And Then They Fired Me 9780624053019, 9780624053255, 9780624061281

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Jannie Mouton

“and then they fired me”

Tafelberg

Introduction

The day I was fired as SMK’s managing director, my life was put on a new course. I had to delve deep, think a lot, learn and also make mistakes to get where I am now. With the wisdom of hindsight I can now say that day in 1995 was a blessing in disguise, really. It was a life-changing occurrence that led to the founding of PSG, thanks also to the help and support of loyal, talented colleagues about whom you will read more in this book. Around the middle of 2010, the publisher Tafelberg approached me to write a business book about myself and the weal and woe of PSG. At first I was not in favour of the idea at all, because it felt arrogant and conceited. The publisher kept insisting that I had something to say that others would want to read, and so I changed my mind over time. Perhaps someone could learn something from all the lessons – good and bad – I’ve learnt in life. Six years ago I compiled a book, Gee vir my geleenthede (Give me opportunities). It was hard work which I did for the love of it. I never sold a single copy, but gave it to friends who were interested. The book, the interest and the feedback gave me a lot of pleasure. Thinking about that also encouraged me to agree to a book from which I would not benefit financially. When the publisher asked to whom I would like to dedicate the book, my mind got going. To whom? Dana, my wife of 30 years who died on May 11, 2004 was the first person I thought of. My children, of whom I’m infinitely proud and who’ve only given me joy, were also constantly in my thoughts. On October 2, 2010 (my birthday) I married Deidré Uys. Yes, she’s my soul mate and pal now and we walk the road every day with a new song. Why not to her? But I have grandchildren as well, who are more than special to a grandfather, of course. In the end I dedicate the book to all who have been loyal and good to me throughout my life, my parents, family, friends, shareholders of PSG, and

colleagues who have stood by me and been good to me the past few years. Harsh as I can be, I’m a compassionate person and I don’t want to omit anyone.

Enjoy the read!

Jannie Mouton Stellenbosch January 31, 2011

PART 1

The preamble to the founding of PSG

The concert with morning assembly – growing up

I neatly eased the sheet of white, lined paper in between the felt hammers and the strings and carefully closed the lid of the piano. As head boy of the primary and high schools in Carnarvon it was one of my duties to unlock the door of the hall on a Monday morning. No one else was in sight yet, there was only the sound of the children on the playground that grew louder with every window I pulled open. At assembly we children sat on the wooden floor. When the music teacher started playing the psalm or hymn or whatever it was, a z-i-i-i-ng noise sounded over our heads and over the teachers on stage. He played a few more notes, and again the jarring notes instead of the notes of the middle octave could be heard. The teacher was quite a funny guy. When he flipped open the piano, fished out the sheet of paper and triumphantly waved it in the air, the whole school burst out laughing. Then of course the big question was: Who put the paper in the piano? I went to confess to the headmaster and bent over – those years getting a hiding still involved some sort of honour, one was kind of a silent hero. But I never got a hiding for failing to do my schoolwork or playing truant. It was only for naughtiness with friends. There were about 300 to 400 children in the whole school and the athletics track was in fact the equestrian course of the showgrounds.

The day we helped the physical training teacher to measure the track for the 220 yards (back then the distance was not in metres) he would not be persuaded by my insistence that the athletes shouldn’t all start on a straight line because then the guy in the outside track would have to run much farther than the guy in the inside track. I eventually proposed that we ask the maths teacher for advice.

In my matric year my dad brought me a pair of spikes from the Cape, but I was afraid the spikes would get blunt if I trained in them before the “big” meet in Williston. I decided to wear white socks with the black shoes, and to put a black comb, a big fashion item back then, in one sock. Since the athletics course went downhill in the neighbouring town, we ran astronomical times there. But that’s not why I remember that day. On my way past the stands I kind of looked down to marvel at my shoes again. What I didn’t know, was that with spikes one couldn’t stop in one’s tracks at the finishing post, but had to run a little farther. And right there, although I came first, I fell like a log right in front of the stands. Before our school finally got a bus, the rugby and netball teams were transported to Williston and other surrounding towns in sheep lorries. In Fraserburg the rugby field was laid out on a hill, and the two fullbacks couldn’t really see each other. We children also had to replant the grass of our rugby field if the sun and drought had burnt all life from it. Carnarvon was so remote that when our headmaster had a heart attack in our matric year, chances of getting a new bookkeeping teacher were slim. I had to substitute as “teacher” in those periods with a little help from my dad at night. At least no one failed that year.

Even today my friend and ex-colleague Pierre Brink and I still sing the old school song sometimes when we get together. Or rather, we sing it with Charl de Witt, because he can sing: Though we come from the dry Karoo With pride we can say We battle and fight With heart and zeal

And will remain victors Famous for conduct and glory . . .

Parties or playing tennis on the surrounding farms and in town were frequent affairs and my father, Jan, was very social. When friends came over he pleaded with them – “we’ll sommer open a few bliks” – to stay for dinner, while my mother, Juliana, set great store by hot plates, a butter knife and the ears, spouts and spoons of her tea tray being in a straight line. On a Saturday we children would also go to see a movie at the Adelphi Cinema. To order a Coke float at a table might have been the crowning glory of the evening, as Pierre said. Whatever my elder and younger sisters, Engela and Santi, started, I always won – whether it was draughts, chess, Monopoly, Ludo, Canasta, Rummy, arguments or small fights, tennis or golf. We had our differences, but the utmost revenge was apparently when I prayed one night: “Thank you, dear Jesus, for a pretty sister and an ugly sister.” Engela received distinctions and Santi went on dates with my friends. We had a sense of duty from an early age, because my father, Jan, made us work in his shop, even for a large part of the holidays. Initially I thought it unfair, having to work while everyone else could gallivant on their wide-rimmed bicycles, but later I realised how valuable it was, compared with the nonsense of the so-called gap year that pupils and students insist upon nowadays. I started in the storeroom in standard 6 (now grade 8), in standard 7 I worked in the men’s department of the general dealer, then it was the groceries section and in my last two school years I did my duty in the bookkeeping department. It was not as if we grew up disadvantaged; on the contrary, my father wanted us to learn something. After all, he grew up almost an orphan with his sister and had to go work first to be able to pay for his BCom. In later years we would visit my aunt in Maitland, my father always had something for her, because she had a difficult time. He could do sums extremely fast: he could literally let his fingers glide over pounds, shillings and pennies and then write down the amount. Before he bought the store he was a maths and accounting teacher. He was also the one who taught

me about shares back then, because every afternoon after work he listened to the share prices on the radio. In his absence I had to do it. He didn’t have excess praise for us, but neither did he haul my sisters and me over the coals for a bad mark. We lived on a double stand with my maternal grandfather – us on the one part and he, after my grandmother’s death, on the other. We grew carrots, beetroot, lettuce, marrows and potatoes. The lucerne was for hand-fed lambs and the cow. We also had a henhouse and a windmill. When my grandfather started becoming forgetful, we children had to take turns to sleep there at night. I often had a double shift because my little sister was too scared – we thought the house was rather spooky. And when my grandfather died, oupa Karel, a man whom we loved very much and cared for all those years, in fact carried out his threat and disappeared overnight to the “Great River” from where he said his people had come. Santi always maintained he baked better bread than my mom. It might sound a touch boastful to talk about the shop and the school and those things, but remember, it was not hard to excel in sports and academics in a small town. In such a town the church was the heart of the place on a Sunday and the store on weekdays. My father was chairman of the building commission for the new church, as well as the school board. That’s why he couldn’t bring himself to send us away to fancy schools like my mother who, in her day, had to transfer to other trains twice on strange stations on her way to an English boarding school in Grahamstown. My father wanted to be loyal to the town. Accordingly, he put on his brown suit on a Sunday evening and attended the service in what was then known as the mission church – the coloured people were his clients as well. My friend Franklin Sonn, whose people were also from Carnarvon, says he still remembers that brown suit. My sisters and I always had to accompany him to the prize-giving ceremony of the coloured school. As children, we didn’t see colour or class differences in our friends. Maybe the rugby or cricket ball belonged to the “rich” guy and that was it. In high school your friends of yore would stand outside the cinema and heckle you when you walked in, but even then you were almost too stupid to really understand the true

dynamics of apartheid. My mother gave sewing lessons and made wedding dresses and hats – back then one couldn’t just go and buy them. On many a Saturday morning she was in charge of collections and other similar actions on the corners of the town’s streets, for instance for the blind. She was dignified, neat and industrious, and a little superior to the average. People took note of her, because she had style. While my father was the humorist, she had a fiery temper and was a little naïve. We often had to explain a joke to her, to everybody’s amusement. Her people, the Van Wyks, lived in the district. My two uncles were farmers, therefore my sisters and I grew up with one foot on the farm and the other in town. In those years the wool price was good and the sheep farmers were in high esteem – my grandfather was a founding member of Vleissentraal and my uncle served on the Wool Board. My uncle Dirk was my hero. I went all over with him – on the farm and to neighbouring towns where he had to act as rugby selector. He had a tremendous knowledge of the veld. He taught me to love it and to understand the art of counting sheep. My mother was possibly the only person in Carnarvon who could speak English. We realised this because of the English essays I had to submit to Mr Hough on Mondays. I found them terrifying! Every weekend I postponed the writing until the Sunday evening. They came back full of red markings, though I was not quite bottom of the class. After all, one could learn the tenses by heart. “No, Jannie, enough is enough,” my mother said one Sunday and rewrote my effort in her well-rounded private school English. The Monday after school Mr Hough called me in for a serious chat: “Jannie, I can’t believe you have regressed that much in a single week . . .” My mother and my teacher clearly did not speak the same English. In later years my father also bought a garage and a farm. I was privileged to have grown up in a town like that. The town was good to us. Yet my matric year was the last all of us spent in Carnarvon. While I was at the naval gymnasium in Saldanha, my dad, having served as

mayor for several years, saw politics beckoning. My mother was a Sap, he a Nat. He stood for nomination as National Party member of the national assembly in the Prieska constituency, but lost to the man who already served in the provincial council. He had lost his appetite for the store and so he, my mother and sister who still lived at home moved to Pretoria. In middle age I also moved to a new place, from Johannesburg to Stellenbosch, and that’s the story I want to tell.

Matie man – student life

Perhaps my decision in the beginning of 1996 to move to Stellenbosch of all places was due to the fact that I had enjoyed life in that town so much as a student. I started studying for a BCom in 1966 and lived in the Simonsberg residence, but the best thing was the friends I made. Some are still with me on the road – many as colleagues. I loved res life immensely and I went all out for it. I’m a social person, like my father. Later on in Johannesburg I started an association for former Simonsberg residents. It’s great to keep the tradition alive. Through golf days via the Matie alumni golf club, we’ve collected money for sports bursaries for guys like Hennie Bekker and Robbie Blair. My son Piet serves on the executive of the Simonsberg association nowadays, but his brother, Jan, who takes after his mother, eventually chose peace and quiet for his studies in his final year over the noisy res. Simonsberg may not be aware of it, but I once protected its dignity by means of two intentional false starts at the athletics meet for first-year students, thereby getting disqualified. I might have been the fastest guy in the res, but in Carnarvon I had read in the papers what kind of times the guys in the Cape ran, after all. I think Gert Muller and Andy van der Watt, both of whom later became Springbok wings, would have outrun me by at least eight yards, and I was not prepared to see that happen. Because of our larking about, we later had to teach a cop a thing or two, but students nowadays will have a hard time understanding that. Being naughty those days would probably look innocent or even childish today. Also try telling a youngster how you hitchhiked between your parents’ home in Pretoria and Stellenbosch to be able to keep the train fare your father had given you. I learnt hitchhiking while in the navy. It’s amazing how many rides one

could get with a striped Matie blazer hooked over one’s shoulder and the thumb of the other hand stretched out to the road. And the times I did take the train, I chose to hoof it from the station to the res. You could get a porter to deliver your luggage to Simonsberg, but it cost a full rand! So, as it happens, you had just too much luggage for a single walk. I carried the two suitcases for about a hundred metres and put them down, went back for the cake tin and laundry bag and carried them about a hundred metres beyond the suitcases before turning back for the first load. When my children hear this story, they think I’m crazy. They also thought I was nuts when I tried reasoning that a child didn’t need a cellphone and what was this nonsense of watching television all the time. A home didn’t need a television set. After all, it was much more fun doing a Sudoku than watching Top Billing. I passed my exams reasonably well, but regarded spending time with friends much more fun than earning a cum laude degree. As a keen rugby player I made it into Maties’ second team. I was not too bad either playing wing for the res team, but as the only fresher in the team the guys squarely cut me down to size at the braai at the end of the year. I had to do the cooking and they kept on pouring booze down my throat until I was brave enough to go and mock the theology student on the house committee in front of his door. Boy oh boy. Another time when I might have had too much nerve was when, after a house dance in the town hall, I told a rough guy with a leather jacket and long hair who everybody knew as Zobo, to go and stir up noise with his motorbike elsewhere. He was always picking quarrels with students in Tollies, our hang-out, and would even take your drink or cigarette (a beer cost a full 11 cents). Fortunately my pal Burton Fourie, a lock, came to push the guy back down onto his bike when he approached me, or else I would have got a thrashing. In our final year Rudolf Gouws, later chief economist of Rand Merchant Bank, and I were so-called demis (demonstrators) who had to help marking papers and the like. The two of us were the dunces in class. My friend Niel Krige is still dumb-founded about that unsympathetic 74% I scribbled on his first-year paper, and when he said it had not been marked properly, I fired back: “But why are you complaining? That’s enough. And don’t be a braggart!” He still says he learnt from that, and of course in the end he

graduated cum laude and later became managing director of Momentum before being appointed professor at the Stellenbosch University’s business school. In the holidays I worked for extra money. Fortunately my father paid back my teacher’s bursary so I didn’t have to go teaching. While doing my honours in economics I also took a few BCom (Acc) subjects because at that stage I wanted to become an accountant. I can talk and reason for hours about any subject, whether it’s the oil price or inflation or state expenditure, but in the end I found economics to be too much of a philosophical subject and not exact enough. As in school, I never missed a class at varsity. Fortunately my roommate in my first year, Otto Jaekel, was one of the most disciplined people I know. My pals also say I have a constitution of iron, because in my career of longer than 40 years I never took a single day’s sick leave, although I sometimes left for home at noon when I had the flu, and had a neck operation in old age. But late night partying is no excuse to stay at home. Then there is the story of the black suit – before I would get to the black robe. Prof Kobus van Zyl Smit, our accounting lecturer, asked me to invigilate on his behalf at an extramural class on a Saturday morning. The only problem was that the party the previous night had been in Malmesbury. A girl had invited me to a dance there. So the roof had been raised until the wee hours and there was no time to go and change out of my evening suit, complete with bow tie, before the invigilation. I handed out the test papers, took a seat at the front of the classroom and it became quiet. Allegedly I dozed off and fell off the chair with quite a thud. It has to be true, because I had to dust myself off a little and get up, but I didn’t fall asleep again. The story also reached the prof’s ears, and my word, he was such a conservative man! Yet he still asked me and my friend Kleintjie Bellingan to do our articles at Coopers Brothers (now PWC) because he had just become a partner there. For me it was a great honour, because the prof was a smart guy who could write CA and LLD behind his name. We also became bridge partners at the Bellville club. Later I could at least compensate in a way, as he was the first person I

approached to become a director of PSG. Coopers Brothers was an English firm and at first it was a hard grind. The first day I asked the man who handled the petty cash: “May I please have the small cash records?” I remember he gave me quite a look, because he couldn’t figure out that “small cash” actually referred to “petty cash”. Before I would get to Johannesburg, Cape Town was my home for four years, as well as all the rural towns where we went to do audits. Kleintjie and I were once even chosen for the Okiep town rugby team, but after the audit at the copper mine was done we had to return to Cape Town. But first he and I found a way to track down the two pretty girls in the movie theatre. One of our duties was to balance the ticket sales at the mine club’s movie theatre, and we made a plan. The movie was interrupted and the lights switched on so we “could ascertain that the ticket sales tallied with the number of movie goers”. In that way we could determine where the girls were sitting and could go and hold their hands in the dark, just in case they felt lonely. I think one can probably call our commitment “creative accounting”. Kleintjie also remembers the Friday afternoon we had to wear white coats to go and count chickens at a broiler business in Kuils River as part of stocktaking. Apparently I shouted loudly at the thousands of chickens as if they were recruits: “Chickens, attention! And number!” And after their terrible cackling had subsided, I apparently told him: “I think there are 35 000 troops.” And thus our counting ended. We played rugby in the Cape as well, also at the Bellville club, and that was where I got the nickname Plankie (small plank) because apparently I rammed into guys with my shoulder. And the name Mol (mole) I got after a Matie game in Worcester when the ball hit me on the head right in front of an open try line – my glasses and the low floodlights were not the best combination for catching from the air and diving. At one of the club’s Saturday night parties I met my wife Dana. She was a girl from Clanwilliam who skipped standards in the farm school in the small town of Agter Pakhuis, so she matriculated at Rustenburg Girl’s High in Cape Town at the age of 15. Like my mother, she had been sent away to an English school. Then she went to the United States for a year as exchange student of the

American Field Services. In Stellenbosch she obtained a BSC and was teaching at Wynberg Girl’s High when we met. She had twin daughters, Rita and Carine, from her first marriage. Later, when our children were young, she obtained her BProc through Unisa, at the top of her class. We still have the picture taken of her in that capacity with the then minister of justice. As an adult Rita followed in her mother’s footsteps and became an advocate, and Carine still has a top position in the Rand Merchant Bank stable. In the Cape I also worked for Federale Volksbeleggings for a year before I was transferred to Johannesburg. Johannesburg treated me and the family well. We lived there for 22 years, bought a house again, watched our children grow up and had wonderful friends. But Johannesburg is a city where people live farther apart and in a way it’s a closed community. Now I know that I also had to return to Stellenbosch in 1996 for another reason: I would never have been able to make it on my own in the city when I lost Dana in 2004. Speak of a life-changing experience… It’s just as well that one does not have prescience of what life has in store for one. The day of August 3, 1995 started out like any other day. And just like on any other day the frustration of the Johannesburg traffic was lying ahead of me. I took my daughter, Charité, to school in Linden and took on the traffic to be at the office by eight o’clock. You sit and think while braving the streets of Johannesburg, sometimes about the day ahead, your family, your future, your past – anything to take your mind off the cars and hooters and the umpteenth red traffic light. I can’t say for sure what I thought about that day, but I just know for the first time in my life I was completely unprepared for what lay waiting around the corner. Let me start the story at the beginning, with the birth of SMK.

City of gold, fool’s gold – working in Johannesburg

My friend Attie Swanepoel who worked at Federale Volksbeleggings with me once said he had known back then in our lift club that I would not retire there one day. There is quite a distance between the West Rand and the city centre, and we always had great chats on that road. One could get to know one another quite well. For a large part of my life I had a hankering to rather do something myself, but in the meantime I did my duty and worked hard, as any Calvinistic farm boy would. There had to be some impatience in me, because at that stage GT Ferreira, Laurie Dippenaar and Paul Harris had just started Rand Consolidated Investments (RCI), the precursor of Rand Merchant Bank. Man, did I envy them. Because we were pals, I was appointed as a director. I saw their brain child being born right in front of me and privately I was green with envy that they had the guts to get something off the ground. But then a guy had a wife and three children, a mortgage bond and after a few promotions drove a company car. That same car meant that suddenly the other members of the lift club had to call me “sir”, according to the idiotic, strict hierarchy that still prevailed in those years and came with the official parking spot. In those days it was everyone’s highest aspiration “to just pay off my house”. In fact, in hindsight I find the schemes one devised to make money back then quite ludicrous. At my son Piet’s wedding years later to Stephanie, Prop Goosen’s daughter, GT Ferreira, non-executive chairman of Rand Merchant Bank Holdings, regaled with relish how we had bought a brown block of flats together after Prop had told him: “Nowadays everyone thinks Jannie is related to Baron Mouton de Rothschild, but tell us a story from when he still was poor and struggling.”

Round about 1980 it was quite popular, and sometimes quite profitable, if one could buy a whole block of flats and convert it into a sectional title development in terms of the Sectional Title Act, with the purpose of selling the flats separately. RCI rather successfully purchased and sold a few blocks of flats that way and Jannie got wind of it. One day he arrived at my place with the suggestion that we buy a block of flats in Linden together. The idea was that RCI would provide the funds, or organise a mortgage bond, and that Jannie, who came up with the idea, would get his share for free. There was nothing wrong with Jannie’s idea. Many people would still say nowadays: “So what’s new? After all that’s always been the way PSG does business, hasn’t it?” The only problem was that my partner Laurie Dippenaar took one look at the rather old face-brick flats and muttered something along with lines of “over my dead body”. Jannie and I were left to our own devices. Despite the state of our balance sheets we were full of bravado when we went to tell Mr So-and-so at a well-known building society how fortunate he was that we were bringing him the transaction, because in fact the banks were queuing up to assist us. The brick-and-mortar value of our project he could see, but not the cash flow from the rental income. We had to draw up balance sheets. Our houses were heavily mortgaged and we couldn’t include our unlisted shares for the building society, but Jannie noted down his breeding ram, 10 Merino ewes, 10 Angora goats and 15 wethers. With a huge frown, Mr So-and-so read through our proposal and crossed out Jannie’s wethers: “Wethers are not breeding stock and we can’t accept them as security!” Jannie was highly offended that the man could talk like that about his beloved Jansenville wethers. We could only borrow R249 100 of the R405 000 we needed and had to get a few pals on board, but fortunately with partner Paul Harris’s insight we could eventually charge double for the nine garages, since there were 20 flats.

The same RCI would play a huge part in the formation of SMK.

My family and Johan Senekal’s were spending a weekend at the Buffelspoort holiday resort outside Rustenburg in August 1982 when all of a sudden he asked me at the braai: “Why don’t we start our own thing?” I still can’t believe that within 10 minutes I had decided something that would change my whole life. “Yes, I’m in!” Johan was a broker with George Huysamer and good friends with Jannie Kitshoff, who was about to start a capital market department for RCI. That group wanted a share in the opportunities it offered. RCI wanted to combine such a department with share broking, but at that stage a company was not allowed to have outside shareholding in a brokerage. We had to sidestep that provision and start an independent firm with three partners, but the share of the profit due to Jannie K, as we called him, would go to RCI. He and I also had to resign as directors of RCI. Johan would leave George Huysamer and ask him to be sponsoring broker of our new firm for six months. Yet after asking for the third time, Johan says, George told the brawny messenger to rather help him to get his office into the boot of his car. It’s just so much easier to do business if there’s an existing business. Fortunately Jean Sterianos wanted to sell his brokerage and so we killed the two birds of a sponsorship and offices with one stone. His brokerage cost R150 000 and for my third I had to put down R50 000 I didn’t have. I’m eternally grateful that Dana lent me R30 000 from her inheritance and my mother the rest, both without hesitation. And so the tiny, limping Senekal Mouton & Kitshoff was born amidst great festivities in October 1982. As early as the first week, the bank would not accept our settlement account for the clearing house. You have to pay before your client pays you, and huge amounts are involved with the purchase of bonds. However, by December 1982 we had passed the R1 million mark in profits. That was wiped out once again in January 1983. Paul Harris, who was responsible for RCI’s money and capital market activities, and Johan were worried that they had

played it too safe with negotiable certificates of deposit. After the profits on the first R10 million, they wanted to wager another R10 million and also add “an extra zero” to the position, which fortunately they didn’t, because then the interest rates moved against us. We were young and had lots of plans. Added to that, or maybe because we were that young, we were very enthusiastic and hardly anything scared us. Now, in hindsight, I pale with fright because we had responsibilities, wives, children, cars and houses. Being positive was the cement of our partnership and the three of us together were quite impetuous. We looked forward to the opportunities and never thought of the problems. As Johan puts it, those were the days one still had to bank with Volkskas and not with Standard Bank, and definitely couldn’t play rugby for Parks and Crusaders. Therefore we thought that as an Afrikaans firm we would get good business from the Sanlams of the world, but soon realised an Afrikaner begrudges others the air they breathe. Jewish businesses, the Liberties, gave us much better support. Once, in the lift at the stock exchange, I asked a Jewish gentleman whether I should average a position on which I was losing money. That term means buying more shares when the price is falling, because it drives down the average price of the number of shares if you buy at an even lower price in the hope of improving a poor position. His answer was a lesson that I still remember to this day: “Averaging has killed more Jews than Adolf Hitler.” Some of the other Afrikaans firms made life quite hard for us. Jannie K remembers when he moved between us and RCI, we asked him to hold on to the handle of his chair for a while. There was yet another investigation because someone had smelled a rat about RCI’s interest in SMK. Naturally they didn’t share our feelings, but we regarded it as jealousy among our fellow brokers who wanted to protect their positions. There were two departments. I was on the share broking side and Johan and Jannie K looked after the government stocks. The latter was a massive market, ranging from large municipalities like Durban to Eskom and Transnet. There is a very small margin on such a stock, but because they were government stocks, the

risk was tiny. Johan was an absolute expert and he, Jannie K and my school pal Pierre Brink developed a gigantic business with that niche opportunity. Trading in those stocks was a novelty on the market and before long we were the largest in the country. Some weeks our stock turnover totalled to R1 000 million. On that basis our banker at Volkskas moved in with us, because we were a bigger client than Anglo American as well as (at that time) General Mining in terms of turnover. From 1986 to 1987 we must have listed about 40 companies on the development capital market, one of the precursors of the current AltX. It was not profitable, but was very exciting, and we learnt a lot about private equity and how to spot and value unlisted shares. One of our greatest successes was the listing of MNet. Our client base grew with leaps and bounds. It was going well and we were quite impressed with ourselves. The guys also earnestly bought into our listings when they saw me going in with my personal money – we took huge positions. Johan Schoeman, who had joined us by that time, remembers how the wives complained about our working late. They had a choice: “Either sandwiches would be packed every morning and we would cycle to the station and take the train to work and be back home by half past five every afternoon, or we would work long hours and they would share in the successes.” He says none of them packed any sandwiches. With our first big transaction, Pep Stores, colleague Pierre Brink started phoning hospitals late at night because Dana, in the pre-cellphone era, was getting worried about where I was. We did amazing deals and the money was rolling in. Listings were a dime a dozen. We had a roaring trade with listings. We bought bigger houses and prettier cars. My friend Markus Jooste, chief executive of Steinhoff International, remembers how one year on my birthday we drove around the parking lot of the Linger Longer restaurant in Johannesburg in my brand new Mercedes Benz convertible. I had grown too big for my boots. I remember phoning Kango Beachbuggies to ask in which colours they had the vehicle available, and then saying I would take

one in each available colour – five altogether. Now I can only marvel at the memory. To be that self-confident, and with gearing to the point of bursting, was asking for trouble. Like all bubbles, this one also burst, on October 22, 1987, and a lot of us were cut down to size and got quite a kick in the teeth financially. Let me tell you, there was blood on the walls. It was the mother of all market carnages – the decline of about 30% was the most significant in a single day in living memory. I was almost done for. And the partners who had got in with me also wept their hearts out. Just imagine: while things are upbeat, you’re the hero, but when the market tumbled, I was a big thug. If one is nearly wiped out, someone has to get the blame, and to borrow money for investments in a red-hot market was a hard lesson, for me too. It was terrible, because we were not invested in established companies. Naturally it resulted in tension. Among the biggest lessons for which I have to take the blame are investments in private shares like the school uniform manufacturer Veka and the packaging company Alfa Packaging. Quantum Properties, at that stage a force in the black housing market, was a similarly sad story because of poor corporate control and misleading figures. Regarding Harties, Christo Wiese, chairman of Shoprite, told me in later years: “It’s simple – if you make a loss with 20 stores, the loss with two hundred stores will only be much larger.” In part 3, I’ll revisit the subject, but about the restaurants and estate agency I’ll keep quiet. And of all those companies we had helped listing, only a few good ones survived the carnage. One day we were the kings of the development capital market, the next day humble servants. As in many other times in my life, I should have listened to Dana, because she used to say when I started pretending to be a sage and it was only “me, me, me”, then the end was in sight. Those were prophetic words. Fortunately, however, a market also recovers. As our egos and wallets started looking better, the tempers cooled down. At that time Jannie K left us – he went back to RCI in 1984 when the group

gained control over Rand Merchant Bank. He’s a live wire, a man with passion who was up for anything. He and Johan Senekal and I later bought a game farm, Nokonya, where we had great times together, and shared the ups and downs of life as friends. Together we did business, played golf, farmed, sang – and cried. (Jannie K’s daughter Ester tragically drowned.) By 1988 Johan had lost his appetite for stress and went farming full-time. He’s by far the person who has most changed my life. He talked me into leaving the corporate world and becoming an entrepreneur. From him I learnt that one’s people and one’s clients are the most important assets. He was a humble leader, armed with vision, courage and cool-headedness. He was also the first person I phoned after leaving SMK.

Walking the plank – getting sacked

Despite the highs and the lows, there was another aspect I thoroughly enjoyed at SMK – the social vibe at the firm. We worked in a huge, open plan office and had our morning meetings right there. In the mornings the team had coffee together and maybe something stronger after the stock exchange had closed for the day. We often used the congested traffic as an excuse to stay at work a little longer. A strong network existed and we knew there would always be someone in the office after work to chew the fat with. Sometimes the team stayed even longer and went out for a meal. It might sound like a huge party, but the conversation was always lively and often fruitful. We loved making plans. Many of us also visited one another at home. By that time I was managing director and there were 19 partners, all smart guys. We had gigantic successes and made excellent profits. The listings of Rand Merchant Bank and Richemont were climaxes, and my children still remember my picture on the front page of Beeld with the listing of Naspers. When SMK was founded, our mailbox number was 42, indicating that we were the 42nd largest firm. Now we were among the top five, maybe six. For us it was a tremendous feat. Our research department was among the top seven and our administration and corporate financing must have been among the top three. The groundwork was there to build a financial giant. Yet matters don’t always work out the way one envisages. That day early in August 1995 that started out like any other, with the routine of going to school and to work, would not simply be another day at the office, at least not for me. Like any other broking firm, SMK had a daily morning meeting to discuss current affairs and market conditions. Unsuspecting, I was preparing for that meeting with my colleague Jean du Plessis when Jannie Grobbelaar of corporate financing called us to the conference room at the front.

This request was unexpected… maybe I had forgotten about a special meeting? In the conference room, I was surprised to see Mof Terre’blanche, Cape partner of SMK; I didn’t expect him in Johannesburg. He and the economist Louis Geldenhuys, Pierre Brink of the stocks department, James Bredenkamp and Henk Klopper of the shares department and Jannie Grobbelaar were sitting there, waiting for us. Somewhat anxiously I took my seat, for I could immediately sense the solemn vibe – after working and socialising with colleagues for several years one would not be mistaken about something like that. Something was afoot. Then Mof swung into action: “I’m the oldest and I’ll do the talking.” He looked at me and said those seven partners represented the majority of the firm. And then, out of the blue: “It has been decided that you have to resign with immediate effect.” I was completely stunned. My first reaction was shock, bewilderment, incredulity, call it whatever you wish. First you take leave of your senses for a moment, and then your thoughts are thrown into confusion: Am I dreaming? Am I hearing correctly? Surely this can’t be! He started stating the reasons for their decision, but I couldn’t concentrate at all. I heard his words, but I didn’t hear them. Gradually it started getting through to me that this was reality, a nasty, all too real reality. Even today I can’t for the life of me remember the reasons given, maybe I don’t want to, maybe I was too annoyed to listen. I was shattered. Of course I had to react, but to be able to say something that made sense, I had to play for more time. I asked if I could talk privately to the guy with whom I had come the longest way, my school friend Pierre Brink, and if I could make two calls. Now, in hindsight, I’m amused that I actually asked permission to make phone calls, as if I were a thug in a movie who should ask to make a single call. Pierre said he had been phoned the previous evening to attend a meeting where I

would be asked to resign. The explanation given had been that it was crucial for the survival of the firm. Some of the other partners were also asked to attend the meeting, but they chose not to. It started hitting home which way the wind was blowing. Because I’m a proud person, I decided right there to take it like a man and to accept the decision of the Group of Seven. I would resign. I phoned Jannie Kitshoff and Paul Harris, but neither was available. And a good thing that was, because what would I have told them in any case? I phoned my wife and asked her to come to the office as soon as possible. I wanted her to learn about the resignation straight from the horse’s mouth and not from anyone else. And I could use a shoulder. Half an hour later I rejoined the meeting and agreed: “Right, I resign with immediate effect.” Jannie Grobbelaar read out some financial arrangements, but my thoughts took off again. Determined to keep a cool head under these circumstances I left at half past eight to chair the morning meeting. Back in the office I started packing my things. When Dana arrived, I told her I had resigned. I just couldn’t bring myself to tell her I had in fact been asked to resign. Several months would pass before I could spill the beans to my daughter and two sons at university. Oom Bollie Baard, the oldest partner, commented resignedly with his hand on my shoulder: “Jannie, who would guess that I would survive you at SMK?” All that remained was a special meeting of the board of directors at which I had to officially submit my resignation. “Right, you may go,” were the words of Louis, the new chief, to send me out of the meeting, out of my partnership and out of my firm. With a very heavy heart I got up. A dream had been shattered, as well as all my ambitions and ideals. In stead of pride, the first flicker of uncertainty was gradually waxing into full, oppressing bloom. First uncertainty, then its friends, doubt and disappointment, both just as undermining and exhausting, were grinding me down.

What would I tell my family and friends? What would I do tomorrow, next week, next month? Why did my friends in the office turn their backs on me? A few hours constituted the death-knell to my 13 years at SMK. Senekal Mouton & Kitshoff had a quick start, and for me an even quicker end. One moment I was the breadwinner, the next unemployed. One moment managing director, the next lower than the messenger. I had been thrown into the street.

Truth hurts – my road of self-discovery

There is always a reason why a company fires someone, no one is simply kicked out. However, this realisation does not come overnight, not while raw emotions are still torturing you and if you hadn’t seen what the result of stress and internal differences in a rapidly growing company could be. At home I was still crippled by shock. Now that I didn’t have to battle with opposing my colleagues in the conference room or boardroom, the conflict moved to my head. Resentment was winning the first round. Apart from my job, I had also lost my company – my place, a huge part of my identity and the vision I had tried to develop for the partnership over so many years. Besides, one does not only lose a job, one also loses friends. And their wives were your wife’s friends, their children your children’s friends. Therefore Paul Harris’s words poured balm on to my two-day-old wounds: “Pardie (partner), you’re the only man I know that quit stockbroking at the top.” He and his wife, Jeanne, had me and Dana over for dinner that Saturday evening. I was still naïve enough to believe he thought I had really resigned, while the whole world knew I had in fact been fired. Nevertheless that was the story I stuck to, come hell or high water, when friends wanted to know what was going on. It was amazing how many other SMK staffers phoned to wish me well, even though they couldn’t understand my hasty departure. Thank God, at least financially I was not down and out. Due to our good profits I was independent. My mother and Dana had got back every penny I had borrowed. I had a few million and a nice big house in Northcliff. I had trouble

sleeping, but not because of money, at least not yet. It’s hard to explain something like that to one’s wife, especially if one doesn’t understand everything that well oneself. Dana’s approach was simply that she didn’t question the merits of the matter, but the way I had been kicked out. She repeatedly said SMK had always been a dignified firm that had commanded respect – something that had been developed over years, and with a tradition of taking leave of partners in a convivial way and with style. The staff did throw me a farewell party, but I can’t say I felt like balloons and jollity. In fact, I later gave away the braai I got as a gift, even though I’m a braai fanatic. In her speech at the farewell, a young Janine McCann, one of our very first appointments at SMK, said I had a hellish temper, and: “You make your own decisions, then you listen to someone else’s opinion and most of the times you’re correct.” At present she’s an excellent and loyal employee of PSG Online. Johan Senekal also referred to my temper when I phoned him at the farm shortly after the whole affair at the office. Being a fair guy he didn’t take my side immediately. “Jannie, you can be a little contrary and aggressive when you choose to,” he reminded me. I don’t enjoy admitting it, but I do have some contrariness, some obstinacy, some call me a hard-ass. I don’t like not getting what I want… but I’m not always right. My PSG colleague and tower of strength Chris Otto would tell you the story of how our two families were travelling in (the not yet independent) Namibia in a Kombi in 1988: Jannie and I sat in front, smoked a little, drank a beer or two in the heat while the rest sat in the back. The children also enjoyed the trip and were drinking Coke and eating chips. Eventually the whole thing started irritating Jannie and (as one knew him) he took a hasty decision at once: “I don’t care what the Otto children do, but the Mouton children are done eating and drinking.” After a palpable silence Dana said: “Yes, Jannie, but what about the Castles you

and Chris drink every half hour?”

Chris would also tell you I sometimes seem unapproachable, and Johan Holtzhausen, managing director of PSG Capital, that sometimes the captain cracks the whip quite vociferously, but his lieutenants help putting balm on the wounds and egos. I repeat: my partners at SMK were smart guys. It was a highly successful company and it grew by leaps and bounds. Make no mistake, at times the feelings ran high. You aren’t fired within two hours when everything runs as smoothly as a rippling stream. We were 20 ambitious people with an amazing underlying hunger for money. Actually managing drove me crazy, and I have often wondered whether that was not one of the major causes of the mutiny. Because we were partners and not shareholders, the profits had to be divided every year. In other partnerships the managing director would decide what the share of each partner would be, and the mistake we made was trying to do it democratically. Everyone had to give himself and every other partner a mark out of 100 for the value each had added, in his opinion. Nobody ever scored himself lower than any of the other 19. It was my unpleasant duty to convey the auditors’ calculation of the total to everyone. If the group then gave someone an average of 5% and he thought he really deserved 8% of the total of 100%, it raised suspicion. Instead of motivating someone, I had to call him in and tell him he wasn’t as good as he thought he was. Among the changes I wanted to make was to convert the partnership into a company. The new management at SMK had different plans and wanted to sell. The rules of the JSE had been adjusted and individuals companies were now allowed to own shares in a broking firm. Many partners wanted a big foreign broker with access to international research to buy SMK. I was not completely against such an option and we were looking around quite a bit, but we couldn’t negotiate a satisfactory deal anywhere.

In the end we brought about a local deal with Christo Wiese, selling 50% of SMK to Boland Bank. However, the stress level was rising. That bank later merged with BOE which, in turn, had a stake in Ed Hern, which merged with SMK and then became BOE Securities. Later BOE was purchased by Nedbank and currently SMK is part of Nedcor Securities. The result was that the early SMK had completely disappeared. My vision for SMK was different. I wanted to convert the firm into a typical investment bank where management was in control, list it to draw capital and get institutional shareholders, but still remain independent. With SMK as a basis, I believe it would have been a phenomenal success story, even though at the back of my mind I now know PSG Investment Bank didn’t work out, but that story comes later. Meanwhile, the SMK thing kept bugging me. I didn’t know how to handle what had happened. One is strange, you even contemplate revenge. If only I, if only . . . but what? Your hands are tied. And I also started wondering what an SMK share was worth and what would be paid out to me. At that point Dana suggested talking to Chris Otto, who hadn’t been working full-time yet after losing his job and, like us, a lot of money at Quantum Properties. I told him about the ambitions of the SMK partners, the infighting and the struggle to keep everyone happy, even of my domineering management style. And that I had been fired – yes, I told him everything. Afterwards I heard one of my sins was to appoint a certain partner without the input of the other partners. He couldn’t believe what he heard. “You have to get to the best lawyer as soon as possible,” was his shocked counsel. It was great to have a pal who believed in me, supported me and stirred up the fighter in me once again. There and then I started getting clarity. Coincidentally, two days before my sudden departure I had requested a conservative valuation of a share in SMK that I needed for negotiations regarding the appointment of two partners. It indicated a price of R15 per share, but the proposed payout to me was not even half that. It made a difference of millions of rands.

I went to Jannie Kitshoff for advice. He tried to douse the flames and wanted to patch things up, but in vain. In the end his advice was to accept the payout. It was a bitter pill for me to swallow, but now I’m really happy that I accepted all the arrangements as they were. A few of the partners had lost confidence in me and without that confidence I wouldn’t be able to lead the business, in any case not to the great heights I wanted to take SMK. The adage “no man is ever whipped until he quits in his own mind” of the business writer Napoleon Hill, I would still discover.

Buffett hits a nerve – how to recover from a setback

A negative person has never started or established anything positive. The people at PSG also know they shouldn’t come and tell me something doesn’t work – they have to come up with an alternative. A while ago at a KWV board meeting I was ridiculed for my roguish solution for a payout of dividends in specie while at the same time there was a brandy surplus. (Participation at board level was due to PSG’s stake in Zeder.) “Give every guy with a certain number of shares a case of brandy,” I said. And after the board had stopped laughing, I suggested they come up with workable solutions that would approach the problem of the surplus brandy from a different angle. Back in 1995 my wife said I couldn’t simply sit and not do anything; it worried her. Then I would say I was thinking. Nobody in our circle of friends was under the illusion any longer that I had left SMK of my own accord, and my selfconfidence was in tatters, but I also realised procrastination would be of no use. Dana helped me to get an office going at home. I got out of bed every morning, shaved, dressed properly with long trousers and socks and ostensibly started working at eight o’clock. However, a call to a broker about the state of the stock exchange doesn’t take more than a few minutes. There was simply nothing I could do. Later Dana and I enrolled for a computer course and that way she managed to get confident with a keyboard and mastered e-mail and the internet, but I remained pathetic until the end of 2010, when I got an iPad as a gift and started Googling for the first time. Going to the farm on my own didn’t help either, because there I only sat fretting. Once Johan Senekal went with me and we planted trees for Africa. But when none of the trees would grow, Dana asked whether we had removed the black

plastic from the roots. Good grief! “Oh, Jannie, can’t you even plant a tree?” was her reaction. However, then my former SMK colleague François Gouws, now global head of equities of UBS in London, brought me a book by the investment king, Warren Buffett. Until then I hadn’t really read business books, but that book converted me. Over the years all my browsing in bookstores has resulted in a useful library. I summarised Buffett’s book and Dana typed it out neatly. In Exclusive Books I also discovered Napoleon Hill: “Knowledge paves the road to riches – when you know which road to take.” After reading for a while, I decided to do a SWOT analysis on myself and, according to the acronym, started jotting down strong points, weak points, opportunities and threats. I realised my and Chris Otto’s frequent (and long) lunches at Late Night Al’s in Auckland Park were no long-term solution and at age 50 I was not ready for retirement yet. I had to persuade myself that I was doing something useful, that I was devising plans and ferreting out opportunities. I knew I had to fight against the threat of stagnation. The personal space in the office forced me to contemplate my future and that of my family. Thinking would be my new project, and it wasn’t at all the child’s play it appeared to be. I wanted to start a new business and I had to find the key for it. With dedication I started reading and focused on books in the investment world, from Warren Buffett and his philosophies to the management approaches of successful business people. What I read made me think, and to arrange my thoughts I summarised many of the books in Afrikaans. Not every book changes one’s life, in a manner of speaking, but there is always an idea or two that one can use. Apart from the work and academic advantages, this study made me reorient myself. Collecting specialised knowledge demands sacrifice, but it stimulated me and

broadened my mind in my planning for the future. Now I realise there were quite a few points that prepared the ground for PAG, the precursor to PSG. I can summarise it as a sounding board, a self-analysis, a dream, a plan of action, a positive attitude, decision making and communication. And I can recommend it to someone who has got into a rut like the one threatening me back then. One has to work through a setback realistically. You need someone to help you if your enthusiasm exceeds your realism, but that person can’t be a yes-man. It needs to be someone with good judgement and enough respect for you to answer the difficult questions honestly. Fortunately Chris and Dana were there for me in the first days of my quest to start believing in myself again. For a strategic decision, a team like that works much better than an individual. Dana once quipped that we always had such a good time over a bottle of wine when we were in a restaurant, because “you always talk and I always listen”, but at the time she, especially, was a great sounding board. She understood me and could temper my impetuosity. Honest introspection is not always pleasant, but without it one would struggle to work towards one’s better points and eliminating one’s weaker traits. Yet, clever as it might sound after the fact, my old diary is testimony of how I toiled and bothered and reworked my SWOT analysis until later I knew exactly what I wanted to and could do. The simple question is: What’s your personal mission statement, your goal, your dream? If you know the answer, it unleashes a power that draws you towards the destination. My plan that I wrote down in November 1995 and had typed was:

I want to be free and not to work for others. I want to make a difference to the lives of others and have empathy with my fellow human beings.

