5 Significant Findings Emerging from the Research
5.3 Application Phase
5.3.1 Features of the Financial Sector Charter
This section looks at three nodes that are concerned with a number of key features of the Charter both as a set of targets and as a process11. Firstly, the views of various interview participants on the process of embedding the Charter pillars into their organisations; secondly the deliberate design and use of competition between companies to drive the benefits of empowerment; and thirdly, observations relating to the complexity of integrating the Charter into the existing business models of a highly regulated sector of the economy.
5.3.1.1 Embedding the Pillars of the Charter into Companies
The perspectives presented in this section are from those who were, or are still, in senior leadership positions in the Financial Services industry, as the task of bringing the Charter to life within their organisations fell to them:
There was an intellectual integrity around this; the need for transformation and the sense that it made that we can’t be a business that is only serving 10% of the population, and we can’t fully connect. If our demographics are so skewed that we can’t fully engage with the full population, how can we expect our client base to? Participant #19
And I remember a lot of the discussions taking place then, sitting as a board member, around how the company, or the group, needed to embrace this whole concept of transformation. Participant #8
We formed a Transformation Committee and I chaired it to start with, and it always remained chaired by someone senior for a long time …. And that was driven hard … by a senior person for five years and then …it sort of became more embedded in the organisation. Participant #1
We weren’t really effective in the earlier years [but] you knew you had to change, you knew you were reporting pretty shitty numbers in terms of achieving the kind of change you had to make. Participant #11
And I think that’s what the Charter represented: let’s get out of the clouds, guys. Let’s agree things that we can do. Let’s … try and balance what the priorities are. Let’s set the targets. And … let’s go forward. Participant #12
11 The key elements or pillars of the original Financial Sector Charter are listed in Annexure 2, together with the equivalent categories in the Generic Codes and the more recent Financial Sector Code
The Charter … had spectacular momentum in the first five years which was from 2003 to 2008. Participant #3
5.3.1.2 The Use of Competition to Further the Aims of the Charter
An unexpected finding was the deliberate intention (by government and ABSIP) to apply competitive principles to the Financial Sector Charter and the recognition by industry that transforming their businesses would secure a competitive advantage for their companies:
I could get up and say that Jacko [Standard Bank CEO] would not allow Steve Booysen, who was the ABSA CEO, or Steven Kosseff [Investec CEO], or Sizwe, who was at First Rand, and I think Tom Boardman was at Nedbank, none of them would allow their competitors to get away with less than they were doing…I think, it may have been there, but the big accounts with banks in those days was managing the Provincial treasury accounts. So the scores attained by financial services companies was pre-emptive of being able to secure those fairly lucrative government contracts. Participant #6
It also made it a competitive thing: it made the target important but frankly it [the scorecards] made the system self-reinforcing; if you underperformed your competitors you would be found out. Competition. Participant #3
Competition is ultimately good for the sector. Because, I mean, what happens when more participants enter an industry, you get all the positive things coming out. You get costs coming down, you get more innovation. Participant #13
The fact that I need to transform is about us being globally competitive. Participant #7
The crowding in of capital behind transformation and empowerment and small black business and entrepreneurs…it was so powerful. Participant #12
Thus it is clear from the executives interviewed that their companies were aware at a senior level that transforming their organisations by implementing the Charter comprehensively would create business and ultimately financial benefits for their organisations and stakeholders.
This awareness is well articulated, in conclusion, in the following statement:
Compliance [with the Charter] was looked at in the context of the entity, and how it looks in comparison to our other peers in the sector. Because the extent to which different companies may have approached this differently meant that you either had a benefit from a competitive standpoint, or you had a disadvantage from a competitive standpoint. So there was a lot of that kind of discussion saying, well, you know, how do we stack up?
And…[are] we transforming enough? Participant #8
5.3.1.3 The complexities of integrating the Charter in a highly regulated industry
Globally, banking (and to a less extent, insurance) is one of the most highly regulated industries. The manner in which the South African financial system is regulated has been briefly explored in Chapter 2. The findings indicate a concern amongst government interviewees (in National Treasury) of the potentially negative impact of the Charter given the desire of the sector to be globally competitive, operating under the same global regulatory capital standards for capital yet simultaneously seeking to alter the domestic operating dynamics of the sector through the implementation of the Charter:
Whichever way you look at it, whether it is real borrowers or it’s people who are looking for shareholding, just take it that you are channelling from the savers to the deficit sectors of the economy....So it was like if we get this one right we could actually effect fundamental change in the South African economy. But it is also as we were going through and navigating these things it is one of the most highly regulated sectors. And the regulation is not just domestic, it’s international, right…we had to take into account our obligations in terms of international commitments and at the same time be cognisant of the transformation journey that we had to embark on as South Africans.
Participant #14
The key challenges at the time, obviously transformation was one of them, but also reintegration of the financial system in South Africa to the global financial system. So, for instance, our membership to the Basel Committee, our membership to the payment system globally, our integration to the G20, to the BRICS and things like that … [T]he banks were …concerned about being too uncompetitive because of the high capital standards that we imposed on [them]. Participant #17
I mean, dealing with empowerment in the financial services [companies] that are in SA, especially the banking sector, is far more complex than in the other parts of the system.
So it [the Charter] struck all the, call them, delicate balances. Participant #9
Concluding on the findings on the Charter Features, the interviews with these participants have highlighted that there were both challenges and opportunities to business in adopting the Charter and embedding it into their operations, and that the competitive nature of the industry was deliberately harnessed to seek better outcomes (from an economic transformation perspective) for the entire economy. This had to happen against a backdrop of international financial regulation that South Africa had committed to adopt, in an effort to be regarded as a globally competitive investment destination.