Stephen Koseff on building capital, culture and country

Skip to the sections you're most interested in

SK: Stephen Koseff

NM: Nkateko Mathonsi

RK: Ross Krige

Intro

RK: If you were president for a year today and you had two or three action items, what would those be?

SK: I would try and devolve a hell of a lot of what government thinks they can do into the private sector through public-private partnership.

And I would try modify the way BEE works. If the private sector puts effort into social upliftment, giving people skills, developing skills, creating opportunities for them, helping build entrepreneurs, I think you can have a very transformative society.

Intro ad: Welcome to Investec Minds, a video podcast series on Investec Focus Radio SA. In each episode, analysts from the equity research team at Investec Corporate and Investment Bank sit down with a former chief executive who helped define their industry at a critical point in its history.

NM: Hi, I am Nkateko Mathonsi. I am the head of equity research at Investec, and also a mining analyst, have been covering the space for the past 10 years.

RK: And I'm Ross Krige, an equity analyst covering the South African banking sector.

NM: It is most fitting to start this series with our ex-Group CEO Stephen Koseff.

Over the past 39 years, Stephen has played a pivotal role in shaping the Investec culture and strategic direction, helping build Investec into the institution that it is today. We are very grateful and excited for an opportunity to reflect with Stephen on some of the critical moments that shaped his journey and also just the insights on the world today.

Life after Investec

NK: I want us to start with one of the comments you made when you were stepping down as group CEO in 2018 regarding retirement. And you said it was not retirement, as we know it, it's a start of a new chapter. You would not be playing golf four days a week. So I just want to know how has the transition been, Stephen? Are you playing golf at all?

SK: I haven't played golf since Covid, so I'm not playing golf at all at the moment, but I'm doing a lot of walking 'cause in Australia you can walk a lot. So, in my spare time I walk or I take a gap and I do about an hour and a half walk. But apart from that, I'm still working most days. My factory setting is, I must just keep working to keep my mind active.

NM: And Stephen, you are joining us from Australia where you have been spending more time with family. [00:03:00] How has that experience influenced this new chapter in your journey?

SK: I spend a fair amount of time online in South Africa and I visit South Africa about four, five times a year. Sometimes an extended visit. And I was familiar with Australia 'cause we used to have a bank here and I do have networks and relationships here. So, I'm doing some Australian work, but I'm still doing some international stuff, so I'm still on the board of Investec PLC and Investec Limited.

And then I’m also on another public company board called BidCorp, which is listed on the JSE, but it's biggest businesses are outside of South Africa, including Australia.

NM: What are you deliberately saying yes to in this new chapter of your journey? And most importantly, what are you choosing to say no to?

SK: Now I'm not in any corporate decision making other than stuff that comes to a board, so it's not day-to-day stuff. Obviously in my private capacity, I do a chair credit fund, so that lets me still look at deals and say yes or no.

I chair private equity fund. And I also again get the ability to look at deals and say no or yes. Still pretty much the same type of stuff, except the scale of it is not anywhere near what it was when I was CEO of the bank and  chairing some of the risk committees.

NM: It sounds like a very busy life still, but yeah, I'm glad it's different to what it used to be.

SK: Someone said to me when they retire, they're going to spend a third of their time on business activities, a third of their time on charitable work and the other third on maybe on their personal stuff and leisure stuff. So that was quite good advice and I dunno if I managed to do it that way, but I am mindful of, spending time on different aspects of my life. 

Convincing Trevor Manuel about Investec's London listing

RK: Stephen, you've talked a bit about being in a more non-executive capacity and just thinking in terms of leadership from that perspective and persistence in particular as a, I guess, a key element behind leadership. Could you tell us more about the time that you had to camp outside Trevor Manuel's office and what that taught you about persistence?

SK: It was when we tried to get permission to list in London. And Trevor Manuel, the then Minister of Finance was, kept the door shut on us. So eventually we camped in his office. Hugh Herman and myself.

Hugh Herman was our chairman, and we sat there waiting for him to arrive, to actually go through the process of enabling us to get a listing in London.

