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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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Affirming the roots

Affirming the roots

Sanlam from South Africa for South Africa and beyond, 2003–2013

(p.269) 6 Affirming the roots
The Power of Your Life

Grietjie Verhoef

Oxford University Press

Abstract and Keywords

Sanlam returned to insurance and the delivery of value-adding financial services by disposing of a large investment in a banking company, thereby freeing up its capital for financial services diversification at last. Aggressive pruning of non-performing operations in the domestic and international markets, business operational restructuring, and a new management philosophy put Sanlam on the road to improved efficiency. With a focus of value-adding financial services to the entry-level market, as well as established markets in the UK, Sanlam improved return on equity employed, and positioned itself for global expansion. From an emerging market the path dependence of empowerment strategies were reinforced in new markets. From a strong strategy directing central management platform, optimal operational authority at the level of transacting positioned the company as a global player.

Keywords:   Developing markets, wealth creation, investment, transformation, strategic management, liquidity, internationalization

The new millennium dawned upon a Sanlam braving stormy seas. Investors and policyholders increasingly moved away from traditional long-term life assurance products, seeking new wealth products. South Africa was entering the first decade of its new democratic political order, but the business environment in emerging markets weakened. The impact of the global financial crisis (GFC), which hit the developed world in 2007/08, affected emerging markets soon thereafter. Real GDP growth in South Africa was down to −1.5 per cent in 2009, but recovered to 3 per cent in 2010 and 2011. Soon afterwards the domestic economy entered a consistent downward spiral of slow growth, low productivity, and socio-political uncertainty. In the global economy GDP growth in advanced economies also slumped since 2004 and moved into negative territory from 2010, leaving emerging markets to follow the trend. The slow recovery in developed countries effectively pulled developing markets into slow growth. The South African situation was exacerbated by domestic political volatility caused by the political tension in the ruling ANC party. President Thabo Mbeki dismissed his deputy Jacob Zuma in 2004. Tables were turned when Zuma was elected ANC President in 2009. The South African economy also went into recession for the first time in seventeen years. Real GDP per capita growth declined consistently from 1.8 per cent in 2008 to 0.6 per cent in 2013. Inward foreign direct investment as a proportion of GDP slumped from 3.44 per cent in 2008 to 2.24 per cent in 2013, and gross government debt rose from 27.2 per cent in 2008 to 44 per cent in 2013. Not even hosting the Soccer World Cup tournament in 2010 could provide a large enough financial injection for a sustained economic recovery in South Africa. Business witnessed growing regulatory intervention, both locally and internationally. Government regulatory intervention in South Africa affected the insurance industry. State regulation of pension and retirement funds administration was introduced. The state also intervened in the market for financial services by publishing policy statements on the introduction of a state-administered health system and comprehensive state social security provision. A climate of policy uncertainty emerged. When former President Nelson Mandela passed away in 2013, the socio-political landscape in South Africa entered a new period of volatility. The financial services sector (p.270) was left to manage both policy uncertainty and weakened economic conditions. Sanlam entered this challenging decade under new leadership.

Restoring value

Winning the demutualization race left the protagonists with a company not fully prepared for the new financial services market into which it had turned. The new Sanlam did not escape from the legacies of its past. Sanlam’s relationship to ABSA remained unresolved to Sanlam’s satisfaction. Santam performed sluggishly and delivered unexpected ‘surprises’ inherited from the acquisition of GNI. Gensec still suffered from a clash of cultures and personalities. The long-term insurance market suffered from a contracting public appetite for the traditional life policy. The brilliance and market-respected personality of Marinus Daling obscured the operational constraints emerging from the failure to effect a fundamental company repositioning in the new financial services context of a listed entity. Managing the legacies was not what the new Sanlam needed, but a reconceptualization of the world of a diversified financial services company in the competitive environment created by global deregulation. The business needed redressing. A serious disfavour Daling unintentionally did to Sanlam was to land the struggling company with an inexperienced successor. However, unnoticed, another more able successor was being groomed to stage the recovery plan. This was a Fiedler contingency model leader, a person combining insight into the context of the business and a personal task-oriented leadership style suited to inspire subordinates to perform at a high level and focus on task accomplishment. He personified the traits of the leadership model—intelligence, knowledge, and expertise, dominance, self-confidence, high energy, tolerance for stress, integrity, honesty, and maturity—and put them to use as a transformational manager.1 At the ABSA retail board and as Santam CEO, Johan van Zyl had gained a broad insight into industry developments. As an agricultural economist, considering the macro perspective came naturally. As the contingency model suggests, Van Zyl assumed the executive position at Sanlam at a time when the demutualization gains proved insufficient. In Sanlam Life alone, capital to the value of between R14 and R15 billion was estimated to be necessary for long-term sustainability of the life business.2 The stalemate at Sanlam was that there was no clarity of vision or agreed business model to steer the company through the rough seas and help it come into its own, capable of outperforming the rest. In identifying the critical issues faced by a stagnating Sanlam, (p.271) Van Zyl articulated the negative market sentiment. Weak customer relationships undermined the delivery of value specific services to each business unit. The business model of a diversified financial services conglomerate had to function from a single group vision, managed from the centre and implemented in the different business units.3

In May 2003, immediately after his appointment, Van Zyl explained that the business model he would implement consisted of a complexity of business clusters, but with critical governance and co-ordination from the centre, which was at Group level. Head Office had to be a simple lean structure managing the Group on a principle of tight/loose control. As a financial services company, the focus was on the client, therefore the simple guiding operational principle was ‘client-centric wealth creation’. In order to achieve that, the company had to go back to basics. The focus was on delivery, to all stakeholders—add value to shareholders and policyholders and all other clients through a client-centred approach. Van Zyl grounded the transformation strategy in existing expertise—the individual/retail market, as well as the corporate market. The business was about wealth creation and protection within financial services, and in all the different segments of the value chain—product development, packaging, and distribution. Sanlam was strong in the middle market, but its presence in the high-net-worth individual markets required focused tightening and development. Entering the mass market was contingent on the ability to create wealth and protect it. In the corporate market, retirement funds and employee benefits had to regain priority. The merchant banking operations were not Sanlam’s core business and therefore Gensec had to be relocated. The old way of conducting business was no longer adequate, income diversification was needed, and the crippling dependence on traditional channels had to become more flexible distribution channels at lower associated costs. The business model operated from a centre with autonomous underlying businesses managed at arm’s length. The Group would manage the individual business units on a portfolio basis, but encouraged innovation and maximum choice, seeking maximum ‘share of the wallet’ on a strong brand. The successful implementation of the strategy depended on a collective effort of the team of business leaders responsible for the operating businesses, aligned to corporate head office strategy. Sanlam needed to cut costs and Van Zyl undertook to effect a R250m cost reduction per annum in Sanlam Life. Sanlam then introduced a portfolio management system, with clear goals and targets for individual businesses, priorities, and incentives. What had to go, needed to go as soon as possible.4

The revised business structure of the Sanlam Group took shape before the end of that year. Restructuring commenced with the reintroduction of an Executive Committee consisting of the executives of the business units and group management. This was the forum where Van Zyl brought a leadership team into the realm of the new business (p.272) philosophy and disseminated the strategic vision of group performance built on autonomy on underlying levels. The restructured business units were: Sanlam Life, with Lizé Lambrechts as Chief Executive; short-term insurance in Santam with Steffen Gilbert as Chief Executive; Sanlam Investment Management (SIM) under Johan van der Merwe as CEO; the banking unit comprising Gensec under Anton Botha as Chief Executive; and Sanlam Independent Financial Services with Nic Christodoulou as Chief Executive. The contribution of each business unit to Sanlam Group’s profit before tax and new business inflows at the end of 2003 was as shown in Table 6.1. The life business contributed 60 per cent to group profits before tax, but only 23 per cent to new business inflows, SIM contributed 12 per cent to profits and 55 per cent to new business inflows, and Santam contributed 31 per cent to profits but 17 per cent to new business inflows.

Table 6.1. Contribution to Sanlam financial performance, 2003


Sanlam Life




Sanlam independent financial services

Contribution to group profit before tax–%




Contribution to new business inflows–%




Source: Sanlam annual report, 2003.

The unbalanced distribution between the contribution to profit and new business inflows called for rectification. The life unit conducted individual life and group life insurance, estate and trust management in Sanlam Trust, money management and payment systems through Multi Data. Life insurance in the UK was conducted through Merchant Investors Assurance, and mobile phone insurance through Sanlam Customized Insurance. The life business in Namibia was conducted through Sanlam Namibia, and group retirement administration through Total Care Strategy in which Sanlam held a 60 per cent share. Sanlam Life offered personal loans through Direct Axis, in which Sanlam had a 70 per cent share. Santam conducted the full range of short-term insurance. SIM housed a variety of investment functions—investment management; Octane Management (an alternative investment platform in SIM); Innofin, the investment channel to the high-net-worth market; Sanlam Collective Investments (managing Sanlam’s unit trusts); Sanlam Multi Managers International; Sanlam Property Management; Sanlam Private Equity, and Tasc, an independent UK administrator of third-party funds. These entities were the preliminary structures of the functional restructuring Van Zyl wanted, but were bound to adapt to the unfolding of the strategic rebuilding of the core financial services business. Dynamic changes occurred as the strategy materialized.

Management took a holistic macro view of the extensive scale of internal business repositioning needed. Between 2003 and 2006 some initiatives had to be concluded, others terminated, and substantial efficiency enhancement and cost-saving exercises executed with clinical precision. The crucial strategic entity was the Group Executive (p.273) Committee. This was a deviation from the management styles of both Daling and Vermaak. This Group Executive Committee gave practical effect to Van Zyl’s management style of strategic leadership rolled out on the strength of the team of expert business leaders heading up the operational units. The committee comprised of Van Zyl as Group CEO, Nick Christodoulou (IFS), Steffen Gilbert (Santam), Lizé Lambrechts (Sanlam Life), Kobus Möller (Finance), Temba Mvusi (Group Corporate Services), Flip Rademeyer (Financial Director), Chris Swanepoel (Actuary), and Johan van der Merwe (SIM). The areas of priority were the consolidation in the life business, streamlining SIM, and the relationship with Gensec, addressing internationalization and consolidating the image of Sanlam as a South African citizen.

Central to improved operational efficiency and profitability, as well as allocating resources towards the business units targeted in the turnaround strategy, was the management of capital. Financial analysts were somewhat disturbed by Sanlam’s preoccupation with embedded value (EV) after demutualization. While fundamental strategic direction seemed absent and performance weak and declining, the crucial business imperative was return on embedded value. In essence the turnaround strategy lay in optimal return on capital, EV, and this position was endorsed by the board in May 2003. Sanlam embarked on a systematic capital management strategy. The responsibility to conceptualize and map out the strategy fell to Flip Rademeyer and Kobus Möller. This core matter in the future strategic positioning of Sanlam functioned like the brain in relation to the body: return on capital targets came from the centre and implemented in the decentralized business units to allow for business-specific decentralized decision making. The parameters of return on capital management were to earn between 3 per cent and 4 per cent above the ten-year bond yield. In 2003 this meant Sanlam targeted a 13 per cent to 14 per cent return on its capital. The company was again embarking on a process of building capital, just as had been the case before demutualization. ‘Sanlam Corporate’ (Group management at Head Office) called on the highest level of co-operation of all role players (business unit managers and their respective management teams) to render commitment. It took responsibility for the composition of the Group’s asset base, investment risk profile, and overall return earned on capital. Raising capital, governing strategic investment decisions, and allocating appropriate capital to the different business units were central corporate responsibilities. Similar responsibilities were placed at the business units dealing with the capital allocated to them. In the case of Sanlam Life, 40 per cent of Sanlam Ltd’s strategic investments (in ABSA, Santam, and SIM) was held by Sanlam Life and thus restricted the flexibility of operation of the business unit. Until this impairment could be addressed, Life would have to work with Group Corporate on capital management.5

(p.274) Capital management was the beginning of taking control of Sanlam back to the centre. In typical contingency model leadership behaviour, the new CEO used the path-goal strategy6 to bring the management of business units into the overall strategy to restore growth to Sanlam. The capital management function calculated the market value (fair value) of the strategic subsidiaries (Santam, Gensec Bank, SIM, SI, and Gensec Properties) at R5 497 million in August 2003, and set a target of a 14 per cent return. The total group capital at the end of 2003 was R2.7 billion, with a total EV of R26.84 billion. The constraint on capital was the very high exposure of 40 per cent of Sanlam Life’s capital to its strategic investments. Those investments were non-discretionary, which prevented Sanlam Life from complying with new FSB capital adequacy requirements. The Sanlam Life capital shortfall could be addressed by reducing the exposure to ABSA. The reduction of Sanlam’s stake in ABSA to below 20 per cent was negotiated in an agreement with ABSA management and Rembrandt. A second possibility to secure capital for application in the Group, specifically Sanlam Life, was a BEE transaction.7

Addressing the relationship with ABSA moved to centre stage. The return on the investment in ABSA continued to concern management. During August 2003 a Memorandum of Understanding was finally signed, providing for a distribution agreement on a dedicated service channel for ABSA brokers, assistance with data brokers and Sanlam reinsurance for ABSA life products. Sanlam decided to launch home loans as a product in the life business, hoping to attract new business into the life business unit. This was offered as a joint venture with ABSA, but was not a bancassurance agreement, which was what had been a long-standing proposition discussed in Sanlam since the mid-1990s. In August 2004 Sanlam put a bancassurance proposal to ABSA. There was reserved optimism about the proposal. On the one hand Sanlam was averse to the risks in the mass market, which was a market segment in which ABSA had considerable exposure. Sanlam could benefit from access to the massive ABSA client base, but Van Zyl was on record as cautioning against targeting the mass lower end of the market. The possibility of underperforming policies, similar to the early experience in the industrial insurance market, were contemplated. He reiterated this view during a subsequent management ‘bosberaad’. Sanlam Life’s recovery strategy was also not prioritizing the mass market. During discussions on bancassurance it became clear that the terms of possible collaboration were tailored to favour ABSA and not to deliver optimal value to Sanlam. A degree of collaboration resulted from initiatives to sell Sanlam products through ABSA brokers, and on small businesses such as business bank brokers and financial services. Competition on investments resulted in some tension, because Sanlam insisted (p.275) that investments were its turf. Developing a sound understanding of the framework of collaboration inevitably brought turf contestation. Sanlam delayed the launch of new life products jointly with ABSA early in 2004.8 The negotiations on bancassurance became increasingly intertwined with the talks about the disposal of Sanlam’s shareholding in ABSA.

During February 2004 when Van Zyl and Rademeyer were in London on a roadshow communicating the Sanlam 2003 annual results, an analyst tipped them off that Barclays was seeking an avenue back into South Africa. Since Sanlam wanted to reduce its shareholding in ABSA but recognized the potential consequences of the termination of this very long-standing relationship, or even just reducing that stake substantially, as well as the impact any reconfiguration of shareholding may have on Rembrandt, Sanlam tested the waters on a potential buyer of its entire shareholding. The talks with HSBC and Citi Bank of New York failed to deliver substantive results, but Standard Charter was interested. The lead to Barclays finally opened a door to a solution to a long-standing concern for Sanlam. When it transpired that a deal might be in the making, Van Zyl appointed Deutsche Bank to advise Sanlam. A working committee of the Sanlam Board consisting of the new Chairman Roy Andersen, Carmen Maynard, Patrice Motsepe and Eugene van As (the Sanlam board members in Johannesburg), Johan van Zyl, Jeanne Masson, Kobus Möller and Johan Bester from the executive management in Sanlam, and four representatives of Deutsche Bank in London, Johannesburg and Cape Town, was formed to conduct the negotiations on the possible transaction. During 2004 and 2005 the possible deal with Barclays had a profound impact on the future of Sanlam.

When the term of certain directors lapsed, new directors were appointed. Van Zyl followed an explicit strategy to bring in leadership and managerial strengths from diverse backgrounds to infuse innovative thinking in Sanlam. These people served Sanlam exceptionally well during the strategically sensitive negotiations with Barclays. In April 2004, Patrice Motsepe, Rejoice Simelane, and Bernard Swanepoel were appointed non-executive directors of Sanlam as part of a BEE transaction whereby Sanlam acquired a BEE shareholder. Patrice Motsepe, a prominent black professional (lawyer) and businessman, was pivotal to this first post-1994 Sanlam BEE transaction. Dr Rejoice Simelane held a PhD in Economics and served as economic adviser to the Premier of Mpumalanga Province. She assumed the CEO position of the BEE investment company established by Sanlam in 2004 (discussion follows). Bernard Swanepoel was an experienced mining engineer and an entrepreneur and had been CEO of Harmony Gold Mining for twelve years. He had a wealth of experience in the mining industry. A distinguished academic and later politician, Prof. Wilmot James of the Human Sciences Research Council was also invited onto the board of Sanlam in 2004. In June 2004 Maria Ramos, Valli Moosa, and Roy Andersen were also appointed non-executive (p.276) directors of Sanlam. Valli Moosa was a member of the ruling African National Congress, former Minister in the Cabinet of Nelson Mandela, and had just stepped down as Minister of Environmental Affairs under President Thabo Mbeki. Maria Ramos was also a leading ANC member and Director General of Treasury and the Department of Finance under the ANC government, before assuming the directorship at Sanlam. Ton Vosloo resigned his position as Chairman at the end of May 2004, affording the company the opportunity to appoint a new chairman during volatile economic conditions and difficult times for the industry. Roy Andersen was elected Chairman of the Sanlam Board in June 2004. He was held in high esteem in the financial services industry, since as a chartered accountant he was President of the JSE, CEO of Liberty Life, and later Chairman of Murray & Roberts. The depth of his experience in the corporate world was vital to Sanlam as the transaction with Barclays unfolded. From 3 June 2004 Roy Andersen was the new Sanlam Chairman, the first non-Afrikaans chairman.9 He headed a much-transformed Sanlam board, with persons from outside the traditional Afrikaans business environment and in some cases from political convictions challenging the legacy Sanlam image. Van Zyl was instrumental in diversifying the profile of the directors as he re-engineered the business strategy of Sanlam.

