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The Power of Your LifeThe Sanlam Century of Insurance Empowerment, 1918-2018$

Grietjie Verhoef

Print publication date: 2018

Print ISBN-13: 9780198817758

Published to Oxford Scholarship Online: December 2018

DOI: 10.1093/oso/9780198817758.001.0001

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Managing change: diversification and transformation, 1993–2003

Managing change: diversification and transformation, 1993–2003

(p.211) 5 Managing change: diversification and transformation, 1993–2003
The Power of Your Life

Grietjie Verhoef

Oxford University Press

Abstract and Keywords

As global insurance markets experienced a shift out of life assurance into new wealth products, Sanlam faced the same trend. Demutualization required more free capital than commanded by Sanlam, leading to an extended capital building programme, which ultimately fed into demutualization. Sanlam focused business operations on restructured business units, new distribution channels, and non-traditional markets. Serious attempts at bancassurance absorbed attention under severe market competition. Internationalization strategies failed to deliver to expectations. After listing in 1998, operational, management, and functional transformation occurred in a new South Africa. Statutory sanctioned empowerment policies chartered future company strategies. Implementation was delayed by the death of the CEO and an inexperienced successor. The company remained hamstrung by too-large exposures to a handful of big investments.

Keywords:   succession, management, transformation, demutualization, business units, employment equity, life insurance, developing markets

Two strong trends converged—individual freedom and deregulation. Global financial deregulation transformed the world of finance. Clients’ money rendered mobility and choice. The collapse of the Soviet Union and the fall of the Berlin Wall brought liberal market freedom closer to societies. Individual freedom of choice, expression, and affiliation shaped confident citizens seizing the opportunities. South Africa experienced its own radical transition from white minority rule to majority government in 1994. The face of the country changed, and financial institutions followed global trends. Globally financial deregulation invited market contestation, which led to mutual organizations developing an appetite for extended operations outside the limited confines of the mutual organization. In the traditional life market, insurers experienced functional competition as deposit-taking institutions and new asset managers offered investment options to pension funds and life and/or short-term insurance products through brokers. The most unique distinguishing characteristic of the life industry was the long-term nature of its guarantees, but the industry abandoned those gradually. The investment public displayed a contracting demand for risk products and a growing demand for investment products. Distribution channels became highly contested, with brokers and agents enjoying the attention of suppliers, rather than the client. These developments inevitably led to wider regulatory intervention by states worldwide and also in South Africa. In the volatile local market of declining interest rates and policy uncertainty, the long-term insurance industry faced strategic choices, which were fundamental to the stability of the South African economy because of the size of the industry.

The long-term insurance industry occupied a critical role in the South African economy, especially since the domestication of the industry during the late 1970s and the international isolation reaching a peak during the 1980s. By 1990 three companies, SA Mutual, Sanlam, and Liberty Life, dominated the industry. Together the value of their market capitalization was equal to 23 per cent of the total capitalization of the JSE, although only Liberty was listed on the JSE. The premium income of the life offices was equivalent to roughly 30 per cent of gross domestic fixed (p.212) investment (GDFI) in any year, or rose from 3.7 per cent of GDP in 1979 to 8 per cent in 1990.1 The confidence of the nation in the industry was evident in the exceptionally high expenditure by South Africans on life insurance compared to expenditure by other nations in the world. In 1990 the total long-term premiums in South Africa comprised 7.47 per cent of GDP—lagging only Japan and South Korea. By 1994 that figure had risen to 9.42 per cent—the highest in the world. In 1998 South Africans spent 13.14 per cent of GDP on life insurance and by 2004 this ratio rose to 14.86 per cent. South Africa was still the world leader.2 As the bulk of the long-term premiums was not invested in risk products, but in savings for retirement, stability in this market was therefore essential. The centrality of the industry can also be described by the relative growth in GDP and savings. Between 1990 and 2000 real GDP rose by 2.6 percent p.a., household savings by 8.1 percent p.a. and the CPIX by 9.8 per cent p.a., but long-term insurance premiums by 19.3 percent p.a.3 After 1994 the long-term insurance market was expected to grow significantly, as a growing portion of the South African population entered the market. In a similar way as a large portion of the Afrikaner people had been outside the long-term insurance market before 1918, a large portion of the South African society was outside that market before the democratic elections of 1994. Towards the end of the twentieth century long-term insurance companies competed with other financial services providers for this new market. The structure of that demand changed from long-term stable returns to higher-risk wealth products.

Financial market deregulation impacted directly on the long-term insurance industry. The Insurance Act, No. 27 of 1943, was amended in 1998. Two separate statutes replaced this Act—one for short-term insurance and one for long-term insurance. In 1999 the Long-Term Insurance Act, No. 52 of 1998, came into force. The Act prohibited the registration of composite primary insurance companies. Insurance companies could no longer undertake both long- and short-term insurance business, but both could be conducted under a single holding company. The collapse of the AA Mutual insurance company in 1986 resulted in the appointment of the Melamet Commission of Inquiry into regulation and oversight in the financial services sector. In response to the commission’s proposals on improved sector control, the Financial Services Board Act, No. 97 of 1990, was passed, leading to the formation of the Financial Services Board (FSB) in 1992. The Registrar of Insurance moved under the broad umbrella of the FSB. The FSB became the recipient of regular industry submissions. The FSB issued further regulatory requirements to the industry and took on an overarching oversight role following the publication of the King Report on Corporate Governance (King I) in 1994 and King II (p.213) in 2002. A tight web of industry regulation developed as protection of the public interest found reflection in the 2001 Financial Intelligence Centre Act, No. 38 of 2001, and the Financial Advisory and Intermediary Services Act, No. 37 of 2002. The regulatory environment put increasing cost pressures on the industry, which escalated in the second half of the 2000s.

The structure of long-term insurance funds changed in the context of changing investor preferences mandated by political uncertainty and subsequent state policies. The net annual premium income of long-term insurance companies fluctuated heavily (see Table 4.3). The growth in premium income during the latter half of the 1980s was assisted by high inflation, which had been well in excess of GDP growth since the 1990s. The strong premium growth was undermined by the steady growth in benefits paid (benefits paid included payments in case of maturity of policies and terminations), a function of the flow of funds out of the industry more rapidly than the inflow. Higher outflows resulted in the declining ratio of income to expenditure. In the period between 1985 and 1990 industry income to expenditure ratio was 2.8, but then steadily declined to 1.36 by 2000. The ratio of assets to liabilities of the long-term companies deteriorated from 1.78 in 1985 to 1.41 in 2000.

In Table 5.1 the change in liabilities of the long-term insurance industry is illustrated. There was a substantial exposure to pension funds and group life schemes (or employee benefit schemes). This is a function performed by the industry on behalf of smaller (p.214) employers. These funds rose from R1.87 billion in 1985 to R66.92 billion in 2000, or from 45.06 per cent of the business of the long-term insurance companies to 49.63 per cent in 2000. The rapid expansion of ‘new’ employees in public and private employment (the massive explosion of civil servants on all three levels of civil government after 1994) and the rise of a new black middle class entering permanent employment, and soon the impact of BEE policies, contributed to a large degree to this growth. In the absence of state social security, private pension funds as a mechanism of defined-contribution savings options, mushroomed. By 2000 total assets of pension funds constituted 75.26 per cent of GDP. The relative decline in retirement annuity business from 15.16 per cent in 1985 to 7.70 per cent in 2000 indicated that investors moved increasingly to alternative investment instruments to provide for future needs. This trend was underlined by the similar trend displayed in periodic premium policies, which declined from 32.31 per cent of long-term insurance business to 18.46 per cent in 2000. The trend was similar for immediate annuity investments. This was a shift in the allocation of investor funds within the pie. The trend in immediate annuities, first a high increase and then a reduction in relative size, was a result of industry product innovation. The long-term insurers introduced the single-premium ‘investment’ product. Liabilities of single-premium products were just about equal to the assets held. This increase in single premiums written by the life insurers caused tension in the deposit-taking industry. The latter attacked the tax base of life insurers. During the 1980s the long-term insurance industry still fell under the earlier tax dispensation, where a higher portion of non-taxable liabilities (like pension fund and immediate annuities business) had the effect of reducing the tax rate on free reserves. The mutual companies had fewer problems with inflating their non-taxable actuarial liabilities to benefit from the lower tax rate. This was one consideration to sustain the mutual form of organization. When the Minister of Finance started to talk about a reconsideration of the tax base of the long-term insurance industry towards the mid-1980s, the industry moved fast to offer immediate annuities as part of the new product combinations. In practice this was similar to the increase in single premiums by circumventing the new tax regulations. This strategy assisted the long-term industry to attract funds in competition with other deposit-taking institutions. As this landscape changed, so did the business strategy of the long-term industry, especially the mutual companies. This chapter explains Sanlam’s response to the changed financial services environment by reflecting on the beginning of the discourse on changing the form of organization.

Table 5.1. Product segmentation in the long-term insurance market, 1985–2000 (R’bn)





Pension fund + group life benefits











Retirement annuity fund business











Immediate annuity business











Disability and health insurance











Single premiums











Periodic premiums






















Source: Registrar of Insurance, 1985–1997; Registrar of long-term insurance, 1998–2000.

Sanlam in a changing industry

An industry overhaul necessitated strategic thinking and change management. Management had to come to grips with the contracting demand for long-term insurance (p.215) products, understand the new demand for wealth products, and carve out a new role in the dynamically changing financial services industry. It was soon apparent that Sanlam emerged as a ‘learning organization’4 where leaders perceived themselves as part of the evolution of the nature of work and organizations. The ability to apply the five disciplines of the learning organization held the key to Sanlam’s industry repositioning. The death of Fred du Plessis and the management repositioning under Pierre Steyn set in motion a direction that was not at that time envisioned to be the beginning of the demutualization of Sanlam. Steyn inherited Sanlam with a yield on assets of just over 10 per cent, while inflation ranged between 14 per cent and 15 per cent. He called on George Rudman, who was then Senior General Manager: Finance and Planning, to find ‘a profit base’ (winsgrondslag) for Sanlam. The telling question was: what is profit in a mutual insurer? Rudman consulted with British and American life offices overseas on how to manage the ‘estate’5 (the capital—this was the term used in a mutual company for the excess of assets over actuarial liabilities) of a mutual insurer. He returned to the country convinced that Sanlam, the mutual, had to be managed with a clear view to generate profit as the security to the company in times of market downturn and extreme volatility. Rudman took a visionary position when in January 1990 he appealed for a ‘new’ approach to the management of policyholder funds. He called for a dedicated strategy to seek optimal profits on investment, low costs, and an equitable distribution of risk. He told management that the mutual company should no longer be managed as a mutual. Its ‘capital’ should be considered as an ‘estate’, which constitutes the capital to be invested to optimize returns to profit-sharing policyholders.6 Rudman understood the need for a radical change in the culture of doing life business. It was vital to develop a business approach to life business when markets and client demand were changing and political volatility increased instability. Bringing about such a complete mental shift called for patient convincing. Rudman spent almost four years propagating the reorganization of the mutual’s business into profit-driven operations in separate ‘business’ units in the company from where profits would flow to the ‘estate’, which was what the capital of the company was called. The concept of self-sustaining business units contributing to own cost centres was new to the life business. Rudman’s line of thought introduced thinking on a new strategy for Sanlam: a financial services company utilizing its acquired investment expertise to develop new financial products to grow profits in competitive global financial markets, benefiting policyholders. Subsequently a profit-oriented management strategy was implemented in 1990/91. (Reference was made to this policy (p.216) change in Chapter 4 regarding the introduction of RHOs.) Operations were divided into profit centres, e.g. individual insurance, group benefits, investments, services, and the ‘estate’. The profits from each unit went to the capital/estate of Sanlam, which then provided investment capital for innovative investment opportunities opening up in the deregulated international financial sector.7

Change did not come immediately, because Sanlam was the typical mutual. Earlier, Hansman noted that mutuals were less effective in reducing costs, since profit accumulated from policyholders’ premiums constituted the only source of capital available to the mutuals, which constrained their ability to expand their services in response to growing demand. Mutuals were also handicapped in their ability to diversify by state regulation that limits insurance companies’ freedom to engage in other business. The introduction of the new profit centres did not immediately deliver the expected results—unit costs escalated, policy lapses rose, cost charges to policy bases were too low, tax benefits were eroded, and policy sales declined. Sanlam’s operational choices were increasingly restricted by insufficient responses to environmental changes.8

In the immediate period after the 1994 election, management deliberated about the company’s future strategic direction. Since 1990 George Rudman had kept a close eye on the international industry landscape with a view to Sanlam’s strategic repositioning. Two dimensions of Sanlam’s market position were at stake. On the one hand there was industry change and on the other socio-political contextual change. At the beginning of the 1990s the dominant organizational form of life offices globally was still mutual. This was especially the case in the United States, Japan, Australia, and Canada. Some Canadian life offices changed their corporate form of organization during the 1980s from joint stock to mutual to protect themselves from American life office takeovers. The leading Australian mutual was the Australian Mutual Provident Society (AMP). Joint stock companies dominated the British life market, but thirty of the world’s fifty largest life office were mutual.9 Transition to public liability companies occurred usually because of agency problems, where the execution of managerial discretion resulted in operational inefficiency or differences of strategic direction with clients. Other concerns about operational cost also influenced the choice of organizational form.10 The choice between the mutual form and a joint stock company revolved around issues of efficiency, performance, and the ability of the organization to resolve problems between owners, (p.217) managers, and customers.11 By the mid-1990s the 80 per cent market control of the fifty largest life offices in the world contracted to 76 per cent. This contraction was ascribed to the demutualization of the USA long-term insurer Equitable Life in 1992, and serious difficulties experienced by the National Mutual Life Company in Australia.12 In South Africa the first demutualization of a long-term insurer was in 1984 when Southern Life, a mutual life office, merged with Anglo American Life. Rudman pointed out that financial difficulties, especially insufficient capital to bridge a period of unsatisfactory return on assets to sustain bonus rates on existing policies, generally tipped the scale in favour of demutualization. In 1993 Pierre Steyn requested Rudman to focus on developments in the Australian financial services market. Rudman’s regular visits to Australia during the early 1990s influenced his thinking on demutualization and his choice of consultants when it was finally decided to demutualize Sanlam. Similarities in the Australian and South African markets made the choice of the Australian model a sound one, especially because the AMP had made substantial progress with preparation for demutualization when Sanlam started the debate.13

The Sanlam dilemma: legacy or leader?

The transformation in the life insurance industry and the radically different operational context of the late twentieth century occurred in tandem with an increasing disintegration of the Afrikaner nationalistic edifice. Mutuality and the empowerment motive comprised the foundation of Sanlam’s rise. Since the first Chairman’s address W.A. Hofmeyr had underlined the centrality of mutuality in Sanlam’s operations on behalf of policyholders. This was a powerful legacy and almost inconceivable that it could ever change. From the beginning Sanlam was driven by policyholder interests and premium income. In 1953, when the Sanlam Private Act established Sanlam as a separate mutual company without shareholder capital, the mutual nature of the organization and its operations caused public opposition from competitors. SA Mutual’s Chairman objected in public to the announcement by Sanlam that the company’s name would change from Sanlam (Ltd) to Sanlam (Mutual). The ‘Old man from Pinelands’, as some people in Sanlam referred to SA Mutual, feared public confusion, but Hofmeyr claimed Sanlam had always been a mutual life office and would remain mutual. Both the Australian mutual life offices operating in South Africa, Colonial Mutual and the National Mutual (p.218) Life Association, used ‘mutual’ in their official names and Sanlam therefore insisted on indicating its mutuality officially in its name. Mutuality was part of the Sanlam legacy but by the 1990s was no longer the crucial motivational mass mobilizer of the beginning of the century. Industry changes mandated functional adaptation, but management had to prepare policyholders for a change.

Management was also not easily convinced about changing its mutuality. Desmond Smith considered Pierre Steyn a devout ‘mutualist’. At the time of his passing away in December 1993 Smith claimed that management was already fairly swayed towards the wisdom of demutualization. It was simply a matter of striking the right time, both in terms of the readiness of Sanlam as well as the market.14 Rudman made submissions to the Sanlam board twice, arguing the benefits of demutualization given contextual complexities and operational underperformance. He insisted that any decision to change the mutual form of the organization had to be in the interest of policyholders. In both instances he failed to convince the board, who represented policyholders’ interests, which were that policyholders’ interests would not be served at that stage by changing the mutual character of the company.15 It was never clear whether Pierre Steyn was personally in favour of demutualization,16 but when Marinus Daling succeeded Steyn as Sanlam Chairman after Steyn’s death in December 1993, it was known to senior management that one of the priorities on Daling’s to-do list was to demutualize Sanlam. The Sanlam institution was not going to change easily. Rudman recalled the management summit session (‘bosberaad’) in April 1994 where discussions on mutuality loosely surfaced and Marinus Daling sounded Rudman out about the desirable route for Sanlam. Rudman remarked that there were no sacred cows as far as mutuality was concerned. If it was decided on sound business principles that Sanlam should demutualize, then ‘we decide it and do it’.17 However, many more mutuality stalwarts needed convincing.

While functional restructuring was imminent, the socio-political transformation was equally vital. These two distinct processes ran concurrently. Change in leadership was needed, but that assumed clarity about the new direction in which the organization was moving. Sanlam was still perceived to be the vanguard of Afrikaner business, although that was not substantiated by the policyholder profile. In 1966 only 65.8 per cent of Sanlam’s policyholders were white, 22.1 per cent was black, 8.4 per cent Coloured, and 3.7 per cent Indians. The strongest growth was in the black client base (32 per cent growth between 1994 and 1996 alone). By 1996 the majority of recurring-premium policies issued by Sanlam were in English and the gender composition also changed to include more than 34 per cent women.18 Sanlam preferred to interpret these (p.219) trends as an expression of public trust, which constituted a reason to protect its mutual character. It was from the operational side that pressure was mounting to reconsider the organizational form. That meant Parliamentary sanctioning. It was underperformance in an environment anticipated to be hostile to big business that ultimately swung the argument against mutuality.

