this was my first experience of this new life.” Even harder was an initial sense of disconnection with his team and colleagues. “I had forgotten my golden rule about

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LEADERSHIP

“In Japan everything is about how you impact other people.”

understanding and embracing the culture of a place,” he says. “People are all the same all over the world, but you need to adapt to the local way of operating.” Wayne calls this a big turning point for him, and it would provide a lesson he would revisit time and again. In 2010, Wayne was sent to Japan where he was FD of one of the largest businesses within the group, employing roughly 1,000 people and generating turnover of over £1 billion a year. But as restructuring in the business loomed, Wayne would have to put his hard-won cultural sensitivity to the test again. “In Japan everything is about how you impact other people,” he explains. “In a corporate sense, this means that there is a lot of necessary discussion and collaboration. And to make a move like restructuring, it must be demonstrably not about profit, but the bigger picture. You have to play a longer game in Japanese business where you focus on the sustainability of the company and long term jobs.”

Global perspective Local variations aside, there has been at least one constant in his 15 years with BAT: company culture. “You can go anywhere in the world with BAT, and the spirit of the company is the same. It’s led by our values, including freedom through responsibility, strength in diversity, and self-development. This results in a team of fantastic hard-working people, and an extremely professional but informal atmosphere,” he explains.

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“I certainly didn’t expect to join a company and be there for 15 years. I’ve been offered other opportunities along the way, but the emotional connection I have to the company is so strong.”

Leading at home Now Wayne’s crash course in culture is playing out back at home. “I had this pull to come back to South Africa,” he says. “It has been wonderful, but what struck me is that the South Africa that I knew and the country as it is today are so different.” It’s not the politics of the place or the very necessary and positive transformation in the workplace, he adds, but rather a sense of rediscovery. And he’s working

hard with the team to give them the space to do their best work. “In general, South African employees want to be empowered to operate within their own space, but they are sometimes apprehensive to take the space,” he says. “When I started to give permission to the team to make the calls, we saw quick results.” “When I turned the conversation around from them saying ‘we have a problem’, to one in which they are all happy for me to say ‘you make the decisions, you’re closest to the challenge,’ people more than stepped up. My team know that they can make the decisions, and whatever the consequences, I’ve got their back.”

LEADERSHIP this. His priority is that the regulations implemented allow for sustainability across the board. “More than half the price of each pack of cigarettes comprises excise duties – a means of tax collection for government. This means that for the tobacco industry, a very big part of our business is working with government to suggest sustainable models for excise duties. These are a critical tax collection tool, especially in developing nations where they can form up to ten percent of government revenue,” he explains. In South Africa alone, BAT contributes up to R14 billion in excise & VAT. According to Wayne, however, South Africa has a very significant and growing illicit cigarette trade problem. This includes tobacco product that has not paid the necessary duties, and so can be sold at very low prices.

A contested space The current challenges in the industry have required a lot of this team trust and support. Not only does tobacco remain a controversial product, but regulation of and operations in the industry are under scrutiny. One of Wayne’s key concerns at the moment is engaging with public stakeholders around

“What struck me is that the South Africa that I knew and the country as it is today are so different.”

“Today, when you go out into the market and look at the prices at which some packs are being sold, it is clear that the tax has not been paid,” says Wayne. “The tax or excise and VAT component on a pack of cigarettes is at least R15.10 – irrespective of the price it is sold at. So if cigarettes are sold at R10 or R8, it is evident that the tax has not been paid, robbing the country of much needed revenue. Between R4 billion and R5 billion is lost annually in South Africa to illicit trade, and R24 billion over the last five years. The incident of illicit trade in South Africa is twice the global average, and now makes up almost a quarter of the total market,” he continues. He is also adamant that no matter how controversial the product, tobacco industry players need a seat at the negotiating table. He argues that some of the legislation that is being promulgated has unintended consequences, adding that it is imperative that all the stakeholders involved understand the full picture

of what is involved and the implications before bringing in legislation. He says: “You can end up achieving completely the opposite from what you thought you were going to achieve”.

Enabling growth These public debates are just one aspect of the risk Wayne must manage – his role includes financial oversight for ten countries in southern Africa – but he is keen to move his team from merely reacting to these risks and influences, to casting forward where possible. “In this industry, that can be tough,” he admits. “In terms of the political and economic environment, we were caught in wheel-spinning situations, dealing with crisis, and constant fire-fighting. My focus is to move back to a more medium- and long-term focus. We are working on determining our next set of goals, and moving towards a strategic five-year focus.” Taking the base skills of the financial team to the next level is an important focus in this regard. Wayne has created a structure in the team that means the “bread and butter” skills of a traditional CA are now at least two levels below him, freeing him and his team up somewhat to focus on the business itself. This is, Wayne suggests, another type of culture change to navigate. “You can’t just cut costs or increase prices. You can’t just hope for the best when there is legislation coming your way, you have to create an integrated platform on which you can engage properly both inside and outside the organisation.” “So what I am expecting from my team is business leadership. And what I am expecting from myself is organisation-wide leadership. I see my responsibility as very similar as that of the CEO. I challenge CFOs to see themselves as CEOs, and to be able to step into the role if needed.” l

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LEADERSHIP Guest article by Nopasika Lila, CFO Eskom Pension and Provident Fund (EPPF)

Mastering the boardroom In a world of ever-changing boardroom dynamics, Nopasika Lila is growing more confident by the day as non-executive director and CFO of the Eskom Pension and Provident Fund (EPPF). In this guest article she reveals how she has charted her path to success, talks about her love for the piano and shares some crucial lessons about mentoring and people management. By Nopasika Lila

was mostly raised in the Eastern Cape and took the decision to move to Johannesburg after completing a BCompt degree at the University of Transkei (now known as Walter Sisulu University). I felt that a move to Johannesburg would enable me to access more opportunities and role models in a more vibrant business environment. Like most chartered accountants, I have a collection of stories to tell about overcoming adversity and bias in the business world.

Piano and Mandarin I believe that my family tricked me into becoming a chartered accountant! My older sister, Nomfundo Lila Qangule, studied to become a chartered accountant while I played the piano and dreamed of studying music. My family advised that I should be cautious not to confuse a hobby for a career and in retrospect, they were absolutely right. I

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have thoroughly enjoyed my career, but I have made time for my love of music, road running and other interests. To this day, I enjoy playing the piano and Richard Clayderman’s soulful compositions are among my favourites. I have also taken the time to learn Chinese Mandarin and German, both of which I am able to speak, read and write. Growing up, I remember being told that accounting was a difficult field and that those who were studying to become CAs were considered to be part of the elite. I would go as far as saying that the qualification was considered to be something that is not achievable and reserved only for a few. I was initially overwhelmed with the task at hand, but over time I elegantly succeeded. My confidence grew and I’ve learned to be a lot more decisive, deliberate and immediate in my actions. After completing articles, I was keen

on the financial services industry, especially asset management, as it was then still just a buzz-word in my experience. I joined Old Mutual as an introduction to the industry and then moved to the Public Investment Corporation (PIC) where I served as the Head of Compliance and Corporate Governance. I ventured into entrepreneurship when I established Astute Intellect, a financial and governance consultancy. I co-founded this business with Nomfundo, a former Chief Financial Officer (CFO) of Harmony Gold. I missed the corporate environment and subsequently made the decision to move back, which is why I joined the Eskom Pension and Provident Fund (EPPF) as the CFO.

CFO evolution The EPPF is one of the largest retirement funds in South Africa, with over R130 billion assets under management and with a membership base in excess of 95,000 members.

LEADERSHIP is important in enabling the entire organisation to move together as a team towards achieving the strategic goals. Factors that have contributed to our success include our people, improved reporting, implementation of new technologies which have made for both quick and accurate decision-making, the prioritisation of timely pension payments, integration with other financial institutions and the introduction of investment reporting dashboards.

