Mind your business

CHAPTER 1

Laurie Dippenaar

CO-FOUNDER AND NON-EXECUTIVE CHAIRMAN OF THE FIRSTRAND GROUP | Interview broadcast on 5 July 2011

After qualifying as a chartered accountant and working at the Industrial Development Corporation (IDC) for three years, Laurie co-founded Rand Consolidated Investments in 1977 with Paul Harris and GT Ferreira. Over time, this trio has built one of South Africa's most successful financial services groups, through strategic takeovers (eg Rand Merchant Bank, Momentum, Southern Life and First National Bank) and by starting and growing new businesses such as OUTsurance and Discovery. Today the FirstRand Group has a market value exceeding R160 billion, 45 000 employees, and more than R1 trillion in assets under management.

What stands out during an interview with Laurie is the ease with which he deals with the questions and topics, and how relaxed he appears in front of the cameras. Another striking feature is his reasoned approach to any topic: first contextualising his answer, then highlighting the key points, and ending with a logical conclusion - as if it couldn't have happened any other way.

When one looks at the success he has achieved, it is easy to forget how and where it all started. I wanted to get an idea of what it was like in the beginning, before there was money in the bank. Laurie makes no bones about the modest start of FirstRand's predecessor, Rand Consolidated Investments (RCI), in 1977. Paul Harris, GT Ferreira and Laurie kicked off their business with R10 000 - about R70 000 in 'today's money', he says. 'We had a few good product ideas that worked, and for nine months none of us drew a salary because there simply wasn't enough money. People often ask me whether we had any idea at the time of where we would be today. Absolutely not; we were just trying to survive, limiting costs wherever we could.'

According to Laurie, they were 'too small and too poor even to afford a photocopier'. Their offices happened to be situated above a copy shop; whenever something had to be copied, 'you had to take the lift to the ground floor, go into the shop, get your copy made, and traipse up again. After a few months, GT told me that this wouldn't do - we had to buy our own photocopier.' When Laurie explained that he was in charge of their finances and that there was no money for such a luxury, GT offered to buy a photocopier out of his own pocket - they just had to pay him the same amount per copy that the shop charged. Laurie relates that he did the sums and realised GT would pay off his machine within three months. 'So I said, no, let's rather buy our own machine.'

When one looks back on the development of the group, several milestone achievements stand out. With the benefit of hindsight, these steps appear logical, yet each one was a decision taken within the context of the particular time. The first milestone was their acquisition of a banking licence in 1984. When I ask why this was so significant, Laurie explains: 'At that stage, after our start in 1977, we had become fairly big, but we didn't really fall under any particular law.' They felt that this affected the credibility of the organisation, and that they 'had to subject ourselves to some or other form of specific legislation - stock exchange legislation, life insurance, banking or whatever. It was then that we decided the best legislation and vehicle we could use was that of a bank.' And, as he puts it, 'then we had a piece of luck'.

At about the same time that RCI started in 1977, Johann Rupert had bought a 'bankrupt bank', namely, Rand Merchant Bank, from Rand Bank. 'In 1983 his father summoned him and asked him to return to Remgro. He then looked for people who could take over the bank from him, people he trusted and who would in his view handle the staff correctly.' As both Paul and GT had been at university with Johann, his choice fell on their group. 'That was a stroke of luck,' says Laurie, 'because we had tried before to acquire a banking licence and failed, and now this opportunity dropped into our lap.'

The second big milestone I wanted to explore was the takeover of Momentum in 1992, and what this step contributed to the group. Again I received a very logical answer: 'As you know, income from merchant banking can be very erratic and we were looking for something that would give us a more steady income source, so-called annuity income.' Laurie says they identified the insurance industry as the right type of investment to give them such income, and once more 'a piece of luck' came their way. When the then shareholders of Momentum decided to sell the company, 'they came to see us to help them find a buyer. We told them, wait, we are putting up our hand, we'll buy the company, and of course it was a wonderful investment.'

In the late 1990s they acquired Southern Life and First National Bank from Anglo American. This third milestone changed the nature of the group yet again, and again it sounds like a logical next step. According to Laurie, in 1996, 'after the advent of the new South Africa', the group had already identified the entry of foreign banks into the country as a threat to Rand Merchant Bank. Because they knew that competition from foreign banks was inevitable and that these banks would mostly go after their big corporate clients, they decided they needed a retail bank strategy. As a first step, they bought 20% of the old Natal Building Society (NBS), 'but when we wanted to acquire 50%, they refused. They didn't like these Johannesburg guys; they were a Durban company. So they fled into the hands of Christo Wiese's Boland Bank. Of course this didn't work out very well, as the cultural differences were too great. Interestingly, years later we acquired the Natal Building Society's mortgages book. So the tables were turned.'

After the failed attempt to acquire control of the Natal Building Society, Laurie and his colleagues decided in 1998 to buy Southern Life, 'which was struggling a bit', on the insurance side. Anglo was prepared to sell Southern Life to them, provided that they bought First National Bank as well. 'Luckily, we didn't have to think for too long about this,' says Laurie, 'because we had already identified the retail gap and the strategy. But he admits that the size of the transaction 'frightened us a bit'. At the time it was a big transaction even in global terms, 'and we would suddenly go from 6 000 to 30 000 people. But it was, in any case, all part of this overall strategy to diversify our income.'

In retrospect, these three milestones all seem obvious. What I find noteworthy is that each transaction was consistent with a strategy. The characteristic feature is that they first decided on a strategy and then kept a lookout for transactions that would fit into it - not the other way round. Laurie exaggerates when he refers to the instances of 'luck'; choosing a strategy and then concluding a transaction that dovetails with it has more to do with the strategy than with luck.

The golden thread that runs throughout the group, and through Laurie's business philosophy, is innovation and the promotion of innovative ideas. When I asked Laurie why FirstRand have managed to achieve things that many others only talk about, his answer made it clear that innovation does not just occur spontaneously within a business. In Laurie's view, it needs to be 'part of the DNA of a company's inherent culture. For this to happen, the right signals and messages have to come from the top.' To illustrate his point, he refers to some of their 'interventions' at Momentum after the takeover in order to change the existing hierarchical company culture, 'which smacked of the civil service', to something more relaxed within which innovation could flourish. They built a graffiti wall on which staff members could put any message they wanted to voice, adapted the dress code ('ties and things like that' were done away with), and introduced a first-come-first-served policy to replace formal, hierarchy-based parking spaces.

First National Bank, explains Laurie, has 'formal interventions aimed at encouraging and rewarding innovation'. There is, for example, an annual bank-wide competition in which employees submit ideas for innovations; after a comprehensive judging process, the person or team that has come up with the best idea can win anything from R1 million to R3 million. 'To summarise: it's a combination of the climate that is created from the top and formal interventions. Both are very important.' He believes that in a business like theirs, where innovation is encouraged, people have 'the right to question and to challenge top management's ideas, policies and strategies, and to conduct a robust debate within the company, but it takes a mature leader that allows himself or herself to be challenged by a more junior person about a strategy.' The point in this regard, he adds, is that 'the debate should be conducted in terms of business-case reasoning. In other words, with no prejudice or preconceptions involved. Only the business principles should apply in that debate.'

A conversation with Laurie Dippenaar leaves you with the realisation that you have talked to a business giant. It is only later, when watching the recording, that you discover he was actually the person in control of the interview from the first to the last word; he knows exactly what message he wants to convey and he puts you, as...