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The Nedbank Turnaround

The Nedbank Turnaround. Tom Boardman Chief Executive Nedbank Group March 2006. SA Bank market capitilisations. Setting the scene. NEDCOR LIMITED [Close]. Monthly 31/01/1995 – 31/01/2004. 18000. 18000. 16000. 16000. 3. 14000. 14000. 2. 4. 12000. 12000. 1. 10000. 10000. 8000.

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The Nedbank Turnaround

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  1. The Nedbank Turnaround Tom BoardmanChief Executive Nedbank GroupMarch 2006

  2. SA Bank market capitilisations

  3. Setting the scene NEDCOR LIMITED [Close] Monthly 31/01/1995 – 31/01/2004 18000 18000 16000 16000 3 14000 14000 2 4 12000 12000 1 10000 10000 8000 8000 5 6 6000 6000 7 4000 4000 3000 3000 1995 1996 1997 1998 1999 2000 2001 2002 2003 04 NEDCOR LIMITED [Close] (6820) • KEY • Standard Bank takeover bid announced 2. Standard Bank bid discontinued • 3. Didata issued profit warning 4. BoE acquisition approved • 5. CE resigned • 6. Didata disposal & Tom Boardman appointed as CE 7. Issue of secondary capital

  4. Campbell Belman survey

  5. Key financial indicators

  6. What went wrong? Where Nedbank failed Strategy No clear Group strategy resulting in misalignment between units Strategic drift Structure Complex structure reflective of lack of Group direction and piecemeal fixes Lack of accountability – slow decision making, excessive bureaucracy and complex processes to deal with lack of ownership Mission critical functions unattended (Risk, MIS) Delivery Poor delivery primarily due to lack of direction and excessive bureaucracy High performance culture Culture of shaming and blaming Superficial alignment between strategy, performance measures and remuneration

  7. 10 steps for shifting an organisation • Develop a vision, mission, strategy and operating plan • Set high expectations with specific goals & objectives • Build trust • Define person’s and group’s goals, responsibilities and job content • Agree on measures for people to track how they are doing • Give frequent feedback and relate to plans • Continuously update people on external situation • Recognise and praise success and progress • Reward success and the desired behaviour • Celebrate success together and share setbacks Management Review / January 1988

  8. Growth= Growth = Vision Values Strategy Resources Action Plan Skills Commit- ment Review Confusion Corruption Diffusion False Starts Frustration Stress Crawl Doubt

  9. Road map • Five point plan • Reconstitute EXCO • Strategic review • Improve transparency • Deliver on merger • Customer service focus • SVB Workshops • Talk-to-Tom • Chairman’s 10 key issues • CEO’s objectives • Nedcor board objectives Priorities & group strategy Strategic Recovery & Turnaround Office e.g. Retail mass market strategy, Corporate transactional banking initiatives Restore the bank Build for the future

  10. Tier 1 & 2 2004 initiatives Tier 1 Fix what is broken Tier 2 Build for the future • Customer Satisfaction/ Retention • Bank Image • Financial Services Charter • Strategic Plan, including alignment • Bancassurance • Management Information • Capital • Merger • Peoples Bank • 2004 Budget Delivery • Base • Gap Delivery • Risk Management and Governance • Incentives, staff morale, culture and values • Effective executive team