Non-executive

Kholiwe Makhohliso, country MD Oracle SA, with Nopasika Lila

Working at the EPPF has provided me with exciting challenges, which I choose to view as opportunities for improvement. We have worked hard to serve our members and pensioners and make them aware of their benefits. Retirement funds from across Africa often visit our offices to enquire, learn and understand the successful growth of the EPPF. What attracted me to join the EPPF were discussions held with the Chief Executive Sbu Luthuli, where he shared his vision of wanting to transform the role of CFO from the conventional accounting role that it was into a more strategic and partnership role that was a support to the CE. It has been an exciting challenge to be a part of this evolution of the CFO role. Business and process re-engineering has made all the difference at the EPPF. We realised that, as the organisation changes, strategic alignment

I enjoy strategising and seeing plans to fruition and there is no better place than the retirement industry in presenting those opportunities. I also enjoy keeping up to date with world news, which is an imperative, given that approximately 25% of the EPPF’s assets are invested offshore, requiring that we are in tune with what is happening globally. I have served on various Board and committee roles, which include among others, non-executive directorships at JSE-listed companies such as Nampak Limited, Basil Read Limited and enX Group Limited. I am grateful for these opportunities and they have all contributed to growing my capacity as a leader for my current role. As part of enhancing my leadership acumen, I attended a leadership programme at the London Business School and the Deloitte CFO Transition Lab. I gained valuable insight on ways of managing the complexities of the role and adapting to strategic shifts in the market. Over the years, I have observed attentively how South Africa’s boardroom dynamics have changed, which has improved my ability to deal with conflict. I’ve found it valuable to consider and understand the other person’s point of view which has helped manage confrontation.

Pleasantly surprised Leadership roles are demanding, because one has to balance the workload and provide the necessary leadership for the team. I think that people should be given freedom and be provided the latitude to be wrong and to learn from their mistakes. Over time, I have developed an inclusive management style and I am convinced that this yields the best results. Business is about people and if you believe in them and they know you trust them, I can guarantee that you will be pleasantly surprised by their abilities, enthusiasm and commitment. Everyone is intelligent in their own unique way and understanding this has enabled me to listen with intent and build on the wisdom learned from others, harness relationships and thus making it easier to accomplish our set goals.

“I endeavour to make a difference in people’s careers and I really enjoy growing people.” I endeavour to make a difference in people’s careers and I really enjoy growing people. I have looked into how we can contribute to growing CAs at the EPPF and to this end, we are working hard to have the EPPF accredited as a SAICA training office for articles. I have mentored a number of CAs and encouraged them to pursue excellence in their careers. Young CAs often confuse the CA (SA) title with immediate affluence, but in reality, the change comes with hard work and experience. I remember having to work hard to prove myself as a young CA and came to realise that one should not be deterred by the environmental challenges. You just have to work hard, very hard. l

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RISK

Policeman and enabler: CFOs discuss risk, tech and culture With cybercrime, Brexit and the surprising result of the US elections affecting economic sentiment, these are unpredictable times. The modern CFO has to contend with the risks of this environment, acting as both policeman and enabler, but relinquishing the natural tendency to forgo all risk.

uring the CFO event on 10 November 2016 at the opulent Inanda Club in Johannesburg, leading financial executives examined the critical skills needed for ascertaining risk and identifying blind spots, elaborating on what they are doing to enhance their ability and the organisation’s risk capability. The event was sponsored by KPMG, Standard Bank and Thomson Reuters, with Luvuyo Masinda (CFO Standard Bank Corporate and Investment Banking), Sibanye Gold CFO Charl Keyter and Thomson Reuters Africa MD Sneha Shah sharing their thoughts on the subject. Luvuyo said that Standard Bank was looking to allocate resources to deliver profits within the defined risk appetite in a purposeful manner: “There are internal and external forces influencing risk, like regulation and compliance that isn’t always fit-for-purpose in banking. We could write books about poor risk management and have lost money and eroded shareholder value because we didn’t understand our clients.” Standard Bank’s new client-centric approach means that the business

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is engaging with staff directly in an effort to get them to understand the broader goal of the company and train them to develop their personal brands in a way that didn’t harm the bank’s reputation.

Reality check Risk is in mining companies’ DNA, from mine shaft to boardroom level, asserted Charl. He said Sibanye mitigates risk with conservative pricing assumptions and that his role entails understanding the complete value chain of the business and identifying opportunities that arose from risks. “The CFO must be the reality check for those who are happy to run down a path across all sectors. There are rules that introduce this internally, but recruitment of people who fit into our culture and direct communication with employees are also important,” said Charl. Sneha stated the role of a CFO in acting as a firm’s conscience in a shifting world and being seen to do the right things was more challenging than ever before. “CFOs have to know what is going on, not just on site, but everywhere else. They need to take a step back and lift themselves above the clouds

to gain a better perspective than anyone else. This can be overwhelming, but there are solutions that can help,” she said.

Change-ready Of these solutions, automation and technology, which allow CFOs to leverage big data and bring up red flags, is critical. Thomson Reuters, for example, has the capacity to scan 100 million websites a day. Another key aid is a diverse workforce that offers different perspectives and skill sets to help organisations with the kind of countervailing forces that may have prevented the subprime crisis. Finally, and most important, is a change-ready culture. “Thomson Reuters has invested in an external service provider to drive culture change and to understanding our language, values and principles. This has worked wonders. We haven’t failed to meet shareholder expectations over the past five years and our staff speak-up rate has gone from 71% to 91%. Culture is the glue that holds the company together, but it is also what allows for rapid change,” said Sneha. l

RISK

Importance of people and culture “Today’s discussion around risk has really given me a few new things to think about,” said Luvuyo Masinda, CFO Corporate and Investment Banking, Standard Bank, after the event. “It has been good to really get an appreciation of what my colleagues and other CFOs are grappling with and how they overcome some of the challenges around risk. Also, the event has highlighted the importance of our people and culture in order to have a robust risk framework.” “CFO events like this, really give me an opportunity to network with my colleagues and to stay abreast with what other sectors are facing as challenges. It sharpens our minds, it gives me a different perspective and there are always great ideas that come out of these sessions which I can take back into my role.”

Three conclusions about risks and CFOs “As CFOs look at risk, I think there are three things they really need to think about,” said Sneha Shah, MD Thomson Reuters Africa, after the event. “The first one is around how they use technology to better help them have perspective, because I think if you’re deep in the data you’re not able to have that perspective.” “The second thing for me is talent. Do you have the right people in your organisation? Do you have a diverse enough organisation in terms of people who bring different perspectives, different backgrounds, different points of view? So that when you are looking at opportunities, you are able to see the risks and when you’re looking at risks, you are able to see the opportunities.” “And the third thing for me is culture. Because, if you don’t have the right culture in the organisation, a CFO can never really be proactive they’re also going to be reacting to things that are happening in their environment. Those three things are really key for me.”

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RISK CFO Barrie van der Merwe talks about the role of finance after ‘Marikana’

Learning and leading at Lonmin The CFO and his team have an important part to play in navigating the troubled waters at Lonmin in the aftermath of the strikes and Marikana’s deadly clashes of 2012, says Barrie van der Merwe, who joined the platinum miner in April 2016 as CFO. “Finance allocates capital to the business and we need to do that in a way that supports the social and sustainability agenda and the interests of all stakeholders.” Our senior editor Toni Muir had a frank conversation with Barrie about leading in an environment with plenty of “scars”. They also chatted about the lessons he learned at Botswana’s diamond miner Debswana, the role of his father, mother and triplets, playing guitar and concertina, and collecting vintage cars.

f not for his mother’s insistence that he undergo psychometric tests, Lonmin chief financial officer Barrie van der Merwe may have pursued a career in music. “I realised early on that music wouldn’t pay the bills, so it’s become my hobby. I almost blindly followed what the industrial psychologist told me, to become a CA. I’ve never looked back since.” Barrie has spent most of his working career in the mining sector, though he says this was “less by design than

“In diamonds, we really understood what the markets were like, what sells, who buys.”

by opportunity”, as things simply happened this way. “As a young CA I was working in public practice with PricewaterhouseCoopers as a technical specialist. Just as I completed my articles, I was approached by a friend to start a technical accounting unit at Anglo Platinum. That’s where the association with mining started,” he explains. Once you’ve made a name for yourself in the sector, Barrie says, it’s difficult to be seen as anyone other than a mining finance guy: “Once you’ve spent 15 years in an industry, that brush paints you.” That said, he finds the mining sector an interesting one in which to be employed: “The industry presents unique challenges to those willing to deal with complexity and ambiguity. For a CFO in this industry, a key challenge is extreme market volatility. In South Africa that comes from both

the commodity markets and the exchange rate. This places quite an obligation on the CFO to manage the liquidity and capital expenditure of the company very effectively.” You have to be proactive with respect to operational performance and on any opportunities that the debt and equities markets present, he adds. “It also means that the relationship with shareholders and bankers is critically important.”