Industry contraction was a fact. Sanlam experienced an alarming collapse in its accumulated surplus. Table 5.2 shows Sanlam’s accumulated surplus as a proportion of total liabilities declining from 12.8 per cent in 1986 to 3.7 per cent in 1994. The decline was even greater from 34.4 per cent to 7.7 per cent when excluding market-related or linked liabilities.

Table 5.2. Sanlam accumulated surplus and policy liabilities, 1986–1994

Accumulated surplus (1) R’m

Total policy liabilities (2) R’m

Policy liabilities (market related/linked policies excluded) R’m




1 402

10 942

4 078




1 455

17 046

6 044




1 493

19 231

8 007




1 686

29 950

12 097




1 697

34 449

15 117




1 745

47 279

20 961




1 805

56 455

25 881




2 100

67 669

32 076




3 200

86 463

41 531



Source: Sanlam archives: Sanlam minutes of board meeting, 19/04/95.

Sanlam was lagging the market in the ratio of total accumulated surplus to policy liabilities at 3.7 per cent, since SA Mutual maintained a ratio of 19.5 per cent, Liberty 30.9 per cent, and Momentum 11 per cent. Sanlam explained this unflattering market position by the strong growth in policyholder liabilities of around 29.5 per cent per annum between 1986 and 1994. This expansion actually highlighted its serious capital deficit. Growth in the market value of total Sanlam assets was 20 per cent between 1987 and 1994, but only 9 per cent in the market value of Sanlam’s capital portfolio, while inflation averaged 13.1 per cent over the period. Sanlam was paying dearly for its aggressive drive to grow market share during the 1980s. In 1994 Sanlam had a 30.2 per cent market share, shy of SA Mutual’s 31.8 per cent. Before the 1980s Sanlam was moderately conservative in allocating bonuses to reversionary bonus policies. The full bonus earned on policies was not allocated to policyholders. Market competition and ‘fairness’ considerations later resulted in Sanlam paying the full bonus earned. Smaller ‘surpluses’ were added to the Sanlam ‘capital’. On all other policies full returns earned were paid, thus contributing to a gradual weakening in Sanlam’s capital position.

(p.220) By 1994 the composition of Sanlam’s business had changed in tandem with the industry. Market-related or linked policies comprised 63 per cent of the portfolio in 1986, but by 1994 had dropped to 52 per cent. Annuity business rose from 6 per cent to 12 per cent of the portfolio, reversionary bonus policies declined from 24 per cent to 8 per cent, and other business increased from 7 per cent to 28 per cent in 1994.19 Rising policy lapses (27 per cent between 1995 and 1996) and other withdrawals (rising by 25 per cent between 1995 and 1996) exacerbated these pressures.20 This put severe strain on Sanlam’s already weak capital base. Rudman called for a dedicated capital growth strategy.

A persistent struggle to succeed in healthcare services added to disappointing performance and remained a drain on both revenue and public trust. Insisting on controlling health service provision meant that Sanmed operated its health insurance outside the realm of the Office of the Registrar of medical schemes. The membership of the different schemes offered by Sanmed, namely Helpmed and Topmed, grew steadily and exceeded 96 000 by the year of its coming of age in November 1986. Two factors inhibited growth at Sanmed. The first was the lack of ability and experience to take on the administration of medical schemes. Medical scheme administration had emerged as a lucrative industry, but Sanmed was unprepared for it. The second factor was its increasingly underperforming computer system. Sanmed had to deal with the growing discontent of members. The Rembrandt Group and the SABC withdrew from Sanmed and formed independent medical schemes for their employees. Sanmed lost the business because it was not geared for medical scheme administration, because Sanlam was not interested in the administration of medical schemes, but rather in selling medical insurance policies. In 1986 Dalsig Investments Ltd, a Sanlam subsidiary, was restructured to enter the administration of medical schemes, but Dalsig posted losses until 1991. Gencor terminated its agreement with Dalsig for the administration of its medical scheme. As separate medical schemes of subsidiaries such as Santam and Nissan closed down, those members joined one of the Sanmed schemes. The challenge was not to lure new members into the schemes, but to deliver good service. New products, such as the One Medical Policy, only provided a short-term advantage in offering flexibility in options for medical cover, because the amended Medical Schemes Act of 1994 allowed the same flexibility to the industry. In 1991 Sanlam acquired a share in the Sunninghill Medical Institute, but corruption and maladministration in 1993 led to its liquidation. This exacerbated the Sanmed ills. The 1991 decision to develop a computer system independently from Sanlam had not materialized by 1993. Membership of Sanmed started waning. Dalsig lost schemes under administration as the new political powers withdrew municipal and provincial medical schemes such as Commed in North West Province from the Sanlam-linked Dalsig administration.

(p.221) Sanmed’s medical schemes only qualified for preferential medical scheme tariffs on condition that the schemes’ free reserves were not paid out as dividends to the owner and only shareholder, Sanlam. These reserves were kept as reserves in the schemes, but in 1995 Sanlam decided to transform Sanmed into a source of income for the company. This was in the context of Sanlam desperately seeking ‘profit’ to build its ‘estate’. The Sanmed statutes were consequently amended to allow Sanlam to receive dividends. The Registrar of Medical Schemes’ exemption was withdrawn. Sanmed management then asked Sanlam to pay a lump sum as ‘reserves’ to the different schemes, but the latter refused. This refusal led to repeated court action seven years later, which Sanlam lost. The more serious problem was the failing computer system. Delivery on membership cards, processing of claims, and electronic data imaging increasingly fell short of expectations. To complicate matters further, in 1995 Sanmed introduced USA-style managed healthcare. At high cost the Capp Care system, running on the HSD Diamond system, used in California to conduct pre-screening of members of the new managed healthcare system, was acquired. It soon proved unable to synchronize with the existing Sanmed IT systems. The anticipated savings through managed healthcare failed to materialize for Sanmed.21 By 1997 and 1998 Sanmed delivered losses to Sanlam and therefore paid no dividends. Massive systems failure caused backlogs of more than 300 000 claims. Sanlam then restructured Sanlam Health, its subsidiary. Sanmed changed to Sanlam Health Risk Management (SHRM), Dalsig to Sanlam Health Administration Management (SHAM) and the managed healthcare to Sanlam Health Quality Management (SHQM)—with effect from 1 January 1998. The legacy of Sanmed to a subsequently newly demutualized Sanlam was persistent loss-making performance and a growing public discontent, linked directly to Sanlam. This drain on Sanlam’s profitability lurked in the background of organizational restructuring deliberations.

Building ‘capital’

A mutual life office does not have ‘capital’. The excess of assets over liabilities is considered its ‘capital’. Sanlam maintained a capital adequacy ratio of between 2 per cent and 3.5 per cent between 1986 and 1994. Sanlam invested this ‘capital’ in a separate capital portfolio, valued at actuarial calculations, which was usually lower than market value and therefore less volatile. Policyholder liabilities were invested in the policyholder fund to minimize risks of policyholder liabilities. In an environment of low interest rates and high inflation since the mid-1980s, Sanlam thus suffered a declining return on assets (p.222) and weakened its capital position. From 1970 the company’s yield on assets remained below inflation and only turned slightly positive by 1997. The most depressing asset performance was from the strategic legacy investments, such as the investment of around R204 million first in Bankorp and subsequently in ABSA, which delivering an average of 12.2 per cent p.a. return between 1979 and 1994, compared unfavourably to an expected 21.5 per cent return on an investment in the banking sector. Automakers (the holding company of Nissan motors in South Africa) was one such underperforming investment. Automakers was transferred to the without-profit portfolio in 1993, subsequently reflecting less adversely on Sanlam’s investment earnings. The investment of R75 million in Condura (TEK Corporation), which delivered negative returns throughout the period between 1985 and 1994, fell in the same category. The same applied to the undeveloped property and poor-performing real estate of around R400 million, also a legacy of the Fred du Plessis era. Finally, by the end of 1994, non-performing assets in the capital portfolio were restructured to leave the portfolio with only negotiable investment assets, which had a potential for much-improved returns.22

Sanlam was caught up between fast-growing policy liabilities, underperforming assets, business restructuring, and longer-term liabilities becoming shorter-term liabilities. Capital adequacy pressures exacerbated the contextual uncertainties. Uncertainty about the intentions of the new government was alleviated somewhat by a sense of comfort in Sanlam that the existing regulatory framework had been the instrument of control of both mutual and public liability companies, and that the Registrar of Insurance had executed such regulation in the past. It was clear that a culture of conservatism in Sanlam was still seeking assurance in past institutions for its future, but that the game changer was the reality of investor demand in a fundamentally different financial market. Socio-political uncertainties indeed affected these client decisions, but the global financial market deregulation spilled over into the sophisticated South African financial system, mandating adjustments on two fronts: global markets as well as domestic political overhaul. For most of 1995 to 1997 the strategic transformation discussions in Sanlam revolved around the transformation of Sanlam from a big bureaucratic long-term insurance company to a financial services group consisting of business divisions trading in services and contracting. This involved changing the face of Sanlam’s employees to reflect the demography of its policyholder base, to strengthen its ‘capital’ base through a new profit-oriented business philosophy, the adaptation of marketing strategies to target the uninsured market, to modernize its use of technology, and to involve staff as stakeholders in developing a managerial culture from below.23

The implementation of Rudman’s profit-oriented business operations also entailed significant changes to the management of Sanlam’s assets. Shortly before Fred du Plessis’ (p.223) death, Hendrik Bester succeeded in convincing him that the successful management of Sanlam’s properties was seriously hampered by the Sanlam management style, i.e. submissions to the board before key decisions on investment in/divestment from properties could be made. Property management, Bester had experienced, called for much swifter action. Du Plessis authorized the establishment of Sanlam Properties as a separate operating business the day before he died. Bester had to go through the same convincing with Pierre Steyn, and finally in October 1989 Sanlam Properties entered a phase of relative autonomy. This enabled improved performance on the property management side, which harmonized with the decentralization strategy management decided upon at the first ‘bosberaad’ after Du Plessis’ death. A similar approach was taken by Ronnie Masson heading up investments.

The winding down of Sankorp by 1997 was a critical factor in stabilizing the Sanlam ‘estate’. New life policy products were primarily rolled out after demutualization, such as the Stratus investment-linked products. During the capital-building period under Smith as Managing Director and Ronnie Masson as Head of Investments, a substantial contribution to the strengthening of the capital occurred through the persistent good performance of the 200-Plus series of investment policies. The 200-Plus series yielded more than 27 per cent per annum during the seven-year period up to 1991, and the 100-Plus series more than 29 per cent for the same period. The inflation-beating performance of the 200-Plus series continued up to 1997. By 1994 those investment trusts that accommodated a vast proportion of pension funds and retirement annuity funds, posted a sustained 26.8 per cent return for the preceding ten years. The First Bowring & Associates survey of investment portfolios for pension and provident funds reported that the 200-Plus portfolio produced the highest return for the ten years ended 30 June 1994, outperforming the industry.24 The 200-Plus investment series sustained above-industry performance throughout the 1990s until the Asian financial crisis in 1997 caused share prices to decline sharply. In 1996 the 500-Plus series was launched, which offered returns of 26 per cent on the investment of untaxed individual policies.25 The high levels of volatility in the financial markets towards the end on 1997 resulted in consumers moving towards more stable and established financial institutions. The Sanlam fund managers subsequently focused more on guaranteed products such as the Rolling Guaranteed Equity Fund and Guaranteed Plan.26 At a time when the long-term insurance industry experienced a move out of traditional life products, Sanlam concentrated on securing high yields on the funds under its management. Sanlam managed a suite of fifteen unit trusts by late 1997. The total ‘off-balance-sheet’ funds managed by Sanlam investment managers rose from R8 549 million in 1994 to R26 661 million in 1998. These unit trusts provided for different levels of risk and, through the OptiRand (p.224) vehicle introduced in 1995, also offered rand-hedging characteristics. The OptiRand fund invested in both import and export companies, thereby giving investors the benefit to hedge exchange rate fluctuations. In 1996 the Guarantee24 facility offered investors upon death, a payment at the highest level of their investments during the twenty-four months before death. After the Asian financial crisis the Sanlam Money Market Trust offered a haven for funds waiting to see the outcome of volatility. Sanlam also engaged in setting up the Empowerment Equity Fund in collaboration with REAL Africa Asset Management in 1998.27 The asset swap facilities (see Chapter 4) also served to offer international investment options to investors and thereby grow Sanlam’s ‘estate’.

Together with significant improvement in the ratio of income to expenditure between 1990 and 1997 (from 2.1 in 1990, to 9.1 in 1997—see Table 5.3), Sanlam succeeded, according to Rudman, by 1997 to have improved the capital position of Sanlam adequately to pursue demutualization.28 Critical risks identified in 1996 were topped by underperforming investment yields, but by 1997 this matter had improved. The most critical risk was social and political adversity towards the company.29

Operating in such an environment undermined all the financial and market penetration targets set in the strategy to arrive at a point where demutualization could occur. Sanlam disappointed on all fronts—in performance, and in addressing internal organizational challenges. According to Tillinghast-Towers Perrin (TTP), a consulting company advising Sanlam on the road to demutualization, Sanlam was losing key staff to competitors, computer information was unreliable and slow, Sanlam lagged the market in delivering new products, its products failed to deliver value for money,30 its capital adequacy was slipping, and its technology infrastructure proved insufficient and inefficient. The global trend to demutualize, especially the demutualization of the Australian AMP in 1997, and the policy uncertainty in South Africa, brought the final decision to demutualize forward. In no official document was it stated that Sanlam anticipated possible nationalization under the new government, but the risk loomed large. The absence of shareholders, who might have acted as deterrent against outright nationalization or asset grab, was cause for concern. A mutual company was an easy target, especially if it was capital rich (which Sanlam was not) and belonged to a substantial number of Afrikaner policyholders, who had a legacy of support for the National Party government’s racial policies. The possibility of the nationalization of the long-term mutual insurers was contemplated in the Life Offices Association (LOA) as a distinct possibility. Long before his death in 1993, Pierre Steyn also had been concerned about the relative (p.225) ease with which Parliament could change the private acts governing the two leading mutual life offices in South Africa. That posed a definite risk to Sanlam and SA Mutual.31 Demutualization offered a strategy to limit this risk.

There was a gentleman’s agreement of reciprocal notification between Sanlam and SA Mutual if and when demutualization was decided upon. It seemed almost a done deal when Rudman submitted a comprehensive memorandum on a revised corporate structure for Sanlam in May 1997.32 The final decision to demutualize was taken as part of an overall strategy to migrate Sanlam from a life office to a financial institution, from a local South African company to an international company, and from an under-capitalized company to a well-capitalized company. These discussions were highly confidential, resulting in the minutes distributed not as ‘minutes’ but as an ‘aide memoire’.33 It must be kept in mind that the decision to demutualize was actually taken during the first half of the 1990s, but the capital constraints held the conservative Sanlam management back since 1993, because the company wanted first to strengthen its capital base. At the first ‘bosberaad’ under Smith as CEO, he set five-year targets to achieve, inter alia, a stronger capital position. In his cautious Sanlam actuary mind he did not envisage demutualization before 1999.

After the May 1997 meeting Daling was asked to inform Mike Levett of SA Mutual that Sanlam was contemplating demutualization. When SA Mutual finally made a public announcement in July 1997 on the company’s intention to demutualize, Sanlam’s planning had already made some progress. Management did not wish to create public anxiety or confusion and therefore described the discussions on the possible demutualization of Sanlam as ‘part of a process’.34 Rudman was of the opinion that Daling was more interested in listing Sanlam than in demutualization. The difference between the two points of departure Rudman explained as emerging from personal conversations between him and Daling.35 When contemplating demutualization, Daling asked Rudman how he would prioritize a plan of action—appoint the consulting actuaries first, or the consulting investment bankers first? Rudman was clear: first the actuaries, because they had to advise the mutual on how it would change the ownership structure, then provide the arguments why such change was advantageous to policyholders, and then how to compensate policyholders so as to get their support. Independent actuarial evaluation would deliver independent financial statements, which would be a prerequisite for listing. Daling followed Rudman’s advice—TTP was appointed. The second occasion was while (p.226) the demutualization preparations were in full swing. TTP asked permission to advise SA Mutual on its demutualization, since TTP had been approached by SA Mutual to do so. Daling was adamant that Rudman should refuse. Rudman was confident: Sanlam was proven right by commissioning TTP. Rudman had his first choice ‘hand-picked’ team from TTP, who had advised the Norwich demutualization in the UK, as well as the top strategist advising AMP in Australia, on his Sanlam team. Furthermore, TTP gave guarantees to erect a Chinese wall between Sanlam and SA Mutual and Sanlam would have TTP’s best technical support. Daling again agreed. Finally, Daling opted for the investment banker Robert Flemming & Co. Sanlam’s internal team objected to the British wanting to teach them British tax law, while they had to get a job done in a tight time frame. In the end, Rudman again got his choice of investment bankers in the form of Dresdner Kleinwort Benson. It was clear that the actuary understood his trade as it had developed in a mutual office and had solicited the best in the market to advise on demutualization first, and then listing. Daling finally accepted Rudman’s proposal.

While there were doubts about the capital readiness of Sanlam for demutualization, Rudman was of the firm conviction that the company had adequate capital to demutualize successfully. He argued that published statutory mandated information about the company did not convey the full message about Sanlam’s capital position. He argued that Sanlam conducted solid mutual business, without playing for public appreciation for good-looking numbers. Then Sanlam differed from other long-term offices. Sanlam held the extensive ‘strategic’ investments (discussed at length in Chapter 4) and reflected them at low asset values in the published statements. These assets could be considered ‘hidden assets’, which, once released, added to the capital adequacy of the company. Other assets were ‘invisible’ assets, the tax advantage Sanlam utilized under the new long-term insurance act of 1990. A new tax dispensation for the long-term industry was announced and a three year phasing-in period allowed. Sanlam made full use of maximum tax payments at concession rates, whereby Sanlam made significant tax ‘savings’.36 These were factors contributing to the confidence to move forward with demutualization in 1997.

Sanlam was a big ship that would not turn quickly. In May a Strategic Review Committee of the board consisting of Daling, Desmond Smith (Managing Director since 1993), Derek Keys, and Ton Vosloo as non-executive board members, and George Rudman from senior management, was formed. In that committee it was made apparent that Daling was driven by an ambition to be first in the market to demutualize. At the August board meeting he called for greater urgency on the matter and in October 1997 a comprehensive advisory report on the preferred organizational structure of Sanlam was commissioned and delivered in January 1998.