I want to write a book (there you have it). I want to tackle something with my children. I want to take on a new game farm after Nokonya. By doing great things I’m happy. I want to develop a new company successfully.

Many things have changed over the years, but the framework is still valid. My plans of action had to direct my dreams:

I want to be in control of a listed company. I want to focus on the financial services sector. I want to procure capital for a strong capital base. I want to manage in a decentralised and delegated way. I want to draw in good people. I want to move from Johannesburg to Stellenbosch. I want to have a small, creative head office with a relaxed vibe. I want to think more and do less.

To know I had figured out what my dream and final destination were, made me positive. Aiming high requires as much strain as aiming low, as is expressed in this little rhyme by Jessie B Rittenhouse I’ve read so often:

I worked for a menial hire, Only to learn, dismayed, That any wage I asked of Life, Life would have willingly paid.

Without a decision, one is never wrong, therefore people hesitate to take decisions. Taking a responsible risk brings me freedom and joy. Even now a successful business decision like an SMK or PSG or Capitec that works gives me far more pleasure than the money I gain from it. And if something doesn’t work, close that business and move on. From all the business books I read then and still read, it’s apparent: the most important element of success is to speak out. By conveying one’s dreams and plans to friends, you place yourself under pressure to fulfil them. And that truth applies right through the investment world – your shareholders are interested in where you’re going, your successes and your failures. But even more important than speaking is to listen to them in turn. And my ears were pricked for what Piet de Jongh, now head of Noble Private Portfolios, wanted to say.

Marilyn Monroe and political passion – a new opportunity

“Dad, but how could something like that keep a man like you busy?” my son Piet wondered when I told him I was buying and selling shares. And applying for new listings. And maybe looking for new investment opportunities. During his September break in 1995 he had popped into my “office” and asked what I was doing all day long. He was correct, as he was when he asked me at the end of the year to invest all his pocket money in PAG shares. That was shortly after I had told the children about the SMK saga in the Saddles restaurant in Mossel Bay and he didn’t want me to think they had lost confidence in their father. They were surprised. I’m not sure whether the story was news to them or whether they just thought I would never speak about it. Piet de Jongh, whose father, Theunis, signed all the country’s money bills in his day as Reserve Bank president, phoned me about an opportunity he had spotted. He came to see me at home, and because the children were having a party in the front, I invited him into the bedroom. “Promise you won’t laugh, Jannie,” he said. I knew Jannie Kitshoff would not send his brother-in-law to me with nonsense and I promised. “We’re going to buy a personnel agency!” was Piet’s surprise. I looked at the statements of the Professional Assignment Group and knew right away my four months of agonising was over: The shareholders were in trouble, but it was no dog’s breakfast. This was the small, already listed company I was looking for, and in the financial services sector to boot. Piet and I knew full well we were too different to work together from day to day, but we could invest together. Piet noticed the 15c share and determined the price wasn’t moving because more than 60% of the shares served as security for the owner, Syd Catton’s, liquidated property development in Jeffrey’s Bay. The liquidators, Absa and KPMG, were quite happy to learn someone was interested in the shares.

From a conversation with PAG managing director Ray Rossi it was clear the 32 offices were making a profit and had been doing so for a few years. The business model was simple – the group earned 20% of an appointee’s salary in the first year – and there were no great risks such as with the purchase of a number of fixed assets. Because the media company Caxton was also interested in PAG, the liquidators decided to go for a bidding process. With Rand Merchant Bank I arranged financing in my name for a stake, for top management and Chris Otto as well. There were thick blue clouds of smoke all over as Piet de Jongh, Ray, Chris and I determined our top price for the share. When Caxton’s attorney wanted to renew his mandate at 35c, Chris objected and so the bid was knocked down to us at 36c. I wanted the deal booked through the JSE and SMK was our stock broker. That way one would have the guarantee that the shares would indeed be delivered, because sometimes a company would try to back out if it got a better offer elsewhere and then one would be in the doldrums. That night, quite the braggart, I told my mother, Dana and Chris at the braai: “I’m going to develop PAG into a fierce company.” Chris would tell you the company was initially called Mynkar Investments and at first it produced and rented out removable toilets. Something suspicious had indeed remained because Syd Catton wanted to issue more unissued shares so he could retain control, but the exchange had to vet that and naturally it couldn’t happen. Later we bought them out completely. At the first board meeting it was quite a struggle before Piet was appointed chairman and Chris and I became directors. Fortunately we were not afraid of the body builder’s posturing in the boardroom. I even had to show one guy that with one’s wrists together in a pair of handcuffs one could end up in a place quite different from being director of a company where certain irregularities had transpired. PAG was really a nice little company, with Ray and a number of very competent women at the helm. Ray was honest and a good manager, but not drab in the least. This Italian-Canadian didn’t shy away from firewater, and his whole office was full of posters of Marilyn Monroe. At the Christmas party our socks were

blown off: He arrived in a white Rolls Royce and all the women stood applauding in a kind of guard of honour while he strolled down the red carpet in a white suit and red tie like a Hollywood playboy. When the shares started rising due to the excitement in the market about what we would do with PAG, Ray and the women thought I was walking on water. Later he sold his approximately one million shares for a very substantial profit to go and live his dream as a follower of Scientology. To thank me, he had a truck full of red roses delivered to me – if I only knew what to do with all those flowers! Chris and I phoned Louis de Waal, a headhunter and former Democratic Party politician, about a new managing director for PAG, but when he arrived we simply told him: “You needn’t go to much trouble to find a candidate, because you’re our man!” He was on the ball, passionate and made a great contribution, especially regarding the reconciliation of two warring factions in management. Working with people was a role that suited him like a glove. We appointed a financial director to take care of the money matters. It was quite a performance, the way Louis walked up and down in the centre of the horseshoe table of the conference room to motivate the sales people on both sides. The hardest worker in any company, he said, was a 30-year-old divorced woman with small children, a mortgage bond and too little alimony from her exhusband. Meanwhile we started a stock broking firm in Cape Town, independent from PAG, but in the same listed entity. While thinking about the person at SMK with whom I would most like to start a new business, I thought, amongst others, about Jaap du Toit, a gentle guy. In that way he would compensate for me, something I’ll refer to later in the book. I went to see him in his holiday home in Hermanus in December 1995. He indicated that he and a few other Cape guys were thinking, outside SMK’s narrow scope of only stock broking, of portfolio management for private clients and asset management. He promised he would see how their plans evolved. At a partners’ meeting at the end of January 1996 he, Johan van der Westhuizen and Ian Müller realised they no longer fitted in with the firm. While the other

guys had sent them out for a while, the “M” of the large SMK sign in the reception area next to the office where the three of them were sitting, fell down. Jaap’s reaction was: “If that’s not a sign of what’s happening here I don’t know what is!” Their differences with SMK proved to be irreconcilable. The first conversation with Jaap and them was so sensitive that we conducted it behind closed doors in the flat where he stayed while his house was being built. Our nerves were troubling us, but there was no “medicine” in the flat when things nearly reached breaking-point! We just signed a hand-written contract and Jaap derived the name Professional Securities Group from the PAG name. And, as he quips, now nobody wants to say what PSG Group stands for, because then it means you say Group Group. We bought Terry Human’s small broking firm – I was up for the smallest business that was already working – and started doing business in March that year. Without a single piece of furniture in sight, Jaap started operating. In the first year the assets under management amounted to R1,75 billion and our profit after tax to R1,8 million. I needn’t have rapped them over the knuckles for all the extra room that stood empty initially. Johan van der Westhuizen remembers all the allegations against them in the market in the early days, how their integrity was questioned and rumours were spread that they were bankrupt, but, he says: “We just kept quiet and worked harder.” Fifty percent of the new broking firm belonged to PAG and the rest was in the hands of management. The humble brokers’ company later evolved into three businesses – a broker only trading in stocks and providing the platform for doing that, PSG Online, private clients’ wealth management that became PSG Konsult, and an assets manager that became PSG Fund Management. With the help of François Gouws, a former partner at SMK who was working for UBS in South Africa by then, we also did a rights issue for R21 million. François later confessed we were in fact too small for their assistance. For UBS it’s not worth their while if they’re not able to raise fees of at least R1 million if they do a rights issue for a company. Jaap believed the company almost grew faster than they could handle. They

phoned thousands and thousands of clients and so created a spate of interest – and each of those clients had to be made much of on the basis of the promises made. The number of clients might treble, but that doesn’t mean one can appoint knowledgeable people at the same rate to help with the work load. However, we are, as Jaap says nowadays, over those troubles. “It’s these new bloody cellphones,” was how a competitor allegedly explained their success, and Jaap believes without that they would be dead. The market was on the move and Professional Securities Group had a very sexy name. Then, a year and a half after we had bought PAG’s personnel placement department for about R7 million, Educor came with an offer of R107 million. At that time there was a flurry of personnel agency takeovers and we couldn’t believe our luck. Poor Louis, who had joined us barely three months prior, was alarmed – and with reason. After a lot of smooth talking and negotiations, he believed I had never read Dale Carnegie’s How to Win Friends and Influence People, because I went to see him at the office and said: “I’m going to sell this business… and no fucking guy will prevent me from doing so!” As a former politician, Louis is a man who knows how to get things done. After our conversation in which his exit package was negotiated, I was already at the airport and in the plane when an air hostess came to call me for an “urgent call”. He wanted to continue negotiating, and he knew I would because I hate making somebody wait. The personnel corps was not overjoyed about the takeover either. Some actually shed tears, but I think despite the unhappiness we looked after everyone quite well. The share price reflected the value that had been created. PAG might have been the first company we took over and resold, but was definitely not the last. In the end Louis rejoined us for some time in the Ou Kollege building in Church Street, Stellenbosch, where the PSG Group’s head office had been settled. Yes, I was back in Stellenbosch, another building block of my stated dream was in the process of being constructed.

From sacrificial lamb to sheepshape – looking back doesn’t help

“There are too many Professional Dry Cleaners and Professional Motor Dealers,” we told one another when we had to decide on a new name after the sale of PAG. The abbreviation of Professional Securities Group, PSG, initially didn’t sound equal to the task, according to Leoné Rouillard and (the now late) Gavin McSweeney, our advisers at the communication company Graphicor. Then it was realised how valuable that prefix could be with a variety of business names. And, as colleague Chris Otto said, the share name would remain in the same place on the JSE’s share lists. I always say Dana had tried all her life to teach me some manners and style, and on a professional level the public relations company Graphicor performed that function. Chris Otto was chairman of Graphicor early in 1996 and so the group got involved with the design of our logo. Johan van der Westhuizen, PSG partner in Cape Town, lobbied for an owl and its wisdom, but that would not pass muster in multicultural South Africa because an owl often symbolises death. Graphicor tried something with the gravitas of Huguenot origins, but the Mouton-mutton-sheep deduction obviously would not do! I whispered in their ears that my Stellenbosch residence, Simonsberg, had the fleur-de-lis as logo and they put that in an oval form with a modern approach, and that was it. We started ferreting out one business after the other with which we could connect that new name and logo: the institutional asset manager Escher, the life insurer Anchor Life and microloans were among the first. We also started talking about banking. The stage had been set for the multibillion company we would eventually develop. Looking back today, it’s amazing what PSG’s people have established. If one had bought R100 000 of PSG shares in 1995 and reinvested all your dividends over time (and had done the same with the Capitec shares distributed to PSG shareholders), it would have been worth R88 million by the end of December 2010.

The companies in which we have a material interest are worth altogether R61 billion, deliver profits of R4,3 billion and provide employment to about 38 000 people. With PSG’s tenth birthday it was ranked number one in Business Times’ Top 50 over Ten Years list and I was Western Cape Businessman of the Year in 2006. In the same Sunday Times supplement, Capitec was named Company of the Year in 2010. The company has created a tremendous number of employment opportunities. As Jack Welch, former chief executive of General Electric in the US, would ask: What’s the tax and therefore also social contribution to the South African economy? Success is not the key to happiness, happiness is the key to success, we wrote in our 2000 annual report. Chris Otto says PSG has to be one of only a few companies that have had opera arias as part of its annual meeting, not to mention the concerts we held for one another. Some of the anecdotes in the company have become legends. Of course we’ve also had many setbacks and made spectacular mistakes in the first 15 years of the company’s existence. What went wrong at mCubed is a lesson in business; as is the handling of the thorny problem of Pioneer Foods’ scrap with the Competition Commission; and why it was necessary to come down on the former KWV board – apparently relentlessly. In our short life we have had to weather the Asian crisis, the A2 banking crisis and the changeover to the JSE’s Jet system, as well as survive September 11, 2001, start applying new accounting standards, deal with tightened listing preconditions and the end of boutique financial services. And I really still only know the Companies Act of 1926! Thinking back, August 3, 1995 was the event that changed the course of my life. It was the defining moment. I can never compare it with other sad times in my life, like when cancer claimed Dana within five months after 30 years together or when my sister Santi and my parents died; nothing can ever compare with that kind of devastation. The same goes for Dana’s one twin daughter from her first marriage, Rita van Zyl (née Nel). For me, a very slim consolation was that it was only after Dana’s death that she and both her children, Jason and Catherine, died in the car crash together.

People would often ask me if I’m happy that SMK had happened, even implying I would gloat about making it really big in the end, when compared with some of the partners who had stayed with SMK back then. Without a doubt I’m extremely proud about what PSG has accomplished. And maybe yes, the kick in the backside that SMK gave me is probably something for which I should be grateful. It gave me a chance in life. Ironically, that was the same thing Apple founder Steve Job said when at age 30 that company had fired him before he later returned, according to a Business Day column in December 2010 quoting from his famous Stanford speech in 2005. At PSG’s tenth anniversary I even said that the forced departure had been the best thing that had ever happened to me and had prepared me well for similar circumstances later in my life. Now I know if I could have established PSG with SMK as base we would have been much further. On the basis of the human resources collected at SMK, the company would have been able to grow much faster and become one of the best ever on the JSE. I built PSG on the shoulders of giants. Of course success makes looking back easier. If things had not gone well for me, I might have had vengeful thoughts that it had cost me something in life. One day long afterwards, Dana very civilly asked one of the former SMK partners why they had treated me that way, because she had to suffer her husband’s utter devastation. After all, by comparison it’s often harder for the person next to the sickbed. What has remained with me though is that I never want to be in a position again where I don’t have control over a company. Even in subsidiary companies where we have a stake warranting it, I want to have a say at board level, at least. That will be clear from what I want to tell about how PSG tackles its successes and has experienced its failures. And that’s why I’ll be eternally grateful to Markus Jooste of Steinhoff for jumping in when a hostile takeover from within the Absa stable threatened PSG in 2002. “But it’s not simply there for the taking!” he said and started buying shares like mad together with some other friendly parties. Now I’m much more willing to comply with corporate control according to the

King code, but the business media have often written how obstinate I was about the issue of an independent executive chairman. In the words of business tycoon Christo Wiese: He cares about how the garden at Lourensford looks, he wants to plant trees and roses there – one treasures one’s own. Maybe I’m one of the last people on earth who thought executive management and chairmanship need not be separated because I have learnt in a costly way how important control is. Maybe that’s also one of the reasons why I’m such an avid buyer of PSG shares and have never sold a single share. Advisors of readers of financial pages would be horrified, but I often borrow money to get hold of more PSG shares. Since it all happened I’ve have had quite a lot of contact with my former colleagues at SMK. Things have also turned out well for them and we have long ago buried the hatchet. Life has hit all of us hard, and their sadness is my sadness and their joy is my joy. In the beginning of 2010 more than half the partners got together for a reunion and it was great to see everyone again and chat about the old days. Johan Schoeman, head of a PSG Konsult office in Stellenbosch, has been calling PSG an SMK old boys’ club because of all the former colleagues who are and were together again. With someone like Pierre Brink, I never want to stop walking the path. Time heals many wounds. As one grows older, it’s much more enjoyable to build bridges than to break them down. One wants more friends then and fewer enemies. I now know that moving back to Stellenbosch was one of the best moves I’ve made in my whole life. And I know it’s not the end of one’s life to lose one’s job. For me it was a new beginning.

PART 2

My business philosophy and recipe

In PSG, since the first steps with PAG and the brokerage in Cape Town, we’ve created value in two ways: by either starting new ventures or buying stakes in existing companies. Each of these companies we started or bought presents a story of its own, but to tell all of them might be a nostalgic journey for those of us who were involved, but not as enjoyable for a reader who would have to delve through so many facts. Therefore I thought it best to concentrate on my business philosophy and recipe and their application in the next two parts, with examples and here and there a PSG voice other than my own. That might allow you to start understanding PSG more easily. In the fourth part of the book I’ll more closely examine some of the companies under the PSG umbrella where we had the most success – and failures – the Capitecs and the mCubes. Maybe I should start by clearing up a misconception some people have: PSG is not a financial services company; we are an investment company. That means PSG is not an operating company. We don’t manage a business like Plascon or Edgars. We invest in and also start other businesses like manufacturers or retailers or service companies. It’s true that financial services was our first playing field, and the creation of wealth for all our role players is still the dynamo driving PSG, but we aren’t limited to this sector anymore. As an investment company we invest in different sectors and so I can live out my passion in the world of investment. It suits me, because we have a small head office and I have immense expertise around me. The head office is financed by the related companies that we give advice – like Zeder, Paladin and PSG Capital from which we levy fees for managerial

assistance. I suppose it’s quite opportunistic that a head office makes a profit, but it’s a fantastic position to be in. The group comprises of more or less three main parts. Under PSG there are the financial giants like PSG Konsult and Capitec, but under the tradename Zeder we have unified all our agricultural companies like Pioneer Foods. Some of the smaller private equity investments like Thembeka that don’t belong elsewhere reside under Paladin. When I use the name “PSG” I mostly refer to the head office, the small head of a large body of more than 40 related companies in which PSG has larger or smaller stakes, all of whom are listed in addendum C in the back of the book. My business philosophy is really quite simple: I believe in strategic planning, and then follow an entrepreneurial approach. I empower the right people completely, enable them to secure a percentage of the shareholding, and then believe in their ability to, with help and proper corporate control, establish good businesses. Perhaps this definition is not all that easy to digest, but as I explain it, it will be clear how simple the principle is. What it eventually boils down to is that my contribution almost shrinks to that of a possible idea or the creation of a culture of ideas. Other guys do all the hard work. The smaller one’s role as so-called chief executive or chairman, the better for any company and its growth.

Have strategy, will win – I believe in strategic planning

To apply in practice my conviction that one can achieve anything if you have a plan you believe in, I drafted a Charter of Extraordinary Achievement for PSG in May 1998. And Dana’s reaction? My wife grimaced and asked me why I was using a difficult word like extraordinary, because I couldn’t even pronounce it properly. This charter for extraordinary achievement is included in addendum A in the back of the book, because I still believe in it. For me, strategic planning is the alpha and the omega. In the book The Art of War the principles of the Oriental military strategist Sun Tzu are expounded: “Strategy is the great work of the organization.” According to the book, that determines survival or extinction in situations of life or death. It inspires people to share the same ideals and expectations. Because they’re in the struggle together, they don’t fear perils. The military strategist said that was why leaders who understood strategy could lead people and determine how stable the venture was. Regarding successful warfare, Sun Tzu strongly emphasised that an understanding of one’s own capabilities and limitations, one’s opponent and the circumstances in which the fight would take place, should be thoroughly contemplated and then integrated into a strategy that was applied in a disciplined way by a leader that inspired his subordinates with trust. I love his wisdom: If you have your strategy, you hit fast and hard, then you win. Colleague Chris Otto says I’m the only person he knows who would go to the seaside for four weeks and use ten of those days to draw up a business plan. That’s true, I can’t simply lounge around. I get bored and then I devise schemes. It was also after a holiday that I returned with my Keerom plan for Naspers, a controversial but quite exciting deal I’ll tell you more about in the next section.

Chris has also quipped that I should not get time to think, but let him rather do the talking, because I don’t want to say this about myself:

I always tell Jannie one day I’ll write on his tomb stone: “Here lies an unreasonable man.” He has a great ability to think and work out strategies. He always has a plan, and then he can’t imagine that something can’t happen. He challenges us and eventually everyone starts thinking like that – how one makes something happen. He’s not interested in technical details about why something can’t work. I think that’s why PSG often manages to do things others thought impossible.

If then, according to Sun Tzu’s searching one’s own heart, one of my abilities is to think, or to want to think, one of my limitations surely remains not always working gently with the people helping with those thoughts and applying them – I still struggle with that even now. Leon de Wit, former chief executive and later chairman of Channel, once threw a pen at me at a meeting because I had infuriated him so much, but he says he threw the pen on the table, it bounced and landed in front of me. In his own words:

As jovial and easy-going and funny as Jannie can be, he can be difficult. There are guys who can handle it, who grin and bear it, almost like in a marriage, but there are others who leave and don’t return. Still, if one goes to him and says one didn’t like something, he will apologise. And if you were correct about something, and Chris Otto would agree with me, he at least intimated it. Through the years PSG must have become a less tempestuous place, Jannie has calmed down somewhat, and those who’ve stayed with him have reaped the financial fruits of doing so over and again.

Leon is spot-on about that. A guy like Jaap du Toit, chairman of PSG Fund Management, for whom I have infinite respect because he has such good

manners and is so gifted, doesn’t want to sit close to me in the office. My hellish temper is something I acquired later; it was definitely not part of the package when I was in school. As Chris also says, though I try to be fair, my chances of ever getting any gold medals for diplomacy are quite slim. But at least he also says I’ve relaxed over the years: He’s so passionate about anything. Before 1994 even provincial rugby was a matter of life and death. In a scrap he won’t necessarily keep quiet, and he’s used to getting his own way. He can be very difficult and there are people who can’t handle it. And he would say something just to stir . . . to get a reaction. But deep inside a very humane and fair heart is hiding.

That’s also why I surround myself with people who complement me, but more about that later. In any case, if one doesn’t sit and think and devise plans, one won’t accomplish or develop anything. In the first place then one has goals or criteria directing one’s strategy. In PSG we often focus on getting the right entrepreneur and/or family to invest in such a venture. It fits in with the philosophy to empower, finance and support the right people. That’s why even businesses that on the face of it don’t fit the typical PSG bill are indeed in our stable. While as a rule I wouldn’t touch mining, we did invest in Petmin because it’s in the hands of the right entrepreneur, chief executive Jan du Preez. It’s also a family business. Their knowledge of mining compares to ours of financial services. The Du Preezs are doing so well that one of the sons, Fourie du Preez, surely doesn’t really have to play for the Blue Bulls. Another example is Protea Foundry, a business that manufactures highly technological steel goods for the electricity and mining industries. The proprietor and chief executive, Anthoon Rheeders, was a general manager at Samancor before he went to make it on his own. He’s a smart guy who shares our vision, and that’s why we took up a 49% stake in his business. The bonus is that he’s now doing twice as well as before we came in, because there is a new challenge. The new possibilities one devises and considers have to fit in with the whole,

however. Nor should businesses under the same umbrella crowd one another out. In the years when Capitec came into being we had to tread lightly so perceptions about microloans would not endanger the whole of PSG. In addition there was unhappiness in the group itself, which had to be managed. We had to keep a close eye on the future to avoid being obsessed with short-term threats. Regarding the origins of PSG Smartfin Financial Services, one of the building blocks of Capitec, let Werner du Plessis, son of my friend Pienkes (former chief of the vehicle transport business Motorvia) and brother of the famous Janie du Plessis, do the talking:

PSG had to absorb pressure from various sources within the group in order to make money available to us. Initially certain departments within PSG believed their share price was being hurt by PSG’s entering the microloans market.

Different subsidiaries in the group could also eye the same market. Escher, the multimanagement business about which I expand in part 4, was not popular everywhere, because its roaring success had a negative impact on Jaap du Toit’s direct assets management business. In a case like that an executive committee has to act like a cat on a hot tin roof. The years 1999–2003 were a difficult time for many in the PSG stable, because the burden of the investment bank, about which I write in part 4, left everyone with slumped shoulders and heavy hearts. Morale among the people was low. In a time like that one has to reconsider one’s strategy.

A (brief-)case of the jitters – I take an entrepreneurial approach

The role of the entrepreneur is the collection and use of knowledge, his ability and readiness to see and use profitable opportunities and to use scarce resources effectively. That’s how Friedrich von Hayek, Nobel prize winner for economy in 1974, summarised it quite formally. The point is: entrepreneurs create value. They create jobs and they make money. But that’s not easy. A unique talent, coupled with hard toil, is what’s needed. Successful entrepreneurs are attuned to what they’re busy with. They have selfconfidence and flair. Their need for success makes them restless and they don’t cower in the face of big risks. Such a person doesn’t lie awake because of spelling errors in minutes of a meeting, but quickly masters his field. This guy spots opportunities and can bring theory and practice together. Someone who wants to open yet another restaurant or wedding venue in the Stellenbosch or Franschhoek area hasn’t thought it through – a KFC in Soweto is a much better idea. An entrepreneur is a guy who can think, even if he wasn’t a huge success academically after school. Going to university is one of the most enriching experiences in the business world, but there one does not learn how to be an entrepreneur. Sometimes I wish I had, in a manner of speaking, started building swimming pools straight after my year in the navy; then I might have been a millionaire at age 25! Listen, one finds guys who don’t want to be entrepreneurs, who prefer the safety of a salary and wouldn’t see their way clear to buy either a franchise or an independent hardware store. A farmer is an entrepreneur – it’s a unique person who would take such a risk. How many people would plough for a harvest they would only get in a year’s time? You wager your money, you don’t now know the price of your product, the

rand, the rainfall, might change. You employ people and you’re no parasite begging others for alms. I give such a long account of what an entrepreneur is because that’s the role that defines the essence of PSG. In part 6 of the book I refer to the role entrepreneurs play in developing a country, and this is also the approach that had brought PSG about. We keep on looking around hungrily for opportunities and we take the risk. For me one of the best entrepreneur stories is that of Papa Patel who fled Uganda in 1972 when Idi Amin chased all Indians from the country – the book The Dhandho Investor by Mohnish Pabrai tells the whole story. In the US he and his closest relatives scraped together $5 000 and bought a hotel where he and his family could live and work. By saving a few cents wherever he could and with a low cost structure, he could pay back the mortgage on the hotel and later help more families get on their feet. Now the Patels own $40 billion in hotel assets – by means of saving and hard work. A good example of entrepreneurship in PSG is the Curro private schools, brainchild of a dedicated teacher about whom I write in part 4. Another entrepreneur who kept us fascinated was, coincidentally, also a primary school teacher who started selling cement part-time in order to be able to afford trips from Gauteng to his ill mother in Mossel Bay. Within two years his commission income as sales representative exceeded that of the company’s managing director. Yet instead of buying the man a Rolls Royce, they wanted to burst his balloon with a fixed salary. This type of remarkable person is the one in whom PSG readily invests, because today Piet du Toit stabilises mine tunnels with a so-called shotcreting process, by applying premixed concrete to reinforce their walls. He’s the market leader in the platinum industry and his business acumen as chief executive of Precrete gives us undiluted pleasure. The university professor I shamed when I dozed off as invigilator, the later PSG board member Kobus van Zyl Smit, calls PSG an incubator of business ventures. Johan Holtzhausen, PSG Capital chief executive, calls PSG a family of entrepreneurs:

A family that gives one the security of being together, but doesn’t shy away from asking straight questions or hauling you over the coals. It’s a bunch of individuals who can and want to function independently. It’s a company that provides one with the great opportunity to convert this freedom and independent thoughts into palpable profits in which you can share.

Since an entrepreneur sometimes is a cowboy of sorts, it’s easier said than done to admit any guy who seems to have entrepreneurial blood to the family circle. Keeping up with paperwork is often not a priority for such a guy. Someone has to take that responsibility off his hands. This “cleaning up” is something PSG often does, but sometimes it can be too time-consuming. We’ve also seen how an entrepreneur gets bogged down at the Commission for Conciliation, Mediation and Arbitration with staff problems that will consume too much management time to solve. How to convert someone to the discipline of dreary but essential bookkeeping without inhibiting his free spirit remains a big challenge. We were quite taken aback when hearing one day our shotcreting guy had bought a helicopter to get to all the worked out mines – but without consulting his executive committee about the matter! Where I discuss the establishment of Capitec in part 4 I elaborate on this aspect of “taming” an entrepreneur. Sometimes entrepreneurial ventures grow too fast, as happened with Keymatrix, another precursor to Capitec, in 2000 to 2001. In some months the purchasing team bought up to 30 new branches, which meant, at four people per branch, 120 new appointments a month. Werner du Plessis, who started PSG Smartfin Financial Services, said: “And then one still had to prevent the seller from walking out with the fax machine.” Neels Borstlap, chief in charge of the Capitec building block Finaid, describes the initial exposure of his 34 independent branches to PSG as follows:

It was a major process to get the owners, each with their own way of thinking, from Rundu in the north of Namibia and Louis Trichardt and the Cape together, to convince them to put the capital and goodwill of their businesses in a company and only get a piece of paper stating you have a share. During a meeting to decide about the sale to PSG Chris Otto waited in the foyer. One of the questions was: “Mister chairman, how can we sell 50% of this valuable business of ours to a man we don’t even know, and here he is sitting at the front with shoes but no socks?”

This former dominee of Hartswater also went in search of a financial dictionary after our first meeting together. He wanted to look up what exactly “priceearnings ratio” and “turnover” meant, the same way we didn’t know the industry terms “capout” and “cap payable” or how they calculated their bad debt. Izak Fourie, who worked with us in the Channel Group, confirms Neels’s story from his experience at that insurance company, which PSG later sold:

What I enjoyed most was the entrepreneurial spirit inherent in all our businesses. You could continue doing your own thing and at the same time cooperate in a team with colleagues from related disciplines. We could develop a few good businesses, like PSG Health Risk Monitor Group, Remchannel and CMS Pretoria. We just could not bring them together in good solidarity soon enough.

Neither Werner nor Neels stayed with PSG in the long term – some entrepreneurs prefer the wind on the plains to the air-conditioning of the more corporate world. Of course, businesses that start small and nimble don’t stay tiny. In fact, that’s the last thing we want. I was very unhappy when management changed the name of Anchor Life to

Channel Life and wanted to position the company as “small and cute” among the other insurance giants in the market. They explained it meant “reactive, fast, without red tape”. Even then I had a hard time swallowing it, but when the company assets passed the R1 billion milestone at least they got rid of the “small”, but still acted like a “small” business. Naturally one has to be realistic about how strongly some offspring learn to stand on their own legs. While one won’t find a better example of an entrepreneurial start than Capitec, PSG’s 35% stake is now worth more than R5 billion and we hardly give any managerial input. By this time our size makes us look at smaller investments more realistically: corporate management, attending meetings and managerial time are expensive. At Paladin and Zeder we have the framework that we invest in businesses that are easy to understand, and have a cash flow and good management. Our share of the profit after tax has to exceed R10 million. That means if we have a 25% stake in a company it has to make at least R40 illion before we would look at it. However, many mice can turn into men and PSG never wants to neglect its entrepreneurial approach. That’s what brought us to where we are.

It’s your baby now – the catchword is ultimate empowerment

After many lessons I only invest in companies I understand, whose management I know and whose character and culture I like. Three questions kept me busy for a long time: How does one make a company grow, when are people happy and what’s the key to making a success of a company? The answer is ultimate empowerment. The adjective “ultimate” means the term empowerment is not a mere word at PSG. In South Africa empowerment is often seen as synonymous with BEE or black economic empowerment, but in PSG that term has long taken root and it has nothing to do with colour. Leon de Wit remembers that I came up with the idea of ultimate empowerment after the thinking during another December vacation. He and I have often argued about it. He believes if things go wrong, it doesn’t work that well, but I believe in it with all my heart. The former American president Theodore Roosevelt’s encapsulation is the best, in my opinion: “The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint enough to keep from meddling with them while they do it.” In PSG people are allowed to think and do themselves, and everyone knows that. A company grows when all of the employees perform to the best of their abilities. People perform well when they are happy and people are happy when their talents are recognised and when they are given the space to act and make decisions independently. To me, ultimately empowering someone therefore means delegating authority and responsibility. Empowerment in that sense means everybody is involved and knows how the company is performing. The decision-making process is shortened and the spirit

and status are created that no one has terrific titles, but people get a lot of recognition. That creates a company with responsible managers who feel free and proud. People who are encouraged to think strategically themselves take their own future in hand. That freedom means not looking over people’s shoulders, but trusting them. On a more practical level it means that everyone can draft their own business plan, that every unit decides on its own remuneration packages and incentives, and that some services can be contracted out to an entity shared by a few companies in the group. Probably the best example of ultimate empowerment in PSG is PSG Konsult because every office owner is his own boss. It’s a unique success story I expand on fully in part 4. Yet empowerment is by no means a carte blanche issue. Let Johan Holtzhausen of PSG Capital explain:

It’s ironic that this same freedom brings about responsibility. You know you’re in charge, but that you can’t devolve the blame for failures. PSG gives entrepreneurs the space, opportunities and often capital to live their dream responsibly in their own way. The captain of the ship does not interfere until he sees the boat sailing in the wrong direction. Then the whip cracks quickly and sometimes unexpectedly.

I reiterate: Johan himself is one of those lieutenants who then help keep the peace. JP Matthews, hedge fund asset manager at PSG Asset Management, says all the group companies in the PSG stable where he has worked have given him a crash course in entrepreneurship:

The group makes significant investments in successful businesses and stands by its entrepreneurs without exception. Jannie’s policy of ultimate empowerment

enables entrepreneurs to realise their vision. Ultimate empowerment also means there is no place to hide. It gives you just enough opportunity to engineer your own downfall if you don’t tread carefully. In PSG the prevailing culture entails low overheads, strict financial reporting, a high return on share-holders’ capital and the premise that the shareholder is always king.

That, supposedly, begs the question when a board of directors does step in. A board has to have a relaxed leash on everyday matters and only get involved when overarching problems emanate in or outside the group. One has to concentrate on what’s important. Nevertheless, in a recession it will do the board no good to put undue pressure on managers. If the market is tumbling, no one can do anything about that. For example, in Worcester the Van der Merwe family is in charge of GRW, which manufactures steel and aluminium tankers. With the recession that began in 2008, the demand for the transport of products like fuel and wine declined. This group, in which we have a 40% stake, was under great pressure and had to retrench 300 people. What would have been the use of putting even more pressure on people who were in a fix already? Besides, they were the people who in such a small town ran into those who had lost their jobs. Yes, one has to make plans and cut costs when there’s pressure, but one can’t ignore outside circumstances over which the management corps has no control. In part 6, under the heading “The soul of the company”, I briefly refer to empowerment again, specifically to how it can benefit an executive person.

Four-square men and women – the right people are crucial

In our annual report of 2009 we wrote that people remained our single most valuable asset. PSG Fund Management and PSG Konsult chairman Jaap du Toit would also tell you I take my decisions around people:

Jannie builds around the jockey when he sees a business opportunity, provided of course that it’s a special opportunity in PSG’s field of play. Then the business model is almost the jockey’s prerogative, within bounds of course. Often the model is not the point. Jannie would pick the guy and respect his opinion and say: “You tackle it for us.”

Colleague Chris Otto confirms this:

PSG’s predisposition towards people comes from Jannie. People like the idea of ultimate empowerment and therefore PSG draws good people. He would never have got someone of the calibre of Michiel le Roux without that philosophy.

Speaking of Michiel, chairman of Capitec: now that’s someone one can listen to when he opens his mouth. Like Chris Otto, he was brilliant academically. Some people don’t give an opinion every day, but everyone would rather listen to a quiet man with an intellect than to a bigmouthed baboon, a braggart who has not done his homework. Opinions are a dime a dozen. In the same Capitec breath I can say Riaan Stassen is the best managing director I know. He’s in charge of things and people have infinite respect for him because he has vision and keeps taking the company to new heights.

It might sound as if I only mention managers as examples. Naturally there are many unsung heroes in a business, but in a large set-up the people at top management level are the ones with whom I deal most often. And rather than merely making a dull list of great leadership traits, I want to illustrate them with reference to real people in PSG. After the procurement of PAG, when I thought about whom I would like to start a business with, I made a short-list which I mentioned in passing in part 1. I wanted someone who was as good as his word, therefore mutual respect. I was searching for a leader who commanded respect; someone with vision who could see the bigger picture in the financial sector. That man was Jaap du Toit. You see, certainly there are many aspirations in any group, misunderstandings arise and people resign. Even our small team at head office has had real differences and arguments. Jaap is a particularly decent person with amazing human relations and lots of patience, as are Johan Holtzhausen of PSG Capital and Chris Otto, who amongst others serves on our executive committee. I am too hasty by nature. These three men can handle any tough issue much better than me and are people who complement me unbelievably well. I really was quite fortunate that Jaap had the confidence in me to join me then. Success breeds success, but in those early years, before PSG had made its mark and had become an established business, drawing top people was not a given. Nowadays people are queuing up to work for us, but then we had to succeed in selling them a dream before they would come and work for us. Chris too has stood by me through the years. We are a good team because of his conciliatory nature. He’s a good writer too, something I always admire in people. All these years he has served on the remuneration committee where people’s salaries are negotiated, and that has taken a lot of pressure off me. I have a list of what I regard as the characteristics of successful people, probably an obvious bunch of traits. People who are well read, have well-considered opinions, are honest, can

communicate and stick it out, are self-confident and care for people and on top of that can think, are the best. Clear goals direct all these characteristics. On reading, an integrated opinion and thinking, I elaborate in the charter for extraordinary achievement in addendum A. I don’t discriminate against people on the basis of the colour of their skin. But stupidity and lack of knowledge are traits I don’t appreciate. Therefore, while we’ve mentioned colour after all, one would not find token appointments of black people at PSG – a guy who gets a job is worth it. Honesty and integrity are obvious. A code of conduct on glossy paper is useless. Those who disappoint you are normally those who make a big fuss of honesty. In fact, I would be slightly worried about the integrity of a company that has to spell that out. Good communicators don’t get the praise they deserve in the financial world. One has to sell continuously – idealism if someone comes to work for you, or if you go to see investors like big organisations. At a meeting you should be able to get your point across convincingly; it’s a struggle if someone finds that difficult to do. It’s a pleasure to hear well-spoken people like Christo Wiese, GT Ferreira and Markus Jooste arguing. So many people who come to present an opportunity uhm and ah so incoherently that I now ask beforehand whether someone would just like a cup of tea or sell or buy something so I can focus. My patience runs out with a wishy-washy presentation – does one really need more than ten minutes to explain how a business works and maybe ten minutes for a possible deal? And then there are those who just come to fish for advice. Those who don’t shy away from setbacks and are prepared to take hold of the future are the people you want at your side. The popular people in PSG are not necessarily those who put work ahead of everything else. However, here at head office there are a few younger ones who know how to have a good time together, depending on how long ago a new baby has arrived in the family and whether one has to help change nappies back home. The main thing to remember is that people differ. For instance, show me more of

an individualist than Johan Schoeman, my former SMK colleague who heads up a PSG Konsult office in Stellenbosch. Some people have higher levels of ambition. The more you leave them be, the harder they work, and the more you watch over their shoulder, the more they hide. Chris van Wyk, such a guru at the PSG Konsult office in Hermanus, has taught me what ambition is. With Chris I have also come a long way, from the SMK days, and in his day he was managing director of Trust Bank. How to recruit great people in the first place is, of course, a challenge in itself, and in that regard PSG is not always all that orthodox. My friend Pienkes du Plessis remembers that with the buy-out of their microloans business, just before the transaction was finalised, I drily said of his son: “Just remember, we are also buying Werner. Throw him in, please.” And Werner was needed indeed for that small start of big things at PSG Smartfin Financial Services. Michiel le Roux, who would later chair Capitec, we raked in under the pretence that he had to act as “consultant” in the microloans industry for us. Around the year 2000 I asked Louis de Waal, who used to work for PAG, to find me a chartered accountant among the top ten in South Africa as research fellow; I didn’t want any hassle. The poor Barry Groenewald still wanted to meet me and get to know PSG and the like when I told him: “Write yourself a letter of appointment and I’ll sign it.” Johan Holtzhausen of PSG Capital contends that I didn’t speak a single word during his interview with Chris Otto:

At the conclusion, Jannie gets up, walks halfway to the door, suddenly turns around and asks: “Can you write English?” The question had taken me unawares and I replied “yes”, maybe a bit slower than I normally would. “Well, we’ll see. You can’t work here if you can’t write!” and that was the end of the interview.

One often gets to deal with brilliant people in a financial services environment, but everybody isn’t that easy to manage. In part 4, where I elaborate on some of our companies, I refer to the example of Philip Croeser, the guy who came up with Escher and who was immensely talented. The head of PSG Risk Managers, Botha Schabort, was so talented and intelligent and a capital market expert, but complex and difficult to work with. But we are still pals and from time to time we look at opportunities together. One makes mistakes too. PSG Investment Bank couldn’t capitalise on the intellectual capital of Real Africa Durolink Bank – the bright guys had left before we could draw them in. One day a programmer who had it in for the Capitec precursor FinAid even caused the systems to crash. Izak Fourie, who would later become managing director of Health Monitor Group, says the human cost at the insurer Channel was too high:

Given the tempo of change, strong personalities and relatively high stakes, we probably had remarkably few major conflicts. With very rare exceptions, the conflicts did not arise out of mala fides by any of the parties. Fortunately we also had enough integrity and goodwill to resolve the conflicts as they arose.