Talk their talk A further distinguishing feature of the mining industry, according to Barrie, is the CFO forming business partnerships with individuals such as mining engineers. “It’s a technical environment out there and you need to be able to talk their talk,” he explains. “Also, the level of oversight and regulation in mining is the highest in South Africa, which requires the CFO to be very flexible in the planning

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RISK cycle to ensure that when we budget and forecast that we allow for some flexibility in our capital expenditure and our revenue streams.” Prior to joining Lonmin, Barrie was CFO at Debswana Diamond Company, and moved to Gaborone with his family – his wife Elmin, three children and his parents in-law – to fulfil the role. He says the diamond industry taught him a lot about the importance of the end consumer. “In most commodities we don’t look at the ultimate consumer. In diamonds, we really understood what the markets were like, what sells, who buys. I learnt a lot about the ultimate consumer, and looking through to this in planning,” he says. Debswana is a core pillar of that country’s economy, and Barrie says this taught him much about the responsibility that mining companies have to countries and communities to ensure they manage their resources and longevity properly. “I learnt that as a company it’s very important to be clear on your focus and purpose,” he says. Barrie joined Lonmin in mid-April 2016, and says it has thus far been a “tremendous learning experience.” He says: “I’ve learnt more than I thought was possible and I’ve been challenged handsomely by the role. This is not my first CFO role but it is my first in a listed company. Lonmin is also dual listed (primary listing in London and secondary in

“As CFO, you are the allocator of capital, allowing many of these initiatives to fly or not.” 60

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Johannesburg) which provides an interesting challenge.”

Mine to market Lonmin is one of the world’s largest primary producers of Platinum Group Metals (PGMs). These metals are essential for many industrial applications, especially catalytic converters for internal combustion engine emissions, as well as their widespread use in jewellery. Lonmin’s operations are situated in the Bushveld Igneous Complex in South Africa, where more than 70 percent of known global PGM resources are located. Lonmin creates value through mining, refining and marketing PGMs and has a vertically integrated operational structure − from mine to market.

Barrie says he has not been quick to make changes to the finance team or the way things get done. “There’s a strong finance function here and the systems work well. I have made some changes to the structures to enable me to get a bit closer to things like procurement, and made changes to ensure we resource treasury with a specialist who can focus on capital structure management. I’ve also tightened some approval frameworks and started looking at the business integrity processes.” He says his role is “quite broad”, as it also contains a sales and marketing component – not something ordinarily found in the CFO job. “So I’ve also started doing some work on the market development strategy,” he adds.

RISK

His plans for 2017 include getting started on a people development agenda to “ensure competency frameworks are in place to empower the people who work in my teams to understand where they are and where they could go to”. Barrie notes that this is something he has done in all the organisations at which he has worked, “to ensure we take the people agenda from anecdotal to a more factual and scientific space”.

Engaged but scarred Lonmin has experienced a fairly tumultuous time in recent years and Barrie says this has impacted the CFO role quite significantly. “Lonmin has quite an involved recent history, so getting to understand the detail behind this remains an emerging picture, though it’s getting clearer every

day. There’s a lot of complexity in this company that I need to understand and learn about. Also, there’s the internal part of the organisation and then there are the external interfaces. Internally, the financial situation of the company has led to numerous restructurings, as one can expect. This had a significant impact on morale. Lonmin’s people are very engaged, despite what they’ve been through, but the scars are there. Externally, these events have impacted on how our clients, NGOs and funders view us. So, that impacts our brand and how we are seen.” To remedy this, he says there’s a lot of work to be done by the leadership, collectively, around resetting expectations externally. “As CFO you are at the core of all these things, as the allocator of capital, allowing many of

these initiatives to fly or not.” Barrie believes that finance has an important part to play in navigating troubled waters such as what Lonmin has seen previously. “Finance can provide many enablers to ensure we are proactive and achieve business success,” he says. “We must first understand that events happen which involve many players and many factors, most of which are outside of a company’s control. Sometimes it’s near impossible to plan for things like this but we can certainly learn from them and take active steps to prevent such events from happening again. Finance allocates capital to the business and we need to do that in a way that supports the social and sustainability agenda and the interests of

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“I don’t measure my success by rank or money or the size of the company, but I believe it’s all about impacting people’s lives for the better.”

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RISK all stakeholders. But this can only happen when there is liquidity and access to money.” Risk management also has a role to play, he says, as does procurement and sales, “where we can contribute to things like enterprise development and creating employment opportunities”. Finance is often the catalyst that triggers tough calls, he says, such as job cuts. “Tough love is sometimes needed for the greater good and many times the CFO has to be the catalyst that starts some of these processes.”

Synergy with HR Barrie opines that CFOs and HR directors would do well to foster greater synergy between their two functions, especially when one considers that much of mining companies’ operating costs comprise labour – for Lonmin Barrie says this is 55 percent. “It’s worth partnering with your HR Director to manage this cost, as well as the escalation thereof,” he says. You need also to manage the variables, he adds, such as incentives and overtime, which must be done in collaboration with HR. “With a labour-intensive business like ours, we must ensure that people are healthy, at work when they should be, that they are financially literate, that their transport services work, and that they are engaged in their jobs. And all of this is done together with HR.” When it comes to risk, Barrie says it is important that the board has a clear idea of its risk appetite and what needs to happen should the company go beyond the pre-defined tolerance limits. “There are huge uncertainties in our industry and many of these are outside management control,” he says. “Where you can’t control things you must be very clear on when you change your reaction to that risk. In mining there exists a massive bottom-up risk as well, in addition to

other risks, which relates to safety inspection and audits, the reporting of incidents and closing of these actions. We need to check in regularly to ensure the top-down and bottom-up risk process reconciles.” Describing himself as an “open, honest and simple man”, when it comes to his style of leadership Barrie jests that he “gave up the right to be right a long time ago”. He says: “I don’t’ believe it’s necessary for me to have all the answers. I listen to people and I treat them with respect, irrespective of rank or who they are. Sometimes I am perceived as a bit of a softie but I know when to make the tough decisions and redirect actions. One thing that I’ve learnt, and which I learnt from Bongani Nqwababa, is that loyalty to the company is the most important thing. It’s not about being loyal to your boss but to the company. That’s ultimately the test of whether or not you’re doing your job well.” Barrie says he gets his motivation and drive from his father: “My father held a leadership position at the town council in Bethal where we lived in Mpumalanga. He worked very hard and I observed that. I watched him work at the dining room table many nights while I was still studying at school. That motivated me to do something useful with my life. I don’t measure my success by rank or money or the size of the company, but I believe it’s all about impacting people’s lives for the better. I try to find a higher order purpose in what I do. It’s not just about the job.”

