IS SOUTH AFRICA LOSING ITS MOJO?
There was a time not so long ago when foreign executives were falling over themselves to work in South Africa. The promise of running a dynamic business in the largest economy on the African continent, augmented by sunny skies and a rarefied lifestyle made this country a destination of choice for many. In November 2012 our cover story
Welcome Johnny Foreigner highlighted the trend. That trend, however, appears to be reversing. Foreigners, it seems, are just not that into us anymore.
SA, with its ever-present skills shortage brought about by mass emigration of an educated elite over the past three decades and a failure of the public education system to deliver a new generation of top leaders, has managed to fill the gap in recent years through attracting numerous high powered executives to take up group management roles. The problem now is that the skills gap remains, but SA is just not as attractive as it once was to foreign executives.
The reasons are complex. Some are admittedly domestic. Our politics and issues of personal security are top of mind for foreigners; however, it would be churlish to ignore the renewed pull presented by the recovery in the economies of North America, Britain, and some European states. That is making it attractive for executives to seek employment in more stable societies with economies that appear as if they will be more reliable than ours over the next five years.
When we published Welcome Johnny Foreigner just 15 months ago, Johann Redelinghuys, chairman of the global search consultancy Heidrick & Struggles in SA, pointed out that we lived in a f lat world where borders were increasingly irrelevant, meaning that top executive talent was able to go where it chose. At the time SA was a hot choice. Redelinghuys’s hypothesis remains intact. National borders are irrelevant, which means that talent can just as easily ignore a particular territory as work in it. After a period of executive arrivals, the sources of those arrivals are drying up.
The sharp drop in the rand in recent months has also served to highlight fundamental, structural f laws in the South African economy. That coupled with labour unrest and the uncertainty fomented in the aftermath of the Marikana killings have not
helped. But it is also the rising levels of civil disobedience in response to poor municipal service delivery and the State’s violent handling of that public backlash that has created a situation where those with several options on the table are voting with their feet.
Post the 2008 financial crisis, options for talented executives in developed markets were scarce, the hype was about the opportunity in developing markets and adventurous bosses seeking to broaden their longterm global horizons were putting up their hands for some of the best jobs in the country. It’s amazing how quickly things are changing. Suddenly SA is not as appealing as it once was.
“I speak to these guys every day,” says Andrew Woodburn, MD at search consultants Woodburn Mann. “The tone has changed dramatically in the past six months. This time last year, people who might have been open to the idea of a placement in South Africa no longer are. And it ’s worrying.” In its 17th Annual Global CEO
Survey unveiled at t he World Economic Forum gathering at Davos i n Switzerland, PwC picked up the trend as a global phenomenon, highlighting the fact that half the 1 300 CEOs interviewed want to hire more people worldwide t his year but are st r uggling to f i nd t he r i ght skills.
“They have reason to worry,” reads the report. “The problem is not just that the working-age population in the advanced economies is contracting. Some other sources of talent to which companies in these countries have turned are also shrinking, with the industrialisation of the emerging economies. That’s had two effects. It’s triggered a reverse brain drain, as highly educated foreigners go back home, attracted by opportunities that weren’t previously available.” The World Economic Forum’s Global Com
petitiveness Report ranked SA in the lower half of 134 countries in terms of its ability to retain talent in 2008, in its most recent study last year, that had changed for the better. Thanks to the f inancial crisis and a drop in opportunities elsewhere, SA was in the top third of countries worldwide in terms of talent retention. The fear now though, is that that could deteriorate once again.
The report highlights the improvement in advanced economies and the deceleration effect i n developing markets, which is contributing to a skills exodus. Mature markets once again appear on the mend and changes in US monetary policy are exposing weak spots in emerging economies, much of
THE TONE HAS CHANGED DRAMATICALLY IN THE PAST SIX MONTHS. THIS TIME LAST YEAR, PEOPLE WHO MIGHT HAVE BEEN OPEN TO THE IDEA OF A PLACEMENT IN
SOUTH AFRICA NO LONGER ARE.
which is being ref lected in their rapidly depreciating currencies. While China remains robust, Brazil is suffering a significant debt hangover; India has been slow to open its markets to foreign investors while Russia has been overly reliant on commodity exports. SA, says the report, has been impeded by heavy regulation. Simply put: executives have other options.
The world, it seems, is becoming a better place to work. The PwC survey found that optimism among British business leaders was among the highest in the world. According to PwC, 93% of UK CEOs were confident about revenue prospects in 2014, up from 78% last year. They were also considerably more confident about global growth prospects. Britain has been a reliable source of executive talent for SA over the decades – now, however, as that economy shows signs of revival, the pipeline could be squeezed.
Debbie Goodman-Bhyat, MD at Cape Townbased Jack Hammer Executive Headhunters, says that issues around politics and personal security are consistent concerns for families, and these issues emerge often as hindrances to living and working here.
“Sometimes even when the executive, who is usually male, is interested in a move to South Africa, they face resistance from their spouse,” says GoodmanByhat. “Not only that but issues of schooling and the quality of the South African curriculum are of concern to families with children of school-going age.”
The red tape required to secure a work visa for a global executive means that companies have to be seriously committed to the prospect of a foreign hire.
“It is very challenging and time consuming to appoint a foreigner into a South African registered company. The labour regulations as well as the administrative requirements that companies are required to go through in order to appoint a foreigner are onerous,” agrees Goodman-Bhyat.
The 2008 f inancial crisis provided local companies in search of good global talent a great opportunity to secure executives that might otherwise have had far better options open to them. As opportunities dried up in the northern hemisphere, South Africa, amid the hype and excitement presented by the 2010 Fifa Soccer World Cup and in the glowing aftermath of its great success, was an attractive destination. Things have changed though. And it’s happened alarmingly quickly.