The roll-out of the Van Zyl 2003 Sanlam strategy to create shareholder value, grow the business, and lift capital efficiency, began delivering positive results towards the end of 2004. Operating profit rose by 40 per cent and improved new business volumes contributed to a more encouraging net fund inflow position. The stabilization programmes intended to bring calm and confidence back to the organization and stage a turnaround strategy with a high success potential, seemed imminent. A stronger market performance gave further impetus to the talks with Barclays about acquiring Sanlam’s stake in ABSA. If Sanlam could succeed in freeing up the capital invested in ABSA, it would bring the enhanced capital efficiency goal much closer. The decision involved a substantial section of the South African corporate landscape. The Sanlam decision to sell to Barclays involved consultation with, and preferably consensus with ABSA’s BEE partners, the banking group’s executive management, the regulators at the FSB and the SARB, and Remgro. Sanlam and Remgro had a pre-emptive rights agreement on each other’s ABSA shares. Remgro was willing to waive the agreement in case of a sale of its stake to Barclays. The bancassurance negotiations with ABSA made unsatisfactory progress. In the discussions ABSA rather sought to display independence from its major shareholders than move towards a mutually beneficial agreement with Sanlam. To the latter the distribution potential of a firm bancassurance agreement was imperative to secure the new business inflows needed, especially in the life business. Sanlam wanted a firm legal agreement on bancassurance from ABSA prior to the conclusion of the (p.277) transaction with Barclays, but ABSA was willing only to issue letters of intent. That was too uncertain for Sanlam, but ABSA was advised that a legal agreement posed an unacceptable risk to the transaction with Barclays. Finally, a firm legal agreement seemed difficult to enforce. ABSA later delivered written confirmation of willingness, intent, and commitment by both parties (ABSA and Sanlam) to implement the existing agreement on collaboration, and a commitment to provide Sanlam with a 30 per cent market share of its distribution by 31 December 2005. Barclays recognized this agreement in writing and undertook to support the arrangement in its final offer to Sanlam. Sanlam accepted the letter as confirmation that the bancassurance agreement the parties had concluded would deliver economic benefits in business flow reciprocity and sustain the relationship.10

The sale of Sanlam’s ABSA shares was of dual significance: the release of tied-up capital, which was the crucial aspect on which a successful turnaround strategy at Sanlam depended, and significantly improved operational flexibility with less capital tied up in a single investment that failed to perform according to the investor’s expectations. By September 2004 the conditions of a proposed transaction were on the table. Barclays targeted a 60 per cent stake in ABSA’s issued share capital. It wanted irrevocable commitments from existing shareholders in ABSA to the effect of at least 40 per cent of the issued ABSA shares. Sanlam was prepared to commit its 19 per cent stake, there was a possibility that the policyholder fund would commit its 2 per cent as well, and Remgro was willing to commit its shares. Direct communication between Andersen and Motsepe for the ad hoc committee, and Barrett, Barclays Chairman, and David Roberts, Barclays’ representative on the transaction, finally put to rest the hope for a legally enforceable agreement with ABSA on bancassurance. Sanlam simply had to rely on the letters of confirmation exchanged between ABSA and Sanlam on co-operation in terms of the MOU (Memorandum of Understanding) of 2003.11

It soon became apparent that significant progress on that matter was a pipedream. The more important matter was price. Talks started around R68 per share, which was a premium of 42 per cent on the ABSA share price of R48 at the time (September 2004). Remgro wanted R70, but Sanlam agreed to R68, as did ABSA. In November 2004 the Sanlam board ratified Sanlam’s irrevocable offer to Barclays of the Sanlam and Sanlam policyholder fund’s shares in ABSA. The Sanlam offer was valid to 31 March 2005 subject to shareholder approval. Although not a requirement, the board made the final offer subject to shareholder approval. The board of ABSA approved the terms of the proposed transaction on 19 November and on 22 November an official press statement confirmed the offer, the responses by shareholders in ABSA, and that regulatory (p.278) approval was awaited. Negotiations were fragile by December 2004, since four parties had indicated an interest in transacting with Barclays, but exchange rate volatility could affect the price. Sanlam’s Andersen was adamant: Sanlam’s Plan B was to make Plan A work. When shareholder approval was given in January 2005, the transaction was only contingent on regulatory approval. Sanlam’s offer was open until 31 March 2005, but regulatory approval in April 2005 finally secured the transaction.

Barclays was subjected to eight months of tortuous negotiations, resulting in an offer of R82.50 per ABSA share. Barclays failed to secure the 60 per cent stake in ABSA it desired, since certain institutional investors in South Africa refused to dispose of their shares. The transaction of R23.9 billion landed Barclays 53.96 per cent of the issued ABSA equity, giving the British bank full control of the largest retail bank in South Africa. To Barclays the transaction brought the bank that had entered the South African banking industry in 1926, but disinvested in 1986 following statutory requirements of domestic control of local banks, back into South Africa and thereby opened opportunities into the rapidly growing mass market in South Africa and the rest of Africa. It was also of historical significance: Barclays was the imperial bank that had acquired the ailing National Bank of the former Zuid-Afrikaansche Republiek (Transvaal Boer Republic) in 1926 and, through the acquisition of control of ASBA in 2005, also the last remaining former Afrikaner control of banks in South Africa. ABSA had absorbed into its conglomerate, numerous small banks, as were both Volkskas and Trust Bank—the two Afrikaner-controlled big commercial banks in South Africa—in 1992. To Sanlam the sale of its entire shareholding of 124.3 million ABSA shares, or its 21.3 per cent stake in ABSA, gave new life to the capital efficiency programme. With the R10.3 billion cash instead of the ABSA shares which were recognized in the Sanlam financial statements at market value, Sanlam immediately wiped out its capital shortfall. The ABSA transaction brought no capital ‘inflow’. The value of ABSA in the Sanlam books at a value much lower than market value, changed with the transaction to an exceptionally high value. This accounting ‘adjustment’ managed to change Sanlam from a capital-hungry company to a capital-rich one. With the added cash the company could now portray its true capital-rich situation and buy back shares to reduce the excess capital. It was now in a position to acquire businesses able to grow its life business and buy back its own shares to the value of R4 billion.12 The company strategy was now planned around alternative deployment opportunities for its surplus capital.

The significance of this transaction to Sanlam was both strategic and financial. The cash available changed the business landscape of Van Zyl’s turnaround strategy. This put (p.279) Sanlam in a position to decide on the application of ‘surplus’ capital in business ventures offering good returns and eased the tense relationship with an underperforming strategic asset. The legacy of ‘strategic’ investments from the Fred du Plessis era was finally concluded. For the first time since 1973 when Sanlam acquired FVB’s stake in Trust Bank, it no longer had a substantial stake (through the voting pool) in a South African bank. Management of the structural change in the Group suddenly became much easier. The conclusion of other strategic initiatives on the restructuring of Gensec Bank, and the conclusion of a major BEE transaction, were key components in the ‘Delivery 2004’ plan.

The Gensec saga was finally wound up as part of the strategic decision to drive capital management. Negotiations with ABSA to buy Gensec failed to deliver the desired outcome. The restructuring of Gensec commenced with the replacement of the CEO with immediate effect in August 2003. Anton Botha temporarily took over the position. A Gensec Bank Restructuring Committee was formed, reporting to the board on the progress with business overhaul and corporate governance. Sanlam Capital Markets (SCM) took control of Gensec Bank’s former capital market operations. The restructuring was an integral part of group-wide capital management and the strategy to seek significant improvement in investment returns. In December 2003 SCM’s fixed cost base was more than half less than that of Gensec Bank, while equity capital employed in Gensec amounted to R1.6 billion, compared to R400 million in SCM. The Gensec ROE (without write-downs, provisions, and restructuring costs) was 7.7 per cent, while SCM’s was 21 per cent. Write-downs and provisions in Gensec amounted to in excess of R465 million. Gensec underperformed the investment bank index by more than 4 per cent per annum, which translated into a destruction of value to shareholders of approximately 12 per cent since the hasty acquisition of Gensec. There was no argument about the rationale for the intended restructuring. If the Gensec Bank aspirations of becoming a fully-fledged investment bank were realized, that would demand a further capital injection, which could not be justified in the greater scheme of capital management. SCM engaged in stock broking, capital market transactions, structured debt finance, and structured products. SCM disposed of a number of unprofitable operations and discontinued activities such as equity underwriting, corporate finance, project and structured finance, foreign exchange transactions, private equity, the operations in Ireland, deposit taking, and short-term corporate advances. SCM successfully moved into the capital market. In June 2004 the bank licence of Gensec was returned to the Registrar of Banks. All former Gensec business was integrated in the SCM operations. This action freed up further capital, available for better employment in the Group’s capital management programme.13 The Gensec episode concluded a clouded period of destruction of value at a time when Sanlam needed to grow its capital.

(p.280) Truly South African

Part of the overall turnaround strategy was not only improved capital and operational efficiency, but also positioning Sanlam in the new transformed South Africa. In 2004 the Sanlam board received a ‘transformation report’ for the first time. To Van Zyl the success of business restructuring was market buy-in. Business success was premised on full compliance with transformation targets—in employment equity on all levels of the business, also management and oversight (the board), and BEE transactions to secure strong and reliable black partners for Sanlam in its quest to be the leading South African financial services group. Van Zyl was of the opinion that a strong BEE transaction would contribute to much-improved performance on other levels of the business, such as new business flows, investments, and the overall social disposition towards the company. Prior to his appointment as CEO in May 2003, the executive team commenced discussions on finding a major BEE partner for Sanlam. By October 2003 an MOU was signed between the empowerment group leader, Patrice Motsepe, who was advised by Bowman Gilfillan and J.P. Morgan, and Sanlam, supported by Jowell Glyn Marais as legal advisers, and to a limited degree also Deutsche Bank. Concluding a BEE transaction was not simply a matter of complying with political imperatives, but as Van Zyl articulated it, ‘a pre-requisite to continue to do business in certain key markets’. There was no longer a shy away from the mass market, but a strategic drive to enter all segments of the black market, and to compete successfully with the other companies to acquire clients from competitors. The business considerations in the South African context related directly to the relationship between state and business. The ruling party’s programme of statutorily enforced transfer of ownership and control of the domestic economy to those identified as the entitled majority, was intended to grow the economy inclusively, allowing the benefit of growth to reach the entire population. This policy resulted in the formulation of sector charters setting out the targets of effecting the charter goals of ownership and control. Sanlam was directly involved in the negotiations leading up to the signing of the Financial Sector Charter (FSC) in 2003. The charter formulated a scorecard for targets on direct ownership, employment equity procurement, and corporate social investment. The FSC took more than three years to arrive at a consensus position, including eleven industry players, such as the Black Business Council, the LOA, the Banking Council of South Africa, SAICA, the Association of Black Securities and Investment Professionals (Absip), the Department of Trade and Industry (DTI), the Treasury, and others. The FSC negotiated matters pertaining to management, control, employment equity, the appointment of black women in management, access to financial services by low-income earners, skills training, and empowerment funding. Compliance with the FSC is reflected in the B-BBEE score of Sanlam explained in Tables 6.4 and 7.1. Sanlam’s Chief Executive: Employee Benefits, Themba Gamedze, expressed Sanlam’s support for the charter, (p.281) as ‘it was the outcome of the first constructive engagement between black and white professionals and business’.14

Concluding a transaction to establish an empowerment partner for Sanlam comprised a central part of Van Zyl’s business strategy to build the diversity profile of Sanlam. The FSC targeted black ownership of 10 per cent of financial institutions. In 2003 the Sanlam share price rose steadily, and a key consideration in the structuring of an empowerment transaction was that the sale of up to 10 per cent of its equity at any material market value discount that could potentially destabilize the upward trend, should be avoided.

The Ubuntu–Botho15 transaction was signed in April 2004. This was a signature BEE transaction in South Africa and established a successful partnership between Sanlam and black business and communities. Two principles underscored the transaction. The deal had to result in a meaningful holding by the empowerment partner and the benefits had to be broad based. This meant the transaction had to provide for a definite mechanism for the benefits of the deal to flow through to ‘black people’.16 The transaction had to sustain black control and bring Sanlam an active business partner. The company had no interest in a high-profile transaction that would result in the disposal of the acquired shareholding as soon as possible. The new empowerment partners were expected to promote Sanlam and contribute to its growth. The transaction therefore formed an integral part of the Sanlam growth strategy.

Kobus Möller, the Group Executive: Finance, led the team thrashing out the composition and details of the technical structure of the funding of the transaction. A firm condition was that interested parties had to bring some of their own funding and that the transaction had to be concluded on fair value, therefore on strict business principles. To establish ownership of the transaction the parties agreed on a structure consisting of four components: the contribution of own capital, acquisition of finance on arm’s-length terms, an active grant (free shares) as a wealth transfer component, and the potential to increase the holding through an ‘earn in’ mechanism. The ‘earn in’ principle was (p.282) based on the assumption that the new empowerment partner would bring new business and access to new markets to which Sanlam would not have had access without the intermediation of the new partner. Therefore a formula was agreed in terms of which value added by new business flows in specific Sanlam businesses would allow the new empowerment partner to ‘earn’ an additional 2 per cent stake in Sanlam through the conversion of deferred Sanlam shares issued to the empowerment partner. The condition was clear: work together to bring growth and the benefit would accrue to the new partner. This agreement had to remain in place for a minimum of ten years. While preference debt was in place, all dividend income would be used to repay debt. At the outset the transaction rested on patience, but the Sanlam executive was excited about the ‘meeting of minds’ on the rationale for and operation of the transaction between Sanlam and the new empowerment partners. New shareholders had to wait on and contribute to growth and performance of Sanlam to repay debt and earn dividend income directly. The structure of the deal is reflected in Figure 6.1.

Affirming the rootsSanlam from South Africa for South Africa and beyond, 2003–2013

Figure 6.1. Provisional B-BBEE deal structure

The agreement in April 2004 established Ubuntu–Botho Investments (Pty) Ltd (UB). This was the ‘newco’. The Empowerment Group Leader (EGL) group was the billionaire Patrice Motsepe’s Sizanani-Thusanang-Helpmekaar Investments (a company owned by Motsepe and his family). The BEE group consisted of a spread of stakeholders, such as trade unions (which included SADTU and Nehawu), women and youth groups, religious and community organizations, as well as nine provincial companies from all the provinces in South Africa. This BEE group represented approximately 700 shareholders and acquired a 25 per cent in UB. This was what Sanlam meant by broad-based empowerment. As a key differentiating feature of the transaction, the EGL and BEE groups invested a total of R200 million of their own funds to acquire their respective 55 per cent and 25 per cent interests in UB. In a separate arrangement between the parties, the EGL group provided the funding for the BEE group’s capital contribution. In addition, UB issued ‘B’ preference shares (approximately R750 million) to institutions, which would be redeemable in ten years, to raise the balance of the funds required to (p.283) acquire just more than 4 per cent of Sanlam at the weighted average market value of 765 cents per share.17

The Demutualization Trust (DT) at the time held a balance of around 2 per cent (57 million shares) due to eligible Sanlam policyholders that could not be traced since demutualization. In terms of the demutualization rules, unallocated shares would revert to Sanlam in 2008, ten years after demutualization. Given the considerable effort to date by the DT to find the eligible policyholders, it appeared likely that the bulk of these shares would eventually revert to Sanlam. Management thus considered it appropriate to incorporate a component in the empowerment transaction structure that would effectively transfer the benefit of the value of the unclaimed shares to the broader community. Therefore, once the negotiations had reached a high degree of finality, Sanlam requested the DT to sell 52 million of its shares in Sanlam to UB. In return the DT would receive 52 million ‘A’ preference shares to the value of R389 million in UB. As security against any possible subsequent claims by eligible policyholders, the dividends paid by the UB preference shares would be 1.15 times that which it would have received on the Sanlam shares, while Sanlam would issue convertible shares to the DT that would be convertible into Sanlam ordinary shares as and when the DT received a claim to deliver Sanlam shares. On dissolution of the DT in 2008, ownership of the UB preference shares would be transferred to Sanlam and the Sanlam convertible shares cancelled. The trustees of the DT accepted the proposal after due consideration, including obtaining independent legal advice. The deal assisted the DT in raising an additional dividend income without risk,18 while for Sanlam it was a neat way of utilizing the excess shares in the DT and assisting the company in structuring the BEE transaction. In a related leg of the transaction Sanlam issued a further 2 per cent new Sanlam shares to UB, in return for which Sanlam received a 20 per cent stake in UB. Sanlam donated this shareholding in UB to the UB-Sanlam Community Development Trust (UB Trust), which as a result became a 20 per cent shareholder in UB. The beneficiaries of the UB Trust would be the poor and disadvantaged communities in South Africa. While this would initially be a donation by Sanlam, it was essentially the transfer of the value that would eventually accrue to Sanlam on the dissolution of the DT in 2008.

In aggregate, in terms of the above UB acquired 8 per cent of Sanlam, which was funded by means of a R200m own capital contribution, redeemable preference shares for R1.15 billion, and the issue of a 20 per cent UB holding to the UB Trust.

UB further subscribed for 56.5 million Sanlam deferred shares at 1 cent per share. The deferred shares (with full voting power) would be fully convertible into a 2 per cent (p.284) holding in Sanlam ordinary shares based on achieving an appropriate level of value added in terms of an ‘earn-in’ formula. Should these deferred shares be fully converted prior to the expiry of the ten-year term of the transaction, UB would be entitled to subscribe for another 2 per cent of Sanlam deferred shares on similar terms. The transaction thus offered incentives to UB to become an active business partner of Sanlam and earn a growing stake in the company. The transaction also incentivized Sanlam to deliver growth and profits that would enable UB to repay debt and start reaping the benefits of its shareholding. Van Zyl travelled to all nine provinces with Motsepe to explain the transaction and encourage widespread buy-in. The ‘earn-in’ component of the transaction had a ten-year term and it was anticipated that all the transaction debt would be repaid within the ten years. After the conclusion of the transaction, Motsepe, Simelane, and Swanepoel were appointed directors on the Sanlam board. Motsepe was elected Deputy Chairman. The empowerment transactions resembled the early Sanlam empowerment of fellow-Afrikaners, now only a black empowerment entity targeting black communities. The vital difference is that Sanlam had no big sponsoring corporate backing a fast-track investment transaction delivering empowerment and wealth in the scope of less than a decade.

