Life after Koseff

Investec CEO Stephen Koseff says the board must decide when he should step down. But though he believes the company culture is so well embedded that the bank will survive without him, letting go won’t be easy. On the other hand some think Investec has become stale and that now, in the wake of its successful cleanup, would be a good time to name a new CEO.

Stephen Koseff doesn’t work much on weekends. He plays golf on Sundays and rests on Saturdays, occasionally having a coffee with one of the "laaities" at Investec while his wife plays bridge. "I can see myself opting out [of Investec], like I do on weekends. I don’t know what I’d do if I retire, because it’s my life," Koseff (65), says of the bank he has led for more than three decades.

A straight-shooter who graduated from a state-run school, Benoni High, Koseff joined Investec in 1980 — along with founders Ian Kantor, Errol Grolman and Larry Nestadt — as its eighth employee. Today, it employs nearly 8,500 people across the globe and manages third-party assets of more than R2.5 trillion.

Koseff is a dominant presence and it remains to be seen how easily he can relinquish the reins to younger hands

But even though he has become one of the wealthiest CEOs in SA, Koseff still retains the authenticity of a boy from the East Rand. He’s an oke, the kind of guy you’d expect to find wearing shorts, standing around a braai. His speech is liberally spiced with expletives.

Little wonder that when Investec listed in London in 2002, the UK press said he had "the look of a nightclub bouncer".

In an interview with the Financial Mail at Investec’s Sandton headquarters, Koseff is agitated. Finance minister Pravin Gordhan has just been abruptly recalled by President Jacob Zuma from an international investor road show, sending markets into a tailspin amid rumours that Zuma is closing in on Gordhan — rumours that proved true.

Koseff, who is part of the CEO Initiative, laments the ground lost after months of hard work by business, government and labour to avert a sovereign credit ratings downgrade and get the economy growing.

"You don’t call a finance minister back from a road show where they are talking to major international investors who are very important funders. If you’ve got something to talk about, let them finish their job and talk about it afterwards. We’ve been making very good progress as a country despite the political noise. This throws everyone off," he says.

A week later — on the eve of nationwide protests calling for Zuma to step down after Gordhan’s sacking and the rating downgrade — Koseff tries to reassure Investec employees about the economic and political crisis facing SA. He tells them Investec is no stranger to crises, having survived the 2007/2008 global financial meltdown, among others. And in spite of the upheaval the bank faces in its two largest geographies (SA and the UK), Koseff urges them to show the sort of confidence and can-do attitude that is part of Investec’s DNA.

"My job is to help encourage the next generation to run with the organisation, ensure we’re building the right value system and everyone is perpetuating the culture," says Koseff. It’s a critical point, considering he is expected to hang up his hat in the next few years.

On this point, he believes Investec’s culture will outlast him. "It’s embedded," he says. "I don’t even like to be called CEO. We have functional titles, not status titles."

While that may be true, Koseff remains, at least for now, the larger-than-life leader of Investec with no obvious successor waiting in the wings. He is himself "embedded" in a way that will make it difficult to hand over to Investec’s next leader.

His outsized character, whose presence seems fundamental to Investec’s culture, values and staff morale, raises questions about what will happen to the bank when he leaves. Bankers say it will be a huge blow. "I have huge respect for Stephen," says one individual who joined the bank as an articled clerk more than eight years ago.

Whether he likes it or not, Koseff is still a dominant presence at Investec. All major deals are passed by him, and he sits even on those credit committees charged with overseeing relatively small amounts. He is far less immersed in the asset management and wealth arms of the business, but they effectively function as independent businesses anyway.

As part of its succession planning, Investec appointed new heads of its three core businesses — banking, asset management, and wealth and investment — in November 2015.

These individuals, who are longstanding employees of the group, effectively operate these businesses independently.

The two people most likely to assume Koseff’s mantle, based on their age, aptitude and appetite, are Ciaran Whelan (CEO of the global private bank) and Richard Wainwright (CEO of Investec Bank SA).

"We’ve got a big group of next-generation leaders," Koseff says, adding that his role at the bank has already changed. "It’s very hard to [parachute] someone in at the top of the organisation. We need to build from within."

He will not be drawn on who among Investec’s top leaders might replace him as CEO, saying only it would need to be a "people’s person". "For all of these roles, for an Investec-style culture, you need people who understand people, who get on with people."

