Seismologist turned finance boss: a chat with Standard Bank FD, Arno Daehnke
“High return on equity is one thing but with R2 trillion of assets, the bank can really make a difference in people’s lives and the economies in which we operate,” says Standard Bank FD Arno Daehnke.
Last year, soon after he was promoted to finance boss, Arno walked into Standard Bank’s boardroom to do a presentation. Like any incoming executive worth his salt, he wanted to set the tone for his tenure from the word go. Of course, the new FD had presented to these very same board members many times before, though now he was part of the pack. Rather than focusing foremost on financial ratios, the balance sheet and headline earnings of R23 billion, the bank should be spurred on by five value drivers and the financials don’t come first, Arno said. He detailed a plan which identified that client experience combined with employee engagement and risk and conduct result in a financial outcome. Social, economic and environmental impact also made the top five.
The board agreed with their new FD that it cannot be business as usual for Standard Bank, and all five value drivers are now a part of the bank’s planning and reporting processes to drive the correct strategic outcome.
“We all understand that we need to become more client-centric. Dealing with Standard Bank needs to be an efficient and exceptional experience.”
Agility is a much-used word in the banking environment, where FinTech startups are challenging the bank and large players in different industries are becoming competitors, like Google, Facebook, Alibaba and Apple. “These companies could disintermediate us, making banks a utility,” says Arno, who says it will take a special effort – and special people – for the 154-year old institution to remain successful. “How do we tilt the bank to become more forward-looking and client-centric?”
Hiring curious people
Quick to emphasise the important work that hundreds of accountants do on a daily basis, Arno says that qualifications are not always an indication that a person will be the right fit for the bank of the future. “It is not always necessary to be a CA(SA). Within finance, there are much more opportunities for non-CAs than in the past, but of course CAs are still a very important part of the team. In the end what really matters is: is the individual nimble and curious enough? I encourage people to have an open mind about themselves. You need that in every fast-changing industry where machine-learning, robotics and artificial intelligence are challenging, stretching and worrying people.”
If anyone should be able to judge the benefits of hiring outside the box, it is Arno, who hasn’t exactly taken a very traditional route to becoming a financial director. As recently as 1999, Arno was awarded the prestigious Rocha medal, the annual global recognition for the best doctoral thesis in rock mechanics. Thanks to his mathematical models that interrogate how shocks move through rocks, Arno was one of South Africa’s leading seismologists.
At university, Arno studied mechanical engineering and specialised in earthquakes. “I still love it,” he says, with a glint in his eye. “There are two types of seismologists: the ones that look at earthquakes from a mathematical angle and the ones that look from a geological angle. I worked with applied mathematics, developing models to understand how shock waves move through different layers. I received a bursary from the CSIR, spent ten years there and also did my PhD, looking at how fractures run through rocks,” says Arno, who also spent three years in the Austrian capital Vienna, which harbours a great seismology lab.
Arno is happy to explain how seismology is a crucial science for South Africa, where mining-induced tremors are a daily occurrence. “If there was an accident, we would be the second group of people to go deep down under the ground, after the rescue staff,” he says. “I spent a lot of time travelling around the world, because with our expertise in South Africa we were world-leading experts in deep mining, as the gold mines here are much deeper – as far as four kilometres – than anywhere else.”
When the conversation turns back to banking, Arno’s calm passion doesn’t let up. As CFO, he comes across as a typical strategist and catalyst, if he were to be categorised according to Deloitte’s ‘four faces of the CFO’. His past as an underground researcher has given him a deep respect for the minutiae, he reflects. “To get involved at this high level of business and finance, you really have to understand the detail.”
A part-time MBA at Milpark Business School eventually heralded the unexpected end of his life as rock mechanics expert and, in 2000, he launched his remarkable career as a finance leader. “Part of that MBA was looking at the value-at-risk model, which was then fairly new,” Arno explains. “I visited the big four banks and interviewed the chief risk officers. I was immediately struck by how interesting it was.” Soon after the interview, Standard Bank offered Arno a position in the quants department, which he accepted.
As an enthusiastic mountain biker, Arno is used to getting up early and putting in the hours to achieve ambitious goals. “I cycle five times a week, I used to do more. If I don’t exercise, I can’t have a healthy mind. It allows me to destress.”
Putting in the hours – many thousands of them – was also the not-so-secret recipe for his successful career switch.
“Banking proved to be an incredibly complex business. Just the jargon takes a long time to get used to. I remember hearing Expected Default Frequency for the first time and many other terms, and I had no idea what they meant."
"As Malcolm Gladwell famously wrote, you have to spend 10,000 hours to achieve world-class expertise in any skill. For banking – for me – that was definitely true,” he admits.
Arno’s career kept accelerating: from being the head of asset liability management to managing the group’s balance sheet through the financial crisis. “That was a formative experience,” reflects Arno. “It was a once-in-a-lifetime experience. We needed to make decisions quickly, working with the board and the CEO. The most important lesson from that time was that you cannot make a decision on 100 percent of the necessary information. I already knew that from seismology, which deals with the laws of nature and chaos, but finance people tend to always look for absolute certainty.”
If there was a common denominator to be discovered in Arno’s careers, it would be fractals, he says. “I have always been extremely interested in fractals, which are not only a great tool to predict how shock waves travel through rocks, but are also used by modern animation studios like Pixar,” says Arno, taking the time to explain that, as applied by animation studios, the method uses lines that fork and split in predictable but variable ways, making it possible to render complete forests of trees without having to physically draw a single one of them.
Lots of lessons
Seismologists use these models to try and understand earthquakes, while investors use fractal methods to predict market movements, fuelling Arno’s fascination. “I like the markets business: trading, hedging commodities, interest rates, bonds and so on,” says the FD, who also spent time in treasury and capital management before succeeding long-serving Simon Ridley – CFO of the Year 2014 – as finance’s top dog last year.
There have been many good moments and lots of lessons learnt since I joined Standard Bank in 2000,” says Arno. “Distilling complexity into relative simplicity, looking at key decision drivers… I enjoy that, and they are the things that are most crucial to a bank. As regulated as our industry is, it is also important to always look forward: in our case we work with a four-year horizon.”
“Standard Bank is a pivotal institution in the South African economy, which means we have a broader responsibility to support the economy. We are open for business, even despite the recent downgrades and slow economic activity, which is important as we are the biggest bank by assets.”
Like the economy, the slow pace of transformation of the South African business world is a worry, says Arno. At Standard Bank, 85 percent of junior management is non-white, but in senior management that percentage is just 38 percent.
“We have transferred R12 billion in value to empowerment partners and through that we have assisted many individuals, but as a country it has become more urgent than ever to transform quicker,” says Arno, who sits on the bank’s transformation committee chaired by CEO Sim Tshabalala. “The pace needs to be stepped up. If you look at the statistics, most CEOs are white and there is still a massive wealth gap two decades after apartheid ended. It is not right, and it is not sustainable.”