Sanlam acted strategically in concluding the UB transaction. Broad-based BEE was imperative for business in South Africa, but the business of empowerment was given substance with the UB model. At the same time, Sanlam experienced growing disengagement from its traditional support base, namely the Afrikaans client base following restructuring and implementation of EE policies. In the context of seeking to turn the outflow of business around, Sanlam did not take favourably to negative messages in the market, in this case from traditional Afrikaans clients. Although it was not a deliberate policy to defy Afrikaans and the traditionally Afrikaans client base, the implementation of transformation policies prescribed by statutes did affect part of Sanlam’s market. Van Zyl received representatives of Solidarity, the powerful largely white Afrikaans trade union organization, and the Afrikanerbond (successor to the Afrikaner Broederbond), expressing concern over the impact of Sanlam’s restructuring on its members. He lent a sympathetic ear, explaining that Sanlam did not wish to discriminate against any segment in society, but that the company was committed to transformation. This just emphasized the critical importance of communication with policyholders and shareholders during the repositioning of Sanlam. The company wanted to be a truly South African organization, calling on the loyalty of a diverse population and client base. While Sanlam undertook to consider the re-employment of people put out of work as a result of the implementation of transformation policies, the logic of its growth strategy mandated commitment to systematic penetration into the market outside its traditional and existing client base. The UB transaction aligned the Sanlam growth strategy with a dedicated entry-level market growth strategy. Growth in that market was also fundamental to the success of UB. As a signatory to the FSC, Sanlam was bound to the achievement of targets on EE, procurement, access to financial services, CSI, and BEE.

(p.285) The momentum of ‘back to basics’ and the strategy of ‘getting what we have to work efficiently’ to create wealth began to bear fruit. The life business under the strategic management of Lambrechts began to show net positive new business inflows, but Van Zyl wanted greater client-centricity and coordination of operations. He restructured the life business into Personal Finance, under Lizé Lambrechts, and Employee Benefits under Themba Gamedze, whom he elevated to an executive position, as well as alternate director. (This was a return to separate business units as had been operational before Vermaak consolidated them in 2002.) The Sanlam Life Board remained a single entity, but from 2004 had two CEO positions—one for the life business and one for emerging markets. It is in this leadership roles where Lizé Lambrechts on the life business side, and Heinie Werth, on the emerging market side, emerged as strong drivers of the ‘back-to-basics’ strategy—and to measurable success for the company.

Since business restructuring in 2003 raised the need to reassess the economic benefit of joint venture operations, the joint venture with Macquarie Bank in Innofin came under the spotlight. In October 2003 Macquarie was taken out as a minority shareholder. Innofin competed directly with the life business for funds from retail investors and sourced most of its funds from Sanlam Life’s SP² broker and adviser network. To cut costs and co-ordinate the competition for funds in Sanlam Life, Innofin and SP² distribution were moved to the life business. The successful restructuring of the life cluster depended on much-strengthened distribution and product development, for which the recruiting of key individuals or teams was authorized. In every category of individual life products (recurring premiums, retirement annuities, single premiums) Sanlam’s market share decreased between 2002 and 2003.19 Much was expected from the UB business partners in terms of rendering capacity in distribution and product development into hitherto untapped markets.

With the UB partner the focus on the life business took on a definite strategic direction to acquire a significant number of black clients, especially in the entry-level market. In the life business two considerations determined Sanlam’s strategy: regain lost market share and cut costs. To regain market share the aim was to grow more aggressively in the Gauteng (formerly part of the Transvaal province before 1994) and English-speaking market. One strategy was to acquire life offices with a footprint in the target market. Serious consideration was given to acquiring Sage Life, but this did not materialize. In December 2004 Sanlam Life bought a 55 per cent stake in Thebe Investment Corporation’s (TIC) life company, Safrican. As TIC sought to expand its financial services business, Sanlam considered a joint venture with TIC as an opportunity to develop synergies and expand its penetration into the entry-level market. Safrican’s distribution went through Thebe Community Financial Services (TCFS), a company operating in (p.286) that market. Sanlam bought a 30 per cent stake in TCFS and supported its management in an empowerment offer to acquire 20 per cent in TCFS. TCFS provided distribution opportunities to other financial services of Sanlam distributed through Sanlam IFS. Further synergies in TCFS included debt collection, employee benefits, and a money-moving business similar to Sanlam’s Multi Data. Safrican had an annual turnover of R240 million and 1.8 million members insured, but apart from life insurance, the products included funeral cover and savings policies for low- and middle-income individuals and families.20 While the negotiations with ABSA remained sticky and delivery slow, the TIC transaction brought Sanlam closer to the empowerment environment and presented distribution opportunities in a market segment unexplored by Sanlam.

In 2004 Momentum Life indicated a willingness to dispose of its 33 per cent stake in African Life (Aflife). This was a moment of great significance in the history of Sanlam. African Life was a major competitor of Santam during the establishment years and threatened the penetration of Santam/Sanlam into the Free State platteland (see Chapter 2). In 2004 Sanlam indicated a keen interest in acquiring the full share capital of Aflife. During the last quarter of 2005 Sanlam acquired African Life, with approval of the Competition Commission. Momentum bought the health cover and administration business of Aflife. Sanlam was particularly impressed with the geographical distribution into African countries, as Aflife had a footprint in Botswana, Kenya, Ghana, Zambia, Tanzania, Namibia, and Lesotho. This was a strategically significant asset, since Sanlam had no experience in African markets, except in Namibia.21 By the end of 2004 Sanlam announced progress in the life business to the value of R26 billion in new business and R2.4 billion net inflow of funds.22

Venturing outside South Africa

The international business of Sanlam impacted across the Group, but did not contribute significantly to the growth strategy of the Group. In the life market Merchant Investors Assurance (MIA) UK provided a distribution channel to Sanlam’s products, but performance hardly justified the cost. Van Zyl repeatedly called for a clarification of Sanlam’s international business model. This came to fruition as the focus on the basic business principles of harnessing the unique diversity of a truly South African company, (p.287) manifested increasingly in the business of penetrating formerly unexplored markets. Being a legacy empowerment company of a marginalized segment in the market (this was the poor and economically marginalized Afrikaners in 1918), Van Zyl capitalized on that acquired capability in Sanlam in mining opportunities in the domestic and neighbouring markets, resembling its original legacy market. For the international business this strategy meant that Sanlam would engage in foreign markets where it had a competitive advantage. In the life market, growth opportunities emerged in the entry-level market and in financial services it was across all market segments. Since the first twelve to eighteen months of Van Zyl’s stewardship delivered noticeable results in all clusters of the Group’s business, restructuring Sanlam International was inevitable. After the business unit restructuring exercise of 2003, there was no place for Sanlam International as a separate business unit. International operations comprised an integral part of focused business operations in different markets, namely life, investments, capital markets, and financial services, either in the domestic or foreign markets. Confidence in the managerial capabilities of Sanlam’s management ruled out the past alliances and joint ventures, which resulted in foreign businesses managing South African capital on behalf of Sanlam. Control returned to Sanlam. International operations of Sanlam were expected to develop as a secondary outcome of restored competitive advantage within each cluster. These operations became part of a home-base consolidation strategy (‘protecting the farm’) to reverse poor performance and restore value to policyholders and shareholders. Sanlam International closed down. Investment operations were consolidated in SIM. Sanlam terminated the alliance with Punter Southall by purchasing the remaining 80 per cent UK interest. Sanlam’s own investment managers managed the entire UK portfolio in Punter Southall. Sanlam also established Sanlam Multi Manager International (SMMI), a subsidiary in Dublin from where Sanlam investment managers managed Sanlam products to South African clients. SMMI gradually instilled confidence in the UK market and slowly established a UK client base. By the end of 2003 Sanlam experienced a net funds outflow of R55 million from its international business, but this was expected and actually welcomed.23 This development enabled a managed withdrawal from those businesses and opened the opportunity to tailor Sanlam’s international operations to its overall growth strategy. The net outflow of funds reversed once SIM restored profitability towards the end of 2004, leading investors to place more funds with SIM. Growing the life business was a priority. Sanlam therefore acquired the UK closed-book life insurance portfolio from Capital Alliance UK in Merchant Investors Assurance (MIA) for £40 million on 1 January 2004. Capital Alliance wanted to refocus on its core business, while MIA offered Sanlam a foot in the life insurance door in the UK. Sanlam placed its own management team in the UK to effect a turnaround in the (p.288) existing life portfolio in MIA. The synergies with the UK market were real, but represented alignment with only a small part of the total diversified financial services products Sanlam had on offer.

Targeting the entry-level market, Aflife, Channel Life, and Shriram (discussion on Channel Life and Shriram to follow) became growth vehicles for the life business, and at the same time exported Sanlam products to global markets. During 2004 Sanlam restructured its involvement in Namibia by facilitating the establishment of a Namibian holding company that acquired most of the Sanlam business in Namibia. Sanlam retained a majority stake in the new holding company, and Sanlam agents and independent brokers were allowed to market Sanlam and Innofin products. The Sanlam systems were still utilized during the bridging period. Sanlam thus subsequently reduced its presence in Namibia to that of an investor into a foreign life office and investment management company.24 To grow the entry-level market segment in 2005, Heinie Werth was the conceptualizing manager behind the strategy and steered the implementation of that vision. Sanlam identified Channel Life, a life insurance company in the PSG Group, as a potential synergy to its overall growth strategy. Channel set itself to contribute to the ‘Africanization of traditional assurance in South Africa’. Through direct marketing (not agents or brokers, as Aflife or Sanlam had used) Channel had the potential to reach into markets Sanlam had not entered. By 2005 Channel had raised premiums in excess of R1 billion and had R2 billion assets under management. Sanlam acquired a 50 plus one share in Channel in 2006 and was satisfied with the sound management, governance, and IT systems in Channel. It reversed its 55 per cent interest in Safrican into Channel and put all its own credit life business through Channel for at least two years, using the Channel brand. Channel products were also sold through the Sanlam distribution channels, thereby giving direct effect to the Van Zyl strategy to develop partnerships in promoting value creation and growth for Sanlam.25 The acquisition of Safrican in 2005 was the first step in Sanlam’s systematic employment of a growth strategy in the entry-level market (ELM). Channel was the second such acquisition and gave effect to the recognition of the boom in the retail market being driven by ELM growth. The only growth in the insurance industry during the first decade of the twenty-first century was in the ELM market, primarily through recurring-premium products, and Sanlam selected well-performing players in that market to effect a strategic entry into that market.

The next step was entry into a much larger mass ELM market. Confirming the Sanlam vision of being a leading provider of financial products and services aimed at wealth creation and wealth protection, it was necessary to access all relevant markets. The key question was whether the company should pursue structural growth opportunities in a potentially mature industry, or in a relatively saturated market. The domestic market (p.289) displayed most of these characteristics and rang true for Sanlam Life particularly. It made good sense to investigate the strengthening of new or underdeveloped distribution channels (bancassurance, group schemes), or further consolidation in the market. Sanlam Life investigated opportunities in the Indian market. India was one of the fastest-growing economies and had a relatively stable political system, but the population was underinsured, which presented Sanlam with an attractive opportunity. Insurance penetration as a measure of GDP was very low at 2.3 per cent of the insurable population. The Indian middle class consisted of around 300 million people and earned an income similar to the generic ELM profile of Sanlam policyholders. Sanlam decided to enter that market with an Indian partner, the Shriram Group. This group was a second-league group in India with a focus on South India. It offered short-term finance to informal savings groups and had an employee base of 11 000, more than 80 000 agents and 43 million clients. The funds under management amounted to US$1.5 billion. Shriram considered entering insurance, but was looking for a partner with experience, products, and distribution knowledge. An investment of US$30 million in the Shriram insurance joint venture would give Sanlam Life 1.1 per cent ROC in year one, but by year five it was expected to rise to 12.1 per cent and 47.3 per cent in year ten. This opportunity allowed Sanlam access to a massive market and the partnership of an experienced Indian financial services entity, but also a partner dependent on Sanlam’s expertise in ELM insurance products and markets. A perfect synergy emerged. Sanlam invested US$30 million (R242.2 million) in Shriram for a 26 per cent stake in the group, with a potential to raise that by 6 per cent, regulatory approval permitting.26 Shriram Life Insurance was subsequently established in 2006. This strategic acquisition placed the life business on a much-needed profit trajectory, facilitated by, amongst others, freed capital from the ABSA share sale, and a Sanlam Life cost reduction to the value of R270 million in 2004.

The ‘back-to-basics’ strategy indeed succeeded in turning Sanlam’s performance towards positive territory. It occurred on the back of much-improved general economic conditions in South Africa and globally. Both 2004 and 2005 delivered strong growth in the JSE All Share Index. Interest rates started a downward trend and international investors adjusted their risk premiums on emerging markets downwards. Foreign acquisition of South African equities rose to record levels by the fourth quarter of 2004. The Barclays acquisition of a controlling stake in ABSA illustrated the trend. In 2005 state finances benefited from the buoyancy in local and international markets, when government debt dropped to its lowest level since 1981. Real economic growth in South Africa was 5 per cent for the first time in twenty years. At the end of 2004 Sanlam even contemplated issuing a trading statement, because operating results were expected to be up between 25 per cent and 35 per cent on those of 2003 by October already. (p.290) Strong growth in equity markets supported this growth, driven by rising international commodity prices. Global market volatility set in during 2006, and in 2007 the subprime crisis halted the euphoria of the first half of the 2000s. By then Sanlam had reaped the benefits of holistic restructuring and transformation. Van Zyl managed change with a forward-looking perspective. All the elements of group performance were aligned with the turnaround strategy he introduced in 2003.

In the relatively positive economic climate since 2003 the restructured Sanlam businesses reached a fair degree of stability by 2006 in four business clusters. Van Zyl as Group CEO was the captain of the big ship turning around slowly. The business clusters were: Group Office as a management cluster, Group Finance, Group Human Resources, Group Marketing and Communications, and Group Services conducted the services impacting group-wide. It was in this cluster that Van Zyl drove the transformation of the company and addressed the brand image of Sanlam. Group Finance performed the management and reporting responsibilities, which had developed major intricacies as accounting standards changed and the international financial reporting standards (IFRS) were introduced in 2005. These impacted directly and fundamentally on the nature of financial reporting by insurance companies, and subsequently affected the published valuations of Sanlam’s embedded value. As the spate of negative publicity against the insurance industry of late 2004/early 2005 abounded, the change in accounting policies contributed to further uncertainty. Addressing these uncertainties was necessary to restore the negative image of Sanlam in the domestic market. It was both accounting communication as well as broad social communication on who and what Sanlam was, that demanded attention from management. The repositioning of the business depended as much on improved operating performance and efficiency as on brand efficiency, market respect and confidence. Compliance with transformation imperatives was a business decision. The UB transaction did not automatically translate into a warm embrace of Sanlam in the black market. Afrikaner nationalism mobilized broad support for Sanlam during the establishment years. After the 1990s broad-based support had to be earned by attracting those outside the traditional Sanlam sphere of influence by means of client-centricity and a commitment to South Africa as a nation. Sanlam had to emerge as the champion of South Africa, as it had at the beginning of the century. The transformation of Sanlam in its entire business context was equally important to strengthen investment returns and new business flows.

The four business clusters into which the business of Sanlam evolved by 2005 were Life Insurance, Short-term Insurance, Investment Management, and Independent Financial Services. In pure Alfred Chandler theory, the growth strategy to maximize returns on EV on a sustainable basis determined the functionally determined cluster strategy.27 The configuration of the business entities in each cluster changed as the (p.291) business focus sharpened. In Sanlam Life there were Sanlam Personal Finance, Sanlam Employee Benefits, Innofin, Merchant Investors Assurance (UK), Sanlam Namibia, Sanlam Trust, Sanlam Customised Insurance, Sanlam Home Loans (with ABSA), and Sanlam Personal Loans. Multi Data was a separate legal entity in Sanlam Life, performing money transfers and tax directive business for Sanlam Life. In 2005 the separate legal entity was of no use and the payment division of Multi Data was sold to BDB (a joint venture of Nedcor and ABSA). On 1 January 2005 Multi Data was reincorporated into the life cluster.28 Santam and Westminster Motor Insurance Association were the short-term businesses in that cluster.