(p.227) The final decision on when to demutualize had not yet been taken, but was imminent. Daling then moved behind the scenes to ensure he would be the captain of the Sanlam ship. On 14 November 1997, the day after Smith had testified before the TRC on behalf of Sanlam, Daling informed him that the Human Resources Committee of the board had decided that he be relieved of his duties as Managing Director. Daling consulted with all but three members of the board telephonically to establish consensus. Various aspects of the weaker performance of Sanlam, including the declining CAR (Capital Adequacy Ratio) during 1997, inefficiency in claim processing and the subsequent massive backlog at Sanmed, and unflattering Sanlam operating profit and marketing results in 1997 were placed at Smith’s door. The fact that Sanlam’s operating profit had increased consistently since Smith’s appointment as Managing Director in 1993 was not considered, nor were the fundamental transformation programmes, organizational reforms, and introduction of profit centres in Sanlam acknowledged. In granting a performance bonus to Smith at the end of 1996, Daling indicated that he expected Smith to emerge as a stronger leader of the team to map out a holistic vision of the direction in which Sanlam was moving, and solicit improved performance of all members in the management team. This was the only hint that Daling considered Smith not to be the dynamic leader to steer Sanlam through demutualization. The actuarial report for 1997 showed that operating profit was up, but was only 86 per cent of budget. On the back of that information Daling apparently claimed, ‘I told you so.’37 Ultimately, Daling’s personal ambition to push demutualization through despite Smith’s cautioning that Sanlam was still in a capital-building phase, explains his action. There was no dissatisfaction among board members, but Daling ousted Smith to have demutualization as he desired it. The board ratification of Smith’s ‘retirement’ was simply a rubber stamp. Smith left immediately and Daling succeeded him as Executive Chairman.38 The focus was fully on driving demutualization. Smith did not suit the Daling re-engineering plan. Timing was of the essence. Daling moved away from a past positioning strategy and embraced the business process redesign approach to strategy as he took agency of the developments in Sanlam. It was hinted that slow change management might have explained why management was not ready to drive the demutualization process when Daling thought the time was ripe,39 but there were other reasons why he decided to act swiftly. To Daling and Rudman’s (p.228) satisfaction, sufficient capital had been accumulated to do the transaction. This included the Gensec transaction, about which difference of opinion remains. A project of the significance and magnitude of the Sanlam demutualization, required dedicated and focussed management, and therefore had to be concluded swiftly. To achieve this, Daling separated operations between business as usual, and demutualization. On the latter project. George Rudman was the undisputed anchor. Furthermore, year 2000 was coming soon and that required special attention. Demutualization needed to be out of the way well in advance. A real risk with demutualization, was the leak of shares through sales by new shareholders. This mandated the shortest possible time lapse between the announcement to demutualize and the closing period under which new policies could qualify for eligibility to shares during listing. The shorter the time between announcement and actual listing, the more remote the risk of information leakage on the scheme—which could lead to further complications. Daling and his team had to, and did, move swiftly and efficiently. The report by TTP of London on ‘Project Sunrise’, the pseudonym for demutualization, presented to the board in January 1998, was conclusive—demutualize Sanlam.

Daling immediately set out to construct a well-oiled machine to ensure efficient delivery of Project Sunrise. This became an operational priority against time. The re-engineering process commenced with a revised organizational structure at management level to support a stronger business case for demutualization. From a highly centralized organizational structure during the 1980s where management presided over marketing (distribution), administration, investments, and Head Office functions such as finance, administration, and actuarial services, a definite functional focus was required. The structure Daling inherited was still tiered without transferring business responsibility solely to the functional entities. He cleaned it up by creating six different Sanlam businesses: Sanlam Personal Finance, where all products and services to individuals was housed; Sanlam Employee Benefits, which dealt with all the functions pertaining to employee benefits—sales, marketing, group benefits, data, consultancy and Sanlam Health sales; Sanlam Asset Management, which was the dedicated investment function in conjunction with Gensec Asset Management; Sanlam Development, which dealt with the development of bank functions, international expansion, and new ventures; Sanlam Health, which focused on healthcare services and products; and lastly, Sanlam Facilities, which was responsible for buildings, the mainframe, and network functions. The new separate business units of Sanlam Financial Service Group were autonomous and took accountability and responsibility for their own bottom line. This positioned them to drive performance in the build-up to a call on the market. Daling had a well-planned strategy. The TTP proposals for an alternative corporate structure for Sanlam were with Daling on 22 January 1998. By the time he requested board approval for the restructuring, he had already discussed the plans with the international consultants advising Sanlam on demutualization. This was the prelude to the big restructuring—demutualization.

(p.229) The TTP recommendations came as no surprise to the Sanlam management. The trends in the domestic financial services market mirrored international developments and Sanlam knew it comprised competition, internationalization, and ‘conglomeration’. The scenario analysis Rudman had put forward in the early 1990s was on target and under Desmond Smith Sanlam started addressing the capital issues. TTP underlined the limitations on Sanlam’s investment freedom as a result of its ‘strategic investments’. The operational freedom to respond to the dynamic opportunities of the market depended on the corporate form of organization. Sanlam could remain mutual, if that was so crucial to the company, but that would entail a narrow focus on life insurance and seeking steady growth. Sustained mutuality was bound to lead to declining and poorer benefits to policyholders. The stronger position of life insurers in the retail market compared to the wholesale market, pointed to the potential for growth in the off-balance sheet component of the long-term business. Sanlam had traditionally built its business in the less sophisticated segment of the market. This market position was cemented by Sanlam’s strong reliance on its own agents as the primary distribution network. In the off-balance sheet growth segment of the market, both retail and wholesale, Sanlam was lagging the industry. While consumerism was less prevalent in the South African market (probably as a result of the isolation and subsequent concentration in the financial services markets), Sanlam’s regular premium savings products were not price sensitive. This made Sanlam more reliant on its agents for distribution. The financial press noted a decline in earnings from 59 cents per share (based on the accounting recalculation for listing purposes in 1998) to 17.9 cents per share, and losses at Sanlam Health increasing from R96 million in 1992 to R242 million in 1998.40 Radical re-engineering to regain a competitive market position required the company to reflect on aspects of its historical legacies—empowerment of its own people, loyalty to the company through agents, and a shared collectivism through mutuality. Demutualization was going to address more than a business model for Sanlam. It was the closure of a chapter grounded in South Africa and the entrance into the global world of finance.

Between January 1998 and October 1998 Daling controlled the unfolding of the demutualization plan, which Rudman overheard him expressing as his personal ambition soon after moving into the chair of the board.41 This was the culmination of a brilliant career at Sanlam, from the office of the actuary, to investment chief, to Managing Director of Sankorp, and finally back to Head Office to become the leader Fred du Plessis had groomed him to be. It was time to adapt the cautious organizational-learning strategy to the new post-1990 socio-political environment. Henry Mintzberg, (p.230) the Canadian management scholar, wrote in his book The Structure of Organizations42 that ‘culture is the soul of the organization—the beliefs and values, and how they are manifested’, and therefore no organization had a blank slate. No existing company can choose its strategy as if it is a new start-up. Existing companies’ strategy will always manifest in the legacy of its past and the outcome will be conditioned by that legacy. In Sanlam, Daling consciously negotiated around the mutual legacy to steer the company towards a new position in the market. Sanlam could not ignore its mutual heritage, but the re-engineering of Sanlam mandated strategic positioning in the changed environment. Demutualization was a catalyst in the process of transformation from a strategy based on asset ownership and market share, to one of dynamic competitiveness and profit. The board agreed to this repositioning. There was no time to waste. The demutualization process had to progress like clockwork. Derek Keys told George Rudman, who was steering the board strategic committee, to secure the following: Firstly, keep the process simple; secondly, keep the board out of court; and thirdly, do it all before the end of 1998.43 TTP advised Sanlam that there would be commercial value in beating SA Mutual to demutualization, therefore the business plan was temporarily set aside to implement demutualization before the end of 1998. The public announcement that Sanlam intended to demutualize and seek policyholder approval, was made on 29 January 1998. Approval would lead to listing on the Johannesburg Stock Exchange as well as the Namibian Stock Exchange. This came seventy-nine years after the life office started its business on a mutual basis.

Working towards regulatory compliance was extensive but key to raising market confidence. First the structure of the Sanlam Group of companies was changed. One of the JSE listing requirements was that Sanlam had to have a level of capital not linked to policyholder liabilities, or maintain capital adequacy. This has been Rudman’s concern since the mid-1990s and Daling conveyed the precarious position of Sanlam’s reserves when he disclosed that the company had around R12 billion reserves at the end of 1997, compared to SA Mutual’s R31 billion.44 The solution was Gensec. Both Daling and Ronnie Masson, General Manager: Investments at Sanlam, served on the board of Gensec. They knew Gensec shares were overpriced in the market, which offered an opportunity to Sanlam. Although Daling had been unsuccessful in attracting Anton Botha, CEO of Gensec, to head up Sanlam Asset Management (SAM) earlier in 1997, the demutualization decision mandated swift rectification of the Sanlam capital position. Daling and Masson decided to sell SAM to Gensec. The dual advantage was the accounting gain and the capital strengthening to Sanlam. As subsidiaries were accounted (p.231) for at book value (in accordance with accounting principles), Sanlam would be permitted to account for the SAM sale and the corresponding equity value at market value. Gensec was contemplating branching out into asset management and Sanlam needed capital. With undue haste the due diligence of SAM was concluded and the transaction clinched within three weeks. When Anton Botha consulted with Professor Michael C. Jensen of Harvard Business School, USA, on the transaction, Jensen advised against it, saying Gensec operated on state-of-the-art risk management systems, while Sanlam as a typical life office ‘was hundred years behind you’. Jensen warned against the irreconcilable cultures of risk management and long-term insurance directed by actuarial and distribution systems. In June 1998 Sanlam sold SAM to Gensec for 100 million Gensec shares priced at R70 per share. This transaction netted R7 billion for Sanlam, which increased its 43.4 per cent interest in Gensec to 66.3 per cent, making Gensec a full subsidiary of Sanlam.45 The hasty acquisition of Gensec was purely to place Gensec’s equity on Sanlam’s books and thereby artificially boost the intrinsic value of Sanlam prior to demutualization. Gensec subsequently managed Sanlam’s life insurance asset portfolio, unit trusts, properties, and third-party assets. It gained access to the UK through Sanlam’s London-based operations. This transaction was a lifesaver as far as Sanlam’s capital position was concerned, but very soon became an albatross.

To present the Sanlam offer to the public, comprehensive accounting recalculations were required. The historical values of assets and liabilities of the entire group were recalculated to allow a benchmark of comparison to potential investors of the performance record of Sanlam (the life business) and the Sanlam Group. Maximum disclosure was important for potential investor confidence, locally and internationally. The accounting implications for Sanlam were far-reaching. Long-term insurers such as Sanlam had to comply with fifteen statutes, of which the Insurance Act, as amended in 1998 by the Long-Term Insurance Act, No. 52 of 1998, and the Insurance Second Amendment Act, No. 51 of 1998, were the most important. These statutes determined the registration, conduct of insurance business in the public interest, compiling of valuations and financial statements, and the holding of adequate assets in South Africa. This legislation dealt with the investment of policyholders’ funds and limited commission payable to the intermediaries.46 Furthermore, compliance was required with the Professional Guidance Note 104 (PGN104 of 1998) issued by the Actuarial Society of (p.232) South Africa, as well as accounting standards issued by the South African Institute of Chartered Accountants (AC121).

Compliance with the Johannesburg Stock Exchange listing requirements had explicit accounting implications for Sanlam: five years’ consolidated financial statements of the entity requesting listing, distinguishing between policyholders’ entitlements and shareholders’ entitlements within Sanlam Life. The basis of restatement was 31 December 1997. The alignment of Sanlam’s consolidated financial statements was complex because of differences in accounting standards. No international accounting standard existed for the financial reporting of long-term insurance companies. Sanlam’s group operating profits were calculated on the basis of financial soundness valuation (FSV), while in the UK the basis of modified statutory valuation (MSV) was used, and in the USA the statement of financial accounting standards (SFAS). There was also a difference in the calculation of long-term insurers’ premiums and claims, liabilities, new business costs, and the reporting on unrealized gains and losses.47 SA General Accepted Accounting Practice (GAAP) did not require consolidated financial statements of associated companies. To comply with the listing requirements of the JSE, a full set of reconstructed pro forma financial statements for the five years prior to listing was required. These statements for listing, prepared by Flemings Inc. and Dresdner Kleinwort Benson, are given in Table 5.3.

Table 5.3. Comparative financial information, Sanlam Group: prospectus 1998 and annual reports, 1995–1997 (R’m)




30 June 1998

Premium income prospectus

19 028

21 545

25 273

11 256

Premium income annual reports

16 654

18 618

21 966

Investment return prospectus

1 130

1 286


1 738

Investment return annual reports

17 145

12 304

11 980

Expenditure prospectus

18 726

25 354

31 374

14 399

Expenditure annual reports

3 347

3 100

3 442

Operating profit prospectus

1 058

1 044



Operating profit annual reports

1 144


1 007

Investment return prospectus

16 877

12 530

12 056

14 321

Investment return annual reports

17 145

12 304

11 980

Earnings before taxation prospectus

2 037

2 007

1 305

2 167

Earnings before tax annual reports

1 144

1 054


Headline earnings prospectus

1 322

1 3101

1 147


Headline earnings annual reports

2 689

1 707

1 178

Note: *Fifteen month period.

Source: Sanlam annual reports, 1995, 1996, 1997; Sanlam prospectus, 1998.

(p.233) The reconstructed financial statements enhanced the projection of the Sanlam Group’s performance, because in terms of GAAP group statements had to present consolidated figures. Premium income was higher than in the official Sanlam pre-demutualization annual reports, because Santam’s premiums were consolidated in the recalculated statements. In 1995 Sanlam published premium income of R16.6 million, but the recalculated figures were R19 million; in 1996 the difference was between R18.6 million and R21.5 million; and for 1997 between R21.9 million and R25.2 million. The difference between the pre- and post-figures was between 12.4 per cent and 13.5 per cent, which made a significant impact on investors’ assessment of the attractiveness of the company. The weaker investment returns were the result of the consolidation of ABSA into the Sanlam Group accounts, since ABSA had underperformed consistently since the early 1990s. Sanlam’s investment in ABSA of R2.6 billion represented a 23 per cent stake in the bank. The volatility in investment market conditions affected Gensec and ABSA adversely, and subsequently adversely impacted on Sanlam—as prospective investors were warned in the prospectus. Expenditure was significantly higher in the consolidated statements, primarily because of the consolidation of the Santam and ABSA accounts. Operating profits and investment returns remained relatively flat, but earnings before taxation were significantly better after consolidation. Headline earnings were weaker in 1995 and 1996 after consolidation, but improved in 1997 and the half-year figures for 1998 promised further improvement.

The consolidated reconstructed statements supported the Sanlam vision of ‘establish[ing] itself as a broad-based financial services group able to provide clients with a comprehensive range of financial products’.48 The consolidated statements also disclosed potential risks in both domestic and international markets, especially changes in investment market conditions. In June 1997, as an exceptional step, Sanlam reinsured with SwissRe Life & Health SA R1 billion of its stable bonus portfolio to protect its capital position. This move secured Sanlam a capital portfolio partner and added security to its capital adequacy, while non-market-related liabilities were exchanged for market-related liabilities.49 Markets were sceptical and cautious about the prospective demutualization of Sanlam. Prior to listing, the Financial Mail wrote, ‘The more the FM tries to understand the life business, the more we find ourselves contemplating deep but merely theoretical pleasures of what a simpler disclosure by a life insurers would be like.’50 Understanding life insurance companies’ financial statements was vital to secure investor interest upon listing. Sanlam had to address this skepticism on two fronts: shake up performance, and communicate in a transparent fashion to build investor confidence. (p.234) The Financial Mail was blunt about Sanlam’s predicament: Sanlam had lost heavily on its strategic investments (Bankorp, FVB, Sentrachem) and therefore had about one third of SA Mutual’s reserves. So, while no official announcement on demutualization was made by Sanlam (before the end of January 1998), the market expected it, and also that ‘Sanlam may even pip Old Mutual to the post as it has already done much preparatory work. … Though management is adamant that a capital shortage is no major issue, the belief in the market is that Sanlam will have to use listing to bolster its reserves.’51 As SA Mutual announced its intention to seek listing before the end of 1998, Sanlam worked out a tight schedule towards actual listing.

A rocky legal route lay ahead towards demutualization. The market was keenly anticipating a cash injection of around R8 billion. The Sanlam Private Act of 1954 did not provide for demutualization. To secure such authorization, Sanlam had to engage with the Minister of Finance and the Treasury. Amendments to the Long-Term Insurance Act provided for a policyholder fund to hold shares in the holding company of the life office (in this case it would be permission for Sanlam Life to hold shares in Sanlam Limited, the holding company to be established). The risks were very clear to Sanlam. The volatility of the transition in management and organization during demutualization created opportunities for predators to engineer takeovers. Sanlam knew about international precedents, and considered the newly appointed government’s Black Economic Empowerment policies a potential game changer. The international protection precedent implemented by British building societies, the Colonial Mutual and AMP in Australia, and the Canadian life offices, was to set a limit in the articles of association to the percentage of shares a single owner may hold in the new listed entity. Opportunistic dealmakers attempted to do an empowerment transaction with Sanlam during the demutualization process. Daling was adamant that demutualization was to be ‘clean’—only demutualization—and afterwards a BEE deal could be considered. A combination of the two could make the demutualization process controversial.52

The most crucial aspect of the preparation for demutualization was the financial soundness reports and due diligence report for the JSE, whereby market confidence could be enhanced. With prolonged underperformance and market skepticism, these aspects were fundamental to successful demutualization. TTP delivered a sound due diligence report in September 1998 and PricewaterhouseCoopers and Ernst & Young delivered a financial due diligence report, which was considered by Sanlam. They could not ‘ask for more comfort’.53 When the Cape Division of the High Court finally delivered (p.235) an order confirming the Scheme in Case 13592/98 (Sanlam’s application for permission to demutualize and change the Sanlam Private Act of 1954), on 22 October 1998, the share offer documents were dispatched to policyholders, employees, and other prospective investors. The High Court permitted the demutualization of Sanlam and the simultaneous adoption of the Memorandum of Association and Articles of Association of Sanlam Ltd. Sanlam Ltd was registered as a public company. It issued shares to eligible policyholders and the public and established the Sanlam Demutualization Trust to hold the shares for members without confirmed addresses.

