Balancing the stakeholders - the success of Alexander Forbes CFO Deon Viljoen
Being a business partner is extremely important, but a CFO should never forget to bring his or her financial acumen to the table, says CFO of the Year 2015 Deon Viljoen. As money boss at Alexander Forbes he has guided the company through a rebirth that included a delisting and a relisting on the JSE. These days ‘higher purpose’ and ‘balancing stakeholders’ are key success factors at South Africa’s largest retirement fund administrator, he reveals.
Breaking: On Monday 8 February 2016 Deon was appointed acting CEO of Alexander Forbes with immediate effect, replacing Edward Kieswetter who bows out because of personal reasons. The share price of Alexander Forbes closed more than 7% higher on the day of the announcement.
CFO South Africa exclusively spoke with Deon about the massive capital restructure at Alexander Forbes, the strategic refocus of the group including the push for retail clients, his personal mentors, his ambitions and his vision of the CFO of the future.
- This interview first appeared in CFO Magazine. Advertise now!
- Deon Viljoen is on the panel of judges of the CFO Awards 2016. Join us!
What was the response when you were elected CFO of the Year 2015?
“I received a lot of great messages and congratulations. News travels fast these days and I have been getting nice emails from people who I haven’t been in touch with for years. I was very surprised and humbled to win the CFO of the Year award and it really took quite a while to sink in. There were a lot of strong candidates. Why did I win? Maybe the judges looked at my achievements over a longer period and how I have performed as an Alexander Forbes executive through truly difficult times? The company has come out at the other end as a stronger, well-positioned business. By no means does this mean that the challenge is over. In fact, the Alexander Forbes challenge is only now really on and I can only hope that I do justice to the award in times to come.”
“At Alexander Forbes, our biggest asset is goodwill. We sell expertise, IP, relationships and trust. Reputational risk is very tough to manage. It is not on the balance sheet, but it is crucial to us. Our clients trust us and I feel that I contribute to that.”
What do you like about the CFO role?
“As CFO I am at the centre of the strategic decision making. Although I joke about having aged in dog years during the last seven years in this role, I have also gained a lot of wisdom. You do get exposed to a lot, especially when times are tough. In my acceptance at the awards, I mentioned that there are two kinds of challenges. Those that you elect to get involved in because you are so passionate about them and then those that are handed to you because of circumstances and where you just have to step up to the plate. I mentioned that personally I’m not sure which of those two inspire me more as the inspiration for each comes from a very different part of your psyche or being.”
Who were your mentors?
“When I worked at Coopers & Lybrand, and later when it merged into PwC, I worked with a group of professionals and they have had a very significant impact on my career. That was still in the era of true partnership and even before I became partner I had people who were willing to invest time and effort to look after me. I will always be thankful to people like my articles principal Daniel de Kock, who had lots of experience, great wisdom and was a professional with absolute integrity. During that period I also saw a lot of different industries and only later I specialised in financial services and banking. To hone those skills I was seconded to London and when I came back I was offered a partnership in the South African firm. Audit is really a fantastic profession to build your skills if you want to be a CFO and I was privileged to meet many great influences along the way.”
“During my time with Alexander Forbes, I also had the privilege of working with unbelievably talented individuals including my predecessor Mike Ilsley, and you might recall in a relatively short space of time I worked with no less than four different CEOs. Each of them of course brought their own unique strengths and approaches to the equation. Maybe I was fortunate but I could work very well with all of them and I learnt a lot from each one of those individuals. I guess how you deal with circumstances and what you take from it has a lot to do with your values and upbringing and there I can only thank my unbelievably committed parents who always gave us the right guidance and who sacrificed so much in our interest without ever thinking twice.”
What makes you successful?
“Let me qualify my answer first by saying that I strongly believe that you should define yourself not by what you do but by who you are. That opens an entirely different philosophical discussion perhaps for another day. I presume you ask this question from a professional perspective and there you are only as good as your last game. I always try to understand all of the moving parts of the business and I am usually able to find sustainable, long-term solutions that accommodate all stakeholders. I like dealing with multi-dimensional issues and consider myself capable of offering a perspective that perhaps nobody has thought of.”
What are your career goals?
“I take the responsibility placed on me by our clients and employees as well as shareholders and the community very seriously. My personal career goals are secondary to ensuring that I don’t disappoint those who put their trust in us. My goal is to add value and make a positive difference, wherever I am. Adding true value and balancing stakeholders are two sides of the same coin and very important to me personally. They should be crucial to each organisation, because they talk to sustainability. For now, I would like to think that Alexander Forbes, an almost 80-year-old organisation, will still be around 80 years from now. I hope to contribute to that.”