Guitars and vintage cars When he’s not hard at work crunching numbers, Barrie can be found playing the guitar or concertina in his band, Rooted, polishing up his vintage car collection or seeing to one of his three almost-teenage children – he is the father of triplets, two

“I’ve also got an old ‘77 Merc which I bought from one of my uncles.”

boys and a girl. Barrie is the vocalist in his band, which he says is comprised of only corporate career folk, and which plays a live gig – a paid gig, no less – once a month at the Purple Cow restaurant in Irene. Barrie bought his first vintage car, a 1938 Chevrolet, in 2008, and restored it with his dad’s help. “It’s in perfect condition,” he says proudly. “I’ve also got an old ‘77 Merc which I bought from one of my uncles. That’s a family car.” Barrie says he’s always had an interest in vintage cars, a passion he seems to have passed down to his own son, as the two enjoy driving the restored automobiles around town. As far as juggling his family while building a career is concerned, Barrie says he believes that worklife balance is a choice. “I chose that I wouldn’t get myself to the point where my work becomes an issue at home. Leave is my core competency (he laughs). I always take my leave every year.” With such diverse interests outside of work, what is it that he enjoys about being a CFO? “I enjoy seeing the bigger picture in the organisation and being able to trigger proactive action because of this. I enjoy creating order and structure, taking something chaotic and simplifying it, putting order to it. The role allows you to get immersed in what the business needs, and get involved in all sorts of things, working in a space in which the CFO would never have been involved in the past.” l

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TECHNOLOGY KPMG expert Nathan Desfontaines calls on finance executives to get stuck in

Cyberthreats vs. the CFO Given the connectedness of organisations today, cybersecurity has become a fundamental part of business. Nathan Desfontaines, KPMG’s Cybersecurity Manager in South Africa and one of the most popular speakers at Finance Indaba Africa 2016, believes that this environment is challenging CFOs to look differently at operational requirements. By Nathan Desfontaines

ne of the biggest mistakes any company can make is to relegate cybersecurity to the CIO office. With technology permeating every aspect of business, this silo approach no longer holds true. In fact, it can open the organisation to a number of risks, not least of which is having its data compromised. With the CIO traditionally reporting to the CFO for new technology implementations (considering the cost implication on the business), the finance office is in a unique position to gain an organisational-wide perspective on the IT systems and process in place. This perspective might give way to the temptation of thinking that cybersecurity is something that can be rolled out annually and be forgotten about. Instead, C-suite executives need to work closer together in order for the business to become more proactive around protecting its most important asset – its data.

Reputation While there is no such thing as complete security, there are a number of measures that can be taken to minimise the likelihood of a breach: In the digital world, these breaches result in not only significant financial damage but reputational as well. And if the breach is significant enough, the company risks not being able to recover at all from such an attack. The top four means of incursion into a network are through exploiting system vulnerabilities, default password violations, SQL injections and targeted malware attacks. To prevent this, it is necessary to shut down each of these avenues into the information assets of the business. It is important that the company identifies threats by correlating realtime alerts with global intelligence: security information and event management systems can flag suspicious network activity for investigation. The value of such real-time alerts is much greater when the information

provided can be correlated in with current research and analysis of the worldwide threat environment.

Malicious insider Additionally, companies should automate security through IT compliance controls: by developing and enforcing IT policies across their networks and data protection systems, C-suite executives can help prevent a data breach caused by a hacker or a malicious insider, this mechanism works best for protecting sensitive information. It is important to remember that cybersecurity impacts on all parts of the organisation – from human resources and compliance, to business continuity and brand communications. Those organisations which see this as an integrated process are the ones that are best able to differentiate themselves from their competitors. So as much as some CFOs think that security is just a matter of rands and cents, the impact on the company is much more significant. l

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TECHNOLOGY

Disrupt or be disrupted – CFOs discuss digital transformation Top CFOs and experts from KPMG, Standard Bank and Oracle discuss the role IT should play in the strategy, talent management and finance transformation of businesses.

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By show of hands, how many people in the room have begun a digital transformation project in the last 12 months?” CFO South Africa MD Graham Fehrsen asked the crowd during his welcoming at the first Johannesburg breakfast event hosted by CFO South Africa on 15 September 2016. Virtually every attendant raised their hands. “So everybody is here to discover why it is not working or how to improve the ROI,” he joked to appreciative chuckles. Digital transformation was the theme of the event which looked to help CFOs come to grips with the concept of digital transformation, and to strategise or prioritise their responses to this critical business imperative. Despite the genteel setting of the Inanda Country Club, Graham

“Take the journey and take it quicker, or you will be irrelevant tomorrow” – Sarah George, Oracle. 66

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warned participants that he would be trying to make them uncomfortable, “as digital transformation is uncomfortable”, pushing them to identify their own challenges, opening up to their peers in the room rather than merely watching passively, and reporting back to the collective. This set the tone for robust discussion – both from speakers and panel members, and from an engaged audience.

Rethinking IT as technology tools for strategy The first focus of the morning was exploring the key elements for the effective preparation for digital transformation. “This sounds somewhat counterintuitive,” said Graham, “given that digital transformation is ongoing. It never has a beginning or logical conclusion. By the time you start, the technology has moved on and your business has changed. So getting your board and your team into the right frame of mind is absolutely critical.” Sarah George, an ERP & EPM Business Development and Product Strategy leader from Oracle South Africa, was the first keynote speaker. Sarah began her speech asking if the companies represented in the room had the right data in the first place, and secondly if they were using it

to unlock value. She introduced the idea of “disrupt or be disrupted” to the event, highlighting the impact that “nimble players” like Airbnb and Uber where having in their respective industries. Sarah’s answer for these challenges, and the risk they pose to business, lies in exploiting the power of existing tools, rather than reinventing the wheel. Oracle was on the “on-premise journey” for years, she admits, but now that is unsustainable. The rate of change in technology means that on-premise is a dead end. “As soon as you start customising, you are creating a monster that you can’t change,” she said. Instead applications, social media, data analysis and cloud-computing are the source of new solutions. According to Sarah, millennials are forcing through these changes, and ushering in the age of the gig economy and the virtual business model. And the role of CFOs in this? Sarah argued that they need to become “stewards, catalysts and leaders” for change in their organisations. To do so, CFOs must invest time and capital in adding value, and recognise the worth of their intangible assets, she urged. Whether the adoption happens all at once or incrementally, it must happen. “Take the journey

TECHNOLOGY and take it quicker, or you will be irrelevant tomorrow,” she said. This was a sentiment echoed strongly by the panellists, CFOs Christine Ramon from AngloGold Ashanti and Wayne Koonin from Omnia, as well as Brendon Wilson, the Director head of data, risk and finance technology at Standard Bank. Both Christine and Wayne described having to lead dramatic change in their organisation’s approach to technology, the least of which was shifting IT to report into the CFO portfolio. “Often when we have big challenges in organisations, I think this is typically put under the CFO [responsibility],” explained Christine. It does require profound shifts in thinking, Wayne argued: “The first challenge for us was in the board not seeing IT as being a core part of the business. I asked the board what our strategy was for the next 20 to 25 years, and if we can see ourselves being irrelevant in future simply because we are on the wrong path. It’s no longer about selling product, but rather data and knowledge.” “If you want to stay relevant, you have to change your whole philosophy and approach towards IT,” said Wayne. “Because of the rate of change, your platform is a legacy before it has even started. So, we need to change the culture and mindset first, by asking what the business strategy is, and how do we use IT to make that happen?”

from KPMG. “How can you, as the CFO, really be transformed digitally?” he asked. “Not by implementing a solution, but by changing your way of thinking.” Akash presented a solid case for CFOs driving this reimagining. In rearranging our businesses to be less operational and more insight-capable, he argued, we need to create space for leaders and staff to think big; for all teams to access the necessary data; to automate the accounting functions so we can spend more meaningful time on analysis; and to bring new ways of thinking into our workplaces. These include solid global awareness, and ‘swarm intelligence’ that replies on the power of the collective. Said Akash: “The CFO is there to be the analyst, the operationalist, but they are also there to be the talent champion.” This segued neatly into the topic for the second panel discussion – “the new talent for finance won’t be finance”. Here our panelists discussed their own successes and

“Because of the rate of change, your platform is a legacy before it has even started” – Wayne Koonin, CFO Omnia.

challenges in diversifying the teams and skills in their respective organisations – both at a graduate level and in executive recruitment. This entails both making space for juniors to be creative and to influence senior decision-making, and, as Brendon described by way of example, finding senior leadership staff who can navigate both finance and technology fundamentals equally well. “That is the message I am hearing today”, said Graham in summation, “whether you are developing talent, bringing new young people to the senior level, or changing thinking, you have to hold both of these centres.” l

“It’s important to remember that ‘agile’ is not just about IT,” said Brendon, underscoring Wayne’s earlier point. “This doesn’t work if you don’t have strong business leadership.”

