198: Kevin Watson

You’re either part of the disruption or you’re going to be left behind’

Welcome to the CFO Club Africa podcast, where we interview leading CFOs from Africa and beyond. CFO Club Africa is a division of the Chartered Institute of Business Accountants, the professional body for business accountants, financial managers and chief financial officers. Go to www.cfoclub.co.za and join our community of accounting and finance executives.

Welcome to this CFO Club Africa podcast, each week we speak to leading chief financial officers and finance professionals about their professional journeys, their perspectives on the industries they are involved in and their perceptions of the skills modern CFOs must have to lead successful organisations.

My guest today is Kevin Watson, he’s a chartered accountant, he has an MBA from the Edinburgh Business School and he’s also a Certified Director. He has 33 years of experience and has worked in close to 20 countries all around the world. He is currently the Chief Operating Officer of the firstEquity Insurance Group, and he has been in this role for more than five years.

Before joining firstEquity, he was the CFO and COO of Ivory Holdings, the Vice President of finance of IFA Hotels & Resorts and he also held senior finance and management positions at the Shell Oil Company.

Kevin, just tell us about your professional journey because you’ve been involved in various economic sectors, ranging from IT to tourism, to insurance. How did you end up in the insurance industry?

I started out doing my articles here in Durban with a company now called Baker Tilly Morrison Murray, it was a relatively small firm and I think we only had one listed client, which was Grindrod. So I got great exposure back then to a lot of small businesses and how they worked. We worked in the day before computers were mainstream, so we physically wrote up books and everything was done manually. So I think we had a great understanding of how things fitted together and maybe that’s something that’s missing now, where software does everything for you.

That’s how I started my journey and then I qualified and went across to the UK and I spent time there in an IT company doing treasury management, jus basically putting together spreadsheets on how to manage their cash forecasting and how to invest the excess cash and borrow down on their facilities when there were shortfalls and so on. That was fairly interesting but once again, that was all fairly manual. Excel had just come out, so it was a great tool at the time to use.

Then I moved onto a financial controller role with Canary Wharf Limited, it was a start-up company to develop a mixed-use development at Canary Wharf in London. That was a fantastic experience on how to set up a team. That was in 1997 and IT was moving on, emails were coming onboard, we had great finance systems, I think we used Great Plains then. So that was a great three years of learning in the UK.

Then I returned to South Africa and started up in Durban here at a company called Shell Auto Care, which was a car servicing franchise business, and we did a lot of acquisitions at the time, buying back franchise stores. So that gave me good exposure to the world of M&A. Then went with Shell to the US, spent some time there in governance roles and an MD-type role with a new business that they were starting, doing heating and air conditioning.

Then I came home one Christmas and one of my friends who was an auditor at a company that was just about to list, he said they need an FD. So I came back to South Africa in 2006, which is when I started with IFA Hotels & Resorts. It was an amazing experience to be part of a listed company, there was obviously a lot of work to be done in learning the listing rules and the different governance things that need to happen.

Fourteen years ago I joined the Ivory Group, which has since become the firstEquity Insurance Group, and there it was more about getting into something that was growing, that I could get a shareholding in and create some value. It’s been a fantastic ride, it was a family business who thought they needed a CFO to help out and we’ve done great things in the last 14 years.

Tell us about firstEquity because it seems to be a very unique insurance model you have?

The firstEquity Insurance Group, we are primarily insurance brokers and we’re in nine African territories. We’ve got different brands, some brands are generic brands, we’ve got a PSG franchise, we’ve got SATIB Insurance Brokers, which is focused on the tourism sector. We’ve got businesses in Mauritius, Zambia, Zimbabwe, Botswana, Namibia, we’re about to open up in Kenya. Across all the territories it’s about 250 staff members.

Then we also do work for the insurers, so we’re a binder holder, the insurer pays us to do some of the administration for them. In our next evolution now is to try and turn some of that into risk-taking, so becoming an insurer for certain products.

We’ve morphed from what was a tourism-focused insurance brokerage to expand territorially, grabbing more bites of the value chain, getting more into the digital space as the industry gets disrupted.