The scheme sanctioned by the High Court Order was the following: Simultaneous with the preparation for demutualization, Sanlam was converted into a separate company with share capital, to be named Sanlam Life Insurance Limited (‘Sanlam Life’). A company shell in the Sanlam stable, Sankern (Pty) Ltd, a subsidiary of Sanlam, was renamed Sanlam Limited and became the holding company for the Sanlam Group. Sanlam Ltd owned the entire shareholding in Sanlam Life. Upon listing, shares allocated to eligible shareholders of Sanlam were shares in Sanlam Ltd. Institutions and other members of the public who acquired shares in the initial public offering of Sanlam Ltd, also held shares in that company. Immediately after the High Court order, Sanlam sent out the share offer to eligible policyholders and published the prospectus of Sanlam Ltd. To change the Articles of Association of Sanlam, a special general meeting of policyholders was called for 15 October 1998. Daling delivered an emotional address in which he thanked ‘Our Creator’ for the courage and vision of the leaders of Sanlam who steered the company through bad and good times to become the ‘respected trademark in South African life assurance’. There was no legal requirement that members had to approve of demutualization, but the Sanlam management agreed that if a 75 per cent approval from the 1.8 million eligible policyholders54 was not achieved, management would not proceed. Circulars were sent to policyholders in September 1998 to explain the process and inform them of the general meeting. A total of 100 members in person and 1 002 276 by proxy voted unanimously in favour of demutualization.

Sanlam engaged in a well-planned and well-executed communication programme to inform its policyholders. Sanlam mailed the Demutualization Proposal Information Memorandum to policyholders in September 1998. This document explained the proposal to demutualize, the implications, and the offer to policyholders to participate in the intended public listing of Sanlam Ltd. This document explained the comprehensive impact demutualization would have on members and the South African economy and society. The outline of the risk factors in both the industry and the socio-political factors relating to South Africa was compelling. The prospectus argued that changes in the domestic insurance industry, as primary provider of savings and investment products, (p.236) had changed fundamentally. Strong competition by other financial services providers necessitated a strategic rethinking. Furthermore, regulatory changes pertaining to taxation, the structure and control of the financial services sector, increased disclosure requirements, government prescriptive policies on the provision of healthcare, and general changes in the investment environment, all changed the context in which Sanlam operated. The last-mentioned was the crux of the matter: Sanlam’s investments on behalf of its Shareholders’ Fund in entities such as Gensec, ABSA, and Santam suffered in the weakening stock markets, especially since the Asian financial crisis in August 1997.

Underlying the market dilemma, was the different expectations of policyholders. Some sought stability of bonus returns on policies, while others strove for optimal returns on investment. In explaining that Sanlam encountered capital adequacy risks embedded in weak investment returns, which led to management action to sustain bonus rates and reserves, the argument in favour of investment flexibility became clearer. Market volatility was negative for Gensec. It was bad for returns on derivatives (on which Sanlam relied increasingly) and bad for dividend payments on Sanlam’s equity investments and subsidiaries. Domestic risks such as growing policy surrenders and high disability benefits following high retrenchments in the context of the new socio-political conditions in South Africa, were compounded by rising HIV/Aids risks. Finally, it was impossible to predict how many free shares (shares allocated to eligible policyholders) would be sold immediately after listing and how the share price would respond after the initial public offering. Certain domestic conditions exacerbated uncertainty for Sanlam. The first was persistent exchange control measures, which, despite moderate relaxation in 1997 and 1998, constrained capital raising outside South Africa and created uncertainty of approval in case of international investments. Uncertainty with regard to accounting and comparative disclosure standards applicable to South Africa compared to the United Kingdom and the USA on the issuers of securities and their reporting standards, could impact on the value of the company and therefore potential shareholders had to be alerted to this risk.55

Financial journalists had warned Sanlam about the impact of risks inherent in the difference in accounting standards and policies in the different markets of operation56 on the public’s assessment of the value of the company. Sanlam disclosed the accounting and disclosure risks to prospective shareholders because the company would compete with Liberty Life, a major competitor in the life and diversified financial services market, in future. This was going to be the new competitive environment for Sanlam. Finally, the government had already indicated that it would tax the windfall ‘profit’ of mutual life offices at demutualization. The Demutualization Levy Act, No. 50 of 1998, levied 2.5 per cent of the value of the portion of free shares allocated to eligible policyholders and (p.237) employees. This statute established the so-called Umsubomvu Fund, justified as a fund to alleviate the plight of the disadvantaged. Sanlam publicly supported the demutualization levy by declaring it the responsibility of all South Africans to contribute to political and economic integration of society.57 Prospective shareholders’ decisions were thus complicated. Knowing that SA Mutual was also planning for demutualization, Sanlam covered all potential risks that could impact on investor sentiment.

A public debate erupted as various interested parties speculated about the social and economic impact of demutualization. In the financial press the demutualization of the two life office giants, SA Mutual and Sanlam, was described as delivering an injection of around R80 billion to the South African economy. Off course, there was the risk of volatility in consumer spending if people might decide to sell the shares they acquired as a result of their status as eligible policyholders upon demutualization. It was also possible that a class of sophisticated shareholders could emerge from persons who own shares for the first time. The Congress of South African Trade Unions (COSATU) had called for the demutualization of mutual companies to ensure the more effective use of their resources for economic development. By August 1998 COSATU turned around and opposed demutualization on the grounds that policyholders would allegedly be stripped of their rights ‘to collectively control these institutions and to shift control of major assets to international investors’.58 The agenda of labour was driven by a frustration of being excluded from managerial decisions. Labour did not dispute the right of policyholders in the mutual to decide on the management of the company, but they claimed managerial authoritarianism and insisted on a direct say as members of pension funds administered by Sanlam. While Daling consulted with COSATU directly and hoped for an agreement, public collective action followed but failed to derail demutualization. Sanlam embarked on extensive roadshows locally and internationally between early November 1998 and the date of listing, 30 November 1998. Eligible policyholders received a minimum of 300 free shares (which rose to a maximum of 800 for certain policyholders) in Sanlam Ltd, as well as an offer to purchase further shares at a discount of 10 per cent. Sanlam shares listed at 600 cents per share on listing day. Eligible policyholders were persons who owned valid policies with Sanlam before 31 March 1998, as verified and confirmed. Individuals owning policies that lapsed or were surrendered before 15 October 1998 did not qualify for shares. These policyholders received a share statement on their share allocation and an offer to purchase more shares on 30 November 1998. Under the demutualization proposal the Capital Fund of Sanlam (mutual) became the Shareholders’ Fund of Sanlam Life.

(p.238) Prior to listing, Sanlam’s strategic assets were restructured as per the scheme sanctioned by the High Court. First the shareholding in the strategic assets were distributed. On 30 June 1998, in preparation of the demutualization conversion, 10 per cent of the share capital of ABSA and 25 per cent of the share capital of Santam were transferred from the Sanlam Policyholders’ Fund to the Capital Fund. In return, a portfolio of shares and cash equal to the market value of the share transfer went to the Policyholders’ Fund. Once the conversion scheme was authorized by the Cape High Court, certain assets were transferred to Sanlam Ltd. Twenty per cent of the share capital of Gensec and 20 per cent of the share capital of Santam were transferred from the Capital Fund to Sanlam Ltd. The full shareholding of Sanlam Health and Sanlam Unit Trusts, and a number of smaller wholly-owned subsidiaries held at the time of listing in the Capital Fund, were held in Sanlam Ltd. These transfers were funded by the capital raised by the listing of Sanlam Ltd. The new structure of ownership in Sanlam Ltd and Sanlam Life after demutualization and listing at the end of November 1998 is shown in Figure 5.1. An important consideration for the distribution of shareholding in the group was South African GAAP, which permitted the valuation of share ownership under 50 per cent of equity at market value, and at net asset value if more than 50 per cent was owned.

Managing change: diversification and transformation, 1993–2003

Figure 5.1. Structure of Sanlam Ltd and Sanlam Life Ltd shareholding at demutualization, 1998

The offer to acquire shares in Sanlam Ltd opened on 28 October 1997 and closed on 30 November 1997 followed by the listing on the JSE, which was the largest single listing in the history of the local bourse. Sanlam Ltd also listed on the Namibian Stock Exchange on 30 November 1998. A total of 2 654.6 million shares were issued—1 977.5 million (p.239) were to policyholders as free shares and additional shares acquired in terms of the offer to purchase shares. Shares purchased in terms of the offer amounted to 633 million. In a price stabilization effort, Gensec undertook to subscribe for 150 million shares at the public offer price of 600 cents per share. It bought a further 17.3 million shares on the market, thus acquiring 132.7 million Sanlam shares by the end of December 1998. In a similar stabilization scheme, the Global Co-ordinators (international brokers) were granted an option for thirty days after listing, to subscribe and procure subscribers for 103.4 million shares. This was the so-called ‘Greenshoe’ offer. The ‘Greenshoe’ bought a further 26.26 million shares in the market upon listing, netting Sanlam an additional R144.7 million in capital. These options stabilized policyholder flowbacks and increased the capital raised to R4 billion, minus costs. Sanlam was left with R3.9 billion additional capital. The Demutualization Levy amounted to R271 million.59

Sanlam management was satisfied with the outcome of the listing on the JSE and Namibian Stock Exchange, but market analysts did not share the optimism. The Sanlam share opened at 599 cents on 30 November 1998, but never approached that level until early in March 1999, when the pressure eased following the announcement of better-than-expected financial results for 1998. A record 62 million shares were sold on the first trading day and around 200 million during the first ten days of listing, ascribed to free shares flowing back into the market, pushing the share price down to the late 580s per share. Heavy policyholder flowback occurred in January 1999 as 16 per cent of free shares went back onto the market. Insured retirement funds also reduced their exposure to Sanlam during the early listing period. By the end of May 1999 individuals held around 43 per cent of the Sanlam shares, retirement funds 13 per cent, and nominees (institutions) around 43 per cent.60 By the first quarter of 1999 the Sanlam share still traded at a discount of more than 30 per cent to embedded value.61 Analysts did not expect a change in market perceptions soon.

Sanlam nevertheless had to act in support of its own equity. Setting up the Demutualization Trust (DT) to administer the share portfolio of untraced persons, locating and validating them and allocating their free shares, the company acted in good faith. The DT commenced business on the date of the High Court order sanctioning the demutualization scheme of Sanlam, 22 October 1998. For a period of ten years, lapsing at 24:00 on 22 October 2008, eligible shareholders could validate their eligibility and claim their shares. Sanlam selected people of high public standing to assume the DT operation. The Trustees were Meschack Canca, a practicing attorney of Cape Town; Johan Bester, a chartered accountant and Company Secretary of Sanlam; Willem Esterhuyse, Professor (p.240) in Business Ethics at the University of Stellenbosch Graduate School of Business; Abram Nkabinde, a retired Vice-Chancellor of the University of Zululand; and Leonora van den Heever, a retired judge, as chairperson. The DT had thirty-nine meetings devising strategies to locate eligible policyholders who had not yet taken ownership of the free shares allocated to them. These strategies included extensive mail projects (locating 46 607 shareholders), telephonic searches (locating 87 177 shareholders), identification searches in collaboration with the Department of Home Affairs (identifying 50 913 persons, 9 905 of whom were deceased, but 4 671 executors could be located to arrange for the receipt of the free shares), and a specific strategy to identify thirty-three individuals to whom large numbers of shares had been allocated. These thirty-three persons were eligible to receive 810 210 shares. The DT located twenty-three of them and allocated 653 638 shares to them. It also validated claims to allocated shares, corrected the allocation of shares, and corrected ownership, as brokers and loan sharks attempted fraudulent claims. By 22 October 2008 only 1.01 per cent of the shares allocated to the DT for validation and distribution (29 463 947 shares) could not be allocated to eligible persons. The DT also paid out cash to eligible shareholders who were resident outside South Africa and unable to cash cheques. The DT received dividends on shares held in trust, but chose not to keep the dividends but to purchase Sanlam Ltd shares. A total amount of R258 339 174 was received in dividends, R96 096 278 of which was spent on DT administration (average cost per validation amounted to R212.18) and search and trace projects. On 22 October 2008, 58 893 010 shares purchased with dividend receipts remained in the DT and were subsequently transferred to Sanlam Ltd.62

The significance of the DT’s activities was the display of deep and broad penetration of Sanlam policies into the South African society. When the DT assumed its duty, more than 50 000 beneficiaries were in KwaZulu-Natal, the coastal province with a predominantly Zulu and Indian population. Eligible beneficiaries such as L.N. Ndimande, K.K. Dikhaar, M.M. Tolom, V. Hemraj, I. Essop, F. Moosa, K.V. Tshinavhe, M.J. Moseki, Phumla N. Nyoka, N. Siyolo, P.P. Nyoka, Mzikayise J. Macingwane, and Kefiloe S. Macingwane substantiated the Sanlam claim to the penetration outside the traditional white community.63 As the DT wrapped up its business by the end of October 2008, Sanlam set up an additional committee to consider borderline claims ‘with merit’. This committee awarded ex gratia payments to the value of R552 190.50 to forty-eight claimants. The DT actions ensured 97.7 per cent success in placing eligible Sanlam policyholders in possession of their allocated shares. SA Mutual closed its demutualization agency at the end of August 2006, an event Sanlam used to underline its public commitment to build its shareholder base. The DT went to great lengths and cost to (p.241) locate eligible shareholders. The message of locating and serving its diverse shareholder base fed into Sanlam’s new strategy to position itself as a diversified financial services company with deep roots in South Africa.

Building the new Sanlam

The face of Sanlam Ltd was Marinus Daling. At the age of fifty-four, with thirty-three years’ service in Sanlam, working his way up from a platteland Nylstroom boy of the Northern Transvaal on a Sanlam bursary at the University of Pretoria, his ambition was Sanlam beyond the mutual. The confluence of context and business salvage convinced Daling at the end of 1997 that he had to act decisively. After stepping into the role of Executive Chair on 30 November 1998 Daling orchestrated Sanlam’s rescue strategy. The leadership structure of Sanlam Ltd was a hand-picked team. Attie du Plessis, who was pulled into the demutualization team, served on the executive committee with George Rudman; Flip Rademeyer, Financial Director; Hendrik Bester, Head of Personal Finance; Nic Christodoulou, Head of Employee Benefits; Charl le Roux, Head of Sanlam Health; Anton Botha, Head of Gensec; Chris Swanepoel, Chief Actuary; and Johan Bester, Sanlam Secretary. The Sanlam Ltd board was identical to the board of Sanlam Life. The members migrated from the Sanlam pre-demutualization board to the post-demutualization boards. The members were: Mr J.P.L. Alberts a chartered accountant and businessman; Dr D.C. Brink, mining engineer and Executive Chairman of Murray and Roberts, the construction conglomerate; Prof K. Jowell, professor and dean of the University of Cape Town Graduate School of Business; Prof A.C. Bawa, the Deputy Vice-chancellor of the University of Natal; Mr W.M. Grindrod, Chairman of the Grindrod Unicorn Group; Mr D.L. Keys, a chartered accountant and former CEO of Gencor; Ms N.M. Mokhobo, a social worker and manager of a change management consultancy; Mr T. Vosloo, Chairman of Naspers; Mr P.E.I. Schwartz, an educator and Chancellor of the Cape Technikon; Mr J.J.M. van Zyl, a practising engineer, and Professor P. Smit, a demographer and former vice-chancellor of the University of Pretoria. Daling had continuity on the boards and trusted colleagues in the Executive Committee (Exco). Members of the Exco served on various boards in the Group, thus distributing existing executive management of Sanlam throughout the Group operations. The Sanlam ‘trusted’ or former directors were entrusted with the new Sanlam. Daling had to hold the reins at the centre, since demutualization had changed the organizational form but not the inefficiencies or market skepticism.

In 1999 separate business units comprised Sanlam Personal Finance, Sanlam Employee Benefits, Sanlam Health, and Gensec, as well as a new wholly-owned subsidiary, New Business Development. Sanlam controlled 56.9 per cent of Santam and (p.242) 23.7 per cent of ABSA. Structurally, the new Sanlam did not differ much from the old. That was the challenge of change management in a society that bore very little resemblance to the one in which Sanlam achieved strong growth during the 1960s and 1970s.

The market signaled caution to the poor-performing share price. With a restructured stakeholder profile—Sanlam Ltd now had shareholders—individual shareholders constituted less than half of the shareholder profile. The retirement funds and nominees (institutions) made up around 56 per cent of the shareholders. The 1998 financial results were described by one analyst as ‘Sanlam … running hard to stand still’ as Sanlam lost market share, delivered a weaker operating surplus, posted a decline of 21 per cent in new business, and a 43 per cent fall in individual life single premiums.64 The light in this dark tunnel of a depressed operating environment was substantially improved performance by the underperforming unit trusts, especially the new Sanlam Select Trust, which topped the performance of all the unit trusts in that category. Non-life retail investments in unit trusts and the SP² (an investment product) contributed 49.8 per cent to new investment flows.65

The strategic direction Daling engineered for the new Sanlam was intended to be both stabilizing and enterprising. His strategy was holistic, revolving around a multidimensional approach. He described demutualization as the ‘most important event of the year [1998]’, but emphasized that Sanlam was moving to become a ‘world-class financial services group’, with customers perceiving the evolution of Sanlam as steady, organized, and confident. The confidence Daling referred to was not in walking away from the Sanlam legacy, but building on the strong reputation, which was more important than innovative products.66 Fundamental to this reputation was the company brand of empowerment and delivery on undertakings. Daling’s vision was for Sanlam to ‘become the leading financial services group in the developing world by providing superior advice, products and services which continually would exceed the needs and aspirations of our customers and shareholders’.67 Daling as the captain of the massive Sanlam ship managed change by attempting to act on all fronts.

