IS SOUTH AFRICA LOS­ING ITS MOJO?

Finweek English Edition - - FRONT PAGE - BY BRUCE WHIT­FIELD

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.

Good­man-Bhyat

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.”

Mark Cu­ti­fani

Srini­vasan Venkatakr­ish­nan

Alan Knot­tCraig

Christo Wiese

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