Sanlam Investment Management comprised all the investment functions: SIM, Sanlam Capital, Sanlam Private Investments (SPI), Sanlam Properties, Sanlam Collective Investments (SCI), Sanlam Multi-Manager International, Octane Management Ltd, SIM Namibia, and Sanlam Management Ireland. The Sanlam Independent Financial Services cluster housed Sanlam Financial Services (UK), Simeka Consultants and Actuaries (SCA), Bull and Bear Financial Services, Gensec Properties, Break-Thru Financial Services, and Thebe Community Financial Services (TCFS).29 Other business activities were small and operated outside the clusters. Fundamo (Pty) Ltd, a company performing mobile payments, was not a full subsidiary, but a company in which Sanlam held a 37 per cent stake with empowerment partners. Encoresa was a 50 per cent Sanlam-controlled company, providing management solutions to insurance brokers and advisers. Full consolidation of focused operations was not yet complete, as many international activities were in the process of being wound up or repositioned in the Group. These actions were explained as the ‘refining’ of Sanlam’s internationalization strategy, a ‘simplification of operations’ through decentralization which left each business unit with the responsibility to develop appropriate international business lines. Sanlam Netherlands Holding BV remained an offshore holding company, because the Dutch subsidiary functioned as a vehicle through which proceeds of business in the UK and Western Europe could be diverted. This Dutch subsidiary operated in a favourable tax environment and served as a vehicle for the accumulation of foreign capital.30 In 2004 Sanlam sold Tasc Administration (Dublin) and in 2005 reduced its stake in Sanlam Financial Services UK to a minority 25 per cent holding. Sanlam Financial Services (SFS) UK was a distribution entity, but no significant business was flowing to the Sanlam product providers in the UK or South Africa, and therefore did not contribute to the business model. The strategy (p.292) with SFS matured as SFS developed into a position of a self-sustaining entity servicing predominantly the UK institutional market. There was limited cross-selling of Sanlam products. This position justified the ordered exit. In future distribution would be built through IFS to the high-wealth niche markets in the UK, while the clusters in South Africa were the product factories.31

Affirming the roots in a complex context

Sanlam used market segmentation to implement its growth and improved efficiency strategy. Sanlam built its business through a stronger focus on client-centricity, brand awareness, empowerment, and moulding the culture of Sanlam with that of the new South Africa. There was no turning back from this strategy, but by 2006 the realization of goals or targets did not always materialize as planned. Disappointment with returns on investment and growth in individual life business were a drag on the growth strategy. The bancassurance agreement with ABSA did not deliver the expected results, but the sale of ABSA shares released capital unproductively employed. A serious drain on a constructive forward-moving strategy came from the overburdening regulatory context. This coincided with litigation on past policies by the Pension Fund Administrator (PFA).32 SA Mutual, Liberty, and Sanlam were taken to court by the PFA in 2005 on costs and benefits accruing to policyholders in terms of illustrated values upon contracting retirement annuities.33

The matter of early termination costs caused serious brand damage to Sanlam, but was indeed an industry dilemma, reflecting negatively on the cost structure of the life insurance industry. Criticism against the cost structure of the life industry was voiced in various forums, especially at actuarial society congresses and eventually in the Parliament Portfolio Committee on Finance. The matter turned out to be a serious reputation risk to the industry. Sanlam as the manager of the Central Retirement (p.293) Annuity Fund considered the matter in a serious light, especially since the company had just embarked on a turnaround strategy and a campaign to restore brand loyalty. The pending court decision on the De Beer case left Sanlam no choice but to seek to negotiate a principled decision on the calculation of early termination values. These deliberations involved the Minister of Finance and the Treasury. In Sanlam a special board committee consisting of Roy Andersen, Chairman; Johan van Zyl, CEO; George Rudman, Chris Swanepoel, and Flip Rademeyer prepared the Sanlam policy on the matter. While the outcome of the court decision was awaited, the Sanlam board agreed on a package position for Sanlam. The company wanted to retain the moral high ground and therefore agreed to a maximum percentage reduction in fund values to be paid on early termination on policies in force for between one and two years. This percentage diminished with longer in-force terms. The new Stratus investment products released by Sanlam Life in August 2003 provided for much-increased early termination values, but a proactive strategy on existing policies was needed. In close collaboration with Liberty Life, Sanlam proposed a 25 per cent maximum cost recovery on policies in force for between one and two years, and scaled the cost recovery down gradually. Sanlam provided for a maximum penalty cost recovery of 25 per cent going back for a three-year period as a worst-case scenario. Provision for R600 million impacted at least R0.20 per the value of Sanlam shares.34 The R600 million reduction in the embedded value of Sanlam Life as a consequence was put forward as the price of certainty. Once an industry-wide decision emerged, Sanlam applauded the certainty with respect to future policies. There was no doubt the company wished the LOA had taken a tougher stance on the matter, but the political context, and the vitality of Ministerial and Parliamentary approval of a consensus decision, necessitated agreement on this one-off cost to Sanlam. The company had to move on more critical strategic matters.

One such a critical matter was CSI. The 2003 strategy of rebuilding Sanlam’s market share was indeed a strategy to affirm its roots, or revisit those roots. In Pettigrew’s explanation of organizational change, he describes an organization as a living entity with a past, a history, and a future.35 To ensure the sustainability of Sanlam, the firm foundation in its past made up the roots it could use as tools in the new emerging CSI context. As Sanlam entered its ninetieth year in 2008, the corporate citizenship report formed part of the official annual report. The CSI strategy endorsed by the board adopted the principle of CSI as support for the business and corporate citizenship agenda, based on the philosophy of enlightened self-interest. CSI was good for business and for the broad society. The CSI agenda dovetailed with the brand strategy to position (p.294) Sanlam as a socially responsible and relevant enterprise on each of the levels of operation—local, regional, and national. The brand strategy of ‘thinking ahead’ was used to position the company as a long-term value investor in nation building and the development of a thriving economy. The link between CSI and the brand strategy wanted to elicit not only an intellectual response to Sanlam, but an emotional, spontaneous outburst of positive alignment. The CSI strategy was to develop markets by building capacity through forward-looking educational, entrepreneurial, employment creation, health, environmental, and social programmes. It was again all about Sanlam as a truly South African company investing in products and services to create value for all stakeholders. CSI is directed at building the capacity of civil society, to implement social development projects to sustain society in the long run. The Bottom of the Pyramid (BoP) strategy of C.K. Prahalad provided the rationale for Sanlam’s use of CSI to build future markets.36 This BoP strategy advised greater focus on the entry-level market. Sanlam was more established in high-net-worth and middle-income client markets, but could build the business in the new South African context by adjusting towards the mass bottom end of the market.37 CSI became more strategic and centrally integrated into the back-to-basics business plan.

On two fronts developments supported the vision of realizing growth goals by 2010. The first was the development in the ELM and the second was capital management. The strategic acquisition of access to the ELM through Aflife, Channel Life, Safrican, and Shriram allowed the development of an integrated vision, objectives, and strategy for all Sanlam’s entities operating in that market segment. The ongoing frustration with constructive materialization of the bancassurance agreement with ABSA led to the exploration of possible collaboration with Capitec Bank, a retail bank operating in the lower end of the market. Despite excellent management and IT systems, Capitec as a bank did not develop insurance capabilities. Capitec indicated an interest to enter the insurance market. It made sense to Sanlam to consolidate its existing initiatives in the ELM market. This was done by restructuring Sanlam Life’s ELM operations under a new entity, Sanlam Developing Markets (SDM), from late 2005. This brought an integrated management structure to the different operating entities (building blocks, as termed by Ian Kirk and Johan van Zyl) in the ELM market segment. SDM made substantive progress in regaining market share, attracting new business and repositioning the brand in the ELM. The 2005 budget displayed the enthusiasm on this market segment: a loss of R34 million in 2005 was expected to deliver a R392 million profit in 2006.38

(p.295) Sanlam’s insurance client base was not yet aligned with the profile of the industry. Black insurance clients as a proportion of South African insurance clients rose from 33 per cent in 1998 to 47 per cent in 2006, with the strongest growth between 2004 and 2006. Similar to that of Liberty Life, Sanlam’s client profile remained predominantly white, albeit Afrikaans-speaking males, rather than black, but the client base of SA Mutual, Metropolitan, and African Life was predominantly black males. Metropolitan Life and African Life client profiles displayed a strong exposure to the ELM, which supported the Sanlam decision to acquire African Life. Sanlam’s client profile was also skewed towards older clients (45 per cent between the ages of thirty-five and forty-nine years and 22 per cent between the ages of fifty and sixty-four years). In each age category Sanlam exceeded the industry target market. Two-thirds of Sanlam’s clients fell within the LSM 8 and LSM 10 categories (LSM 8 earns R17 900 average household income per month and LSM 10 earns R26 600 average household income per month).39 The profile of the Sanlam insurance client base clearly justified the stronger emphasis on transformation via the ELM markets.

The second initiative was capital management. One aspect of capital management was share buy-back operations. With the proceeds of the ABSA share sale in hand, investment opportunities delivering attractive returns were scarce and the board decided to invest in itself. Despite the share price moving around R11.65 cents per share, which was only a 3 per cent discount to EV, systematic share buy-back transactions followed. The decision to buy back Sanlam shares was explained at the Annual General Meeting of shareholders on 21 September 2005. Van Zyl explained that Sanlam did not simply wish to replace the capital released through the ABSA transaction by another single investment. Part of the capital was used to conclude the Aflife and Channel transactions, but returning the capital to shareholders was one option. Sanlam could declare a special dividend, which would incur a 12.5 per cent tax to shareholders. Buying back its own shares in a compulsory buy-back scheme was the viable option to invest in the confidence of the company. A robust discussion on the matter followed, with some shareholders expressing their feeling of being pressurized to sell their shares to the Sanlam offer because it was a compulsory buy-back scheme. To conclude the share buy-back transaction, Sanlam had to have at least 75 per cent support at the AGM. The final voting gave management 82 per cent support in favour of the share buy-back initiative.40 In May 2005 Sanlam bought back 4.2 million of its shares for R49 million—at a price of R11.65 per share. In October 2005 a similar buy-back removed 278 million Sanlam shares from the market. Shares were acquired from shareholders holding 300 or fewer Sanlam shares. Sanlam applied to the JSE for permission to buy back another 80 million (p.296) of its shares, 10 million of which were held in a share incentive scheme. This was not a compulsory buy-back scheme, since Sanlam bought its own shares as an ordinary purchaser on the JSE. The shares bought were delisted and cancelled, except those held in the share incentive scheme.41 The share buy-back exercise removed 588.78 million Sanlam shares from the market, thereby reducing the company’s issued share capital by 21.3 per cent. Since share buy-backs commenced in 2005 Sanlam injected R8.996 billion into the market by 2007.

This exercise was value enhancing. In hindsight it made it clear that Sanlam was actually very solvent at demutualization. The problem was that new regulations did not allow all the assets held as qualifying capital. The share price rose from around R12.40 in 2005 to well above R23.00 in 2007. The narrowing of the long-standing discount of the Sanlam share price to EV was not only the result of the share buy-backs, but also improved operating performance. Improved market confidence was strengthened by the diversification of the business and improved net flow of funds. The contribution of the life cluster to Group operating profit declined from around 63 per cent in 2002 to 56 per cent in 2003, but the life cluster turned net outflows around to net inflows from 2004. International confidence was important for the growth strategy of Sanlam, given the overcrowding of the domestic insurance market. By 2006, 25 per cent of the Sanlam equity was held offshore. The net flow of funds into the life and investment business from international sources substantiated the trend42 (see Table 6.2, which shows the growth in the net inflow of funds into the business units of Sanlam). Between 2002 and 2006 the net inflow was negative, primarily because of net negative inflow of –R11 154 million into SIM. The life business posted net inflow of R3 678 million, but could not offset the underperforming SIM operations.

Table 6.2. Net flow of funds, 2002–2006 (Rm)

Net total funds (Rm)

Net life business (Rm)

Net international life (Rm)

Net SIM (Rm)

Net SIM (international (Rm)







16 591








(11 154)


Source: Sanlam annual reports, 2002–2006.

In 2008 Sanlam celebrated ninety years in the industry. In the ninetieth year the Sanlam Group’s total long-term insurance business stood at R18.6 billion and other business at R83.3 billion, a 39 per cent increase on R62.2 billion in 2004.43 This (p.297) performance must be assessed not only against the background of favourable market conditions, relatively high interest rates, and buoyant equity trading, but also in the context of mounting regulatory intervention. How this was managed, impacted directly on the performance of a financial services company.

Regulatory impact: a business imperative

Two contextual processes absorbed enormous capacity from all companies in the financial services industry: regulation and empowerment. The financial services sector became very specific targets of empowerment policies. At the same time the world was shaken at the foundation of trust and confidence by successive accounting scandals. The first was the Waste management scandal of 1998, then the Enron audit scandal of October 2001, followed by the successive scandals of Worldcom, Parmalat, and Tyco in 2002. In 1994 retired Supreme Court Judge Mervyn E. King delivered the first King Report on Corporate Governance (King I). King interpreted his task as an opportunity to educate the South African public on the functioning of a free economy. The King I report of 1994 made recommendations on the composition of a board of directors, the responsibilities of non-executive directors and governance principles regarding remuneration, balanced reporting, effective auditing, affirmative action programmes, and the code of ethics of the company. The King I code of corporate governance had no legal backing, but was indirectly enforced by conditions in other statutes, such as the Companies Act, or the JSE Exchange Listing Requirements. The King II report on corporate governance in 2002 elaborated on corporate governance, requiring informed oversight roles from non-executive directors. This code required a corporate code of conduct for a board, outlining the way to deal with conflicts of interest, independence, and a board charter setting out its responsibilities. Firm proposals addressed the qualifications and responsibilities of directors, the relationship between the chairman and the CEO of the company, remuneration, and more importantly, the role of directors on board committees. Sanlam has had such a Code of Conduct since the mid-1990s. An evaluation of board performance was required and the company secretary was assigned the task of implementing the corporate governance functions, especially in guiding new inexperienced directors. The report underlined the risk management responsibility of the board, which also extended to assessing the audit function in the company, financial reporting, sustainability reporting, relations with shareholders, and organizational integrity and ethics. These recommendations were made mandatory for JSE-listed companies. Sanlam subsequently devoted much time to prepare enhanced governance structures and procedures. A Charter and Code of Ethics for the Board of Directors complying with the (p.298) South African Code of Corporate Practices and Conduct, recommended in King II, were drafted. These governance requirements introduced formal training requirements for new directors, annual submissions to confirm performance assessment and compliance to the JSE, and reports on board performance (number of meetings, number of meetings attended by each director, remuneration, responsibilities, etc.). Board committees facilitated further integration of the directors into the business conducted in the company. In March 2003 the board reconstituted its committees into the following: audit and risk, human resources, nominations, BEE, independent directors, and safety, health, and environmental committees. A board summit in August 2004 addressed many of the corporate governance issues raised in King II. Many of the new generation directors were very unfamiliar with the history and development of the company when entering the corporate board context.44 To comply with their duties in terms of King II, companies were required to facilitate mentoring and introduction into the corporate board environment. A growing burden of document production and regulatory compliance increased the workload of the office of the secretary, but contributed to the integration of persons traditionally distant from Sanlam into an organization of which they became stakeholders.

Considering the transformation and empowerment dimensions of the FSC, the significance of sound governance lay more in building a stronger business, and broad trust and association with Sanlam as an organization in the business of creating wealth for all, in South Africa, than only managing risk. King II required explicit disclosures in the annual report on risk management.45 The board had a direct responsibility for risk management and internal control processes and systems. Risk management became a standard item on the audit committee agenda and business units established documented business continuity plans. These processes were integrated with the development of directors. The FSC is a BEE document and set targets for the appointment of gender and demographic diversity to both management and the board. These targets dovetailed with broad transformation targets of EE. Complying with King II linked compliance with the FSC and EE to the explicit capabilities of directors. Building a stronger Sanlam in South Africa necessitated full compliance with these environmental documents. Sanlam identified leading individuals outside the traditional Sanlam sphere of influence to serve on its board. These persons were professionals and respected in their own right in various environments, but did not necessarily have experience of corporate directors’ responsibilities. Due to other valuable traits, such as community leadership, or experience in different business environments, their contributions to the Sanlam board were part of a process of building the new Sanlam. It was incumbent on Sanlam to effect the coherent roll-out of King II and the FSC parameters. Up to 1992 Sanlam had an (p.299) all-white male board of fourteen directors. In 1993 Kate Jowell was the first woman appointed as director. In 1994 Mr Peter Schwartz was the first person of colour appointed to the Sanlam board. By 2007 eight out of eighteen directors were people of colour, and five of the board members were women. Changing the face of Sanlam on board level did not translate into wider social support. To achieve that, as a business imperative, required a closer look at the brand and CSI.

One of the vital marketing mechanisms of any corporate is its brand. Meaningful repositioning of Sanlam in the new regulatory context and democratically transformed country gave rise to the idea to revisit the Sanlam brand and its logo. Van Zyl commissioned an in-depth investigation into the trademark (logo) and domain name shortly after assuming the position as CEO in 2003. The survey confirmed strong awareness of the existing Sanlam brand logo (the blue hands around a ball, supported by the company name ‘Sanlam’ to the right thereof). A brand as a collection of perceptions in the mind of the consumer is subject to changes in the consumer market. The Sanlam brand suffered in the minds of investors as a result of underperformance since the early 1990s, but also in the minds of the broad society as it was associated with one segment of society for a very long time (although not fully justified, as the changing policyholder profile had indicated by the mid-1980s). Van Zyl therefore created a central function on group level to manage the brand and market the business of Sanlam centrally.46 This was fundamental to the roll-out of transformation and CSI programmes and building group-wide loyalty. The investigation into the status of the Sanlam brand indicated broad awareness and recognition, but least so in the newly emerging black market. An integrated strategy followed to promote the single centrally managed brand to symbolize transformation in Sanlam, from regulatory compliance to organizational repositioning. Van Zyl as change manager, was aware of the importance of brand recognition and therefore drove transformation and loyalty to the successful South African icon, Sanlam, as a business imperative.