The first focus was on building investor confidence. This depended on substantially improved financial disclosure. Technical accounting policies had to be used to change market perceptions about the abilities and strengths of Sanlam. In 1998, during the heat (p.243) of demutualization deliberations, a new financial director, Flip Rademeyer, joined the executive management of Sanlam. He aligned financial reporting post-demutualization with investor analysts’ demands for more transparent financial information. The first step was the introduction of the Long-Term Rate of Return (LTRR) on investments. The Code of Corporate Practice in the United Kingdom had sanctioned reporting in terms of the LTRR as the preferred method of reporting on investment returns. The LTRR added the long-term return on investments of shareholders’ funds to headline earnings, and eased out short-term fluctuations on earnings in equity markets. The impact of this accounting adjustment was the following (see Table 5.4): headline earnings in 1998 were reported as R1 186 million, and in 1999 as R1 955 million. Once recalculated in terms of the LTRR, headline earnings in 1998 were R1 507 million and R2 618 million in 1999. The difference between 1998 and 1999 was 65 per cent in the old accounting terms, but 74 per cent under LTRR.

Table 5.4. Headline earnings, 1998, 1999 before and after LTRR



Difference %

Current headline earnings—R’m

1 955

1 186


–cents per share




Headline earnings based on LTRR

2 618

1 507


–cents per share




Source: Sanlam annual report, 1999: 19.

The responsiveness to a definite investor-preferred reporting disclosure contributed to improved investor confidence. The alignment with the UK Code of Corporate Practice also served to improve Sanlam’s international communication with investors. As illustrated in Table 5.4 Sanlam’s headline earnings calculated according to the LTRR showed a marked improvement on the non-LTRR figures for 1998 and 1999. Irrespective of how headline earnings were calculated, the improved Sanlam headline earnings between 1998 and 199968 exceeded industry performance and pointed to significantly improved post-demutualization performance. This positive reflection was vital to stabilize the high levels of volatility in the share price. Policyholders’ flowback (sale of newly acquired shares) during the first few months of listing reached a high of 28 per cent of free shares issued, which was within the band of international practice of between 20 per cent and 40 per cent of free shares issued at demutualization. By March 2000, Rademeyer reported that flowbacks had come down to 0.6 million shares per day. The share price had risen well beyond 995 cents per share by the end of 1999. Improved headline earnings through LTRR had a positive effect on investor confidence in Sanlam. Individual shareholders owned around 40 per cent of the Sanlam shares by the end of 1999, and nominee (p.244) companies around 46 per cent. The notable achievement was that offshore ownership increased to 14 per cent by 2000. Nine per cent of the Sanlam shares were held by USA companies and 4.8 per cent by UK investors.69 The second accounting adjustment that enhanced investment analysts’ confidence was the publication of a consolidated shareholders’ cash flow for the first time in 2000. The drive to improve disclosure started in 1999. In the ninety-seven-page 1999 annual report Sanlam published the contribution by all divisions to the operating profit of Sanlam Ltd. This was the first consolidated Group financial results since listing, justified in the annual report as ‘part of Sanlam’s ongoing attempt to release useful and relevant information’.70 The 1999 financial statements were also the first to disclose Sanlam Ltd’s embedded value—information applauded by analysts (see Table 5.6.) The contribution by each of the business units in Sanlam to headline earnings was down in relative terms. SPF (Sanlam Personal Finance) contributed 61 per cent in 1998, but 50 per cent in 1999; SEB (Employee Benefits) contributed 24 per cent in 1998, but 20 per cent in 1999; Gensec’s contribution was down from 25 per cent to 19 per cent in 1999; Santam’s dropped from 6 per cent in 1998 to 3 per cent in 1999; Corporative (a new business unit established by Daling) rose from 2 per cent in 1998 to 6 per cent in 1999. The operating margins at SPF, SEB, and Santam improved, but not at Gensec. The overall operating margin improved from 13 per cent in 1998 to 18 per cent in 1999 (see Table 5.5).

Table 5.5. Contribution to earnings, Sanlam Group, 1998–1999 (R’m)
























4 619

4 279

1 426

1 262

1 247

1 029



2 603

3 261



10 988















1 722

1 237














2 522

1 703


1 301

1 237






















































Source: Sanlam annual report 1999: 18.

Note: 1 = Income from financial services

2 = Operating profit after exceptional items

3 = Headline earnings after tax

4 = Headline earnings—investment surplus

5 = Attributable profit

5 = % contribution to headline earnings

6 = Administrative costs as % of income

7 = Operating margin %

This information disclosed the performance variation between operating entities, the high administrative costs and operating margins, which positioned the Group in the industry. Sanlam was lagging SA Mutual in Capital Adequacy Requirements (CAR), but as the latter prepared for demutualization in 1999, accounting reporting requirements for listing on the JSE allowed for better comparison. Productivity had to improve company-wide. Compliance with market demand for fuller disclosure was also a response to the International Accounting Standards Board’s call for enhanced earnings disclosure by the long-term insurance industry. Productivity as an overall strategic focus impacted directly on the decision to address a number of loose business ends in Sanlam Ltd. These loose business ends will be explained below. In each case, Sanlam sought to sustain high productivity through the restructuring of operations.

The first productivity issue was within the Sanlam Personal Finance business. With declining demand for traditional life products, SPF developed new single-premium products offering investment flexibility, reduced tax and commission charges, and dramatically improved simplicity in the structure of the product. Investors in the new single-premium investment policy could choose from four investment funds, one of which was an offshore fund. In following SA Mutual, an added offer of a 0 per cent loan (p.245) (p.246) facility was built into the policy, allowing investors access to their money interest free. SA Mutual had introduced single-premium investment policies with the loan offer in October 1998 (while Sanlam was pursuing demutualization) and Sanlam suffered a reversal of fortune. Its single-premium business declined from a R1 billion policy stream to R380 million during 1998. The precondition to improve this was better technology support. From 1995 Sanlam’s IT development people worked on a new SPF support programme to assist with the implementation of linked products, to replace outdated Sanlam systems, and to improve flexibility and time to market for new products. As ‘Finpro’ encountered repeated delays and suboptimal functioning, SPF decided to migrate out of Finpro—an exercise which cost Sanlam R550 million. These ‘school fees’ assisted the 1998 strategic decision to terminate new IT program development in Sanlam and purchase well-established software packages and customize them in Sanlam.71 This decision followed the group-wide policy position that systems [were] in support of new products. The new policy was that the development and maintenance of technology had to serve the business interests. This could best be done by decentralizing the choice and development of technology to fit in with the needs of the different business applications. A multidivisional business organization had evolved over many years, while technology supply remained centralized. The time had come to optimize technology support through dedicated systems supply and application to the tailored needs of SEB, SPF, and Sanlam Trust. When SPF installed the Auto New Business capability in 1999, it enhanced SPF’s capacity to upload policy applications seamlessly and SPF signed forms for the new business processes via email. This deviation from the legacy position of internal technology development was productivity enhancing. It was also a courageous decision since many Sanlam employees were put out of work. In 2000 Sanlam introduced the S.Net suite of applications. This was an advanced Client Relationship Management (CRM) system expediting applications, processing, and business completion.72 This systems innovation laid the groundwork for future fast systems innovation to support product and service development in the diversified financial services group. These new systems supported the introduction of new products, which SPF planned for the new millennium.

By 2001 net outflow of funds from SPF was turned around and the intrinsic value of new business had almost doubled since 1999. In 2000 SPF restored an operating profit of 34 per cent on the performance of 1999. SEB also posted an operating profit of 20 per cent in 2000 on the performance of 1999. The improvement in new SPF business was primarily ascribed to the launch of the new Stratus investment policies, for local as well as international markets. In SPF, Sanlam Life, Sanlam Unit Trusts, Sanlam Personal Portfolio, and Sanlam Trust (a trust entity organized around the acquisition of Boland (p.247) Bank’s trust business in 1996) jointly delivered improved results. The most significant trend at SEB was the stemming of the massive outflow of funds, as pension funds had switched from Sanlam to competitors since 1990. By the end of 2000, SEB narrowed the outflow to 50 per cent of the trend of the previous five years. This outcome followed the much improved performance of the asset management operations in Sanlam Unit Trusts since 1995.73 Supported by new products, more efficient IT support assisted in the turnaround at SPF and SEB. Gensec failed to show the same turnaround: It lost market share and profits were down 9 per cent. Investment management and investment performance remained a drag on the turnaround strategy.

To address investment inflows, renewed emphasis on internationalization led to alliances with foreign partners. The asset swap transactions since 1995 had been no real internationalization strategy. By 2000, asset swaps constituted 30 per cent of Sanlam’s new recurring-premium business. When the first five-year endowment policies reached maturity in 2000 and had to be paid out in South Africa in ZAR, an investment opportunity arose for Sanlam. The company applied for a life insurance licence in the Channel Island of Jersey because of the favourable regulatory environment. South African long-term insurance companies were prohibited by the Exchange Control Regulation from issuing long-term insurance policies in any currency but ZAR. A branch of Sanlam in Jersey could issue such policies in foreign currency. Through a Jersey-licensed branch Sanlam issued foreign currency endowment policies to South African clients.74

In 1999 Gensec entered into a joint venture with Macquarie Bank of Australia to acquire the knowhow to manage cash management trusts (CMTs). Macquarie Bank was a leader in CMTs and wrap accounts, whereby independent financial advisers managed investors’ funds more efficiently. This joint venture did not expand Sanlam’s operations overseas, but the company did acquire specialist knowledge to strengthen its investment management capability. The joint venture was accommodated in the Sanlam subsidiary, Innofin, but after four years (2003) Sanlam bought out the Macquarie stake and transformed the investment product into a personal finance product. Sanlam was leveraging off knowledge of the Australian market to address unsatisfactory investment performance of wealth products for the top end of the market.75

All the international activities occurred in an uncoordinated manner. It was only later in August 2000 that Sanlam announced its first official internationalization strategy. This strategy announced the intention of Sanlam to implement a regional expansion model. The weakness of this approach was not the regional direction. It was acknowledged that a firm’s investments follow patterns exhibiting regional aggregation and arbitrage logic (p.248) to cope with the opposing pressures of globalization (i.e. integration) and local markets (i.e. localization).76 Semi-globalization also acknowledged partial cross-border integration whereby barriers to market integration were high but not inhibitive,77 and the Uppsala model explaining internationalization commencing with expansion into neighbouring regions first.78 The problem with the Sanlam strategy was that it did not comprise an integral part of the Sanlam overhaul strategy and was the exact opposite of where Sanlam had focused its international actions since 1995. Sanlam moved into the UK market and not into regional markets on its borders. By 2001 internationalization was primarily about meeting Sanlam’s domestic growth targets. Real growth of around 10 per cent was possible only for some businesses in the Sanlam Group, while earnings above 20 per cent were achieved in overseas markets. The second driver of internationalization was earnings diversification: to follow existing Sanlam clients, to acquire international client bases, and to maintain the competitive product offerings of the company, while offering talented individuals international mobility within the Group and simultaneously buying intellectual capital.79

The official internationalization strategy showed the lack of clear direction. This strategy admitted that Sanlam was wrong to conceptualize operational expansion into ‘regional’ markets as a first step towards internationalization. Sanlam had limited knowledge of developing markets and could not compete with First World companies already established in those markets—as admitted by Exco: ‘Sanlam has not really demonstrated that it can work in a Third World environment; with South Africa’s infrastructure and regulatory environment being developed to a First World level as it is. … Sanlam doesn’t really have experience with the lower end of the market … It is thus proposed that the geographical focus be changed to one based on a hub in the developed world.’ The target market was first the English-speaking ones, then India/Malaysia or markets where the wealthy leadership echelon is business-English literate. So Sanlam went abroad on the Gensec track. Gensec Bank was the vehicle to conduct Sanlam’s business using a Dutch subsidiary, Sanlam Netherlands BV (SNH), for the hub into the UK and Western Europe. There was also no group-wide co-ordination of international operations, as underlying businesses often explored international opportunities in an uncoordinated fashion. Management sensed this lack of direction and parameters for screening internationalization targets.80 Daling’s statement in his 1999 Chairman’s (p.249) address, ‘As far as internationalization is concerned, Gensec is already expanding its offshore activities’,81 epitomizes the marginal position of the internationalization policies in the bigger scheme of operational turnaround to Sanlam. This lacklustre dedication to internationalization seemed ingrained in the strategy, since in 2000 the Sanlam Group Strategy still claimed that internationalization was ‘done through Gensec. Other businesses will follow later.’82 Offshore action seemed uncoordinated. Gensec opened offices in Dublin and London and introduced the Dublin Fund for offshore investments. When the opportunity came to acquire the UK actuarial firm Punter Southall & Co. in May 2001, the deal was struck. Justified as a means to serve Sanlam clients’ offshore investment demands, Sanlam entered into an alliance with P-Solve and Hitchens Investment Management.83 Local financial analysts expressed question marks about these transactions, because the benefit to Sanlam seemed vague.

The performance of Gensec had been a bone of contention since acquisition. The flat performance in 1999 diluted the Sanlam headline earnings by 2.4 cents per share. This trend continued in 2000, diluting Sanlam’s earnings per share by 3 cents per share. Then fifteen asset managers, previous employees from SAM (Sanlam Asset management), resigned from Gensec. This was a serious loss, since one of them, Schalk de Vos, was the driver of the successful Sanlam Select, Prime Growth, and Provider unit trusts, as well as the 500-Plus individual portfolios. Gensec private equity also lost Leonard Fine and Sam O’Leary,84 thus displaying merger inefficiencies bound to impact on overall performance later. Furthermore, Gensec suffered a loss of about R18 million in 1999 following a rights-issue underwriting with Stanbic, of Macmed, which ultimately collapsed. Gensec had deposits with Fidelity Bank, and a stake in The Business Bank, both institutions which suffered losses due to the Macmed collapse. These developments mandated a profit warning by Gensec on 22 October 1999. When the Sanlam board was advised that the relationship between Gensec and Sanlam needed revision, Gensec argued limited strategic and operational freedom to conduct its business. On the other hand, Sanlam considered asset management its core function, thus justifying strategic oversight. SAM’s unit trusts had a fine track record in the industry, but were in jeopardy as a result of the dysfunctional merger with Gensec. It was clear that Sanlam would forfeit valuable investment bank expertise in disposing of Gensec, but independent analysts confirmed in a presentation to the Sanlam board that management at Gensec was dysfunctional and staff morale at an all-time low. The strategic decision to take out the Gensec minorities (25 per cent of the shares were held outside Sanlam) in December 2000 came as no surprise. Despite both entities operating in financial services, they operated in fundamentally different business cultures: insurance managers were driven by volumes and (p.250) systems, while asset management was primarily performance and capabilities driven.85 The central role of Gensec in the Sanlam performance is illustrated in Table 5.5. Sanlam could not just walk away from this asset, but the feeling that the capabilities of the Gensec people were inadequate for the Sanlam asset management function was mounting. Sanlam finally took out the minorities in Gensec on 31 December 2000, a transaction that was far too expensive for Sanlam but one which Daling wanted to conclude at all costs. He had to admit to the error of judgement in hastily concluding the acquisition of Gensec prior to demutualization and was adamant that Sanlam and Gensec’s ways had parted.86 Gensec Asset Management was rebranded Sanlam Investment Management (SIM) from 2 April 2001. This transaction did not cure the investment return ills of Sanlam, but afforded the company the opportunity to regain control over the function. It was the price ultimately paid for acquiring Gensec prior to demutualization, just to be able to say that there was an asset management company in the Group. Gensec Bank remained an investment bank within the Sanlam Group.

A more pressing matter was the relationship with ABSA. Sanlam had already admitted in 1995 that it did not have the resources to conduct a full acquisition transaction with ABSA, resembling the FNB/Momentum or Standard Bank/Liberty transactions.87 At that time, ABSA was the only banking group in South Africa without a business relationship with a long-term insurer, since ABSA had developed its own insurance business. On the other hand Sanlam desired a more substantial return on its 23 per cent stake in ABSA. Under the project name ‘Apollo’ confidential discussions were held between Sanlam (Flip Rademeyer and George Rudman) and ABSA (Danie Cronjé) about the possible merger of the two entities. Sanlam was eager to secure improved access through the ABSA network for bancassurance, but ABSA had established its own insurance division. The negotiations were ‘sensitive’ and conducted in the utmost confidentiality, because of the potentially disruptive impact on financial markets in the event of a restructuring of operations. The timing was further compromised, because the Governor of the SARB, Tito Mboweni, had just appointed Judge Dennis Davis to reopen an investigation into the Bankorp lifeboat, following a report by Judge Willem Heath. Daling wanted a conclusive outcome to these discussions by 2000. Discussions eventually steered in the direction of a merger, but on 8 March 2000 the two parties announced in a press release that a merger was no longer considered, but that Sanlam would retain its 23 per cent stake in ABSA. The principle of arm’s-length collaboration was firmly established. Cooperation occurred on individual business levels. Sanlam was particularly pleased that the two insurance companies in the ABSA Group acknowledged the (p.251) specialized nature of the investment skills in Gensec and had transferred assets to the value of R2 billion to Gensec.88

It was very important for Sanlam to expand its distribution channels to improve investment inflows. Sanlam resumed its investigation into possible co-operation with other institutions. The company commissioned McKinsey to advise on a future strategy. The McKinsey memorandum ‘Implementing a Customer-Centric Wealth Creation Strategy’ proposed a merger strategy between Sanlam and ABSA—Project Alexis. The idea was that Sanlam should become a broad financial services offering through primary transaction relationships with middle- and high-income clients, as opposed to a ‘bricks and clicks’ client base. This would imply the establishment of an extensive network, including branches. This strategy would bring Sanlam immediately into direct access of ABSA’s extensive branch network. This idea depended heavily on acceptable pricing for such a merger, political and regulatory implications, the market response to a resurfacing of the lifeboat saga, and the possible impact of the FSB’s requirements of annual actuarial valuations of the long-term insurers.89 The Sanlam board supported a merger with ABSA in principle, but by the end of 2001 decided to make contingency plans in the event of the ABSA board declining merger proposals. In September 2001 the ABSA board rejected the business case put forward as ‘Project Alexis’.