Enabling teams and talent to drive transformation “It’s Spring, so let’s start with fresh thoughts and energy in how we look at digital transformation,” said second keynote speaker, Akash Singh

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TECHNOLOGY Futurist Graeme Codrington and funtrepreneur Martijn Aslander break the news

Adapt or die: five survival lessons Packed in among the expertise and insight focussed on strategy, transformation, digital strategies, auditing, and fintech at the inaugural Finance Indaba Africa on 14 October 2016, were two maverick international speakers – Graeme Codrington and Martijn Aslander. “It is adapt-ordie time.” By Kate Ferreira

raeme bills himself a ‘futurist’, and draws from history and in-depth research into trends and company culture, to inspire and lead businesses into what he sees as a future built on personalisation and partnering with technology. Martijn, on the other hand, calls himself a ‘lifehacker’ and ‘funtrepreneur’, and outlined for his audience the trends on the bleeding edge of technology and how these will shape our future. He also spoke about the attitudes needed to survive in this period of exponential change and disruption.

From these two quite distinct perspectives, and two wholly different presentations, though, some shared themes emerge like loose threads asking to be pulled. And they offer us – as companies and as individuals – some very actionable steps to prepare us for the fundamental shift that is bearing down on the world. So… dismiss everything you think you know. Throw out all the rules of doing business. Forget market segmentation, standardised processes, and patented innovations. Now, what’s left? Whatever that is, that

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might be your business core in the near-future. Is it enough? And critically, is its relational?

Personalisation For both speakers, personalisation is key. For Graeme, the smartphone is the cornerstone of personalisation. “No two are alike,” he says. “And that becomes my expectation that I have with every company in the room. If I can personalise my phone, why am I getting a one-size-fits-all from a company?” Personalisation empowers consumers, and makes them feel “known and connected”. This is the true power of big data, Graeme argued. “What is it for, if it isn’t about personalisation? You are one in seven billion. If we get this right, then I can predictively deliver something of value to you before you even ask for it.” Underlying this is the belief that people want to have a real relationship with companies. Not a fake customer service formalised process, but to see that the businesses we work with not only understand us as individuals, but are flexible enough to fit in with us – and not the other way around. For Martijn, much of the personal-

isation he wants us to be aware of comes from the individual, arguing that in a world of shared information – including designs, downloads and schematics all freely available to anyone online – personalisation is about decentralisation. It’s a move away from the conveyor belt approach of the industrial age. This represents another crucial shift in company culture, and both speakers are aligned on the idea that it really is “adapt-ordie time” for big companies. Martijn took this even further, arguing that when the power shifts to individuals, we will be incredibly intolerant of poor corporate behaviour. In response to a question from the audience about government and corporate control of tools, Martijn quipped “when the mice start to collaborate, good luck to the cats.”

Partnering with technology In the tomorrows envisioned by Graeme and Martijn, the power of technology will not destroy us, but support us and set us free. Graeme believes that we will be partnering with artificial intelligence (AI) and automation in order to do our jobs better and faster. From a business perspective, automation and AI will

TECHNOLOGY ships – between people, between brands and their customers, and between technologies. These connections are resulting in more change, more quickly, but “each node added strengthens the whole network” according to Martijn. Connections – to each other, to the internet, and between machines – are literally transforming the world around us.

help us serve and find customers better, and – as in the example above – offer predictive solutions. “When you partner with computers you can do things – like personalisation – at scale and speed,” he said. He believes companies will have to be able to supply the personal touch (for those who want it) and put in place great systems (for those who don’t). Those who can’t will be abandoned by customers who will be spoilt for choice in competing offerings. Martijn takes a broader view of the power of technology, arguing that new tech like 3D printing, big data, deep learning, DNA sequencing, open hardware and software, social swarms, and DIY platforms like Instructables.com will see humans collaborate through technology to solve many of our biggest problems. His near-future is almost utopian: free electricity and water, ubiquitous hygiene and health, and all the world’s knowledge available to anyone online.

Understanding people

Graeme Codrington

Knowledge is power(ful) Both talks shared a narrative of renaissance and change, the dawning of a new era as Graeme called it. And that new time is what we have begun to call variously, the information age, or knowledge economy, and sometimes the blue economy. Martijn’s take on this is fundamentally upbeat. He believes that when knowledge can be digitised and shared freely, it leads to dematerialisation. He points to the example of the smartphone, with tens of thousands of rands of technology all incorporated into a single device. Instead of continuing to purchase all of these separate items, we have one. Instead of paying for a green energy installation, he says, people will increasingly build it themselves with the information they got online. In this way, innovation in the time

Martijn Aslander

of the internet actually leads to economic decline but ultimately abundance. This seemingly contradictory position “is good news on a mankind level”, according to Martjin. We are moving towards an age of “haves” and “have not yets”, he argued. It’s a fairly radical world view – especially from the point of view of a financial controller or accountant in the audience of the Finance Indaba.

The network effect The network effect underlines these trends at a macro level, and it is also fundamentally based on relation-

A large part of Graeme’s presentation focussed on research his firm had conducted into the DNA of the world’s most innovative companies, like Uber, Samsung, and Google. He points out their mobile first philosophy, their use of machine learning and so on, as the key factors of their success. But underlying these, is a human-centred intervention that these companies understand. Organisations that have created a culture of connection, service, personalisation, and critically experimentation. “Failure is a necessary part of this,” he explained, adding: “What do you think you need to do to bring this mindset of constant change and upgrading to your company?” Several hours later, in a separate session of the Indaba, Martijn may just have offered his audience the fundamental answer to this. He believes that the key thing is to adopt an attitude of flexibility, curiosity and open-mindedness, and to change our attitudes to one of “love”. Martijn uses author Tim Sanders’s definition of love – as kind-heartedness, inclusivity in our networks, valuing real connections, and acts of professional generosity for their own sake. He encouraged the managers in the audience to nurture and accept the “misfits” in organisations, believing that these non-conformists will ultimately drive innovation, that our relationships will be the strong footing of tomorrow. l

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TECHNOLOGY EasyEquities wins African FinTech Awards 2016

Expanding the African FinTech frontier The African Fintech Awards 2016 brought together the continent’s game-changers in the fast-developing sector. EasyEquities went home with the biggest prize, but there was much more to celebrate. By Ebrahim Moolla

the globe cast their votes online before a panel of judges comprising industry veterans, experts, high-profile innovators and entrepreneurs with a sterling record in finance or technology, critically assessed the strong field of candidates.

Charles Savage and IBM’s Ziaad Suleman

lmost one-third of the money invested in African startups in 2015 was directed to new FinTech firms, according to research. The thriving space was in evidence as some of the continent’s most influential FinTech companies were on hand at the African FinTech Awards 2016 at the Finance Indaba Africa in October in Sandton, Johannesburg, to present pitches and participate in debates on the revolution taking place in Africa. The awards seek to celebrate inno-

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The criteria for selection included assessing the power a firm had to change its industry, its market traction, its unique value proposition and how it met consumer needs and engaged with its customers. Public votes constituted 25 percent of the weight in determining the African FinTech 100, while the judges were responsible for the remainder. Some of Africa’s finest minds were on the judging panel, including banking maverick Tobie van Zyl, FinTech Circle Innovate’s Nicole Anderson and Discovery Health CFO Brett Tromp, as well as European influencers like general partner at SBT Venture Capital Matteo Rizzi, tech entrepreneur Georg Ludvikkson and Curve CEO Fred Baumhardt.

vators shaping the future of finance in Africa and to acknowledge the impact these companies are having on socio-economic development on a continent beset by poverty, inequality and other social ills. At the end of the day, EasyEquities CEO Charles Savage received the top prize from Ziaad Suleman, COO of event sponsor IBM, and called it “overwhelming”.

