Simon Hughes of International Banker interviews Mr. Mike Brown, Group Chief Executive Officer of Nedbank on the recent political turbulence in South Africa, the challenges facing the bank and Nedbank’s future plans.
Today International Banker is joined by Mike Brown, Group CEO of Nedbank, to discuss the recent political turbulence in South Africa, the challenges facing the bank and Nedbank’s future plans. Good to have you here, Mike. Last year, Nedbank repositioned its brand and introduced a new tagline, “See money differently”, which now drives behavior as an organization. What exactly does that tagline mean for both your organization and your clients?
I think it’s rooted in the fundamental belief that people should see money for the good that it can do in the world. And when we looked into our organization and defined our purpose, we set out Nedbank’s purpose as to use our financial expertise, that’s what bankers have. But to use that financial expertise to do good for individuals, families, businesses and society. So that tagline is a very close link to our purpose statement to get people to look at money for the good that it can do. Funding education, funding infrastructure, funding social needs. And it also really serves as a fantastic platform for some great advertising. And anybody who’s seen some of the Nedbank adverts, we’ve been able to take helicopter views of some of the big projects that we funded and really have a play on that “See money differently”. You can see this money at work from a very different perspective.
As Nedbank’s CEO, what’s the biggest lesson you’ve learned from the recent political controversies that have impacted South Africa’s business environment? It could be one of the changes you’ll be implementing within the bank going forward as a result of recent events. Has that really impacted on the operation of the bank itself?
So I think the biggest lesson that many institutions in South Africa learnt was not to keep quiet when we can see obviously that things are going wrong, and what is happening is not in the best interests of the citizens of our country. It’s very easy in business—you know, to shut up and put up—and I think what we learnt, particularly in the last few years, is the really important power of the voice of business to point out very deliberately where we see things are going wrong. And after many years of business having lost its voice, we’ve seen a very strong emergence of a number of business organizations—Business Unity South Africa, Business Leadership South Africa, or indeed the Banking Association, speaking out very strongly against the negative impacts of state capture and corruption on all South Africans. And we’ve also, I think, learnt that to create a better country, we have to have a compact of government, business, labor and civil society working very tightly together. And I think that that’s a lesson that South African business leaders won’t forget.
Now, in terms of restoring investor confidence, that kind of confidence you’ve just been talking about, do you anticipate carrying out much work in conjunction with other banks in South Africa? Or is there much opportunity for that kind of collaboration? Or indeed is it already happening?
Well, certainly restoring investor confidence is absolutely vital for the South African economy to grow. As Larry Summers once famously said, “Confidence is the cheapest form of stimulus in any environment.” And actually what you saw South African business, government and labor doing was about two years ago, we formed something called the CEO Initiative. And that was really all about getting business, government and labor to work together on specific projects. We’ve worked on the ratings of the country. We’ve worked on creating a small-and-medium-enterprise fund. And we’ve worked on creating a youth-employment scheme. I think all of these at their heart are restoring confidence in the population of South Africans that we really can work together to create a stronger, growing economy that attracts investment that we so desperately need.
So moving on from collaboration, what are some of the main ways in which Nedbank differentiates its services from your peers in South Africa?
I think if you look at banks generally, it’s always quite difficult to differentiate your products and services. But what you can differentiate is through the culture of your people and how they deliver those products and services to your customers. So what we’ve been really focused on at Nedbank for the last 10 years or so is the culture and values of the organization and the leadership journey to instill in our people a common vision and an alignment behind delivery to customers. So that’s not really differentiating the products themselves; it’s much more the method of delivery of those products.
Now, you mentioned the SME initiative earlier. How important is the SME sector to Nedbank’s overall performance and ambitions? And are you satisfied with the bank’s current exposure to this particular customer segment?
I think the SME sector in general is incredibly important to the South African economy. If you look at large businesses, they’re never really the engine of growth and job creation in an economy. And South Africa desperately needs higher levels of growth and lower levels of unemployment. And the key driving force behind that has to be stronger growth in the SME environment. So for Nedbank, it is an incredibly important sector. We have very strong businesses in what we would call either business banking or retail-relationship banking. Probably running somewhere between 18 and 20 percent market share. But we wouldn’t be satisfied with that. We certainly think that there’s more that we can do, and that’s both to grow our own market share but also to contribute to the growth of the SME sector in South Africa. And examples of that would be through either the education programs that we run for budding entrepreneurs around the country. We’ve funded a number of incubators or launch labs to help entrepreneurs get going. And we’ve been a contributor to the one-and-a-half-billion rand SME fund that was set up by the CEO Initiative as a catalyst for higher growth in the SME sector.