SK: Took us from 1998 till 2001 to get that right. He ended up saying we have to do the dual-listed structure, which is the structure that Investec has today. Because originally we were looking for a listing in London that would own South Africa, similar to what Old Mutual had done, what Didata had done and what Anglo American had done. But he, by that time, he said no more of those types of structures.

RK: Is there anything in particular about negotiations or I guess having to keep knocking on a door that you could take away that you put to use later?

SK: Yeah, I think it was just, you know, don't give up If you've got something that you need to do in life, and it makes sense, keep banging on the door and don't give up. And eventually, they'll capitulate or they'll see the logic.

I mean, he was just being emotional about it at the time that no, you're not listing in London. And so eventually we came up with a structure that worked for him and worked for us and still works for Investec today.

And that's why, the banks are totally separate. And London has an A rating and South Africa is below investment grade. So I think it really worked out well for us, 'cause otherwise I don't think we would've been able to operate in London, as a South African subsidiary, 

Culture at Investec: Why there aren't any job titles

NM: I think it also talks to the culture of Investec – the out of the ordinary entrepreneurial culture of Investec.

If you look back over your tenure as Group CEO, what are those one or two moments or decisions that you think helped set the tone for this Investec culture?

SK: What we realised quite early in life was that culture was important. Bernard who worked with me and brought in the guy Professor Alan Zimbler, and he was a professor at Wits Business School in organisational development and he's the one who really helped us with culture and helped us understand that how important culture is in building an organisation.

Very early on he came with the concept of that anyone could talk to anybody about anything at any time. And that's why, our people at Investec had that persistence. Sometimes if they wanted to do a deal, they would come and nag, they'd come to your desk. They would even follow me to the car park when I was going home at seven o'clock at night, and still nag about the deal, so that they knew that they were going to get a hearing.

So that, that culture was, that can-do attitude, was very embedded in the Investec culture. You don't just take no for an answer if you really believe in something. Now, there are times when no has to be the answer.

A deal is terrible, can't do this deal, and they’d nag and come back. But the no stuck. The ability to question, to challenge, to not just accept no was, and I think still is today, a very important part of Investec.

RK: I can say with comfort that in my three and a half years here, that the culture, that cultures very much looks alive and well. Just interested in how you operationalised that culture as the business grew beyond just a few people into thousands of people?

SK: Look, I think we spend a lot of time with the people talking about culture. There are lots of processes within the organisation. The people who lead the organisation today have been in the organisation for decades. So they became very familiar with the culture and they've enabled it to be perpetuated, which I think is very important.

You do sometimes get people in the organisation who've got leadership roles that don't live the culture and sometimes you have to deal with them – either coach them [00:09:00] into living the culture or sometimes they don't hang around.

NM: And Stephen really lived the culture. I remember when I joined Investec, I would go to the restaurant, and he would walk in and be greeting everyone in every table. So that accessibility to leadership, that was very new for me coming from an environment where the culture was completely different.

SK: Yeah, and I think that was the whole purpose, was to enable anyone to talk to anybody about anything. And that's why we took away titles. Titles were functional, not status. So that people, a young starter could question and challenge, and that's always been a very important component of the culture, and very good ideas come from that because, sometimes it's not just leadership that understands what to do. Youngsters understand what to do better than leadership at times.

Lessons on expanding abroad

RK: Stephen, we've spoken about culture and leadership, but I guess these values are ultimately tested in areas like capital allocation. There's quite a few South African corporates again looking to move offshore at the moment. And Investec obviously has its own rich history of trying things overseas. Any advice you'd give to some of the current day execs looking at moving offshore?

SK: We made a lot of mistakes. We were able to pivot and navigate through the mistakes. It's not as easy as it looks sometimes, so just be wide awake and make sure that if it doesn't work out, you can navigate and, pivot and get back to the right path.

I can remember when we started in the UK, we bought a small bank called Allied Trust Bank in 1992 from Barclays, they had 50-odd people. I decided that Bernard must go and park there for three months. It was before he immigrated to London and he phoned me and he says, "They cut me out of everything. They don't let me into the meetings".