Debate inequality

To determine the top 100 FinTech firms that either were based in Africa or who operated mainly on the continent, more than 30,000 FinTech experts and aficionados from across

Before commencing with the finalists’ efforts to convince the judges that they were worthy of the awards, a panel of experts, including moderator and GIBS Business School lecturer Matthew Birtch,

TECHNOLOGY Apis Partners MD Asad Naqvi, Citibank’s Cash Product Head Njogu Ndamburi, FinTech specialist Perry Blacher and Rahul Jain from Peach Payments, discussed the developing African FinTech arena. The panel expressed their optimism about the future of FinTech on the continent, agreeing that the need to debate inequality and how technology can assist to reduce chasms has never been more urgent, particularly in view of global and local political and economic developments. “We believe for a society to move forward, financial engagement and improving transactions through digital channels. Africa has skipped the fixed line era and has moved to branchless banking. The question to ask how we can deliver services cost-effectively to the remotest parts of continent, which will involve collaborations,” said Rahul. While there are a number of challenges to overcome, such as a shortage of talent, intransigent regulations and a risk-averse culture, there are also opportunities in a space devoid of legacy systems and ripe for innovation, convergence and collaboration.

Overwhelming After a full day of a final round of seven-minute pitches and question-and-answer sessions with the judges from the three leading candidates in each of the six categories – lending and financing, payments and transfers, retail banking, investtech, blockchain and bitcoin and incumbent bank − EasyEquities-SatrixNow was the overall winner on the day. The revolutionary share-trading platform, which allows investors to buy fractions of popular shares painlessly and at low cost, also scooped the honours in the investtech category, beating property-trading platform WealthMigrate and daily investment forecast vehicle I Know First to the award.

“Thanks – it is overwhelming. Thanks to my team for never fearing to fail and innovate. I give them one idea and they turn it to a 100 and make a success of all of them. We want to democratise stock trading and expose innovation in Africa. The continent has a big role to play in FinTech. I look forward to collaborating with all of you in the future,” an elated CEO Charles Savage told the assembled guests. There was unsurprisingly a lot of interest in the bitcoin and blockchain segment of the programme, as the technology, a secure transaction ledger database that is shared by all parties participating in an established, distributed network of computers, is seen as the next big thing in the industry. Bitcoin-powered solar energy investment platform The Sun Exchange prevailed in a hardfought contest in the blockchain category. The other winners were micro-financier Baobab by Microcred (lending and financing), mobile commerce solution provider Cellulant (payments and transfers), SME funding and logistics provider Ovamba (lending and financing) and FNB (incumbent bank). l

2017 AFRICAN

Retail Banking Baobab Microcred

Bitcoin & Blockchain The Sun Exchange

InvestTech EasyEquities www.easyequities.co.za

Payments & Transfers Cellulant

Lending & Financing Ovamba

Incumbent Banks FNB

AWARDS Join us at the African FinTech Awards 2017 in Sandton, Johannesburg, on 12 October 2017 +31 (0)6 11 33 03 22 nvangeffen@fintech.nl FinTech-Africa.com

Overall winner EasyEquities

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TECHNOLOGY

Public sector CFOs and CIOs try to embrace the future From medical emergency drones to self-driving vehicles, to a Google Hangouts gathering of Archbishop Desmond Tutu in South Africa and the Dalai Lama in Tibet, technology makes amazing things possible, as long as we embrace it. During a breakfast event on 13 September 2016, the energetic futurist Craig Wing challenged, educated, inspired – and entertained – a group of CFOs and CIOs from the public sector and asked them some hard questions about technology: “Do you see a threat or an opportunity?”

“

What you all should do after this morning”, said Craig in closing, “is invite a young person to coffee and ask him about the apps and modern tools he or she is using. Do some reverse-mentoring”. Craig is a partner at FutureWorld International, an organisation that helps corporates understand the emergent future and how technology will affect their businesses. What sets him apart from many other futurists is his practical approach.

“Invite a young person to coffee.” He started off by telling the public sector CFOs and CIOs about his – sometimes failed – attempts to start companies and his tenure at Google. “You shouldn’t be caught up with technology for the sake of technology, but also focus on culture,” he said, emphasising the attitude that is needed to use the latest and greatest. “Technology is just a tool to help you accomplish things,” Craig said. That might be a very down-to-earth approach, many parts of Craig’s pre-

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sentation were mindboggling. He played a clip of the Google Hangout for the 80th birthday of Archbishop Demond Tutu, after the Dalai Lama was not granted a visa for South Africa. “This went from an idea to reality in five days and everything was signed off,” said Craig, challenging the audience to look at their own decision-making speed. He warned the CFOs and CIOs to inform themselves about the future and not to become like former Nokia boss Stephen Elop who said “we didn’t do anything wrong,

but somehow we lost” about the demise of the Finnish phone maker. Craig came back several times to the conclusion that modern leaders need to be able to learn, unlearn and relearn. Craig also talked about Tesla cars, ‘Anonymous’ activists, 3D printing RDP houses and the power of perception. He showed a commercial in which older people are asked to act out what it means to run or fight like a girl and debated toxic assumptions that stop us from embracing the future. l

GROWTH Taste Holdings CFO Evan Tsatsarolakis brought Starbucks to South Africa

Frappuccinos for Mzansi As 40-year-young finance boss of Taste Holdings, Evan Tsatsarolakis played a massive role in bringing two iconic brands to South African shores: Domino’s Pizza and Starbucks. Our senior editor Toni Muir went over for a coffee and managed to get this inside story on the nominee for the 2016 CFO Awards. By Toni Muir

o the right of the lobby at Taste Holdings’ head office in Sandton, where chief financial officer Evan Tsatsarolakis and I meet, is South Africa’s very first Starbucks store. It is the company’s in-house coffee shop and is clearly a favourite meeting place for staff. Indeed, Evan says it has changed the way people work and interact. “You get people coming in here in the mornings, getting their coffee and a breakfast bite,” he says. “There’s always a queue but this stimulates conversation and people chat to each other and don’t seem to mind waiting. So, that’s a change.” Before we sit down we order our coffees. I’m not familiar with the menu so my first response is a bit of panic, and I ask simply for a cappuccino,

“Starbucks wanted a partner who shared the same values and culture that they have.”

which Evan orders over the clatter and whirr of the espresso grinder. I look around, taking in the space, and must admit that it does seem like a pretty cool place to share a coffee with colleagues while brainstorming. Coffees in hand we settle into a conference room and start talking about how Taste came to acquire the licence for such an iconic international brand. “Starbucks, like any multinational brand, does its homework on the companies it wants to partner with, in the form of a detailed due diligence,” Evan explains. “What was important to Starbucks is that they wanted a partner who shared the same values and culture that they have, and with these attributes in mind, a partner that they could work with, entrust their brand to, and that would grow that brand in South Africa. I believe that Taste Holdings was chosen with all this in mind.”

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“People performance precedes operational performance, which in turn precedes financial performance.”

Taste Holdings started as a family-owned business, but is now a JSE-listed group operating eight brands within its food and luxury goods divisions, the latter including the NWJ, Arthur Kaplan and World’s Finest Watches brands. While the origin of Taste lies with Scooter’s Pizza, the new brands on the block – Domino’s and Starbucks − are very much the focus now. “It must and will be successful,” he adds. “We haven’t done all this work for nothing.”

Opening more stores As far as Starbucks is concerned, Evan calls this an aspirational brand. “We are selling a lot of Frappuccinos,” he laughs. “And we have already set some records within this globally admired brand.” Asked about additional store launches – there are currently three Starbucks stores in SA – Evan says they are in the pipeline but that the “plans are neither too ambitious nor too conservative” and the company will probably open a further 12 to 15 across SA in the next two years. As finance head, Evan, who joined the company in 2009, is proud of the culture in his team. He has worked hard to get the finance department “autonomous” and says the team today is quite different to when he first started. “We’ve grown a lot, and not just in terms of turnover.” He laughs as he says the team members are mostly young and that he

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is probably the oldest one there. But youth brings with it a certain dynamism and energy, and perhaps a fearlessness too, and Evan uses this to the team’s advantage. He describes his management style as handsoff and empowering, and believes in leaving his employees largely to their own devices: “If you have the right people and you communicate your expectations to them, you provide them with the right tools, support and the right parameters within which to work, they’re capable of getting the job done on their own – and done well. I don’t sit over people’s shoulders ensuring they’re doing what they need to be doing.” It comes down to trust, he says, adding that people respond well to this level of independence. “As well as being young and dynamic, we are like family. You spend more time with your co-workers than you do with your family. Most of us have the same family values and that’s what makes us all work well together and Taste Holdings such a great place to be employed. People are the most essential asset that a company has and I believe that people performance precedes operational performance, which in turn precedes financial performance.”