  11. Tier 1 Dashboard Management Information Capital Owner Stage Due date/ Status Date compl. RS Complete May 04  MB Complete May 04  DM In Progress Mar 05  MB Benefit Tracking Dec 04  MB Benefit Tracking Dec 04  PW Benefit Tracking May 04  PW Implementation Dec 04  PW Complete Sep 04  RS Complete Sep 04  PW Complete Q4 2004  PW Development 2005  PW Complete Dec 04  PW Complete Sept 04  Owner Stage Due date/ Status Date compl. MB Benefit Tracking March 04  MB Benefit Tracking March 04  MB In progress Dec 04  MB Complete Dec 04  MB Complete July 04  MB Complete Dec 04  MB Design Feb 05  PW Benefit Tracking July 04  MB Development Dec 2004  MB In progress Dec 2004  • Rights issue • Capital not to drop below 10% (Jan – May 2004) • Sale of non-core assets & businesses • Management of foreign capital and hedges • Tier 1 Capital to be 7.5% by Dec 2004 • Baseline & clean-up completed timeously and new accounting policies implemented • ALM • “One version of the truth” • Fast Close • Board/ management pack redesign • Stable & accurate financial data • Financial processing architecture/ data warehouse • DI returns (Interim) • ROE & RaRoC analysis (Process) • IAS Risk Management & Governance • “Banker not punter policy” • Internal controls • Re-examine Governance structures • Group Structure rationalisation • Key Issues log • Basel II • FICA Dec compliance • FIAS compliance • Stages: • New Idea • Scoping/Concept formulation • Specs/Designs/Definition • Development/In progress • Implementation • Benefit tracking  Complete  Well on track  Still concerning

  12. Future Nedbank scenarios

  13. 2004 Internal reputation survey Distinctive Superior Common Not effective SA Inc* Nedcor Direction Direction 56% 40% Coordin - Coordin Account Account - ation & ation & ability control ability control 49% 70% 64% 37% External External Leadership Innovation Leadership Innovation orientation orientation 68% 60% 56% 37% 65% 43% Capability Motivation Capability Motivation 79% 56% 63% 39% Environ - Environ - ment & ment & values values 50% 27%

  14. 2004 Internal reputation survey I am committed to ‘deep green’ . . . .. I lack trust, confidence and fear for my job” Lack of courage • “I will do whatever it takes to get Nedcor back to the top” I deeply care about Nedcor’s future (82%) • Courage to speak the truth (27%) • OK to be yourself (39%) • People openly admit to failures (9%) Silo mindset/ lack of teamwork • High degree of trust between clusters (13%) • People care for each other (27%) • Nedcor has great team-players (36%) • “I know that when its all said and done, I will still be here” I am committed to Nedcor for the long-haul (72%) • Look to authority figures for routine decisions (58%) • Better to go along rather than undermine authority (48%) • Too many processes (67%) Risk averseness/ bureaucracy • “We have the best people in the industry” • “If you compare one-to-one this company has better talent than any of the other three” We have the institutional capabilities to achieve its strategies (78%) Politics/blame culture • Do not need to play political games to get ahead (19%) • Other departments prevent us from operating effectively (47%) Feeling of a victim • “We get all the pain while they make mistakes” • “We are underpaid” • “Only time they talk to us is if there is bad news or they want something”

  15. Dagwood

  16. 2004 Key Risk Areas

  17. Key financial indicators

  18. Highlights – switch of focus • Internal focus • Set the base • Reduced the risk • Increased accountability • Clarified vision • Set strategy • Fixed the structure • Delivered the merger • Improved measurement • More external focus • Client service • Product innovation • Systems enhancements • Channel improvements • Market share • Transformation & FSC • Brand repositioning • Sustainability 2006 2004 2005

  19. The next phase ? 2003 2004 2005 2006

  20. THEMES Strategy Strategic Imperatives Good Social Citizen Organisation Design Transformation / Diversity Leadership, Behaviour & Values Continued focus on execution

  21. Prioritisation

  22. Organisational Culture, Values & Environment *Source: Richard Barrett - Liberating the Corporate Soul Based on research of over 500 companies in 35 countries since 1997

  23. Building a ‘great place to work’ I KNOW WHAT I KNOW WHY I KNOW HOW I AM EMPOWERED • Job profiling • Job description • Commonly understood group strategy • BSC aligned to strategy • Training • Mentoring • Tools • Equipment • Authority PREPARATION I HAVE A CAREER PLAN I AM EQUITABLY REWARDED I AM PERFOMANCE MANAGED I KNOW MY MEASURES • Feedback • Appraisals • Career Choices Model • Direction • Options • Growth • Remuneration • Recognition • Key performance indicators / areas / measures PERFORMANCE