One of the questions we always ask our guests is the impact of fintech and what that’s doing to their business. So how is that affecting Nedbank at the moment?
I think the impact of technology generally and fintech in particular has been enormously positive for all banks. You know, many of our businesses spent a lot of time over the last few years rather inwardly focused as we were coping with various versions of Basel II, III, III and half, or four, depending on what you want to call it. And that really, I think, gave an opportunity for fintechs to come in between us and our customers. But I really do think that the large banks who are the incumbents in this market—if they aren’t asleep, and we certainly aren’t asleep in how we evolved our technology platforms and that we aren’t arrogant in thinking that we can only do that ourselves, and we forge partnerships with fintechs. I think that that ecosystem of banks, technology and fintechs working together is hugely advantageous for the customer experience. And while a few years ago, I think there was an adversarial relationship between banks and fintechs. Fintechs thinking that they would win on their own. Banks thinking that they could win without fintechs. I think what we’ve seen more recently is that for fintechs, you may have a good idea, but it’s very difficult to scale. And from a bank’s point of view, the scale and customer base is there. So if you can partner appropriately with fintechs, I think you can create a win-win solution. And that’s certainly the approach that Nedbank has taken.
One of the bank’s stated 2020 targets is “To be recognized as a leader in the financing of our fair share of sustainable development goals, promoting socio-economic transformation through enabling economic inclusion, job creation and poverty alleviation”. How will you go about achieving such a target in practice?
I think in essence this is all about doing your fair share to ensure that the communities within which you operate are sustainable and grow over time. It’s very difficult to be a successful business inside an unsuccessful society. So Nedbank has long been a leader in sustainability. And how we’ve always thought about our business. We, a few years ago, set out a number of targets under what we called Fair Share 2030. And this was before the sustainable development goals were published. But we really looked at what we thought those things were that were incredibly important for the success of the countries that we operated in and what would be our fair share of contributing to that success. So when the sustainable development goals were published, they really gave us a much better framework into which we could place our Fair Share 2030 program. So effectively what we’ve done is we’ve looked across all of the sustainable development goals, we’ve narrowed them down to those that we think are appropriate for a bank to contribute towards. We’ve done a baseline study across the bank to understand exactly what we have done to date in each one of those development goals. We’ve allocated to an executive member to be in charge of a particular sustainable development goal right across our organization. And we’ve set ourselves targets for delivery towards those goals. So, for example, if we think about a goal like clean energy, Nedbank has long been a leader in renewable energy. And right as we sit here today, we have either paid out or committed somewhere around about 40 billion rand towards the enormously successful renewable-energy program in South Africa. So that’s, you know, a sustainable development goal being achieved in reality.
Setting clear objectives and having clear targets are all part of the leadership issue, aren’t they? What do you think is the most important personality trait one should ideally possess in order to be an effective leader? And how would you describe your own leadership style?
I think it’s always dangerous to look for one particular personality trait to be an effective leader. And I think generally what leadership is about is having an appropriate balance across a number of important personality traits. And the way I always try and describe it is having the appropriate balance between IQ—so clearly in leading an organization like a bank you need to have the intellectual capacity to understand the complexity of that world, which is a very complex world—but you have to balance that IQ with appropriate EQ, which is the humility to understand people and relate to people. I think people who can get that balance right are truly leaders that people would want to follow. And certainly that’s what I hope I achieve. You’ll need to ask the people who work for me whether that’s true or not, but I think it’s really important for leaders to try and balance those two and always to remain humble and enormously grateful for the opportunities that we have in these roles.
Now, Mike, you recently stated you’re trying to build a bank that’s more digital, agile and competitive. Just how much of an overhaul of your current infrastructure is going to be required in order to meet such an objective?
So there’s certainly an enormous amount of change currently underway in our organization, and this is a journey that we’ve been on for several years. And you know this is a journey that is an intersection of a technology journey. So that’s putting in place the platforms and foundations to enable our IT architecture to be more agile and more digital. But probably what’s harder than the actual nuts and bolts of the technology journey is the cultural and leadership change required in an organization to enable people to think differently and to enable us to fundamentally change the way that we approach technology programs in Nedbank, moving completely away from how banks previously did things—which would broadly be described as a waterfall approach to development—to trying to move into agile squads and tribes, which is a learning taken from some of the fintech organizations that have been much faster in their technology development and, as a consequence, much more responsive to customer need. So I think the culture piece is much harder than the technology piece.