Rapid pace Collaboration is also critical, Evan believes, and should be encouraged “because many ideas emerge which can improve efficiencies and processes.” The team meets regularly for coffee catch-ups: “We have meetings once a month to touch base on work and just talk about what we’ve been up to on the weekends.” Casual and open forums like this also give quieter team members the confidence to talk, he adds. Collaboration is so important because from it comes agility, Evan says, and agility is important because “the reality is you can never keep up to the rapid pace by which operations change.”

Though his role may be in finance, and besides being a regular customer, Evan likes to do his own quality control checks as far as customer service and the company’s product offering goes. “Last year, over a period of two weekends I visited every single one of our Domino’s stores in Joburg,” he says. “I called, ordered pizza, recorded the call, collected the pizza, took photos and tasted the same. I then gave my feedback to the teams and said, ‘take it and consider it, these were my observations as a customer’. It’s good that I know what our product offering, quality

GROWTH thereof and level of service is like. I’m a customer and I encourage everyone to be a customer.” To relax, Evan says he likes to play golf. “It’s amazing, when you hit that little ball you don’t think of anything,” he says. “The only downside is that the game takes a long time. But that’s the only time when I seriously just switch off. I also like to go to the sea, stand on the balcony and just stare.” I ask him about worklife balance. Like so many in his line of work, he scoffs a little at the question. “This little thing,” he says, picking up and waving his smart-

phone in the air as he gives another laugh, “no, this job is not a nine to five.” While some people are easily able to switch off and not even get emails on their phones after they leave the office, Evan says he is unable to do this. “I know it’s a bad thing, but it doesn’t hurt looking at it (gesturing to his phone) once in a while. Especially with technology these days, that’s how we communicate. You’ve got to be very disciplined to be successful at it though. I can switch off if I need to, but it’s difficult to, especially in busy periods and currently we are in a critical point in our life as an organisation.”

As we wrap up, I ask him one last question: when he springs for pizza or orders coffee, what are his favourites? He answers easily and with a laugh, “I like ham and bacon, or fiery Hawaiian. As for my coffee, I like my ‘usual’ – short, warm cappuccino with a shot of vanilla.” l

“I like my ‘usual’ – short, warm cappuccino with a shot of vanilla.”

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GROWTH Lessons for entrepreneurs: McDonalds SA CFO and EasyEquities CEO

Zafar Mahomed, McDonald’s: “Profitability is a process” Many businesses find it hard to stay afloat in the highly competitive restaurant business, but McDonald’s South Africa CFO Zafar Mahomed told conference attendees during the Finance Indaba Africa that McDonald’s is able to withstand any challenges because it is innovative in the way it approaches challenges. By Tiisetso Tlelima

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I sleep like a baby,” Zafar said. He was responding to a question posed from the floor about how McDonald’s continues to make profit during these tough economic times – and if it keeps him up at night. “Obviously, the economy of South Africa and where it’s going is of huge concern. The drought and where the economy is at worries me, but my job is to find an opportunity where there is a problem.” Zafar explained that McDonald’s, which has been in business for over 60 years, is successful because the franchise business doesn’t try to do what competitors are doing, instead focussing on its own strengths. “We love competition, but we play our own game,” Zafar said. “We’re number one in the world and at any given moment we will beat you five-nil because we want to show our customers that our services are the best.”

Opportunity in the problem McDonald’s is known for something as simple as keeping your fries warm, because when they deliver your food there’s a compartment for warm and cold in the packaging. “It’s these small things that keeps ahead of everyone else in the business,” Zafar said. “You have to come

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up with solutions for customers who can’t afford to shop anymore, because of the economy. You need to look for the opportunity in the problem and don’t let it keep you down.”

most people rush to make money and think it must happen instantaneously. “Profitability is a process, not an event. Cut the right costs but work on the top line,” he said.

He advised upcoming business owners to constantly reinvent themselves and make themselves relevant to the ever-changing market, but to never change something that works for the sake of innovation. “It’s important to also listen to your customers and know that they are intelligent.”

Giving an example from recent improvements, he explained that every store has now installed a dual point service system to increase profitability. “Why can’t the front counter be the same as the drive-by,” asked Zafar. “In other words, you place your order, get a number and go away, and there’s a screen in the restaurant that tells you which order is being served. You have to continuously innovate so that you can improve your profitability.”

Zafar added that there is always room to make more money but

Sanity check When asked if McDonald’s has experienced any failures, he told attendees that it is hard for the business to fail because they make good decisions. “It’s very hard for us to fail because we use trial and tested methods,” Zafar said. “We also do a risk analysis if we want to be innovative and we are proactive in the way we run things. Some things you can’t plan for but you have to be strategic in the way you respond to crisis. Be the sanity check in the business, be the conscience.” One of the other reasons

GROWTH McDonald’s is successful is because it has mastered the art of franchising and marketing their brand, Zafar says. There is a McDonald’s in every corner of South Africa.

“Franchising works because people identify with the brand and they trust it. How you expand is that you have to be near your supplies because you want to serve fresh

food and be close to your customers at the same time. Use people who know their community as ambassadors or owners of the franchise.”

Charles Savage, EasyEquities: “Learning from failure” “When we failed spectacularly our shareholders stood behind us, they gave us new capital and saved us from going under,” said EasyEquities CEO Charles Savage at the Finance Indaba Africa.

harles’ session took place on 13 October 2016 and later that day he went on to collect two of the most coveted prizes at the African Fintech Awards, the event-with-the-event at the Sandton Convention Centre. Failure, Charles explained, is the road to success. “It is part of our culture as South Africans that when there’s a spectacular failure, we walk away from it. But our shareholders rescued us, even though they didn’t know that we were going to make a turn around and emerge as something significant so that they could make money from their returns.” EasyEquities enables normal people to own shares and fractions of shares in their favourite companies, significantly lowering the bar of entry for the stock market. According to Charles, the company had failed in its previous attempts because it alienated the South African market by providing technology that they did not have access to. In addition, it was providing services to people who were rich and already had access to shares in the stock market instead

of opening it up to poor people who were buying shares for the first time. “The problem with the way financial companies were run is that they were only interested in people who are already wealthy instead of finding ways to generate new wealth,” he explained. “We can all learn a lot from Uber because it doesn’t discriminate. It provides access for everyone whether they are rich or not. In the financial industry, we discriminate a lot.”

First time Charles told conference attendees that his company recovered from failure by “uberising” their business and making sure that shares are accessible to everyone not just the rich. “We looked around and found a solution. We fractionalised shares which meant you could now buy a small portion of the share.” That lesson came from failure – and from examples in the US. “We asked ourselves the question: can people own one thousandth of a Naspers share? We forged ahead and re-launched our business six months

later and it was a success mostly because we listened to the consumers.” In the past, South Africans, especially the poor, felt too stupid and too poor to invest in shares, but today people are investing R10 to R15 month in many different shares, Charles said, adding that 99.9 percent of the people who buy shares through EasyEquities are buying shares for the first time. “We’re still small but we’re making a big impact and disrupting the industry.” l

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GROWTH

Deloitte’s Global Research Director Dr Ajit Kambil on strategy, skills and mindsets

CFOs should drive change “Don’t be a smarty pants. People will start excluding you because they think you think you are too smart.” Deloitte flew out one of its global leaders, Dr Ajit Kambil, to address this year’s Finance Indaba Africa. He had a stern message for South African CFOs. By Tiisetso Tlelima

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When people come into my lab, I ask them this very simple question: what is the strategy process in your company. Most of you cannot answer it, because the strategy in most companies is broken.” This is how Deloitte’s Global Research Director Dr Ajit Kambil opened his

talk, ‘Leading with Insight: Are you a strategic CFO?’ on the first day of this year’s Finance Indaba Africa. Ajit told a room chock full of finance professionals that the success of a business has a lot to do with how the company operates and how it is able to control change. He advised

attendees to identify the dominant business constraints and work tirelessly to fix them. Every CFO should develop a key list of changes that need to be effected every six months and make sure that they are prepared to implement these changes. CFOs may have to transform the business to get better results. “Very few CFOs get the opportunity to be transformative,” explained Ajit. “You may need to repurpose the business to get the most out of it. From a product performance point of view for instance, there may be a need for a restructuring of the product to do well.” CFOs often have to deal with change and driving performance through culture change. They have to be strategic in how they drive and influence change in an organisation through behavioural change. Ajit advised CFOs to take an existing belief system and maximise on it.