And so what we ended up doing is firing the CEO and sent someone from South Africa to run it who understood our culture. That enabled the beginning of the transformation of that organisation into Investec. Because if those guys who we'd bought, they would've just continued to keep it as their own home and not let us in, exactly what they did to Bernard in the early days.

When you buy something internationally, every country is different. It looks the same on paper, but it is very different. The cultures are very different – I'm not talking about organisational cultures, the people cultures are different, which I think we learned quite well over a long period of time. But in the early days, you hit roadblocks.

We were the type of organisation that was flexible and adaptable, and ultimately what we found is the people loved our culture.

Obviously, we made mistakes. We bought up in America mid to late nineties, and then you had September the 11th and we sold everything and just kept a small little shop there.

So, you've always gotta keep pivoting to try and build a sustainable organisation. And I think the key thing is that whatever you do, make sure that it's not something that can stick you out if it goes wrong, that you can recover 'cause some stuff does go wrong. 

Investec's UK and Australian expansion

RK: Talking about looking the same, I thought that was an interesting point,  'cause if you look at the UK and Australia for example, maybe a foreigner would look at them as similar markets.

Obviously for Investec, the UK worked out well, Australia, maybe not quite as planned. If you could maybe talk about what drove those different outcomes.

SK: Obviously in the UK we sent very senior management to the UK. They were Investec grown. A lot of the staff were transferred from Johannesburg, similar to Australia actually, and were integrated into the organisation. We had a guy who now, who ultimately became chairman of the Bank of England, Sir Bradley Fried, was with us for about 10 years.

We sent guys like Richard Forley, Dave van der Walt, Leon Blitz – you won't remember some of these guys because they're no longer with us. They all made a difference in terms of integrating the people into the culture and the organisation.

Australia could have worked out quite well. We decided to sell the bank in 2014. We got a good price from the Bank of Queensland and we thought it would, we'd make it a branch. It was a branch until the UK guys in 2020 about decided, no, the place is too far. And that 11 hours’ time difference in British winter and Australian summer was too much to cope with.

Whether one agrees with that strategy or not, I dunno. I think we could have had a great business here.

It is an environment that is different but similar. It lives between the UK and South Africa, actually the Australian culture – it's not quite the UK culture and it's definitely not the South African culture, but somewhere in between.

We're going through the post-financial crisis and post European crisis trauma. We were reshaping the business. 2008, you had a lot of incidents. You had Europe blow up, Ireland blow up in 2010. Greece and Europe blew up in 2011, 2012. Then we had Brexit in 2016. Then you had Covid in 2020.

There's been a lot of stuff that has happened. And normally you get a clean run of about 20 years, 25 years. We've had a lot of bumps in the road that one has had to navigate. 

Continuity ad

You are listening to Investec Minds, a vodcast conversation grounded in the work of Investec Equity Research team. Our analysts cover around 80 listed JSE companies, including the majority of the ALSI 40, as well as leading mid and small cap businesses and companies active across the rest of Africa.

We combine deep company insights with macro and sector research to deliver independent analysis, financial modelling, and investment expertise that supports institutional decision making.

Through close relationships with management teams and sector stakeholders, we provide insight into the trends shaping markets, helping investors develop strategies across cycles and geographies.

To learn more about Investec Equity Research, visit Investec.com. And now back to the conversation…

The one year Stephen would revisit

NM: If you could relive one year of your tenure as Group CEO, which would it be and why?

SK: Maybe 2007, 'cause we bought a business called Kensington Mortgages just before the world blew up, and it gave us a big headache for about 18 months, maybe even longer.

So I'd want 2007 over again, so we don't do some of the stupid things that we did that put us under pressure in 2008, 2009. Every year is a different year, and you learn a lot, and sometimes you have to do the stupid things to learn from them as long as they don't blow you up. So, fortunately nothing blew us up on.

A 10-year view on the SA banking sector

RK: And coming back to the South African domestic banking sector and the retail banking side in particular, there have been changes for years, but at the moment, I guess you could argue we're seeing an acceleration with some of the insurers starting banks, Old Mutual and Discovery come to mind.