How do you juggle the demands on your time?
“I wouldn’t necessarily consider myself an expert in this field. I find finance is often the default home for anything that doesn’t have a designated owner. In order to deal with that challenge, I have split off the logistical and operational issues that tend to end up in finance, so they can receive dedicated attention.”
“Sometimes you need a very strong general manager, not so much a technical finance person, to help institutionalise the way a finance department works. Whatever comes up in a business, if it is likely to be recurring in nature, the process dealing with it must be institutionalised to avoid crisis managing the same issue again. That creates sustainable solutions that ultimately takes the pressure off finance.”
What was it like to delist and relist a firm within seven years?
“We delisted in July 2007 after a bid by a private equity consortium. I had just become CFO during that period. You will recall that a few months later the world was a totally different place as we witnessed the start of the global financial crisis. As a private equity owned company we were typically highly leveraged, which meant our risk appetite for earnings volatility in particular had to change. We were also a very complex organisation with a complex shareholding structure and even more complex capital structure. This included existing shareholders who were previously invested when we were listed that had wanted to remain invested and for whom we had created a special purpose vehicle listed on the JSE. That meant that we had to navigate through some very tough times with lots of debt but effectively remained in the public domain with a very wide spectrum of shareholders with different positions. During those seven years many regulatory changes also came through that required additional regulatory capital – none of this of course ideal for a highly leveraged private equity structure.”
“The listing last year was the culmination of seven years of hard work in which we also restructured and sold certain businesses. In fact, when the private equity shareholders acquired the group in 2007, the group’s net revenue was around R4.4 billion. Of that 2007 equivalent, we disposed of approximately R1.6 billion of revenue in a number of individual business disposals over the seven year period. At the time of relisting in 2014, the group had grown back to the R4.4 billion revenue level and at an overall improved trading margin. What we took to the market in July 2014 was therefore a very different company to the one that had delisted in 2007. The group is now much more focused and strategically well positioned for the changing dynamics in the financial services industry. We also had to reposition the group from a capital structure perspective to meet the changing regulatory environment. We did that under sometimes very difficult circumstances.”
What were the toughest decisions during those years?
“There were many. The tough thing about it is that they impact people along the way and many of those decisions impacted the sustainability of the organisation. The first issue that faced us was the high leverage and the resultant dependency on cash flow from the group. With hindsight one of the better decisions we made was to hedge our dependency on equity markets just after the transaction which assisted greatly when the global financial crisis happened. However, this was a pure risk appetite call and not a market call which is a very important distinction. Also, as a result of the financial crisis at the time we were unable to place the high yield bond in the European bond market as was the original intention. In a very difficult and complex series of transactions, we managed to buy back what then became a high yield term loan into shareholders’ hands. I think this transaction was absolutely definitive to ensure a successful outcome in the end. It allowed us the flexibility to navigate through the crisis, regulatory changes and avoid significant currency risk.”
“In addition, we did about 15 transactions, of which there were about 3 or 4 major ones. We sold our corporate broking business to Marsh and sold Guardrisk to Momentum for example and we sold a number of UK businesses, wanting to focus on the African market. We also did a comprehensive capital restructure, just prior to the listing. At the same time we saw new regulations on the horizon, in particular the requirement for consolidated supervision. We had to prepare for that, because a highly leveraged structure would not have survived this legislation. We are now compliant with the future requirements.”
“The decision to relist was another very tough one. Typically, a private equity group will look to sell after five to seven years. We worked out a number of attractive exit solutions. From January 2014 we ran a very intense process, a ‘dual track’ so to speak which always led with the option of listing, but we understood there was interest in the group from trade buyers. This parallel process, while running the business at the same time, was extreme. Most companies take 2 years to list. We did the Guardrisk sale, capital restructure and parallel sale and listing process in just over one year. It was beyond challenging… very, very tough. As I mentioned in my acceptance of the CFO of the Year award, we have a surprisingly small team at the center but they are exceptional individuals who can and will take on any challenge. You cannot do these things without truly committed and talented people in your team, strong support from the senior people in the rest of the organisation and a great team of advisors with the right skillset.”
“We had valid options with a trade sale and relisting and I feel that we managed to get the best of both worlds. The advantages of a trade buy would have been that we would be part of a large group with bigger critical mass. Listing would suit existing shareholders and would help the long term objectives. It was very much a balancing act between outgoing shareholders, incoming shareholders, staff and the business and never forgetting our valued clients. In the end Mercer acquired 34% and we went to the JSE for the rest. That is a great example of making a solution work for all partners. It provided certainty for the private equity consortium, it was an elegant transition for the existing public shareholders and it gave Mercer the opportunity to invest in an emerging market. It was a massive leap forward for them in Africa. I like the challenge of these type of multidimensional issues; involvement in strategic direction and implementation.”