Sanlam, as controlling partner in the voting pool agreement with Universa,90 consulted with its partners in the voting pool to reduce the number of shares in ABSA in respect of which the voting pool would act collectively, from 48 per cent of the issued shares in ABSA to 37 per cent.91 This gave Sanlam greater freedom of movement with respect to ABSA. The agreement also resulted in the unbundling of shares held by Universa in ABSA. Sticky negotiations continued, but by early 2003 no agreement was in sight. Major differences existed between the parties on the principle of calculation of value (fair value or market value) and in February 2003 the Sanlam board was advised that ABSA had expressed an interest in a merger at existing exchange rates. The idea of a possible hostile takeover surfaced. The ABSA offer failed to convey real value to Sanlam and the old Daling view remained valid: the size of the investment in ABSA mandated superior returns for Sanlam. Unless ABSA delivered better returns, a merger would (p.252) destroy value. The board dispatched a letter to the board of ABSA expressing the Sanlam rejection of ABSA’s merger proposals.92

The negative trend in inflows into investments and new policies since the mid-1990s was at the root of the endeavours to find workable synergies with ABSA. Sanlam expanded its own agent base by appointing more Coloured, female, and English-speaking agents. On the initiative of Mr Harry Brewer of SA Mutual, the Institute of Life and Pension Advisers (ILPA) was formed in 1995 to oversee knowledge and professional standards of insurance advisers. ILPA’s name changed to the Financial Planning Institute (FPI) in 2000. From 2009 it was commissioned by the FSB to conduct regulatory assessments of advisers in the field. Throughout the long history of Sanlam the company has been admired for the depth of the training of its agents. As a member of the LOA, Sanlam worked closely with other members in the industry to formalize training and professional standards. The company opened training centres across the country to extend training to people operating in the Xhosa-speaking population, apart from the training in Afrikaans and English. By 1995, 23.8 per cent of the Sanlam advisers were black and 6.7 per cent of the branch managers were black. This did not arrest the declining trend in new business.

By 1997 the number of Sanlam advisers had also declined significantly, which had a direct impact on new business volumes. This development convinced Sanlam that a new approach to distribution was called for. An international financial services consulting group, TBOi NMG Africa, was appointed to revitalize the existing distribution paradigm. In response to the fundamentally different context of operations, Johan Treurnicht, General Manager: Marketing, found the existing Sanlam pool of advisers ill-equipped in the new deregulated financial services environment. In spite of industry-regulated training standards and the high level of expertise and professionalism of the Sanlam adviser and broker networks, high industry costs and structural inefficiencies called for a radical repositioning of distribution. While the ABSA discussions dragged on without clear direction, the consultants offered the New Dawn plan for distribution revitalization in 1997. The New Dawn strategy captured the spirit of Rudman’s by then well-known call for a profit orientation and business approach in Sanlam. New Dawn based a turnaround distribution strategy on a move away from volumes towards a business orientation embedded in ‘best practice’. New Dawn proposed distribution driven by client-centricity (‘client is king’), characterized by a relationship with ‘Sanlam’ and not the adviser, and remuneration only on condition of active engagement in the action of selling. The New Dawn proposals suggested a clear identification of different distribution channels, each targeting a dedicated market segment. It was important to agree on a policy of identifying markets and devising prospecting strategies, but the so-called ‘cold (p.253) canvassing’ had to be replaced by a much more orderly managed system of identification and action on new business leads. Three distribution channels were identified: brokers, in-house advisers, and a new ‘independent’ company, owned by Sanlam and other shareholders, comprising high-flyer advisers and brokers, delivering a dedicated personal service of excellence—the so-called Phoenix companies.93

New Dawn addressed key transformational drivers in Sanlam. These drivers could not easily rise above the Sanlam ‘straightjacket’ of bureaucracy, loyal marketing by the loyal Sanlam agents, branding, and the rapidly transformed South African society. The competitive environment posed both an opportunity and a threat. A distinct business orientation would change the volume driver to a performance driver. Improved performance driven by profit—that was the core of post-demutualization Sanlam. New Dawn hit the ground running early in 1998 and SPF very soon noticed a spark of revival in new business volumes. The business orientation of both brokers and Sanlam advisers indeed also contributed to the new information technology policy to purchase the most up-to-date computer software, such as the Lamda policy administration platform, to support the new marketing paradigm. The LOA had recently sanctioned the general access (GA) concept. This concept allowed advisers and brokers to market products of their ‘own’ and other industry players. This meant that a very successful Sanlam adviser would be allowed to sell a brilliant product put on the market by a competitor, such as Liberty or SA Mutual. This development strengthened the Phoenix distribution channel, as independent financial advisers could build a portfolio for clients including the best from different industry players. Client-centricity, business orientation, and value-added financial advice made up the new distribution chain, introduced by New Dawn. By 2000 Sanlam had more than 200 Independent Financial Advisers in the market, allowed to sell accredited Discovery, Liberty, and Fedlife products. The business-oriented overhaul was completed when Sanlam announced that its advisers would no longer receive subsidies, bonuses, allowances, or employer contributions in future, but commission, the same as brokers.94 The success of the New Dawn plan lay in changing the business performance orientation of the Sanlam advisers, but it did not stop the decline in Sanlam’s market share. SPF had experienced improved production since 1999, but had by no means regained lost market share.

New Dawn did not meet management’s expectations. Marinus Daling abruptly fired Johan Treurnicht soon after the implementation of New Dawn, disrupting a strong team in distribution. This dismissal was unexpected, since Treurnicht had a long career in broker distribution and general product distribution in Sanlam. No official explanation for Treurnicht’s dismissal was published, but Daling’s conduct resembled his decision in (p.254) 1997 to fire Desmond Smith as Managing Director in the heat of the preparation towards demutualization. Daling did not appoint an executive manager for marketing in his new executive committee in 1998. SPF under Hendrik Bester was assigned the marketing function within the business unit. The context for change, both as an organization and in operations, had not yet been addressed. Very incomplete organizational transformation had manifested in Sanlam Head Office and regional structures by 1997. Management failed to take into account an important organizational matter, namely the culture of the people working in the organization. By 1997/1998 just under 70 per cent of the Sanlam advisers were Afrikaans speakers and 88 per cent of them were white. They spoke Afrikaans and their thought and behavioural processes were South African, whereas the TBOi NMG consultants were very British, distant from the market they sought to advise on enhanced operational performance. Advisers involved in the training environment in New Dawn recalled the sense of distance, being lost and abandoned during encounters with the consultants, who knew no Afrikaans nor understood the South African society. Communication between the consultants and Sanlam advisers was unsuccessful and many a training session ended in walkouts and advisers regrouping among themselves to translate the information into their world.95 Ironically, the New Dawn thinking later led to a successful marketing model that evolved from within the Sanlam advisers’ structure.

Early in 2000 the advisers accepted the concept of business development managers (Besigheidsontwikkelingsbestuurders)—BDMs). These BDMs assumed a business development role between branch and regional managers. They managed an income stream within a business unit, a concept aligned with the New Dawn Phoenix company concept.96 They operated fairly independently and successfully developed business entities à la Phoenix. When the Sanlam advisers, organized in the Sanlam Advisers Forum since 1992 (SAF), claimed a stake, either monetary or in terms of equity, in the business units they managed, the former bureaucratic centralizing Sanlam management trait manifested again. The BDMs insisted on their independence and right to dispose of their business units should they so wish, but Sanlam executive management refused. Only in March 2004 a long drawn-out dispute between SAF and management ended in legal counsel advising that the BDMs were employees of Sanlam. This curtailed the independent business drive of advisers, but would later re-emerge as the so-called Blue Star Business concept. This dispute highlighted the Sanlam management’s desire for control, as had been vividly displayed with Sanlam Health. It took another four years before the concept of independent businesses in the distribution channel as a culmination of successful broker and adviser performance, was accepted.

(p.255) Market analysts remained unconvinced about Sanlam’s direction. Addressing financial analysts in 2000, Sanlam identified its target market as households earning R4 000 per month, but a year later shifted the target to households earning R2 000 per month. Repeated references by management to narrow the gap between the Sanlam share price and the disclosed Embedded Value (EV), did not satisfy the market—the analysts looked for ‘strategic objectives relating to operational issues’97—they wanted to know companies’ strategic objectives with respect to the operational priorities of the companies. The engagement with the market perception of Sanlam at a time when SA Mutual was demutualizing and listing (September 1999) seemed to occupy management. Sanlam even considered seeking a credit rating from Standard & Poor’s. Although Sanlam was not a borrower, management thought a credit rating would put the company in the public eye, especially among overseas investors. The process of securing such a rating would also assist the internal ‘getting the house in order’.98 Much publicity was given to the fact that Sanlam was the first South African company to announce interim results live on satellite television.99

Cautiously changing culture: transformation

The public image of Sanlam not only suffered as a result of disappointing performance, but also as a result of the different constituencies affected by the need to transform Sanlam into a leading financial services company in and of South Africa. A relatively marginal matter was cost-saving outsourcing activities, which were performed in the course of 1998/1999. Corporate facilities and infrastructure services of Sanlam were outsourced to independent business partners on condition of concluding mutually beneficial contractual agreements that would protect Sanlam’s interests. Drake and Scull (SA) took up the contract as chief supplier of most of the services comprising corporate services (stationery, equipment, signs, etc.). Infrastructure services were put out on tender to companies such as Debis/Spicer, DiData, and PQ Africa. Sanlam assisted the Coloured chauffeurs in Sanlam’s service to establish their own transport company, On Time Chauffeur Services, with which Sanlam contracted to perform the transport services that were formerly part of Sanlam Head Office functions. Printing functions were outsourced to Koerikai, a local small printing enterprise. Graphic design was outsourced to Out of the Blue Creative Communications, whereby Sanlam shed (p.256) costs and empowered small businessmen.100 These outsourcing exercises afforded Sanlam an opportunity to assist some of its loyal workforce in entering the market for small businesses and were indicative of the goodwill between Sanlam and its employees. Although marginal to the bigger Sanlam transformation, these outsourcing exercises eased in opportunities for Sanlam to address black economic empowerment (BEE) concerns.

Black economic empowerment was not a matter of minor significance. The policy framework was slow in developing a clear strategy. A sense of indecision reigned when an executive noted during the outsourcing exercise that ‘we know black economic empowerment is going to cost us money’. By the time Sanlam turned eighty in 1998, organizational transformation was cosmetic and the energy was all directed at demutualizing successfully.

The broad ideological context of the new government after 1994 resulted in statutory requirements necessitating a comprehensive transformation strategy. During the last years of the 1990s Sanlam dealt with the broad transformation environment basically on two fronts. The first was compliance with the Employment Equity Act, No. 55 of 1998. Sanlam considered employment equity a business imperative and dedicated a specific focus for it in the Human Resources function.101 Policies to give effect to broad transformation were approached holistically—they were formulated at the centre, but implementation was decentralized into the different business units. Many hours went into the deliberations on the Sanlam Vision, and these fed into official Sanlam policy documents on employment equity, Code of Management Practices, guidelines for people with disabilities, and a Code of Practice to end racial harassment and unfair discrimination. Diversity management was aligned with business strategy, since compliance was considered a business imperative. After the appointment of Peter Schwartz to the Sanlam board in 1994, followed in 1999 by Dawn Mokhobo as the first African woman, John Moalusi was the first African person appointed to the executive team in Distribution. By late 1999 Sanlam confidently claimed to have all the ‘building blocks’ in order to implement employment equity—but by the end of the century implementation was scattered.102 Sanlam had always employed people of colour, but from the mid-1980s the staff complement of black and Coloured people increased. This was both a diversity and a training matter. Alarm bells started ringing during the first quarter of 1995, when it was revealed that 23 per cent of new black employees had resigned, primarily citing difficulty with Afrikaans as the language of the workplace. Since Sanlam had started its business in 1918 with a strong emphasis on education as the only tool of empowerment, management in 1994 embraced yet another education opportunity. Desmond Smith, (p.257) then CEO, claimed that one of the factors that could make South Africa ‘a front runner, is the development, education and training of the individual’.103 The link between employment equity and ensuring that Sanlam remained successful in the changing environment of the 1990s, was education and training of its employees. Sanlam immediately brushed up the financial support programme to assist employees in furthering their studies. In August 1997, before the promulgation of the Employment Equity (EE) Act in 1998, Sanlam released its employment equity policy. Because of the language constraint, other avenues of training needed to be developed. At first management explained the meaning and operation of the EE legislation and then the targets for compliance. Extensive communication with employees informed them of the categories of designated persons to benefit, namely blacks, women, and people with disabilities, provided they were suitably qualified. The unfolding of employment equity was underpinned by internal Sanlam training and capacity building, most of which occurred from 2002.

The gradual implementation of employment equity was also partly the result of the sensitivity around the transformation of Head Office. Sanlamhof was a truly Afrikaner institution, functioning as a close-knit ‘patriarchal family’, but as the changes occurred gradually in the wider South African society, it had to reflect in Head Office as well. The demographic restructuring had a profound impact on the ‘Sanlamhof family’. In one anonymous letter to the staff magazine, Bloudruk, in April 1994 one employee advised disgruntled fellow employees, that if they were looking for loyalty, ‘kry vir julle ‘n hond’ [get yourselves a dog].104 Social restructuring took time. From 1918, management had stimulated a workforce spirit of ‘Sanlammer wees’ [to be a person of Sanlam] and a ‘Sanlamgees’ [the spirit of Sanlam] to enhance organizational efficiency, but this had to be undone in a very short time span. When the IT infrastructure unit was outsourced, it left 230 employees without jobs in Sanlam in January 2001. The core IT team moved to another IT company, Debis, contracted to perform IT services for Sanlam. This restructuring assisted Sanlam in streamlining its organizational structure with greater focus on its core business, but did not sit well with staff at Head Office.105 Sustained poor performance during 2001 and 2002 and the subsequent decision to sell Sanlam Health to Medscheme in 2001 exacerbated the negativity among Head Office staff.106 The leadership transition at the end of 2002 coincided with stern and outspoken criticism in the staff magazine against management, showing the delicate nature of the mood at Sanlamhof. For many years since the employment of non-Afrikaans-speaking persons, dissatisfaction about the use of Afrikaans as official language at Head Office and in general internal communication, simmered beneath the surface. Finally, in 2002 ‘practical’ considerations forced Afrikaans out of the meeting rooms and off the agendas and minutes. It could simply no (p.258) longer be assumed that everybody was proficient in Afrikans, since the new cohort of directors, managers, and employees mirrored the new South African demographic diversity. English became the language of official communication. Many employees were still Afrikaans speakers and conducted general conversations in Afrikaans, but officially English replaced Afrikaans as the language of communication in Sanlam. The ‘cultural’ change created a context where the implementation of employment equity and black economic empowerment initiatives called for great skill and leadership.

The second front of transformation in Sanlam was gaining the confidence of the black market. Having successfully completed the first Black Economic Empowerment transaction with NAIL in 1993, Daling wanted to sustain the momentum. In discussions with leading business people heading up new black-owned corporations, investment companies, and trusts, Sanlam tested the waters. The former business partners, NAIL, Metropolitan Life, and Sanlam, explored a possible merger of the three entities. The aim was to create a new financial services group ‘reflecting the spirit of the new South Africa, with strong empowerment characteristics’. The catalyst to the negotiations was the desire to accelerate the pace of transformation in the interests of South Africans. For Sanlam the merger would secure lost market share, and financial and strategic benefits in all of the Sanlam’s chosen markets. Planning had progressed to the stage where cautionary statements were published in June, July, and August 2000, advising the public about the intended merger. The transaction came to a halt. On the exact date the final principles of the transaction were to be sealed, Sanlam reversed its position. The deal depended on ratification by all three companies’ board of directors. Advocate Moseneke, Chairman of the Metlife Board, conveyed Metlife’s support and enthusiasm for the deal. The Sanlam board had second thoughts. Independent market research indicated that the Sanlam brand enjoyed a stronger South African image among both white and black respondents; Sanlam had a much stronger image as an empowerment concern than Metlife; Sanlam performed better on employee benefits, on business decisions, and overall brand acknowledgement. Overall the market research indicated that the public placed greater value on ‘hard’ items, than ‘soft’ items. This meant that Sanlam’s actual delivery found stronger appeal than image and perceptions. Sanlam expected synergies of around R2–R3 billion, but realized that some government salary contracts (PERSAL—the staff salary system) might be at risk following such a merger. However, this was the least of Sanlam’s concerns. During merger talks the Metlife management wanted binding merger principles, whereas Sanlam wanted open and non-binding principles during the merger process to allow for decision making by the incoming new company board. The Sanlam position was simple: no deal unless supported by both boards. Sanlam executive committee no longer supported the proposed transaction. Overall, the Sanlam management was skeptical and called the talks off. In the joint cautionary the parties told the public that agreement had been reached ‘that the commercial benefits of the merger would not be as significant as were initially expected’. The expected benefits of long-term (p.259) growth in shareholder value and the formation of a strong platform for sustainable competitive advantage were probably not going to materialize.107

Once the mood had changed on the transaction, the reservations voiced by different members of the Sanlam board underlined salient concerns. On the one hand one director was excited about the wonderful learning curve experienced by the actuaries, accountants, and advisers on constructing a potential massive merger transaction, but the straw that broke the camel’s back was management. There were serious reservations about the quality of management in the merger partner, on exactly how the new entity would be managed, and who would be the management team. As it appeared from the 2000 interim results, the board was satisfied that financial performance showed significant improvement. A game changer was the position of the leading role players, Marinus Daling and Dikgang Moseneke. It was admitted that the fact that the initiative had started with discussions between Sanlam and NAIL, and Metlife had joined later, might not have been the right strategy. Moseneke and Daling were the keystones to the deal, but rumours went around that Moseneke was tipped for Chief Justice of South Africa, which would take him out of the picture. Then in August 2000 the news broke that Daling had cancer. He did not attend the final board meeting on ‘Project Moon’, but Rudman, who was acting as CEO, had discussed the matter with him in advance. To him the business case was weak and he doubted the potential value Sanlam would derive from the transaction. Too many aspects of the proposed transaction created unease at Sanlam and finally the executive management team was not prepared to enter without Daling and possibly also Moseneke. These were the strong leaders they would trust to take on the merger, but without them the board would not go ahead with the venture.108

The political environment under a new government seeking to transfer ownership of business and economic activity to the majority put pressure on business to do BEE transactions. Business bought into the concept of compliance with those policies as ‘a business imperative’. Sanlam received numerous opportunistic proposals to enter into BEE transactions and walked away from most. The NAIL/Metlife opportunity might have secured Sanlam a greater share of the market typically served by the NAIL/Metlife business operations. The Metlife of 2000 was no longer the company Sanlam had sold to NAIL in 1993. The business case in 2000 needed to address value to Sanlam, as was the case with the talks with ABSA. Sanlam suffered from negative inflows and suboptimal returns on investments. The ABSA and Metlife talks hinged on value added to Sanlam. When it became known that Daling was terminally ill, the executive team was unwilling to venture into a potentially complicated transaction, a transaction that would most probably also be too expensive (as was the transaction to take out the Gensec minorities) and could not deliver on the performance criteria of adding substantive value to Sanlam.