So thinking about that kind of cultural element, getting that right, given the comprehensive transformation banking is undergoing throughout the world as a result of these kind of digital advances, do you believe that the ideal skillset of a successful banker is significantly changing at the moment? And if you do, do you think your kind of in-house training is supporting those changes and making your people ready for that digital future?
Yes, so certainly we think that the ideal skillset is changing, and it’s changing quickly. And as a consequence, we’ve had to dramatically change our in-house training program. So we’ve shifted away from the traditional in-house training programs run in conjunction with universities that would take people, you know, into a lecture theatre to go through lectures on key aspects of banking, to a much more immersive learning experience. Where right now our leadership training program takes people to what we call Silicon Cape, which is the venture-capital center in South Africa. So they spend time there with entrepreneurs. They then go to Silicon Savannah, which is actually Kenya, which has really been the heart of a lot of the mobile-banking developments that the world has seen. And then they conclude in Silicon Valley in the US. So they’re getting a very different learning experience to equip them for a much more digital environment going forward.
Now, let’s touch on another area. Can you briefly explain how Nedbank’s partnership with Ecobank Transnational Incorporated, which began back in 2014, enables you to have a presence in West and Central Africa? Are you satisfied with the overall kind of geographic footprint that you have in the region?
At its essence what we are trying to enable our customers to access—is a Pan-African banking network. As our customers trade more and more across the continent. And the way we’ve wanted to do that is effectively through two pillars. Through Nedbank’s own infrastructure in Southern and East Africa, where our brand is strong and we believe we have competitive advantage. But then in Central and West Africa, which is the heartland of ETI, we chose a partnership approach. And cemented that partnership with a 20-percent investment in ETI or Ecobank. So collectively that gives us this Pan-African footprint. Ecobank, ETI, focused in Central and West Africa, and Nedbank in Southern and East Africa. And as we sit here today, we’ve got just under a hundred of our corporate clients in South Africa using Ecobank for transactional activities in Central and West Africa. And our investment bank works very closely with ETI on deal origination across the African continent. So I’m very comfortable that the relationship between these two organizations gives us collectively an unrivaled Pan-African banking footprint.
What do you consider to be the biggest potential risk to Nedbank’s overall performance over the next, say, 12 to 18 months?
I think like most banks, the macroeconomic environment within which we operate is always a risk to earnings. And you know from a global point of view that is really around what happens to the global trade wars. And as a consequence of that, what happens to emerging-market risk appetite, given that we are largely an emerging-market bank. So I think any big disconnect in any of those would clearly be a risk to performance given that those would play out presumably quite negatively for a small, open emerging market like South Africa. If there really was a big escalation in global trade wars or a very big negative sentiment towards emerging markets in general. And then if I think about Nedbank in particular, I think like any bank, you know, particularly a bank that is focused largely on the wholesale side of the business. We’re roughly 60 percent a wholesale bank. You know, there is always the risk that some large corporate failure somewhere creates a spike in your bad debts in the short-term. So I think those are the two big risks. Macro on the one hand, and client-specific risk on the other.
Final question, Mike. What’s the most important piece of advice that you would give a youngster looking to forge a successful career in banking?
I think firstly I would say that it is a wonderful canvas to express yourself and achieve your full potential. If you think about the canvas that a bank can give someone to operate in—you know, our business operates from retail banking on the one hand to corporate banking. We have a high-net-worth business offshore. We have businesses all over Africa. That’s an enormous canvas for someone to express themselves in. So if you do enter a bank, make sure that you don’t just stay in one channel in that canvas. I think it’s very, very important to get a broad experience of front-office client-facing experience, back-office risk-management experience, technology experience. So I think the broadness of experience is really important. And then I’ll also come back to a little bit around what I said earlier. You know, many people who join banks have done extraordinarily well at universities so they’re always going to tick the IQ box. But what’s really, really important, and what I think many people need to work on, is their EQ box. So they can get this right balance between IQ and EQ, which is absolutely vital for a successful career in banking.
Great advice. Mike, thank you for sharing your experience with us today. Thank you.