Organizational sustainability depends on the ability to adapt to change. In 2003 Sanlam published its first Transformation Report. Temba Mvusi, Chief Executive: Group Services, explained the report as encapsulating ‘the historical context of Sanlam’s transformation programme and activities, and to lay a framework for sustainability reporting in the future’.47 Transformation was directly linked to a dialogue with Sanlam’s stakeholders, that is policyholders, shareholders, and the society in which the company conducts its business. The transformation process did not constitute a break with the past, but a perpetuation of how Sanlam had engaged with its stakeholders since its establishment. Korporatiewe Maatskaplike Betrokkenheid in the twenty-first century translated into corporate social investment (CSI), which became a keystone of sustainability. Acknowledging the regulatory framework and transformed CSI, Sanlam (p.300) displayed the ability to adapt to change. The 2003 transformation report addressed Sanlam’s social investment in areas affecting its stakeholders. By 2003 the policyholder profile showed 50 per cent Afrikaans and 50 per cent English policyholders. The composition of the board was also evenly split between Afrikaans- and English-speaking directors. When in 1993 the ‘Marketing Sanlam’ survey showed that 72 per cent of the South African population was black but that only 20 per cent of Sanlam’s policyholders were black, it was decided to focus more explicitly on the black market.48 The African client base in group benefits and pensions funds rose significantly from the mid-1990s as Sanlam attracted public sector employee benefit business. Sanlam’s own Walter Scheffler, Senior General Manager: Group Benefits, made the presentation to the ANC to market Sanlam’s pension fund capabilities. Sanlam was subsequently awarded the administration of this pension fund.49 By the early 2000s Sanlam managed a substantial number of employee benefit schemes for black employees in different sectors of the economy. The shareholder profile showed almost 20 per cent foreign shareholders, 58 per cent South African, 77 per cent institutional shareholders, and 20 per cent individual shareholders. Based on an analysis of policyholder documents, Sanlam made a rough estimate of the racial distinction of its shareholders in 2003. It was estimated that of the individual shareholders 3.2 per cent were black and of the institutional shareholders 16.8 per cent were black. With another 0.04 per cent black shareholders in the Sanlam share incentive scheme, black shareholders made up roughly 20.3 per cent of Sanlam’s shareholders at the end of December 2003.50 The predominantly South African stakeholder profile made focused attention to the burning issues in the domestic society imperative. Van Zyl wrapped the transformation strategy around success and sustainability. He stated that the transformation challenge was an opportunity to build a successful and sustainable company ‘based on inclusivity and diversity. … For Sanlam transformation represents a major business opportunity. It presents the chance to grow our business from broader and stronger foundations, the opportunity to serve new markets and harness the full economic power of our amazing diverse society.’51 The company wanted equitable economic growth as the driver of social progress. Acknowledging inequalities of the past and committing resources to redress them occurred simultaneously with sustained commitment to the company’s traditional support base. The roll-out of CSI programmes displayed a definite transformation dimension and stood in the context of the socially responsible corporate citizen where social involvement (p.301) outweighed financial costs. It was no longer a question of whether firms should engage in socially responsible projects, but where and how that engagement was conducted.52

Social development manifested in different projects. Sanlam participated in the Disabled Children’s Action Group (DICAG) and built the Happy Home for Disabled Children in Umtata, opened by Nelson Mandela in October 2000. The commitment to education continued in the Takalani Sesame television series to develop literacy and numeracy skills. Several radio programmes in four languages supported the series, which in 2003 received the Grand Jury Award for children’s programmes. To enhance entrepreneurship the award-winning Sanlam Money Game, following on from entrepreneurship workshops offered by Sanlam’s Nexus Financial Services, gave local entrepreneurs an opportunity to risk their hand at small business development. These initiatives did not deviate from the underlying principles of Sanlam’s pre-1990 CSI, namely the development of human capital through educational programmes, skills development, and health promotion. The UB transaction figured large in the transformation report, since that was one transaction to build business capacity and promote social development through the UBCDT. The entrepreneurship development programmes also fell within the ambit of BEE. Sanlam was involved in the dissemination of health-related information through publications, workshops, and sponsorships. The company also supports cancer and HIV/Aids research and awareness programmes.

Against the background of changing socio-economic conditions, Sanlam conducted extensive research into the HIV/Aids pandemic’s impact on South Africa.53 This was a vitally important area of corporate citizenship that impacted directly on the insurance industry. The rise of a black middle class and the importance of educating that market about life insurance, just as Sanlam had done with Afrikaners in the 1920s, meant that the matter of persons living with HIV/Aids became central to access into that market. Sanlam was engaged through its social responsibility initiatives with organizations involved in HIV/Aids prevention programmes and care projects.54 Since the late 1980s Sanlam led the industry in providing for people living with HIV/Aids.

An important aspect of transformation was implementing EE throughout the company. To make EE an integral part of the growth strategy, Sanlam considered it to be human capital transformation. In complying with the FSC targets of EE, the business community had to engage in extensive training and education programmes to facilitate the employment of capable employees on all levels of operation. For Sanlam to create wealth, the company had to be sustainable and that assumed employing capable employees. Driving the transformation of its staff, EE, and empowerment, the company (p.302) offered a four-month R4 million business awareness programme at Head Office in 1994. A similar programme was run in collaboration with Sanlam business partners in Pretoria for youths in the northern provinces.55 These programmes introduced young people to the business of an insurance company and were aimed at facilitating employment in the entry-level ranks of the company. The family-like social context of Head Office staff since the formative years of Sanlam changed with the arrival of the first trade unions at Head Office in 1994. This adjustment was inevitable, since the composition of the employee profile adjusted to the new society, which displayed a growing diversity. A scorecard on EE was introduced in compliance with the Employment Equity Act, No. 55 of 1998. Across the corporate sector compliance was dependent on training and education programmes. Not only support for further studies, but also training in the business and administration of Sanlam became an important mechanism to secure access to persons outside the traditional white society. Management communicated the impact of the EE Act and progress with compliance through the staff magazine. By 2003 staff transformation at Head Office had achieved almost 80 per cent of the target based on statutorily prescribed demographic proportions. The white permanent employee complement of 3 244 was just 131 short of the target of 3 375 employees across all administrative grades. The 1 283 permanent black employees were only 180 short of the target of 1 463. A similar ratio was achieved with temporary employees. Sanlam Life was included in the Black Managers Forum organizational stream, which exposed the life business to a wider network of black managers. The pool of appropriately experienced managers was limited. Sanlam had trained black managers on different levels of the business, but to sustain the supply, internal training was vital. The company established an internal training function at Head Office and was registered with the South African Qualifications Authority as a Provider of Learning. The internal employee training programmes improved retention and enhanced skills levels of Sanlam’s employees.

As a signatory of the FSC, Sanlam awarded learnerships to unemployed matriculants. In 2004, fifty black matriculants started their career in the insurance industry with Sanlam.56 The in-house staff magazine reported with great acclaim on the successes of new employees in training. In 2004, 2006, 2009, and 2012 the international Investor in People Award, conferred by the Department of Labour, recognized the quality of training provided by Sanlam.57 The Insurance Sector Education and Training Authority acknowledged the quality of the Sanlam training programmes in 2006 by placing a pool of black trainee managers in the Sanlam training programmes. When Sanlam was awarded an ‘A’ rating by the Department of Labour in June 2007 for its B-BBEE compliance, it came as no surprise, since the transformation agenda was driven hard. Performance bonuses of managers on different levels of authority were calculated on compliance with EE targets. Furthermore, Sanlam did not wish to have a repeat of an (p.303) investigation by the Department of Labour in 2003, when some regional Sanlam offices had failed to comply with EE targets. This did not fit well with the brand revitalization drive and BEE initiatives. The commitment to EE was given another boost when Sanlam introduced SAP software technology in December 2005 to roll out online training. Trainees accessed electronic training at Sanlam Head Office. This use of technology improved consistency in training and contained the cost of trainers having to repeat training and travel large distances to decentralized training centres. By late 2008 an entire four-phase training cycle framework was offered online anywhere in the country.58 The online training suite was the centrepiece of motivating employees towards human capital advancement. By 2009 Sanlam had fallen short of EE targets. Finding sufficient human capital capacity to comply with statutory employment targets remained under pressure until critical momentum was achieved with the internal training programmes. The SAP online computer training platform enabled access to training opportunities in all divisions of employment in Sanlam. The system allowed for the recognition of employees’ skills levels and suggested further training, the outcome of which was automatically conveyed to the employees’ supervisors. Employees could also request access to further training. This automated system made a significant contribution to skills development and by 2009, the widening of the ratio between white and black employees. The difficulty in turning the trend emerged from an internal assessment of the progress with human capital transformation in 2009. Employees in Sanlam Life and in Sky Solutions were quite positive about the implementation of EE, but not those in SEM, SIM, and ITSS. Only 60 per cent of employees understood the importance of the implementation of EE policies. A fair degree of suspicion still existed regarding transparency, fairness, integrity, and respect among employees.59 The fact that the outcome of the survey, which Van Zyl communicated to the employees early in 2009, was published in its entirety, was part of the strategy to massage employees’ opinions into support. Sanlam would not compromise on EE, since leaving its human capital behind would defeat the objective of transformation. The answer to this dilemma was sustained training, and recruitment supported by training. Transformation could not progress faster than the supply of capable staff. The supply of professionally educated individuals went according to plan, because they were trained at universities and/or had Sanlam bursaries. It was in the sphere of company-based skills that Sanlam was successful. Just like the high esteem in which Sanlam agents were held in the past as a result of the professional training they received in Sanlam, the company adapted its training of excellence programmes to the community of new employees. In January 2012 Sanlam was awarded official status as a Further Education and Training (FET) College in the insurance industry.60 The FET status added to the status of the company’s training programmes. It also enhanced achievements in other areas of employment equity, (p.304) namely the employment of people living with disabilities. In 2011 Sanlam received the National Disability Company Award, with specific acknowledgement to individual Sanlam employees who had made workplace changes to that effect.61 Additional support material in the form of hard-copy catalogues on the suite of training opportunities through the Sanlam online portal, such as the SPF HR Learning and Development Prospectus, strengthened the learning culture among employees. The combined effect of sustained high-level easy-access training programmes and a commitment to human capital transformation finally gave Sanlam a 65.5 per cent black employee component in 2013. The graphic representation in Figure 6.2 shows the take-off in reversing the trend and growing the black employee component in Sanlam since 2009. The adjusted human capital structure dovetailed with the UB BEE transaction and the restructuring of Sanlam Emerging Markets SEM) into Sanlam Developing Markets as a separate business cluster from 2005.

Affirming the rootsSanlam from South Africa for South Africa and beyond, 2003–2013

Figure 6.2. Employment structure, 2005–2015

During the consolidation after 2003, a multifaceted focus on client-centricity drove incremental success. Sanlam Life innovated products and services within the life cluster. These included the new more flexible Topaz and Cobalt insurance products for the middle market. It also included the Glacier structured investment platform offering to the high-income market. The new-image Innofin embarked on a massive marketing drive in Gauteng province, the traditional home market to Liberty Life. Sanlam Life also diversified its business into services such as home loans and personal loans (Direct Axis), and a loyalty programme called Reality. New business volumes and net inflow of funds to Sanlam Life in 2006 signaled the ability to reverse the adverse movements in the life business since the 1990s. The Client Contact Centre, which had been operational since 7 December 1998, was given better client-facing capabilities through the introduction of (p.305) the Siebel interface program that integrated all the other source programs applicable to client services. Sanlam had traditionally had a leading position in IT in the insurance industry since the early 1960s, but lost that advantage after Y2K, because of the rapid developments in the technology industry. Massive pressure was put on technology innovation to effect client-centricity. By the mid-2000s IT innovation delivered improved support. Massive IT upgrades at the Client Call Centre led to the replacement of Siebel with the Sentrix IT solution in 2008. In conjunction with TCS in India, the SPF IT department developed this system specifically for Sanlam Life as the first service-oriented architecture (SOA). The sophisticated IT system allowed automatic information upgrades, which served to improve integration with other business clusters in Sanlam. Extensive IT software upgrades supported distribution since 2006. This upgrade project, Project Saturn, supported agents and brokers in the roll-out of new products and services developed to turn the life business around.62

One area where all the other leading life offices had established a presence was healthcare. Sanlam failed in several attempts to operate successfully in that market. After selling the administration of its medical schemes to Medscheme, Sanlam was locked in a legal battle with Topmed and Selfmed, its former schemes, in the latter’s claim for the reserves of Sanmed. Sanmed preceded Topmed and Selfmed. These two schemes claimed ownership of the reserves of Sanmed from 1997, but Sanlam fought a legal battle between 2002 and 2011. Sanlam lost each appeal case and was finally subjected to arbitration. The arbiter ordered Sanlam to pay Topmed R458 million and Selfmed R130 million, which was just over 41 per cent of the original claim of R1 420 million. While this dispute raged on in the courts, the restraint of trade entered into by Sanlam with the Medscheme transaction lapsed in October 2004. Initial negotiations with Medscheme to acquire a stake in the medical scheme administration business failed because the two parties could not agree on price. Then Sanlam looked into acquiring a stake in Resolution Health, but the Registrar of Medical Schemes refused to approve of the transaction. Resolution Health had two negative salient features. The first was that almost 65 per cent of its members were civil servants, who were soon compelled by the state to join the Government Employees Medical Scheme (GEMS). Furthermore, Resolution was under investigation for mismanagement, which resulted in the refusal to accredit the transaction with Sanlam. Finally, in January 2008, Sanlam acquired a stake in the administration of Bestmed, thus returning Sanlam to medical scheme administration, or health management. The company also bought a stake in the medical scheme brokering firm Optivest. Sanlam Health grew its administration through mergers of medical schemes under its administration. In 2009 Bestmed merged with Telemed, which gave Sanlam Health Management another 65 000 members. Through an attempt to acquire Eternity Private Health Administrators, Sanlam Health also brought CAMAF (p.306) (Chartered Accountants Medical Aid Fund) in under its administration. The application of the i-Med IT platform for this medical scheme administration, which Sanlam Health acquired during the Eternity negotiations, was only suitable for the administration of in-house schemes and therefore failed to deliver optimal results in the general administration functions. Only CAMAF operated well on i-Med. The relationship between Sanlam and Bestmed also broke down in 2011 and left Sanlam Health Distribution Management in negative territory once again. Sanlam seemed incapable of succeeding in the healthcare sector. In 2011 Ahmed Banderker was appointed to salvage Sanlam Health. By 2012 Sanlam courted Topmed again. They signed an agreement whereby Topmed became Sanlam’s medical scheme of choice for its staff. In 2014 Sanlam acquired a stake in Medscheme’s holding company AfroCentric Health. The tale of Sanlam and healthcare therefore concluded with Sanlam in medical scheme administration at arm’s length.63 Sanlam’s experience with healthcare was disappointing and added to the difficulty in Sanlam Life to restore positive new business inflows.

Strategic intent: growth and wealth creation

After the conclusion of the ABSA transaction and the cash-rich Sanlam’s decision to buy back its shares, a notable improvement in market confidence developed. The share price rose to well above R12.00 by the end of 2005 and the discount to EV dropped below 10 per cent. The financial analysts were upbeat about the anticipated upward trend in the Sanlam share price. That rise reflected in the growing proportion of institutional shareholders to 60 per cent of Sanlam’s shareholders in 2006. Offshore shareholders made up 24 per cent of Sanlam’s shareholders. Individual shareholders’ stake in the company diminished from 47 per cent shortly after demutualization to 17 per cent in 2006. Expectations materialized, since in 2007 the share price rose to around R22.75 and traded at only a 3 per cent discount to EV. Overall performance of the Group in 2006 pointed to the growth strategy gaining sustainable momentum. New business volumes exceeded R100 billion, and core earnings R4 billion for the first time.64 The performance reflected a group reaping the benefits of a focused business strategy implemented since 2003, but the significant development was the change in the structure of the business. During 2002 more than 75 per cent of all new business inflows was generated through the life insurance business. In 2007 new business from the traditional life market declined to around 20 per cent, while the performance of innovative private investment products moved into fast-growing territory. By 2007 Sanlam had built the largest private (p.307) client business in South African in Sanlam Private Investments. SPI held assets under management of more than R50 billion in 2007, reversing a loss-making operation of 2002 to deliver R80 million pre-tax profit in 2007. Financial services’ net contribution to group results rose by 20 per cent, core earnings per share rose by 27 per cent, new business volumes rose by 26 per cent, the value of new life business rose by 31 per cent, and return of Group Equity Value per share rose to 18.8 per cent. Van Zyl described 2007 as the first year in which Sanlam had achieved real growth since the early 2000s. He considered the establishment years of his back-to-basics strategy as years of ‘fixing the business and developing a wide base’. The foundations of the turnaround strategy were improved capital efficiency and diversification.

At this point in the strategic redirection of Sanlam, Ian Kirk was appointed Chief Executive: Capital, Strategy and Special Projects. Kirk was the deputy CEO of Liberty, and had experience in the insurance industry that complemented the existing strategic overhaul conceptualized and implemented by the entire executive team. The ability to effect strategic turnaround so soon after Van Zyl’s appointment as CEO underlines the buy-in and contribution by each individual member of the executive team. When the synergy between Kirk’s insurance career and the direction Sanlam was beginning to move towards became apparent to Van Zyl, he invited Kirk to join the Sanlam executive. There were clear synergies between the back-to-basics strategy and Kirk’s strategic insurance industry capabilities. In May 2006 Ian Kirk joined Sanlam with the explicit task to apply his expertise to collate the strategic review of the Group. The Sanlam strategic ‘back-to-basics’ vision had already gained momentum. Kirk joined forces with the executive team to move key aspects of the strategy forward in areas where his expertise complemented the existing executive expertise. The Group strategy based on five pillars, which constituted the basis of Sanlam’s subsequent business cluster direction, was the outcome of this collaborative effort. In the context of the emerging Group strategy, Kirk was responsible to launch Project Helix (the establishment of MiWay, direct insurance sold out of Sanlam’s call centre technology base), the extension of the existing partnership with the Indian Shriram Group, and the direct marketing strategy to expand distribution channels in the modern era of digital technology. Kirk also ran a cost project between Sanlam and Santam to enhance Group efficiency. (The roll-out of these initiatives will be discussed later in this chapter.) In June 2007 Kirk was appointed CEO of Santam, where he continued efficiency enhancing operations effecting stronger alignment between Santam and the other business units in the Sanlam Group. This development was in itself part of the group ‘back-to-basics’ strategy.