I have also had the disappointment of a broker and friend who had been at my side for many years, since the SMK days, and was then caught for fraud. The JSE inspectorate was about to inform us that no speculator could build up such a history of successful transactions, when our own systems detected something was wrong. I wrote letters to a number of friends warning them of another person who had been given second and third chances. Money can be a terrible thing. The hunger for it and the claims of individuals have to be managed, or greed can annihilate a company. Years ago Peet van der Walt, a colleague at Federale Volksbeleggings, taught me that in an investment company (like PSG) the salaries are not as high as in an operating company where there is the added stress of managing a bunch of people. You see, one likes a competitive spirit and interesting deals in one’s companies,

but PSG has control measures to prevent reckless trading. Or else the guy who had taken such a position and overloaded the debt ratios of the balance sheet simply shrugs, maybe loses a bonus and gets a new job. Exorbitant salaries and bonuses are a virus in financial services, especially in fund management and private equity. They were among the major causes of the global financial crisis in 2008. One can find a yuppie on the trading floor who earns more than the managing director of a powerful company like Pioneer Foods! At PSG Konsult, whose great story I tell in part 4, we also had to deal with the problem of demanding yuppies and asset managers. The way those people had to be kept happy, the offices struggled to make a profit. Willem Theron, chief executive, got rid of all the stress by devolving all decisions about remuneration to branch level. Each branch may keep 70% of its income and do with it as it likes, including paying bonuses to deserving people. In that way everyone is responsible for their own welfare concerning profits and all is fair in the garden again. Once the thorny issues and the remuneration differences have been sorted out, the satisfaction of the right person in the right job is huge. A testimonial to the calibre of people we draw is how many have remained loyal to the company over the years and how many have even been with us from the time of SMK and the very start in 1995. Another reason for great joy is the number of friends’ children and their spouses working for PSG: those of Mervin Mellet, Jannie Kitshoff, David Meades, Louis de Waal, Willem Theron, Pierre Brink, Johan Carinus, Michiel le Roux, Chris Otto and quite a few others. The sons of Paul Harris and Christo Wiese serve on the board of Paladin. We mockingly refer to the PSG Youth League. And while I’m on the topic of nepotism, I also have the privilege of working with two of my own three children, Jan and Piet, something I’ll get to soon when I talk about family business. To Kevin Homann, husband of Dana’s Carine, I refer in part 6. Chris Otto has strong opinions about this:

Because we have a people business it’s important to appoint young people. When Jan was at Cambridge, I told Jannie we were appointing Jan. I also appointed Piet. Why should someone be disqualified from working at PSG just because he’s your son? We always try to appoint the brightest. If Jannie’s sons had been incompetent, we would have run the risk of losing other competent people with their appointment. They instil respect.

In fact, some time after my sons had been appointed to the board, the same Chris privately hauled me over the coals for being too critical of what they were doing. I was so afraid that people might think I favoured them that I came down unnecessarily hard on them, even in front of others. And then I regret it very much after the fact. I always regret having come down hard on someone. The fact that so many anecdotes are repeated over and again through the years also indicates that, besides the business challenges, an easy familiarity and joviality exist in the PSG group. My daughter Charité once called René Otto my “personal entertainer” because of the songs he sang at PSG gatherings, and Schoeman Botha, not a tiny man, will remember for the rest of his life how during a soirée at the house of Chris and Marica Otto he stepped on the tail of a sleeping dog that then added a few notes to the serious music of Dana de Waal. Imagine that fetching a few more snacks could embarrass one that much. The people remain the real soul of a company, and therefore I’ll refer to that again briefly in part 6.

Sharing is caring – I give the right people a share in the business

The principle that an employee is much more motivated if he can share in the profits has apparently been my mantra for a long time, because Thys du Toit, former KWV chairman who used to be managing director of Coronation, remembers our initial meeting as follows: My and Jannie’s story starts in 1985 in a lift, the glass one that looked out over the inner court in the JSE building in Diagonal Street. Usually one keeps quiet while entering a lift and everyone just looks ahead of them and doesn’t say much. Not Jannie. He was oozing self-confidence. Without even knowing me, he taught me one of my first business lessons: “I see you’re the new guy at George’s (referring to George Huysamer of GGH share brokers). You need to get shares in the business!” I listened well to the man who everybody was talking about (especially in the Afrikaans community).

It would be of little use if you had identified a fantastic business opportunity, ensured it fitted in with your broader vision, figured out who would be the best person to lead it, or found one, promised him a pro rata share of the profits and then his hands were tied because of a lack of money. Initially PSG often kept 50% in underlying companies, but now we believe there is no reason why the family that had started the business can’t control it. Someone with a stake takes care of his own. Our interest often depends on a company’s capital needs, because growth is stunted if it’s not financed. However, many empowered entrepreneurs are rapidly disabused of the illusion of a deep treasure chest whose lid is thrown open. A company’s money matters, as an entrepreneur has to learn in a very short time, operate in a very similar way to one’s personal budget; it’s just a little more complex. The core element remains that someone can’t keep rescuing you without discretion if you continue overplaying your hand.

Werner du Plessis experienced the start of PSG Smartfin Financial Services as follows:

On the date of the takeover I believed there would be an easy way to develop the business. PSG sat on a stack of cash and all that was needed was for him to channel it my way so I could make it grow. Why wouldn’t the group do that? There were millions and the world was wide open. After all, 35 Church Street was a friendly place where entrepreneurs could fulfil their ideals… The problem simply is entrepreneurs do not understand how the emergence of scale and volume can turn the world upside down. They don’t realise the company has to account for money from the public coffers. Today I realise that all of us who had been drawn in by PSG in the early years suffered from those ailments.

The guys of PSG Anchor Finance and Channel also complained about the state of affairs that the tap couldn’t be opened fully the moment they snapped their fingers for cash. And Louis van der Walt, top financial planner at PSG Konsult, writes as follows about the discipline in the early days of PSG Securities:

I’ll never forget the shock of walking in at the company on September 1, 1996 where the total expenses for the month were probably lower than the tea bill of the organisation where I’d been before. For the first eight months the business had one printer only, strategically linked to the receptionist’s computer. The printing process worked as follows: first one had to get underneath the reception desk, unplug the printer and carry it to the computer where the printing was needed. A network was a vague concept and anyway our budget did not provide for one. I spent many hours on my knees under the reception desk.

JP Matthews of PSG Asset Management will also tell you starting new ventures in PSG was the highlight of his career, even though trading was such a lot of fun. I also understand when he says it’s difficult to explain the excitement of throwing open the doors of something new. The only thing he did not enjoy was getting the business plan past me and Chris Otto – he contends we know how to

make a person sing for their supper. But at least we saved the same JP’s bacon once with our own wallet when he issued a wild invitation to a very good client that he would be treated to a round of golf on a course of his choice. No, the guy did not choose the dirt course outside Calvinia, but the Royal and Ancient Old Course at St Andrews. Johan Holtzhausen and Pierre Malan once made the same mistake by thanking me and Chris Otto for a referral by giving us the wine-list to choose: we did not make a Scottish choice, but the price of the Mouton Rothschild was a rather well-matured R1 785. I suppose money management eventually boils down to giving account of the “public coffers” of which Werner spoke. Sometimes it’s easier, sometimes difficult. Indeed PSG claims its pound of flesh. Jaap du Toit admits I never watch over one’s shoulder and am never the boss, but there is real pressure:

He has his hand on one – he demands a lot. In the end he couldn’t care less how one makes something work. He’s not inhumane, but he’s not interested in glib talk. If you come up with it a second time, he will tell you you’re talking hogwash: “If you can’t do it, we’ll stop it now.” In our world the norm is return on shareholders’ capital and that’s what interests Jannie. For every R1 he gives you, he wants to see a return of 20c by the end of the year. And he wants to know where the hard cash is. After all, one can’t put deferred taxes and all kinds of credit in the bank. He considers things like that “fabricated profits”.

If an entrepreneur wants to use our name in return for our share in a business he has to be worthy of it and toil a little for his share of the profits. Jaap du Toit also says there are people who take exception to the fact that we don’t establish a business like Investec. He says we would have lost many potential entrepreneurs that way, because one can own Investec shares, but not

part of the business. “We would never have drawn the people, because they would have wanted to do their own thing.”

In the limelight, in front of the crowd

I believe in the ability of the right entrepreneurs to, with assistance and proper corporate control, establish good businesses. I want to start with corporate control. For me, proper corporate control has no better chance to excel than when a company is listed. The question is: Where would one do better in a 100-metre race – behind the stadium in the dark or on the track, in the limelight, in front of a huge crowd of people? For those unlisted it’s easy just to say “sorry” if something goes wrong. Those listed experience huge pressure and have to shout it from the rooftops if something goes awry. It has to do with the human psychology. If your picture could be published in the newspaper when you’ve mucked up, you would take better care not to. If one is listed, one is judged every six months and therefore has to go the extra mile. To be unlisted means less stress and one can maybe afford longer holidays. That’s why we’ve had so many listings, like PSG, Capitec, Arch Equity, mCubed, Escher, Velocity, PSG Noble, PSG Investment Bank, Zeder, Paladin, Iquad, Erbacon, CIC Holdings, and I can go on. Not all of them were successful, but they were given the opportunity to show their mettle in front of the “crowd”. I have even been accused from my own ranks that I push companies too hard and too fast to list. That I have heard regarding both the multimanagement pioneer Escher and Capitec. However, there are a multitude of reasons why a company would want to list: a listed company can get capital to make use of opportunities; the leader and the team have more status in an environment like that; external shareholders are watchdogs for good corporate management; for the public measurement of performance; management and shareholders are more in tune that way; the profit

history benefits the shareholders; more independence means more freedom; it’s easier to judge performance, because the market does it for you; it’s easier to measure wealth creation and it’s a platform for ambition and publicity. But once one has those shareholders, one has to treat them with respect, because then they are the owners. It’s so important, because many companies tend to jerk their shareholders around. They should in fact be treasured. My secretary, Sharon October, knows if a shareholder wants to talk to me she has to put him or her through, and if I can’t talk to them immediately, I’ll return the call. Thus I naturally am my own boss, because I believe directors should have big share investments in the companies they represent. They are custodians of the shareholders’ assets and will definitely do a better job if they are big shareholders themselves. In part 6, I again refer to my sentiments about the King code that I mentioned briefly in part 1. At a board meeting I would rather listen to a guy with a big stake in the company. In part 6, I also unburden myself regarding the limitations of too many rules, but I do believe in good corporate control – in the value of doing business in an orderly and controlled fashion. The assistance to entrepreneurs or management firstly consists of striving to help someone focus on their goals. Directors have to see to it that a business plan is carried out. I’ve frequently mentioned this before in the words of colleagues. The company Graphicor, which we bought in 1996 and later sold, learnt in the PSG stable what attention to detail entailed, and what the definition of a scenario was. “The power of the group can encourage the mind to take a significant leap and move forward,” the late Gavin McSweeney of Graphicor said. That’s true, one can’t leave anything to fate. Michiel le Roux of Capitec says that’s not something I would easily do. Chris Otto says we prevent our thoughts and vision from becoming bogged down with detail that might be important to the manager involved, but not for the final plan. One of my colleagues has called the meeting room on a Monday morning “a house of pain”. Neels Borstlap of FinAid experienced PSG thus:

In Hartswater we worked out the budgets on the backs of cigarette boxes. PSG has taught us to develop gigantic budget models in Excel that automatically make all the adjustments the moment you adjust one variable. In Hartswater we checked at the end of the month and year how much money we had made. PSG has taught us how to calculate three years in advance what the monthly profit will be.

There needs to be good management information, one has to know how well or how poor a company is performing. Directors are elected by shareholders and therefore their views might differ from those of management. Shareholders can also insist on loyalty. That’s why nowadays we see all over the world where a company has a large stake in another the former usually nominates a director (or more). The corporate expert and business writer Jon M Huntsman finds it regrettable that many boards have nowadays really become social clubs that don’t really protect the long-term interests of shareholders. With the Pioneer Foods saga I was not all that popular when I believed the board should resign. I was blamed for it, but who will take care of that widow who did not get dividends due to the company’s sins? Shareholders are the owners of a company and an owner should always be in control of his own assets. The board is appointed by the owners – and that’s why I like a company with a strong owner. In PSG’s case, 77% of the shares are in the hands of confidants – relatives, friends and directors. While many similar companies are susceptible to takeovers because a large number of their shares are with the big institutions, we are covered against that in this way (see addendum F in the back of the book). In part 4, I summarise the history of PSG Investment Bank, but the prelude to its sale was a takeover attack by Absa in 2002. At that stage less than 50% of our shares were in the hands of confidants. Absa’s corporate financing department went to the institutional investors who had shares in PSG and wanted to get a mandate from them to get hold of more than

50% of the shares. In this way the bank wanted to take over PSG, split up the group and sell the different parts. Markus Jooste started buying PSG shares. He persuaded Bruno Steinhoff, founder of the Steinhoff furniture group, to get in as well and GT Ferreira followed suit. I also bought whatever I could afford. Thus the takeover was averted and we could eventually agree with Absa that they would buy PSG Investment Bank, which had in fact started weighing us down. At present my children and I own more than 30% of PSG’s shares and, along with the shareholders mentioned above, Thys du Toit (former KWV chairman) and Christo Wiese have huge stakes.

A family affair – is that what PSG is?

I have already intimated how much I like family businesses. Most successful businesses globally have been started by an entrepreneur and built by the family. Just think of the Rockefellers, Hefners and Waltons of Walmart or the Campbells of the soup brand and the Mars name in chocolates in the US. I once met members of the Swedish Wallenberg family whose business, with its stakes in companies ranging from Ericsson to Electrolux and the truck manufacturer Scania, has been in existence for 150 years. On October 14, 2006 The Economist wrote that few family concerns survived the third generation, but there the fifth hopes to hand over to the sixth – even though things weren’t always hunky-dory. In South Africa the Wieses have a huge stake in Shoprite. We also have the Ruperts, the Ackermans and the Jowells who control Trencor through Mobile Industries, and I’ll shortly get back to that control. I started thinking of a family business when I saw my children had the appetite and ability to tackle something with me, albeit on different levels. In part 6 there are quotes from a personal letter I wrote them in that regard. If I didn’t have my children I might have cashed in all my investments and gone sailing on a yacht. Right after Dana’s death I considered retiring, but I have no idea what I would have done in the coffee shops. I always told her I don’t collect stamps, I don’t keep carrier-pigeons and I can’t paint water-colours. I might watch some sports, but business is my life and my hobby. Or imagine Sanlam had bought me out and I just had to act in an advisory capacity on a board of directors. Then all the fun would be gone. That I would never consider, because then I would lose all interest in matters the next day.

While I used to say PSG is not a family concern, I have changed my tune. I find it sheer pleasure that two of my children work alongside me. Besides, my children understand one another well and get along well. Yes, I know the word is nepotism. Nobody is stupid, they knew something was afoot when both were appointed to the board. No one said a word, because if my children started abusing their position, nobody would respect them. And as far as I know, the people who work with them respect them. I don’t have to favour them. Just like in their childhood when I never let one of my children win when we played board games, I believe they have the mental capacity and ethics to make it on their own and play a role in the company on their own merits. As far as I’m aware, people don’t think Jan and Piet are lightweights who bandy about their father’s name. The group structure has also been set up in such a way that they don’t need to interfere with Capitec or Paladin. When in June 2010 I stood back as executive chairman and created the position of chief executive for Piet, everybody thought it was window-dressing. It was. Ha! I got you. Do you know what Piet will say if he reads this? I know what he’ll say. Something in the vein of: “The old man thinks he’s quite grand, give him a little more rope.” I might still be mocking and then my son could fire me – just imagine the field day the newspapers would have with me then. KWV would look like a picnic. Fortunately Piet knows how much I respect him and his abilities, and the role he fulfils, completely in his own right. Indeed I still play a big part. After all, PSG is the basket containing each and every one of my eggs. That’s why I’m still in my Church Street office almost every day. Everyone knows I still sit there. Chris Otto will also tell you because we are an investment company and not operational, the structure without a chief executive has worked for us until now: I’ve realised earlier than Jannie that we old guys should stand back a little and consider the next generation. King’s new regulations that an executive chairman can no longer be the head of a company almost gave us the excuse to do something. Piet is capable and clever and an excellent candidate for both the

shareholders and the board. It’s a good thing that the young guys take over now, while we remain involved with the big decisions. We still serve on the executive committee and sometimes we do some mentoring and training while he and the others start facing the heat.

Bill Venter’s Altron searched all over the world to find a chief executive and ended up appointing his son Robbie. I didn’t even need to go searching. Though our family and other so-called friendly parties have such a huge stake, “independent” shareholders can still voice their concerns if they don’t like a board member. Or if the shareholder doesn’t like this strong family presence, he simply won’t invest, since the extent of the Moutons’ stake is general knowledge. In every company the shareholders appoint the board in a democratic way, unless there are N- or B-shares entrenching a higher order of voting rights. Besides, if one is too autocratic and does as one pleases, it wouldn’t be possible to develop the company over time. Moreover, if your top appointments displease other senior staff members, you run the risk of losing valuable people if they believe they can no longer realise themselves. Yet, as important as control is to me, it grieves me that people keep holding on to it artificially by awarding higher voting rights to certain shares to retain voting control over the current assets, while their economic interest equals that of an ordinary share. If a company purports to be a public asset, it has to follow the rules of the game. And nobody who already has an N-share structure, like Naspers, would be keen to relinquish it. They are sitting too pretty. With special control structures the shareholders might suspect that those in control are negotiating special advantages for themselves and are putting their own interests ahead of those of the shareholders. In our annual report of 2002 I wrote the quality of leadership is more important than any agreement that keeps an average person in control and protects control at all costs.

PART 3

The application of my approach to business

Having given a number of examples of how we do things, I now want to take it further, but illustrate the practical application in more of an anecdotal than philosophical way. I want to explain how PSG as an investment company decides whether to take over or sell a company – that’s what we do while operating companies buy and sell products. We also start up ventures; we don’t shy away from the unlisted sector and will issue shares if PSG is trading far beyond its intrinsic value, or regard it as a repurchase opportunity if it’s trading far below its intrinsic value. I conclude with what it all boils down to: investment success and how we measure it. One thing that’s as plain as the nose on your face is that business can never mark time, for that will result in stagnation and going downhill. One doesn’t only want to bake bread, but biscuits as well. And whatever makes sense today might not do so in two years’ time. This part starts with a “serious” warning by Leon de Wit, former executive chairman of Channel and nowadays winegrower of Devonair:

All those who know Jannie know he is inherently a trader. As long as he can buy and sell and do a deal he’s at his happiest. That’s not necessarily true of the opposing party, because Jannie hardly ever does a bad deal. For that he’s too clever by far, even though he doesn’t always create that impression. Be on your guard especially if he intimates he “doesn’t really understand”. That’s only one of the Carnarvon tricks, and there are quite a few of those. And remember a deal

is not a deal before you have shaken hands.

One for all and all for one – the interconnectivity of doing business

In a hefty group like PSG where up to 40 companies do business, many of the deals or activities are, of course, intertwined and no department is an island. Often A’s capital finances B or an opportunity arises at C that can be used by D. For instance, I don’t think I’ve ever done a better deal than PAG, the small listed financial services company that fell into my lap like in a dream. If its R7 million did not become R107 million, a foundation for this powerful company would never have existed. Let me be honest: one can continue ad infinitum about PSG’s ingenuity, but the role luck sometimes plays can’t be ignored. PAG’s sale price was plain darn luck; don’t let anyone tell you a different story. Sheer luck. That’s how PSG started. We started small and slowly achieved success. Success gives one self-confidence and that’s quite contagious on the market. It makes it a little easier to run risks when one is stronger. If you have capital you can grow, and you can even afford to make mistakes. It has been said that PSG’s reverse listing in Servgro was the mother of all its transactions, that it was the turning point that made people notice us and made them realise “we are going to conquer the world”. It might not have been a stroke of luck like PAG, but the timing was definitely perfect. The market (and PSG’s share) was at a high in 1997-’98 before the Asian crisis, and then we sold all PSG’s business to Servgro, a listed cash shell, for R863 million. We were paid with R327 million in cash and with an issue of 200,7 million Servgro shares. That gave PSG a stake of 61,9% in Servgro. It was a technical transaction, but suddenly we could bark along with the big dogs. And it remains one of the best deals we’ve ever done. Of further interest is that I started working at Federale Volksbeleggings in 1973, the same FVB that later changed its name to Servgro and unbundled all Servgro’s assets, thus the cash shell. Peet van der Walt, who used to be my boss

at FVB in 1973, was spokesman for Servgro in 1998 when we did the deal. He’s an exceptional person and I later asked him to serve on the board of PSG Investment Bank. Simultaneously we issued 10 million shares at R9 per share to Siphumele Investments for an 11,5% stake in PSG. It’s a transaction I refer to again in part 4 under the Thembeka heading. The deal was financed by institutions and was one of the very first black empowerment deals in South Africa. The timing of both deals was incredible and increased PSG’s net asset value per share from 147c in 1997 to 617c in 1998. Over the same period our market capitalisation increased from R249 million to R1,172 billion. “PSG is an aggressive services group that wants to expand its base of financial services activities. That requires skills and cash. The skills we already have. Now we also have the cash,” I gloated to Beeld in March 1998. One thing leads to another. No business is born big – not even a PSG Konsult or Capitec. Can you believe that at one stage PSG had to help Capitec pay its salaries? We had to jump in because Capitec couldn’t get an overdraft facility from another bank. And now that same bank that had initially secured depositors at a very slow pace is on everybody’s lips. And one good turn with a deal deserves another. Where I write in the next part about Harvest Securities and the cocky attitude PSG sometimes displays, I write about PSG Noble Capital, which wanted to make its mark as private equity business. At the end of this story, which probably went a little awry, we were still left with a stack of money because on the basis of lovely timing we listed at the top end of the market and secured capital. There was a lot of pressure from shareholders to distribute that cash among them, but in the end PSG could put the capital to far better use. That put us in a different league altogether. We did distribute special dividends, but also used part of this R1,2 billion to capitalise PSG Specialised Lending, an umbrella name for the three Capitec building blocks and therefore a precursor of that bank. Similarly the R400 million tax loss with The Business Bank and its banking licence that we then used for Capitec could give the new bank a boost because it could write off profits against that loss. The whole Capitec story is also told in

the next section. Future Wealth, born from the misfortune of mCubed, is so healthy now that on the basis of the investment policies it writes, it secures cash it can lend to PSG, Capitec, Thembeka or other group companies.

We go to town for some shopping – purchasing businesses

PSG has an annual growth conference where we inspire and motivate every company in the group to look at internal and external growth – to open their eyes to new procurement opportunities. If each and every company focuses on growing profits day and night, it becomes a goal or culture. A company like Capitec has a model that’s directed by objectives like turnover per branch or the number of loans granted. It’s a machine that has to run and there are small control points that are applied with incredible singleness of purpose. Yet the time will come when its efficiency and growth will reach saturation point and most South Africans will have started using banking services. In that case a business can’t merely grow internally any longer, it will have to tackle takeovers or maybe spread its wings further in Africa or to India and China. Spirit Capital in our stable buys out businesses with borrowed money and achieves excellent results with the interesting takeovers it does. Among the most remarkable names under its belt are Cerebos salt and Annique beauty products. As an investment company, PSG frequently tackles new opportunities. We also encourage the management of all group companies to be on the lookout for takeovers or mergers. That’s easier said than done, especially for the underlying operating companies that would prefer to remain in their safe rut of just doing every day’s business. We can, however, help them with the negotiations and contracts and they have to stay alert, then opportunities will appear. One just has to be attuned to them constantly.

Come to Mama-business opportunities present themselves

Every day I read Business Day, Cape Times and Die Burger. It’s amazing what one can come across, and then one has to sit and think. One has to think outside the parameters. That way you will come up with an interesting business opportunity. For instance, what opportunities are presented by South Africa’s challenges? One newspaper article about the matric results is enough to convert one to a Curro idea. In the same breath one can say how well private health-care and security services are performing in South Africa. No surprise that PSG now wants to venture into electricity – we are looking at a company that implements power-reduction programmes for large groups. If one follows Eskom’s sad story in the newspapers, such a venture is a very logical step forward. Water purification is another example. I have thought long and hard about the concept that people will still need to eat once I’m dead. That was the basis of our interest in agricultural companies. Listening to others nowadays one would think it’s so crystal clear. Everybody’s engaged with that as if they thought up the involvement with agricultural companies many moons ago. Developing interests like Zeder doesn’t happen overnight. When the Singaporean sovereign fund Temasek wanted to start investing in Africa’s agriculture with a fat wallet, South Africa was a logical point of departure. Asset managers could refer it to us, because where else does one start? Since our country doesn’t really have farms on the same scale as the American ranches, the only other way to develop a substantial stake in agriculture like the one Zeder already has, would be to buy like crazy. The same alert attitude can also prevail in your daily dealings. One has to keep wondering all the time. When you have your hair cut . . . where does your hairdresser buy, and why? If you have a cup of coffee . . . what would happen if Famous Brands cut off one of its trademark entities like Mugg & Bean? If you’re

driving around . . . why is somebody erecting such a huge building in a new property development? Who owns the mall where you do your shopping when you furnish your holiday home? At a rugby match I saw an advertisement for Colors, and then discovered my son Piet has a friend who works at this fruit exporter. That way I could start calculating in my mind whether the group would serve any purpose for Zeder. When Dana was busy with the building of our house on the farm near Barrydale, I asked her which supplier had impressed her most. It was a manufacturer of doors and windows in Malmesbury. With hindsight, it would seem so logical that PSG Konsult should also consider private banking, but if it’s that logical, why has nobody come up with the idea yet? Similarly PSG also often investigates opportunities at groups not really in need of capital, but that utterly impress us, like Protea Foundry, to which I referred in the previous section. Since PSG is known for considering creative proposals, someone arrives here with a proposal almost every week. Of course, only about one out of ten is something one would really want to consider, but you never know. When the investment arm of the trade union Nehawu came to talk to us about Capitec, we weren’t too keen on relinquishing a stake. Yet the conversation could expand to the possibilities about doing something together at Thembeka. Occasionally, someone is sent to us. The premixed concrete manufacturer Precrete that I’ve mentioned once made a presentation to Rand Merchant Bank, which referred them to us. The construction company Erbacon Investments also ended up with us that way. However, PSG also actively searches for investment opportunities. Johan Holtzhausen’s PSG Capital is sponsoring broker for 32 companies and naturally he knows what’s happening in each of those companies – which deals they want to do, who has listing plans or who wants to borrow money. That corporate function presents an excellent infrastructure. Johan has business acumen like few others and he’s probably our best source of opportunities, because in that way he also gets to write fees.

The team has the expertise to fine-comb opportunities. There is no trick these people wouldn’t recognise from a mile away. What one buys is not always that obvious, especially not with a small unlisted business. One just has to remember that more than 80% of the proposals of entrepreneurs are too romantic and impractical. The exploration of opportunities is no walk in the park.

See which way the cat jumps

Over time one develops the ability to separate wheat from chaff, for it’s a knack to spot an undervalued opportunity. One acquires the touch or sixth sense or gut feeling – all the lessons learnt through experience or a little knowledge of human nature and what academic learning has taught one. By participating in the process it gets easier over time. You also have to ensure a group has the kind of entrepreneur who can do the job. He might be the salt of the earth, but if he’s not streetwise, walk away. If you want to take over a company, you have to believe in the people and trust them. As I write about mCubed in the next part: when you send in a team for a due diligence, you’re never able to discover within two months what’s wrong and what’s right. In that case, we now know with the wisdom of hindsight, we should only have bought the business, without the people. One should never feel obliged to buy a business warts and all. Lennie Louw is a good businessman and a gentleman, but that PSG didn’t know in 2001. When Investec wanted to take over Fedsure in Namibia, the management of Fedsure Life Namibia negotiated the right to acquire full shareholding in the business. However, they had to find someone to help with the financing, but the deal was complicated by the fact that they would not have been able to give any interested party access to the actuarial information that was encapsulated in Fedsure Life and formed the basis of the valuation of a life insurer. When management asked me how to overcome that difficulty, I said: “Just look Lennie straight in the eye and make a decision.” Indeed Lennie, in his day an international cricket player for Namibia, never took his eye off the ball once in the three years we owned that group and he remained in the group after the sale. The irony is that I feel the complete opposite about someone one knows very

well. If a pal approaches you asking you to take up a stake in his business, he usually is a goner. But if you see pals or acquaintances making a success of a business, you can approach them to see how it functions and how they handle their people.

The right fit – are the affairs of a business clear and does it fit in?

Where I deal with the sale of business, I want to say more about CIC Holdings, but I regard that precious business as an excellent example of how easily one can explain another company’s business to someone so he can see the whole picture in his mind’s eye. CIC is a distributor of consumer goods with a high turnover. It does business in South Africa’s neighbouring countries all the way up to Zambia. It sells nonperishable products like canned food and biscuits, but there’s a secret regarding its presentation. It sells something like one million packets of Joko tea annually in Mozambique alone – not by the box, but by the bag. That’s also how its poorer clients prefer to buy cigarettes – loose and one at a time as they can afford it. The simplicity is amazing. You don’t have to be a nuclear scientist to understand the huge agricultural market where PSG has noticed so many opportunities. We have acquired expertise, developed an advantage and more opportunities will emerge. On the other hand, PSG once had a stake in Teljoy because we believed come hell or high water we had to have a stake in the cellphone industry, because that was supposed to be such a money-spinner. To that transaction I briefly refer in part 4. It took a while before we realised it simply does not fit in with PSG. With reference to the silicon and anthracite mining company Petmin, I said in the previous section that we don’t stick to the rule of avoiding some sectors completely, but in general one later develops an understanding of what seems to fit. As a share broker I enjoyed trading in gold shares, but I don’t understand mining. Besides, that industry has become a political nightmare because of the awarding of rights. Though we as an investment company have diverse shares, there are still things that simply don’t work for PSG, often because we don’t have the expertise in

that regard. I immediately think of information technology, some facets of mining and the property industry. If South Africa’s IT billionaire and space traveller Mark Shuttleworth had laid his Thawte Consulting down right in front of us, we would not have had a clue about its potential, even if the presentation had been world-class. (Yet in part 5 you will see how I keep breaking my own investment rules.) Similarly, we would be clueless if a really nice company came to us with the ultimate cure for cancer or another biotechnological miracle. Still, what about PSG Online, you might ask. After all PSG was a pioneer with online trading in South Africa. One can be caught sleeping if one ignores the amazing world of technology. Yet, as with any e-trading, one can easily make the mistake of thinking business is about the computer. This is what Charles Chapman, who joined PSG Online as chief executive in 1999, said:

What have I learnt? Don’t generate business from technology, but let technology support and drive the business. I believed the clients of PSG Online had wanted to stay anonymous and preferred no human interaction. That was a big mistake. Online clients prefer a computerised service mechanism, but welcome personal contact from Online’s side.

PSG also sold its share in MiWay, the online insurance company jointly coowned by Sanlam and Santam. With e-insurance the trick is that the money you save in brokers’ fees because the client buys directly from you, you spend on advertising. You should have deep pockets for advertising before the business grows, but ours were not deep enough for that. Jaap du Toit will tell you I’m not into the so-called J-curve or hockey stick profile on a profit graph. A new business that takes a long time to generate cash and make profit does not sit well with PSG:

The J-curve is how most dot-com businesses work – the success is measured by

means of the number of subscribers. Profit is not the norm. The start of PSG Online was quite stressful, because we had to put a system in place, market it and keep it running with limited capital – at huge losses. We went through deep waters and lots of tears. Today at last Online is a fantastic success story.

At Clientele, an insurer at the lower end of the market, we found the functioning of direct marketing amazing. Almost like at Tupperware parties, we encouraged clients that they would get their premiums for free if they recruited another five clients. It worked, kind of. Endowment policies for school fees seemed to be an ideal product for this market, but people were simply too poor for that, and then the policy would lapse within two or three months. Anchor Life also did business at the lower end of the market and had 32 branches and 1 000 agents. It took on average three months to train an agent, but there was hardly any demand for the policies and therefore the turnover of agents was sky-high. Later the name was changed to Channel Life, with a proper funeral for Anchor – with a priest, flowers, tears and the works. We managed to clean up the administration to such an extent that in a manner of speaking we almost weren’t selling policies anymore – many contracts had to be cancelled to save the business. René Otto was then appointed chief executive. He started call centres and sold policies like hotcakes. But those lapsed after two months and then we suffered a loss. Nowadays he’s chief executive of MiWay in the Sanlam and Santam stable. While we’re on the topic of “fitting in”, Leon de Wit (later also executive chairman of Anchor Life) remembers the Christmas party after the takeover as follows:

Hundreds of sales agents who made money by selling R30 policies to the lowerend market turned up at the party. After a while the lights in the hall were dimmed and on the stage there was a single light with a sparsely clothed lady dancing below it. Over the music the guys were shouting and whistling like wolves. I started sweating bullets, because I was afraid Jannie would have a fit

or maybe run on to the stage. What was happening was a little indecent and not what we were used to. Well, when it was Jannie’s turn to go and stand in the limelight and address the people as the new owner, he shaded his eyes and gazed across the crowd, and then he said slowly: “I am Jannie Mouton and I have just been fired . . .” Despite the consumption of alcoholic refreshments, there was no doubt among the crowd about this restrained threat that they might also have to leave, and this time there was no whistling or clapping. Anchor also never had a party like that again.

One would, however, think that a sector like property would manage to get and keep PSG in a party mood. Everybody knows the property market is so much larger than the share market and dozens of people make presentations about that to us. It always presents a challenge to PSG. As I mentioned in part 1, I learnt a little lesson with Quantum in the SMK days. We thought we were the cat’s whiskers when that black empowerment share was oversubscribed a full 240 times at its listing, a new record on the JSE. It’s a pity that luck didn’t last. Fortunately we sold another property group, Mainfin, right before the recession started at the end of 2008. Paladin struggles with two businesses and both are in the construction industry: Erbacon and Top Fix. One can do everything right, but if a sector is under pressure there is little one can do about it. Before these companies and the tankers of GRW entered our lives, we didn’t know the concept of “cyclical” industries. Fact is one can’t consider every single sector. What one does consider should be logical. As long as one doesn’t think every opportunity is one’s last. Michiel le Roux remembers that although in the early years Capitec wanted rather to take over groups of businesses than to send purchasing teams to individual towns, the bank resisted the temptation:

There were a few groups who had tried developing a countrywide network before we had and it seemed logical to buy them. Our negotiations with Moneywise and ABC Cashplus came to nothing, but that warned us that building a group could destroy a lot of value in the absence of good leadership.

Similarly, we turned down the Nigerian sugar producers who had approached Zeder, no matter how attractive a footprint in Africa seemed.

Bare bricks and wet cement? Beware – is something happening there yet?

In the industry we talk about the business concept of “they’re already making tea there” in reference to a business that’s got off the ground. Just as we wanted to start with a PAG rather than nothing and could put The Business Bank’s banking licence to good use rather than toiling for another year to get one, it’s that much easier to start a business without the hassle of all that initial administration. If there are working telephones already, one would, in a manner of speaking, only need to rent extra space. If Capitec one day decides to expand to Angola, it will be a central bank nightmare unless one can find a partner in that country who already knows how things work. In that regard we were tempted when Blue Financial Services wanted to peddle their 16 Africa branches to us, because they had already mastered the bureaucracy. In the end, though, we didn’t see our way clear. One also has to ascertain whether the financial results of the business one wants to buy have been audited, because you don’t want to buy a bankrupt dog’s breakfast, after all. Starting a business is a somewhat different matter. If one can add value this way, don’t shy away from the start-up hassles. For instance, because of the collapse in available capital since the recession that started at the end of 2008, bridging capital is in quite high demand. Propell is a business that helps sectional title businesses when their owners have fallen behind with the levies. A flat like that can’t be sold before all the levies have been paid. Then one is quite sure of getting one’s money back, because of the security of the building and because one is the preferred creditor. That’s why they can also borrow money from you to install a lift. Propell, which merged with Baedex (formerly Adato Capital) in March 2011, is too small for the Paladin stable and therefore it’s at home in PSG. One third is in the hands of PSG as well, one third in those of Michiel le Roux and the last third

in the hands of staff and management. It has become an interesting little business and I have the highest regard for the abilities of Michiel and the youngsters at his side. His son, Willem, is chief executive. More opportunistic little occasions like that may arise and are quite exciting, but of course opportunism hasn’t always been to our advantage. Indevco and PSG Vantage were as opportunistic as Harvest, whose flashy history I’ve promised to tell in the next section. Legal changes, an inability to understand what really made those businesses work and the wrong people caused their demise. Whatever investment you do, you should know in what kind of underlying business you invest and understand that some companies won’t yield the kind of investments you hope for overnight. You can start something new, like a Capitec, develop it while you can take pride in a high price/earnings ratio (PE) of 25, or how much you’re willing to pay for the expected earnings in rand. On the other hand you can be extremely patient and make and keep an investment in agricultural companies with a PE of 4. You would buy at a good price, but then you should not be obsessed with a running clock. Few people understand both kinds of investments.

Nothing ventured, nothing gained

No share has the potential to present as much value as an unlisted one has. It’s like buying a home off plan – you run the risk because you see the value before others do. But investing in unlisted companies is a skill. You need the sight of an owl, the nose of a greyhound and the courage of a lion. Yet when I start elaborating about all the places where I’ve run into brick walls, you’ll see that even those going in with their eyes wide open can still run back with their tails between their legs. A good source of unlisted companies is the annual report of investment companies like PSG. One can get hold of it because it’s public information. Shares like that are often sold over the counter, by tender, or the secretary keeps a list of potential buyers and sellers. Some unlisted ones have the characteristics of a listed company, some of those unlisted are freely negotiable and others have limitations on negotiations. The AltX is a somewhat more official channel with more rules and regulations to protect investors. It was preceded by the venture capital market from 1990 to 1998, and its ancestor was the development capital market where I cut my teeth as a broker. But in a sense these possibilities “have already been taken”. It’s even better to recognise one that no one else has noticed yet. SMK, for instance, was a keen buyer per tender of Naspers before that company’s listing. Speaking of Naspers: I must admit, it’s true that PSG sometimes smokes eucalyptus leaves in secret like a naughty schoolboy; once in a while we like stirring a little in the chicken coop of establishment. One of those times was when the Naspers board almost went ballistic when in October 2005 we tried to get a stake by taking control of Keeromstraat 30 Investments (Keerom) which, along with Naspers Investments, controls Naspers. That control is entrenched by means of unlisted A-shares that each have 1 000 votes in Naspers, compared to the one vote per share of the listed N-shares.

Keerom owned about 31% of the A-shares in Naspers, which gave it 21% of the total voting rights. As a shareholder, I knew Keerom was worth much more than the 1c indicated in the results of Naspers Investments. So we offered 40c per share. I knew Keerom was a much cheaper way of securing a stake in Naspers. Some unlisted shares can be bought at a rebate. Therefore one could get a big chunk of Naspers through Keerom or Naspers Investments, as well as control with high voting rights. It’s a principle I’ve applied time and again since then. The late Deon Basson, long the doyen of business writers in South Africa, wrote in an unpublished article: “If the consortium led by . . . PSG achieves real success with its current offer of 50c per share to Keeromstraat shareholders and/or R127 per Naspers A-share, then Naspers Investments’ ‘crown of control’ is not sitting as solidly as is often believed. The reason is that Naspers Investments’ voting stake in Naspers has been watered down from 45% to the current 34%.” He said if PSG could gain control over the board of directors of Keeromstraat, we would have a voting interest of 21,6% and together with the 13,9% of Sanlam – support Naspers couldn’t necessarily count on anymore – “it’s clear why a victory in the Battle of Keeromstraat is so important to the current controlling elite of Naspers”. He also quoted the words of Boetie van Zyl, chairman of Keeromstraat 30 Investments, as reported by Die Burger on December 3, 2005: “It (gaining control over Keeromstraat) can potentially be a hindrance for the company. We’ll try to prevent them gaining control over the shares at all costs.” He said Boetie was not wrong in saying PSG was opportunistic, “but it’s just as true that Naspers and Keeromstraat have left the door wide open for opportunistic offers”. Indeed, Naspers held on to control for dear life for the sake of the “independence” of the media company. Koos Bekker, chief executive, and Cobus Stofberg, head of Naspers’s MIH subsidiary outside South Africa, each coughed up R67,5 million for half of Sanlam’s unlisted stake in Naspers in order to ward off the bid for Keerom. On January 30, 2006 the Naspers paper Beeld wrote this headline in its business section: “Doubt whether PSG’s failed bid for Naspers unlocked value.” That was

after PSG had pointed out in newspaper advertisements that Naspers’s listed Nshare had risen by 22% since our offer in November. We never bid for Naspers itself – it was for Keeromstraat. And we reached our objective with the takeover effort: The price leaped from 1c to 44c. That way awesome value was unlocked for us and our clients, many of whom were Naspers shareholders too, even though PSG didn’t have a significant stake itself. I first realised the value of unlisted shares because of the agricultural cooperatives in South Africa. Some of them had been in existence for some 100 years when the political dispensation changed in 1994. Farmers founded these co-operatives years ago as marketing channels for their products so they wouldn’t be at the mercy of monopolistic buyers. Only farmers of the district could be members, and co-operatives could take up stakes in one another. Now more and more co-operatives have been converted to companies whose ownership range from only bona fide farmers to unlimited ownership by anyone interested in taking up a stake. The very first big one that was converted was Vleissentraal, into Kolossus, and I was actively involved in the listing in my time at SMK. Two weeks after we had taken over PAG, I went to Delmas to talk to the people of OTK (Oos-Transvaal Koöperasie) because I had a hunch they wanted to list. We bought OTK shares which we sold when the company was listed, and made a profit of R3 million. That was a big thing for us back in the early years of PSG. The trick is to try to buy where limitations are still in place and when the old board is still in charge. Then one buys cheaply – one might even buy only the buildings at 60% of the real value. That’s something we understand very well at PSG. Yet one needs patience, because at these businesses the change towards being more commercially-minded happens rather slowly. The management are not lying yuppies, but down-to-earth people, honest and upright, whose business has been in existence for years. The opportunity is in the fact that for many years co-operatives have been attuned to delivering a service, rather than seeking profits. The best is that one can take this kind of wisdom even a little further, which is

what we are doing through our agricultural arm, Zeder. The second-largest food company in South Africa, Pioneer Foods, came into being through the merger of Sasko and Bokomo due to the deregulation of the grain industry from 1991 to 1997. When we grasped what a great company Pioneer Foods was, we realised we could secure a stake in a more cost-effective way than directly buying Pioneer shares. Its largest shareholders – Kaap Agri, Morreesburg Koöperasie and Overberg Agri – are all unlisted. By securing a stake in Kaap Agri we could get much cheaper access to Pioneer. Thus Zeder still indirectly owns a fair stake in Pioneer. Similarly Zeder owns 5,5% in the unlisted Distell via its 37% stake in Capevin Holdings, that used to be KWV Limited, about which I say more in the next section. We get to know more and more agricultural companies and develop a sense by visiting co-operatives, questioning them about one another and studying their results. The biggest value is unlocked where management is poorest. Some might be a pig in a poke. Every agricultural company has a different story. Zeder is valuable to us and it has built a great portfolio this way. Yet, as I said, one needs patience for that. We’ve been buying shares in the Noordwes Koöperasie for four or five years. General Koos de la Rey, coincidentally, was a founding member of NWK, and every time I see that statue of him on his horse on the neglected town square in Lichtenburg, I yearn to own it myself. In the same way, PSG looked at the stock exchange in 1996 and got a hunch that chief executive Russell Loubser wanted to list the exchange itself as a company. In the old days every member of the exchange owned three rights, and we started buying them as members retired or they became available in another way. When the rights changed into shares, we kept buying and with its listing we were in possession of 15% of the JSE. However, when government decided that no company was allowed to have a share exceeding 15%, I was extremely annoyed. Although Thembeka kept its JSE shares, PSG sold its. In 2007, at about R48 per share, we made a profit of R651 million, our best deal yet in terms of profit. Today those shares are worth almost R80, but we are satisfied. We’ve made our profit. It’s nice when calculated homework yields such a healthy return.