In a pure accounting education, you are never taught the strategic thinking part of running a business, you always focus on the accounting and in many cases the auditing side. How easy do you think it is for the average or the normal accountant, CA, to make that transition in a seamless way and become good at also the strategic part of an executive role?

I made the decision in the early 2000s that I needed to do an MBA to learn more about the business side because I think the CA training may have evolved since the mid-90s when I qualified but it was really focused on the financial side of things back then. I decided to do an MBA to get a better flavour of the different parts of the business.

But I think if you start in a CFO role, it might take a while but as you get involved more and more in the business, you’re involved in the management meetings, you’re listening to the head of marketing, HR, operations, IT, all talking, I think you get to learn a lot about what’s going on in the business.

I think as a CFO you need to understand the key drivers of value creation, the key risks that need to be managed and those are across the different functions. I think the longer you stay in the CFO role, the more you pick up general business acumen.

Let’s talk about a few of the challenges facing CFOs in South Africa, and I want to start with cross-border tax, which seems to be very, very focused but, as you’ve explained earlier, the business does business in many countries in Africa. Is that a big concern of yours, the administration of cross-border tax?

We’ve obviously got a lot of advice over the years of how to do things properly. It does add an extra bit of administration but let’s put it this way, some countries are quite difficult to get your withholding tax certificates out of and so on but with most of them now, it’s fairly easy. We’re quite small in the space but we take transfer pricing quite seriously, we make sure that all the different businesses are getting a fair shake. We’ve got different shareholding structures in some of the companies, so we have to do it anyway.

I think if you get the right advice upfront and you just change your processes slightly, it fits in seamlessly. You may have the odd challenge of getting a certificate from a foreign tax authority but that’s pretty much it.

What are the biggest challenges that you face?

I think in the insurance industry there’s a lot of disruption going on. The big direct insurers, which you see advertising and spending hundreds of millions advertising on TV, are generally training the public to believe that you don’t need a broker, you can go direct, and you’ll be fine.

I think what we’ve found now is that’s absolutely true for simple insurance, like a car insurance as an example, but the more tricky insurance like business insurance you have brokers that focus on niches because there are differences that need to be considered.

I think the first thing is just to acknowledge disruption and that parts of your business, like personal lines, which are basically your individual house and car, are fairly commoditised and the broker is going to be cut out of that. It’s happening slowly but surely. So we’ve had to pivot our business model onto more niche plays, to more specialist broking areas, but we still have a big segment of our group that focuses on the other activities.

We’ve taken the stance to be part of the disruption, so part of our group is a company called Everything Insure, which is in the soft launch phase at the moment, where you can get multiple quotes from different insurers, bind the policy right there and then, register your claims online and so on. We believe that it’s the first in the market to be able to do that.

So we’ve taken the stance that we are going to be disrupted, what’s it going to do to us, how can we mitigate that risk and we’ve set up this company. I think disruption is a big thing that we need to keep our eye on.

You’ve mentioned that you’re an avid reader, what are you reading at the moment?

At the moment I’m actually reading a book about how Jack Welch destroyed capitalism. I read a lot of his books earlier, his leadership-type books, and I always thought they were great. Any of the Jim Collins books too, Good to Great and How the Mighty Fall, those are two fantastic books about the things that you should and shouldn’t do in a business to make sure that you’re sustainable and creating value.

Then there are also books on the things not to do, books like Steinheist by Rob Rose. As a CFO, you’ve got to keep your eyes and ears open for red flags. So it’s interesting to read that kind of stuff.

CFO Club Africa is affiliated with associations of finance executives in France, Germany, Italy, Spain, Portugal, Greece, Mexico, Morocco, Tunisia and Namibia, and annually hosts an international CFO summit. You have done the work and achieved the CFO title, now join the CFO Club Africa as a finance executive.

Ryk van Niekerk is an award-winning financial journalist with over 20 years' experience. He is Moneyweb’s editor and hosts the Market Commentator podcast and RSG Geldsake, covering the markets, and financial and investment content, joined by CEOs, entrepreneurs, policymakers and others.

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