We are very fortunate today to have an opportunity to sit down with Sim Tshabalala, the Chief Executive of Standard Bank Group. Thank you for taking time away from all these busy meetings to spend some time with us and our listeners.
What is it about the World Economic Forum that brings you and global business and political leaders from around the world to Davos every year?
Since the 1970s, Professor Schwab has demonstrated the ability to convene civil society, business, and government to come together to deal with the major issues confronting the world. From a Standard Bank perspective, as Africa’s largest financial institution, we believe that it is important for Africa to be plugged into those dialogues.
The different streams that happen here would be conversations held on the major topics and then come back to the theme for this year, and the sub-themes. You can also participate in panels on the sidelines of the event, which again deal with the major issues of the day. You also get an opportunity to interface with your suppliers and your clients, interspersed with thee broad strategic discussions.
And then importantly there is a big session that happens, it’s called the Governor’s Session, where we focus on the industry, the governors of that particular industry. It’s an opportunity to plug into what is happening globally, and then to meet with clients, and it is also an opportunity to reflect.
That seems like a very important agenda for the Standard Bank Group so I can see why you would be here. So this year’s theme for WEF is around stakeholders for sustainable development. What does that mean to the Standard Bank Group?
Standard Bank Group, an African based financial institution whose purpose is Africa as a whole, would drive her growth. And growth for us has got both economic dimension, which is GDP, and also a social dimension, which is trying to contribute to human development and then importantly, also contribute to economic, certain environmental sustainability. So when you take those values and those principles, they coincide with major debates that are happening in the world and are happening here. Which is on the one side, shareholder capitalism. So the duty of management is to generate profits, to maximize profits for the benefit of the shareholders. And in fact, the legal regime in many parts of the world compels management in business to conduct themselves as such.
Having the business round-table group of leaders of businesses around the world. They’ve been putting some new thoughts against that topic and they’ve been really asking the question is
the only responsibility that business has to its shareholders? Don’t you have responsibilities to your employees, to society at large as well?
You have taken the words out of my mouth because that is the second part of the contradiction, which is stakeholder management. Stakeholder view of capitalism. Which is as an entity, an organ of society, you have a duty to all your stakeholders, including the environment. And your shareholders are just one of your stakeholders. So you have duties to your staff, your customers, to society, to pay your taxes, to contribute as an organ of society. Then importantly it means, to contribute to reversing environmental degradation.
We’re talking at the 40,000 foot level about some very big concepts. Can you translate that for our audience? What does Standard Bank do in these areas that we’re talking about? Specifically, what are some actions that you’ve taken around sustainability or toward your employees and stakeholders for example?
We are committed to environmental, social, and governance global standards. And those are integrated into one of our five strategic value drivers. Let me just mention those five, because environmental, and social, and governance reflect in what I am going to discuss.
First of all, we see an important value driver being our customers. In fact, the most important one. We exist to meet the needs of our customers and measure that through net promoter scores.
Secondly, is our staff. How engaged are our staff, how connected are they to our values and our principles. How committed are they to meeting the needs and demands of our customers and of society.
Thirdly it is risk and conduct. What sort of risk do we take with the capital that shareholders have given us, and deposits they’ve given us, and how we conduct ourselves. Are we treating customers fairly? Which leads back to the first value driver being our customers. Next is financial outcomes, we’re a business after all, so we have to measure the finances. And last but not least, social, economic, and environmental commitments.
So, we are committed to human rights for example, that’s the social dimension. Environmental, we have policies that deal with our commitment. For example, how we are going to deal with the coal industry, and the mining sector. And we have signed the United Nations Principles of Responsible Banking. If you get a sense that we have an integrated view of our commitments and we also have a commitment to transparency, your conclusion would be correct.
Being a bank with retail presence in South Africa and across the continent, you’re operating in 20 countries, in some of those markets, particularly South Africa, I know you are being challenged by some newer banks that have less legacy infrastructure. They use fewer people, they take advantage of technology, they leverage technology in order to deliver to the retail banking customer. How does Standard Bank compete in that context?
And there again you’re asking an existential question because that goes to the heart of our
sustainability. So Standard Bank is an old world bank. It has bricks & mortar and works with thousands of people and it provides intermediation services, risk management, it’s got insurance, its got asset management in it. However, its customers are used to being serviced by new-age organizations – Uber, WeChat, Paypal, and so forth. And they demand experience as good as Uber, WeChat, and so forth.