A licence to see one’s backside – unlisted shares don’t always work out

In the middle of the 1980s, while still at SMK, we also started going in for the industrial market in South Africa for the sake of diversification. I’ve referred to that in part 1, but as Johan Senekal remembers, in the early 1990s we sounded the retreat in terms of wooing mining, mining machinery, low-cost housing, clothing and packaging. Does one have to suffer like that to teach one a better way of thinking? I don’t know. At least the clothing retailer Harties was a fascinating business. There were fewer than 20 branches when we started investing in this unlisted group and we expanded them to 220 branches. There were price wars with Pep Stores and many of its employees crossed over to us. But then we also wanted to buy HiFi Corporation, for we imagined we were the largest retailer under the sun. So then we listed Hicor as well, and while we were at it, HiFi Corporation too. With the listing of Alfa Packaging, its shares were hotter on the stock exchange than those of M-Net! Just a pity the takeover route Christo Bierman took included writing off the stock to very low values and debited the goodwill. That, of course, would result in a house of cards collapsing. And with the school uniform manufacturer Veka, my friend, who was the managing director, and I negotiated a management buyout with Dr Albert Wessels and Federale Volksbeleggings. That way he – and we – lost everything. All those things collapsed. Perhaps it means a lot of nonsense was necessary for one to cut one’s business teeth. Also true is that it’s not strange to fail – an entrepreneur doesn’t walk on water. This warning I repeat in part 5 where I talk about personal investments.

The maiden voyage – if you’ve just bought the business

I don’t see the sense of having a party when something new is started. I also used to be in trouble all the time about my opinions about parties at KWV. My first party scandal was back in the SMK days when we bought an estate agency. Johan Senekal, one of the founding members of SMK, remembers “the largest marquee in the history of (the then) Transvaal” was rented for the launch. As it is, Paul Harris (who would become group chief executive of FirstRand before his retirement), had warned we should not keep ourselves busy with “pots and pans”. Six months later he quipped: “Boys, the way I see it, the deposits we got back for the empties from the party exceed the commission we have earned on the houses we have sold until now.” When we started Channel Management Services along with Louis de Waal after the sale of PAG, there were flowers and business cards everywhere at the launch in the Mount Nelson Hotel. We closed it down almost before it had started. Of course I told a big fat lie when at the launch of Channel’s insurance division in a Sandton hotel I said I had never been to a company where there’s a party before the business makes a profit. Before one starts blowing up balloons, one should rather immediately see to it that excellent financial management and good administration are in place. With decisions one should not hesitate, and rather apply straight away whatever is agreed upon. A major lesson PSG has learnt often is to immediately admit if a purchase had been a pig in a poke. Jaap du Toit remembers in October 2002 PSG Investment Services was in the quandary that PSG Investment Bank, when it had bought Real Africa Durolink Bank, also acquired a 28% stake in Appleton – and Appleton was one of Investment Services’ main competitors. To solve the problem, the stake had to be moved to PSG Investment Services:

We don’t like it at all, while it’s also a no-go for the three protagonists at Appleton. Apparently there was this one meeting where Wayne Rosenberg (chief executive) of Appleton stood on one side of the table and Charles Turner, managing director of PSG Investment Bank, on the other, and they yelled at each other so people five floors below could hear them. The Appleton model later became obsolete and I think the guys started seeing the writing on the wall. Later they only said: “Let’s get the best price and that will be it.”

As Jaap rightly says, some things work, others don’t. Don’t believe you can solve everything. One should then take a decision and that’s that. Sticking it out for nothing is just as wrong as giving up. Besides, no economy is not, from time to time, exposed to either good growth or recessions and depressions. Adjusting to that rapidly is what’s important. And crises like the A2 bank saga over which one also has no control test character, steel and grit. I believe the saying of investment guru Warren Buffett that one will see who has been swimming naked when the tide goes out – an excellent example is KWV without its Distell stakes. Bear in mind you’ll never get anything together unless you’ve taken some hard knocks. You make mistakes and you can’t know everything. PSG prefers to say it straight out if something has been a failure.

Cut your losses – sometimes you have to sell a business

At Paladin we refer to the “refinement” of a portfolio over time, perhaps because we do business in the winelands. One should try selling the bad companies systematically and rather invest in the winners. You always want to keep your company streamlined. Coincidentally Paladin doesn’t have management control in any of its investments, but is still one of the better private equity companies in South Africa. Not too long ago we sold one of the offspring in its stable – CIC Holdings. Ironically this company, the teabag champion I’ve mentioned, proved to be an excellent investment. We paid R70 million for our stake, received R20 million in dividends and sold our stake for R370 million. You see, Africa is full of opportunities, but is also rife with bribery, bureaucracy – like import control regulations that are different everywhere – and logistical problems like frightfully expensive fuel, a lack of tarred roads and ports where any activity can be frozen for up to six weeks so your cargo can’t be offloaded. It’s quite terrifying until you have mastered it, have built your network and have managed to construct your warehouses and to understand the workings of the informal markets. Meanwhile you have to stay in the most expensive hotels in the world and you have to know how to deal with a mountain of cash in countries with underdeveloped banking systems. All of that CIC Holdings managed to do and it could show a turnover of R2,5 billion, a profit of R60 million and a compound annual growth rate of 48% – because Trevor Rogers was captain of the ship. The recession from the end of 2008 didn’t even register on CIC’s radar. However, Trevor had reached retirement age. Without him we weren’t prepared to face the inefficiency and frustration of, for instance, the competition board of the Namibian government. There are unbelievable opportunities in Africa, but someone like Imperial, to whom we sold CIC, is a logistical company that has mastered these challenges.

In the next part, where I discuss some of PSG’s underlying companies in more detail, some more sales transactions and the divergent reasons for those are mentioned. In the end a business remains dynamic. Yet we’re still faced with the stress of telling the employees when we plan to sell a company. They won’t necessarily smile and open a bottle of Moët & Chandon. Often it means one is a little done for. However, for the long-term benefit of all, one should get the pain over and done with as soon as possible.

A craving for capital – issuing and buying back shares

All of these buying and selling deals alongside organic expansion stimulate an appetite for capital. PSG’s problem with the issuing of shares is that the world is watching me with a beady eye: “Oh, Jannie probably says the market is at a high, that’s why PSG is issuing shares . . .” Through the years PSG has become known for having the expertise to issue shares at a market high, when sentiment is excellent. When the market is ripe we pick the fruit before the storm comes. Still, I miscalculated by about a month when we wanted to give PSG a presence on London’s alternative market. The listing process there takes six months. With the credit crisis, PSG’s share had fallen from R30 to R14 and listing was no longer worth our while. On the other hand, if one doesn’t see opportunities and has cash, it’s also an opportunity to buy back one’s own shares if they trade below their intrinsic value.

My yardsticks – the measurement of business success

It took me several years to figure out what the most important objective of a company is. I struggled with “increasing shareholders’ wealth”, for many years the main goal of PSG. Gradually I started thinking it sounded too arrogant and cheeky, with an overbearing focus on the collection of wordly assets or wealth. It was if one only cares about one’s pocket, and I started developing a different philosophy. There are more people involved than shareholders, like staff and clients. One’s staff members are happy when they feel fulfilled, when they have freedom and a goal – in my opinion that’s the main motivation. I wouldn’t be happy if everyone else around me was unhappy. One’s clients need to believe in one too. A company is a success if the client, shareholder and employee are all happy. If you manage that, the company can grow and you’re doing something right. Growth in client numbers indicates profitability, and that’s why for growth in the share price one has to focus on clients. Moreover, over time people don’t really remember all that much about dividends, special dividends, unbundlings and other windfalls. What they do remember is by how much the share price has risen. It’s a simple criterion and it measures everything – risk, past performance, future prospects, management and the integrity of the figures – yes, everything. How does one compare two companies over a period of a few years? The best criterion is the total return index. The presumption is that all dividends received are reinvested to buy shares. It also presumes the retention of a share that’s unbundled (like PSG for Capitec) and once again that all dividends of the new share are invested in the shares of the new company. That way one can, for instance, compare Berkshire, PSG and Remgro over time. Warren Buffett has managed to achieve a compound growth of 23% in profits at Berkshire Hathaway over a period of 40 years. That has made him the wealthiest

man in the world. PSG is only 15 years old, so we have a much shorter record, but our compound growth is 57%, if one has kept one’s Capitec with the unbundling. Take note: the skill is 40 years, not 15. Part 5 includes an interesting table in this regard.

The ABC of business – the most important business principle

For his book Outliers: the Story of Success, which my wife Deidré gave me, Malcolm Gladwell did a lot of research about why some people perform well and are top achievers. His conclusion was that the circumstances of one’s birth might have a huge impact on one’s life and give a head start to an extent, but then there is the 10 000-hour rule. He reckons if anyone dedicated that much time to something, they would make a success of it, whether they’re Bill Gates or the Beatles or the Jewish takeover lawyers in the US. What it boils down to is that talents and opportunities are great, but hard work is what counts. It’s an instructive book, but I still believe there’s something even more important. At a dinner hosted by William H Gates, father of the same Microsoft founder Bill Gates, for a number of hand-picked business people, he asked those present to write down on a piece of paper a single word that they deemed of utmost importance in the business world. Coincidentally two of the guests chose the same word: the host’s son and one Warren Buffett. And the word? Focus. When I read that story I realised how important focus was for discipline and success. I always admire Whitey Basson, chief executive of the Shoprite Group, for the same thing. He is incredibly attuned to trends in the retail industry. One evening at a dinner Deidré mentioned to him that Checkers’s lettuce sometimes went bad before the expiry date and before that of the opposition. That resulted in a huge research project in our fridge, because Whitey wouldn’t believe her. He also had packets of all his main competitors’ product delivered, and Deidré faithfully dotted down changes in colour and freshness for the duration of the shelf-life of every packet of lettuce. In this process Whitey determined his lettuce had indeed been kept at too high a temperature by 2°c, and special lettuce refrigerators were installed throughout the group.

When PSG went off the rails, it was often because we had lost focus, such as when we tried to operate life insurance companies and an investment bank together in very challenging trade conditions. At a board meeting or when the executive committee of PSG sits around a table, focus is the one principle I always try to keep in mind. That’s how you convert a dream into goals and business success.

PART 4

PSG’s greatest success stories – and a few nightmares

In the back of the book the highlights of PSG’s history are summarised in addendum B, but here are nine more comprehensive accounts from the PSG collection. Unfortunately no company has only glamorous successes like Capitec and PSG Konsult in its annals. I’ve decided to bite the bullet and tell the less fortunate story about the investment bank as well as the sorry mCubed saga. And if you want me to make it sound like Hollywood, also the cases where we walked on narrow ledges and got away with it – or not. Doing business is never uncomplicated, but the challenges always remain fantastically exciting. And even though business success may seem to be easy, PSG – and I – still learn valuable lessons every day.

A white Harvest elephant – and pulling a humongous lion’s tail

PSG does not stop for any devil. Our unorthodox ways often make journalists persist with epithets devised by competitors or opponents – for example that the group is an asset stripper, which, for instance, we often had to hear with regard to KWV. Granted, we don’t always do things the way a dull professor’s MBA textbook prescribes. Call it opportunistic if you wish, but we prefer the word “creative”. Marc Hasenfuss, former editor of Finweek, has written about an “adventurous” culture (November 19, 2009). Not all that we tackle works, but then we take it on the chin like a man. And afterwards we’re still glad that we haven’t remained sitting on the stoep when an opportunity might have been galloping past. The best example of a Goliath we have stormed was Old Mutual. Oh man, did the investment world ever choke on its morning coffee! It was brave, or maybe even arrogant, to take Old Mutual, the largest asset manager in the country, head-on by luring away its top asset managers and talking them into resigning en masse and joining PSG. But let me give the background to the Harvest fuss. PSG Noble Capital listed on the JSE in June 1998 at a market high, with the objective of securing stakes in listed or unlisted businesses with growth potential and thereby establishing a private equities business. PSG Noble’s first investment was to, together with Co-ordinated Network Investments (CNI), a group in black control, take over control of the listed investment trust Harvest Securities. It was a breakthrough, a new kind of transaction. Harvest had to be converted into an asset manager for institutional and private clients, broking activities, investment bank services and unit trusts. We reckoned that with an empowerment arm we would be able to pick up a lot

of government business. It was a great idea, but CNI got cold feet because the market was tumbling at the time of the so-called Asian crisis. That pothole also had to be filled up first. Reuel Khoza was the chief executive and CNI wanted out of the deal. I sent their lawyer – Michael Katz, one of the best-known attorneys in South Africa and current chairman of Edward Nathan Sonnenbergs – to hell over the phone after he had threatened to take the matter as far as parliament. We insisted that CNI pay a R10 million fine. There is one way of doing business and that’s the right way, not to make a U-turn as soon as something doesn’t suit you anymore. While the initial plan was that PSG Noble would secure a stake of 20% in Harvest Securities and CNI 30%, with the other 50% owned by the management team, eventually PSG Noble had to take over CNI’s stake. On November 20 that year Michelle Joubert of Financial Mail wrote that a plan that had seemed so sound on paper, had been ruined, and yes, we did think the money would roll in. Eric Ellerine, former director of Harvest, said: “The deal has collapsed like a house of cards.” And David Cobbett, former chairman of Harvest and well-known broker, said the directors had all decided “an investment trust is worth nothing (now)”. But PSG had a plan. Early in December the bombshell was dropped: The top team of Old Mutual, the giant dating from 1845 that would be in the news for several months in 1999 because of its demutualisation, was absconding to a small player a mere three years out of the shell. The media was buzzing and in the investment world the tongues were wagging. Furthermore, the investment head at Old Mutual, Bryan Hopkins, was a former tax professor at the University of Cape Town and thus a man of high esteem in both accounting and academic circles. Among the other “renegades” were Dr Nick Steen, former manager of Old Mutual Unit Trusts, and the fund managers Mark le Roux, Neville Chester and Kokkie Kooyman, who was named top international fund manager in the category for financial shares in London in July 2010. At Old Mutual, Bryan and his team of 14 members earned fixed salaries, like at any institution. It was not difficult to make overtures to them and to sound them

out to buy into our PSG dream: “Come and do what you do every day, but share in the profit.” That’s how the Coronations and Allan Grays of the world also make money. Their reward were to be a cash bonus, and the possibility that they would gain control over the investment trust over time, provided they reached certain profit targets. The icing on the cake was that after two years they could get an additional five million Harvest shares from PSG Noble. The only difficult thing regarding the negotiations was to keep it quiet until all of the 15 top people had finished weighing the pros of cons of signing the contract. Yet the dust had hardly settled after the announcement when the humongous Old Mutual rose and pressed its big legal finger against the mouse’s snout: “Have our guys, who purport to be your guys now, remembered to check their terms of employment and employment records? Do they by any chance remember that they signed restraint of trade agreements?” There were lawyers and urgent interdicts all over the place. We couldn’t blame some of the floor-crossers for not being able to endure the stress – some went back after only two or three weeks. Kokkie Kooyman phoned me at home to tell me he was going to Coronation. The whole situation was too insecure for them to be able to stay. We were all probably quite naïve not to have thought about the legal consequences. However, shortly afterwards, in January, Charles Turner and André la Grange, both divisional heads at Nedcor Investment Bank, also crossed over to PSG Noble Capital. That also caused a stir in the market. Charles would be the new managing director of PSG Noble after the resignation of Ryk de Klerk. I probably put too much pressure on Ryk shortly after the listing due to the volatility of the market. Old Mutual’s legal action was keeping us so busy that we were struggling to get going. In April 1999 Harvest Securities changed its name to Velocity and wanted to focus on unit trusts, retirement funds, third-party funds and hedge funds. By 2001 we had fully realised that the Old Mutual guys who’d remained were

also struggling for another reason. Old Mutual was a well-established name, PSG was not. We couldn’t expect them to reel in funds under control at the same speed. Harvest had become a white elephant for us. Eventually we decided to restructure our activities by merging PSG Noble and PSG Investment Bank so all that remained of Noble was a cash shell. A shell was also all that eventually remained of Velocity, which had meanwhile become completely unfashionable in the South African market. We delisted the company and paid the money owned out to shareholders. Some people would have delighted in how the whole thing went awry, but the irony was that the large asset managers were really on our side – the ski boat that stuck out its tongue at the big steamer. It would really have been something, had it worked out.

You’re simply the best – PSG Konsult

Pure pleasure is what PSG Konsult signifies to me. If you’ve ever seen a business that’s running like a well-oiled machine, that would be Konsult. The only reason I’m still on the board of directors is because every time I want to step down, chief executive Willem Theron persuades me otherwise. The management team is so strong that they don’t need even a little support. Konsult’s business plan is so simple that one can’t believe it hasn’t always existed. I was a broker for years and I couldn’t have devised it. Neither was Jaap du Toit, founder of PSG Investment Services and quite the expert, the guy who first got his head around that concept. And you should know you’re doing something right if a Sanlam openly declares it wants to follow your recipe. No, all credit goes to Willem Theron, who realised as an auditor in Middelburg in the Karoo in the late 1970s that, besides having their accounting done, the farmer and the doctor also needed financial advice. First it was short-term insurance and later life insurance, and investments also started featuring. If you handle someone’s financial matters, you know their circumstances. You’re a confidant who knows what their estate contains and what their future dreams for their family are. Currently there are 216 PSG Konsult offices countrywide with a total of 707 financial advisers, stockbrokers and short-term insurance brokers. They serve a massive 125 000 clients and manage R97 billion. Yet even a Konsult doesn’t come into being at a moment’s notice, as is proved by many anecdotes from the early years. Since buying his first short-term insurance book, Willem had expanded his practice to later include 13 partners at 10 offices in the Eastern and Western Cape. At first the auditors contracted some investment services out to advisers, but that resulted in frustration because those leads didn’t benefit them at all. And so the first fully-fledged financial adviser was appointed in Middelburg.

PSG came into the picture when in 1998 Willem and his guys thought this model to help individuals with a high net asset value with investments could be expanded. The concept of having financial advisers at small auditing firms countrywide was born and the purchasing of offices started. With PSG at their side they had access to more expertise, also regarding rules and regulations, and an open door to ongoing research. Besides, PSG was a tradename that had started inspiring confidence. Jaap du Toit, chairman of PSG Konsult, says the major insurance companies like Sanlam and Old Mutual who back then were closing branches in the countryside, had left a void for a confidant. Because the accountant in town “already had an office, parking and clients”, it was that easy to provide advisory services in the office next door. During the purchasing of offices in the early years, Willem, Koeloe Landman and PW Moolman once went to Vanderbijlpark to see a few accountants and talk them into a Konsult branch. The tough guys of the Vaal Triangle had a ritual of a “B52 Bomber” – a mixture of, in Willem’s words, a few high-voltage liqueurs. The circle had to stand and, at the count of three, down it all at once. Well, to make the story of one very long evening (and an even longer following morning) short, the accountants and their important clients could look after themselves. The PSG guys who had tried to keep up didn’t know they had to get that hammered to be able to do business in the Witwatersrand area! Another story is when Koeloe, after a presentation to accountants at a getaway in the bush, ignored their advice about stormy weather on the way back:

My first trial on the farm road was a roaring brown mass of water that had been a little brook earlier that afternoon. I had read about 4x4 in Huisgenoot or Getaway a long time ago and I remembered the Camel men with their Land Rovers on television. The only problem was that I only had a little Suzuki! I also didn’t have any khaki clothes, I was clothed smartly, as a PSG man should be. Then I remembered it was a good 4x4 custom to first test the accessibility of the bottom of the river by means of an exploratory walk. So I removed my wellpolished Jordans, rolled the legs of my Jontys up to my loins and stepped

barefoot into the river. The water was a little too deep and too fast for my liking, but with my short term with PSG Konsult I took a chance. At the second river there was a very long wait until the water had subsided, and in my mind’s eye I already saw the newspaper headline: “PSG Konsult man crosses two full rivers on foot for business.”

The branches were added at a brisk pace, but soon it was realised that an office couldn’t make money while PSG was being told the walls need a coat of paint and then that there is too little advertising or that a certain broker once again wants a bigger percentage of the profit. There are people who never seem to get enough. As I wrote in part 2, the model that makes PSG Konsult such a raving success is that every owner of an office receives 70% of the gross profit and may do with it as he deems fit regarding maintenance and remuneration. He himself has to take care of his good people. That probably makes PSG Konsult a kind of franchise. For the 30% PSG gets, we make sure that Dawie Klopper, Amelia Morgenrood and Marius Kruger are household names on the Afrikaans radio station RSG. John Vorster of the Konsult offspring PSG Online is the grandson of the former premier, and we tease him mercilessly, saying he speaks just as well as his grandfather. Andries van Zyl also chats to us on the programme RSG Geldsake and we sponsor two more programmes, Ons en die ekonomie and RSG Landbou, on that station. We get great exposure in newspapers if our guys write articles on investments. Apart from sponsoring the Sudoku in Sake24, those are almost the only ways in which PSG markets itself, although Summit TV, SAfm and Moneyweb also often interview our guys. We also encourage offices to reach out in their communities. Chris van Wyk of the Konsult office in Hermanus headed by Hannes Smuts has a column in the Hermanus Times, and if some primary school in Stellenbosch wants to host a golf day, a PSG Konsult flag might also be fluttering there. Because the countryside and Afrikaans people have a major role in our approach, we naturally have more branches in Pretoria than Durban. Of course we also want to take care of the emerging market. An increasing number of

black consultants are trained. In our Houghton office culture is not an issue, but in Transkei Xhosa might still be the preferred language. At one Konsult conference we all sang the Bok van Blerk song “De la Rey” (about the afore-mentioned Boer general) at the top of our voices late one night as a joke, but former president FW de Klerk, one of the speakers, probably thought that was too verkramp and made himself scarce. We are the largest independent short-term broker in the country, therefore it’s not difficult to get Santam and Mutual & Federal to help sponsor the annual PSG Konsult conference at Sun City. They know a Konsult client has a claims history healthier than the average. Investec and Allan Gray also want to be there, because some of our clients’ portfolios are managed at a fee. Sun City is the only place large enough to accommodate all our consultants. The conference is used to get to know one another, for training, motivation and building morale. See, if you have that many advisers, there are lazy ones and industrious ones. There will be 1% who are crooked and embarrass you. We have systems to spot and deal with chancers. We are also insured against swindling in case a client suffers any damage. Fortunately nowadays there are laws like the Financial Advisory and Intermediary Services Act and the Financial Intelligence Centre Act that provide protection to both sides. In the old days an investor who wanted to evade tax could insist upon fetching his mail by hand and carry his cash around in Kruger rands. At PSG Konsult there are also instructions that investments may only be made in approved shares, not in small, negible companies. In fact, there are three levels of consultants. What they may recommend, depends on the prescribed rules for their level. Homework, homework, homework is the instruction to all consultants. Another source of pride is the PSG Konsult Academy where advisers leave as certified financial planners or CFPs. This training centre is actually run at a profit, because people from Liberty, Discovery and Sanlam also queue up to be trained there.

And still there are more independent advisers who want to get under PSG’s wing, and that results in external growth for the group. Among the larger businesses that have approached us in the last few years are Multinet Brokers, Topexec, Advance Wealth Management, Multifund, Brosist, T-Sec (the former Tradec) and Diagonal. Konsult also has fingers in the pie in Namibia, Mauritius and London. Strangely enough, banks are the group’s main competitors, not Efficient who says it wants to take on our “monopoly” in this market. Another challenge is e-trade, but looking at the performance of PSG Online – it’s a major broker in South Africa in terms of the number of transactions – the basis for growth has already been laid in this regard. PSG Konsult shares are traded over the counter. PSG owns 73,5% and the rest are in the hands of management, branch managers and external shareholders. The company remains a living (and growing) monument for PSG’s model of ultimate empowerment: every manager shares in the profit, therefore he does what he can to increase growth. Quality fieldworkers, who are trained well and do business within the boundaries of proper control, have the opportunity to shine and ensure happy clients. And without a growing client base you can kiss any business sense goodbye. The announcement in March 2011 that PSG Konsult is consolidating with PSG Fund Management and its subsidiaries is the crowning glory of the success of both companies. The latter has fantastic products and the former may be called a kind of distribution network. Fact is, every branch of PSG Konsult countrywide is closer to the clients than the office of PSG Fund Management in Constantia, Cape Town. Jaap du Toit, chairman of both PSG Konsult and PSG Asset Management, says the coming together of the two is like completing a circle. In part 1 you read how the small brokers’ business that we started took shape in three disciplines and so grew into full bloom. These are client advice (PSG Konsult), asset management (PSG Fund Management) and brokers’ services (PSG Online). In 2008 PSG Konsult and PSG Online were consolidated, and in 2011 Fund Management joined them. The three siblings are under one roof once again and the holding company is called Konsult Holdings. “The three brothers are farming on the

same farm once again, but their business is just so much larger. Together they will decide whether to plant grain or vines.” Of course the merger of PSG Fund Management with its subsidiary in June 2010 was the precursor of the latest transaction. Jaap says after the merger an independent consultant will still go out of his way to prove he doesn’t push a certain group’s investment product, because he will be taken to task if the product is not the right fit for the client. Yet it can happen that the PSG Asset Management product gets preference if three investments are similar in every way, like unit trusts of three different asset managers in the same category. It all boils down to PSG’s model of ultimate empowerment – if you have a share in a company, your heart is there too. We also retain a win-win-situation regarding the guys at the helm. Jaap du Toit, non-executive chairman, is still at the forefront in Constantia and executive Willem’s troops all over the country have so much confidence in him that he will still keep all the “prima donna” consultants happy.

Getting cheesed off with all the w(h)ining: the KWV saga

In many newspaper articles where “KWV” and “offer” featured it was as if the journalists couldn’t resist sneaking the stateliness of the Cathedral Cellar into the text somewhere, especially in the Afrikaans press. “As an icon in the wine industry, and with a heritage of 92 years, KWV is deeply entrenched in the hearts and minds of the people of the Western Cape,” KWV’s statement said after Pioneer Foods’ offer of R12 per share at the beginning of December 2010. Here you are stepping on holy ground, was the message. Put off thy shoes from off thy feet. And while you’re busy, string together the adjectives: venerable, awe-inspiring, inviolable. No surprise then that PSG was constantly accused of wanting to slaughter a holy cow. “That Jannie Mouton respects nothing, he doesn’t understand the business, he doesn’t understand how the wine industry works.” That we heard for a few years and thus I was hauled over the coals in front of the whole KWV board. Yet, according to any criterion of value at all in the business world, KWV is actually no cathedral, but a little house. Its story is a proud, thick scroll and it has fulfilled its original role thoroughly and with dignity. However, its modern profit history is a crying shame. It has fantastic assets, and the net asset value might have made it worth R18 per share, but what has it done with that? The same five-star hotel in Carnarvon and in Clifton with the same chef and décor will never do the same business, and therefore asset value alone is an obscure yardstick. That’s why we simply told the newspapers in December 2010 that if anyone really wants to pay R18 per share, they should put their money on the table, and we would even help them with the financing if it came to that. As Thys du Toit, chairman from 2009 until April 30, 2011, says: In fact KWV

has a “narrow” range of products that’s predominantly dependent on grape alcohol, a very small market share in South Africa (2,5% of the high-price market for bottled wine and 7% of the local brandy market) and a few big international clients that exposes it to a strong rand. Its turnover has been stagnant for the past ten years. It’s time someone painted a picture that differs from those of the portraits of the former chairmen watching regally from the walls of the boardroom. I want to start PSG’s KWV chapter a little further back than its initial involvement, in May 2004. It was when a consortium with the name of Anglo African Trading acquired 11% of KWV. Anglo African was the company of JP du Plessis and the guys involved included GT Ferreira, Pug Roux, Paul Meaker, Hansie van Niekerk, Lambert Retief and the same Thys du Toit. There was also immense resistance to that endeavour and exactly the same criticism PSG recently experienced. The so-called Group of Five saw value, but had too few shares to enable them to bring about an appointment to the board. That way one’s influence is too small to make headway in turning around an unwieldy ship. Perhaps they wanted too get in too fast, make a profit and get out, but in the end Anglo African Trading ditched the effort and sold their stake to Christo Wiese at a good price. I was standing in chairman Danie de Wet’s office in my PSG Capital capacity as adviser to KWV when Christo Wiese phoned him with an offer to buy the stake of the Group of Five. “Take it. He’s a friendlier shareholder,” I said, meaning he did not have plans with the board. In a twist of irony we, in turn, got Christo’s stake of about 11,3% when he swapped it for a 5% stake in PSG. He wanted to sell his shares in a block. It appeared that Christo put certain plans on the table with which the KWV board was not happy. Christo couldn’t reach a voting-pool agreement with the producers’ company Vinpro either. KWV wanted all kinds of limitations to PSG’s shareholding, but eventually the company was satisfied when we indicated as a first step we would not exceed 20% and would talk to them if we wanted to increase our stake later.

How ridiculous is it for a public company to prescribe who may buy from whom and to what level? When Zeder listed at the end of 2006, PSG united all its interests in unlisted agricultural companies under this investment company. Chief executive Antonie Jacobs played a major role in systematically increasing our stake in KWV. We also exchanged Zeders for KWV shares. While our stake in KWV stood at 11,3% in June 2006, it rose to 14,9% in February 2007, to 20,8% a year later, to 25,7% another year later and at the end of 2010 it stood at 35,3%. Meanwhile, however, shortly after we had made an investment in KWV for the first time, Remgro asked me more and more questions and in October 2006 I resigned as director of that company. Shortly afterwards, on January 31, 2007, I was elected as a director of KWV with a struggle, despite our interest. Little did I know what horseplay was lying ahead. Where I write in part 6 about what a healthy soul means for a company, KWV might be the best example I’ve ever come across of how things should not be done. Shortly after my election I was visiting my friend Johan Carinus, Stellenbosch winegrower, in Hermanus. Another KWV director was there too and they congratulated me on my election. I was a little embarrassed and so I joked: “Johan, with you at Distell and me at KWV we as a team are going to stir up the wine industry quite a bit.” Well, the innocent joke spread like wildfire, was taken completely out of context and Johan and I were taken to task because of our “reprehensible strategy”. What strange paranoia was that? Another awkward incident came up when, during 2007, the board appointed a committee to investigate the dividend policy. I asked whether that was necessary. Couldn’t we simply pass on the KWV Investments (or Distell) dividend to shareholders? It has always been fairly easy to calculate what the share price of KWV without the Distell stake should be. The greatest value of the share is that Distell is listed and represents the most value. KWV’s own activities have always been propped

up that way. That realisation dawned on us the more we increased our stake. By this time I was waking up to what KWV was doing with the returns from the Distell interest and its own activities. The high director’s fees . . . the meetings in expensive hotels . . . media announcements like mad, completely unnecessary for an unlisted company . . . (and moreover there were leaks from board meetings). Well, I had hardly spoken about my proposal for passing on the Distell dividend to shareholders when I was given an hour-long lecture – I was not allowed to ask such a question for what did I, a newcomer, know about the history? So then after 60 minutes I shut up the chairman and said what I wanted to say. With that, the fat was fully in the fire, since he was used to having the floor to himself. After the meeting I was summoned to his office and asked whether I was unhappy and dissatisfied. “Yes,” I said, “and not feeling like any further nonsense.” And walked out. The upshot of it all was that the Distell dividend is now paid to shareholders directly after all. Yet another commotion was on its way, the biggest insult I’ve ever endured in my business career. For a commonly accepted practice in the business world I was summoned to appear before a disciplinary committee like a schoolboy. As a representative of Zeder I gave my stack of handouts on the annual statements to Antonie and asked him to treat the information confidentially. He had to make a presentation to the board about what Distell and KWV looked like separately. This wonderful illuminating comparison of how badly KWV was on its own without the life blood of Distell and the problems that were highlighted were not, however, a priority for the KWV board. Out of jealousy and because we had said the emperor was naked, they behaved as if I had acted wrongfully and broadcast the information. Chris Otto explains the facts behind the matter as follows:

It was an old co-operative that suddenly had to compete with the people for whom it had earlier set the rules. It was weaker than Distell and it was a 50-

year-old hatred that flared up. KWV tried to cling to how things had been before.

The comparison showed how KWV’s own operations were, after 91 years and despite pricey lekgotlas and sky-high directors’ fees, making a loss of R44 million. Splendid farewell parties with sit-down dinners in dark suits and waiters, longwinded political discussions on the board and newspaper advertisements for financial statements, instead of a focus on the affairs of the business, are luxuries a very successful company with a gigantic turnover can afford, not a small unlisted one making losses. I detest the waste of shareholders’ money as if it’s a company’s personal account. Still, dusting me down for my “unethical” behaviour was much higher on the agenda. A disciplinary committee chaired by Andreas van Wyk, former vicechancellor of the University of Stellenbosch and a lawyer, would meet at Lanzerac to decide my fate. The other members were Danie de Wet, Attie du Plessis (brother of the former finance minister, Barend), Christo Wiese and Thys Loubser, the managing director. Meanwhile there was yet another interesting development. By this time I was really cheesed off with the clumsy, grotesque waste of shareholders’ money I was seeing around me. Wasting money grieves me, especially if I have an interest. At PSG we even do stupid things like using old print-outs a second time to save paper. At the annual general meeting in October 2007 we voted against Danie de Wet as director. When it was announced that he had indeed been elected, we insisted on a recount of the votes under the supervision of the auditors. There were panic stations and then the votes were recounted under the supervision of the auditors – it took two hours. The upshot was that the first result was wrong and Danie had not been elected after all. This was quite an astonishing first for me. I didn’t say anything, for in a way I knew that was the end of him. The PR people tried to describe it as an “administrative error” and the

newspapers called it a “fiasco”, but I knew “bungling” would be a better description. Also amazing was that PSG Konsult was immediately replaced as transfer secretaries by Barnard Jacobs Mellet. Afterwards PSG Capital was also replaced as advisers by Rand Merchant Bank, after the former had been informed by management that it simply had to turn up for a meeting without a presentation for the reconsideration of its contract, while Rand Merchant Bank had been asked in advance to prepare one. Still, a director can be co-opted if he’s not elected. That way Danie was appointed to the board again and the new board elected him chairman. Thus a hell of a drama was diffused – Christo Wiese was the peacemaker. The same Andreas van Wyk wrote about this co-option afterwards in Sake24 (November 17, 2007). He quoted from an English daily that had called the cooption “smuggling in at the back door”, although the writer didn’t believe a company should be “decapitated”. At my so-called disciplinary hearing I quickly realised which way the wind was blowing. It appeared Danie de Wet would much rather be elected than merely co-opted, and the guys were implying that any steps against me would be ditched if we agreed to indeed vote for Danie at an upcoming meeting. I contemplated it for a while and gave it kind of a nod. We would abstain from voting, and in that way he would be elected in any case, which indeed happened later. About this state of affairs I was dumb-founded. This was not the way I did business. That day I made up my mind that we would increase our stake in KWV, gain control and reinstate integrity. Johann Rupert, big chief of Remgro, once told me in a different context that if you want to play cat and mouse, you have to ensure you’re the cat. For me, the best road ahead for KWV was that KWV and the investment in KWV Investments (Distell) should be divided into two companies. I discussed this proposal with PSG’s executive committee and they were all for it. In November 2008 I also talked about it to Christo Wiese. He was as chuffed with the idea because he could immediately see its merits. The major shareholders put their heads together and with small adjustments the plan was implemented. Yet still there was no end to KWV’s intrigues. In March 2009 we made an offer

to KWV shareholders. The offer and press announcement were discussed with management and approved by them. However, when it was published in the paper (exactly according to the procedure as if KWV had been listed), all hell broke loose. An audit committee did not like it at all. Fortunately we got wind of the fact that we would be hauled over the coals at the board meeting the next day and had to prepare for that. “I can’t believe you’re this underhanded,” was my reaction. Fortunately Christo separated the wheat from the chaff and gradually convinced the people that we had acted according to the rules. He was an advocate, after all, and is a diplomat who can do magic with words. He even asked the board to apologise to me. And, one after the other, they did nod their heads in agreement. Then there was a distinct silence in the meeting, the matter had been handled and we went ahead with the offer. There was even a third incident where it seemed everybody besides PSG was allowed to know what was going on. It was when KWV wanted to do a rights issue of R150 million. In terms of the procedure the company set a deadline for when offers for the underwriting had to be submitted. Zeder submitted its offer on the due date – at the market price and without levying underwriting commission, which is quite unique. At the board meeting to discuss the underwriting, management and Vinpro made a full presentation with overhead projectors and the works. And there we sat with a flea in our ear, for we had not been asked to make a presentation. I could not believe my eyes, because their price and tariff were exactly the same as those in our confidential submission. Fortunately they confused rights issue with the issue of shares for cash and so our offer was accepted. Those are the salient features of PSG’s experience of KWV the last few years before the Pioneer offer. This is how Chris Otto sums it up:

KWV only became a company in 1997 and earlier it had its own law, the KWV

Act of 1918. It produced the wine, handled the distribution and also made the rules. It was also the buyer in the last instance and decided about the distilling wine. In the old days there was a joke that you would rather be the chairman of KWV than minister of agriculture. Everything was very fancy, there was a culture of yes, doctor, no, doctor, and an admiration for Roodeberg due to the exclusivity of the quotas. When you retired as chairman, you were immediately elected to the boards of Volkskas, Sanlam or Naspers. We did not look at KWV through those spectacles. We thought outside of the box about the opportunities it offered, and sometimes one has to step on toes to be successful. KWV wanted us to treat it with the necessary respect and not upset the whole shebang. That’s not Jannie Mouton’s way of doing things at all. They tried using politics to keep Jannie out of the party.