What is next for Alexander Forbes?
“We are a very strong institutional player, but if we want accelerated growth we need to leverage from that core in a focused manner. We have about one million South African members in the retirement funds we administer through our institutional products and another 400,000 in the rest of Africa. Now we see opportunities for that acceleration in the retail space. Corporates and institutions know us for our packaged solutions and our thought-through advice. We believe that is even more suitable to the retail client, who is more than ever in charge of his or her own financial well-being, but has also inherited the risk of being underfunded at retirement. With our intellectual property, unique skills and demonstrated capability to address the growing need for the best advice, we think there is space in the market.”
“We have a slightly different positioning to other companies in our space. Interestingly, our main competitors, suppliers and shareholders are often the same institutions. Our proven skill is to package the best advice in an affordable accessible product. For instance, as a multi-manager, we don’t do stock selection ourselves but package the best managers in each asset class. Being less entrenched in traditional products means we can be more agile. We continue to search for improvement innovation and we are very aware of the risk and in fact, we are seeding our own disruptive innovation. Disruptive innovation will bring significant change, so we need to stay on top of that.”
What do you want to achieve with Alexander Forbes?
“We thought long and hard about this question a number of years ago. When Edward Kieswetter joined as CEO, he introduced the term ‘higher purpose’. A lot of analysts looked at us strangely when we first mentioned this, but we feel it is very important to know ‘why’ we do things – what is our reason for existence? If that is not clear, you can stray and become irrelevant.”
“If you want to align people around a common purpose, it has to be for a worthwhile purpose that everyone understands. The example Edward always gives is when NASA was aiming to put a man on the moon in the sixties, even the janitor who was sweeping the hallways at NASA headquarters would say he was contributing to putting men on the moon. Our higher purpose is securing the financial well-being of the people that we serve.”
“In the past our consultants and actuarial division would deal with pension funds and corporates as clients. But the actual purpose of their work is the members of the schemes or the employees of the corporates and their financial wellbeing. To make that cultural shift, takes a lot of work but if you see the passion in our organisation for this ambition today you will agree that we are well down that path.”
What is your dynamic with the CEO like?
“As mentioned earlier, I had the privilege of working with a number of CEOs over a relatively short space of time and each of them had exceptional strong points and I was fortunate to have a very good relationship with all of them. We have proper debate of course and difference of opinion is seen as a valuable mechanism to get to the right answers. You have to have that. It is our responsibility to debate the opposite view to ensure that we consider everything and when it comes to critical decisions it is our job to make sure that we understand all the moving parts. I work very well with Edward. He has a great ability to look through the clutter, get to a level of clarity and insight and to ensure alignment with the bigger objectives. I think the entire organisation learnt a great deal about leadership working with him.”
What can a CFO do to make a business more agile?
“You need people to understand the bigger picture. As much as the things you do need to change, the true underlying reason for doing them is the constant that you align people around. This talks to the higher purpose or “why” we do rather than “what” we do as I mentioned earlier. We also invested quite a bit in leadership development. You can be a very strong accountant, actuary or salesperson but that doesn’t mean you are equipped to be a good leader. You need the right culture in place before the business can be agile, but first the people in the business need to understand and be agile themselves.”
What does the CFO of the future look like?
“As businesses deal with an ever more sophisticated world, the demand on the CFO to provide true insight and guidance in decision making is growing exponentially and is ultimately far more important. I encourage the FDs of our divisions to move through that evolutionary scale of sophistication and value add. It goes from pure financial accounting, to process manager, to business partner and ultimately to value driver. As you evolve to become more of a business partner and more value adding, you need to remain responsible for bringing the financial skills set to the equation – that is very important. Also, as you move up the scale, the basics still need to be done. The challenge to the CFO’s evolution is getting those basics done even more efficiently, timely and accurately. Only then will you have the platform and capacity to truly co-pilot the business.”
“At the same time a CFO needs to be a true leader. We had to work on breaking down the silos of our business units at Alexander Forbes, because if we all operate separately it is tough to compete in the market. Those synergies and making people work together are things you have to drive from the top as a coherent team, because people don’t naturally operate that way.”
How important is it for CFOs to meet peers?
“There is great value in meeting other CFOs during events like the ones CFO South Africa organises. Just finding that you are grappling with the same issues provides a degree of comfort. You can also tap into the creativity of others that have different ways of looking at things. It is particularly good in South Africa, where CFOs often deal with such a wide range of unusual issues. They all impact on finance. We’re the wicket-keeper for everything that comes past the batsman.”