(p.260) Sanlam committed itself to BEE, but the one big transaction remained a delusion. The company had an established corporate social responsibility record. From that basis further community engagement was rolled out. Sanlam enjoyed sufficient industry recognition in 1995 for the government’s Public Investment Commission (PIC) to appoint Sanlam as external portfolio manager of the PIC equity portfolio on 22 November 1995. The PIC handed Sanlam a mandate outlining the minimum requirements for the management of the portfolio. The mandate also required Sanlam to develop plans of action to include individual commitment to the Reconstruction and Development Programme (RDP), affirmative action, upliftment of the historically disadvantaged people, and programmes to train people of colour in investment management. As asset management in Sanlam travelled through SAM, Gensec, and finally back to SIM, it was in SIM that the Development Fund sat. In 1996 Sanlam established its own Sanlam Development Fund, managed by SAM. Sanlam did not wish to place funding in projects with a weak economic reconstruction impact. Since 1996 the Sanlam Development Fund had dedicated more than R2.2 billion towards the development of small business entrepreneurs (through Cash Bank, the National Housing Finance Corporation, and New Farmers); funding for historically disadvantaged persons to acquire shares in BEE transactions (such as the National Empowerment Corporation, Johnnic, Sancino/NuClicks, and Nitac/PQ Africa); direct investment in BEE companies (such as Kunene Finance, Nozala, Worldwide Investment, Sancino, and Thebe Investments); and made investments in infrastructure development in neglected locations, such as the Witbank/Maputo road construction and the Beit Bridge/Bulawayo railway line. Sanlam also established the Community Building Fund. This R500 million fund allocated sponsorship to actual building projects improving community infrastructure, service delivery, and the creation of employment opportunities, such as the Lesotho Highlands Water Project, the Rand Water Board, and the Umgeni Water Board. The R279 million contribution to the demutualization Umsobomvu Fund served the same purpose.109 By 2002 more than R2.2 billion had accumulated in this fund.110 On 17 April 2001, SIM established a new Sanlam Development Fund of Funds, with more resources, to contribute to the development of local business in South Africa. This was a joint venture with SIM and Cape Partners.

Community social investment was not new to Sanlam, but in the post-1994 era contributions were aligned with the government’s economic reconstruction priorities, while at the same time underpinned by a dedicated strategy to build the Sanlam brand. The company employed a more professional strategy to strengthen its branding and the (p.261) use of the well-known Sanlam logo. A new emphasis on building the brand emerged around the early 1990s, when the use of a variety of logos by Sanlam group companies caused a stir. During the 1970s the blue ‘S’ in the Sanlam logo was replaced by the white hands embracing a blue ball, symbolizing protection, caring, safety, and trust. This ‘hands’ logo was firmly entrenched by the early 1990s. Desmond Smith was emphatic about the business value of the Sanlam corporate identity. He called for a consistent adherence to the single, but clear and well-known logo.111 In 1996 the company slogan was changed from ‘Where your future counts’, to ‘Your future in good hands’, to convey the client-centricity in Sanlam [See Appendix 1]. The simple well-known single blue and white Sanlam hands-logo was placed in jeopardy in June 2000, when the board accepted a decision to implement a multibrand strategy for the Sanlam Group. This decision led Daling to commission a new name for the holding company. The proposal was FINSECO—acronym for financial services company. However, the new name was not taken to the board as Daling decided not to fiddle with the brand name of repute.112

Market research in 1997 and 2000 indicated the strong positive reputation of Sanlam in the public mind, but showed that its image was weaker than that of SA Mutual and that brand awareness of Sanlam trailed SA Mutual and most of the leading banks. A disturbing observation was that Sanlam’s extensive corporate social investment did not hit the public target as well as it should. The advice to Sanlam was to build the positive achievements of the company internally and externally.113 At Head Office the name of the internal staff magazine was changed. Die Fakkel first appeared in 1932. The name Fakkel was retained until it was changed to Sanlammer in August 1991, but this name changed to Bloudruk/Blueprint in February 1995 as a monthly publication. Sanlammer called up too-vivid images of the patriarchal Head Office culture. There was a need for a more neutral company name. The Sanlammer was terminated at the end of 2000, which left twenty months of no internal staff magazine. The publication for Sanlam advisers, Sandaba, was established in 1998 and in September 2002 assumed the role of an in-house staff magazine again. It conveyed much of the complex transformation process at Head Office, but also the search for inclusivity around the corporate image of a dynamically changing financial services company.

Daling’s vision for Sanlam Ltd was to be the leading South African financial services group, the benchmark of excellence, a company perpetuating its legacy as a company of empowerment. Sanlam implemented black economic empowerment and employment (p.262) equity as a simple strategy—doing what we do best and have done since 1918. In the roll-out of corporate social involvement the focus was on education, training, entrepreneurship, and personal development, especially through sport. The signature corporate social engagement of Sanlam was its sponsorship of the Takalani Sesame educational series for school readiness development in South Africa. Sanlam acquired the USA Sesame Street licence and adapted the programme for South African requirements. Takalani Sesame was a radio and television programme to reach children across the wide and stretched out South African landscape. The series commenced in 2000 and is still running. From 1995 the Sanlam corporate social investment programme covered sponsorships to educational institutions (universities, colleges, and schools), cultural activities, entrepreneurship and employment creation, health and welfare projects, and service to communities through the construction of buildings and complexes for public use.114 At 1 per cent of operating profit, Sanlam’s corporate social investment was not completely philanthropic, but aimed at a target market aligned with the changing profile of its policyholders. A notable shift was the increased focus on the youth in black, Coloured, and Indian communities, especially with respect to health and sports activities. The triangular relationship between branding and the preservation and strengthening of the corporate identity, enhancing the public image of the company through corporate communication management, and corporate social investment, was a complex and delicate matter. These functions were not logically coordinated, since different business units in Sanlam seemed to administer their own corporate social investment programmes. Consolidation seemed imminent, but Daling had not addressed it by 2000.

Sudden change in the game

Marinus Daling was a brilliant actuary and business strategist. He wanted demutualization and he drove it through in record time. By August 2000 he had lots of unfinished business: Santam had emerged as the leading short-term insurer in South Africa, but was still recovering from the substantial underwriting losses suffered in late 1990. After the acquisition in 2000 of the full share capital of Guardian National Insurance (GNI) (with approval from the Competition Commission) for R1.57 billion, and the appointment of Johan van Zyl as CEO on 1 August 2001, it was hoped that Sanlam’s 55 per cent stake in Santam would start delivering positive results. Santam made a rights issue to fund the GNI acquisition. Sanlam followed its rights to a cost of R316 million to the shareholders’ fund and R684 million to the policyholders’ fund (of the latter, R618 million was placed with (p.263) institutional investors, leaving the policyholders’ fund an exposure of only R66m).115 Santam moved to a 17 per cent market share, which secured the former Afrikaans company the leading short-term position. Unfortunately, undisclosed irregularities in GNI could not be recovered by May 2001. An internal audit committee noted the ‘unacceptable state of the finance control environment and accounting records of GNI prior to the merger’. Total write-offs amounted to R30 987 819. This amount related to the pre-merger period and was not disclosed to Santam. Another problem that surfaced after the merger was that GNI had failed to recover long-outstanding balances, and that some reinsurers’ accounts had not been rendered for two years. This merger was the most important development in Santam’s strategy to grow its market share, but came at an initial cost. In a statement to the JSE, Santam declared that ‘the merger of the two companies would create the leading short-term insurer in South Africa with a well-balanced business profile and the ability to deliver world-class standards of customer service, productivity levels and shareholder value creation’.116 The positive spin-offs included improved underwriting expertise and growth opportunities in the commercial sector and electronic commerce. Johan van Zyl, who joined the Sanlam board in August 2001 as Chief Executive Officer of Santam, managed these turbulent post-merger times in Santam. The Santam acquisition of GNI also ushered in the transformation of the still predominantly Afrikaans insurer to a national South African icon.

Other ills remained for Daling in Sanlam. There was the ailing Sanlam Health with perpetual shrinking membership. A difficult two years between 1999 and 2001 of searching for a buyer for Sanlam Health finally came to a close in 2001 when the Sanlam board agreed to an exit strategy from this business, and Medscheme bought SHQM and SHAM. The struggling asset management operations and consistently underperforming Gensec was finally integrated in the Sanlam Group, but at a price too high for Daling’s peace of mind. The ABSA talks were not making noticeable progress. In Namibia, Sanlam Namibia, which was dually listed on the Namibian Stock Exchange at the time of Sanlam’s listing on the JSE, developed stable and extensive business in the country. Sanlam Namibia as a legal entity was never listed separately in the NSX. Sanlam Namibia immediately after listing issued policies in terms of the Namibian insurance legislation. Sanlam Namibia operates under the Sanlam brand name, although in various legal entities across a number of business units, including insurance and investment products. Internationalization was still not part of an integrated strategy. While Daling bravely soldiered on at Sanlam and all the subcommittees and subsidiary boards, the writing was on the wall. In January 2001 the search was on for his successor. From June 2001, Daling resigned from the multitude of subcommittees in Sanlam and was unable to attend the December 2001 board meeting. He passed away on 1 February 2002.

(p.264) Early in 2001 Daling indicated that he would step down as Sanlam CEO, but remain in his capacity as Chairman. The board made it clear that his successor had to be a leader and strategist who could take Sanlam to the new dimension the company strove for: ‘to be recognized by our stakeholders and our international partners as the benchmark of excellence for financial services where we operate’.117 The decision to appoint Dr Leon Vermaak, Managing Director of Santam, as the CEO of Sanlam Ltd came as a surprise. The reason for the surprise was that Vermaak had not worked in long-term insurance before, he was a marketing expert, but Daling favoured him. Vermaak had served Santam as Assistant General Manager: Marketing since May 1995, but moved into the position of Managing Director from 1 July 1999. He was the person called upon to succeed Daling from 1 May 2001. Johan van Zyl succeeded Vermaak as CEO of Santam and from 1 August 2001 he joined the Sanlam executive committee as Santam’s CEO. As Vice-Chancellor of the University of Pretoria, Van Zyl had been a non-executive independent director of Sanlam since 2000. Vermaak entered a Sanlam of extensive unfinished business.

At the first board meeting he attended in June 2001, new members were welcomed to the board. As Kate Jowell, Murray Grindrod, and Flip Smith had resigned as directors, Vermaak used the opportunity to add more black directors to the board. The new directors were Prof. André Perold of the University of Stellenbosch Business School, Messrs Thulani Gcabashe and Peter Vundla (both prominent black businessmen), as well as Johan van Zyl. A new company secretary, Xoliswa Motswai, was also appointed.118 Vermaak immediately made changes to the executive structures in Sanlam. He merged the SPF and SEB business units to become Sanlam Life under Executive Manager Hendrik Bester. Vermaak argued that the trend had become individual choice. That meant the same or similar solutions to all clients, be that on individual or group levels. Nick Christodoulou was appointed Executive Manager: New Business Development, primarily to exploit synergies between or across existing business divisions in the Group. Vic van Vuuren in Human Resources was appointed Executive Manager: Human Resources, while Johan van Zyl assumed an executive position as a result of his position at Santam. Mr Bohang Mohale joined the executive team as Head: Corporate Marketing. John Moalusi former Deputy Executive Head of SEB, was relieved of his executive functions to allow him to focus on sales. These changes ruffled feathers. Hendrik Bester resigned at the end of 2001 and Xoliswa Motswai left in August 2002. The first woman member of the executive team, Lizé Lambrechts, succeeded Hendrik Bester at the helm of SPF.

At a time when markets were recovering from the effects of the 1998 East Asian crisis, Sanlam kept limping. The operational results failed to excite analysts. As shown in (p.265) Table 5.6, headline earnings declined by 12 per cent between 2000 and 2002. The EV per share followed the same trend as return on EV declined by 9.2 per cent between 2000 and 2002. Sanlam’s CAR improved from 1.7 in 1998, to 2.4 in 2000, but then weakened to 1.7 again in 2002.

Table 5.6. Sanlam performance 1998–2002




Total group equity (Rm)

21 952

27 238

27 087

Total assets (Rm)




Headline earnings (Rm)

1 186

2 406

2 127

Embedded value (EV) per share (cps)




Return on EV %




Total issued shares (m)

2 654.5

2 654.5

2 654.5

Earnings per share (cps)




Share price (cents)




Dividend per share



Capital Adequacy Ratio (CAR)




Source: Sanlam annual financial statements, 1998–2002.

A sense of discontent could be read between the lines in the board proceedings. Sharp criticism was voiced against the destruction of value that had occurred in Sanlam, witnessed in declining headline earnings and weaker return on EV. When Vermaak referred to ABSA and Gensec as legacies of the past, one director bluntly remarked that had Sanlam only sustained the performance record of ABSA over the recent period, Sanlam would have been bigger than SA Mutual. The executive team and members of the board had become disillusioned with the leadership of Vermaak. He fell short of the expectations to deliver on strategic management to a diversified financial services company. Market perceptions were negative. During the ongoing merger discussions with ABSA, it became apparent that he had harboured ambitions to lead the massive new financial services entity once the merger had been completed. Stalwarts in Sanlam were skeptical about the ability of such a merger to add real value to Sanlam. While it made sense to walk away from a merger with ABSA, Vermaak had other ideas and ambitions. Vermaak insisted on pursuing the ABSA deal, while the rest of the board and executive team did not want to do so. It came down to either Vermaak and ABSA, or no Vermaak, and adherence to the Daling position on ABSA. This difference of opinion illustrated the strategic disconnect between Vermaak and the rest of the executive management team and directors on several matters, by then clearly illustrated by the drawn-out merger discussions with ABSA. It was finally Rademeyer’s hunch that a possible hostile takeover might be lurking, that cooled merger talks off.

There was no longer time for Sanlam to sail aimlessly on the ocean of the South African financial services industry. Analysts were earnestly looking for signs of strategic direction at Sanlam. The company organized a two-day presentation for financial (p.266) analysts in January 2001, an event that afforded Sanlam the opportunity to explain the depth of the business. This was well received, but could not forestall the growing uncertainty about leadership. A recurring theme was the persistent outflows from Sanlam life business and contracting market share. The Sanlam market share dropped from 26.97 per cent in 1997 to 12.09 per cent in 2003. Although this was an industry-wide experience (except for Momentum and Investec growing market share marginally), Sanlam lost proportionally more than the other market players. In response to the 2000 financial results, Deutsche Securities referred to the ‘massive uncertainty surrounding the CEO’, exacerbated by the highest outflows in the industry. Sanlam lost R5 billion in 2002 (3.8 per cent of the life fund), which was an improvement on the R6 billion in 2001, but the outflow from SA Mutual was only 2 per cent. Liberty gained a 6 per cent increase in fund inflows and Momentum 2 per cent. Sanlam had lost the confidence of investors and ordinary people. At the same time the return on embedded value of 12.7 per cent at Sanlam in 2002 was below industry performance. Liberty posted a 29 per cent return on its embedded value, SA Mutual 24 per cent, and momentum 18 per cent. The weakness in Sanlam’s performance remained the same as in previous years: SIM underperformed, Gensec Bank ‘had another poor result’ with its international business profits after tax, declining by 26 per cent. Assets under management declined, while Sanlam built infrastructure, doubling expenses, in its international operations amid severe pressure on revenues from asset management and the IFA business. The message was unequivocal: Gensec does not fit in with the Sanlam business and should be disposed of. The international business needed fundamental reconceptualization.119

When Sanlam announced decreased bonuses on life policies in 2002, negative bonus stabilization reserves of 10 per cent meant at least a three-year delay in restoring bonus growth. The overall looming negative sentiment was all about management. Sustained and market-leading underperformance in growing its share of new business, continued record outflows, and sustained poor investment results threatened to erode the benefits of demutualization. Daling was a strong leader, but not Vermaak. Daling was instrumental in the appointment of Leon Vermaak as his successor. The last board meeting he attended was in September 2001. It took twenty months for the executive management team (excluding Vermaak) and the board to realize that the new CEO did not have the capacity to manage a diversified financial services group, especially not a recently demutualized group grappling with the hasty and fundamental change in organizational form and operations. The decision to ask Vermaak to step down was taken by members of the board and some executives. The board minutes never reported on the decision. There was also no mention of the departure of Vermaak in the official annual report of (p.267) 2002. The board confirmed the decision in December 2002 and started the search for a person who could ‘fix the return on Sanlam’s capital and long-term transformation’ of the company. Flip Rademeyer acted as CEO since December 2002, but on 25 March 2003 the board announced the appointment of Dr Johan van Zyl, CEO of Santam, to assume the position of CEO of Sanlam from 31 March 2003. He was hailed for his leadership and transformation capabilities displayed as Vice-Chancellor at the Afrikaans and conservative University of Pretoria, and moreover, his good relationship with the government and ruling party.120 The significance of such interpersonal relationships resonated well in Sanlam, since Marinus Daling’s relationship with Thabo Mbeki since the late 1980s afforded Sanlam access to social capital that was much needed in times of tough business conditions.