At least we got a few things done, which included decreasing the directors’ fees from a total of R3 million to R900 000. The number of board members was also reduced in September 2009. As chairman, Thys du Toit earned R150 000 a year instead of the R560 000 Danie de Wet received, an amount that’s much more in line with the size of the company. Thys Loubser also earned a bigger salary than Jan Scannell, chief executive of Distell, a company 20 times larger. After this statement of mine had appeared in Sake24, Danie hit back, saying R165 000 of his remuneration for 2009 was reimbursement for subsistence and travel allowance. In the light of the fact that he stayed over in Laborie for free when he came from the Robertson district to visit Paarl, he could, in a manner of speaking, at R2 per kilometre have driven around the equator twice. We would like to believe that it was due to our involvement that the value of a KWV share has increased twelve-fold in seven years’ time over the past few years, from about 40c to an equivalent of R5 (Capevin’s R3,80 plus the KWV’s R1,20 after a 10-to-1 consolidation). Early in 2011 Thys du Toit wrote in Sake24 that the investment of a winegrower who had 100 000 shares to the value of R40 000 in 2003, would be worth R500 000 then. When we got involved, the market capitalisation was R1,2 billion and with our departure it was R2,5 billion; therefore, apart from the value of R300 million that accrues to PSG via Zeder, value of R1 billion was created for the rest of the shareholders. In the old South Africa, when the exclusivity of a KWV quota was clung to and

only foreign marketing of this wine was allowed, an old boys’ club might still have been acceptable. Up until 1997 only winegrowers were allowed to own shares and nobody was allowed more than a 5% stake. I dare say brandy was bought at cellars where board members had interests while there was an existing brandy surplus. It was also a great picnic with all the foreign visits. I would not be surprised either if KWV money was used to market the own interests and wine of board members. To add value for shareholders was not the priority, because personnel were appointed left, right and centre. Just before we got out, the shareholding looked like this: Zeder, Phetogo, Vinpro and Rootstock owned 65% of the shares, the internal employees’ trust 8%, nonfarmers about 5% and farmers about 20%. We had to stop the outrages, because without Distell KWV was a pathetic performance. As Chris says, the people were so busy with politics that they couldn’t run the business. The business was left by the wayside. No surprise then that I told the newspapers at KWV “return on ego” is more important than “return on equity”. The board imagined a small company grotesque. Is that the inheritance out of which farmers felt they were conned (Sake24, November 24, 2010)? Kaap Agri, also a former co-operative, is a much larger company. The humility of its board and the conservative way they handle shareholders’ money contrast sharply with the sense of entitlement at KWV. Through the restructuring, unbundling and division of the company into KWV Holdings and Capevin Holdings (which holds KWV’s shares in Distell) in which we were instrumental, the shareholders gained direct access to KWV’s most valuable asset, the indirect stake in Distell. Thys du Toit also played a huge role in turning things around. Four brand directors were appointed thanks to him and at the end of 2010 he was re-elected as chairman with 99,8% of the vote – there probably was only one opposing vote, in contrast to the fiasco of 2007. Thys can work like a pack ox and seeing him in action was a pleasure. At the end of 2010, KWV showed a profit and paid out dividends; including a special dividend on the basis of property we had sold in Upington, Vredendal

and Robertson. These were huge assets that yielded no returns. Proper utilisation of assets is the issue, and that unnecessary assets should be sold. Before we decided to opt out, we had never sold a KWV share; therefore we were quite amazed about the media’s sources after hearing the constant use of the term “asset stripper”. To be able to strip, one has to run off and sell. We, however, continuously invested in KWV from the time we got involved in 2006. I told Beeld on October 15, 2009: “Many people say Zeder is an asset stripper, but we would almost like to use it as an example of what should be done if a business is not managed well.” Being satisfied with a return of a mere 3,5% on shareholders’ capital is ridiculous; 20% is a much more acceptable goal. That’s also why the KWV share was not ready for the stock exchange, even for PSG, which is so obsessed with listing. As Finweek (February 17, 2011) put it: “As an operational entity, KWV has been largely underwhelming.” KWV wanted to stick to the old way of doing things, but the general trend in agriculture is the commercialisation of the industry. Control structures and limitations to shareholding were outdated mechanisms, which contributed to shares trading below their intrinsic value. If you were only allowed to sell your farm to your neighbour, its value would never be the same as when you could make it available on the open market. Think of Clover, that listed on the JSE at the end of 2010. The way ahead for agricultural companies is to become commercial. Like Langeberg, which is now part of Tiger Foods, and the Boesmansrivier Cheese Factory, which is in the stable of the Italian dairy group Parmalat now. As I have said, one grows in one way, and that’s through happy clients. The Ceres Beverage Company, which used to make a loss and in which KWV previously had a stake, has a turnover of R2,5 billion and yields a profit of R160 million under the Pioneer banner. In the words of Thys du Toit: “The ugly duckling has become a swan and is now bigger, more successful and more profitable than KWV.” However, KWV being in the shadow of its offspring might have been yet another bitter pill for people who missed the group’s fat wallet. Maybe Danie de Wet’s war behind (and in front of ) the scenes against PSG is

partly due to a kind of jealousy because Thys du Toit, like himself, comes from Robertson and is so successful. Finweek (February 17, 2011) spoke about us being under “unrelenting attack”. KWV would have preferred a foreign company, the British Halewood, in its inner circle, to another Paarl company. The trenches where positions were taken up against us also caused some knitted brows. When KWV was unbundled a year and a half before the Pioneer offer, Rand Merchant Bank valued it at R6,23 per share. We were quite amazed that Danie de Wet could believe the value of the share had increased so dramatically since the end of his involvement. KWV’s statements were drawn up in accordance with the best accounting practice. The value of paintings and a head office is irrelevant if a business is valued as a going concern. (And while we can now reflect on KWV’s most recent set of poor figures . . . that man who sent the naughty sms to Sake24 that maybe KWV should rather list in the property sector, might have been spot on.) The property ball was played to divert the eye from the much more dangerous bad management ball. KPMB might have estimated KWV at R13,69, but PSG knows the company better than that consultant and that’s not what we believe it’s worth. The huge wine and brandy surplus that others deemed an asset worried us. We fear that large write-offs might be needed there and what the impact of that might be on future profits. On June 20, 2010 that supply amounted to a gigantic R780 million. Furthermore, we were accused of trying to get KWV into Pioneer’s pocket cheaply, while it’s logical that we would have wanted the best price where we had the largest shareholding: We had a 35,3% stake in KWV and a 13% stake in Pioneer via Kaap Agri. Throughout PSG’s history the principle has applied that we want to create value for shareholders, not destroy it; goodness knows why we would have wanted to soil our reputation. The kind of company Danie de Wet and Co. invited to the party to cast reflections on our character might have been someone with whom I would not

have liked to share a yoke. Chris Logan, portfolio manager at Opportune Investments, was used as ethics barometer. He was in trouble with the Financial Service Board in the early 1990s because of the so-called “Old Mutual issue”: The Investment Club of which he was a member in his personal capacity, illegally utilised the commercial rand/financial rand double currency system and were also involved in front running. He was still young then and co-operated with the authorities in the investigation. One of his colleagues left the country and the other committed suicide after his arrest. I have to take all the blame for failing to announce from the rooftops right from the start that some directors had been involved with both KWV and Pioneer. We live and learn. We were naïve and should have approached the matter differently, but in your daily affairs you are so used to it that you almost believe everybody knows that Zeder is involved with both companies, especially since the Pioneer saga had been on the front pages of the newspapers for so long. Still, it was a convenient brush to tar us with. The conflicting interests were, however, immediately declared at the board meetings of both KWV and Pioneer, in strict accordance with the instructions of the professional advisers Rand Merchant Bank and First National Bank. (At the Pioneer annual general meeting after our KWV offer had fallen through, I agreed that shareholder activist Theo Botha was correct that one could debate about the independence of directors. He, in turn, agreed there was something in what I said about non-independent directors having more of an interest in the weal and woe of the company than a guy who merely received a director’s fee and didn’t suffer with the rest when a company made a wrong decision. I expand on this in part 6. My son Jan asked me in January 2011 how it felt to pay R14 million for something with which I wasn’t involved. That was the amount I, as theoretically the major individual stakeholder on the basis of my eventual stake in Pioneer, paid as part of the competition fine.) Now it’s only of interest technically, but currently there is no legislation compelling you to broadcast your interests at a takeover before it gets to the point where shareholders have to vote. Moreover, every single fact of our

interests was set out in the circular with information about the voting process they would receive. That was never sent out because the empowerment arm Phetogo voted against the deal in any case. Chairman Khutso Mampeule told Business Day they were medium- to long-term investors and regarded R12 as too low (February 7, 2011). Regarding the speculation that Hosken Consolidated Investments (HCI), which eventually took over our stake at R11,80, might have had a chat with Phetogo beforehand, I can’t comment. I still maintain there were fantastic synergies between Pioneer and KWV. Pioneer has an excellent relationship with retailers, and a wonderful distribution capability, as will be evident from the part about the cartel saga. Its brand expertise, cost savings and demand for production facilities and building space, of which KWV has plenty, would have made for a good match. We had great business plans for KWV. It’s true that I’m still getting to know the wine industry, but that’s why one surrounds oneself with experts like Neil Ellis who is held in such high esteem in the industry that his name per se is a brand name. We could simply have continued and bought more KWV shares, but the day after we couldn’t get the necessary 75% support, HCI’s Johnny Copeland and Marcel Golding came to see us. Their offer of R11,80 was close enough to the R12 we deemed KWV to be worth and at which we had said before we would sell. I respect Marcel and Johnny as businessmen and we’ve been getting along well for many years. As the website Moneyweb reported on February 7, 2011, the market might have been abuzz about the “politics within Afrikaner business cliques”, but for us the sale of the 31,8% stake in KWV was a deal like any other in the normal course of our business. Our small remaining interest was sold off in the open market. For me, the whole deal is something like the girls’ school and the boys’ school in Paarl that wanted to merge. Many parents and children were in agreement about it, but then a former principal of the boys’ school, who apparently had not performed too well academically himself, put a stop to it. The result was that a third school got involved.

In a sense the excessive media coverage about such a small unlisted company suited us, for eventually we unexpectedly got the price for which we wanted to sell KWV. We were quite happy about the selling price of R285 million and return of R126 million on our investment. By ploughing that in with our other business we can probably earn five or six times more than at KWV. KWV was a small thing in our life. The enthusiasm of a Corwyn Botha at the former co-operative Kaap Agri, with a turnover ten times that of KWV, is much more worthy of our managerial time. As GT Ferreira told me in an SMS after the sale: “Take the cash and leave the sound of distant drums.” We remain committed to Capevin and the agricultural sector and I also remain involved with the wine industry in my personal capacity. At KWV there were only politics, storms and press. I don’t take notice of that. I’m a businessman, not a politician, and KWV was a big struggle. The fact that PSG’s share price rose after we had sold our stake confirms that those in the know stood by us and were unfazed by cheap, malicious propaganda. I think they are still going to fall on to their own swords at KWV. Perhaps there are people who have deprived the minorities of a golden opportunity to finally get a proper return on their capital. Ironically the people who made most of the fuss were those who didn’t have material interests. If Marcel and them do well, we’ll be humble enough to say congratulations, you’re better than us. How much they will care for KWV’s holy cows like Laborie and the paintings I don’t know. Perhaps those involved will learn under their leadership it’s not tradition that creates a return on capital, but tough business decisions.

Reality helps me out of my investment bank dream – PSG Investment Bank

I had an obsession with geting a banking licence. As I wrote in part 1, I wanted to convert SMK into an investment bank. I wanted to have an investment bank like the American Goldman Sachs and Lehman Brothers. Of course now, after the sub-prime crisis and worldwide credit crunch, we can cleverly state along with the rest of the world: famous last words! It would be another crisis that would kill my dream, but in the late 1990s my ambition had just taken off again after the shattering of the SMK dream. I thought there was space for opportunities for an innovative transaction-driven investment bank that could explore the corporate market. I visited JP Morgan, Morgan Stanley, Merrill Lynch, the whole bunch in the United States and made a list of what one needs to get a bank like that up and running. We were ready for action. Furthermore, the bull market – as my colleagues put it – was on the run in a time of milk and honey. Yet a bank is a tall order. A banking licence is a chicken-and-egg kind of thing. First you have to appoint quality people to the board of directors to establish a bank (acceptable to the regulators), but how do you appoint people like that if you don’t have your systems in place? And of course all of that costs money. Initially we hoped to take over an existing licence, but wherever we looked either there were suitors with fatter wallets, or the prize wasn’t worth it. To try to obtain such a licence is not something a yuppie in search of a quick buck would do. It requires patience, time and money. CN Louw battled for a year to obtain a banking licence for us in May 1998 (none has since been awarded in South Africa), and Eke Walker was the systems king. In May 1998 PSG Investment Bank (PSG IB) was born with R400 million. PSG Noble, a private equity fund that came into being around the same time, was worth R1,2 billion. This was money from the market given to a listed entity to utilise business opportunities – and really the first private equity fund in South Africa.

My colleagues will tell you the initial success of the bank was in fact due to Noble – the bank could obtain deposits from PSG Noble. PSG IB started making the cash proliferate, and the returns on our speculation and opportunism were fantastic. Still the returns were on paper and not in hard cash. Charles and company later put it like this:

Jannie Mouton did most things right. He was the wonder kid on the block! Investors loved him! Behind the doors, however, there was an uncertainty as to the next year’s profits, the future promise, the delivery and finance. The PSG Group had produced a fantastic set of results. It had all the glitter.

Then the market turned and investments and deals started drying up and valuations decreased. The poison of the Asian crisis spread. As I’ve written in the section about Harvest Securities, that was when Ryk de Klerk left PSG Noble. The team of Nedbank Investment Bank (NIB), Charles Turner and André la Grange, then came on board and also put money in PSG and PSG Noble. Charles (managing director of Noble) had quite a name in the corporate financing market and André was a previous chief executive of the Development Bank of Southern Africa. There were a few interesting and good investments in Noble’s stable already, like Teljoy and Graphicor, and big plans for more deals. In August 1997 Servgro, that owned a 42,4% stake in Teljoy, sold a stake of 20% in that television rental company with cellphone stakes to Genbel Securities (Gensec) and PSG. We, the management and Gensec were in a consortium that took over control. Yet, as I’ve said in part 3, it didn’t work for us. In October 1999 we got a cash offer of R7,50 per share from Vodacom, more than double the R3 we had paid for it, and we went for it. Our return was R173 million and the profit R59 million, still an excellent deal for us. Meanwhile the plan was to bring PSG Noble and PSG IB together as PSG Investment Bank Holdings. PSG IB might have been opportunistic, but PSG Noble was sitting on a mountain of cash and needed PSG IB to deploy the cash

and make profit. The debates about the exchange ratio of the merger were so fiery that we called in a referee, but in the end I, on the one hand, and Charles and André, on the other, were satisfied. The mistake I then made is a classic one. Instead of appointing a single managing director for the bank, I put a committee of four at the helm of the new entity: Botha Schabort, André la Grange, Charles Turner and Hugh Oosthuizen, all of them strong personalities. I thought the four divisions could work together well and with time the best guy would emerge. How stupid that idea was I did not realise at the time. It was a breeding ground for conflict. Because the guys were fighting amongst one another, that was what they focused on, instead of their divisions. Charles, the corporate financing expert, is brilliant and can clinch a deal like few others, but – as in my case – tact is not always his strongest point. Botha is extremely successful with gilt trading, but not an easy guy either, and it’s widely known that we’ve really had our difficulties. But there’s no getting him down! André, who had the most management experience, was the guy who eventually came to the fore and Charles and Hugh supported him. Afterwards Hugh, whose wife also took very ill at that time, said he had felt as if he’d failed the test of the Patch Adams dream completely. In that American movie the doctor, played by the actor Robin Williams, held in high esteem the therapeutic value of laughing:

The four executive directors of the bank simply could not laugh together. Distrust, personality differences and egos made us pull in different directions like jibbing donkeys. From the start it was clear the differences were major ones. The merger of Noble and the bank was throwing together two diverse cultures.

The north with its mergers and acquisitions, corporate and structured financing and the creation of business under André, and the south with its trading and money market arm under Botha were at loggerheads like Province and the Blue

Bulls before a Currie Cup final. The major issue pertained to growth strategy and the road ahead – negotiation or investments. Later they even quarrelled about whether the Johannesburg or Cape Town office could be prettier, and the hatchet just couldn’t be buried. In the end I gave André the job. Botha then left and the trade activities were reduced and managed more closely. The bank still focused on expanding its deposit income and products and by 2000 it was the seventh largest bank in South Africa. However, the income and products were not sustainable and the business model was still being developed. All the cash of the PSG Group was tied up in the bank and it was impossible to get it out of there for other opportunities. Since PSG IB was a young, upcoming bank that wanted to hunt with the big dogs, we also had to maintain a very conservative capital adequacy level – about two and a half times higher than the other banks (about 30%). Although it might have been good liquidity management and we were a low risk for depositors and clients, the return on capital and resulting profitability were under immense pressure. Our plan to rationalise the industry and to grow by means of opportunistic takeovers and acquisitions of financial entities and industries got a boost when New Republic Bank landed in trouble. The opportunity existed to buy some of the assets and take over some of its business – it was a success and affirmed our strategy. We also looked at executive chairman Piet Liebenberg’s The Business Bank whose shares were quite the darling of financial magazines at one stage. When one wants to take over another bank, you have to get approval from the Reserve Bank and you can’t walk away from the transaction, you can only adjust the price. Besides, all the approvals and negotiations have to be completed before access is given to the bank’s business. The due diligence did not seem too healthy, but we paid the R10 million Piet wanted and took over The Business Bank. He was also known as “heilige (holy) Piet” or “Piet Bybel”. Yet the deal appeared not to be above all evil after all, for the liabilities exceeded the assets by a massive R400 million. By the time we realised that, Piet had long donated all his possessions to a Christian trust and was on a rental property without a

penny to his name. However, we held the directors accountable and some of them were fined small amounts, several years after the deal. One of the unexpected discoveries at The Business Bank was a suspicious capital structure with an evil circuit that left the bank poorly undercapitalised. When we discovered this, we immediately informed the Reserve Bank of this “omission” of theirs, only to get a letter the next month instructing us, as the new owners, to rectify this situation immediately. We were already interested in making deals and investigated several “new” ideas and business. André la Grange, now, amongst others, chairman of the Absa Capital Private Equity Fund, remembers it like this:

We were a bunch of adventurous and ambitious people who wanted to buy or take on anything that moved, but at least there was some kind of logic to spread the risks so what you lost would be counterbalanced by what you won. Retail sounded sexy to us because we had no exposure there and to join hands with the Rubensteins in Vestacor would mean we could learn from Jewish entrepreneurs who knew what they were doing and so limit our own risk. We would not invest in penny stores, but in larger, established businesses. All of a sudden we as directors were talking about Look & Listen and Stuttafords. It was very exciting.

Nowadays Bruce Rubenstein, son of the then Vestacor chief executive, is the chief-in-charge at Stuttafords. We sold our stake in Vestacor to Investec later, because it was not a huge success for us, but was at least not a disappointment either. This business was not big in PSG’s life, but it still captured the imagination of the market and the media. There were other successes like the investment in PSG Trade Finance that currently is an important and successful subsidiary of the China Construction Bank in South Africa. We then bought back shares because the share price of the bank had fallen to

below its intrinsic value. In January 2001 the board decided to earmark the English-speaking Australia for foreign business, another big mistake. It was like doing business with fellow South Africans, only with a very inconvenient time difference. We got our fingers burnt because we knew less than nothing about the market – if one wants to enter retail you should probably at least understand your clients! As the proverb says, misfortunes never come singly – that we were experiencing for ourselves more and more. The banking environment was increasingly subjected to administration and banking supervision and the management and board had to spend a lot of their time dealing with compliance requirements, audit reports, consultations with the regulator and risk management. We were quite some distance from our dreams of a wing-footed, innovative, deal-driven environment. Later I got the idea that PSG and the bank should merge. Once again the exchange ratio of the merger was a hot potato, but fortunately we could reach a compromise. I was increasingly worried about the cash of the PSG group that was trapped in a bank structure that became more complex on a daily basis because of the takeovers and transactions. It was decided to unbundle Keynes Rational, precursor of Capitec, early the next year after we had ploughed so much money into it and had to face a very negative environment in the process. Simultaneously more problems at The Business Bank reared their ugly heads – there were issues with some of the structured transactions. We were also looking anew at Real Africa Durolink Investment Bank (RAD), a small listed investment bank for which our mouths had been watering for years. They were innovative with financial structuring and had a good reputation and team. André and Charles started with the negotiations with the RAD management and shareholders and made slow but sure progress. Charles quipped that only three things remained to be settled: the name, who would head it up and where the head office would be. Then we had a stroke of luck. The JSE changed the margin requirements of trading and when that tide had ebbed, RAD was naked (à la Buffett). The huge exposure to derivative instruments and RAD’s gigantic cash deficit to cover the

positions gave us the opportunity to jump in and take over the group. With the support of the regulator the bank was taken over and integrated successfully. So then we had three banking licences – quite ironic. We god rid of our own exposure to such instruments from the balance sheet by selling the derivative instruments business to Hugh. Then we established an asset financing and “captive insurance” business in Mauritius from where Hugh conducted his trade activities. He’s a fantastic trader, but we had to limit the risks. PSG IB remained on its opportunistic acquisitions and growth path and met with every possible market player with a view to a possible merger or joint venture. We also started taking on project financing and took part in a number of new type project-specific finance deals. André and Sollie Nortjé had background knowledge of these, and the board and I had many questions for them. Still, we made good investments in the Tsogo Sun casinos at Richard’s Bay, Klerksdorp and Caledon. We also financed MWEB’s new head office in the Cape. It was regarding this period that the journalist Lynn Bolin wrote in the magazine Leadership in June 2001 that PSG had garnered a reputation as a “mover and shaker” or even an “undertaker” in the financial services sector. She said the RAD takeover following huge losses in derivative instruments trade at that company had only reinforced PSG’s image “as the most aggressive group among South Africa’s ‘second tier’ or ‘A2’-rated banks”. The rationalisation we had been pursuing for three years would ironically come about via the very same A2 banking crisis, which effectively was the kiss of death for smaller banks. I was a little suspicious when Jan van den Berg, chairman of Saambou, wanted to come and see me urgently in December 2001. When in early January we eventually met at Kaya Rosa on the campus of the University of Pretoria “because we couldn’t be seen together”, it happened with strong encouragement from the Reserve Bank. PSG IB was a good knight in shining armour – with lots of cash and a series of other bank takeovers under its belt. We got permission for a brief glance at their affairs, but Charles was convinced that Saambou was not worth 5c per share. Even though the market price was R1, we shouldn’t touch it with a bargepole, he believed. I didn’t think it was that far

gone, because Saambou was talking about a “merger of equals” all along. I liked the sound of it; after all, Saambou was a household name, a kind of icon. Let André do the talking once again:

Unfortunately the market never gives one recognition for what you have not done. If we fell for Saambou, we would surely have been down the drain today – or in jail!

Well, the rest is history and everybody surely remembers the television footage of long queues of panic-stricken people in front of Saambou’s branches when it announced on February 2, 2002 it was closing its doors. The sluice-gates were open and all the other small banks were carried along in Saambou’s storm water. Then over the weekend the credit rating agencies branded all the A2 banks with a “warning” that caused a classic run on the bank. That Monday, 33% of PSG IB’s deposits were withdrawn, the Tuesday another 10% and the Wednesday 7%. Fortunately we had good capital adequacy, only a few loans yet and lots of cash, but the writing was on the wall. The management had to put out fires, keep investors and depositors calm and cooperate with the regulators. André and his team had daily meetings with the Reserve Bank and had to manage this massive outflow of cash and our continuing business. It was good to have an experienced person there. However, the end result was that the big banks, which had about 75% of the deposits before the crisis, had increased that figure to 92% within three months. And without deposits a bank is dead. The Absa takeover I wrote about in part 2 had, however, become a nasty reality that we and our friends managed to fend off. Yet it was clear we had to do something else with the bank. After this nightmare I asked Rand Merchant Bank to value the bank.

At a board meeting in June we discussed various options, which boiled down to buying, selling or fixing. We talked about the leadership of the bank, the culture and the future, the threats and opportunities. I could no longer be blind to reality. We had to sell, and since as beggars we couldn’t be choosers, Absa could be picky about which assets it wanted. In that difficult time – the 9/11 attacks on the US had shaken the world by then – buyers were not queuing up. Fortunately the Reserve Bank never had to help us, and fortunately we never lost any money. We paid a special dividend to the shareholders. Absa did a great deal and, so I understand, got a quite satisfactory return from the takeover, as well as a number of staff members (including André and Sollie, who are still there). Once in my life, at SMK, I asked a colleague to leave, and since then I have never had the heart to do so (up until the Pioneer board). I asked André to look the 80 employees who were facing the axe, in the eye. That’s the worst thing that has ever happened in my career, the retrenchment of those people. Of course now, in hindsight, I have very clever ideas. We could have downsized the bank, given up the banking licence and new opportunities would have come along. Yet I also forget that after all the stress and drama I had lost all appetite for investment banking back then. However, the convergence of crises in the market did not create the ideal environment for an upcoming investment bank. Our internal conflicts further complicated the situation. Still, as I mentioned in the previous section, one dream that can’t get wings can provide the building blocks for a new one, and just see what Capitec has managed with the licence of The Business Bank.

Third time lucky – ultimate empowerment gets more colourful with Thembeka

My son Piet’s jaw dropped when early in 2003, during their first exploratory meeting about the as yet unborn Arch Equity, his friend Tonie Fuchs ordered a Katemba, and it dropped even further when the waiter knew to bring him a beer mug with equal parts of red wine and Coke. Africa and its ease with multiculturalism was, like with this Mozambican drink, acquiring its rightful foothold in South Africa. That had passed Piet by to a certain extent during his four-year stay in London. One evening Tonie even added Coke to my and Markus Jooste’s Klein Gustrouw Cabernet Sauvignon Merlot, despite my warning that it would be a careerthreatening move. Fortunately I like Tonie, now chief operational officer of Thembeka, a lot. He’s married to my sister Santi’s daughter Julia, and I did that piece of matchmaking myself. Black economic empowerment was on the agenda of every board of directors in the country after the then president Thabo Mbeki had announced in his state-ofthe-nation address the previous year that government had accepted the recommendations of the Cyril Ramaphosa commission on BEE. Still, it was the last thing we considered when I talked Piet into a family business, a small private equity business in which we wanted to search for private investment opportunities. Tonie, the legal guy, and my other son, Jan, would each have 1% and Piet and I 49% each – at least he had brought a couple of rands from abroad. In fact I had another PAG in mind, an eaglet whose quills we could see growing and whose wings we could see spreading. Over time I realised what a huge opportunity BEE was: if a white person wants a stake, he pays the market price; a black person pays less than the market price and also gets financing. To help a black guy solve his problem makes a lot of sense business-wise. You help to level the playing-field in South Africa instead of being politically incorrect due to sheer obstinacy, something about which I

further share my views in part 6. Long afterwards Tonie would summarise the principles of BEE very well in his presentation to Thembeka’s annual general meeting in 2010:

The private sector has a responsibility and a social duty to transform. It’s naïve of us to think it’s not our problem. It’s naïve of us to expect government to solve the problem without direct intervention. This intervention can only come from two sources: either the private sector embraces the principles of transformation and BEE, or government will enforce it more strictly – because if the leaders can’t reach their objectives on a voluntary basis, they will be forced to take more drastic steps. Currently BEE is the only workable solution, but it’s voluntary, and it can only work if the private sector makes it work. Whether we like it or not, BEE is here to stay. We can either embrace it or we’ll suffer the consequences over time.

However, back then my eyes were still in the process of opening. That was when my colleague Johan Holtzhausen, managing director of PSG Capital, introduced me to Desmond Lockey. After our meal together at Moyo at Spier, Dana thought this son-in-law of the Reverend Allan Hendrickse was promising too much too glibly, but I vehemently differed from her: he had grown up in the countryside, was Afrikaans and, in addition, a live-wire ANC member of parliament who had (like his father-in-law) served in the tri-cameral parliament. Overnight our plans proliferated and then Arch Equity was no longer a Mouton business, but a serious investment venture with external shareholders. Even Sanlam and Rand Merchant Bank were involved. The launch on May 17, 2004 was held only a few days after Dana’s death. Piet remembers how fragile we still were that day. It was probably a blessing as well in a sense, as it kept us busy after the terrible setback. We listed Arch Equity on the AltX on December 10 at R1,80 – after the initial investors had paid just under R1,00 per share in May. Arch Equity’s biggest success was the fact that within two years it had built up a

stake of just over 20% in both PSG and Capitec at slightly more than R3 and R10 per share respectively. At the start of 2011, PSG shares were trading at about R40 each and Capitec’s at R170. We also made other good investments, like Orion and Big Box, but those successes were simply so much smaller than those of PSG and Capitec. However, when new draft amendments to the BEE rules were proposed, we realised due to the growth the black stake had been watered down too much. We had to change the structure of Arch Equity. The plan was as follows: Arch Equity and PSG would merge and all the assets besides PSG and Capitec would be put in a new company with the name Arch Equity Investment Holdings or AEIH. PSG also financed all the assets, therefore there was R110 million in assets and R110 million in loans from PSG. Since the net value was zero, we sold 51% of the company to black shareholders and groups for R510. One of the broad-based groups we wanted to involve was the Uniting Reformed Church. During a presentation to them to also become a shareholder, I probably almost ruined an investment partnership, because a man walked in and said: “Sorry, I’m late. Can you repeat what you have said?” So I told him if you want to arrive late, you’ll miss opportunities in life – I detest it when people arrive late. Once I sent a guy whose flight had been delayed and who then also wanted to take his time with his presentation packing right there. Fortunately the church still agreed to a trust through which it could do social upliftment in poor communities. The trust bought 800 000 shares for a total of R80. Arch Equity shareholders have scored big-time from the merger. While the company had been founded with R1,00 in May 2004, two and a half years later it was worth R7,40 per share. The new distribution of the 51% among the black groups was quite a difficult matter though. This is how Tonie remembers it:

Desmond insisted that his grouping (of which he owned 85%) should get the major part and that led to many heated debates on executive committee level and within management. At one meeting where we were analysing how much value had already been created, I asked Desmond: “But when will it be enough?” He

was very upset. Eventually we agreed on 18%.

However, Desmond had an obsession with cashing in his shares and the situation was becoming untenable. After a fierce dispute about the future strategy, Desmond threatened to resign. That was not the first time he had threatened us like this if he couldn’t get his way, and enough was enough. Tonie handed him the letter in which his resignation was accepted:

Until today it’s one of the most difficult things I’ve ever had to do, but Piet was so disappointed that he couldn’t even look Desmond in the eye. I’ll never know what he really expected would happen, but he was quite surprised that we had accepted the resignation. And angry. Maybe he was bluffing about his resignation, but because of his outlined ultimatum we did not believe that. Besides, I’ll never confuse a business relationship with friendship again, something Piet also said he had learnt. Desmond had even attended his wedding.

Everything was intertwined to such an extent that we had to restructure the company to be able to pay Desmond out. Yet even that was an uphill battle, since he kept moving the goalposts. That led to a huge deal of stress and later I couldn’t even speak to Desmond anymore. I don’t have that kind of talent. He’s an out-and-out opportunist who hit the jackpot. Fortunately Johan Holtzhausen, chief executive of PSG Capital, had the patience to negotiate and get the paperwork done. I have an infinite amount of respect for his ability to unravel such a jumble. Desmond had brought R6 million to us. Two years later his partnership with PSG had increased his initial investment to R120 million – in fact we should really have been best friends. If he had stayed with us his stakes would have been worth more than R400 million. So in the end his short-sightedness probably cost him. I have to say at that stage I had some feeling of déjà vu, because PSG’s first BEE

venture, with which we had been a pioneer, had also fizzled out. Well-known as my principle of ultimate empowerment had become among PSG’s entrepreneurial employees, and even in the press by that time, I started wondering whether those who had to be empowered socially actually wanted to remain empowered. Our first empowerment transaction happened in 1998 when many were still only paying lip service to BEE. Siphumelele was involved in the Servgro takeover and would, as I’ve written in part 3, get 10 million shares for an 11,5% stake in PSG at R90 million. We issued the shares at a market high. When the JSE fell, the group saw it would not be able to repay its debt for the loan to buy PSG shares, because the share price had tumbled quite far and the structure had been based on growth. The CNI deal and the Harvest case study mentioned above were quite similar to this one. Old Mutual, which supported the deal financed by Nedbank, took back the shares that had been the security, wrote off the debt and resold the shares to us two years later. Yet in November 2006 a knight in shining armour appeared who could rescue AEIH: a businessman in his own right. As a child, Zitulele Combi experienced his family’s forced removal to Gugulethu. He was given the nick-name KK because he had manhandled the other guys in his school debating team just like a Kenneth Kaunda, former president of Zambia. In 1989 he opened the first service station in Gugulethu, five years later the R45 million Nyanga Junction development and a year later a R20 million Ultra City in King Williamstown. The same year he founded Master Currency, a joint venture in foreign currency with Rennies Foreign Exchange. This business has branches at, amongst others, the airports, in Sandton and at the Victoria & Albert Waterfront. No surprise then that in 2000 he was named Ernst & Young’s Entrepreneur of the Year. AEIH bought KK’s stake in Master Currency for a block of shares. Tonie says he immediately had a calming effect on the company.

Led by KK, AEIH was renamed Thembeka. We achieved a lot of clever things and even accomplished a unique public placing similar to those done by Sasol and MTN. In the weak market in 2008 Thembeka suffered because of the high levels of debt. Piet quips that Thembeka suffered a R120 million loss when he returned there from February 2008 to February 2009, and that the company’s luck turned again just as he left there to start working at PSG. Currently we have 500 black shareholders with direct investments in Thembeka. Tsiba, a tertiary business school for previously disadvantaged youth, also invested with us. KK even donated the R750 000 prize money he had received as Johnnie Walker Man of the Year as bursaries for the students. In January 2011 the net intrinsic value exceeded a billion rand and in the preceding three years more dividends of more than R23 million were paid out. The investment of the Uniting Reformed Church is now worth more than R60 million – and its trust received R1,5 million in dividends in the past three years. Thembeka is now a player to be reckoned with and it’s involved whenever anyone wants to do empowerment under the PSG wing. It owns stakes in, amongst others, Overberg, Precrete, the JSE and even 6% of PSG and nearly 4% of Capitec. Piet says of his four years alongside KK: “His calm and calculated manner is wonderful and I thoroughly respect him as a businessman.” Meanwhile KK has also been appointed chairman of Pioneer Foods and a director of PSG. I don’t think PSG will be back at the BEE drawing-board soon. We’ve finally found the right helmsman.

Cowboys doughn’t cry – Pioneer Foods

Movies are made of this kind of thing. It reminds one of Wall Street (1987) and its 2010 sequel, Wall Street: Money Never Sleeps. In this movie the protagonist, Gordon Gekko, played by Michael Douglas, personifies everything that’s detestable in the business world – a boundless avarice and a ruthless yearning for more, an insatiable hunger in which not even a child’s inheritance is sacrosanct. Like a JR Ewing of yore, one loves to hate such a callous guy. That’s how the media described the Pioneer saga in a multitude of newspaper articles. Senior management was judged especially harshly. Since bread is a staple, these are the kind of emotions evoked. Let’s be quite honest, the bread cartel saga was a convenient confirmation of the popular view that ruthless capitalists are always ready to exploit the masses . . . Or in newspaper speak, corrupt business people are taking bread from the mouths of the poor! Covert meetings and discussions even on the church grounds . . . Juicy details like that were lapped up by the media, of course. Honestly, I almost don’t have the strength to talk about this. Since January 2010 so many of my friends have asked me on a weekly basis what had happened and what would happen. There were so many people who had advice and opinions. Get rid of management. Fight it out in court. Use this person to help or do this, that or the other. Since the matter was in the public eye, I probably owe it to the reader to say something. And maybe it might be useful to sketch some of the background if we want to have more than the Hollywood version. From what happened we have learnt a lesson once again. And of course we, relatively speaking the new kids on the board, have the wisdom of hindsight. Yet I still run the risk of trying to whitewash what was done, which I don’t want to do at all. What Pioneer Foods, Tiger Brands, Foodcorp and Premier Foods did

by colluding to fix the prices of bread and flour is absolutely detestable. I can’t put it more clearly. Moreover, initially Pioneer Foods did not realise the gravity of the matter, which almost makes it worse. I want to start by saying Pioneer was built by very smart people. As I’ve said before, the company was the result of a deregulation wedding between Sasko and Bokomo. subsequently management and the previous board of directors led the company from a turnover of R4 billion to one of R16 billion. As I spell out in addendum C in the list of companies in the PSG stable, Pioneer has four divisions manufacturing household foodstuffs and non-alcoholic beverages: Sasko, Bokomo Foods, Agri Business and The Ceres Beverage Company. Among the best known brand names are Weet Bix, Pro Nutro, Sasko, Bovril, Marmite, Ceres, Liqui Fruit, Pepsi, Heinz, Maizena, Moir’s, Safari, White Star and Uncle Sam. White Star is a great success story of the new South Africa. The marketers have realised, as I’ll point out again in the section about Capitec, that consumers don’t necessarily prefer a name in an African language. Research has shown that White Star is seen as an aspiring name. This maize flour was launched as a premium product on the basis of its quality and vitamin supplements. After ten years it’s the market leader, also because its higher price reflects its proven quality to the consumer. What the management and previous board of Pioneer were not, were men in pinstriped suits with expensive silk ties who sat hatching evil plans. Ironically, the whole collusion story became known when the bread suppliers wanted to get at the middleman, that other faceless target of consumer anger. A disgruntled independent distributor (and nowadays a consumer activist himself), Ismail Mukaddam, complained to the commission when the country’s major bakers jointly decided to reduce the rebate to these distributors. Their margin was reduced from 55c to 35c for a loaf of bread. The run-up to the collusion is rooted in history, I believe. In the old South Africa the prices of all agricultural products were fixed to protect the farmers. Industry associations had to fix the prices, whether it was the price of grain or flour. Floor prices and the designation of areas among distributors were a given – it was

encoded in the dna of employees. Elsewhere these practices were relinquished later on, but in the bread industry, so it appeared, this kind of conversation came up every now and then at different companies. To what extent one can blame management if they have more than 11 000 permanent employees, remains debatable. But the general rule in the business world is that the final responsibility lies with senior management and eventually the board. That’s why I suggested the whole Pioneer board should resign – because of that and also because of how the members had handled the competition case. They did not realise the extent of the problem (maybe they were led to believe that way by their lawyers, which sometimes emboldens one) or attempted to actively and expertly find a solution. Denial is an ostrich approach that cost the company and shareholders dearly. Also one may sometimes win a fight in the long term, but the price is too high, not only in cash, also in terms of reputation. The negativity has other business and political consequences that will cling to you. Granted, the penalty was quite harsh, given the sin. To give a guy, in a manner of speaking, a R10 000 fine for driving 65km/h in a 60km/h zone . . . the fine of R196 million almost equalled Pioneer’s profit after tax for ten years (head office costs excluded). The bread penalty certainly was a heavy blow and exceeded any profit ratio. As mentioned, I joined the board while the bread case was already in full swing. I questioned the desirability of litigation, but was told in no uncertain terms that there was no problem. In fact, the legal people made presentations about how unlikely any conviction would be and what the maximum penalty would be. Facts had apparently been blown all out of proportion and so on. After the hearing we were told the problems were really only confined to the Western Cape. Jeez, what a shock when we heard what the penalty was! As if that was not enough, one Saturday morning early in 2010, after the bread judgment, Pioneer’s managing director surprised me with the news that wheat and flour could cause similar problems. The possible consequences for the company were quite major: astronomical

fines and/or years of wrangling by means of lawyers and in courts. Finance agreements could be in jeopardy. Agricultural businesses that were major shareholders and used Pioneer shares as security with their financiers could get into a fix. The matter could have a ripple effect throughout the agricultural community of the Western Cape. Yes, Pioneer probably had the money to prolong the matter and fight it tooth and nail. Yet what good would it do the company? Pioneer’s name and brand names would continue to be bludgeoned by the press . . . Management would litigate instead of managing . . . The focus would be on the competition authorities instead of on strategic planning . . . Employees would be berated for being dishonest and exploiters . . . Morale would be low and passion paralysed by uncertainty . . . In the end all role-players at Pioneer would be affected negatively. The extent of the problem was horrific. Active and quick action was needed. A proactive plan was needed, not only reactive defence. I requested the board to change their attitude towards the competition authorities immediately and to work out a settlement. It was also clear that management couldn’t wear two hats, to try to simultaneously manage and negotiate. The board unanimously decided to appoint PSG Capital to handle the negotiations and to do a complete investigation from the start at every business unit inside Pioneer. PSG Capital had a free hand, and I have to congratulate the Pioneer management for providing all information right away and giving their full support to the new negotiating team. A new team of lawyers was also working alongside Johan Holtzhausen and his people. Shortly after, this team was informed that the authority wanted more than just a settlement. They regarded Pioneer’s reaction as merely: “So we’ve been caught, how much can we pay to get rid of the problem?” Someone had to accept responsibility. In my heart of hearts I also believe that the competition authorities regarded Pioneer as Western Cape-minded, Afrikaans and arrogant. Maybe the lawyers helped to create that image by being contrary and aggressive, without any instruction in that regard from Pioneer.

When one fights with the authorities, one has to accept it’s different from a civil matter between two members of the public. Hard work was needed behind the scenes to change any misplaced perception on all levels. That’s why I told a journalist I thought the whole board (including me) should resign. I was informed it could have other negative consequences if total continuity was lost and I was asked to stay on. In that way I could help ensure the negotiation of a sensible settlement and that trust within the investment community was maintained. Changing the board wasn’t simple at all. People who had helped develop the company and hadn’t personally done anything wrong were involved. They might only have been, as I said, too naïve and had accepted advice without questioning it. Getting rid of management would serve no purpose, especially since there was no proof that they had actively driven or supported any collusion. The major shareholders also had to be consulted and their consent was necessary for some steps. The next issue was who the new chairman would be and new board members had to be appointed. Making only one or two changes wouldn’t be of much help to Pioneer. A clear signal had to be sent and the profile had to be addressed from an empowerment point of view. Who would be the most suitable candidate? The person had to be politically neutral, have business sense and be able to act fairly without any baggage from the Pioneer past. Our suggestion was KK Combi, chairman of Thembeka in the Paladin stable. Overberg Agri, Kaap Agri and MKB supported his appointment. Iqbal Survé, a serving board member, became deputy chairman and Professor Mohammad Karaan, dean of the faculty of agriculture at the University of Stellenbosch, and Thys du Toit (now former) KWV chairman, were newly appointed as non-executive directors. I really admire some serving board members for voluntarily standing back for the sake of the bigger picture. A press conference was held immediately and real regret (without apology) was expressed. The new approach was: “Let’s try settling in all earnest (not at all costs).”

A last hurdle remained. Before you start negotiating, you have to know what might be wrong in your company and whether you have detected all cans of worms. We didn’t want to settle only to find the very next day something else would be on the table and the whole saga would start from scratch. To get all the information, we gave all Pioneer employees indemnity of prosecution by Pioneer. We would fire nobody who had done anything wrong, provided they spilled the beans and were completely honest. Senior management was excluded from this indemnity. It was a race against time for the PSG Capital team, but within two months a complete report was presented to the board. It turned out conversations about eggs and chickens had also transpired. The main problem you have is when employees join you from other companies and still have contact with former colleagues. Everyone wants to impress a new boss with knowledge of the market place, and then phones a former colleague to find out what company A or B is currently busy with. Currently the training at Pioneer is much stricter than 12 months earlier. The risk of something like collusion recurring is not zero – simply because people act irrationally sometimes – but it’s quite close to that. The figures with which the negotiating team was faced initially were astronomical and would have made most analysts push the sell button. The competition authorities prohibit one from making certain information public. As a listed company Pioneer had to be very cautious. It traded under a cautionary for nearly 12 months. The major stakeholders also didn’t buy or sell any shares in those 12 months. The negotiations consumed late nights and weekends and involved flying back and forth, going forwards and backwards, misunderstandings and insights. There were so many issues and such a large amount had to be chiselled down. At one stage, when both Pioneer and the competition authorities had decided the appeal against the bread decision would be dropped, the court, probably after all the media exposure, did not want to hear of it and again oil was poured on troubled waters. The conversations were exhausting, but time and again KK Combi and PSG

Capital’s Johan Holtzhausen came up with new solutions and suggestions. In the end the authorities changed their attitude and reason prevailed. Pioneer voluntarily put certain things on the table that would also be to the advantage of the consumer. It was a win-win situation. After almost seven months of negotiation a settlement was reached in November 2010. It was one of a kind and involved the largest cash payment in the history of South Africa. In terms of the settlement, Pioneer had to, besides the R196 million it had coughed up in the bread matter, pay a fine of R500 million (8,9% of Sasko’s turnover for 2009), agree to lower its profit margin by R160 million and undertake to spend an additional R150 million on capital projects, which could result in the creation of job opportunities. We now know that this R160 million eventually also benefited the consumer, since other bread suppliers maintained or even reduced their prices on that basis. Initially the R500 million would be divided among the National Revenue Fund and the Agro-Processing Competitiveness Fund managed by die Industrial Development Corporation, but that part of the agreement was cancelled after the two government departments were at odds about it. That’s a story on its own, which, in the end, prolonged the whole saga by three or four weeks. In fact Pioneer was dragged into this although it had nothing to do with us. It could have scuppered the whole agreement. Eventually the tribunal approved the settlement early in December 2010. The press lauded the agreement as a groundbreaking effort because fines had never been returned to the consumer before. All over the world money like that goes to the treasury. “With the lowering of the profit margin we extend a hand of apology to consumers,” KK Combi was widely quoted as saying. The company’s senior management also forfeited bonuses, share options and salary increases of more than R20 million. We had come a long way from where we were to what we settled on. Initially the

Competition Commission asked for 10% of Pioneer’s group turnover for 2006-’07 per transgression, which could amount to R4 billion or more, and would surely have meant a few closed doors and/or many years in court for us. The certainty also boosted Pioneer’s share price and helped to calm down all concerned (employees, management, financiers, shareholders and suppliers). Pioneer was not the ringleader of the cartel, but unfortunately it was the last to settle and was therefore stigmatised as the scapegoat. But now the wheel is turning. Some of the issues on which Pioneer has already settled are still under scrutiny at other companies in the industry. So far Tiger Brands has been fined R98 million, Foodcorp R45 million and Premier Foods, the first to confess, did not get a fine. Pioneer’s profit margin is also much lower than Tiger’s, but cowboys don’t cry! Getting back to Hollywood-type perceptions, I do believe bread would have been much more expensive had it not been for large suppliers like Pioneer Foods. It distributes bread at 30 000 outlets per day even in the most remote corners of the countryside, and at that price no one can really bake their bread cheaper at home. When the collusion bombshell was dropped, Shoprite group chief executive Whitey Basson told me: “Everybody knows supermarkets and not the provider determine the price of bread and every other product.” That’s also what Pick n Pay would say, and Spar, who together probably sell the most bread in South Africa. Whitey says at Shoprite there is only one rule that determines the price: “As long as it’s 1c cheaper than at Pick n Pay!” Nevertheless, I have learnt a lot from the Pioneer Foods story. I have learnt that in South Africa we have to get to know one another and our bona fides much better. We should also never believe ourselves to be too big and powerful and that we, by means of the law, can make and break and be able to manage anything. It remains true that sometimes it’s better to settle than to win a good battle.