The new entrance replicates those kinds of experiences. To survive, Standard Bank either accepts that it will just do the back-end activities and let other people do the customer interface because they are good at it or Standard Bank can, as it decided to do, focus on improving customer experience at the same time as improving its own operations. We have to be ambidextrous in that process.
So we have to introduce apps, and we’ve done so. We have to make sure that the customer experience is as good as that of Google and at the same time do it at a cost and create as much value as the customer has come to expect from the big techs.
We have spent a huge amount of money on our core banking system, which is the back-end. So that we can reduce the cost of product and service delivery. And we are investing a huge amount of money, and are partnering with other people in order that we too may conduct ourselves as an ecosystem orchestrator, just like the big techs do.
If you had asked me, in the next 5 to 10 years what might be perceived as a bank? We’ll be a digital organization that provides very human experiences for its stakeholders. We will be using the assets that we have which are banking, insurance, asset management, but we’ll be allowed to use a clock for a fantastic experience. When she provides shelter for her family, in a secure, sustainable way, we will help her with the renewals people, the lawyers, and so forth. So you can replicate that experience. We will be improving our customers’ journeys.
I have to complete that point by saying we are very mindful of what fintechs do. They eat the slivers off the payment system or even assets on the liability side of the business. We are also mindful of what the big techs can do. And so for example, we have been watching very closely what has been happening at Facebook and similar. But we believe that the incumbents if they become truly digitized, and truly human, will be more formidable than our new entrance for the simple reason that they have the customer base, they are operating in a heavily regulated industry; and they know how to manage risks in addition to having the data and the main information.
So Standard Bank will survive and I think we will have succeeded maybe when people don’t use the word ‘bank’ when they describe us. Standard. Just Standard. You’re the Standard. That’s a good name.
Globally it seems as if large banks like yourselves have challenges in figuring out how to be nimble against the fintechs. You are giving a very good argument as to why you think that ultimately you will prevail because you are in a regulated industry and you have a customer base. But do you think that in building customer journeys, is it something that you think that you will build, or will buy, or do you require others to have this expertise?
We believe that in the modern world in order for you to be able to survive and then compete successfully you have to accept to go into partnerships with others and that will range from transactional partnerships that are short term, to medium, to long term. You buy other fintechs or new startups or you buy them with other people. In our case, we are quite open to partnering, including partnering with competitors.
Let’s use the example of Uber partners with BMW in the ride-hailing mobility business. So there you have a quintessential engineering company which is positioning itself as mobility business. It’s in partnership with its competitor in a very interesting new part of business and that analogy implies with premium banking. And we are open to not doing everything ourselves, to partner with others and to partner with competitors.
And the point really is that when you develop relations with your client and when you enter new territories you have to present yourself as a banking institution; where you can partner with others, and buy into new businesses.
That is interesting. One of your themes is ‘Africa is our home, we drive her growth’. How have you experienced being a South African institution moving into the rest of Africa? Some people criticized South African companies as a new form of colonization across the continent. I know that you have the objective of being true partners in different countries, but how does that really work? Do they see you as local players? Or do they see you as a South African huge entity just bringing South African capital into other parts of the continent?
I would submit that we will survive and thrive because we are an African institution that just so happens to have its headquarters in Johannesburg. Our financial laws, regulations, support networks and infrastructure are currently in Johannesburg but we could as easily be in Nairobi, in Lagos, or in Maputo because we are not a South African institution but an African institution.
You say you are an African institution. How do you define an African institution?
An institution that operates throughout the continent and is not defined by where it’s headquarters is.
So that is what we are building and what we are transpiring into. When people look at our entity in Uganda, Stanbic Uganda, it is intertwined with the society it operates in. It is listed there, it participates in the capital markets, it is run and managed by Ugandans. The board is governed and managed by Ugandans. We are shareholders and conduct ourselves with the utmost respect for the local laws, regulations and norms of Uganda. The same applies in Nigeria. Standard Bank is the quintessential Nigerian bank. It is seen as such. It relates to society in Nigeria as such and we conduct ourselves as a majority shareholder accordingly. There are benefits to being an international player and that is why society tolerates us. We conduct ourselves as local which is another reason why we are tolerated.
There have been interesting events that have tested us. You can say all these things in theory until you have xenophobia in South Africa and people ask ‘well, are you South African or are you African?’ Is it appropriate that South Africans conduct themselves as such? And I would offer to you though that that episode was extremely difficult. We proved the credentials of our institution and we were ashamed of the fact that South Africans conducted themselves the way they did. But those South Africans do not represent the 52 million South Africans. They had an important point to make but we have to have reverence to the laws and emotions of people in Nigeria and the other countries whose nationals were in South Africa and treated with such disrespect. We came through that process really well, because we demonstrated the fact that we are African and not just South African.
