Some senior managers were in a jubilant mood this week after the news broke that Absa CEO Arrie Rautenbach is to take early retirement just two years into his tenure in charge of the banking giant.
Absa announced Rautenbach's early retirement on Monday, saying he would step down as CEO and executive director as of October 15, followed by a six-month contractual notice period of “garden leave”. Head of the Corporate and Investment Bank, Charles Russon, will take over as interim CEO.
Rautenbach's fall follows a series of reports by the Sunday Times about corporate governance failures at the bank under his watch.
On May 26, Business Times reported that Absa was caught up in another transformation storm when senior black executives confronted Rautenbach over critical senior appointments and the planned removal of the group's Africa operations head Saviour Chibiya.
Chibiya was said to have challenged attempts at removing him because the Africa operations he leads contributed 44% of the group’s bottom line in the year ended December 2023, helping to cushion Absa against its poor performance in South Africa.
The report said aggrieved senior executives had confronted Rautenbach over senior personnel changes in April when Deon Raju, previously group chief risk officer and a former group treasurer, was named group financial director; Rajal Vaidya was appointed interim group chief risk officer; and Christine Wu replaced Cowyk Fox as CEO of the Everyday Banking business unit.
It also detailed how Absa, one of the country's biggest banks, was in a bind after payments to Fox for work done while he lived in the US. The payments had led to a potential violation of US tax and social security regulations.
Sources at the time said what seems to have angered some Absa board members was the fact that Rautenbach, who had a close relationship with Fox, did not shield the company from what has become a messy compliance scandal.
This week, Absa insiders who spoke on condition of anonymity said while the group CEO's exit had been well received internally, the biggest problem was what they see as an “anti-progressive culture” within the company.
We need to fix the culture for the organisation to become truly inclusive and progressive
— Absa insider
“We need to fix the culture for the organisation to become truly inclusive and progressive.”
One senior manager felt the allegations against Rautenbach should have been investigated or answered to before his departure was announced.
“In my view, the bank took the easy way out by affording Arrie the option of early retirement as there was no accountability demanded from him that could have led to his dismissal and possible fines, and/or prosecution.
“While these matters remain unanswered, it seems all is now forgiven ... but when it comes to the government and politicians, we demand full accountability.”
Another senior executive described the mood since Monday's announcement as positive and hopeful.
“Senior people are looking forward to putting his tenure behind us and rebuilding an Absa that we can all be proud of. The reaction was mixed, there’s recognition that under his leadership we had no chance of building a culture that could move the organisation forward. The market response mirrored the internal feeling of hope,” said the insider.
Absa said on Friday that finding a permanent CEO was its immediate priority.
“It is in the best interest of the organisation to appoint a CEO without delay, while ensuring thorough evaluation and due care in identifying the best candidate. As an organisation, we remain focused on executing our strategy and delivering for our stakeholders.”
After Rautenbach's resignation, multiple sources inside and outside the bank told TimesLIVE that Rautenbach was forced out because the board was, among other things, unhappy with what they perceived as a “top-down” management style rather than a consultative one.
Another insider said the board lost trust in the outgoing CEO as they felt he was withholding critical information from them. This included how he handled the payments to Fox, and the attempt to force out Chibiya, which the board later reversed.
Business Times understands that patience with Rautenbach had worn thin over the poor performance of Absa's local operations.
Absa now lags its peers when it comes to market capitalisation. Its share price was down 4.6% over the past year, valuing it at R152.8bn. Nedbank has a market cap of R142.3bn, on the back of a 46% surge in the same period.
FirstRand is the country’s most valuable banking group, up 20% over the same period, helping it to a R477.4bn market cap. Standard Bank — Africa ’s biggest lender by assets — gained 26%, valuing it at R402.4bn. Capitec boasts the best-performing share, which soared 75% to give it a R335.3bn market cap.
Radebe Sipamla, senior investment analyst at Mergence Investment Managers, said it was unfortunate that Absa's internal squabbles had played out publicly instead of being resolved internally.
He said some form of mediation could have been sought to prevent the outgoing CEO from being compelled to retire prematurely when the company still faces significant operational challenges.
“Questions also need to be asked of the board as to why they were aloof or slow to react on the issues that had initially been raised internally and ultimately became public. What has happened with the recent management issues is that they have distracted senior Absa management from delivering on their core function of generating sufficient returns above hurdle rates on the shareholder capital that they are custodians of,” Sipamla said.
He said Absa's boardroom drama had dented investor sentiment and investors had become increasingly sceptical about the bank and were applying implicit and explicit valuation discounts to its stock relative to peers. This was driven by the lack of management stability and trust in the guidance management provided on the operational outlook.
“This is rather unfortunate if you consider how systemically important Absa is within a South African context. Its valuation and operational performance are punching far below its potential.
“In our view Absa’s valuation discount relative to peers may persist unless the board and management can convince investors that post the departure of [Rautenbach] internal management squabbles won’t continue to be a distraction and enhanced governance oversight will be applied to prevent a repeat of the alleged governance failures that are reported to have transpired.”
Anchor Group CEO Peter Armitage agreed that the bank could have handled things differently.
“Absa needed to find a solution to a CEO scenario that was just not working out. It is obviously negative from a continuity perspective, but it is positive that they have made a decision and can focus on the future.
“The interim CEO, Charles Russon, is a banking veteran who is well respected and should handle the position well. The CEO position in the big six banks in the country is a very delicate and public one as the banks are pivotal in helping South Africa drive growth.”
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