Retailers like Pepkor talking about opening up banks ahead of the SARB NPS, that's pushing quite hard for financial inclusion. And the traditional banks, I guess, trying to figure out these dynamics, where do you think the sector lands on a sort of five to 10 year view?

SK: Look, I think, we see with a, a bank like Capitec, they've done exceptionally well. They started I don't remember about 20-odd years ago. And I think they've got the second biggest market cap out of all banks in South Africa.

So you're going to have some great success stories and you're going to have some failures, which is always the case. And you've seen that right throughout banking history.

I can remember when online banking became a thing to do and the UK they had banks somewhere and they were named Egg and all sorts of funny names that were launched out of retail banks. And eventually the retail bank took them back inside and said, okay, now we're just going to make you a part of our core being.

So you’re always going to get this competition come at a segment. And I think about Investec, it's very focused on a certain segment of the market, which always comes under attack.

But what really is becoming under attack is that emerging retail client. If you think of Capitec and Pepkor wanting to come in, Old Mutual, wanting to come in, Tyme Bank, African Bank, everyone coming at a particular market segment.

So, you've just gotta stay focused. Make sure that you look after your client base, you deliver the right product and the right service to the client base. So, you will get this competition coming at you. And you might get that crowd in the UK Revolut, they also look like they want to apply for a banking license in South Africa.

Have South African banks got their heads around the Africa opportunity?

NM: So, Stephen, with increased competition and potential disruption for the financial services, I think the other question is where the next wave of growth is going to come from, and recalling from the conversations at Mining Indaba this year, the scale of opportunity that Africa offers is actually vast, especially with its endowment in critical minerals.

So my question is, do you think the banking executives have got a full appreciation of the opportunity that the broader Africa actually presents at this point in time?

SK: I think a lot of South African banks have expanded into Africa. So I do think everyone is looking in that direction, recognising that it is a land of opportunity and that's going to be important in future growth and development.

And if they can get their financial structures right, it could be a great place to do business, but there's still a lot for them to do. So that's always been the challenge. Are the governments in Africa going to be business friendly at the end of the day that enables their countries to take advantage of the opportunities in which they have.

That's still going to be the big test. So there is a massive opportunity, just you need to create the right kind of political framework to take advantage. Of that opportunity. 

How corporate South Africa can make a difference

NM: One hundred percent. And maybe to pivot a little bit into the social stuff. We've spoken about growth and capital opportunity, but when it comes to Africa, I think the leadership role carries a broader mandate.

You were very pivotal in initiating some of the key CSI programs and I think Promaths is top of mind for me. And this is a programme that actually provides extra lessons for both Maths and Science to high school students. It's a programme that has delivered tremendous results.

You’re also a co-founder of the Youth Employment Services, and my question is, what convinced you that these are the areas where business actually needed to step in?

SK: So, I think, you know, in any society, you've gotta create opportunity for the people. Otherwise, what's going to happen is they're going to take away the opportunity for the corporates, 'cause the system won't allow you to run a free market system. And I'm a big believer in the free market system, but at the same time, I'm a believer in corporate expertise being used for social upliftment.

And that's why, we at Investec always said, we live in society not off it, and therefore we have to play a role to help uplift people. And the key area where you can help uplift people is through, mainly through education and giving, creating the right kind of opportunity. ProMaths was obviously the ideal programme for that.

The Youth Employment Service was a public-private partnership between government and business, and I became co-chair of that alongside Colin Coleman who used to run Goldman Sachs in South Africa.

Although we didn't achieve the numbers of jobs that the deputy president at the time, which today is president, wanted us to achieve, we’re still close to a quarter of a million jobs. And but he wanted a million. But we'll get there.

So this is very important for South Africa, which has very high unemployment, is how do we educate our people that they become relevant in society and that they can go out there and get a decent job.

I mean, we've had some very good people who've done Promaths who were not very strong at maths, and we gave them the right kind of tutorship and these people are doing Masters in engineering today.