Recent entrants into the South African labour market include the British CEO of Pick n Pay Richard Brasher; Mark Cutifani, now running Anglo American out of London is Australian; and his predecessor Cynthia Carroll was American. Cutifani’s AngloGold Ashanti successor Srinivasan Venkatakrishnan hails from India. They, however, have been in place for some time and have considerable international experience. Attracting new blood is what is proving to be difficult.
“Worries loom for many South African CEOs as they contend with concerns such as over-regulation, exchange rate volatility, the slowdown in highgrowth markets and inadequate basic infrastructure,” says Tom Winterboer, PwC financial services leader in SA. The reality is that global CEOs are turning their attention to advanced economies.
It ’s n o t like South Africa has a glut of top talent – although the f inancial crisis has led to SA enjoying something of a brain gain in recent years. According to recruit-
ment group Adcorp, 359 000 South Africans have returned home from overseas in the past five years. The number has been widely challenged; anecdotally, however, CEOs do report an increase in the number of South Africans returning home as a result of the f inancial crisis. None though have been of group CEO calibre yet.
“We are probably f ive years away from having a new generation of appropriately skilled group CEOs sourced in South Africa. People underestimate how hard it is to run a complex business, often across borders, with thousands of employees and a balance sheet of billions under your control. Lots of South Africans have managed millions of rand and hundreds of people, but lack the experience to make the leap to the next level,” says Woodburn.
We are also seeing a generation of experienced leaders leave the corporate world as soon as is dignif ied after reaching retirement age. Some t a ke up non- executive positions on boards but the reality is that the day-to-day grind takes its toll. Younger CEOs, like former FNB boss Michael Jordaan, who turns 46 this year, and outgoing Imperial CEO Hubert Brody, who is in his early fifties, are opting out of the frenetic daily reality of running multibillion-rand businesses and acting as mentors in a broader sphere of inf luence. Massmart chairman Mark Lamberti quit his executive responsibilities at the company and has unusually brought a second listing to market in the form of Transaction Capital. Not many have done that.
Others run the risk of literally working themselves to death. In December, Cell C announced that its CEO Alan Knott-Craig was on leave after suffering a “minor stroke” – that was on top of the two heart attacks he’d survived during his leadership of Vodacom. Sappi CEO Ralph Boetgger told shareholders in January that he was stepping down for reasons of ill health and in December, probably South Africa’s most global CEO, Graham McKay, who disclosed in 2013 that he was undergoing treatment for a brain tumor, died.
Most CEOs of l isted companies tend to be in their f ifties, some work longer, but most are eager to be enjoying the fruits of their labour by the time they reach 60. That means the churn in CEO talent in our small market is pretty high. “Twenty years into our democracy and we have this new generation of leadership, black and white, coming to the fore. They are however, generally just not ready to take on t he g r oup CEO role – that’s why we need to be drawing global talent,” says Woodburn.
WE ARE PROBABLY FIVE YEARS AWAY FROM HAVING A NEW GENERATION OF APPROPRIATELY SKILLED GROUP CEOS SOURCED IN SOUTH AFRICA. PEOPLE UNDERESTIMATE HOW HARD IT IS TO RUN A COMPLEX BUSINESS.
is less pessimistic about prospects for international CEOs and suggests the market will take care of itself: “There is a very small pool of potential talent in South Africa. In these instances, it is likely that foreigners will continue to be included in the executive recruitment processes, and on occasion take the top job. We conducted a survey in 2013 of the Top 40 listed corporates – currently only 15% are run by foreigners.”
Foreigners who are approached for executive roles in any offshore territory will typically expect an ‘expat package’, which includes a guaranteed salary, bonus, long-term incentive – and then will have the additional allowances for housing, car, security, insurance, and f lights back home a certain number of times per annum. Schooling for children is sometimes included too. One of the biggest issues that South African companies are now facing is the weak rand, which means that paying an expat salary equivalent sum in euros or US dollars becomes unaffordable.
While former SAA CEO Coleman Andrews gave foreign CEOs in SA a bad name as he left the country having coined millions from a stint at the national carrier, others have done well – among them, another American, Steve Ross. He ran Edcon for 12 years after signing up initially for just f ive. Clicks CEO David Kneale appears to be enjoying his tenure following the turnaround at what was once a struggling pharmaceutical retailer.
But the new reality is that if South African companies are going to draw top global talent they are not going to succeed unless they are prepared to present candidates with remuneration packages of constabellian proportions.
Sasol CEO David Constable is on a very good wicket. The group’s annual report showed that his total package was worth some R53.7m last year, considerably more than the R31.9m which he received in year one – that included relocation costs for his family, school expenses and a generous accommodation payment.
The question facing companies is whether they are prepared to have that f ight with their shareholders. Investors in local companies are gradually becoming more outspoken about issues of excessive remuneration. The Public Investment Corporation (PIC) is voting against pay resolutions more and more. Boards are not obliged to take heed of shareholder discontent, and are more concerned with getting the job done. As Shoprite chairman Christo Wiese once quipped about the high levels of pay afforded CEO Whitey Basson – he was so good at his job, he would pay him even more to ensure he kept delivering spectacular returns. But the PIC and other shareholders are increasingly questioni ng t he decision making processes of board remuneration committees. For Woodburn, the real issue is disarmingly simple. SA needs to attract great talent and it does not matter where it comes from, what colour the person is or whether or not they have political connections: “We need great CEOs to drive profits and that grows economy and when that happens we get growing revenues, get higher ta xes and we get more money into the net for distribution where it is needed.”