And how did you demonstrate that?
By firstly speaking out publicly against the events and by engaging with the local leadership in each instance. Doing it respectfully, organically, apologising when necessary, and reflecting our credentials as an African institution. I think if it happens again we would do the same.
The next question is about leadership, responsible leadership. We’ve heard this phrase tossed around. Standard Bank as a leadership providing institution, and you personally as a head providing tremendous leadership within the organization and to society as well. Can you talk a little bit about your definition of the brand? What do you think about leadership?
I am a lawyer so I start with categories and start with definitions. For me, a leader is someone who provides direction and importantly provides people with faith and health. Faith and health are very important in my own makeup and how I conduct myself in the times and places I am wanting to work. And how I then work in those types of environments. Here’s why this is relevant.
In modern work and in a place like Davos we are debating stakeholder capitalism. An important element of stakeholder capitalism is how you lead organically in an environment where there are so many conflicts and how you resolve those conflicts. I believe you then start with values and purpose. Standard Bank has a set of values and also a purpose. And you then have to measure all your activities against that purpose and those values. And it just so happens that Standard Bank’s purpose and its values mirror mine and the things I believe in.
I believe that ethics and faith and hope are all interrelated and therefore we talk about technology; are their ethics in technology. Yes, from time to time, people have grappled with, is a spear technology. When is it appropriate to use a spear: war etc. During the first, second and third industrial revolution those issues rose and these issues are arising today. How do you use AI (Artificial Intelligence)? How do you make sure that your models aren’t biased, because mathematics as you and I know, and algorithms are all about assumptions? So how do you make sure that the racial agenda, the religious agenda play themselves out clean in those algorithms?
To go back to the point, I believe that values and principles matter, they always mattered. One isolated philosophical view of business is as much as I do of other professions and as much as I do of all other activities. I therefore as a leader, bring all of that to the table in how I run the organisation and in the objectives of the organisation.
Standard Bank has been in existence since 1862. It has always played an important role in society and the notion of stakeholder management, even though people did not use that notion it has always been there. How so, from day one, Standard Bank provided financial services to the wool industry. It was inexplicably intertwined with the society in the Eastern Cape.
We will accelerate to 2019/ 2020. Standard Bank is committed to making sure the African continent plays its rightful role in the world. To do that it has to grow and it has to provide the soft and hard infrastructure to allow people to participate. And so I believe this is the African century. We need to take the opportunity of Africans to contribute to the development of the continent, drive economic development and drive human development and contribute to a sustainable environment. All the issues being addressed at Davos this week.
At Davos this week, as well as the role you play at many international bodies, and as a leader at an international banking perspective.
We reported from the United Nations last September because you were playing an international leadership role in signing the principles for responsible banking, leading over 100 banks around the world to adopt a set of principles. Can you talk a little bit about that today?
Yes. I would prefer to make the points slightly differently in fact and say to you, in addition to all of that we also offer participants in the international world of finance. We participate in a whole lot of other institutions where we are contributing to making sure that the finance industry, in banking, in particular, makes a contribution to environmental issues, to social issues and to governance. The argument we’ve made to all of these places is that it is actually quite important for the world to agree to a common set of standards in dealing with bonds, in dealing with social commitments, and in dealing with governance.
All these instruments that we are assigning and committing to are important but they are potentially creating noise because there are so many different standards and commitments that you are making. So yes, you are correct, we are signatories, but I keep taking people back to just the fundamentals. It is about first making sure that you are acting as an organ of society. Secondly that you’re contributing to all the stakeholder demands, and that those demands are often in conflict.
So for example, and I love this example, you and I flew to Davos and that deals with the environmental issue. The carbon footprint to fly to Zurich and then to drive to Davos is enormous. So when deciding to come, how do you strike a balance between the environment, the carbon footprint, and the social issues. It is important for social dialogue to happen. How do people get there? How do you and I as responsible executives contribute to that balance between lowering the carbon footprint but also the social aspect of job creation and so forth.
And my favourite example is you are taping this conversation and the instrument you are using uses power and electricity. So how big is that footprint, relevant to the importance of communication? So my point is that Standard Bank is participating in these discussions because it believes it is an organ of society and that Africa, as I said at the beginning, has to be a participant in those discussions.