The performance of Sanlam in 2007 confirmed delivery on the Group’s comprehensive growth strategy. Sanlam ‘Thinking Ahead’ posted a 16 per cent rise in net earnings from financial services, a 23 per cent rise in core earnings, but a 29 per cent decline in headline earnings. New business volumes were up by 26 per cent, but more importantly, net inflow of funds was reversed from a net outflow in 2006 to a R11 billion inflow in (p.308) 2007. These results indicated that the Group strategy was beginning to deliver the desired outcome. The vision of becoming the world-class financial services provider was approaching realization. This was now the time to re-engineer the strategy to achieve new targets; since sustained success depended on a dynamic strategy, capable of constant adaptability and innovation, Sanlam was sitting on excess capital without a clear vision of where to invest it. Furthermore, the Group showed strong growth since 2006, which indicated the importance of refining ‘strategic intent’. In 1989 C.K. Prahalad and Gary Hamel wrote in their Harvard Business Review article ‘Strategic intent’, that such intent meant something like establishing global leadership in a particular market or industry. Just seeking to increase shareholder wealth was not going to get the troops excited. The Group’s ‘strategic intent’ to ‘grow the platform’ towards being the leader in wealth creation and a world-class, truly South African diversified financial services group, came from the new 2006 Kirk-formulated strategy. Van Zyl and Kirk were fully ad idem about this strategy.

The foundation of ‘strategic intent’ as it came to be expressed in the 2006 Sanlam strategy, comprised five building blocks. Underlying this strategy was building block one, namely increased diversity and improved efficiency. This translated into releasing capital from the life business and growing its scale of play in administration, and improved distribution in order to increase the client and asset base. Building block two focused on diversification of financial services by selectively growing credit capabilities. Building block three again emphasized the strengthening of bancassurance in support of the diversification of financial services offerings. Building block four was sustained transformation of the Group to display the demographics of South Africa and address the needs of the full spectrum of society. Building block five was to reprioritize internationalization. In the forthcoming years Sanlam would stabilize its expansion into the ELM, but pursue a differentiated strategy in the UK and other developed markets.65 The implementation of these strategic goals translated into the revised cluster structure. Cluster one was retail services, which included SPF, SDM, and Sanlam UK. In 2008, Sanlam’s operations in the UK were consolidated in a separate company, Sanlam UK, managed by a Sanlam Executive Officer, Lukas van der Walt. Sanlam UK operated separately and independently from SPF. Cluster two was the institutional cluster, housing Sanlam Investments (formerly SIM), Sanlam Employee Benefits (SEB), and Sanlam Capital Markets (SCM). Cluster three was the short-term insurance cluster, where all the short-term insurance business was consolidated, including that of Santam, the largest short-term insurance company in South Africa. The new cluster was cluster four, the corporate cluster (corporate Head Office), responsible for the Group’s centralized functions. These included finance and risk management, marketing and communications, (p.309) human resources, information technology, and CSI. Sanlam Independent Financial Services invested in independent customer-facing entities and intermediary financial services.

The operating cluster structure was reconfigured again in 2011. The business of Sanlam was subsequently conducted through the following clusters: SPF, responsible for the retail business; SEM, driving Sanlam’s financial services in emerging markets; SI, providing investment solutions to individual and institutional clients; and Santam in the short-term insurance cluster. The reconfiguring showed that the diversification strategy succeeded in creating a diversified financial services company. The out-engineering of the corporate cluster during the 2011 reconfiguration showed that the existing clusters were successful in delivery on focused business targets under dedicated and capable management. This performance meant that the overarching role of the corporate cluster could be reduced or ‘out-engineered’. The publication of the King III report in 2009 called for a more profound emphasis on communicating overall performance of corporates to the broader society. The public had to be informed about the sustainability of the enterprise in all aspects of operation. The ‘Triple bottom line’ requirement mandated information not only about financial performance, but also social and environmental performance. In the Sanlam clusters diversified business operations delivered on all three dimensions of business sustainability. This was supported by sustained transformation. Transformation promised sustainability. The business environment was severely constrained by the effects of the GFC since 2007, but within five years of formulating the ‘growing the platform’ strategy, the Group was in a sound competitive position domestically—and growing globally.

The sources of business development in the clusters were synergies in the Group, new acquisitions, and expansions. The overall performance of Sanlam between 2002 and 2013 is reflected in Table 6.3. Headline earnings improved from R2 127 million to R8 062 million. The embedded value per share rose from 1 032 cents per share to 4 121 cents per (p.310) share. The return on EV per share rose from -9.2 per cent in 2002 to 17 per cent in 2013. As the CAR improved from 3.7 in 2002 to 4.3 in 2013, Sanlam was displaying its capital stability as well as access to sufficient cash to perform transactions to grow the business. The discussion below on the development in the different business clusters during the decade of Johan van Zyl’s turnaround strategy illustrates this performance vividly. The successful implementation of the turnaround strategy rested on the joint vision and dedication of the experienced management team on business unit level, implementing the shared vision.

Table 6.3. Sanlam performance, 2002–2013








Total group equity value (Rm)

27 087

36 682

46 811

45 238

57 361

75 352

84 409

Total assets (Rm)

18 357

228 024

335 482

31 708

361 191

490 953

561 304

Headline earnings (Rm)*








Embedded value (EV) per share (cps)







4 121

Return on EV per share %








Total issued shares (m)

2 654.5

2 767.5

2 303.6

2 190.1

2 100

2 100

2 100

Headline earnings per share (cps)*








Share price (cents)








Dividend per share








Sanlam life capital adequacy Ratio (CAR)








Note: * Introduction of IFRS in 2006 changed accounting policy. Figures not fully comparable to period before 2006.

Source: Sanlam annual financial statements, 1998–2016.

In the personal finance cluster, the life business was the core of SPFs business. The sustained growth in the nominal value of the life business led to the consistent rise in SPFs contribution to Group financial services earnings between 2007 (46 per cent) and 2013 (52 per cent). By 2013 the life insurance component operated through flexible personal finance solutions to different segments of the market. The Sanlam Sky Solutions (SSS) were the risk products offered to the entry-level market. Sanlam Individual Life focused on delivery to the middle, professional, and small- and medium-sized enterprise markets. The Glacier investment platform provided investment solutions to the high end of the market. Distribution was also segmented. The SSS operations were strengthened by the acquisition of African Life Assurance (South Africa) in 2005. This niche insurance company operated in the entry-level market, thus aligning with SSS. SDM had already acquired African Life Assurance operations in other parts of Africa, making the South African acquisition a logical extension of the strategy to deliver financial services more inclusively in South Africa. Channel Life and African Life were integrated into SSS. A dedicated broker division for SSS was established under the management of Ronald Samuels, with regional managers Ian Trollip in the Eastern Cape and Basil Naidoo in KZN. The Sanlam Affiliated Intermediary Service, an affiliated service providing compliance, training, and administrative support to brokers, supported the growth of SSS in this market segment. The number of SSS brokers rose to 215 by 2014 and contributed 12 per cent of SSS broker revenues.66

Sanlam consistently sought new distribution channels. Broker services were a growing strength in the distribution channel. In 2010 Sanlam acquired SEESA Financial Planners. This was a network of thirty brokers, who retained their independence, but Sanlam offered them compliance, and practice management support from a Sanlam subsidiary Succession Financial Planners (SFP) This distribution network grew to 120 brokers by 2014, supported by regional managers in Pretoria, Cape Town, Johannesburg, and Durban.67 The impact of the Conflict of Interest regulations flowing from the FAIS Act, No. 37 of 2002, gazetted in Government Gazette No. 33133 of 19 April 2010, restricted practices whereby service providers (such as Sanlam) could incentivize brokers (p.311) in distributing its products. Sanlam’s strategy was to provide support using independent support businesses.

Sanlam Life IT developed another innovative distribution model in 2005. SanlamConnect was an automated advice for specific products. At a Sanlam kiosk in shopping centres in large metropolitan areas, clients could access advice by themselves. Clients could get automated advice based on their risk profile for certain basic products for retirement and savings via the internet. SanlamConnect assumed a level of financial literacy and client sophistication, which proved to be overstated. In 2012 the model was aborted and the IT application decommissioned. A more successful IT application was Sanlam Direct, launched in 1999. This operated through a basic call centre. A client identification system supported the direct marketing model, which assisted Sanlam Direct with selection refining. By 2005 this distribution channel boosted sales in the life business and was IT supported by repeated updates. It was this capability that Ian Kirk spotted as an opportunity to expand distribution. He conceptualized MiWay, a telephonic direct marketing channel for SPF’s products. Having observed his young son’s adverse reaction to having to work through intermediaries, while electronic technology facilitated online and direct managing of one’s affairs, including short-term insurance, Kirk pioneered MiWay. The channel was finally launched in 2008, but not after long and strenuous negotiations with the broker community to ensure they would not boycott Sanlam going forward. Brokers were vehemently opposed to the direct marketing channel, but after consultation with brokers, Kirk agreed that MiWay would operate under a separate licence (not Sanlam), separate infrastructure and separate brand, and that there would be no sharing of data. To ensure success, Kirk got the head of Broker Services, Edward Gibbons, to manage the introduction of MiWay into the market. This distribution channel opened direct access to clients, especially young people, to a wide range of Sanlam insurance, credit and savings products, as well as short-term insurance. Sanlam was not leading the market in this strategy, but doing damage control, as the direct market had been harvested with good results by competitors. MiWay gave Sanlam a new distribution channel, but in 2010 Sanlam sold it to Santam. That put all the short-term business of Sanlam in one vehicle, but reserved exclusive access to MiWay to Sanlam for the distribution of other financial services.68 By 2014 more than 130 telemarketing agents were using Sanlam Direct and contributed to approximately 10 per cent of Sanlam Life’s business.69

The SPF focus on the entry-level life market, competed with the SDM market. SDM was therefore moved out of SPF in 2010 and renamed Sanlam Emerging Markets (SEM) as a separate cluster. Heinie Werth managed SEM as part of the overall ‘back-to-basics’ (p.312) strategy. SEB was also moved from SPF in 2007 into the institutional cluster, where performance improved by 2008. SPF operated in the South African market and diversified into a number of revenue streams apart from life business—trust business, healthcare management, personal loans, the loyalty programme Reality, and trade and bridging finance through Anglo African Finance (in which SPF had a 65 per cent interest). As a strategic direction to ensure ongoing progress in creating shareholder value, management considered three options at the board summit in August 2007. The first was simply to go about the Group’s business as usual—go it alone. The second option was collaboration with strategic partners in a relatively permanent joint venture agreement. The third option was a full sale or merger. The first and last options were not considered, but the second was selected as the one to develop. This brought Sanlam back to the strategy of growth through a bancassurance agreement. It led the company to investigate Project Gliese—negotiations between Sanlam and the First Rand Group on a potential bancassurance deal—in 2007 and 2008. Differences in operational culture between Sanlam and Momentum, the insurance entity in First Rand, the issue of control and sanctioning by the competition authorities, eventually resulted in the termination of this attempt.70 Sanlam was always out shopping for enhanced distribution vehicles.

The operations of Sanlam UK were integrated into the different clusters when Sanlam UK ceased to operate independently. MIA operated as the life vehicle of Sanlam Life in the UK. Other investment business in the UK formed part of the institutional cluster operations. SPF suffered from contracting demand following the global financial crisis in 2007/2008, but by 2013 SPF recovered market share to contributed 42 per cent to Group Embedded Value (GEV). The life business made up 93 per cent of the SPF EV. Growing the SPF business meant a massive effort in the uninsured market. This afforded Sanlam an opportunity to establish partnerships with empowerment enterprises, train brokers and agents on the Sanlam products, and simultaneously develop the credit business, also through small empowerment initiatives. This was where the original life business of 2003 was at in 2013.

The institutional cluster of 2007, renamed the investment cluster in 2011, had a long and complicated path towards strategic redirection and success. The legacy position from which SIM developed was that of an investment division of a long-term insurer. The culture of securing stable investment returns for policyholder bonuses did not serve a diversified financial services company seeking to attract investments on the basis of delivering the best return in the market. To deliver on the high expectation of investment returns, Hendrik Bester (former General Manager: Investments) insisted on Sanlam Investments being granted independence to perform an investment function determined by optimal return and not conservative stable bonuses. Bester did the same when he (p.313) insisted on permission to take Sanlam Properties out of the long-term insurance business environment in 1989. The fact that clients had moved out of long-term insurance products since the 1990s, and moved towards structured high-return investment wealth products, left Sanlam at risk. Underperforming investment returns on policyholder funds also jeopardized the ability of the life business to attract new business. The Gensec acquisition and subsequent disappointing performance led to the restructuring thereof and gradual building of an independent investment function in SIM. It was only with the appointment of Johan van der Merwe as CEO of SIM in mid-2002, that a slow, but focused process of building an investment house emerged. Van der Merwe was an investment manager at Genbel at the time of the 1993 unbundling of the Gencor conglomerate. Then he was involved in the Gencor acquisition of Billiton and subsequently joined Investec Asset Management. Sanlam Unit Trusts (SUT—later renamed Sanlam Collective Investments) operated in Sanlam Life. Only in 2003 was SUT moved to SIM, albeit still a subsidiary of Sanlam Life. Sanlam’s unit trusts had a very good track record, as described in the previous chapter. Investment management just became more sophisticated after 2000. The culture of risk appetite and high returns characterizing asset managers in the investment banking and asset management industry was far removed from Sanlam’s asset managers. In SIM this cultural transformation developed slowly, because first the business had to attract talent, pay sufficiently well to keep them at SIM, or lose them to the highly competitive industry players. This occurred with Omri Thomas’ resignation as SIM Chief Investment Officer after only one year in the position, following an attractive offer from a competitor. Superior investment returns held SIM back, exacerbated by the effects of the GFC market volatility and high fixed costs. Underperformance also undermined SIM’s ability to attract retail funds. An overhaul of the SIM business model in 2005 placed the cluster on the road to improved performance and industry competitiveness. SIM’s business was restructured into ‘boutiques’ of investment operations. These were focused investment functions headed up by specialists in the different ‘boutiques’. The different functional units were active quants, small caps, core and unconstrained equities, alternative investments, fixed-interest investments, and liberty-driven solutions. Individual results in each unit had to match overall ‘boutique’ objectives.71

The GFC adverse market volatility contributed, inter alia, to the underperformance of SIM. SIM experienced a net outflow of funds in 2007. In 2007, SIM contributed 30.24 per cent to the net result from financial services in the Sanlam Group. Very chequered results had flowed from early overambitious business initiatives in the UK since the early 1990s. During Van Zyl’s back-to-basics strategy, the investment business was consolidated, and focused and capable investment specialists were attracted. The (p.314) challenge lay in developing a high-return investment culture, but that required an appropriate appetite for risk and specialists with an industry track record. The business in the institutional cluster included SIM as the second-largest investment manager in South Africa by 2007, collective investments, asset management, employee benefits, private investments, private equity, strategic property services, and structured investment solutions. SIM also expanded into emerging markets and the UK. SIM established its specialist capabilities by 2013. The growth figures underline the success: operating profit growth exceeded more than 50 per cent for three consecutive years since 2004. This profit growth was reduced to 19 per cent in 2007 and 1 per cent in 2009, but solid investment performance was soon restored.

Sanlam’s strategy to expand operations into markets outside South Africa always included operations in the niche investment market in the UK as a developed market for Sanlam’s high-end-of-the-market wealth products. The revised strategy in the UK since the mid-1990s acquisition drive had been to create the relationships, build trust, product propositions, and structures for group linkages to develop. From 2009 Sanlam UK operated as a strategic management company, despite the shares in MIA, Principal, Buckles, Nucleus, Intrinsic, and the Punter Southall Group still being held by Sanlam Netherlands Holdings BV. Management still considered the linkages in 2010 to be ‘sub-scale’. As part of the overall Sanlam strategy post-2006 to enhance return on capital, the relationships were harvested, using Sanlam Fund Solutions (SFS) to attract investment funds via the different linked independent financial advisers. Lukas van der Walt, CEO of Sanlam UK, managed the positioning of Sanlam UK as a wealth management business in retail financial services, providing life and pension product and wrap administration services. Despite massive volatility in 2010 following the Japanese earthquake, the tsunami in South East Asia, and the Arab Spring, the UK business nevertheless attracted 43 per cent more funds in 2011—at £266 million it was significantly lower than the £622 million budget. In January 2011, Sanlam UK added Border Asset Management to its wealth management businesses. The SPF Glacier investment platform proved a popular investment vehicle into foreign markets, also the UK. By 2012 Glacier was the biggest LISP72 in South Africa and Glacier International attracted R824 million in investments. Sanlam UK turned disappointing performance of the Sanlam UK investments under its management in 2008 around. By 2013 this had become a major driver of new business flows into the investment cluster.

Strategic diversification through the investment cluster delivered a highly diversified suite of investment services integrated by the leadership of Johan van der Merwe as cluster CEO. This cluster offered asset management, wealth management, international investments, and international services, either from Sanlam businesses or in partnerships (p.315) with specialist services providers across the globe. SIM and Sanlam Structured Solutions performed the asset management function in South Africa. The investment cluster rolled wealth management products out with partners in Australia, Switzerland, and the UK. The SEB, SCM, and Retirement Fund Administrators (RFA) collaborated through joint ventures with smaller players and empowerment entities in the market. In the international investment function, Sanlam collated all the partnerships in international investments into Sanlam International Investment Partners (SIIP) in 2013. These international partners were Four Capital, a London-based European and global equity manager in which Sanlam held a 54 per cent stake; Eight Investment Partners, an Asia-Pacific asset manager, based in Sydney and Hong Kong, in which Sanlam held a 62.5 per cent stake; Centre Asset Managers, an American and global asset manager based on Wall Street, with Sanlam owning 63.5 per cent of its equity; and Artisan, a European property management company on the Isle of Man. Sanlam owned 33.3 per cent of its equity. Sanlam International Mutual Fund Administrator, Sanlam Asset Management Ireland, Sanlam UK, and P² also comprised part of the cluster.