  24. Brand Expression Smart with Heart Make things happen A rallying call that inspires, motivates and challenges people to Desired Practice Make a Difference Strategic Intent Brand Essence Deeper Understanding Listening Whilst we simultaneously deliver on our offer The Nedbank Brand Proposition: Deeper understanding of you and your banking needs At Nedbank we believe that appropriate financial advice and products delivered with deeper understanding have the power to make a difference Make things happen with Nedbank

  25. Morale improved Source: Nedbank Group 2006 employee survey

  26. Group 2005 Personal Values Current Culture Values Desired Culture Values 1. cost-consciousness 2. profit 3. accountability 4. community involvement 5. client-driven 6. process-driven 7. bureaucracy (L) 8. results orientation 9. client satisfaction 10. silo mentality (L) 1. accountability 2. honesty 3. commitment 4. integrity 5. responsibility 6. family 7. respect 8. trust 9. reliability 10. efficiency 1. accountability 2. client satisfaction 3. client-driven 4. employee satisfaction 5. employee recognition 6. financial stability 7. teamwork 8. integrity 9. balance (home/work) 10. trust Group 2006 Current Culture Values Desired Culture Values Personal Values 1.accountability 2.client satisfaction 3.client-driven 4.employee satisfaction 5.employee recognition 6.teamwork 7.transparency 8.integrity 9.financial stability 10.balance (home/work) 1. cost-consciousness 2. accountability 3. client-driven 4. client satisfaction 5. results orientation 6. performance driven 7. profit 8. bureaucracy (L) 9. teamwork 10. community involvement 1. accountability 2. honesty 3. commitment 4. integrity 5. responsibility 6. family 7. respect 8. fairness 9. trust (441) 10. reliability Nedbank Group Comparative

  27. Nedbank Group Comparative: Current Culture Values 2006 2005 1. cost-consciousness 2. accountability 3. client-driven 4. client satisfaction 5. results orientation 6. *performance driven 7. profit 8. bureaucracy (L) 9. *teamwork 10. community involvement 1. cost-consciousness 2. profit 3. accountability 4. community involvement 5. client-driven 6. process-driven 7. bureaucracy (L) 8. results orientation 9. client satisfaction 10. silo mentality (L) *New Values

  28. The Current Culture Positive Winners 2005 2006 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Cost consciousness Profit Accountability Community involvement Client-driven Process-driven Bureaucracy Results orientation Client satisfaction Silo mentality Performance-driven Hierarchy Control Being the best Achievement Empire building Employee recognition Continuous improvement Productivity Confusion Cost consciousness Accountability Client-driven Client satisfaction Results orientation Performance-driven Profit Bureaucracy Teamwork Community involvement Employee recognition Achievement Silo mentality Process-driven Continuous improvement Productivity Being the best Delivery Control Financial stability

  29. The Current Culture Reduction in Limiting Values 2005 2006 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Cost consciousness Profit Accountability Community involvement Client-driven Process-driven Bureaucracy Results orientation Client satisfaction Silo mentality Performance-driven Hierarchy Control Being the best Achievement Empire building Employee recognition Continuous improvement Productivity Confusion Cost consciousness Accountability Client-driven Client satisfaction Results orientation Performance-driven Profit Bureaucracy Teamwork Community involvement Employee recognition Achievement Silo mentality Process-driven Continuous improvement Productivity Being the best Delivery Control Financial stability

  30. 7 6 C 5 4 T 3 2 S 1 Positive Values Potentially Limiting Nedbank Group Comparative: Entropy 2005 2006 CTS = 24 - 19 - 57 CTS = 26 - 21 - 53 Entropy = 19% Entropy = 25%

  31. Next Steps: Great People need great managers ‘People join organisations because of public image, charasmatic leaders, career prospects and pay…people leave because of their immediate managers, not the companies they work for’ *Source: Marcus Buckingham & Curt Coffman – ‘First break all the rules’ Based on research conducted with 80,000 managers across different industries

  32. Key financial indicators

  33. Campbell Belman survey

  34. Relative performance in 2005

  35. “There is no miracle moment. Small incremental wins in one common direction will restore Nedbank Group to a highly rated & respected financial institution.”

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