At this month’s results presentation, expect to see far more of Investec’s executives at the podium — part of Koseff’s stage-managed handover.

He plans to leave it to the Investec board to decide when it is time for him to go. But letting go won’t be easy.

Stephen Meintjes, head of research at Momentum SP Reid, says Investec needs a leader who will take the bank forward as it is, now that it has found its stride again.

"The last thing Investec needs now is a swashbuckler with a five-year contract and share options who will be tempted to pursue spectacular expansion to bump the share price up," he says.

And Meintjes knows Investec better than most, as he worked at Metboard when Investec bought it in 1982. "We were told by the guys at Metboard that they [Investec] were a bunch of cowboys trading Krugerrands. They’ve come a long way since then."

Founders are emotionally involved and committed in a way others could never be, says Prof Karl Hofmeyr of the Gordon Institute of Business Science (Gibs). "It’s their baby, their creation. Often, they have invested their own money," Hofmeyr says.

"From a personality point of view [founders] are often domineering, extroverts [and] one of their problems later on will be letting go. That whole package of the entrepreneur is part of why the business succeeds."

Good entrepreneurs, he says, know when it’s time to hand over, and have the maturity to not interfere on a day-to-day basis.

While Koseff and London-based co-founder and MD Bernard Kantor are no longer as involved in the group’s daily operations as before, they certainly have their finger on the pulse of what is happening.

"People queue up at my desk, some of these laaities, or at Glynn [Burger’s] desk, wanting guidance on this or that. Anyone in the organisation can talk to anybody," says Koseff. Burger is finance chief and head of group risk.

Koseff is proud of this open culture, which encourages even the greenest staff to challenge senior managers.

"You have to be passionate to work at Investec," says one employee.

"If you do well you get paid well," says Wainwright, who happens to be sitting at a table behind Koseff during his Financial Mail interview and, impromptu, joins the conversation halfway through.

Investec’s current leaders, who daily manage hundreds of different teams, embody the bank’s culture, Wainwright says.

"You are expected to deliver, but you’re allowed to make mistakes," says Koseff. "If you do something wrong and it’s devious and corrupt then you’re dead; but if you’ve made a mistake or a bad decision, you live to see another day."

He has made some key strategic errors himself. A prime example would be the £283m acquisition of the UK’s biggest subprime mortgage lender, Kensington, in May 2007, months before the global financial crisis hit and securitisation collapsed.

"[Kensington] was a falling knife," Koseff admits, but the price was too low to turn down, considering that Kensington was writing £400m of new mortgages a month and then securitising these.

Yet this was a mistake for which the bank has paid dearly, with the UK legacy book — which included the Irish mortgage house Start — having cost the bank billions of rand in profit over the years.

Koseff hopes there isn’t another 2008 in his or his grandchildren’s lifetime.

Investec’s other ill-fated purchases were the R4bn purchase of Fedsure in 2001, a bank in Israel (which it sold in 2006), and its decision to open an American business.

The odd failure is inevitable for any entrepreneurial firm; but as long as the good decisions outweigh the bad, it’s a net growth story.

Investors who bought Investec 31 years ago, when it listed on the JSE in October 1986 at R4/share, won’t have too many complaints. Today, those shares are worth nearly R200, if you combine the stock of Investec Ltd (now trading at R99) and Investec Plc (selling for R98 apiece).

Of course, it’s been a rollercoaster ride. Over the past decade, Investec’s stock has barely budged, but over the past five years it is up 122% on the JSE.

Still, all indications are that things are going swimmingly right now.

In two weeks, Investec will report its results for the year to March, and it is expected to be a particularly good set of financials in an otherwise sour global environment for banks.

For the 11 months to the end of February, its assets under management grew 24% to £151.2bn, deposits by 23% to £29.6bn and operating profit will be "comfortably ahead of the prior year", the bank has said.

This is why a majority of analysts rate both Investec Ltd and Investec Plc as "buys", even though they expect the share price of each of them to inch up less than 5% over the next year.

So is now the time for someone new?

Having successfully completed a "clean-up operation" over the past few years — selling down nonperforming assets in the US, UK and Australia — Investec is now stable, says Kokkie Kooyman, portfolio manager and founder member at Denker Capital.