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GROWTH “Ask yourself this question: what are the outcomes of the company and what is the belief system that drives this outcome,” said Ajit adding that CFOs are key in driving the narrative around culture change in an organisation.

Four crucial elements The room full of CFOs nodded in agreement as Ajit highlighted the importance of strategic thinking to the success of any business. He put forward four crucial elements that CFOs need to be cognisant of when putting together strategies for the business, namely aspiration, purpose, the market, set capabilities and what makes your business distinctive. Before coming up with a strategy, CFOs needed to define their aspira-

tion. Is it to make profit or is it to give consumers the best product? What is the purpose of your organisation? CFO would then have to think very carefully about the existing market and where they fit in, that means looking at the geography, demographics, product categories and consumer segments to identify where your business is needed. The next stage is to honestly assess your capabilities as a business and what activities you will engage in. In addition, companies have to think about what makes them different from their competitors. The biggest challenge, however, is that most CFOs are battling to influence their companies to adopt the strategies that they come up with. “Most CFOs spend about 60 to 70

percent of their time in strategy, but they don’t have a great team which keeps them below the line,” says Ajit. “Getting strategy and consent doesn’t happen simultaneously.”

Capacity to change Most companies do not have systems, structures and measures required to support the choices that CFOs make, adds Ajit. He advised CFOs that they have to work harder to convince management and employees of their strategies, so that they can also own it and execute it. “Be more strategic, focus more on the broader skills and changing mindsets,” explains Ajit. “You have to engage with your leader on how you’re going to play your role. Your communication and interaction skills with your peers are very important.” In addition, CFOs need to identify the areas where they can make changes and have the right sponsors or people behind them to effect change. “What really undermines success is when there’s not enough capacity built to effect change,” says Ajit. Ajit, however, cautioned CFOs from behaving as if they know it all and from only giving marching orders to those below them. “Don’t figure out the solution before people have identified the problem because that’s what isolates people,” he says. “Don’t be a smarty pants. People will start excluding you because they think you think you are too smart.”

Dr Martyn Davies, MD Emerging Markets & Africa at Deloitte during the Finance Indaba Africa 2016, where he spoke about the rapidly changing economic landscape on the African continent. “In Africa, simplistically, economics is ahead of politics. Economic potential can only be unleashed in the event of a political shift – like happened in Eastern Europe post 1989, like China after 1978, like India, slowly, post 1991 and more importantly, post 2014. It is when markets start to restructure and reform that the magic of capitalism comes in.”

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Going forward, CFOs also need to figure out how their business fits into the continuous digitisation of world, adds Ajit. “We need to be aware of digitisation outside your company and come up with solutions on how you will respond to it. The truth is customers have more digital tools than before and you may find that a particular service is no longer required because customers can access it digitally.” l

GROWTH DFIs and FDI: insight from Standard Bank, Imperial and Multichoice

Financing in Africa Is Africa still the growth destination it was at the turn of the last decade? And how can businesses carve out profit and success in a volatile economic climate on the continent? These were some of the questions addressed at Finance Indaba Africa 2016.

s one of the diamond sponsors of the event, Standard Bank had the opportunity to host a number of presentations and panel discussions on these topics, providing audiences with insight gleaned from on-the-ground experience in finance in Africa. Standard Bank CIB and rest of Africa CFO Grant Talbot led a panel of experts on the topic, “Do you want to be successful in Africa?” His colleague, Standard Bank treasurer Paul Burgoyne, brought together a panel to discuss how businesses can best access liquidity and funding for major projects in Africa. The short answer to these burning questions, according to the experts they convened, is “yes, with strategic local insight”.

Take a local and holistic view The most critical element when doing business in Africa is the need for in-depth knowledge of the local environment in which you are operating, felt the panellists. Whether you get that from local business partners, local funding and investment organisations, or through working with an institution like a bank, you will need to understand the culture of work, as well as the local regulations that govern the industry. This was something Multichoice had to learn in their journey of African expansion, said treasurer for

Multichoice, Andre Olivier, who was one of the panellists at the event. He reported that Multichoice threw out the “cookie cutter” approach in favour of granular localisation – in their offering, and in its pricing. Without this, he warned, a business is unlikely to achieve the organic growth otherwise expected after the initial set-up of a company and its operations. From a funding perspective, this localisation is paramount. Standard Bank VP for power and infrastructure finance, George Kotsovos, made a strong case for partnering with local development finance initiatives (DFIs). They have the benefit of local experience and familiarity with the

legal framework. “The DFIs are working closely with many of the African governments to actually help put the right frameworks in place [for funding],” he explained. Furthermore, local knowledge might just prove key to getting paid after work completed, he said. These are, according to Standard Bank head of institutional sales in Africa, Mark Kalil, “a diversified source of funding” that can complement bank credit. He reported that Standard Bank has had much success in facilitating primary market deals with the DFIs and clients in several African countries, deals that fit in the with the strong devel-

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GROWTH opment mandate of these types of investment bodies. “It is important that when considering doing business in Africa that you look at things holistically. It is not just about the turnover you think you’ll make on a project, but rather do I have the right advisers, the right support to enable the project to become a sustainable solution for our country?” said George.

Managing currency volatility Traditionally, many major infrastructure projects have relied on foreign direct investment (FDI) sources for funding. The panels both warned that this source had slowed somewhat. They recommend looking for financing in the currency that you operate. Willem Reitsma, treasurer at the Imperial Group, was a panellist in Grant’s discussion. Imperial has also grown into Africa extensively. He warned that the major risk of forex is when liquidity stalls. Then, that currency risk becomes a business risk that will affect your operations. It’s also not sustainable to keep passing on costs to customers when your exchange starts eating into profitability.

“If you want to go fast, go alone. If you want to go far, go together.”

Over in Paul’s panel, George echoed this sentiment, saying that if there is a sudden currency crisis in your area of operations, there can be significant mismatch between the incomings in one currency and the expenses in another. “It is important to have a good match between your collection and your revenues,” he said. To a degree though, both experts agree that some elements are just out of your control. “There are things you can do to help governments manage the currency risk, but it is never easy to circumvent,” said George. This kind of realisation led Willem to bring together a committee in Imperial who review and adjust the investment-affecting elements within their control in response to risk, exposure, and funding requirements.

Growing African savings

believes that there is still crucial work to be done in growing African savings. If we are to rely on local currency funding, as many of the panelists so eloquently argued, there needs to be strong savings rates and a growth in this segment. “The savings rate in Africa is just not good enough... If you believe in the growth story of Africa, the savings must grow to support this,” said George. And, he added, there is also a need to examine the regulations to enable this. Currently, they don’t support what George would see as “efficient flow of capital” from savings to the corporate and businesses that require funding.

Continued opportunity There is still room for strong growth and investment in Africa. And business in infrastructure will underpin this, argued Grant: “Africa can’t grow in the dark”. Work must be done to address poverty and inequality too, he added. And with a young population, a growing middle class (who become the consumer class), and increasing urbanisation, the speakers seem to take a group position that opportunity still abounds on the continent.

On the liquidity side, the team To access it, you need a forward-thinking and strategic team that can assess the political and economic risks and make the most of local knowledge. The success of an organisation in Africa, said Andre, relies on their ability to assess and respond to its factors, as well as operational concerns, on a timely basis. “It is important to appreciate the nuances, and calibrated your models to that,” he said. In many ways, the collective sentiment of the two panels – and much of the Indaba, for that matter – might be encapsulated in a wellknown African proverb: “If you want to go fast, go alone. If you want to go far, go together”. l

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