What’s not to like about Absa’s move to merge its SA retail bank division into one? It dismantles artificial barriers and polishes customer interactions. It transforms Absa into a leaner, more responsive beast by zeroing in on precision and execution. With the banking group’s shares rising post the announcement, the market’s enthusiastic thumbs-up is a strong indication that investors are buying what acting CEO Charles Russon is selling.
The efforts of Russon, who has been in the captain’s chair for three months attempting to steer this lumbering giant to better operational performance, position him as a strong candidate for the permanent CEO role. But let’s face it, Absa needs a new broom, a fresh approach to the operational and culture problems plaguing the bank — someone free of the burden of history.
But first let’s paint a picture: in the past six years Absa has seen more CEO changes than a game of musical chairs. The unexpected departure of Arrie Rautenbach three months ago was just the latest episode in this ongoing debacle. The frequent reshuffling has profound consequences. It erodes investor confidence, disrupts strategic continuity and hampers operational performance.
Absa’s leadership instability reverberates across all business lines, leaving employees grappling with shifting priorities and constantly wondering if their work is aligned with the latest CEO’s vision. It is safe to surmise that regulators such as the Reserve Bank’s Prudential Authority are raising their eyebrows, questioning whether the comings and goings in the C-suite pose a risk to financial stability. For shareholders, a cursory glance at the lender’s earnings report and stock market watch list painfully illustrates the result of this instability.
Absa’s return on equity (ROE), a widely used measure of a bank’s operational performance, is the lowest in the sector at 14% — bad enough to make its share price the worst-performing. It has gained a mere 10% over the past five years, lagging far behind gains of 37%-47% notched up by its three closest rivals.
And with the second-highest cost-to-income ratio — a measure of how the bank manages costs relative to its income — and weaker profit margins, Absa is left with little ammunition to fend off competition from old rivals and digital newcomers such as Discovery Bank, and start slashing prices and enticing consumers with more competitive fees.
Even so, credit where it’s due. Russon’s decision to consolidate the retail banking divisions has merit. The reorganisation is a necessary step if it is to claw back its competitive edge and boost earnings. If Russon doesn’t get the job it’s unlikely a new CEO would roll back these changes. But one never knows. A new CEO might bring a different set of priorities, tightly interwoven with his or her vision and leadership style, and potentially alter the current game plan. That’s the risk of running an organisation temporarily with hands partly tied.
Russon’s efforts, while praiseworthy, might not cut it. There’s a compelling case for bringing in an external CEO to steer Absa into uncharted waters. The bank’s cultural and operational challenges are deeply entrenched, and a fresh perspective might just be what the doctor ordered to shake off the weight of its history.
For one thing, an external CEO could inject a new vision and strategies, untainted by Absa’s past missteps and culture. This unbiased approach might lead to sharper decision-making and drive meaningful change. Fixing deep-rooted cultural issues requires a seismic shift that is easier to spark by someone from outside the existing structure.
For another, appointing an external CEO would signal a genuine commitment to change and improvement, potentially boosting confidence among investors and other stakeholders. There’s a chance an outsider might offer a more candid assessment of the bank’s strengths and weaknesses.
Hats off to Russon for his efforts trying to steer the ship with his hands tied, but maybe it’s time for Absa to stray from its well-trodden path and find a leader it truly needs — a new broom to sweep clean.
• Motsoeneng is Business Day deputy editor.
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