This is how you build a country, by educating people and creating opportunity. And that's where, you know, one gets really hopeful for South Africa.

If we all play a role and the corporates do play a role, when I compare South African corporates to corporates in the UK or corporates in Australia, they don't have the same social upliftment objectives.

NM: On the social aspects, what do you think of the role that corporate SA is currently playing in strengthening the economic trajectory of South Africa?

SK: They are critical, and I think, when I was involved in Business Leadership, which was before I retired, and I was involved in the Banking Association, we tried to play a very strong role in helping and assisting government.

And I think that still exists today, and I think, you know, more and more so, government don't have capacity. We've seen that in South Africa. The capacity sits in the corporate world, and that's why public-private partnerships are so important for the growth and development of South Africa.

It is important for some of the stuff that the state owned enterprises do, be corporatised and be run by corporates because there isn't the capacity or the capability in South Africa, unfortunately, in these enterprises, whereas in the corporates there is.

You can see it with the Youth Employment Service, as the role we play to facilitate jobs really makes a difference and we are using the corporate sector on both sides to pay for the jobs and to provide internships, and to do it for other people as well.

Developed countries have, their civil servants are very skilled. Whereas in South Africa, we are not there yet, unfortunately. And that will take time. 

South Africa’s moment: cautious optimism takes hold

NM: Stephen, there appears to be cautious optimism emerging in South Africa despite the persistent structural challenges. From where you're sitting now, how do you read this moment for the country?

SK: I look at the overall picture, and you look at the 10-year bond rate, it's gone from. 11.04 to 7.8 in 11 months. For that we have to thank Lesetja 'cause he's managed to get inflation into the mid threes, which is lower than some of the developed economies.

So, I do think there is room for optimism. I think the fact that the GNU has held, I think is positive and that people are seeing that, you know, South Africa can become a centrist-type country. The ANC is centre left, the DA may be centre right, but if they stay in alliance, you get rational decisions.

The fact that rates have come off 300 basis points is telling you a story

If Stephen Koseff were president: fix infrastructure, unlock partnerships

RK: Stephen, you've been quite vocal over the years in the lack of action in government and we are talking now about maybe that improving through the GNU. If you were president for a year today and you had two or three action items, what would those be?

SK: Obviously, you have to get Joburg, right. We have to execute splitting Eskom up into the three different parts through public-private partnerships. Those are things we had on the table almost 10 years ago.

To say, how are we going to make sure that we have an adequate supply of electricity? I think they've done quite well of late through the changes in leadership. But now you have to go the next step. You can't go back to where we came from.

And that same applies to a lot of infrastructure. Now I always go back to the toll road. We did the N4 toll road, as Investec. It was a public-private partnership. It was done in 1995, 1996. We gave it back after 30 years to the government who then re-tendered it and got, I think the number was R10 billion, and they never had to pay a cent. And it was always neat and tidy, and it always worked 'cause the owners had to look after it.

So, I'm a big believer in public-private partnership as the way to get the infrastructure right and create the opportunities.

I would try and devolve a hell of a lot of what government thinks they can do into the private sector through public-private partnership, but it has to be the right partners. That's very very important, and I would modify the way BEE works to focus on what we were talking about earlier, social upliftment.

If the private sector puts effort into social upliftment, giving people skills, developing skills, creating opportunities for them, helping build entrepreneurs, I think you can have a very transformative society. 

Outro

NM: Stephen, it’s been absolutely fantastic talking to you. I think one of the reasons we actually started this series was also to celebrate the contribution that many of our ex CEOs have actually made in South Africa.

And it was very evident here in terms of your success, culture and the right culture, is the golden thread to many of your achievements. Being very involved, living in society and not off it, that also came out very strongly.

But yeah, it's a big thank you from us the Investec Research team, and we’re just grateful that we get this opportunity where we can actually celebrate these contributions.

Thank you so much, Stephen. This was indeed an out of the ordinary conversation. I hope you play a little bit more golf going forward.

RK: Absolutely. Thank you Stephen, that was super interesting.