Curro – from a single sapling to a growing forest

You won’t believe me, but I of all people – despite my Carnarvon accent – had myself re-declared as an Englishman in the time of the old South Africa, and that all for the sake of education. My wife Dana did not take no for an answer. Because she had been in an English high school she believed our children should be exposed to this global language at least in primary school, because I had put my foot down as far as high school was concerned. But then the primary school principal did not want to admit my children because the inspector had tested them and found their English wasn’t good enough. I thought my wife would explode. After all, that was precisely why she wanted them taught in English! The end result was that I, despite my passion for Afrikaans, had to officially change my home language in order to get my children admitted. Later, when they went to Hoërskool Linden, she served on the governing body in the time when model A, B, C or D became options. She thoroughly acquainted herself with the legislation, saw the advantages of Model C and convinced Linden to become the first school in South Africa to accept that model. At Linden she was not prepared to be taken in by what was accepted, for she knew in terms of the new regulations the school had the right to get rid of a teacher who screwed up. There was a certain maths teacher whose marks seemed suspicious. It unleashed quite a storm, ousting this person, a governing body appointee, by collecting 50 signatures within two days, but eventually the parents got their way. The chairman and the principal still wanted to smooth things down, but Dana’s speech about quality, diligence and justice was greeted with a roaring ovation. And two weeks later Hoërskool Randburg phoned her to help them get an accounting teacher out of his cushy job.

Education is a building block of society, therefore it has always been a passion of mine. In fact, even before PAG came into my life back in 1995, I thought about education and training, but then financial services prevailed. PSG’s appetite for something in the educational sector did not subside. In 2007 I asked Bernardt van der Linde, currently financial director of Curro, to do some research and calculations. We even looked at AdvTech, but could find nothing into which we wanted to sink our teeth. They were not “making tea” anywhere, as I’ve written in part 3. The book Outliers: The Story of Success I referred to earlier was an inspiration because of the part about the schools of the Knowledge is Power Programme in New York, and the seed planted in me by reading that simply wouldn’t die. When in 2009 we heard via one of our PSG Konsult offices, from Jan van Wyk, about “a former school principal who had started with a little school in the vestry of a Dutch Reformed congregation”. That was in Durbanville and Jan’s five children were in a sister school in an eastern suburb of Pretoria, in Hazeldean, and the need existed to expand it to include a high school as well. Jan then arranged a meeting between PSG and Curro. While the due diligence was still underway, I already knew I wanted to invest. If PSG didn’t want to, I would do it with my own money. Chris van der Merwe is an inspiring man with entrepreneurial blood in his veins. While still a teacher he wrote and sold educational modules, restored and built houses, and made a multitude of other plans to supplement his salary. With a doctorate in education in the middle 1990s, he believed his prospects in the state sector were limited. He and his wife, Stephnie, a teacher too, came up with the plan to start a private school by converting a house in Durbanville into a few classrooms for grade 4 to 7. The media picked up on the story and they saw the idea had potential. Boetie Ungerer, the father of gifted education in South Africa, had been a partner in a previous business and once again he was roped in. The same went for two former colleagues, Thys Franken, former director of human resources in the Western Cape department of education, and Eddie Conradie, former principal, circuit manager and inspector.

The school officially started in July 1998 with 28 learners, on the grounds of a local church in Durbanville. The next year 145 learners wanted to enrol. The construction of a campus started, because the church would soon be too small. In 2000 a full 310 learners moved into the premises at Sonstraalhoogte in Durbanville in the Cape. In 2006, when Durbanville already had 910 learners, another school was built in Langebaan and in 2007 the school in Hazeldean could get off the ground. Chris’s bilingual, colour-blind private schools with a Christian foundation and strong discipline in classes with a maximum of 25 learners each were ready to spread their wings further, but now capital was a limiting factor. That’s where PSG got on board. In middle 2009 we acquired a 50% stake by means of a R50 million injection. The parties got to know one another better and at the beginning of 2010 there was some more head-scratching: are we going to grow by one or two schools annually or are we going to expand more aggressively? It was decided that PSG, through its subsidiary Paladin, would acquire a further stake of 26%. When we got involved, Curro had 2 000 learners in three schools, and in 2011 it has 5 500 children in 12 schools. The current objective is 40 schools with 50 000 learners by 2020. We are not as expensive as Hilton or Bishops, but the enthusiasm for the schools is unprecedented – on the board of directors or at a braai everyone always wants to contribute something about Curro. For all I know, Curro might become a second Capitec, or perhaps it might collapse and then everyone might ridicule me. Government might also throw a spanner in the works regarding the admittance requirements of private schools, but it was an opportunity we didn’t want to miss. There is a vast potential market of more than two million schoolgoing children in the two top lifestyle categories who are in search of quality education. Chris himself leads the development team of Curro in the search for suitable land and the right price. An effort is made to construct the buildings effectively with the necessary standards, but without overinvesting. The buildings are also constructed in phases so invested capital would not be idle for too long.

The amounts of R30 million for the first phase and R60 million for the construction of a complete campus over a ten-year period are by no means small change, but that also prevents easy access by competitors. The salaries of staff remain the major operating expenditure, but as soon as a child enrols, the odds are relatively strong that he will attend the school up to his matric year. So the income is quite a sure thing. Due to new schools’ hunger for capital we’ve decided to list Curro and the founding members still remain partners of PSG. As Bernardt says, a lot will have to happen before 40 schools have been established and will generate the expected returns for shareholders. Meanwhile, at least there is the satisfaction of the contribution to the development of the people of South Africa. And, as indicated by Dana’s dedication and the chapter in the book Deidré gave me, that’s really quite satisfying. The second learner to enrol at Curro, Jessica de Koker, used to be at the Laerskool Fanie Theron, where Chris had been deputy principal and science teacher. A few days after he had told the learners he was leaving, she gave him her envelope with the enrolment form and fees for the new school. This extract from a letter she wrote him was published in Paladin’s annual report for 2010:

Curro afforded me the sort of education that allowed me to focus on what was to become my occupation and facilitated the kind of education structure that required me to be a fairly independent student. I believe that this structure is what made my transition to university less stressful than it perhaps may have been for my peers. Particularly in the field of music, one is required to have a great deal of self-discipline, quiet confidence, humility, and the sort of persistent character that drives you to be better than your last performance. All of these things I learnt from Dr Van der Merwe.

At the time of writing this Jessica was studying at the Mozarteum University in Salzburg, Austria, with a music scholarship. PSG too is happy about the things we and Dr Van der Merwe could learn from one another.

mCubed, mBarrassed, mBattled

“Why didn’t you phone me, Jannie?” asked Hendrik du Toit, chief executive of Investec Asset Management. “I would’ve warned you.” Yes, why didn’t I? But it’s too late for regret. What became quite apparent afterwards was that I hadn’t yet learnt the lesson of a due diligence about people. In my career many people have disappointed me, but if the risk emerged that the credibility and reputation of a whole business empire like PSG could be in jeopardy, your personal feelings of injustice pale into insignificance. But before I get to the story of mCubed, maybe I should briefly tell Escher’s, because they were interlinked somewhat, and because the gigantic failure with mCubed in the end also sounded the death-knell for the marvellous Escher Investment Solutions. “Do you call that a marketing plan?” I asked Philip Croeser, for as colleague Chris Otto said later, Philip’s figures in his investment proposal to us bore more similarity to a list of telephone numbers than to a realistic budget. He approached PSG in 1997 with a multimanagement offer, the principle where you leave the analysis of shares to fund managers. You select funds on macro level and put them together in order to, with their joint brain-power, ensure the best return for your clients. Of course your fees are a little lower then. As a member of a numbers family, my question did not deter Philip. His father was Gerhard Croeser, former director-general of finance. Philip simply went to see another bunch of clients and came up with a new set of “telephone numbers at a much smaller exchange” – Chris Otto’s description once again. Philip is funny, brilliant and an actuary, but not a typically introverted one. Who else would have decided to name the company after a Dutch graphic artist? The “impossible structures” of Maurits Escher (1898-1972) have earned him fame worldwide.

Yet Philip and his guys struggled a little to get well into the swing of things. They were yuppies in their early thirties, constantly listening to music, and coffee might not have been the only kind of refreshment in their loft offices. They had quite an arty streak. I probably started jumping up and down a little – if the potential for results exists, I want to see them. We recruited another actuary and former colleague of Philip, Leon de Wit, to knock things into shape. On October 1, 1997 he became chairman of the Channel Group, of which Escher would be a subsidiary. It didn’t take ages before Escher got its first business. Multimanagement was a new idea, the tongues in the market were wagging and the money started rolling in. Within 18 months a total of R20 billion was under management and some of the artist Escher’s original works could be seen on the walls. At present multimanagement is quite common in South Africa, but back then Philip was the pioneer. He would eventually develop Escher into the second largest company of its kind in South Africa. As I’ve said, I’m still told I forced them to list too quickly. Whatever the case, Escher was unbundled from Channel and on June 22, 2000 it was listed with a market value of just below R300 million. To think PSG’s initial investment was a “mere” R2 million! In the process, Escher might have lost its inward focus and therefore some of its charisma and drive. In any case, it would be a difficult time for the whole group until 2003. Everyone in PSG was suffering because of the problems of the investment bank and smaller subsidiaries like Channel were not getting a lot of attention. Its Anchor Life and the administrative arm CMS were problem children as well. The collapse of the stock market didn’t help to keep people motivated. Philip might have been more of an entrepreneur than a manager. Before long he saw he would get stuck in delivering for the market, and started looking for a partner. Escher had to merge and grow bigger. Then mCubed, his major

multimanagement competitor, caught his eye. The managing director was John Storey, an attractive, charismatic man who could weave magic with his words. He was a chartered accountant with an MBA. What really impressed me was that his father, Peter, was head of the Methodist Church and together with Dr Allan Boesak and Archbishop Desmond Tutu a leading figure against apartheid – people for whom I have the utmost esteem. Apart from multimanagement for institutional groups mCubed also sold investment policies for the retail market. A policy maintained for five years or more is not taxable, a quite attractive advantage for any investor. A year later, in April 2001, we decided to merge mCubed and Escher. That was a big mistake, for Escher, the gem, practically disappeared that way. Philip resigned in January 2002, but fortunately our paths would cross again elsewhere. The multimanagement side of mCubed merged with Momentum in September 2004 and was established as Advantage Asset Managers. Now known as Synergy, it’s a flourishing business. At the rest of mCubed, we started realising, nothing was as rosy as our due diligence had indicated. How much can an investigating team really learn in 30 days if there are 3 000 or 4 000 policies? While it was initially going swimmingly, we started thinking that rather than being well spoken, John was just a fast talker who ducked questions. I resigned from the board within a year. He surrounded himself with yes-men and the audit committee couldn’t get the truth from them either. “What used to be a fantastic business had massive problems due to massive leadership issues,” is how Leon de Wit describes it now. He then left for Anchor Life. The money collected from policies, so we realised later, was not necessarily invested in the stock market. mCubed invested in unlisted companies . . . in fact in Ponzi-type fly-by-night investments. Moreover, ordinary investments were camouflaged as policies to evade taxes. Someone would “repurchase” a nontaxable five-year policy after a year and not pay tax on the return, thereby

contravening the law. The group tried all manner of cunning tricks with deals that did not comply with the regulations, disregarding exchange control regulations. It was one big mess. Just as we started smelling a rat in 2003 the Reserve Bank also noticed there was something amiss. John Storey was a chancer and was caught out. You sail too close to the wind, the authorities told him in as many words. PSG just wanted to get rid of him and his business, even though there were many innocent people who had taken out policies in good faith. This is how Leon remembers the saga:

The bombshell was dropped when mCubed wanted to sell mCubed Life to Fidentia and the deal was (fortunately) rejected by the authorities. What to do next? Not long afterwards the authorities were sending out signals that they would put mCubed under curatorship as well. We could not allow that. That was when Jannie, Jaap and I went to see the Financial Services Board. They were quite negative and didn’t want to hear our story. During a smoke-break outside, Jannie promised the head of the FSB we would clean up each and every policy; our name was at stake. I think the head realised Afrikaner pride had kicked in and a man’s word was his bond, even though PSG only owned 30% of the company. Jannie and the clean-up team saved a lot of money for the mCubed shareholders by personally accepting responsibility for the mess.

Yes, I still remember that blue Dunhill box of Mr Rob Barrow. He used to be head of the inspectorate at the JSE and I have a lot of respect for him. The cautionaries on the JSE’s news service, Sens, read like a nasty, complicated serial that just wouldn’t end. In April 2005 the first warning about a “liability” was issued. Then these compliance requirements of “a regulator”, that could have a negative impact on the value and future of the company, were repeated time and again. The Reserve Bank had to get its due pound of flesh. In addition, in between these warnings there were disputes with the South

African Revenue Service we had broadcast. At least we could get rid of John Storey in October 2005 and announce that he would not be replaced, since most of the operational business of mCubed had been sold. These transactions, and those that would follow, we summarised thus on Sens in June 2007: mCubed Investment Life was sold to Channel Life; Corporate Money Managers was taken over by its management; and Fidentia became the owner of mCubed Unit Trust Management, of Policy Exchange and of Automated Outsourcing. mCubed Employee Benefits was also transferred to its own management and the stake we still had in Advantage Asset Managers was fully transferred to Momentum. mCubed Life (the insurance business) was transferred to Alternative Channel and M³ Capital Management in Guernsey, and AOS Fund Services to PSG Fund Management. We wanted to convert the assets into cash in order to unlock most value for shareholders. We acknowledged the administration and bookkeeping at mCubed were in a mess and that the departure of senior personnel further complicated the unravelling of the structure of a series of complex transactions. By this time the whole country (including us) was aware of and angry at Fidentia’s Arthur Brown and his activities. We had to do damage control to prevent mCubed from being exposed financially because of the investigation into deals of Brown’s colleague Steve de Kock, an mCubed board member. We cancelled an investment policy of many millions that Fidentia took out at mCubed and handed the assets (one whole rand) to the curators of Fidentia. We had learnt another lesson. An assurance on the letterhead of one of the four major banks in South Africa and an advance payment of a buying price into the trust account of a prominent firm of attorneys is no guarantee of the buyer’s integrity. In July 2007 we asked that mCubed’s trading on the JSE be suspended. Now, finally, we can say Alternative Channel has, after five years, scoured each and every one of those suspicious policies and cleaned them up. The legal firm Jan S de Villiers helped us to legalise with the Reserve Bank’s forensic auditors all the questionable transactions. The fines were finally determined and paid to the Reserve Bank and the South

African Revenue Service. The Financial Services Board, for one, is quite grateful that we helped it to solve a nasty scam. Fortunately a company has insurance against such happenings, and the possibility of the civil prosecution of individuals responsible has not been ruled out. The remaining money (after cash payouts of 13,3c in February 2005, 4,5c in December 2009 and 19c in October 2010) was paid out to shareholders. Of course as a shareholder itself, PSG suffers its share of the pain. We sold the cash shell and can now finally put the company and its history behind us as a sad but valuable lesson. I’m just glad we never gave mCubed a new PSG name. Now I know I allowed myself to be blinded by the halo effect, a term in psychology – you think someone is a saint on the basis of a single trait. If your father is a priest, the old joke says, you might have played with the children of the congregation too much. In South Africa the financial services industry is small and closed enough to enable one to ask around about a certain person. If nobody has heard the name, that person is a flash in the pan. And if there is an inkling of a possible unsavoury history, you would also hear that immediately. Next time I come across a new name, Hendrik du Toit will get a call, and Jaap du Toit and Thys du Toit, who used to be at Coronation. Call it the Triple Du Toit Test if you will, or whoever in my broad network of contacts in financial services you want to include. PSG remains a success story of gigantic proportions, but mCubed is a failure we won’t and can’t hide.

The Capitec fairy tale – Cinderella’s PIN is her secret now

Your own people detest you. In 1998 I took my wife and children on a holiday to the Transkei and I remember how everyone said they can’t believe “Dad is a loan shark now”. Colleague Chris Otto’s wife, Marica, was just as upset. Johann Rupert told me in front of the whole Remgro board: “Yes, Jannie, you guys who are exploiting the poor.” It was quite an embarrassment. Not a single journalist in the country wanted to know anything about “microlending”. Anybody who had been dealing with them after Derek Keyes, then finance minister, exempted small loans from the prescribed interest rate of the Usury Act of 36% per annum at the end of 1992, had to be closed without exception and, if possible, be put behind bars. A high risk had to be rewarded with high interest, but some ruthless lenders who committed terrible outrages gave the industry its bad name. Werner du Plessis, who was in charge at PSG Smartfin Financial Services, remembers the early years of the microlending industry as follows:

The regulators constantly wanted to put us behind bars, the banks wanted to freeze our accounts, robbers stole our money and shot our people, our systems could not nearly handle the pressure of the volumes resulting from the almost insatiable hunger for credit among the emerging black middle-class.

Yet no part of the personal or institutional pressure is nearly as heavy as the stress of running a microlending business. This is how it was described in the book compiled for PSG’s 15th birthday:

It’s shortly after two in the morning of pay day and as they say in the business, the money has fallen. So it’s time. The man throws a large, empty backpack on his back, pushes the .38 Astra in behind his belt, takes the thick stack of bank cards and walks into the night. His clients’ salaries have been paid in. The ATM near the station is still deserted. Fortunately he’s first and the policeman is there already. Yes, it’s an extra expenditure, but he knows of other guys like him who have lost everything. Not only the cash, but also all his clients’ bank cards with their pins. It’s the end of you if someone steals those bank cards from you and the people are robbed that way. Methodically he inserts one card after the other, keys in the PIN and then withdraws the different amounts owed. This month he has written 187 clients and after working through all the cards, his backpack is bulging with R97 000 in cash. Only four cards had insufficient funds. Not bad at all . . . He pushes a few notes into the policeman’s hand before they walk back to his premises, constantly looking over their shoulders. Behind a locked door and trellis gate he methodically processes the pin cards and the slips so they can be written down. The cards have to be ready early in the morning when the owners come to fetch them. Red-eyed he’s ready for them when the sun raises its head shortly after six. In three hours’ time he can also go deposit the cash. Then the danger will be over for now. Welcome to the microlending industry.

That was not quite how I pictured it when I read Nobel prize winner Mohammad Yunus’s Banking to the Poor and especially a report by Huysamer Stals about the provision of microloans to the poor. Their arguments have convinced me the poverty in South Africa can only be relieved in one way, and that is to make capital available to people without collateral and who can therefore not be helped by traditional banks. Moreover, talking me into the Wild West version in South Africa of the Bangladeshi professor’s small loans – to mostly women who could, with support groups, accomplish a 98% repayment rate – didn’t happen overnight.

PSG didn’t want to touch any business plunging people into a spiral of debt. I sent Werner, Jacques van Zyl and Henk Lourens, who have established a few microlending branches, home after the first presentation with: “I don’t understand your business.” In fact, they didn’t understand their own business either. Their own branches had grown by 50% within the first year, but they didn’t know why. Some branches were doing great, others not so great . . . Was the city or the countryside more profitable? Werner cites the example of a certain Lantern group that apparently drove to a new town with a bakkie with a few computers and a few signposts, rented a property and started lending money. If the branch was not making money, it was closed within two months. That’s how scientifically matters were tackled. It’s amazing to think that in 2010, about ten years later, Capitec was distinguished, in the company of Amazon, Apple and Mercedes-Benz, as one of 27 “outstanding brand names of tomorrow” by 3 000 analysts of the Swiss-based financial services group Credit Suisse in 50 countries. It was the only South African company upon which this honour was bestowed. It was no longer a magic wand, but persistence and perseverance that had put this scorned Cinderella and her pumpkin in a ballgown and golden coach. And there was no fairy godmother, but top people who worked with dedication and savvy. Our microfinancing business was established on three wobbly legs and PSG’s sermon to each was clear: You’re a cash-store experiment. Werner and his guys’ two branches first started trading under the name PSG Smartfin Financial Services on April 1, 1998 and within a year another 13 branches were added. Two months later Jacques Fisher’s PSG Anchor Finance came into being, which would do business by means of payroll deductions. A year later there had been a 400% increase in the loans book and contracts had been concluded with 174 employers to let 69 102 employees repay their loans through salary deductions. Former dominee Neels Borstlap’s FinAid with its good administration was next in line. They all agreed the most difficult adjustment at PSG was that an entrepreneur first had to, in Werner’s words, be “rehabilitated”. As I’ve written in part 2, they

had to familiarise themselves with terms like risk management, cost control and accurate management information. The days of wild guesses and shooting from the hip were over. Corporate control was the name of the new game. PSG didn’t want to risk its reputation. We had to get microloans respectable, and quickly. We asked Michiel le Roux, former Boland Banker who had left BOE Bank eight months prior because he and Christo Wiese were growling at each other, to investigate closer co-operation between these three legs and act in an advisory capacity for each of them. He later confessed: “I was quite surprised that PSG was involved in such strange – almost sordid – businesses.” Initially he was more in favour of “cleaner” payroll loans, until he realised cash loan stores had a much better relationship with their clients and that some payroll borrowers tried to repay up to five or even ten loans simultaneously. Michiel remembers that Werner explained to us South Africa’s sophisticated electronic payment systems didn’t mean anything to the poor guy. He had to use his feet to get to where he had to pay bills. By creating a countrywide network by buying a cash loans store in every town and obtaining a banking licence and an electronic banking system, we could empower them and liberate them from long queues. At the end of 1999, Keynes Rational was founded, which would unite the three microlending legs and Anchor Life, the micro-insurer. Neels was manager of the microlenders and Werner was purchasing captain of new branches. Fortunately Michiel had the foresight that we should rather sell Anchor Finance. Unifer took it over from us early in 2001. In June that year government unexpectedly prohibited the deduction of loan repayments directly from the salaries of civil servants. By October, Unifer was bankrupt and Absa, its majority shareholder, had to take over its obligations of R2 billion. It was touch and go and we nearly also burnt our fingers. Later Neels made way for Gerrie Fourie as chief executive and he in turn made way for Riaan Stassen when Boland Bank’s top management team joined Keynes in 2000. As Michiel rightly said:

Riaan has a unique ability to convert dreams into strategy and then into reality. When he joined, I knew for the first time: We’ll make it.

The two of them used to work together at Distillers, where 80% of their products were aimed at the black market. A new brand name was needed because it was decided insurance would not be part of the new business. Any limiting kind of name was avoided – we didn’t want anything to do with “people” or “African”. When we happened upon Capitec, we knew it would be a winner. All our clients have gold cards – our clients don’t want to be looked down upon. As mentioned, our search for a banking licence came to an end when PSG Investment took over The Business Bank in the millennium year as well. On March 1, 2001 Keynes Rational was taken over by The Business Bank and it was renamed Capitec. The road was paved . . . but still the horses pulling the coach were not galloping in sync. Michiel, now chairman, describes it as follows:

Capitec found it difficult to integrate into a whole the hundreds of shops purchased the previous year. Nothing was shipshape: neither the people (usually relatives of the founder who had sold to us), nor the premises (the ugliest and cheapest in town).

In February 2002 two things were lying ahead. Capitec’s close to 300 branches were converting from the card-and-PIN system of recovery to a top-notch electronic system bought in Australia, and on the 18th the listing bell would ring. Oops. If Saambou only hadn’t announced on the 9th that it was closing its doors . . .

The A2 banking crisis had caused the expected listing price of 500c to fall to 120c and to tumble to a nasty 80c in March. It was impossible to get financing – 30-day loans initially had to do the trick. The bank only started taking deposits by 2004. The advantage of humble beginnings, we know now, is that there were no expectations. Still, in part five you can read about two investors who had the courage of their convictions to buy the share at R1. Try doing better than a compound growth of 76% over almost a decade anywhere else! In April 2010 Moneyweb called it the “hottest banking stock in South Africa”, because Capitec had doubled its share price in the preceding year. And as mentioned earlier, in the same year it was named Company of the Year by Sunday Times. Just a month after listing, lending rates were cut from 30% to 21,5% per month and losses were suffered for a few months, but since that July Capitec has made a profit every month. In PSG’s 2010 annual report I said it had been a mistake to unbundle Capitec from PSG in 2003. And even now there are people who ask whether by doing so we had “sold out” the company and now surely must have real regrets. In hindsight it’s easy to say “we should rather have . . . ” But in that time a takeover from the Absa stable, about which I’ve written in part two, still was a real threat. We believed we had to protect the larger group that way. If a hostile takeover had taken place, shareholders would at least have had Capitec. It was a defensive strategy. Of course the PSG shareholders who had kept their Capitecs lost nothing in the process and were not any worse off – on the contrary. Afterwards, of course, PSG bought Capitec at every possible opportunity, even though it cost us some money, as Marc Hasenfuss correctly stated on Fin24.com (June 20, 2010). With any offspring there is a love-hate relationship from time to time and we had to rescue Capitec from trouble a few times, as I’ve written in part three about the help with the payment of salaries. Currently Capitec has 2,5 million clients at 422 branches countrywide and provides jobs to close to 5 000 people. And every month another almost 70 000 clients are added. Managing director Riaan says the secret is the simple products offered and low costs. The market is still amazed at the low percentage of bad

debts. No wonder that First National Bank wants to emulate us with EasyPlan. Capitec’s model is simple. The bank requires no security at all, only an ID, a bank account and a salary slip to determine the earning ability of the borrower. A loan gets a yes or a no within ten minutes, because one can quickly check whether someone has been blacklisted or how many other deductions there are from his account. Also, it really is a paperless bank. There’s only a small amount of cash in the branches, and clients can withdraw cash with a debit card from our ATM network or stores like Pick n Pay and Shoprite. Our banking fees are the lowest and our hours the longest, from 07:00 to 19:00. It was such a joy to read in Sunday Times on October 4, 2010 how David Shapiro wrote it took less than 30 minutes to open a Capitec account – three months less than the time it took to renew his driver’s licence. Just as great was seeing the paper’s Business Times supplement calling Capitec “A precocious nine-year-old” (November 7, 2010). Praised to the point of becoming conceited, maybe, but fearlessly taking on the big banks. We believe it’s the simplicity and quick service without the confusion of so many different counters and the long queues of other banks that our clients like. Nowadays the rate, of course, is a much more acceptable 24% to 30% per annum for smaller loans for a few months. As brilliant as the top management are, they are not writing the success story on their own. At the training centre in Technopark outside Stellenbosch 80 branch employees are trained at a time every two weeks. Some of them get to fly in an aeroplane for the first time and stay in a hotel for the first time, but at the certificate ceremony on the last night there’s an enthusiasm about which the big banks can only dream. Many of our branch employees are later lured away by other banks with offers of bigger salaries, but it’s great to see how many of them want to return three or four months later – at their old salary. Capitec is an employer of high calibre, and then people enjoy working there too. Capitec is a dream come true. It’s a reality that shows how many opportunities

there really are in South Africa, and what fantastic potential its people have. With access to capital, poverty can be eradicated over time.

PART 5

My approach to investments

Just like with a doctor who is pestered about other people’s aches and pains, many people I see, whether it’s my doctor or my lawyer, want my advice about investments. I’m also invited to make speeches. I don’t know whether I can add anything an investor doesn’t already know, for the basic principles remain the same. Moreover, I do risky things that I would never advise others to do. As I wrote in part 3, I also wager my own money on unlisted shares, I incur debt for investments and I have cashed in my policies. Do you want to listen to someone who says do as I say and not as I do? Then read further at your own risk.

Not in the suitcase under the bed – my thoughts about investments

The knowledge I have, I’ve obtained by reading, reading and more reading, by studying Warren Buffett and others, and through costly experience I’ve built up over 40 years. Look at addendum E with my recommended reading list at the back. Of course one also learns from one’s friends, someone like GT Ferreira, who has so much wisdom and is a self-made man. Since we share a building in Stellenbosch, it’s easy to walk up the two floors to him and share thoughts about an opportunity. If you insist on a few “hot” tips, I’ll walk tall and say: Buy PSG! No really, I’m quite serious. PSG is my whole life and that’s what I dedicate most of my time to. Most of the insights I have I plough into it, and the brightest opportunities I spot are pursued by PSG. My friend and PSG director Kleintjie Bellingan once told me he now understood me better. I was so obsessed by PSG and went to work every day because such a huge percentage of my investments were in there. I’ve served as investment adviser to many of my relatives, but I’ve stopped doing the everyday management of their portfolios. In fact I don’t want to give other people advice anymore, because why would I recommend something else to them than what I believe most? And it’s not as if I’m always showered with thanks if things go well. If the share price falls, I’ll be in hot water soon enough, for as I said, 77% of PSG is in the hands of directors, relatives or so-called friendly parties. A crowd of nieces and nephews are minority shareholders. In the last few years I’ve even started giving them PSG shares as birthday and Christmas gifts instead of handkerchiefs or chocolates. I reiterate: it’s a gigantic risk to put all your eggs in one basket, but woven grass or not, PSG as an investment company has many divisions. Apart from the

properties and art I own, my own money is only in PSG, the furniture group Steinhoff, on whose board I serve, and the PSG Flexible Fund, the unit trust managed by my son Jan. Do I have the right to talk other people into it? I can honestly believe it’s good counsel, but I would neglect my fiduciary duty by only picking one share for someone. If I had to compile a portfolio for you, and say I bought blue-chip shares like Rand Merchant Bank, Shoprite, Remgro, South African Breweries, Sasol, Capitec and PSG, and a month later the market falls, you would say I said I knew what I was talking about. No one can predict the market correctly, but I think I have a more than 50% chance to be correct, especially in the long term. And especially if one buys a few different shares. But not even at a private party can I give you advice, for every person I talk to is different. One has a mountain of debt, another has a huge inheritance and a third is divorced. If I don’t know what your financial matters and personal needs are, I dare not give you specific advice. In the parable in the Bible, Abraham told the rich man in hell if his brothers didn’t listen to Moses and the prophets, they wouldn’t listen to the warnings from someone from the next life either. In the light of that, you might perhaps listen to me, because if you think the stock exchange can sometimes be a hot place, I’ve really burnt my fingers. I was a broker for 13 years as well, which means I have a humble opinion, because the market makes one humble.

Plant your money tree early – start saving while you’re still young

An irrefutable truth is that you have to have time on your side. A young person might not have money to invest, but he has to learn to save right from the start. It’s amazing how much money can grow if one saves. There’s a reason why it’s called the eighth wonder of the world. Instead of wasting your time on a gap year you can rather buy yourself an expensive house or a beach house or a mountain bike or whatever after 40 years – that’s the power of compound growth. It you start investing at a young age and begin with R1 000 per month, you’ll be surprised to see how much you can save. If you increase the amount you save by 10% every year and you do that faithfully for 40 years, at a return of 15% (20%) per annum you will make R57 million (R186 million). Plant a tree early so you can sit in its shade one day. But of course you can still enjoy life, as long as you maintain a healthy balance.

A policy policy and is the name of the game bond, mortgage bond? Your home and annuities might not be your best assets

In my matric year my father took out an Old Mutual policy for me at a cost of R15 a year. I also had investment policies and retirement annuities (RAs) for many years, but those were my worst investments over the past 30 years. I’ve cashed them all in. That the typical salaried person would prefer that compulsory way of saving I understand, but I’ve recommended to my children to also buy shares from an early age. The policies I bought them in matric have also long been done away with. Life insurance one needs until you and your people are and will be taken care of. Afterwards you can consider stopping it. If compulsory saving is still the only way in which certain people are able to save, they should do it through an RA, or else buy general unit trusts with a stop order where a professional person makes the decisions about investments. For me, RAs didn’t work, but I can’t rule them out completely for that reason – as long as investments keep up with inflation and the administrative costs don’t start eating into them. My father always said one should invest one third each in property, shares and cash. It differs from person to person and also depends on the size of your estate. My father was more conservative than me and it remains a broad piece of good advice. In days gone by, people always saved money in the bank or building society, maybe bought a policy – before the days of unit trusts. Many people will tell you your house is your greatest asset. For me it’s your greatest burden. As I said in part 1, I always just wanted to pay it off. I was itching to do more useful things with my money. For a farmer, his farm and for an entrepreneur his business also comprise more than a third. You need cash at your disposal for a setback or an opportunity, but with a bank

investment or money market fund your money can never grow like on the stock exchange. The obligation to pay tax on interest received and the fact that the taxed profits were lower than inflation over the past 30 years means cash is an unattractive asset class.

Running with the bulls, dancing with the bears

We had great chats about shares since my school years, my dad and I. In later years there was a stock ticker in his shop, an old-fashioned contraption like a fax machine from which white paper rolled as the day’s share prices were typed on to it as soon as the stock exchange closed. In Carnarvon the newspaper always arrived two days late, because it came by train. That machine was the only way to have share prices at your disposal immediately. I’m not sure whether in those days one could easily find a stock ticker outside the Witwatersrand area or Cape Town. I was fortunate to have grown up in a house where my interest in this fascinating world was stimulated from an early age. In 1969, while I was at university, my dad lost quite a bit of money. I’ve seen how wild speculation can get and how the stock exchange can bite then. In 1987 things were prospering again. Shares rose, new companies were listed left, right and centre and bank financing was easy to obtain – a recipe for disaster. As I wrote in part one, one is doomed if greed takes over. I had just become comfortable and then the international markets started tumbling on October 19. Within two weeks the JSE had lost 40% of its worth. It was a loud wake-up call. In 1998 PSG was trading at a sky-high price-earnings ratio of 42. That carnage meant that a sturdy share like Rand Merchant Bank could only equal its 1998high in 2005. To me it seems as if there is a high more or less every ten years. And even if you never wanted to believe your mother: pleasures are like poppies spread. In 2007 I knew the market was too high and started telling stories about it, like that the girl in George where I had my hair cut – sometimes a quite uncertain job – actually got a 105% home loan. The sub-prime crisis started like that a year later because money was lent at random to people who wouldn’t necessarily be

able to repay it. Exactly how lavish things were, is described in the book The Big Short: Inside the Doomsday Machine by Michael Lewis, which I can recommend reading. I didn’t know what the banks were doing by granting loans with insufficient collateral, but I thought as founder and major stakeholder of PSG I dare not sell any of my shares – what kind of example would that have set? The market would see on the news service Sens if PSG was up to something. Since I knew I would always be invested in PSG, I just closed my eyes, waited for the booming of the guns and afterwards incurred even more debt to snatch up whatever I could. Therefore I learnt from 1987 and 1998 and 2007, but out of loyalty I stuck it out and now I’m proud that my record of no sales is still standing. On the other hand, you know a new Ferrari is waiting when chief executive Riaan Stassen sells Capitec shares! Joking aside, if an investor’s shares rise like Riaan’s does, you have to make adjustments to the percentage contributions of your portfolio from time to time. It’s best to develop a share portfolio over time so you can sit back in old age. The stock exchange is a source of capital for the entrepreneur to start a new business or expand an existing one. Yet it also gives the small investor the opportunity to invest in large companies and share in the growth of a country. And in the long term the stock exchange will always beat interest-bearing investments. Be careful to whom you lend your ears, though. Over a period of 30 years I have collected more broker’s notes than profits. There are a lot of “clever” guys with opinions. You can have opinions until you’re blue in the face, but show me your balance sheet first. In a nutshell: start with about four or five good shares in the long term, diversify your investments across more shares for less risk and forget about short-term speculation. Five or six shares are optimal for diversification, as long as you invest in fairly diverse sectors. If you invest over a lifetime, you can afford to keep a cool head. And don’t put all your money in one share. Timing is also an issue to keep an eye on. Look at the profit potential and the net asset value.

Long-term investments are like having a happy family – it requires love over a lifetime and not speculative moments. Just as one outburst wouldn’t alarm you, neither would a single share with the hiccups. Just as your good friends carry you through emotional crises, good investments carry you through economic storms.

For life? When you buy or sell a share

Just like the stock market reflects the economy and even the political health of a country over time, a share shows how well an industry is doing and how competitive the company is. The skill one has to learn is to spot such a great company. If the stock exchange declines, even a fantastic company won’t remain untouched, but its recovery could be more buoyant. One gets to know the market over time. If everyone is optimistic and even people who don’t work with the stock exchange every day start chatting about it, it’s selling time, as sure as nails. By that time you have to have the cash in your hand, else you’re going to be very sorry. And if nobody is interested in the stock exchange anymore, it’s buying time. In the long term one has to sit back from the noise, but timing can’t be ignored completely. Capitec’s four-month-long listing process had just been completed when the bombshell of the A2 banking crisis was dropped in February 2002. And as I’ve said, the opening price of 180c took a nose-dive. Moreover, everyone wanted to leave the country with their money because the rand was trading at R12 to the dollar. At that time the legal maximum that could leave the country was R400 000 per person. My two sons, Jan and Piet, had each brought their investments from abroad and invested in Capitec. Their contrarian investment means that each one’s 400 000 shares would be worth about R68 million today had they kept everything and reinvested all the dividends, compared to the pittance they would have earned abroad. On the other hand, it’s well-known that an amateur investor gets into a panic and then sells at a low. In every person’s life there are about four or five investment cycles. One needs to use them and be patient; then you’ll make a lot of money. These five principles are as plain as the nose on one’s face:

Even if you’re a layman, you need to understand the company for personal investment, as I’ve written in part three about companies. If you can’t tell someone else what the company is doing, don’t invest there. I’ve never made money from mining shares, especially gold, because I don’t understand it. Yet one can understand that Sasol produces petrol from gas. Investigate the people in control of the company. Are they honest and hardworking or flashes in the pan? Through the years PSG has benefited a lot from learning as much as possible about the management before investing in a company. I’ve tried to explain above that you have to go against the current and buy at a low price-earnings ratio in a bear market, determine a realistic price to the net asset value and be on the lookout for a strong balance sheet and good cash flow. This strategy is as difficult as the opposite, to sell in a bull market, but the pain and insecurity when everybody else keeps swimming with the current will bear fruit. When the market was at a low in February 2009, my son Jan bought like crazy for the PSG Flexible Fund. And just check the papers: he’s number one in his category over five years. In January 2011 he received a Raging Bull collective investment award for that. One has to be afraid but brave. Do research. Read a lot and develop a feeling for investments. Listen, think and learn from your mistakes and successes. Good investment experts can always help you, but don’t underestimate your own role. The long term is imperative if your focus is on year-on-year growth in the share price. A share will only grow if the underlying profits of the company grow, which is the challenge of management.

Warren Buffett’s famous quote is: “We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful.” Business publications have also discovered the trick of watching directors’ trading. A director will seldom sell a share in his own company if he believes it offers good value. It can serve as a short-term warning or incentive for investments.

Who’s the daddy? Measuring investment success

In part 3 I’ve explained how one can compare two companies over a period of years: with the total return index. It may be a fun exercise to compare a few investments this way. If you invested R100 000 in PSG when it was started at 36c per share and bought more shares with the dividends every time and kept unbundlings, it wouldn’t compare badly with other big ones.

Comparison of total returns Since PSG listed Company

ROE*

PSG

57%

Capitec****

75%

Shoprite

28%

Remgro**

25%

Rand Aksepbank

20%

Bidvest

18%

Steinhoff

16%

Berkshire (R)

14%

Imperial***

12%

Berkshire ($)

9%

* Index of total return on equity. ** The Richemont/Venfin/BAT unbundling taken into account. *** On the assumption that the equity of Eqstra reinvested in Imperial after unbundling. **** Capitec shown over 9 years, the rest shown are taken over the 15 years of PSG’s existence. The figures are flattering for PSG though, for if one looks at what fortunes the initial owners of Berkshire, RAB, Shoprite and Remgro have made, one has to study their history as well, really. A direct comparison is not possible, because unlike PSG these companies were not listed from day one.

Tarzan swings from a supple branch

Perhaps I should first make it clear here: this is not for sensitive readers. For as I’ve just warned and confessed in part one, I borrow money to buy shares, a lot of money. My guru, Warren Buffett, would have a fit. I grew up in a home where my dad wasn’t scared of a bank overdraft. Ever since I’ve been old enough to understand something of his affairs, he had a facility at the bank. Similarly a farmer usually has a lot of debt. A calculated risk is something I believe in, and in negative cash, that one has to borrow a little. If the money you can make with the capital you borrow, exceeds the interest costs, you can even write off the interest costs against the profit. I’ve been doing it for 30 years, this gearing. For me it has worked, even though I probably overdo it a little. I do have enough money, I know. It’s sheer craving that makes me borrow, I confess frankly, this urge to own more PSG, which I’ve tried to justify in part one. I allow myself a very safe margin, say ten PSG shares for every rand I borrow. I owe just below 10% of my total assets. It doesn’t bother me. Maybe I’m comforting myself, but if the bottom falls out of the market, I’ll be able to cash investments in quickly. In fact I have trouble sleeping if I don’t have debt. It boosts my ego if PSG’s share price is high, but because I’m never a seller, I only regard it as a sign to buy when it’s lower. I know PSG. As with shares, you have to see how the wind blows first if you borrow money to invest directly in a business. Only once you’ve mastered the management of a first franchise should you dare to borrow money for a second.

A no-brainer – speculation is not for the faint-hearted

Speculation and investment are two different matters. Speculation is short-term positions for which you don’t use your brain and investment is long-term. Speculation is the worst thing there is and you have to stay away from it as far as possible or you’ll get into trouble. In 40 years I’ve made no money by means of thoughtless speculation or lekker tips. For that I would never, ever borrow money. To keep buying and selling creates nothing. It’s only the broker who makes money that way. You don’t have to heed my advice, but if you want to, remember: An opinion is a dangerous commodity – every person has one and it’s as fickle as mercury. Just think about the plethora of assumptions about the rand or the economy. Focus on the advice of someone with a long, proven record in the investment world. Forget about investment clubs with friends. It only leads to indecision and bad blood. Don’t ever talk about the market as if it’s your pal – nobody ever understands the market. The pain of a loss is worse than the pleasure of a profit. Don’t ever take a loss lightly. If you get worried and sleep badly, you’re in trouble already. Forget about the trendy shares of the day. Don’t invest further in a losing situation. Liquidate your position.

Even for speculation based on technical analysis I don’t have much time. We’ve

studied and tried out all techniques, applications and theories one can think of. Moving averages I calculated by hand long before there were computer programmes for that purpose. Human behaviour can simply not be measured or determined technically. I’ve never met someone who has built up a fortune that way. Speculation and a lack of long-term vision are things I might have been guilty of in my young days, but they’ll never be part of my future plans again. That reminds me of the evening when I thought I had mathematically mastered the trick of the roulette table. The words “erased”, “defeated” and “dismayed” come to mind – at the end of the evening someone was pressing on my shoulder, not out of sympathy, but because he was looking for a seat. I got up and slunk away. The sobering words of the economist John Maynard Keys are: “Markets can remain illogical for longer than you or I can remain solvent.”

Not high and fast enough for you yet?

If you think you need to be brave for speculation with shares as such, you have not licked your chops for single stock futures, other forms of derivatives, all forms of conduits, supplementary debt commitments and swap transactions. With the former, with R100 million, you can get exposure to a R1 billion position. Do you feel like putting down a little capital and building up a big position, or do you have the appetite for long-term loans offered in short-term packages? Steady now! Hold your horses. The hedge funds of merchant and investment banks make my neck-hair stand on end. That’s financing with plastic money. That’s what lay at the heart of the credit crisis of 2008-’09, along with excessive money-lending. One has to keep in mind there are arrogant and greedy negotiators who take big positions on a little capital which usually isn’t their own money. If the position pans out, they claim huge bonuses, but if it goes the wrong way, they simply disappear. The asset manager won’t remember the lesson, but the investor will.