The integration of SEB into the cluster was strategically managed to arrive at two goals. The first was to create a dynamic, motivated team in SEB, and the second was to enhance the investment performance of SEB. Management noted that the SEB team suffered from a lack of vision and drive to improve performance. The Exco and Johan van der Merwe then initiated an Active Learning Programme called ‘Stretch’. This exercise required SEB employees to come up with a model to grow the business, based on innovative business opportunities. Three teams worked to deliver proposals, which resulted in a restructuring and rationalization of functionality of SEB’s operations. The Retirement Fund Administration was merged with Coris Capital before, and subsequent to the migration into the institutional cluster, became part of the wider retirement annuity administration platform of Coris Capital. The result was almost immediate. In 2008 SEB profits rose by 63 per cent. Synergies with new products developed by Sanlam Structured Solutions, a business within the cluster, contributing to the new life in SEB and enhancing the cluster performance. In 2013, SEB’s remarkable turnaround delivered operating profit before tax and minorities of R1500 million and the value of new business exceeded R300 million, compared to R855 million profits and R266 million new business in 2012. By 2013 the institutional cluster had grown its contribution to Group financial services to 24 per cent. This performance was a significant improvement from the 11.2 per cent contribution in 2002 and 13.4 per cent contribution in 2003. SEB was one of the divisions in the cluster that gained most from the stronger investment climate in the cluster.73 The success was built on Sanlam’s own investment management (p.316) capabilities, supported by its products and partnerships aligning with the Sanlam investment philosophy and internationalization drive.

The transformation of Sanlam into ‘the leader in wealth creation and protection in South Africa, leading that process in emerging markets and playing a niche role in the developed markets’,74 had clear strategic business implications. The unfolding of expansion through SEM was the most significant development in the Group in terms of the articulated vision. In 2007, SDM had been part of SPF, but then assumed an independent cluster position from 2008. The reluctance during the early 1990s to expand into developing markets was reversed once Sanlam changed its business model during the turnaround strategy. Sanlam linked its aspirations with regard to the ELM market through African Life, Channel, and Shriram, where it leveraged knowledge off that market segment through Sanlam products. Sanlam developed competitive products for the ELM in South Africa, other African markets, and India. SDM contributed 7 per cent to net results from financial services in 2007 and increased this contribution to 18 per cent by 2013. Non-South African new business flows in SDM increased from 23.4 per cent in 2007 to 54.8 per cent in 2010 and non-South African net flows of funds in SDM stood at 63.7 per cent of net flows in 2010. The strategic redirection of Sanlam to the ELM was the correct strategy for future growth in new business flows. At the end of 2013 operational profits before tax and minorities, had doubled from R850 million in 2012 to R1.736 billion. That was 21 per cent organic growth complemented by further investment in Shriram, India. Operating profit after tax and minorities exceeded R1 billion for the first time.75 The growth in demand by the middle class in African and Asian markets was an unprecedented business opportunity to Sanlam.

The expansion by SDM into the ELM was a manifestation of the Dunning’OLI model that explained internationalization on the grounds of ownership (O), location (L) and internalization (I).76 Sanlam had developed insurance products for the entry-level market since its inception and had extensive experience in tailoring products to the needs of first-time clients to the industry. The company also had the location advantage through its embeddedness in a sophisticated financial system able to support life insurance with linked financial services. Another important geographical advantage of Sanlam was its location in Africa, and in the South African market, a diversely segmented market, including an entry-level segment, for which Sanlam had developed appropriate products throughout its history. These conditions provided the company with country-specific advantages (CSAs) such as product knowledge, experienced staff, and distribution channels adaptable to similar markets in foreign locations. As Sanlam acquired strong operational capacity in African ELMs, the roll-out of home-grown products into those markets occurred rapidly.

(p.317) SDM’s operations in the ELM were not smooth. By 2007/2008 first-year lapses in Aflife and Channel were higher than expected. The loss-making Channel outbound call centre was closed in 2008. This pointed to compromised sales quality and imperfect selection, which also resulted in client complaints to the Ombudsman. During 2008 Aflife was reorganized and rebranded as Sanlam Sky Solutions. This rebranding caused confusion among clients and resulted in complaints to the Ombudsman about the quality of service. In 2009, SEM acquired PSGs 34.6 per cent stake in Channel Life, which gave SEM a 63 per cent stake in Channel Life. This acquisition broadened SEM’s Sky Solutions (Aflife South Africa) penetration in South Africa and retained the distribution relationship with the fast-growing Capitec Bank. Channel’s premium growth rose from R200 million in 2006 to R280 million in 2008, which justified the SEM acquisition. Other innovative mechanisms to grow the Sanlam distribution channel included establishing insurance companies as joint ventures with church organizations. An example is the Kganya Insurance Company established with the Zion Christian Church organization in 2011.77

Experience of insurance varied in the different African markets. In Botswana (through its joint venture with Botswana Life) and Tanzania (through Aflife) there was excellent group business and bancassurance, but less individual business. In Kenya (through Pan African Life) political volatility led to slower growth, but in Ghana (through ELAC) and Zambia (through Aflife) the reverse manifested. Long-term investments in the cluster included a recapitalization of Channel Life and a gradual integration of Santam’s short-term products into the Sky Solutions offerings. Africa’s economies had shown impressive growth since the first half of the 2000s. It made business sense to explore entry into Nigeria as well, but although it was one of the largest African economies (the SEAN economies—South Africa, Egypt, Algeria and Nigeria) it did not yet form part of Sanlam’s focus. The precarious nature of Nigerian governance required Sanlam to diligently investigate the potential market for a partner into the Nigerian market. From 2008 Sanlam engaged with various financial sector entities in Nigeria. In 2010 the final decision was made to partner with First Bank in Nigeria. SEM entered the large Nigerian market, but its life market was small and underdeveloped. A licence to conduct life business in Nigeria was issued in February 2010 to First Bank and that opened the door to commence SEM’s business. SEM signed an agreement with First Bank for the distribution of Sanlam ELM products in Nigeria. In 2010 operations expanded into Malawi via NICO Malawi and during the second half of 2010 Sanlam Life Insurance Uganda entered the Ugandan market. In these markets Sanlam also entered the health management business in 2010.78 The growth in the ELM markets exceeded expectations. By 2010 SDM contributed 8.6 per cent of Group financial services income and by 2013 (p.318) this had risen to 18 per cent. Operations included retail and group life insurance and related business, credit and banking financial services, investment management, and general insurance. These operations included the business in Namibia and India.

The first success with Shriram Life in India offered opportunities for further expansion during 2008. In May 2008 Shriram established Shriram General Insurance (SGI). Santam managed that business on behalf of Sanlam. Changes in the Indian regulatory context complicated Sanlam’s intention of growing its stake in Shriram. Regulation in India prohibited a promoter of an insurance company from owning more than 26 per cent of the equity. Owners in possession of more than 26 per cent had to divest over a period of ten years. Foreign owners were exempted from this, but if Sanlam could find a bank replacement equity partner and link its business to a bancassurance model, the company could achieve the higher growth rates it was after. In 2009 Sanlam established a new dedicated distribution channel, New Channel, in India. When Sanlam entered India, it had to pay a 357 per cent premium on the share capital as a prerequisite for entry—a practice Sanlam regarded as ‘common practice to gain entry to the Indian market’. By 2010 the cumulative annualized return on the R242.2 million investment in Shriram was still negative.79 It was therefore important to grow the business. Sanlam was positive on the growth potential of the Indian economy and therefore sought avenues to increase its footprint. The global financial crisis adversely affected potential insurance markets in Africa and India—SEM experienced a slowdown in growth during the last half of 2009 and in 2010. Sanlam waited for regulatory amendments in India, which were finally granted by the Cabinet in 2012, permitting FDI into local insurance companies from 26 per cent to 49 per cent. This opened the door to one of the largest financial services transactions in India in 2012. Sanlam acquired a stake in Shriram Capital India (SCI) for R1.920 billion. Sanlam’s direct interest in Shriram Life Insurance, its stake in SCI, as well as its stake in Shriram Management Share Trust, were placed in a holding company. The holding company held Shriram’s 85 per cent and Sanlam’s 29.2 per cent stake in SCL. Sanlam also bought a 4.97 per cent stake in Shriram Transport Finance Company (STFC).80 This was a market poised for growth.

From India the Sanlam strategy to access South East Asia went to a strategic acquisition in Malaysia. In 2012 Sanlam acquired a 49 per cent stake in Pacific and Orient Malaysia for R817 million. SEM Mauritius (Pty) Ltd, a wholly-owned subsidiary of SEM, bought a further 26 per cent in STFC, bringing SEM’s direct interest to 6.67 per cent. SEM also increased its stakes in CIH (Namibia), the NICO Group operating in Malawi, Uganda, and Tanzania (49 per cent) and concluded a stronger agreement with Santam, whereby Santam acquired an economic interest in Sanlam’s general insurance assets to a value of R181 million. In 2013 it was agreed with Santam that SEM and Santam would be (p.319) the only Group vehicles for investment in emerging-market short-term insurance ventures. Sanlam’s SEM managed the investments and Santam performed the role of technical adviser and reinsurance partner. In return, Santam retained a 33 per cent economic interest in general insurance investments and other individual businesses.81 In all SEM operations Sanlam secured firm control of the decentralized operations through the local boards, where Sanlam’s CEO and CFO represented Sanlam.

Delivering on commitment

A decade after assuming the leadership of Sanlam Ltd, Johan van Zyl was in a position to confirm to shareholders that Sanlam had delivered on its commitment made in 2003. That commitment was to deliver growth, operational and cost efficiencies, diversification, capital efficiency, and transformation. The Sanlam Group delivered 12.03 per cent annual compound growth on Group Equity Value between 2002 and 2013 (the first decade of Johan van Zyl’s management). Asset growth of 40.77 per cent was reported. Headline earnings per share rose by 17.31 per cent and embedded value per share by 14.85 per cent (all annual compound growth between 2002 and 2013). This achievement occurred in highly volatile economic conditions, exacerbated by the GFC. In South Africa GDP growth was sluggish, inflation was an average of 5.26 per cent, personal disposable income increased by 11.4 per cent annual compound growth and household savings declined from R3.1 billion in 2002 to negative saving of –R632 million in 2013.82 This was the result of weak economic growth. As the Group strategy was based on optimal growth on Group Equity Value (RoGEV—Return on Group Equity Value), the benchmark was to outperform the Group’s cost of capital by at least 100 basis points. The cost of capital was calculated at the risk-free nine-year bond rate (RFR—Risk Free Return) plus 300 basis points. The compounded RoGEV of the Group since Sanlam demutualized and listed in 1998 outperformed that target comprehensively by 2013. The target was exceeded by more than 170 basis points and the actual RFR by around 200 basis points in 2013.83

Sustained quantitative delivery on growth in the South African financial services sector had to contend with the increasingly demanding and complex regulatory environment. Statutory regulation of the financial services industry gradually began to followed global trends in implementing the so-called Twin Peaks regulatory dispensation, where prudential regulation is separated from market conduct regulation. In South (p.320) Africa the SARB performs prudential regulation and leaves market conduct regulation in the financial services industry to the FSB. Furthermore, the political agenda of the state, desiring regulation through industry charters of ownership, control and management of enterprises in different sectors of the economy, and especially over the direction and nature of delivery of financial services to the people, added to the regulatory overload. Market conduct by financial services intermediaries came under a growing body of regulations in terms of the Treat Customer Fairly (TCF) framework. This led to the promulgation of the National Credit Act, and amendments to the FAIS (Financial and Advisory Intermediary Services) legislation on matters concerning the protection of customers’ private information, intermediary commission structures, rebates of asset managers, regulation of ‘appropriate’ remuneration for certain products, and state intervention in the regulation of the retirement industry, social security, and medical schemes. The Sanlam Group operated in each of these areas of expanding regulation. Apart from the uncertainty of operation caused by the drawn-out discussion papers and interventions, it implied unfair competition in a market where Sanlam had successfully established itself as a South African corporate citizen.

Sanlam responded positively and proactively to the BEE and transformation aspects of the growing regulatory overload. In these instances it was considered a business imperative. Sanlam built on its empowerment history by repeatedly presenting its transformation credentials as simply doing what the company had done since 1918. The statutorily sanctioned B-BBEE industry charters and DTI scorecards impacted on Sanlam’s choice of business partners. The innovative and broad interpretation of the transformation agenda delivered exceptionally favourable results to the company during the Van Zyl opening decade. The UB transaction was the signature transaction, but was supplemented by numerous other partnerships with small and medium-sized enterprises with an empowerment component. By 2013 close to 30 per cent of Sanlam’s shareholders were blacks—including the PIC (Public Investment Commissioner) and small black entities. The sound business principles underlying the UB transaction reached maturity in 2013. In 2006, the favourable financial position of UB’s book led Sanlam to offer UB an early payment of dividends on the Sanlam shares in the latter’s portfolio. The providers of funding to UB argued that, despite the strict prohibitive conditions on the sale of Sanlam shares and dividend payments until debt is paid, the strong performance of the shares and the subsequent high dividend earned by UB on its Sanlam shares justified an early payment. Sanlam therefore paid a dividend of R50 million to UB with the explicit instruction that it had to be made accessible to the beneficiaries of the Sanlam–UBCDT.84

(p.321) The UB business relationship delivered on expectations. By the maturity date at the end of 2013, the 56.5 million ‘A’ deferred Sanlam shares would vest if UB had delivered on the conditions of the transaction, and to the extent that an assumed value of 765 cents per deferred share had been accumulated. The value of the accumulation was calculated based on a formula linked to the quantum and profitability of South African-sourced new business volume growth in Sanlam. This growth was calculated to be R57.1 million by the end of 2012. The bulk of the new business came in the growth of Sanlam Sky. The withdrawal by the PIC of a substantial portion of its mandate to SIM in 2006 undermined the performance of UB in the investment cluster. The counter performance by Sanlam helped to reduce the negative impact of the PICs decision. Sanlam’s share buy-back schemes gave the share price much-needed support. In effect, this management action increased UB’s shareholding from 8 per cent to 11.4 per cent at the end of December 2012. The sixfold increase in the Sanlam share price therefore assisted UB by 2013 to accumulate substantial value to redeem all debt and vest the ‘A’ deferred shares. By 31 December 2013 UB owned a 14 per cent stake (292.5 million shares) in Sanlam, all debt redeemed. This maturity outcome was assisted by the rise in Sanlam’s share price from 765 cents to more than 8000 cents in 2013, as well as the reduced number of shares in the market. Van Zyl and Motsepe commented on the mutually beneficial nature of the business relationship. The business partners were so content with their relationship that they entered into a joint venture, the UB Phase 2. Sanlam undertook to assist UB in becoming the leading black-controlled financial services business in South Africa.85

Developing the Sanlam business translated into delivering on commitments. The UB Phase 2 transaction took Sanlam’s empowerment legacy into the realm of functional transformation of the Group as truly South African. For a decade under Van Zyl Sanlam sold its customers a promise. That promise was to meet obligations to clients. To achieve that the company needed people, values, and a brand. Sanlam implemented corporate governance structures right from the board to lower levels of management. The board was the highest body overseeing corporate governance and ethical practice and compliance. In the first South African Business Ethics Survey (SABES) in which Sanlam participated in 2013, the company outperformed the other financial services companies surveyed. The outcome showed that respondents were aware of the Sanlam Code of Ethics, knew where to obtain advice on ethical matters, and how to report unethical conduct. The most important achievement was the transformation of the Sanlam people’s profile. In its employment profile the ratio of black to white employees changed from 30.3:69.7 in 2004 to 65.4:34.6 in 2013. This reflected the policy to ensure diversity, but to avoid exclusion, to reflect the demographic profile of the country. The Sanlam (p.322) Group Employment Equity Forum operated as a consultative forum to improve EE implementation and communication. To identify high-potential and specialized black employees for management level, was a challenge, given the growth and delivery promise Van Zyl so openly communicated as his commitment to the Sanlam stakeholders. The Group engaged in several graduate programmes to support education and training of people for employment in the company. The SanlamUp Graduate Development Programme, the Actuarial Graduate Programme, the Open Your World 2013 Vacation Development Programme, and the Sanlam CA Training Programme are dedicated programmes to give the best talent access to careers in Sanlam. While seeking to deliver on the promise to comply with the B-BBEE scorecard of the DTI, as well as the transformation targets of the FSC, the determining variable for Sanlam was delivering growth and thus value to its stakeholders. These empowerment criteria operated across a wide range of activities, adding up to a B-BBEE level contributor to black economic empowerment. In Table 6.4 the progress on the official scorecard is reflected.

Table 6.4. Sanlam Group B-BBEE scorecard, 2008–2012 (verified June 2013)

% weighting

2012 Total score

2011 Total score

2010 Total score

2009 Total score

2008 Total score








Management control














Skills development







Preferential procurement







Enterprise development







Socio-economic development







Total score







B-BBEE procurement Recognition level






B-BBEE status level contributor






Black ownership






Black female ownership






Source: Sanlam transformation report, 2013: 84.