Van Zyl had a clear understanding of the dilemma facing Sanlam. He understood that the industry was under siege, but also identified fundamental shortcomings at Sanlam. The uncertainty surrounding the departure of Vermaak resulted from visionary and leadership shortcomings and were exacerbated by unrealistic stakeholder expectations. The old ways of doing business in Sanlam were not changed after demutualization, but the market of operations did change fundamentally. The business structure was cumbersome and executive leadership functioning suboptimal. Having worked with Sanlam since he joined the board, and as executive director following his appointment as CEO of Santam, afforded Van Zyl a holistic assessment of operations. He saw radical changes as the only viable strategy. The lacklustre commitment and delivery needed a clear strategy, allowing the company choices and from that a clear direction. Hard business decisions needed to be taken as part of a simple clear business model, aiming at a 10 per cent real return on capital. That was not negotiable. Soft issues such as client-centricity, BEE, and employment equity were sure contributors to the sustainability of a growth trajectory. Van Zyl was clear in his mind about the restructuring of management and operations across the entire group.121 His clarity of analysis and vision on the solution made him the obvious choice. He was part of Sanlam, but not from within, and understood strategy as a tool towards turning an organization around.

Demutualization was implemented with urgency and speed. What a diversified financial service group would be as distinct from a life office, had not been thought through sufficiently to establish a new business model after listing. The acquisition of Gensec turned out not to be the right choice for Sanlam. The death of Daling left Sanlam exposed to extensive unfinished adjustments. Vermaak was not ready to bring about the strategic redirection Sanlam needed. Leon Vermaak stood outside the financial service business and never grasped the complexity of the fundamental reconstruction required to consolidate operations around a core of financial services. Perhaps Daling, as a Sanlam (p.268) actuary his entire professional life, had detailed knowledge about operations, but failed to institute a consolidation and efficiency enhancing plan while in office. He was a ‘Mintzberg manager’—a person who was part of the deeply ingrained culture of the organization, in this case the former mutual, Sanlam. To transform that organizational culture required distance. The successful overhaul of a conservative life office to become a diversified financial services company required radically innovative macrostrategic thinking. His engagement with Sanlam through many phases of its development, his apprenticeship under Fred du Plessis, the Sankorp restructuring exercise, and his brilliant ability to spot the traps facing Sanlam, did not yet deliver the successful business model required at the time of his death. A new holistic business model was wanting. Sanlam was suffering from the acquisition drive legacies of the 1980s and owned underperforming assets. By the end of 2002 the company was at a crossroads: either it had to think in a radically different way about its direction, or face humiliating sustained loss of its industry position.


(1) Financial Mail: ‘Life Assurance Industry. Supporting the economy?’ Survey, 30/11/1990: 5. (Why not use stats of the LOA?)

(2) G. Verhoef (2010): Life offices to the rescue: 156; U. Birkman and C. Codoni (2004), World Insurance in 2003: Insurance industry on the road to recovery; Sigma, 3, Zurich: SwissRe.

(3) Verhoef, ibid.: 157–63; R. Vivian (2007): ‘The South Africa insurance markets’, in J.D. Cummins and B. Venard (2007): Handbook of international Insurance, Springer: 677.

(4) P.M. Senge (1990): The fifth discipline: the art and practice of the learning organization. New York: Doubleday. The five disciplines Senge identifies are systems thinking, personal mastery, mental models, building of a shared vision, and team learning.

(5) The ‘estate’ as defined by Rudman at that time was the difference between assets and policyholder liabilities, that is, the free assets of the company.

(6) SA: 5/2/1: Confidential memorandum G. Rudman–P. Steyn, 16/1/1990.

(7) SA: 5/2/1: Confidential Memoranda, Sanlam Board, 20/06/90; 15/05/91.

(8) H. Hansman (1985): ‘The organization of insurance companies: Mutual versus stock’, Journal of Law, Economics and Organization, 1(2): 134; Interview Ronnie Masson, 18/03/2009.

(9) SA: Confidential Memorandum G. Rudman–Sanlam Board, 19/4/1995; R. Pearson and T. Yoneyama (2015): Corporate forms of organizational choice in international insurance, Oxford: Oxford University Press: 7–15.

(10) H. Hansman (1996): The Ownership of Enterprise. Cambridge, MA: Belknap Press of Harvard University Press: 287–97.

(11) Pearson and Yoneyama, op. cit.: 16–17.

(12) SA: Confidential memorandum G. Rudman, 19/4/1995.

(13) G. Verhoef and M. Keneley (2011): ‘Pressures for change in the Australian and South African insurance markets: a comparison of two companies.’ Competition and Change, 15(2): 136–54.

(14) Interview D.K.S. Smith: 5 October 2017.

(15) SA: Minutes of Sanlam Board, 19/4/1995; 21/9/1994.

(16) Interview G. Rudman, 14/11/2007.

(17) Interview G. Rudman, 14/11/2007.

(18) SA: Minutes Sanlam Board, 26/2/1997.

(19) SA: Confidential memorandum G. Rudman–Sanlam Board, 19/4/1995.

(20) SA: Confidential report on changes in the individual insurance sector–Sanlam Board, 26/2/1997.

(21) SA: Minutes of Sanlam Board, 16/8/1995; 13/12/1995.

(22) SA: Confidential Memorandum G. Rudman–Sanlam Board, 19/4/1995.

(23) SA: Minutes of Sanlam Board, 21/6/1995; 16/8/1995; 31/1/1996; 28/8/1996; 27/2/1997.

(24) SA: Sanlam Annual Report, 1995: 1.

(25) Sanlam Annual Report, 1996: 3.

(26) Sanlam Annual Report, 1997: 14.

(27) Sanlam Annual Reports, 1993–1998.

(28) Interview G. Rudman 12/2/2009: Email communication G. Rudman–G. Verhoef, 22/4/2010.

(29) SA: Minutes of Sanlam Board, 27/2/1997.

(30) SA: Minutes of Sanlam Board, 29/1/1998: Independent brokers informed Sanlam management that the Sanlam products failed to deliver value for money and were unimaginative.

(31) Interview G. Rudman, 24/2/2010. Long before 1997 it was apparent that a black majority government would take power. This was a distinct change in the market of life offices in South Africa that had to be contemplated by management of all local mutual insurance companies.

(32) SA: Minutes Sanlam Board, 28 May 1997: Confidential memorandum G.E. Rudman: A revised corporate structure for Sanlam.

(33) SA: Minutes Sanlam Board, 25/6/1997.

(34) SA: Minutes of Sanlam Board, 27/8/1997.

(35) Interview G. Rudman, 24/2/2010; Email communication G. Rudman–Sanlam Corporate Office, 31/8/2017.

(36) Confidential communication G. Rudman, 30 September 2017.

(37) SA: Minutes of Sanlam Board, 24 and 25/2/1998. Actuarial Report for the twelve months ended 31 December 1997. Desmond Smith claimed that Daling effected a number of ‘write-offs’ which impacted significantly on operating profit for the year.

(38) SA: Minutes of Sanlam Board, 3/12/1997; Confidential Memorandum D.K. Smith. It was general knowledge among the management team that Smith was convinced of the sound decision to demutualize, but that he did not think Sanlam was ready to take the step. He was convinced that Sanlam’s capital position needed to be on a sound footing as a matter of priority. Sanlam, according to Smith, could not afford to demutualize yet. Daling’s ambition did not leave room for that. Interview Desmond Smith, 14/6/2017; 10/8/2017.

(39) Confidential communication G. Rudman, 30 September 2017.

(40) G. Hirshon: ‘The big clean-up has started’, Financial Mail, January 1998.

(41) Interview G. Rudman 14/11/2007.

(42) H. Mintzberg (1979) The Structure of Organizations: A synthesis of the Research. Prentice Hall: 15. 20–5.

(43) Interview George Rudman, 14/11/2007.

(44) S. Lunsche ‘Sankorp treasures give Sanlam a step up’, Sunday Times, 31/8/1997.

(45) SA: Minutes Sanlam Board, 9/6/1998.

(46) The complex nature of the Sanlam business subjected aspects of its operations to the Pension Funds Act, No. 24 of 1956, the Companies Act, No. of 1973, the Income Tax Act, No. 68 of 1962, the Unit Trust Control Act, No. 54 of 1981, the Stock Exchange Control Act, No. 1 of 1985, the Financial Markets Control Act, No. 55 of 1989, the Safe Deposit of Securities Act, No. 85 of 1992, the Inspection of Financial Institutions Act, No. 68 of 1984, the Financial Institutions Act, No. 39 of 1984, and finally the Financial Services Board Act, No. 97 of 1990. Banks were regulated under the Banks Act, No. 94 of 1990. The spread of Sanlam’s financial services activities made compliance with the entire spread of statutes compulsory.

(47) SA: 5/3/12/6/8: W. Harris–Memorandum, 7/1/1998; 10/6/1998; SA 5/3/12/6/8: TTP Memorandum. Financial reporting in South Africa and the UK, 19/2/1998.

(48) SA: Sanlam Share Offer Prospectus: 25; Sanlam Demutualization Prospectus: Information Memorandum: 4.

(49) SA: Minutes of Sanlam Board, 25/6/1997; 9/12/1998.

(50) D. Basson and S. Feely: ‘It’s just money for jam’, Financial Mail, 29/08/97.

(52) SA: Minutes of Sanlam Board, 11/12/1998. With the reference to a ‘clean’ transaction, Daling meant that he preferred demutualization to be the only focus of the transaction and not to include other concerns, such as empowerment transactions on the side.

(53) SA: Minutes of Sanlam Board, 11/12/1998.

(54) Sanlam had 2.2 million policyholders, but only 1.8 million were eligible to vote, since the rest were members of retirement funds.

(55) Sanlam Share Offers. Prospectus, 28/10/1998: 16–20.

(56) SA: 5/3/12/6/8: Letter Deon Basson–Sanlam (G. Rudman).

(57) Sanlam Share Offers Prospectus, 1998: i; Sanlam Annual Report, 1998: 9.

(58) SA: 5/3/12: Letter COSATU–M.H. Daling, 4/4/198; COSATU Submission to Portfolio Committee on Finance, 18/8/1998.

(59) SA: Minutes of Sanlam Board, 3 February 1999; ING Barings South African research: Sanlam listing update, No 2: 12/1/1999; G. Paterson: Warburg Dillon Reid: Life Assurance. Sanlam (Reuters RIC), 24/4/2010.

(60) G. Peterson: Warburg Dillon Reid: Life insurance: Sanlam, 24/8/2010.

(61) Flemming Martin Research South Africa, 26/7/1999; ING Barings South African research, 12/1/1999.

(62) SA 5/3/12/13/1 (2): Sanlam Demutualization Trust, 1998–2008 Chairman’s report, 3/6/2009.

(63) SA 5/3/12/13/1 (1) Minutes of Demutualization Trust, 15/8/2002; 5/12/2003; 8/5/2003.

(64) T. Gamedze: ‘Sanlam. Running hard to stand still’, HSBC Simpson McKie. Life assurance South Africa: 3/5/1999.`

(65) SA: Minutes of Sanlam Board, 10/3/1999; 6/5/1999: Gamedze, op..cit.

(66) It is interesting to note that the minutes of the Sanlam Board meetings were kept in Afrikaans, but once the demutualization negotiations involved growing numbers of international advisers and consultants, minutes were kept in English from the first meeting in 1998. In January 1999 the language of reporting switched back to Afrikaans. Finally in 2000 after Vermaak took office, the minutes were again compiled in English and have remained such up to the present.

(67) SA: Minutes of Sanlam Ltd Board ‘Beraad’, 9/1/1999.

(68) SA: Minutes of Board Meeting, 9/3/1999: Sanlam Annual Report, 1999: 19.

(69) SA: Minutes of Sanlam Ltd Board Meeting, 1/9/1999: Memorandum P. de V. Rademeyer: Share price and share statistics; Memorandum P. de V. Rademeyer: Share price and share statistics, 8/3/2000.

(70) Sanlam Annual Report, 1999: 18.

(71) SA: Sanlam: The IT Journey, 2014: 23–4.

(72) Ibid., 23; SA: Minutes of Sanlam Ltd Board, memorandum K. Venter: Migration of the Finpro program, 3/2/1999; Memorandum C.G. Swanepoel: Individual Insurance: New single-premium project.

(73) SA: Minutes of Sanlam Board, 13/09/2000.

(74) SA: Minutes of Sanlam Board, 13/09/2000.

(75) SA: Minutes of Sanlam Board, 13/09/2000; Sanlam Board, 28/10/03; Sanlam Annual Report, 2005: 109–11.

(76) J.L. Arregle, P.W. Beamish, and L. Hébert (2009): ‘The regional dimension of MNE’s foreign subsidiary localization’, Journal of International Business Studies 40(1): 86–107.

(77) P. Ghemawat (2003): ‘Semi-globalization and international business strategy’, Journal of International Business Studies 34(2): 138–52.

(78) J. Johanson and J. E. Vahlne (1977: ‘The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments’, Journal of International Business Studies, 8(10): 23–32.

(79) SA: Minutes of Sanlam Exco, 4/6/2001.

(80) SA: Minutes of Sanlam Exco, 7/5/2001.

(81) SA: Minutes of Sanlam Board, 10/3/1999.

(82) SA: Minutes of Sanlam Ltd Board, 9/2/2000.

(83) SA; Minutes of Sanlam Board, 7/3/2001; 4/6/2001; 18/6/2001.

(84) S. Cranston: ‘Mergers work best on paper’, Financial Mail, 15/4/1998: 8.

(85) V. Pienaar: ‘Survey: etirement fund manager mergers rife: but are they the answer?’ Business Day, 23/6/1998.

(86) Interview: P. de V. Rademeyer, 11/11/2012.

(87) SA: Minutes Sanlam Board, 7/3/1998.

(88) SA: Press Release, 8/3/2000: Sanlam retains its shareholding in ABSA; Minutes of Sanlam Ltd Board, 8/3/2000.

(89) SA: Minutes of Sanlam Ltd Board, 9/2/2000.

(90) Universa entered into a voting pool agreement in January 1992 with Sankorp (later replaced by Sanlam after the winding up of Sankorp) with regard to key policy matters in ABSA. Universa consisted of Rembrandt (39%), Mine Pension Fund (39%), the Sage Group (22%). This voting pool agreement mandated unanimity between Sanlam and Universa on changes to ABSA’s future business, appointment of the chief executive, mergers and acquisitions, material capital expenditure, and some further matters pertaining to dividend policy and issuing of shares.

(91) SA: Minutes of Sanlam Ltd Board, 5/12/2001.

(92) SA: Minutes of Sanlam board, 5/3/2003.

(93) SA: 1/2/23/5: Sanlam: New Dawn, Organizational Design Distribution Sales Organization; Also see Venter (2016) The History of Sanlam Broker Division: 57–61.

(94) Sandaba, February 2000: 11; April 2000: 3–5.

(95) Interview with Sanlam advisers involved in ND, 15/6/2016.

(96) SA: Sandaba, October 2000: 1.

(97) Investec Securities: F10: 23/2/2001: ‘Life assurance in the context of contractual savings institutions’: 45.

(98) SA: Minutes of Sanlam Board, 4/8/1999. The credit rating was never conducted, but the discussions on the matter were indicative of Sanlam seeking wider international market approval.

(99) Sanlam Annual Report, 1999: 7.

(100) SA: Minutes of Sanlam Ltd Board, 19/8/1999.

(101) Venter (2016 Development of Human Resources 1994–2015 with Sanlam. Unpublished Sanlam internal research report.

(102) SA: Minutes of Sanlam Board, 3/2/2000.

(103) Sanlammer, 3/5/1994: 1.

(104) Bloudruk, 1/4/1994: 19.

(105) SA: News Release: ‘Sanlam kontrakteer IT infrastruktuur uit’, 25/1/2001.

(106) SA: News Release: ‘Sanlam verkoop sy gesondheidsorgbesigheid aan Medscheme’, 1/10/2001.

(107) SA: Minutes of Sanlam Ltd board, 13/9/2000; Withdrawal of Joint Cautionary Announcement, 18/9/2000.

(108) SA: Minutes of special meeting of the Sanlam Ltd Board, 28/8/2000.

(109) SA: SIM Report to the Public Investment Commissioners on the Action Plans i.t.o. section H.2 of the mandate, July 2001; SA: Minutes of Sanlam Board, 5/6/1996; 8/6/2001; Sanlam Annual Report 2001: 12; Sanlam Annual Report 2002: 18.

(110) SA: Minutes of Sanlam Board, 25/3/2003: Investment report SIM.

(111) SA: 5/3/4: March 1990: Desmond Smith statement on Sanlam Corporate Identity.

(112) SA: Minutes of Sanlam Board, 6/12/2000. This memorandum ‘Progress report on the multi-brand strategy for the Group’ was discussed by the board, but not ratified. It was minuted that Daling had withdrawn the proposal to change the name of Sanlam Ltd.

(113) SA: Minutes of Sanlam Board, 29/10/1997: Memorandum: J.H. Brown: Verslag van korporatiewe beeld.

(114) SA: 5/2: Memorandum: Sanlam Korporatiewe Maatskaplike Betrokkenheidsprogram, 7/10/1995; 5/2: Memorandum: Sanlam’s contribution to the Reconstruction and Development of South Africa, 16/4/1998.

(115) SA: Minutes of Sanlam Board, 9/2/2000.

(116) SA: Minutes of Santam Board, 10/11/2002.

(117) SA: Minutes of Sanlam Board, 7/2/2001: Sanlam Vision/Group strategy.

(118) Motswai was a corporate lawyer, but in 2002 stepped down ‘for medical reasons’ and was succeeded by Mr J.P. Bester as Sanlam Company Secretary.

(119) D. Shochot: Deutsche Securities: Sanlam Ltd: 7/3/2003; H. Uys: Cazenove: Sanlam Company update, 5/9/2001; H. Uys: Cazenove: Sanlam Company update, 6/3/2003; M. Brown: CLSA: Emerging markets: SA companies update, 29/1/2001.

(120) SA: Minutes of Sanlam Ltd Board, 25/3/2003.

(121) SA: J. v Zyl: Presentation to Sanlam Human Resources Committee, 26/1/2003.