If Investec is planning to bring in a new CEO, now would be a good time to do it, says Kooyman, a veteran analyst with 30 years’ experience. "It would be good if the next generation decide on the next steps."

Creating a role for Koseff might be challenging, since he is unlikely to be a CEO who retires and then "goes to sit on the farm" – as others, such as Absa’s former CEO Nallie Bosman, have quite literally done.

Kooyman suggests Koseff could return in a nonexecutive capacity, as Standard Bank’s Jacko Maree did. But because Koseff has so much experience and strength of personality, any new CEO would need to be more than able to stand their ground.

FirstRand Group founders Paul Harris, GT Ferreira and Laurie Dippenaar, as well as Capitec’s Riaan Stassen, managed to successfully hand over to a new generation of leaders while remaining in board positions.

Both FirstRand and Investec have developed a number of capable leaders who have a lot of autonomy to run different parts of the business, says Kooyman.

"Once Stephen is no longer there, the strong team that has been working with him and Kantor will come into their own, as was the case with Johan Burger," he says.

Johan Burger was FirstRand’s finance chief before being appointed CEO. "When he became CEO, Johan really came to the fore and proved to be a strong leader, though many outsiders might not have considered him as a successor," says Kooyman.

Sipho Nkosi, the now retired founder CEO of Exxaro, says he prepared the board, his executives, employees and the market for a leadership change well in advance.

He did this in a few ways. For example, Nkosi enjoyed surprising his executives by asking them to speak on the spot at large mineworker meetings, say, or having them chair an executive committee meeting on the fly. "It was kind of fun," he chuckles.

Eventually they cottoned on to this and would come prepared, just in case.

Nkosi would also get them to make presentations to the board on projects they were responsible for, and field questions on their divisions at results presentations. In this way, people were exposed to and became comfortable with the next set of leaders.

"When you get into a job, you must work yourself out of it," Nkosi says, referencing something one of his mentors told him.

Nkosi, who stepped down in March 2016, is adamant that he should not become an Exxaro board member now or in the near future. "I must allow the new CEO [Mxolisi Mgojo] to make changes, to criticise me. If I’m around, how is he going to do that? Give the man some space."

Others haven’t done this. At Naspers, former CEO Koos Bekker is now the chairman; at MTN, Phuthuma Nhleko is back again as chairman; at Sanlam, former CEO Johan van Zyl will also come in as chairman in June.

Nkosi says he may return if the board thinks he can add value. For now, he is enjoying time with his family and focusing on endeavours such as his involvement on the Wits University council and with the KwaZulu Natal Philharmonic Orchestra.

The temptation to replace a larger-than-life CEO with an equally strong and charismatic leader is often not in the company’s best interests, says Rakesh Khurana, professor of leadership development at Harvard Business School.

In "Curse of the Superstar CEO" in the Harvard Business Review, Khurana writes: "The idea that CEOs must have charisma leads companies to overlook many promising candidates and to consider many others who are unsuited for the job.

"For all the excitement and optimism generated by superstar CEOs, the truth remains that the factors affecting corporate performance are varied, highly nuanced, almost frighteningly complex, and certainly beyond the power of even the most charismatic leader to influence single-handedly."

But one analyst, who spoke on condition of anonymity, says the bank needs new blood to take it in a new direction. "[Investec] is getting stale ... [it’s] not what it used to be. They need to refresh the brand."

Investec, with its "notorious office parties", was at one stage the place where everyone wanted to work, he says. To some, it was SA’s equivalent of Goldman Sachs — ruthless in its dealmaking and willing to take on risks other banks feared.

"I don’t think they have anywhere near the same kind of appeal. Big banks don’t fear Investec in the same way they used to."

This may simply be a product of the fact that Investec is now an established bank, rather than an upstart challenger. Certainly, anecdotal evidence suggests Investec employees still view it as a desirable place to work, while university graduates aspire to land a job at the banking group.

Paul Harris, one of the three co-founders of FirstRand back in 1977, has been one who managed to leave his bank without too much trauma for investors. He says a great CEO should be able to leave quietly. "The chief executive is merely a custodian of a corporate culture. They have to build on it, polish it and make it a shinier jewel. And then they must tiptoe away without being noticed.

"If you haven’t created a culture that can flourish without you being there, you haven’t really passed on something."

Investec will find out soon enough if it passes Harris’s test.