Grow some more hair on your chest

In general the best advice is to stick to listed shares. Nowadays there is a Sharemax, King Finance, Fidentia or Ponzi scheme hiding behind every anthill. A few years ago when I read in the paper that Joost van der Westhuizen had joined a certain Progressive Financial Services, I just knew trouble was brewing, because I’ve been in this market for a lifetime and have never heard of the group. But even listed ones can cause trouble. I was knee-deep in hot water when I had to address investors at the invitation of Macquarie Bank and made the remark that Blue Financial Services and Afdawn were two shares one could sell short. And six months later it became apparent that I hadn’t been wrong about their demise. But you old fox, you’ll tell me, a large part of the PSG business model is based on spotting opportunities in unlisted shares. You’re only warning me to keep the field open for yourself. Okay, let me tell you a secret then. I also invest my own money, not only that of PSG, in unlisted companies. That way I’ve made good money, but I’ve also made a fool of myself. As I’ve written in part one, I cut my own investment teeth on the development capital market, and have injected some of my own money into some of the largest investment failures I described in part three. The worst is that I still walk into traps, along with a few other clever guys. A friend and I thought fairly recently we had got hold of a new Mark Shuttleworth, and if Shuttleworth could get R3,45 billion for his Thawte Consulting . . . Neither I, nor the pal can make head or tail of information technology, and since we broke the “you have to understand it” rule of investments so indiscriminately, I don’t know whether I should even waste two cents’ worth of ink with the journal entry that it was a gigantic flop. And our “Shuttleworth” also disappeared to the moon. And recently there was a property development in Stellenbosch that didn’t work

out . . . The whole of Stellenbosch knows about my red face regarding the building where the Decameron restaurant is. The local Eikestadnuus reported about it fully. To err is human, everything can’t be a success. The lesson is that if you don’t try anything you won’t build up anything. One can come across bargains with unlisted shares, but then the integrity of the figures is important. As I said, I also believe in family businesses that have been going for years. Whatever the case, experience is necessary if you want to add a lot of value to the unlisted market. Even with expertise it remains a dangerous game.

For a copycat with patience – watch and learn from PSG

There are many clever investors who only look at listed shares. For those with a lot of perseverance and who want to trust my judgement there might be another option – to watch what PSG is doing and buy the same unlisted ones we buy. As I’ve said in part 3, a share register is public knowledge. With a little effort one can get hold of it. PSG is wide awake and constantly on the lookout for unlisted businesses we can acquire at a discount and where we can help add value. As buyers we want the price to remain low initially, and for that many investors don’t have the patience. But if you have it . . . I really did not want to give tips, and here I am giving my home team’s game away!

PART 6

Beyond making money

In the previous sections I’ve written about business and investment principles and how we apply those, which probably boils down to making money and unlocking value, an activity many would say PSG is known for. Yet a company also entails something that cannot be measured in terms of rands and cents: its distinctive culture or even “soul” – that which you can feel. Is there a good vibe? Are the people happy? Are they a team, do they want to move forward and is there real talking, or only a poor barking back and forth of e-mails? Is integrity the ground rule directing everyone’s actions? Companies, especially financial services companies, comprise of people – without people there is nothing. It was like that at SMK and PSG is the same. I’ve done a lot of thinking about what I did wrong at SMK and those mistakes I don’t want to repeat. Thus this formulation of “the soul of a company” that I compiled back in May 1999.

The soul of a company – the culture determines the performance

Climbing the windmill of a hierarchy – a flat structure is best

Your sinews are stretched in your neck as your fingers hold on to the crossbar for dear life and the sweat starts tickling on your forehead and glides along your temples down to your neck. What’s worse, the lead in your legs or the fear in your guts, the somersaults your stomach is making the higher you climb? Yes, I do have a fear of heights, but as the only son I was the one who had to climb the Climax windmill in our yard. If the cylinder gave trouble or one of the rods broke, the pitman had to be loosened and the pipes extracted. Or the gearbox had to be lubricated. A hierarchical structure scares me just as much, exactly like that anxiety of the narrow rungs below my bare boys’ feet, the narrowing holding space and the stronger assault of the wind as you go higher. To send a memo around that a guy with an honorary doctorate should hence be addressed as “doctor”, as happened at Federale Volksbeleggings . . . calling a colleague with a “title” sir, about which I’ve written in part one, still makes my chest tighten. At PSG’s head office everyone calls me Jannie, except for our office lady, Joan Claassens, and the receptionist, Cindy Williams, probably because it makes them uncomfortable. Yet “sir” or no “sir”, when I come back from holiday or when Joan simply has a great day, I get a hug . . . and then neither of us knows who’s more embarrassed. My daughter, Charité, works for an Oriental bank in Doha, Qatar, and there your rank determines who’s allowed to travel in the car with you from the airport. The more important you are, the higher the floor your hotel room is on. With us it’s the opposite. At a company braai you eat from your lap if you’ve missed out on a seat at the table, whether you’re a clerk or a so-called bigwig. Teamwork is much more fun. How should a company get things done if it always feels as if it’s strangled by a starched-collar mentality? An appointment

to see “the boss” is as good as throwing time down the drain. Hierarchy paralyses and an open-door policy fosters resilience. Colleague Chris Otto will tell you I’ll open a closed door in the office, for closed doors create a vibe we don’t want in PSG. It surprises newcomers that anyone can walk into my office without an appointment. The days of levels have long been numbered and titles are undesirable too. In terms of the Companies Act, each company has to have a chairman, managing and financial directors and non-executive directors. The rest have a job to do. Surely in a bigger set-up like Capitec one can’t have the chaos of all 5 000 employees running into the office of chief executive Riaan Stassen simultaneously, but it should not be a rigid process, set in stone. I don’t know my job grade . . . We don’t even have a company procedure. At PSG everything is equal, except for parking spaces – there I get first choice!

Drowning in the e-mail ocean of a bureaucracy – formality is stupidity

I see overflowing in- and out-baskets, stacks of grey or pink files, ashtrays full of cigarette butts and maybe somewhere a half-jack hidden in a drawer when I hear the word bureaucracy. Every day Charité has to ensure that every single e-mail sent or received by an employee at the bank where she works is noted down and signed off. I detest senseless communication that wastes time and attention. As useful as email can be, there are people who measure “indispensability” by how many emails there are in their inboxes when they return from two days out of the office. I simply get worried about my business if I get too many “in case” e-mails. I plainly call it cover your arse, for why do you send me e-mail so you can have the excuse of “I’ve told you about it” if something goes wrong? If something is important enough, someone has to phone me; else I don’t want to know about it. A problem is not solved because you’ve sent e-mail about it. Directions, rules and regulations stifle a company. We encourage an open, informal and creative environment where decisions can be made quickly. Yes, the more haste the less speed and because of that culture we sometimes make mistakes, but only someone who never takes a decision will go through life without mistakes.

Empower others or sweep the office yourself

People laugh when I say this, but it’s true. I’ve overdone delegation to the extent that I do almost nothing. I don’t really work at the office. It’s a singular privilege. I want time to think. I want to philosophise and I want to come up with opportunities. There are people who like being involved everywhere, as if that would make them seem important. One should rather become unimportant. It consumes an endless amount of time if you as manager don’t trust people. Former General Motors president Alfred P Sloan Jnr put it this way: “Every executive has to recognize sooner or later that he himself can’t do everything that needs to be done.” The same decision-making principle that applies to bureaucracy is valid here. Someone who works with a certain matter daily knows exactly what each aspect entails and therefore he or she will take the right decision nine out of ten times. If he wants you to decide on his behalf, he would motivate for a decision in a certain direction anyway. Someone with a problem can walk into my office any time, but I don’t want to know about every trifle. You can come and tell me once you’ve made an important decision. Chris Otto will also tell you I’m the best delegator he’s ever met. He also knows that in fact I do nothing:

Jannie doesn’t want to be on boards. He’s not a control freak, but he expects something to be done, and then it gets done.

There’s something else to the art of empowerment. If you trust others to take good decisions, you also have to respect your employees and give credit where it’s due. Labour can never be rewarded with money alone.

Transparent and fair, or a costly game of hide-and-seek

The communication group Graphicor that was in our stable for a while had a bull year in its first PSG year and the profits were flourishing. But as Leoné Rouillard (who has since retired) later said, in next to no time we saw right through the financial manager’s plan to hide away in the financial statements a little fat for the possibility of a lean month ahead. “Where did you hide the profits?” I asked, and they could only laugh ashamedly. Colleague Chris Otto has said if you don’t know where your money is, you’re dead. I want transparency and honesty; I don’t even want good news hidden. Similarly Capitec should not do a small profit adjustment in any way whatsoever. Provision for bad debt is a bank’s single highest expenditure item and an under- or overprovision can have a gigantic impact on the profit figures. Anyway, it’s a manipulation on which the Reserve Bank will keep a close eye. Management reports have to be correct and crystal clear. At PSG (and Zeder and Paladin) we fortunately have Wynand Greeff, a financial director so brilliant and dedicated that the management information we get fortnightly makes doing business sheer pleasure. Without his silent power, thinking and planning would have been twice as difficult. A problem has to be pointed out first, for just like a child has to tell Mom and Dad when he’s been naughty, they will find out themselves if he was given a star on his forehead. One should also be completely honest with shareholders. PSG takes a lot of trouble with its annual meetings, and at Capitec they have to carry in a lot of extra chairs. We try to tell people how every company is doing, how we feel about the country and how our heads work. The cornerstones are transparency, honesty and sincerity. And every company

does have an issue. If the board doesn’t tell investors what the implications of Pioneer Foods’ fine on the results will be, they’ll read it in the newspaper. Similarly, the managing director has to keep the board abreast of things, and the employees the managing director. An incorrect addition sum in a financial statement is not a capital sin, and if an economic crisis brings a company down, it’s out of their control. An agricultural business that exports products can’t take the blame if the exchange rate turns against it, but if I hear about an individual who has taken an exchange rate position, I’ll be incensed, even if he does make a profit. That’s not the kind of decision even I would make without the agreement of the whole executive committee. Due to all my experience I have the ability to just look at a company’s financial statements to see whether I have all the information. If one understands everything, you can manage a company. My friend Pienkes du Plessis, founder of Motorvia, probably summarises it best in his version of a business conversation between us while I was still at SMK:

Evening, Jannie says, he thinks Motorvia and its little brother Budget Rent a Car doesn’t look too bad and if we can make a pound here, don’t we feel like listing? Where do we sign, I ask. Jannie says slowly, we’ll get there. A lot will happen beforehand and maybe we’ll have to panel beat and clean up these financial statements a little. For example, if he looks at the statements, then he wonders a little about these and those reserves that we show there and there. Why does it seem to him that we’ve worked in a few little re-evaluations there? I confess. But they’re all sworn valuations. And it’s for the banks. I believe one does need facilities from time to time, after all. He understands, but asks more questions. And this money on the other side of the ocean? It’s on the Isle of Man, I say. Insurance money. We crash a car daily and then the

factories want their money straight away. Or those who hire from Budget steal and bump our cars. So the Reserve Bank said okay, you may stow the money over there. See, here’s their official approval. Mouton likes papers like that.

And, as he will say, a lot of work and papers and documents later the bell of the stock exchange did ring for Motorvia.

Buffett, the Bible or Scrooge – you decide about charity

Warren Buffett genuinely believes he could make much more money in his lifetime with Berkshire Hathaway than if he’d withdrawn that productive capital immediately and donated it to charity. Few who watch that company would argue with that. Only now, at quite an advanced age, he has started to entrust 85% of the $47 billion that he’s estimated to be worth personally in incremental amounts to, inter alia, the Bill and Melinda Gates Foundation. In 2010, 30 American billionaires undertook to also give half of their wealth away that way. The Scottish-American entrepreneur and philanthropist Andrew Carnegie, the wealthiest American ever apart from John D Rockefeller, used to say one has to use a third of one’s life to get an education, a third for the creation of wealth and the last third for giving it away. Indeed that little yellow note found in his desk drawer after his death indicated that he had got rid of every last cent when he laid his head down. Buffett did, however, ask his shareholders what percentage of Berkshire Hathaway’s profits they wanted paid out to charity, and to which organisations. Their feedback was that everyone preferred to choose their own organisation, such as their former high school or the cancer association or a children’s home. An endless stream of pleading letters from organisations arrive at a company that’s listed in the Stock Exchange Handbook. And a company does have a corporate and social responsibility. But do we have the right to give the shareholders’ money away as we please? And does one really give then, or are you buying favours, even political favours? At PSG’s head office we have decided to support a pre-school in Stellenbosch. About 120 children, who wouldn’t have had the opportunity otherwise, get the chance there to get ready for schooling, and it gives us all joy to help them. For the rest, every shareholder should rather use his dividends the way he

chooses. As far as someone else’s conscience is concerned, one can’t be prescriptive. Everyone has to decide for himself whether he wants to donate a Biblical 10% and to which social issues. On a certain income level, giving money naturally gets relatively easy. Time is scarcer. Generosity can also entail giving time and therefore the transfer of wisdom or assistance. Esso Mdluli is a Zimbabwean who started his PSG career as handyman and driver at our very first offices, a house in Parkview, Johannesburg. He moved to Stellenbosch with us. One day he saw a book about VAT on imports and exports on the bookshelf of the accountant Stefan Strauss and borrowed it. He has really managed to work his way up in the company. It’s his ambition that got him there, but it’s still nice to think that all our conversations about life lessons and how to handle challenges on the way to the airport or around the breakfast table in that house might have been the seed that encouraged him in his endeavour to start studying after hours, with a lot of sacrifice, and to work his way up. It was Esso who, when the people across the street complained about us doing business in a residential neighbourhood, let us know: “The neighbours are toyitoying.” In the same vein I recently had a chat with a group of young people from George who wanted the oom’s advice. On a macrolevel, business people are often asked to get involved with a trade mission of government to India or China or Egypt, for example. When one of the PSG chief executives told me a while back that Business Unity South Africa, the umbrella body for organised business, had invited him to go and talk to them, I told him something like that was 80% service to the nation and something one had to consider. Yet these things I leave to the younger people nowadays.

Oh Lord, it’s hard to be humble – humility is admirable

Pride versus humility remains a kind of tight-rope walking challenge for successful business people, a balance not easily obtained. Yes, I know on my 50th birthday party Chris Otto’s wife, Marica, sang me Mac Davis’s “Oh Lord it’s hard to be humble when you are perfect in every way” in her beautiful soprano voice to tease me, and again on my 60th, and my mother also often told me nobody could teach me anything. My elder sister, who lives in Oudtshoorn now, Engela Olivier, says she and my late sister, Santi, suffered a grievous blow to their self-confidence because I, “the middle child, the blueeyed one, the boy”, was always on the way to victory. She swears blind that later Santi wouldn’t order anything from a menu before I had chosen because I would apparently know what the “tastiest, best and prettiest” was. I suppose I am a little like that. Charité says that without doing so deliberately, their mother, Dana, taught them humility. The boys were already at university when PSG started to achieve success, but Charité says a child takes note when people talk about your father’s business, be it in a bad way or a good one. Therefore, a conversation with her mother sticks in her memory: “ . . . keep your feet firmly on earth, then you’ll never have to fall far.” The Afrikaans writer CJ Langenhoven’s approach appeals to me: “A man who is satisfied with himself is not satisfied with anyone else.” I don’t think one should be ashamed of being successful. We are proud of PSG’s achievements and will continue with our endeavour to be even more successful. Pride is part of creating confidence in your company. The American columnist and radio presenter Herman Cain rightfully said success was not the key to happiness, but happiness was the key to success – if you’re crazy about what you’re doing, you will achieve success.

Despite being the social animal that I am, I don’t talk about PSG at private parties. It would irritate people. Do I have to brag about having been abroad again or having had a great flight? Few things can be more irritating. If I had to sit and talk about those things, I wouldn’t have a single friend left. And to pay the bill every time friends go out together might also seem arrogant. Fortunately I have a great circle of friends where we don’t even try to impress one another. Nevertheless, in October 2010, I confessed to Moneyweb that I’m not all that humble. I still have some way to go in that regard.

An eager B-team beaver or a damp squib – enthusiasm rules

There’s a huge difference between me and Antonie Jacobs, proper accountant, lawyer and chief executive of Zeder, but his enthusiasm is contagious. One would think he’d have to take Ritalin, he finds it that difficult to sit still, but passion is the spring that makes him jump up like a jack-in-the-box time and again. “If you can give your son or daughter only one gift, let it be enthusiasm,” said Bruce Baron, American member of congress and author of books on personal success. That same cornerstone I desire for my offspring, PSG. That we don’t break or brake, but build. It took me many years to realise that enthusiastic and positive people inspire me, but the “it won’t work” of negative grumblers make me see red (also see addendum A in the back of the book). Apparently I’m quite famous (or infamous) for that, because on my 60th birthday a remarkable number of people emphasised that in their words of congratulations. My friend Gys Steyn, for instance, used the words of Dr Anton Rupert: “He who doesn’t believe in miracles is no realist.” I’ve said in jest that every time you appoint someone cleverer than yourself in your company, you elevate the average of the intellectual capital. Similarly it’s important to appoint enthusiastic and creative people to elevate the levels of inspiration of a company. My friend and FirstRand non-executive chairman Laurie Dippenaar has told me a guy who has been on the rag committee or played rugby, even for the third team, adds more value to a company than an academic wreck. While the clever guy might remain a nerd, the guy with enthusiasm will later emerge as a leader.

Short cuts are for crooks, and saluting comrades-in-arms

The book Winners never cheat by Jon M Huntsman – about the values one learns as a child that still apply in the business world – was one I liked so much that, as with Buffett’s books, I summarised it after reading it. It requires toil, courage, dedication, talent, integrity, vision, faith and a few lucky breaks to achieve your dreams, he writes. But if the ethical boundaries are moved or removed, the addiction to wealth becomes engulfing. Once again there’s a thin line between doing business with ingenuity and with impropriety. That’s the line we tried to draw when we smelled a rat at mCubed and again with the allegations about the competitiveness of Pioneer Foods. A board might be the salt of the earth, but if fingers are pointed, you have to jump, not play around. I was on the red carpet once about possible insider trading. I had to make a sworn statement, and although I wasn’t found guilty, I suspect one remains in the cross-hairs if, like me, you constantly buy large amounts of PSG or Capitec shares and the prices keep rising. Next to honesty and work ethics, caring for your company and colleagues and good manners are paramount. I’m passionate about the adages of CJ Langenhoven, one of the fathers of the Afrikaans language, like this one: “Treat your superiors with courtesy because it is your duty; your inferiors because it is your privilege.” I know I’m a tough employer. I’m the Shakespearian merchant of Venice who claims the pound of Antonio’s flesh, but I do want to believe that the freedom of empowerment and focus about which I’ve written in parts two and three is more important to those who stay with PSG than the share of the profit they take home. Yet who would one choose: a Warren Buffett who has built up so much; or a

Jack Welch who might have managed the largest company in the world, General Electric, but by means of cracking whips and a culture of fear about who would be fired next? PSG subsidiaries have been compelled to retrench people, but I hope I’m leading from the front rather than from behind.

Fishnet stockings and stilettos for a plan – creativity motivates

“Intellectual capital – ideas as money, money as ideas – is the real currency of the business world today,” is how Mark Bryan and Julia Cameron start their book The Artist’s Way at Work, the business version of their best-selling creative workbook The Artist’s Way. With that I started in the SMK days when colleague Johan Schoeman (now at a PSG Konsult branch in Stellenbosch) asked me to take something new from the hat every day for the morning meeting with which our brokers could get their investors excited – with a quality call or something other than a call where they merely talk about the weather or the rugby. For me, creativity borders on enthusiasm, for the energy levels and success of a business are boosted when people challenge one another with innovative ideas. A sexy plan grabs people and motivates them to take calculated chances. It gives me no end of pleasure to establish something out of nothing. My wife, Deidré, says I often become quiet and then she simply knows my mind is on PSG. Then, after a while, I will call out: “Now I’ve got it!” As I say in the charter for extraordinary achievement in addendum A, one has to read and think voraciously. The word “scheme” comes to mind, rather than “planning”. What has a director contributed by spotting a spelling error in the annual report? If you can generate two or three fresh ideas when the executive committee gets together, it’s a successful meeting, not when you’ve worked through an agenda item by item. I put in some effort to, an hour or two before a meeting like that, come up with a few things that could get the guys to think a little. The possibility of alternatives is what gets the grey matter going. If you think outside of the existing parameters, the result is a Curro; or the investment possibilities of alternative energy; or the financing possibilities of non-redeemable preference shares, where you never have to pay back the loan capital until the business ceases to exist, and which can never land you in hot water during a financial crisis.

Curiosity is a winning characteristic. An interesting proposal and a fresh idea or new angle from which to look at an old problem is an approach that needs to be cultivated and encouraged. It has to become a mindset in a company. Creativity is much harder work than the useless buzz-words visions and missions. People have frowned deeply upon that statement of mine. Once I addressed the managers of a railway fund at Caledon and aired my views on concepts that always make consultants’ eyes sparkle, and extolled the attributes of focus and creativity. Only afterwards I realised the audience had increasingly fallen silent the more I spoke, because the whole conference was arranged with the express purpose to determine the vision. What have you contributed to advance your business if you have an outlined definition? Nothing. Someone can whistle for it. “Imagination is more important than knowledge,” said the most intelligent man of the 20th century, Albert Einstein. One of the mantras of PSG Konsult chief executive Willem Theron is:

Small people talk about other people Average people talk about things Great people talk about ideas.

Infusing talent with passion – dedication wins the day

Having borrowed from Afrikaans writers, another one, DF Malherbe (who coincidentally served as headmaster of the school in Carnarvon where another big Afrikaans literary name, AG Visser, was the doctor) wrote in his book, Die Timmerman: “The source of the work is in the spirit.” In this work the “ignorance” of the wood is personified in juxtaposition to the spirit and tools of the human being. I would always prefer a hard-working and motivated person to a lazy learned one. The former American president Calvin Coolidge formulated it very well: “Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘press on’ has solved and always will solve the problems of the human race.” It’s the duty of a manager to keep people positive and motivate them by recognising their good efforts. Another American president, John F Kennedy, said: “We must use time as a tool, and not as a couch.” I suppose one could summarise these “soft” values of a company using the words of Jesus Christ to his disciples in Matthew 16:26: “For what will it profit a man if he gains the whole world and forfeits his soul? Or what shall a man give in return for his soul?”

Rugby, sunshine and doing business – South Africa is the best

It stands to reason that a company never stands alone, but in a certain community and country, and maybe even more than that. As in the section above, my voice might get somewhat hard to distinguish from that of PSG, but in each case it’s about the principles of the matter I want to illustrate. One of the major challenges and most exciting aspects of the business world remain identifying opportunities. South Africa is pre-eminently a country that presents its people with golden opportunities. PSG was born in the new dispensation after 1994. That’s where we could establish PSG Konsult, Capitec and Thembeka. In an old culture like Europe, everything has already been done. For people who always complain about everything purportedly being so bad, I want to ask why they don’t pack up their things and emigrate. The joy is in seeing opportunities, rather than troubling yourself about the problems. We have political stability, the economy didn’t go to rack and ruin during the recession and the doors to international trade have never been more wide open. We even have membership of BRICS now. And just look at how much money an individual may take abroad. Yes, in a developing country there might easily be a lot of corruption and I’m critical of some policy-makers, but good decisions are also made that lead to progress. And we have the voices of dissent too, ironically including that of Zwelinzima Vavi of the trade union federation Cosatu, who calls tender opportunists “fat cats”. It’s great to be able to laugh, have a good time and do business with South Africans from every background. As Mohandas Gandhi said: “You must be the change you wish to see in the world.”

The Berlin wall has collapsed – socialism is a dead end

For me, capitalism is intrinsically linked with democracy, for as I’ve said, the greatest gift you can give someone is freedom and a goal. People perform to the best of their abilities if they are rewarded for their input. That’s why the free market brings about successful societies. It’s true that the Enrons and Lehman Brothers of the world and even excessive bonuses of bankers in the US and Britain have shown us the ugly face of an unchecked, self-consuming capitalism. I don’t believe central planning is only a bad thing, for we also have a duty towards the poor. Yet I’m convinced that businesses that are started in one’s own interest are more successful and that the impact of successful businesses trickles down into and benefits society as a whole. The business magazine Finweek published a story in its Piker column on July 30, 2009 about a local economics professor who gave everyone in his class a single average mark in order to illustrate socialism. Before the next test the clever students wondered why they should work hard and the underachievers also thought they didn’t have to do anything, so the second average mark was about 30% lower. And for the third test all of them got close to zero. My friend Markus Jooste, Steinhoff chief executive, once gave me this quote by the late Dr Adrian Rogers, an American Baptist minister: “You cannot legislate the poor into freedom by legislating the wealthy out of freedom . . . You cannot multiply wealth by dividing it.” The sums are that simple. This book is not popular among those with socialist sentiments, but the American philosopher Ayn Rand’s novel Atlas Shrugged remains one of my favourites. This story about railway, steel and copper empires under siege and eventually top business people who “disappear” inexplicably, is an ode to what entrepreneurs with intellectual capital and money accomplish, as exemplified by these quotes: “Men had always thought of wealth as a static quantity – to be seized, begged, inherited, shared, loathed or obtained as a favour. Americans

were the first to understand that wealth has to be created.” Or: “Money is made possible only by the men who produce. Wealth is the product of man’s capacity to think.” Another endorsement of the above is the statement of the American newspaper tycoon WR Hearst that wealth cannot be distributed until it is created. Entrepreneurs who take the risk of starting businesses and developing them create value, job opportunities and eventually wealth. They can donate money to a home for the aged or sponsor an arts festival. Stephen Mulholland, retired chief executive of Times Media in South Africa, says a by-product of business people acting in self-interest is that they improve the lives of ordinary people not only by making them more comfortable, but also by creating untold numbers of new jobs to produce the goods and services that prosperous people need – they make the cake bigger, rather than cutting it into smaller pieces. Just look at the private health-care industry in South Africa that’s performing so well that in certain respects they have to teach the British National Health System a thing or two. I’ve seen a MediClinic arising right before my eyes. The matric results of private schools also speak for themselves – government ministers don’t send their children to state schools either. It’s a privilege to be in financial services and to help people build nest eggs and peace of mind for their retirement, to provide food through agriculture and to create more wealth through more investment activities.

A tax jail, business ball and chain, or a funfair for opportunities

If the state doesn’t encourage entrepreneurship, we are doomed; but only if the health minister walks out of a private hospital to undergo surgery in a state hospital will he or she experience it personally. The state on its own can never create jobs, because its only source of revenue is its tax-paying workers and businesses. Without its tax base it can’t even borrow money, for then it doesn’t have collateral. Therefore its taxpayers are the asset it should take best care of. In South Africa we are in the position already where 14,3 million people received some form of grant in 2010, while only 5 million people pay taxes, as the economist Mike Schüssler pointed out in Sake24 (November 20, 2010). The country has “the lowest employment level of adults in the world, excluding a war zone like Iraq or Afghanistan” (October 27, 2010). Before the state can collect and distribute taxes, there should be opportunities. Rules, laws and regulations that interfere with the distribution of wealth in accordance with merit discourage the creation of wealth. As Mike also wrote in Sake24 (November 9, 2010), there were only 301 000 individuals in South Africa who paid a salary to more than four other people. These people should also be treasured, as he rightly said. I believe in estate duty, but at a low rate – the state can never create the opportunities the way a good entrepreneur can. Yet our current labour laws interfere with the market mechanisms that have to determine the price of wages; everybody knows that’s why South Africa is struggling to compete globally in many industries. With minimum wages, half of the country’s people will remain unemployed, like now. If we lower the cost of labour, more people can be employed and cheaper products can be marketed more competitively. The Employment Equity Act, in turn, prevents companies from appointing the best people under all circumstances. No wonder then that our best brainpower go in search of the greener grass overseas to make use of their skills.

The annual competitiveness report of the World Economic Forum in 2010 showed that South Africa had fallen back to the 54th position, because other African countries were starting to perform much better. As Sake24 editor Ryk van Niekerk pointed out after the launch, South Africa is 135th out of 139 in terms of the appointment and sacking of workers. How could we ever compete with a country like China if we keep on striking for higher wages without better productivity? I think black economic empowerment is necessary. It’s necessary to correct the inequalities of the past. One has to pay the price, and even though you sometimes wish you could pay a once-off admission of guilt fine like the letters of indulgence of the Roman Catholic Church, unfortunately it doesn’t work like that. It’s probably like a farmer with three children. He can’t divide the farm among the three, for then there will be uneconomical units, but if he gives it to one child, it will be unfair to the others. I have many friends with farms – it remains a tough problem. Yet one can either wish it away or participate in it in a sensible way. We at PSG have decided to rather see whether we could help black people and groups to share in the opportunities presented by BEE and simultaneously benefit from the matter ourselves, for even if you weren’t looking for an investor, you have to sell a part of your business and so you’re entitled to something after all. For political opportunism I have no time at all, as for tenderpreneurs. I respect someone who builds something from nothing. For something like the glutinous centralised royal power structure of the shah of Iran before the 1979 revolution I have no regard; the shameless self-enrichment through the looting of state assets in Russia because of Mikhail Gorbachev’s too rapid, uncontrolled perestroika or the collection of wealth by a quasi-monopoly like Mexico’s telecommunications companies Telmex and Telcel give me a pain in the neck. In South Africa the enrichment of fat cats, plump as partridges already, also occurs, and the ANC remains in trouble with its alliance partners because of that. The transfer of even more chunks of shares to these insatiable parasites doesn’t help the poor. Such playing with the economy as if it is a game of Monopoly becomes a tightening noose around its neck. Go and reread Banker to the Poor, or also the second book of the Nobel prize

winner Muhammad Yunus, Creating a World without Poverty – it’s by giving the poor access to capital, like through his Grameen Bank in Bangladesh, that people are helped to uplift themselves. Similarly, I believe the Competition Commission is an albatross around the neck of business, because ironically it hampers healthy competition. Mike Sampson of the research company Econresearch in Cape Town wrote in Business Day in May 2010 that the competition laws were, like the tax laws, too academic, complex and interspersed with double standards – and still did little to keep prices in check.

Does King deserve the crown? I don’t really fancy the King reports

My sentiments about the pronouncements of Judge Mervyn King, chairman of the King reports, have been summarised in the first part of the book. A title like executive or non-executive I regard as mere semantics. I believe in the characteristics of the person in the position and prefer a director who cares for the company. And every decision the board takes also affects my pocket, just as I paid my share of the Pioneer Foods fine on account of my large stake. A socalled “independent” director without a financial stake only drinks your tea and eats your biscuits. He doesn’t care a damn about the welfare of the company and usually is a lackey, because he depends on the director’s fee. If he says anything against management, he may lose his income. I’d be amazed if anyone cared about Warren Buffett’s “official” title – he simply is the Oracle of Omaha. A society is most in need of successful companies doing business within the bounds of proper corporate control and performing well. A company like that pays taxes that can be ploughed back into all the people of a country. Let’s take PSG as an example and assume there are 40 companies where we have a proper influence. These companies have 38 000 employees. They pay tax on their salaries and they pay VAT on what they buy. The PSG Group and all the companies in which it has a material interest pay R2,5 billion in taxes annually – an amount with which one can build 83 000 basic houses. If six people live in a house, 500 000 can get shelter this way. I wish government would allow us to build the houses ourselves instead of paying taxes, because with the trowel in the hand we on our own can give the housing problem in South Africa a gigantic blow within a few years. A successful person or company can never be a burden to society.

All aboard! I serve as a director of Steinhoff

There are business people who almost regard it as a hobby to serve on various boards, but I prefer to stick to the PSG trade. For some time it was a singular honour to serve on the Remgro board, it is the top company in Afrikaans hands, after all. Yet, as I’ve written in part four, a conflict of interests originated due to Remgro’s large stake in Distell when PSG’s stake in KWV via Zeder became too big. Remgro chief executive Thys Visser is a family friend and the most candid person I know. My son Piet remembers how one day Thys said of one of my business proposals: “Jannie, jy is nou heeltemal befok!” (You’re fucking crazy!) Fortunately he also knows him as one of the most loyal and honest people there are. With him you always know exactly where you stand, for whatever he wants to say he says right in front of you. The only exception I’ve been making for years is the Steinhoff board, due to my esteem for Bruno Steinhoff and Markus Jooste. Bruno, who is so successful globally and knows his company so well, epitomises humility and is gentle, someone for whom I have immense respect. Markus is a workhorse, resolute and intelligent. Whatever he tackles is a success. “Crystal clear” is a term he often uses if he understands a plan and appreciates how it can benefit shareholders. Our minds work in a similar way, and time and again, as with Remgro earlier, attending the meetings is very stimulating. Despite our age difference we are friends, we cultivate wine together and trust each other in much more than business deals. Furthermore I have a large stake in the company, 6 million shares, while Markus has a major stake, 20 million shares, in PSG. Of course his stake in PSG is only larger than mine in Steinhoff because PSG is a much better company!

Casting one’s bread upon polluted waters

The best thing about contributing to a country or a community is that it’s something you do because you want to, and not due to compulsion or for monetary remuneration. It’s great to plough back something of your knowledge and experience or ability because you are so privileged. You often get more out of it than what you put in. Initially I hoped to perhaps help the University of Stellenbosch with financial matters as well when I made myself available for election to the university council, but in the end those exhausting meetings were dominated by the language issue. I’m passionate about the Afrikaans language and its preservation. My language is the foundation of my being. Sake24 in Rapport has reported about my personal collection of books that includes nearly every Afrikaans novel ever published. I regarded it almost as a vocation to remain involved, when I realised there was a battle about the future existence of Afrikaans on campus. I was a follower of Professor Hermann Giliomee and it felt as if the whole convocation shared our values. In the first place it’s about quality education and there’s no reason why that can’t happen in Afrikaans. We were proponents of single medium education. It was also reported in the media that I walked out of a meeting and the council along with Dr Marié Heese and Prof Lina Spies. I did not like the way Marié was being talked to about a piece on anglification that she had written for Rapport. This way we found ourselves outside the council chamber and rather did not return. That was not the first time either that I made myself “unpopular” due to my passion for Afrikaans. In the time of SMK there were 42 broking firms, probably only about five of whom were Afrikaans. I already had some obstinacy about the language then and didn’t recoil from making a stand about it. I was elected to the committee of the JSE because the Afrikaans firms reckoned we could also do with some representation, more so because all the examinations had to be taken

in English. Alistair Martin was the highly respected chairman of the examination board for 25 years and when I asked a question in Afrikaans at a meeting, he answered: “Young man, I don’t understand your language.” So I answered him in a way he had never encountered before: “Old man, one day our company will be bigger and better than yours.” About Afrikaans at Stellenbosch I continued talking to such an extent that Thys Visser’s wife, Amanda, later had to rap me over the knuckles in jest. Some of my conversational partners don’t share my passion either and therefore I dropped the issue before rubbing more people up the wrong way because I feel so strongly about it. It remains an important matter to me, but for the time being I’ve closed that book. For me it’s about the forced anglification of white and coloured students, who also often come from the countryside where English isn’t spoken that much. I’m all for the new South Africa, but I remain Afrikaans. I help with Versindaba, a poetry festival, every year because poetry always suffers from a lack of money. Maybe 500 or 600 copies of a volume of poetry are sold. Through this festival new poets are discovered as well. I also contribute to the literary website Litnet and, for example, also helped to make possible the publication Encounters with André Brink by his wife, Karina Szcurek, in celebration of his 75th birthday. At the insistence of my sister Santi, I was on the board of the Klein Karoo Nasionale Kunstefees, an annual Afrikaans arts festival in Oudtshoorn, for a few years. That was a completely different world and great fun. I mercilessly teased Chris Otto’s Marica by insisting that the chart-topping popular singer Steve Hofmeyr’s shows had been sold out first and were more pricey, therefore he had to be better than the tenor Jannie Moolman. Demand and supply demonstrated that. But actually I really like Steve’s music, and Jannie’s, and that of Theuns Jordaan, another popular Afrikaans singer. I drive my pals crazy by singing “De la Rey” about the famous Boer general on purpose, because they don’t know where these “right-wing leanings” come from! PSG’s art collection is not too shabby either. In our boardroom, Maggie Loubser, Irma Stern, Pierneef and various other great names always join us in the meetings. In my office, Zackie Eloff and Adriaan Boshoff watch over my shoulder as well. We’ve done some contemplation about that, but decided the value of the collection, currently about 10c per share, is not of such a nature that

we have to sell it and distribute the cash. The naming of PSG Zeder after Clanwilliam’s endangered cedar tree, Widdringtonia cedarbergensis, is of course no coincidence. It was where my wife Dana grew up, but conservation and nature have been close to my heart from childhood. When I turned 60, my friend Franklin Sonn, who has been ambassador to the US and is a director of various companies, wrote the following (in Afrikaans) to me about the Karoo:

It seems as if with the first breath of life of every Karoo child a connection with the nature of the Karoo landscape and environment is generated – a characteristic of attachment that never disappears. Similarly Karoo children have a mutual connection and understanding that resist the course of time and the strangeness of the city. The nature and frame of mind of Karoo people who have found a means of livelihood in the city or in the wide world out there also never fade away. The theme of interlinking between human, animal and environment is embodied in the exceptional traits that distinguish Karoo people. Predictability and expectation never become resignation. Life in the dry Karoo, after all, is a struggle for survival that cultivates a down-to-earth insight of how to co-exist in rhythm with the environment, of how to appreciate its blessing and live according to its values.

A Barrydale farmer once had a few things to say in the Afrikaans weekend newspaper supplement By about the rich city guys, the Jannie Moutons, who were coming in and buying up big pieces of land in the countryside . . . Just like way back with the game farm Nokonya 200km from Johannesburg, I wanted a getaway a stone’s throw from Stellenbosch and so got hold of outfields of Barrydale farmers farming at the riverside. My farm next to my uncle’s in the Carnarvon district had become too far and out of sight.

True, I don’t know the Little Karoo as well as I know the sheep-bush and wild pomegranate of my heartland, the Great Karoo. But it would also take some time before the grey-green rhinoceros bush or pork-bush would come into their own again after the overgrazing, chopping of trees for firewood and even the futile efforts of ploughshares and planters had destroyed this piece of earth. We involved Ken Coetzee as nature conservation consultant, and he believes it will take a hundred years to get rid of every trace of this pillaging. We removed the internal fences, erected solar-powered pumps, scraped clean the earth dams and started rebuilding the ruins. As penance for our smoking we wanted to plant a thousand trees on Koktyls, this time with Dana and the nursery she pampered at my side. My mother called an alien tree a green cancer, and those we rooted out, but the saplings wouldn’t grow, since the rains kept washing away the topsoil. Eventually we dug holes, a full 14 000 of them, with pickaxes and spades, and threw a handful of seeds in each of them. That way we put an end to the erosion, life got a foothold and in turn the fountains that rise after the rain carried on issuing water for a longer time. There is a quote of the Afrikaans author Karel Schoeman I love so much that my wife Deidré had it embroidered on a cushion. Translated it says: “When I was free to make my own choice and determine my own preference, the inland plateau with its dull, shallow, bare landscapes remained the place to which I felt more connected than anywhere else and where I am at home, as far as it is possible in earthly terms to feel at home anywhere.” The farm is a paradise once again and also as far as animals are concerned we only resettle indigenous species. With a permit you are allowed to keep Cape mountain zebra on your farm. We’re quite proud of the fact that the breeding herd of 20 we started with have grown to more than 50, one of the largest outside of the Mountain Zebra National Park near Cradock. It gives one satisfaction to actively help conserve, and the hope that future generations will regard any land as an inheritance.