Sanlam improved its score on black ownership and black management control marginally, but performed almost on full target with respect to skills development, preferred procurement, and entrepreneurship development of black people. The transformation record depended largely on the perception of South African society of the Sanlam Group. Performing outside strictly insurance and financial services was not new to Sanlam. Empowerment had been its history. Desmond Smith, the Sanlam Ltd Chairman, commented: ‘Values are universal: they transcend political, religious and cultural barriers. We believe that our values which have formed the bedrock of our (p.323) company since it was established some 95 years ago are fundamental to what we now call sustainable business.’86

The transformation compliance challenge operated in conjunction with CSI as an outward community engagement commitment, but also had to translate into an in-house changed content and committed workforce. The Sanlam Blueprint for Success was an initiative to build the organizational culture of Sanlam. During Sanlam’s first half-century, a family-like organizational culture characterized the Sanlam workforce. The people called themselves Sanlammers. In the truly South African era of the second decade of the twenty-first century management wanted to revitalize the spirit of Sanlam around the values of the new era. Management launched the Blueprint for Success initiative to increase engagement levels of employees of ‘our’ organization. The initiative presented the culture of Sanlam as characterized by humility, tradition, and success. The Blueprint for Success wanted to retain what already existed in Sanlam, but also to build it to a higher level of performance. The initiative drove this organizational culture by defining and measuring the achievement thereof. The assessment of workforce engagement showed a relative sense of organizational coherence, but underlined the need for sustained communication to succeed.87

Reporting on the sustainability of organizations required an engagement with the organization-in-society actions. Corporate social investment comprised an integral part of the transformation process, but also developed naturally from existing social engagements. Sanlam CSI directed efforts to grow the Sanlam business, but also to transform South African society. Social investment was principle-based. That meant the CSI activities were directly linked to Sanlam’s core businesses, whereby the Group’s business would be sustained. Five principles constitute the basis of CSI operations. The first is that CSI is conducted through partnerships and collaboration with NPOs (Non-Profit Organizations), while Sanlam employees are encouraged to join in the activities. The second principle is that CSI must be aligned with Sanlam’s core business focus. Therefore Sanlam engaged in six financial literacy programmes targeting young and adult persons. The third underlying principle is that CSI programmes must fit Sanlam’s values and brand and contribute to its corporate identity. The fourth principle is that all the CSI initiatives must converge in a holistic approach to social transformation. The fifth underlying principle is that these initiatives must have a long-term dimension. Sanlam was in the CSI environment for the long run to demonstrate the Group’s commitment to its stakeholders and society. Between 2009 and 2013 Sanlam’s expenditure on CSI rose from R19.3 million to R64 million, or around 1 per cent of net profit after tax. By 2013 Sanlam’s CSI operated on two levels. The first was the establishment of the Sanlam Foundation (SF) in 2011 to spearhead the CSI activities. The SF perpetuated the strong (p.324) education focus of Sanlam’s CSI of the past. The SF focus areas were programmes in financial literacy, the strengthening of mathematics, science, and English capabilities, HIV/Aids awareness programmes, environmental awareness programmes, enterprise development, consumer education, and the Executive Back-to-School projects. The other dimension of CSI was sponsorships. The determining principle for sponsorships was to support the passion of the people Sanlam serviced. These broad sponsorship categories followed on the sponsorship engagement throughout Sanlam’s history. In 2013 Sanlam sponsored nine national projects. The first was the Sanlam Kay Motsepe Schools Cup—a national schools’ soccer tournament. In collaboration with the Cancer Association of South Africa (CANSA) Sanlam sponsored the annual golf championship, the Sanlam Cancer Challenge. The Takalani Sesame TV and radio broadcasts are directed at school readiness and early literacy development. Another programme is the Takalani Club. This initiative operates at selected schools where children are exposed to high-level interactive education programmes (100 schools and around 8 691 children are involved). The Sing’it Lyrics Competition is an online lyric writing competition to develop local song-writing capabilities. The best songs are broadcast on Music TV. For the ‘good life’ Sanlam sponsors the Sanlam Investments Food and Wine Design Fair, which is held at Hyde Park in Johannesburg. The showcase of local artisanal content increases business turnover for exhibitors and markets the Sanlam brand. A signature event is the Woordfees (Festival of Words), a national cultural festival promoting the Afrikaans language through different literary and musical genres. Sanlam also has a long association with the promotion of financial journalism and sponsors the annual Financial Journalism Awards, which promote critical and cutting-edge financial journalism. The last sponsorship category is the Entrepreneur of the Year Award. This award has become a passport to success for entrepreneurs by affording them exposure to the value of R6.4 million.88

The Sanlam CSI is no different from that of other corporates in South Africa. The distinguishing element of the post-2008 B-BBEE CSI statute for business in South Africa was the quantification of impact. Performance in terms of the statute is scored in numbers on a scorecard, adding up to totals, which represented different categories of compliance. Generally, it is argued that it is difficult to determine accurately the impact of CSI on both the organization and its indirect beneficiaries. The scope of inputs and outputs and internal processes in CSI makes it a multidimensional concept that differs between industries and companies, each difficult to measure.89 In South Africa the FSC and DTI B-BBEE compliance mandates have compelled corporates to submit (p.325) information on expenditure, the number of beneficiaries, the impact on society, and contribution to social development. The sustainability report seeks to quantify CSI and contributes to the public perception of corporate citizenship. Sanlam manages its CSI as an extension of its business. Since 2013 the communication thereof in the Sustainability Report has become as important as the financial performance.


At the end of a decade of redirecting Sanlam from constrained operations facing adverse market conditions, capital impairment, and uncertain strategic direction, the Group emerged in an undisputed growth trajectory at the end of 2013. The company celebrated ninety years in the South African financial services landscape in 2008. That year was at the foothills of a successful turnaround trajectory. The Group had the benefit of a team of strategic thinkers at the helm. Johan van Zyl successfully integrated the managerial and intellectual capabilities of his executive team into a consensus corporate strategy of aiming for the globe from the firm foundations of local roots. Strategically the Sanlam Group was held together by a shared business philosophy that creates a ‘One Firm’ firm. This philosophy had its roots in an entrepreneurial culture with its essence captured in traditional values (such as honesty, hard work, and ethical behaviour), innovation, stakeholder value, and strong ties with business partners.90 The Group made significant progress towards becoming the leader in client-centric wealth creation, management, and protection in South Africa, and in emerging as a leading player in financial services in selected emerging markets of Africa and Asia, and specific developed markets. The functional structuring of the business of the Sanlam Group into autonomous clusters enabled the human capital capabilities in the Group to operate within a framework of ‘tight and loose’ parameters. The decade between 2003 and 2013 revisited the roots of Sanlam and confirmed those roots in negotiating the future of the Group. This was confirmed by Van Zyl: ‘Sanlam’s history has been a key driver of empowerment, economic advancement, wealth creation and protection. This is a legacy and a responsibility that we take very seriously.’91


(1) G.R. Jones and .JM. George (2009): Contemporary Management, 6th edition, McGraw-Hill: 504–8; 513–14.

(2) SA: Minutes of Sanlam Ltd Board, 3/12/2003: Confidential memorandum: capital management Framework, JPM/2003/11/26.

(3) SA: J. van Zyl presentation to Sanlam HR Committee, 30/1/2003.

(4) Ibid.: Minutes of Board, 12/5/2003; 4/6/2003.

(5) SA: Minutes of Sanlam Board: Memorandum J.P. Möller: Capital Management (Part 2): 12/5/2003.

(6) A path-goal management strategy refers to a clear goal-oriented strategy formulated by management, into which other managers are systematically introduced and integrated.

(7) SA: Minutes of Sanlam Ltd Board, 3/12/2003: Memorandum J.P. Möller: Capital Management Framework.

(8) SA: Minutes of Sanlam Ltd Board, 2 and 3/03/2004.

(9) SA: Minutes of Sanlam Board, 10/4/2004; 24/5/2004; 2/6/2004. Roy Andersen is fully bilingual and speaks an immaculate Afrikaans.

(10) SA: Minutes of the ad hoc subcommittee of the board regarding project X, 13/9/2004; 8/10/2004; 14/10/2004; 15/10/2004; 29/10/2004; SA: Confidential memorandum: Sale of investment in Absa, 12/11/2004.

(11) SA: Letter Steve Booysen (ABSA CEO) and Danie Cronjé (Chairman ABSA Board)—Johan van Zyl (Sanlam CEO), 5/11/2004.

(12) https://mg.co.za/article/2005-07%2626-sanlam-finalise-sale-of-absa-stake-to-barclays; Financial Times, 9/5/2005: ‘UK bank takes step back in time with S. African buy’: p. 29; Business Day, 11/4/2005: ‘Barclays set to buy major stake in Absa’: http://www.economist.com/node/3915787: ‘Absa’s allure: Barclays finally lays out its bid’: 28/4/2005; Daily Telegraph, 26/7/2005: ‘Barclays takes S. African stake’.

(13) SA: Minutes of Sanlam Ltd Board, 3/12/2003; 19/4/2004; 2/6/2004.

(14) SA: Minutes of Sanlam Ltd Board, 2/6/2003; 6/8/2003; 28/10/2003; Financial Mail, 24/10/2003: ‘Putting polish to the charter’: 14; ‘All cried out’: 22–4.

(15) Ubuntu is an African cultural belief that calls on individuals to come together, to be communal in their outlook, or to look out for each other.

(16) See Broad-Based Black Economic Empowerment, Act 53 of 2003; Definitions: ‘black people’ is a generic term which means Africans, Coloureds, and Indians—

  1. ((a)) who are citizens of the Republic of South Africa by birth or descent; or

  2. ((b)) who became citizens of the Republic of South Africa by naturalization—

    1. ((i)) before 27 April 1994; or

    2. ((ii)) on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalization prior to that date;

[Definition amended by section 1(b) of Act No. 46 of 2013].

(17) SA: Minutes of Sanlam Board, 28/10/2003: 3/12/2003; 3/2/2004; P. Ndzamela (2016): ‘Ubuntu-Botho pays R830m dividend’, https://www.businesslive.co.za/bd/companies/financial-services/2016-03-29-ubuntu-botho-pays-r830m-dividend/ (accessed 14/4/2016); www.bloomberg.com/markets.

(18) Sanlam Annual Report, 2004: 112–13.

(19) SA: Minutes of Sanlam Ltd Board, ‘Buy out of Innofin minorities’, 23/10/2003; ‘Sanlam Group strategy and business structure’, 22/4/2004.

(20) SA: Minutes of Sanlam Board, 26/8/2004; 1/12/2004; 1 & 2/3/2005.

(21) SA: Minutes of Sanlam Board, 26/8/2004; 1 & 2/3/2005; Sanlam Life Board, 27/5/2004; Sanlam Life Board, 6/5/2005; J. van Zyl (Sanlam CEO) and J. Rowse (Aflife CEO) presentation to Sanlam Life Board, 24/2/2005.

(22) Sanlam Annual Report, 2004: 112–13.

(23) Sanlam Annual Report, 2003: 93.

(24) SA: Minutes Sanlam Board, 3/12/2003.

(25) SA: Minutes of Sanlam Ltd Board, 5/8/2005.

(26) SA: Minutes of Sanlam Ltd Board, 5/3/2005; Sanlam Annual Report, 2005: 108–9.

(27) A.D. Chandler Jr (199) Strategy and Structure Chapters in the History of the Industrial Enterprise. Cambridge, MA: MIT Press.

(28) Sanlam: The IT journey: 53.

(29) SA: Minutes of Sanlam Ltd Board, 7/9/2005: The Sanlam Group of Companies; Minutes of Sanlam Ltd Board, 23/11/2005: Presentation J. van Zyl: Strategy and structure; Minutes of Sanlam Ltd Board, 7/12/2005.

(30) These considerations motivated the establishment of the Dutch subsidiary in 2001. Minutes of Sanlam Exco 7/5/2001. In 2003 the strategic position of Sanlam Netherlands Holding BV was justified on the same considerations.

(31) SA: Minutes of Sanlam Ltd Board, 2/6/2004; 4/8/2004; 1/12/2004; 3/8/2005; 7/12/2005.

(32) A highly publicized case of a Sanlam holder of a retirement annuity went to the Pension Fund Administrator. Mr de Beer claimed that Sanlam had charged excessive costs and failed to pay out what was promised in the policy document. Judge Denis Davis ruled against Sanlam. The case earned Sanlam very negative publicity, despite the case being representative of policies across the long-term insurance industry. The Life Offices Association (LOA) joined in the dispute, but a resolution of the dispute required generic adjustment. Sanlam was particularly upset about being made the example of a practice widely applied in the industry. SA: Minutes of Sanlam Ltd Board, 7/12/2005; D. Basson: ‘Lessons of the Sanlam decision’, Finance Week, 30/3/2005: 13–14.

(33) Personal Finance, 27/8/2005; Personal Finance, 23/10/2005. The court ruled against the insurance companies disputing the authority of the PFA to address complaints by policyholders on matters pertaining to the terms and conditions of the policy.

(34) SA: Minutes of Sanlam Ltd Board, 23/11/2005; 7/12/2005: L. Lambrechts JRF/jv: Memorandum: Improved early termination values for existing policies, 24/11/2005.

(35) A.M. Pettigrew (1987): ‘Context and action in the transformation of firms’, Journal of Management Studies, 24 (6).

(36) C.K. Prahalad (2004): Fortune at the bottom of the pyramid.

(37) F. Louw (2005): ‘Thinking Ahead’. Sanlam’s approach to corporate social investment, February 2005.

(38) SA: Minutes of Sanlam Ltd Board, 7/12/2006; Memorandum HW/bg: Entry-level market (ELM) integration initiative, 30/11/2006.

(39) SA: 4/24: Marketing Research: J. Dommisse (2006): Profile and penetration of insurance companies. SAARP AAMPS Survey 2006.

(40) SA: Minutes of Annual General Meeting of Sanlam shareholders, 21/09/2005.

(41) SA: Minutes of Sanlam Ltd Board, 24/11/2004; 1 & 2/3/2005; 1/6/2005; 7/12/2005.

(42) J. Lambridis (2007): ‘Sanlam Limited (SLM). FY06 results.’ Citigroup, 13/3/2007.

(43) Due to the introduction of IFRS in 2005, financial reporting was restated in terms of IFRS requirements only from 2004. The published figures for earlier than 2004 are not IFRS restated.

(44) SA: Sanlam Ltd Board Summit, Erinvale, Somerset West, 3 & 4/8/2004.

(45) SA: Minutes of Sanlam Ltd Board, 4/3/2003: Memorandum J. de Kock: Group Risk Management, 22/11/2002.

(46) SA: Minutes of Sanlam Ltd Board, 3/3/2004; 22/4/2004; 1/6/2004.

(47) SA: 3/5/5: KMB/CSI: ‘Thinking ahead, staying relevant’. Transformation Report, 2003: 1.

(48) SA: Sanlam Advertising and marketing survey, March–April 1993.

(49) Interview Walter Scheffler, 24/2/2009.

(50) Ibid.: 32. This calculation was made for the purposes of the transformation report, and has not been repeated since. Sanlam does not maintain demographic information on shareholders.

(51) Ibid.: 7, 6.

(52) J. Kerr (2008): ‘The creative capitalism spectrum: Evaluating corporate social responsibility through a legal lens’, Temple Law Review, 81: 831–70.

(53) SA: Sankorp, Confidential memoranda, 13/6/86; 14/7/87.

(54) SA; Sanlam Life Board Minutes, 10/1/89.

(55) Sanlammer, 5/8/1994; 16/9/1994.

(56) Sandaba, October 2004: 6.

(57) Sandaba, February 2004: 15; Sanlam Personal Finance, July 2013: 29.

(58) Sandaba, December 2008: 17; also see Venter (2016) Development of Human Resources 1994–2015 with Sanlam.

(59) Sandaba, July 2009: 1.

(60) Official email communication: F.A. Stroebel, 30/3/2016.

(61) Sandaba, February 2012: 11.

(62) Sanlam: The IT journey, 1990–2014: 23–5; 31–2.

(63) SA: Minutes of Sanlam Ltd Board, 2002–2014; Sanlam Life Board Minutes 2002–2014.

(64) Sanlam Annual Report, 2007: 119.

(65) SA: Minutes of Sanlam Ltd Board, 3/3/2008: Sanlam Board Summit, 1/8/2007.

(66) Sandaba, July 2014: 3; Sanlam Personal Finance, September 2014: 16–17.

(67) Interview with Heinrich Punt, 9/10/2014.

(68) SA: Minutes of Sanlam Ltd Board, 2/12/2009; 8/12/2010: Memorandum JPM: Sale of MiWay, 30/11/2010; Interview Ian Kirk, 10/8/2017.

(69) SA: Minutes of Sanlam Ltd, 7/12/2007; Sanlam IT: 27–8.

(70) SA: Minutes of Sanlam Ltd Board, 8/2/2008.

(71) SA: Minutes of SIM Board, 3/4/2006.

(72) Linked Investment Service Provider.

(73) SA: Minutes of Sanlam Ltd Board, 6/6/20007; 23/11/2007; 3/12/2008; Sanlam Integrated Report, 2011: 13; Sanlam Integrated Report 2013.

(74) Sanlam Integrated Report, 2013.

(75) SA: Minutes of Sanlam Ltd Board, 5/3/2013.

(76) J.H. Dunning (1993) The Globalization of Business. London: Routledge.

(77) This church organization was established in 1924 and has a following well in excess of 5 million.

(78) SA: Minutes of Sanlam Ltd Board, 3/12/2008; 3/12/2009; 8/12/2010; Sanlam Limited: CEO Report.

(79) SA: Minutes of Sanlam Ltd Board, 10/3/2010: Memorandum JvZ/af: Future strategy in India, 4/3/2010.

(80) SA: Minutes of Sanlam Ltd Board, 9/3/2011; 22/8/2011; 5/12/2012.

(81) SA: Minutes of Sanlam Ltd Board, 5/12/2012; 13/3/2012; 5/6/2013; 12/2/2014;

(82) South African Reserve Bank, Quarterly Bulletin of Statistics, 2002–2014.

(83) Sanlam Integrated Report, 2013: 121.

(84) SA: Minutes of Sanlam Ltd Board, 7/12/2005.

(85) SA; Minutes of Sanlam Ltd Board, 2/3/2012; 5/12/2012; 4/12/2013; 5/3/2014; Financial Mail, 26/3/2014: ‘Motsepe’s new ambition. Forget mining, financial services is his next big play’: 20–4.

(86) Sanlam Group Sustainability Report, 2013: 7.

(87) SA: Minutes of Sanlam Ltd Board, 5/6/2011; 3/12/2012; Sanlam Sustainability Report, 2013: 40.

(88) Sanlam Sustainability Report, 2012; 2013.

(89) S.A. Waddock and S.B. Grave (1997): ‘The Corporate Social Performance–Financial Performance Link.’ Strategic Management Journal, 18 (4): 303–19; K. Udayasankar (2008): ‘Corporate Social Responsibility and Firm Size’, Journal of Business Ethics 83: 167–75.

(90) SA: Minutes of Sanlam Ltd Board, 3/12/2012: Sanlam Business Philosophy: November 2012.

(91) Sanlam. Riding the wave. Sanlam’s socio-economic impact in South Africa and beyond. Sanlam, 2013.