Rautenbach’s retail track record put him in good stead — and inadequate succession planning helped too. But critics have questioned the appointment of a white man.
Critics are slamming Arrie Rautenbach’s recent appointment as Absa chief executive. There are reasons for this outrage. When it was announced that Rautenbach’s predecessor, Daniel Mminele, was out, it marked the second shock departure of a black chief executive from a South African bank in a year.
By the time Mminele joined Absa in 2020, the bank had already faced scrutiny over its reported transformation blunders, including when Phakamani Hadebe was allegedly overlooked to head the group’s corporate and investment banking unit. The incident sparked a walkout by black professionals at Absa and Hadebe resigned from the bank.
Rautenbach’s appointment is regarded as yet another blow to transformation in a sector that, like much of the country’s private sector, has been hesitant to change. But Absa has maintained that hiring Rautenbach was the right decision, given his track record.
The new chief executive’s performance may have pushed his name up the list of potential candidates — but so too did the fact that, unlike Mminele, Rautenbach was primed to play Absa’s long game.
Strategically aligned
Rautenbach is Absa’s first internal chief executive hire since 2006, when Steve Booysen was at the helm of what was then the country’s largest retail bank. This distinguishes him from Mminele, who joined Absa after having spent a large chunk of his career at the South African Reserve Bank.
Under Booysen’s replacement, Maria Ramos, Rautenbach also served in the trenches when British bank Barclays had a controlling stake in Absa. During that 11-year period, Absa lost market share in its retail banking business to competitors ready to mop up customers from the middle segment.
Pressures at Barclays, hit by tough trading conditions after the 2008 global financial crisis, filtered down to Absa, and Ramos had to restructure. Barclays was forced to pay a $2-billion fine to resolve a fraud case involving mortgage derivatives sold in the lead up to the crisis.
As chief risk officer, Rautenbach also provided executive leadership for the group separation programme — which navigated the split from Barclays — and the group strategy office, where he was key to devising Absa’s strategic vision. Absa’s strategy put retail at the forefront.
In 2018, Ramos appointed Rautenbach, who previously headed Absa’s retail banking in South Africa, as chief executive of the bank’s retail and business banking unit.
This is the Absa Mminele walked into when he was appointed in 2020: a bank that had already cemented its strategic vision, thanks in large part to Rautenbach, and was ready to pursue it aggressively. When Absa announced that Mminele was stepping down, after just over a year in the position, it said it was because he and the board were not aligned on strategy and culture.
An internal appointment — which may have guaranteed strategic alignment — could have been a better choice at the time. But when Ramos left Absa, some of the senior black executives who may have succeeded her, including Bobby Malabie and Nomkhita Nqweni, were also on their way out.
Nolwandle Mthombeni, the senior banking analyst at Intellidex, said it was no secret that whoever was brought in to replace Ramos would be expected to toe the line in terms of strategy.
“The board brought him [Mminele] in … The executive team will follow the board’s tone and the message the board is setting. So it sounds like, ‘This is how it is going to be and no one can change it’.”
The retail focus
On whether Rautenbach was the likely choice to replace Mminele, given his retail chops, Mthombeni noted that the new chief executive managed to execute quite a feat by helping Absa to regain market share, considering the bank had been losing ground for many years.
In its 2019 integrated annual report, Absa said it grew the customer base of its retail and business banking unit by 1% to 9.7-million. By that year, the bank had increased its retail banking market share by deposits from 21.6% to 21.9%. This percentage declined to 21.7% in 2020. The bank’s retail market share by advances grew from 21.2% in 2018 to 21.9% in 2020.
“It was definitely big leverage for him [Rautenbach] — the turnaround that he made. And it was actually a turnaround because market share grew. So it put him in good standing,” Mthombeni said.
Patrice Rassou, the chief investment officer at Ashburton Investments, agreed that Rautenbach’s appointment was expected, “because we are starting to see the results of his work”.
Rautenbach has made a lot of changes as the head of the retail and business banking unit, Rassou added. “They are definitely a lot more competitive now than they have ever been. But it has taken a long time. Arrie was working on this 10 years ago.”
Absa’s retail unit was hamstrung by Barclays, Rassou said. The bank was overtaken as the country’s biggest mortgage lender by Standard Bank in 2011. “The biggest loss that they had was the loss of market share in mortgages. And post the global financial crisis, Barclays turned very bearish on mortgage lending and it seemingly curtailed their appetite.”
When Capitec came onto the scene, it attacked Absa’s middle-market base, Rassou added. “Absa didn’t respond fast enough and lost out on that customer base … It is the function of having an older customer base and not winning the younger demographics. That was where Capitec was growing. Capitec took market share from everyone, but particularly from Absa, which had a large middle-income retail franchise.”
Absa has now been unshackled from the risk-averse Barclays and is able to act more aggressively. “They are leading with home loans and vehicle finance. The new competitors … are not giving out home loans or vehicle finance, but Absa can because they have the balance sheet,” Mthombeni said.
‘Nothing should stand in their way’
Absa may finally be seeing the green shoots of Rautenbach’s work, but this has not been enough to dodge charges of sidelining transformation.
Last Friday, the Public Investment Corporation, which is an Absa shareholder, released a statement that called Rautenbach’s appointment “yet another missed opportunity for the Absa board to publicly demonstrate its commitment to purposefully transform the banking group and to advance diversity, inclusivity and racial and gender equity at the most senior levels of organisation”.
The Black Management Forum later released a similar statement that said the decision to hire Rautenbach reflects “the maintenance of white male power”.
“Whilst we note the institutional knowledge and experience of Arrie Rautenbach, we note with serious concern the reversal of transformation made by the bank … The bank needs to be deliberate in grooming black professionals for these roles and, when the time has arrived for black people to assume these roles, nothing should stand in their way.”
Responding to the criticism levelled against Absa, chief executive of the Black Business Council Kganki Matabane said his organisation had requested a meeting with the bank’s board to discuss its transformation strategy. “This becomes important if you want to talk about succession planning, because you need to put black people in the room and in positions of influence,” he said.
“So when the time comes for the current CEO to leave there should be a queue of black people who can take over and who understand the business so there are no excuses.”
Absa declined to give the Mail & Guardian an interview with Rautenbach, saying he will need time to settle into the new role before he will be able to comment on the bank’s future.
But, in response to questions from the M&G, the bank noted that Rautenbach “has a demonstrable track record of appointing diverse teams at the bank (both in terms of race and gender). The team that he most recently assembled in retail and business banking led to the commercial turnaround of the group’s largest business unit.”
Both Rautenbach and the board “are fully aligned on the principle of driving transformation across all levels within the group”, Absa said.
Mthombeni was reluctant to comment on whether the culture at Absa would have made it difficult for Mminele to stay — and for Rautenbach to rise up the ranks. “But what we do know is that the previous CEO left prematurely. It was unexpected, which means that something was wrong,” she said.
“Sometimes culture is set at the top and it filters down to the rest of the organisation … As to what that culture is, one cannot say. But the appointment of a CEO is really about the maintenance of the culture, as opposed to allowing for any change.” — Additional reporting by Anathi Madubela
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