Home, sweet home – my own hearth and home

Years ago I dreamed of and planned to have a lot of money one day. After my father’s death I always talked to my mother in jest about my dreams. Then she told me there were many other good things (including happiness) in life that didn’t involve money at all and if one didn’t focus on those, one might be very unhappy in old age. Then I always answered that happiness was uncertain and material things were certain. If I had to suffer one day, I’d rather to suffer in comfort. Then my mother would say: “Oh dear, Jannie, one can never win an argument with you.” Now I know she was right, because the births of your children and grandchildren, their disappointments and achievements, the joys and sadness of my friends and family, the smile if you give a poor person a tip and to establish companies and to laugh and chat are all worth much more than money. I want to quote from Ayn Rand’s Atlas Shrugged: “Money is a tool of exchange . . . Money will allow you to spend money when you want to, give money when you want and to have financial security. It will not purchase happiness for the man who has no concept of what he wants.” I’m not like Warren Buffett who has lived in the same house his whole adult life, eats at the same Gorat’s Steak House in Omaha, Nebraska, and only drinks Cherry Coke. Stellenbosch has eateries fit for royalty, South African red wine or sauvignon blanc is first class and Deidré helped to decorate our new house in 2010. And yes, one of my two cars is flat and silver. The collection of art of South African and especially Afrikaans artists is a great personal hobby as well. In our parents’ home I learnt the lesson from an early age that open-handedness makes one beloved. We children sometimes became angry at my father because

he always wanted to pay the bill, but a more popular and beloved person one would not find in Carnarvon. A special friend of mine used to be the poorest guy in the whole Simonsberg residence all those years ago, but he put down his money on the waiter’s saucer on behalf of all present more often than anyone else. He was blessed right through his life. From them I have learnt. The more I gave in my life, the more I prospered. Listen, I have been rude to a car guard and then my conscience would really sting me afterwards. It’s easier to give via organisations, but then you don’t see the joy in the eyes of a beggar, and the sobering realisation of how well things are going for you. At my 60th birthday party I could hardly keep a straight face when my friend Nico Nel (from the TV programme Spies en Plessis) jumped up to sincerely thank “mister” Jannie Mouton on behalf of the Stellenbosch shelter for the homeless for how well they were doing. I had lost yet another bet that I would not resume smoking and I had to pay my “debt” with these donations. As is the case with PSG, I try to, apart from the material things, also give advice to those with problems, and time to those who need me. It also gave me a lot of satisfaction to use my personal influence to collect money for the restoration of the Hofmeyr Hall in Church Street, Stellenbosch. Markus Jooste helped me to exceed my goal of R2,5 million. He’s a man with an open hand. You don’t have to believe it, but I had to wipe a tear from my eye – something I’ve never experienced before. In whatever way, it’s great if one can balance a thirst for success with generosity. But being generous and wasting are light years apart. And like stinginess is a bad thing and ugly, frugality is a virtue. People who waste money will indeed lose everything, for if you waste something you don’t have respect for it. My daughter remembers how I exploded one Sunday because the family had accidentally bought two copies of the paper Rapport. At first I snubbed my nose at my mother’s “save a match a day and buy a farm one day”, but she outlined the lesson in such a way that it remains with me to this day. I switch off the lights and the television set behind me and I don’t spend hours on the telephone. If I can save paper by writing on the back of a sheet, I do

it. I don’t waste water and I use wood sparingly when I braai, because I come from Carnarvon where that kind of thing is scarce. And I take care of my clothes and my car, and especially the property of others. And laugh if you want because I’m so old-fashioned, but I eat all the food on my plate. Another lesson I’ve learnt was from my late sister Santi. She suffered financially and at times she struggled to find and keep jobs. She also tried a number of funny things, from estate agent to tour guide – at least that was in Oudtshoorn. When she asked my advice, I said: “Get yourself a job at Kentucky Fried Chicken.” Her answer was: “Jannie, I’m not you. You always think about money. I’m not like that, I want to laugh and enjoy life.” Still there are things on a more personal level that I enjoy so much that I can list them, almost like in the song “My favourite things” from the musical The Sound of Music. Future plans, ideas, opportunities, economic miracles in South Africa, rising shares, children who get up to 15 distinctions in matric, great seaside holidays, my children visiting, Deidré who sends me lots of SMSes every day, pals, sauvignon blanc, the Karoo and its people, laughing, a braai, PSG, how serene, quiet and small Hermanus is compared with the Southern Cape, how fancy the people in Plett are, that one can still call people oom and tannie in the café in Rheebok, how much I enjoy holidays without a TV set, the most beautiful grandchildren in the world, how great Stellenbosch is, the dreams people have, my daughters-in-law Stephanie, who takes care of the 120 little children of Kayamandi who get ready for schooling, and Cari, who wants to become a writer. My son-in-law Alex who calls himself my favourite son-in-law and my domestic worker Rebecca Williams who grabs me, lifts me off my feet and swings me around when I buy her a house in Kayamandi. I’m really glad I don’t live in Perth, about my down-to-earth pal Jan Louw and our house in Nieuwoudtsville, my pal Johan Carinus who drinks another bottle of red wine while Kotie is busy saying goodbye, Nelson Mandela, Zeder, my pal Johan Schoeman’s joint in Krige Street, pals in the Decameron Trattoria, my pal Kleintjie Bellingan and his poems, my health, Koktyls, Charité who phones me, my gardener Dawid September, Roelof Feenstra and his braais, the people on the farm, Gertie West and oom Louis Paulse and oom Willie Willemse, my sister

Engela who phones me almost daily . . . The joys of South Africa I don’t want to swap for anything else. Even if I’m on holiday abroad and looking at those beautiful buildings, I miss simple things here, that one can ask someone which school he attended and it rings a bell, that he would know what Griqua rugby is about and that you can speak Afrikaans to him. As I get to know myself better, I realise that my passion for PSG, my language, my friends and business partners, but especially my family and Deidré, form the essence of my life. Deidré, my wife I married in October 2010, accepts it that at home I also eat, drink and sleep PSG. From that I simply can’t get away. Her husband, Hermann Uys, a specialist in radiology, died in a car crash in 2004, the same year as Dana. She misses him and I miss Dana, and we talk about it. And he left his family very well cared for. Shortly after we got to know each other, her friends Frik and Klasien Wepener, in Plettenberg Bay, as well as Anthoon and Malie Rheeders, invited us over. They expected a glamorous guy because they had heard something about shares, and that I came from the Cape and therefore had to be able to braai fish. It was quite intimidating, this meeting. So I told them: “I see you’re looking at me, but I’m looking at you too.” Then the conversation picked up so well that we sort of forgot about the kingklip on the fire. Their summary of the evening was: Jannie can’t braai fish, he’s no glamour guy and he should never open a restaurant, because the kingklip tasted like fish biltong. And if Deidré wants to tell you about the bread “à la focaccia” I tried to bake in a cast iron pot because I always want to try something new, yes, it may be true that one could use it to kill a hadedah in flight. Deidré and I can chat for hours on end. With her I share my dreams and ambitions, and she listens if I have a problem or opportunities at PSG and am in need of a sounding board. She’s a clever, wellread woman who received her BAdmin with political science and international politics cum laude, and has strong opinions. While I listen to the Afrikaans station RSG, her car radio is always tuned to a news channel and she keenly reads the newspapers. She often keeps me abreast of things before I’ve even

heard or seen them on the news. I would have suffered with someone who only wanted to watch soaps! Fortunately I don’t get as excited about provincial rugby as I used to, because she’s a Blue Bull who studied at the University of Pretoria. She even went to the same school as Naas Botha and Uli Schmidt, and I’m a sworn Stormers fan. She’s also very social, she likes cooking – and can she cook! – and we like to have people over. Furthermore, by this time she’s quite the expert as far as sauvignon blanc is concerned. She doesn’t know what it means to be idle and she’s a project manager of high calibre when building and demolishing are needed. Yet we aren’t always in each other’s way. If she’s in her kitchen empire, I’m busy doing a Sudoku in one of the books lying around in the house. At least she says I’m not too scarce when we have to clean up after a party. The best thing about Stellenbosch is that one lives so close to friends and can get a group together for a party in no time – of course we have a lot of friends in common. After Dana’s death I could drive to pals uninvited if I felt the walls closing in on me, because on the farm I didn’t know what to do with myself. Drinking wine isn’t fun on your own, neither is braaiing and for how long can you sit and devise deals without tiring of that, even though it’s for PSG? Even reading or summarising a business book or making a few notes for inspirational purposes . . . By nine o’clock at night I was crazy. Sitting about I can’t do, but sitting and chewing the fat with my friends is great fun. I know some people talk about the so-called Stellenbosch clique or even mafia, but even though there are many businesses and business people in town, there’s fierce competition as well. People know one another and even grown men can probably be a little cliquish and childish sometimes, and perhaps that includes me. And I might be a little too outspoken for such a small town. People who know me know that. Nowadays my children are my friends too. Dana used to be the glue keeping the family together, always phoning the children. After her death we almost had to forge new, different ties. Charité jokes that the sum total of a telephone conversation from my side back then was something in the vein of: “So keep things in order that side, hey.”

In fact I have a complex family. I soon discovered the twin daughters from Dana’s first marriage were a little unsure about my role – I certainly wasn’t their father. When I told them to call me Jannie, it changed our lives and they too became my friends. Through Spirit Capital, an investment company and niche boutique in the PSG stable that gives advice about mergers and acquisitions, the surviving twin, Carine, and I are now business partners in a way. Her husband, Keven Homann, a great guy, is one of the chief executives. Carine has fantastic ambition and I take immense pride in the fact that, despite two children and her family obligations, even in a gigantic company like Rand Merchant Bank she’s on stage when awards are made. When my sister Santi died in 2003, I kind of took responsibility for her children, even though they were as good as grown up. John was not into studying, but an entrepreneur, and after a while in Britain he went to Koktyls, where he discovered his trade – building with stone. I’m very proud of him, because now he’s my builder (also of my beach house at Rheebok) and my pal as well! My children-in-law, Jan’s Cari, Piet’s Stephanie and Charité’s Alex (Volkwyn) are also very compatible with the rest of the family and know by now that with all these strong personalities together we don’t get through a weekend without a little difference every now and then. Poor Alex still jokes about how I tread quite carefully when he asked me for my daughter’s hand in marriage shortly after his big brain operation! It was serious business – I returned to South Africa for that purpose two days before the 2007 Rugby World Cup final. Deidré also has four adult children, Jacques, Ulrich, Ursula and Olivia, and we don’t force the children upon one another. Each maintains their own space and in that way I’m still in charge of the TV’s remote control in my own home. Her children and I have great times together and are good pals. I lecture the smokers with a cigarette in my own hand, telling them how much they would save throughout their lives if they quit now. They too get PSG shares as gifts and investment advice – whether they want it or not! A baby’s nappy I can’t change. I love it when Deidré baby-sits my grandchildren with me. Piet’s eldest, little Juan, was named Johannes Fredericus Mouton after me (I have my maternal grandfather’s names), but as he told my friend Jaap Durandt: “I’m really Batman!” His brothers are François and Pieter and their cousin is Kate, Jan and Cari’s daughter.

I’m proud of the fact that each of my children can go on on their own and don’t need me. As my pals keep telling me, you can only kneel down and give thanks for children who give you such endless pleasure and who’ve turned out so well. Without Jan, Piet, Charité and Dana as my base camp I would not have achieved much. Dana did not shy away from voicing an opinion about what was right and wrong. Inwardly she kept us on the right track with her intrepid and insightful questions and remarks, but outwardly she was incredibly loyal to us. I wrote about how she had me declared an Englishman because it was the only way she could get our children into an English primary school. One day, when I cheated at that same school’s swimming gala where the parents could also participate, she castigated me too. I looked at those younger dads and their beefcake bodies in the Speedos and realised if my big swimming trunks and I didn’t start early, I would be mincemeat. Yet, despite my head start, I still had to jerk back the two guys on either side of me in the home stretch as soon as my feet could touch the bottom of the pool. “Weren’t you a little aggressive, Jannie?” she asked afterwards, not at all as amused as the rest of the people. Dana was the architect of our family, just as she designed, built and decorated most of our houses. She was my best friend, my main critic, my business partner, my mentor and my soul mate. She was willing to stand next to (and sometimes behind) me, even though we knew she really was the brighter of the two. The guarri tree she planted at the farm house on Koktyls, even though as a naturalist she knew it didn’t like replanting, is flourishing. As I’ve said, it’s my joy and privilege to work along with two of my children. Charité jokes that she too would have liked to work at PSG after completing her studies, but had to go to Investec when nobody would make her an offer. And when I did indeed invite her to PSG a few years later, she said: “Oh, Dad, just now that we’re getting along so well, you ask that!” I know the principle. A family and a family business are like Siamese twins. The entrepreneur should never put the family business ahead of the family or vice versa. My two sons were already at university when we started PSG, but as a schoolgirl Charité complained the only thing about which we as a family could

talk at the dinner table was “PSG, PSG, PSG”. Sometimes she believed PSG really was the youngest and favourite child in the house. For a while we tried to chat “like other, normal families”, but PSG probably kept oozing from the children’s ears. Perhaps it was my overflowing enthusiasm. Maybe I unwittingly wanted to stimulate their interest and make them proud and enthusiastic. Fortunately all of them are interested in talking about PSG nowadays. The many books about family businesses I’ve read confirm what The Economist said about the Wallenbergs. It often happens that the entrepreneur’s children still affirm the inheritance, but by the third generation the cousins fall out and shatter. One wants to be a movie star, another emigrates and another doesn’t really want to work, only to be on the receiving end of the stream of money. It’s important to me to talk to my children about the future, not about “what Dad has done for you”, since what can be more irritating? One has to trust one’s heirs completely to tackle the future by themselves. From the grave one can’t rule, that I know, but to be honest I would love it if my children would continue with PSG. In May 2006 I wrote them the following letter:

I’ve always said PSG (and Capitec) is not a family business. The past few years when I saw you growing and performing this well, I’ve changed my vision somewhat and systematically increased my stake and influence in PSG – it requires shrewd thinking and planning over time. Especially after I’ve realised how big a role you can play to develop the company. PSG has meant a lot to me in life – financially and also regarding what being human is and should be. Especially since Mom is not here anymore, I’ve built more and more on PSG, and what a wonderful experience. Furthermore I’ve learnt that one should not put pen to paper about the future, for the future never turns out the way one thinks. Thus I wrote in October 2005 with PSG’s tenth birthday I would retire – not anymore! I’ll go on just like now – I enjoy it and I’m still quite healthy.

I would like it if all of us were more or less involved with PSG – one day. If it doesn’t work out that way, it will also be fine, because after all everyone has different circumstances – but a father may dream. PSG is a family business and I have a huge responsibility to handle and develop it that way. Naturally for me it’s 99% pleasure and 1% problem. There are two big, great companies in which we play a strategic role. If I didn’t have the family talent, I would have arranged matters a little differently, but now I do have the talent and I believe we should use the opportunity.

Oh, and the strategic plans I make them devise for the family – just as they think we’re sitting back and relaxing on the blue waters on a boat in Turkey. I used to think if someone asked my children about me, they would answer very carefully, but maybe I’m not strict enough anymore, because Jan says you have to be quite on top of your game before you differ from me at a board meeting, and that my risk outlook is too risky. Piet confirms I can get quite wild and aggressive at a meeting. Charité, in turn, says our family could have quite a fight at the dinner table. If she had to sum up her parents’ marriage she would say her mother had made a more volatile investment all those years ago and her father a steady investment. I want to keep my breath (and my mouth intact) to cool my porridge, so I’ll rather let them do the talking. Jan is probably a little more like his mother, the conscientious guy with lots of matric distinctions, the cum laude degrees, the man you would find in church rather than in the bar and, unlike me, would not look at shares while on holiday with his family. We always pop the champagne corks at his place when PSG excels – the story on each cork reminds us what it was about.

In standard 8 I attended the businessman and journalist Daan Joubert’s classes on technical analysis along with my dad. It was my idea, my dad’s money and I could take 10% of the profits, but similarly 5% of the losses were mine. In that way the shares bug bit and I went to study at University of Stellenbosch and became a chartered accountant. After a few months at PWC in Amsterdam I

went to Cambridge for an M Phil and my research topic was contrarian investment. At PSG my first job was managing a hedge fund, but with a unit trust like the PSG Flexible Fund one can put one’s brain to better use. I would love accepting responsibility for this fund, because in this way you can make a lot of money for yourself and others, compete with the best in the industry and also measure your performance. It’s a challenge that sends the blood rushing through my veins. We started the fund with the name Tanzanite in 2004, five years later it was the top achiever in its category and over a ten-year period I want to be number one. And if there hadn’t been as much money of my own in there, my dad would not have trusted it as an investment either!

Piet was at the top of his class at school, but is a very sociable guy, easy-going and relaxed. He and I can pick a much better Springbok or Protea team than any rugby or cricket selector – whether it’s for a five-day, one-day or 20-20 match. He says I can remember the most obscure of figures, to the chagrin of many a financial director at a board meeting. He’s right. His birth at the Ontdekkers Hospital cost R37,50, Jan’s R32 and that of Charité, who was born in a private clinic, far more than R1 000.

Ever since we were little, my dad took some trouble to get to know our friends and, despite his busy schedule, watch our sports matches – not that we were the best. My grandmother was in a blue funk about the Transvaal/Province fights between the two of us. As a nine-year-old I started carrying his golf bag, because I knew that way I would see more of him. Later he rose at five during holidays so he could play nine holes with me before the adults arrived and the kids had to get off the golf course. We children imbibed business with the mother’s milk, in a manner of speaking. In standard 6 I already knew how options and derivative instruments worked. I studied actuarial science at Maties and after frolicking in the snow in America for a few months, I went to work for Société Général in London as an aspiring merchant banker. On my return to South Africa, I started Arch Equity along with my pal Tony Fuchs, which was great, despite the lows. I also accepted my dad’s advice and did a kind of miniMBA on my own by studying every business book I could get hold of. My latest job doesn’t change much – on a business level I’ve long been dealing with the management of PSG subsidiaries. Besides, in an investment company no

impulsive operational decisions are made. My executive position only means the transition will be much smoother if Jannie decides to take things easier in a few years’ time.

Calling Charité the apple of my eye might make my other children a little unhappy, but as time goes by the two of us just become better pals. And we have great chats about business. Her unusual name she got from her grandmother, one of the four daughters of Dr Le Fras Nortier, bosom friend of the Afrikaans writer C Louis Leipoldt in Clanwilliam. He named his daughters Charité, Joy, Nesty (for amnesty or peace) and Clemency.

Among my first memories of my dad was how he told me stories when he came to say good night in the evenings. The main character was always a little princess with the name Charité and her adventures. I hung on to his words, as I still do when he’s telling stories. In the same way you have to have a good story if you want to keep his attention now, else he prefers to share his own wisdom. We tease him, calling him Radio JFM – and that’s not a station where listeners may phone in and say something of their own! My dad doesn’t believe in complaining and moping in self-pity at all. For him it doesn’t exist. In fact even the day after the most tragic occurrence in our life, my mother’s death, he told us children in a voice quivering with sadness: “Right, guys, we have to lift up our heads now and take life on.” Not because he’s a harsh person (he’s easily moved), but probably since he didn’t want this setback to get the better of us. My dad can be terrific fun if he feels like it, but if I had to sum up my relationship with him, it’s never a dull moment. It’s either a huge high or a huge low, nothing in between. That’s what makes him so interesting. But fortunately his sense of humour is stronger than his “sense of” temper and so the highs always win. As children we were not spoilt with too many clothes and gadgets, but our parents took us travelling a lot. And nowadays, of course, we find it extremely funny for as a little girl I had asked him to drop me off a block from the primary school because I was ashamed of his Karoo English when he jovially wanted to chat to my friends on scholars’ patrol or to other parents. Deidré has been saying all along he chats so easily to any person.

Apart from PSG I hope what I leave behind for my children are above all a mindset of enthusiasm in everything they tackle, the tireless search for solutions, and the ethos to work hard in order to make a success of whatever they try to achieve.

Perhaps all that remains for a parent is to give to his children these wise words borrowed from Rudyard Kipling’s poem “If”:

If you can dream – and not make dreams your master, If you can think – and not make thoughts your aim, If you can meet with Triumph and Disaster And treat those two impostors just the same . . . . . .you’ll be a Man, my son!

And that’s a wrap

I think I’ve at least learnt a few things since the shilling I saved on the school stamp book every Monday as a little boy. As my sister Engela says, all the certificates of those years were probably worth only R20 altogether, but save we did. Whether I’ve learnt to speak English since the Carnarvon days I don’t know. My favourite joke is still the one of the Englishman who wanted to buy a horse from a farmer who had a white one and a brown one. The farmer warned him: “The white horse do not look so good,” but that was the horse the Englishman wanted. Within a week he was back, seething with anger, since the white horse turned out to be blind. “But I told you, it do not look so good,” was the farmer’s defence. A few years ago my sons and I drove back to Carnarvon for the funeral of my uncle who used to be my sheep-counting hero. I showed them the town and our house. Everything looked so small and silly compared with how big and grand I had remembered it. At the school everything had changed. Now there were only little brown faces in the windows of the classrooms. I secretly wondered whether the rolls of honour would still be there, the boards with the names of those who had been awarded honours and the photographs of generations of head boys and girls against the walls. The nostalgia made me miss my parents, my father who was my main teacher, even though I only realised that when he was not there anymore, and my mother, the most faithful supporter of PSG ever. My father enjoyed living in the big city of Pretoria after Carnarvon. He worked at the South African Agricultural Union, built caravans, speculated with property and later acquired a stake in an estate agency. After his death my mother went to live in a retirement home in Oudtshoorn. After her death I found a little book in which she had jotted down PSG’s share

price daily. She kept it up until she became too ill and could no longer read or write. There was nothing strange about my father’s estate, but as I was wrapping it up, I was amazed at how many people he had helped in his life. It’s the kind of thing that makes one think about the sum total of your own life. “Dad, you’ve really come a long way since Carnarvon,” Piet told me that day in the dusty streets of the Karoo town. I don’t think he was referring to Cape Town or Johannesburg or Stellenbosch or all the remote places where my business activities had taken me. Still, I’m happy about every place where life has taken me and where I could leave my tracks. But I’m happy especially about PSG.

Addendum

A. Charter for extraordinary achievement

In part 2 I explained how PSG’s mind works, and this is the promised charter for extraordinary achievement, or you can call it the constitution of the PSG empire if you wish. It’s also something I often use as a framework when organisations of companies ask me to address them about doing business, because with such a basic set of rules one can go far. Although they are not mutually exclusive, this should not be confused with the values or culture of a company, something I refer to in part 6. For my job I like a ten-point plan as framework for growth and achievement, because without growth there won’t be growth in profits, or in the share price.

I have a dream

Outspoken as I am about buzz-words like mission and vision, to which I also refer in part 6, I do believe that a company should have a dream of where it’s heading, a desire directing one and which one can implement in practice. As George Bernard Shaw said: “Some men see things as they are and ask why? Others dream things that never were, and ask why not?” One has to envisage the future of a company in one’s mind, something simple that still grabs the attention and mind, something worthwhile nevertheless.

Action, action, we want action

“All men of action are dreamers,” James Huneker wrote in Pathos of Distance. That implies it’s important how you reach your goal – who does what, when and where. Yet the how is answered at strategic level to ensure that short-term action plans contribute to a greater goal. Without a time frame you will naturally waste your time. If we want to get capital at Zeder with a rights issue, we have to set out the steps, like when the JSE circular has to go out and when we will meet the major stakeholders in advance.

Team work is dream work

In part 2, I say a lot about the right people. It sounds like such a cliché if I add that a team is always better than an individual, but it’s true. More extensive exposure and the greater vision can only be advantageous. And if the team won’t buy into a decision, you’re doomed. However, only one person can be responsible in the end, is the costly lesson I learnt at PSG Investment Bank and on which I expand in part 4. An individual can put something in place and drive it, a committee can’t. Team spirit is a major reason why, well into my sixties, I don’t want to stay at home – I’m crazy about the small team at PSG’s head office and the executive committee. As I’ve said, I’m no Dale Carnegie graduate, but it’s great if you understand one another so well that you trust one another and believe in one another. Working together enthusiastically and sharing in one another’s joys and sorrows are all part of the package.

On a point of order

Without correct management information a company can sign its own death certificate. You may find it funny, but minutes of meetings have to be noted down, signed and stored. Taxes can also bite you in the backside if you don’t take note of every triviality. Some companies have such messy administration that they collapse because of that.

Yes, we can

A negative person sees insurmountable hurdles and the proactive person looks for alternatives – even in tough times. You don’t want to be the one who goes “yes, but” at a meeting when I’m near. There’s a difference between “I can’t” and “there has to be way”. That makes it possible to say “I will do it” rather than “I would have done it if . . .”. Positive people can start new businesses. Pessimists can’t create something out of nothing. If you say something can’t work, you have to come up with a better alternative or shut up. I don’t take no for an answer anymore. It’s a culture that forces people to think and that’s brought about if you practise for long enough. Henry Ford was a living example of an unwavering faith in his ability to bring his ideas to life. The well-known words of Hebrews 1:11 are quoted at the start of his autobiography: “Faith is the substance of things hoped for, the evidence of things not seen.”

Put your foot down

There is a very thin line between being assertive and aggressive, as I probably know better than anyone else. Yet I know even better that stumbling about is an unproductive waste of time. One has to take a decision and that’s it. If you’re wrong, you simply have to take the rap afterwards.

Knowledge is power is more than a school motto

When PSG goes to institutions, the Old Mutuals or Coronations of the world, we get wonderful insights into what we do right or about our competition. Knowing what you do wrong gives you opportunities. I started reading voraciously after I first got going when I had lost my job at SMK. That’s a very important way of gaining knowledge. One has to read the paper, you need to know who won the top literary prizes and the one-day cricket, and what made the world’s headlines. (I call the Afrikaans writer Etienne van Heerden the Great Author and he calls me the Great Dictator if we run into each other.) You have to read about the Consumer Act, interest rates and growth and corruption in Africa. You have to keep your eyes peeled and your ears pricked, even if you look at what the guys around you tend to order in the restaurant. You need to know what’s happening around you. Success stories of victorious countries, business people and even sports people inspire me. I would rather read about Warren Buffett and the cyclist Lance Armstrong than about Saddam Hussein and Robert Mugabe. The services of the best lawyer or accountant are for sale, but with a guy with general knowledge you can take anything on, because he can think further than his textbooks. On a board it’s also the guy with the integrated knowledge and well-considered opinion who makes a contribution. The rest only waste your time with superficial questions. Closely connected to that is the will to think. In The fall of the human intellect Swami Parthasarathy writes that people have lost the ability to think and reason. Knowledge is absorbed passively, but it doesn’t develop independent thoughts: “You need to wake up from this slumber. Start thinking, questioning, enquiring as to the cause of all this strife and struggle. Examine the truths of life. Do not accept anything without reason and logic.” Colleague Chris Otto distinguishes between a person who thinks and one who only stares into the distance, and there is a big difference.

Leader of the pack

A leader is someone with an interesting vision who knows the environment. He has the power of drawing people to follow him instead of pushing them, and therefore people have respect for him. Eventually leadership is about the ability to get the best from people and to combine their input effectively to reach a common goal. These aren’t characteristics I can claim to have without sounding arrogant, but they are things one can strive for. As is clear from the book, I’m still learning from the mistakes I make.

One for me, one for you

One should rather be biased towards giving too much. There are entrepreneurs who want to keep everything for themselves, continue on their own and never list. At PSG we have intertwined interests as employees and management take up shares in companies back and forth. If one gives someone an opportunity to share in the prosperity, it’s a great motivation for that partner. If the one side of the coin is openhandedness, the other is greed, but one needn’t worry about a greedy guy. His colleagues will get rid of him before you can do it. He won’t last long.

You can run, but you can’t hide

Every guy has to understand what’s happening where, because closed doors feed the rumour-mill. I don’t even talk about, for instance, the remuneration of Paladin’s executive director behind a closed door. The days of a sealed envelope are numbered, the salaries of the top guys are in the annual report anyway. One should also share one’s plans with the shareholders and the people in the company. Excellence is only possible if people know where they’re heading. Warren Bennis and Burt Nanus, authors of Leaders: The Strategies for Taking Charge, put it this way: “Leaders are only as powerful as the ideas they communicate. They inspire their followers to higher levels of achievement by showing them how their work contributes to worthwhile ends.” They say it’s a basic human need to feel important and useful, and everyone makes a difference.

B. Milestones in PSG’s history

1995-’96 Gained control of PAG Limited (with a market capitalisation of R7 million).

1996-’97 Started the broking business Professional Securities Group (PSG), in which PAG had a 50% stake. Started the asset management company PSG Fund Management. Gained control of Anchor Life Assurance Company and established PSG Channel Group.

1997-’98 Sold PAG Placements for R107 million and changed the name to PSG Group. Established a corporate office in Stellenbosch. Empowerment transaction with Siphumelele Investments. Reverse listing in Servgro (PSG Financial Services), with a R327 million increase in capital.

1998-’99

Raised R1,2 billion for PSG Noble Capital and listed on the JSE. Started PSG Investment Bank with R400 million in share capital. Established PSG Specialised Lending, precursor to Capitec. PSG Online and PSG Konsult came into being.

1999-2000 PSG Noble and PSG Investment Bank merged. Listed PSG Investment Bank with share capital of more than R1,5 billion, the seventh largest bank in the country. Established Keynes Rational Group.

2000-’01 PSG Investment Bank acquired The Business Bank. Established PSG Afro Pacific and PSG Trade Finance. Listed Escher Group on the JSE.

2001-’02 Capitec obtained a banking licence. PSG Investment Bank acquired Real Africa Durolink Bank. Escher and mCubed merged. Capitec listed in February 2002.

2002-’03 Crisis of small banks – PSG sold PSG Investment Bank. Creation of PSG Capital. Acquisition of Appleton through PSG Investment Services. Project Unlock Value and payment of special dividend of R2.

2003-’04 Project Growth. Unbundling of Capitec Bank.

2004-’05 Empowerment strategy with Arch Equity. Started investing in the JSE and agricultural companies. Issued PSG non-redeemable preference shares.

2005-’06 Arch Equity merger. Offer to Keerom shareholders through Keeromstraat. Number one inSunday Times’ top100companies over ten years.

Established Thembeka Capital, an empowerment investment company.

2006-’07 Rights issue ofR269million (98,7% subscribed). Record profits ofR692million. Listing of Zeder. RaisedR698million. Established Paladin with intended listing in2007.

2007-’08 Capitec Bank offer, increased shareholding from20% to34,9%. Acquired80% of Alternative Channel and changed name to PSG FutureWealth. PSG joined Sanlam and Santam with MiWay. Paladin acquired stakes in Mainfin, GRW, Lesotho Milling, Erbacon Investments and Protea Foundry.

2008-’09 PSG sold its34,6% share in Channel Life to Sanlam. PSG Konsult acquired the private clients department of T-Sec. Paladin acquired a stake in Topfix Holdings. Kaap Agri and Pioneer Foods both did rights issues and Zeder underwroteR360million of the issues.

2009-’10 PSG Fund Management acquired the remaining20% stake of minorities in PSG Future Wealth and created the product licensing platform PSG Wealth. Paladin acquired a50% stake in Curro Private Schools atR50million and after year-end another26% atR52million. Zeder did rights issues and raisedR495million. PSG raisedR200million with the issue of preference shares and bought back shares to the amount ofR140,9million.

C. List of companies in the PSG stable

PSG Group

PSG Group is an investment company that acquires strategic stakes in established businesses with strong management, good corporate governance, a history of earnings growth and positive cash-flows, and creates innovative ideas at existing businesses. It has established Zeder and Paladin, and was also the cofounder of Capitec together with current management. Propell is a niche financing company specialising in financial products for the property industry, especially bridging finance, and also offers solutions to body corporates. Propell was formed in March 2011 through the merger of Propell and Baedex, from the PSG stable. Capitec Bank is a retail bank that provides accessible and affordable banking facilities to clients via the innovative use of technology, in a manner that is convenient and personalised. Its client base has historically been the lowerincome market, but it is growing market share across the board. PSG Capital is PSG’s boutique corporate finance division, with teams based in Stellenbosch and Johannesburg. It provides a complete suite of corporate finance and advisory services to a broad spectrum of clients, both nationally and internationally. Its services include capital raisings, listings, mergers and acquisitions and corporate restructuring. PSG Fund Management’s business consists of local and offshore collective investments, asset management, hedge funds and prime broking. The funds include PSG Flexible Fund, PSG Alphen’s bouquet of funds, PSG Preferred Dividend Fund, PSG Money Market Fund and joint ventures with Atlantic, Plexus and Catalyst. PSG Futurewealth is an investment facilitator that offers investment solutions to the retail and institutional market. Apart from linked investment products it also offers guaranteed investment products such as the Income Booster and Investment Booster.

PSG Konsult is an independent financial services company that offers a valueoriented approach to clients’ financial planning requirements. Services encompass investments, short-term insurance, life insurance, stock broking and asset-based finance origination.

Zeder Investments

Zeder Investments is an investment company that focuses on the agricultural, food, beverages, food-processing and related sectors. It offers investors exposure to the current inherent value of the unlisted agricultural environment. Agricol is a seed company with an extended network of branches and agents all over South Africa. Their products include most well-known crops, alternative crops like forage seed and agronomy crops like cereals, canola and hybrid sunflower. It has a strong emphasis on research and development to continuously improve products for local conditions. BKB’s business entails the handling and marketing of agricultural products; wool, mohair and livestock, the provision of farming requisites and the rendering of related services. Warehouse space is utilised or leased. Recently services offered were extended to include grain marketing and storage. Capespan is an international integrated logistical supplier of fruit. The company is the major role player in South Africa and sources fruit from 44 countries worldwide and distributes to 55 countries around the world. It is involved in the whole value chain – from the farm to the retailer. Capevin is the ultimate investment holding company of Distell, Africa’s leading producer and marketer of fine wines, spirits, ciders and ready-to-drinks. Zeder owns 37% of Capevin Holdings, which has a 26% interest in Remgro-Capevin Investments. Kaap Agri came into being as a result of the merger between WPK and Boland Agri in 2005. The company’s footprint stretches through the Western and Northern Cape up into southern Namibia where it has recently acquired a number of trading branches. The focus of its retail branches (the Agrimark stores) has been altered from purely farming-focused revenue to include the public at large. Pioneer Foods is South Africa’s second largest food company and is structured

into four divisions that manufacture household food and beverage products: Sasko, Bokomo Foods, Agri Business and The Ceres Beverage Company. Pioneer also has interests in a number of joint ventures with international partners. KLK Landbou is a small but diversified agriculture-focused company headquartered in Upington. The company primarily serves the sheep farmers in the Kalahari and Northern Cape areas through 21 retail branches. The bulk of its profit comes from the distribution and retail sales of BP fuels, related products and the operation of various motor dealerships.

MGK Business Investments operates through three divisions: Obaro, Prodsure en All-Gro. Obaro offers agricultural, gardening and pet products and services to the public from 17 commercial retail outlets. Its main clientele requires products and services mainly relating to irrigation agriculture. Its BEE programme has received widespread praise. NWK is a provider of agricultural services and inputs, primarily in the North West province. The company is involved in a wide spectrum of activities in the following fields: grain industry, agricultural management services, trade, financial services and industries. It owns 19% of the country’s grain storage capacity. OVK Operations is a diversified agricultural business. Its primary activities involve general trade, fuel distribution, the sales, servicing and repairs of agricultural machinery, motor dealerships, short-term insurance broking, grain handling, storage and marketing, livestock slaughtering and marketing of carcasses, and client financing. Its service area includes the Free State, Eastern Cape and Northern Cape. Suidwes Investments operates in the maize-producing area of North West, with its head office in Leeudoringstad. It is involved in all aspects of meeting the needs of grain and other farmers, from supplying inputs and requisites to grain handling, storage and marketing, to selling insurance and providing financing. Tuinroete Agri is based in Mossel Bay and supplies an array of requisites to the farming community and building industry in the Southern Cape through its ten retail trading branches. Other operations include the handling and storage of

grain and the production of animal feeds.

Paladin

Paladin Capital is an investment company with a private equity bias and PSG’s preferred investment vehicle in areas other than financial services and agriculture. Paladin Capital’s investment principles are based on the following: not industry-specific, encompassing listed and unlisted companies; strong sustainable cash-flows; business model easily understood and management are major shareholders. African Unity Insurance provides illness benefit management, a range of life insurance and funeral schemes for groups and individuals. Algoa Insurance merged with African Unity in 2009 and it has 29% BEE ownership. Curro Holdings is the parent company of all Curro private schools. Their role is to establish new private schools and to back each school with a solid management team experienced in the field of education. The schools offer parallel medium education in Afrikaans and English, have a Christian ethos, positive discipline and balanced academic, sport and cultural activities. Erbacon is a construction company predominantly in infrastructure (roads and bridges) and general construction (through Armstrong). It also has a tool hire division. Civicon operates on contract sites throughout Southern Africa. Its services include general civil engineering construction, industrial and process plants, mining infrastructure and support both surface and underground, and design and construction of turnkey industrial projects. GRW is a manufacturer of steel and aluminium tankers and specialised liquid containers. Apart from South Africa it also has clients in the UK and Middle East. It has a highly advanced robotic plant. Iquad Group is a specialised outsourcing company, focusing on treasury management, investment incentives and BEE verification services. Petmin is a minerals, mining and processing company that services the metallurgical and industrial sectors. It is listed on the JSE and the aim in

London, and has two operations mining in silica and anthracite. Precrete specialises in the production and distribution of pre-mixed concrete for the construction, support and other related mining applications. Its wholly owned subsidiary, GFC Construction, focuses on guniting or shotcreting, which involves applying concrete pre-mixes to walls of mine shafts. Protea Foundry is a non-ferrous casting operation based in Gauteng, the largest in South Africa. Top Fix Holdings’ business comprises the following: the supply and leasing of scaffolding and scaffolding personnel to industrial plants and construction sectors; the supply of personnel to the chemical, petro-chemical, power generation, construction and coal mining industries; and supply of safety surveillance and access control equipment on chemical and petro-chemical plants. Thembeka Capital is a broad-based black-owned and -controlled investment holding company that focuses on private equity investments and BEE transactions. It has more than 500 black shareholders with more than 10 000 beneficiaries. It also has cash available to contribute towards BEE transactions. Access Freight Logistics operates a container freight station near the Durban port, providing container logistics solutions for global and local exporters and importers. The support includes both road and rail logistics solutions. The company is involved in mineral exports, automotive imports, paper imports and a wide customer base of general freight imports and exports. Bontebok Limeworks, with its well-known p&b Lime brand, has been in business since 1924, and produces high-quality lime for a variety of uses. It manufactures, promotes and distributes agricultural lime, feed lime, whitewash, building lime, water purification and Concrim nationally and internationally. Its head office is in Bredasdorp. Greymatter & Finch specialises in the production of annual reports, financial advertisements, circulars, websites, corporate identities and books. Apart from a large number of PSG companies, its clients include Remgro, Venfin, MediClinic, Sanlam, Santam, Metlife and Woolworths. JSE Limited has operated as a market place for the trading of financial products

for 120 years. It has evolved from a traditional floor-based equities trading market to a modern securities exchange, providing fully electronic trading in equities and associated instruments. Overberg Agri is an affiliated agricultural and insurance support company. Its services include the provision of agricultural supplies, financial resources and the storage and handling of grain products. It also stores the largest amount of malting barley in South Africa. Spirit Capital was established in 2002 as a niche corporate advisory boutique providing specialist merger and acquisition advice to listed and privately owned companies. In 2006 it expanded its business into proprietary listed and private equity investments. VMS Group is a specialist agency in the fast-moving consumable goods market. Its core business includes the provision of brands to the consumer market. VMS offers a full route to market solution and covers the entire logistics chain. Among its clients are Bic, Cadbury, Nestlé Purina, Premier Foods and Revlon.

D. Recommended reading

Think & Grow Rich, Napoleon Hill. The single book that has changed my life and positively inspired me to start PSG. It’s not only about money and wealth, but rather about the philosophy of believing in oneself: “Whatever the human mind can believe and conceive, it can achieve.” The Snowball: Warren Buffett and the Business of Life, Alice Schroeder. Buffett, Roger Lowenstein. 101 Reasons to Own the World’s Greatest Investment, Warren Buffett. The Warren Buffett Portfolio, RG Hagsrom. The Warren Buffett Way, RG Hagsrom. Buffettology, Mary Buffett. Warren Buffett Speaks, Janet Lowe. How Buffett Does It, James Pardoe. The Warren Buffett CEO, Robert P Miles. Warren Buffett and the Interpretation of Financial Statements, Mary Buffett & David Clark. Even Buffett isn’t Perfect, Janjigian Vahan. Buffett is my hero and mentor – I’ve read many more of his books, as well as his annual correspondence with shareholders. The Intelligent Investor, Benjamin Graham.

Benjamin Graham on Value Investing, Janet Lowe. Graham is the great academic teacher. The lesson of reading, learning and studying will always be there. Sun Tzu’s Art of War for Traders & Investors, Dean Lundell. Sun Tzu is the great teacher of tactics and strategy and that’s so important. Banker to the Poor, Mohammad Yunus. The inspiration behind Capitec. Maverick, Ricardo Semler. The book is about renewal versus the traditional closed-door policy. The Leadership Wisdom of Jesus, Charles Manz. Make that a part of your life. 21 Irrefutable Laws of Leadership, John Maxwell. What is and makes a leader (or managing director)? Learn from those who have done a lot of thinking. Thirteen Attributes of Success, Dr Brian Jude. The characteristics one needs to be successful. The Book of Leadership Wisdom, Peter Krass. It’s good to read the lessons of leadership again and again – it’s a privilege to learn. How to Think Like a Millionaire, Poissant & Godfrey. These success stories of ten millionaires are inspiring. Investing in Small-Cap Stocks, Graja & Ungar.

Value is hidden in small-capitalisation stocks, but even more value is hidden in unlisted investments – just think about Keeromstraat, the JSE, Pioneer and KWV. Mind Power, John Kehoe. One might as well learn how to utilise one’s brain better. 7 Strategies for Wealth & Happiness, Jim Rohn. It’s also about being happy. The 7 Habits of Highly Effective People, Stephen Covey. A well-known and popular best-seller. The New Financial Capitalists: Kohlberg Kravis Roberts and the Creation of Corporate Value, George P Baker & George David Smith. The strategies of KKR; what a place to learn from! The Ultimate Business Plan, Phil Stone. It stays with the essence of what is important and leaves out the fluff. The Dhandho Investor, Mohnish Pabrai. The wonderful story of Papa Patel, the entrepreneur from Uganda. Winners Never Cheat: Everyday Lessons we Learned as Children (But may have Forgotten), Jon M Huntsman. This is a must-read – for all corrupt political leaders as well. Letters from a Self-made Merchant to his Son, George Horace Lorimer. The letters are so true, funny and enlightening. Outliers, the Story of Success, Malcolm Gladwell. The story of, inter alia, the Knowledge is Power Programme in the US – and to

some extent the inspiration behind Curro. Hard work and the 10 000-hour rule are addressed. Atlas Shrugged, Ayn Rand. The basic capitalist principles are addressed in a novel written by a fantastic brain. The Richest Man in Babylon, George S Clason. A simple story from antiquity. (People often think Chris Otto and I talk about business, meanwhile we are in fact chatting about a good book – we’ve had such long conversations about JM Coetzee.)

E. Jannie Mouton’s curriculum vitae

1946 Born in Carnarvon in the Northern Cape

1964 Wrote matric, Hoërskool Carnarvon

1965 Navy Gymnasium at Saldanha Bay and at Gordon’s Bay

1966-’68 BCom at the University of Stellenbosch

1969 BCom Hons (Econ) with extra BCom (Acc) subjects

1970-’72 Articles at Coopers Brothers (now PWC )

1973 Passed board examination Started working as accountant for Federale Volksbeleggings (FVB) Married Dana (née Olivier) Nel

1974 Relocated to Johannesburg for FVB

1975 Birth of Jan Mouton

1976 Birth of Piet Mouton Death of father, Jan Mouton

1980 Transferred to the clothing manufacturer Veka by FVB

1981 Accepted position at Kanhym

1982 Started the broking firm Senekal, Mouton & Kitshoff Birth of Charité Mouton

1987 Became managing director of SMK Served on the general committee of the JSE Part of a two-man commission tasked by a JSE committee to investigate insider trading

1990 Investigated, by ministerial order, the collapse of Cape Investment Bank

1995 Left SMK

1995 Gained control of PAG Limited

1999

Became chairman of Capitec Bank’s precursor, Specialized Lending (until 2006)

2002 Death of mother, Juliana (née van Wyk) Mouton Elected to Steinhoff board Elected to the board of the Klein Karoo Nasionale Kunstefees

2003 Death of sister Santi (née Mouton) de Jager

2004 Death of wife, Dana (née Olivier) Mouton

2005 Death of Rita van Zyl (née Nel), Dana’s daughter, and her children, Jason and Catherine Elected to Remgro board Elected to the council of the University of Stellenbosch

2007 Became chairman of Zeder

Elected to KWV board

2008 Became Paladin chairman

2009 Elected to Pioneer board

2010 Relinquished executive chairmanship of PSG Married Deidré (née de Villiers) Uys

2011 Resigned from KWV board

F. PSG shareholding

% Mouton family

31,6

Markus Jooste

11,6

Christo Wiese

9

Thys du Toit

2,9

Chris Otto

2,5

Jaap du Toit

2,2

Thembeka

6,0

GT Ferreira and the Tokara bee Trust 3,9 PSG Share Incentive Trust

0,7

Total

70,4

Friends and family

6,4

Other shareholders

23,2

Grand total

100

G. List of sources

The following interviews* provided the bulk of information for the compilation of this text:

With Jannie Mouton, Ou Kollege Building, Church Street, Stellenbosch, on the following dates: June 9-11, 2010 August 2-4, 2010 October 18-20, 2010 February 28, 2011 With Jannie Mouton, White House, Steinhoff premises, 3A Eton Road, Parktown, Johannesburg, December 5 and 6, 2010. With Jannie Mouton, Klein Gustrouw Estate, Jonkershoek Road, Stellenbosch, January 14-16, 2011. With Leon de Witt, Suite 14, Andman House, Ryneveld Street, Stellenbosch, August 3, 2010. With Chris Otto, Ou Kollege Building, Church Street, Stellenbosch, October 20, 2010. With Jan Mouton, PSG House, Alphen Park, Constantia Highway, Constantia, August 4, 2010. With Piet Mouton, OR Tambo International Airport, October 21, 2010. Telephonically with Jaap du Toit, Constantia, Cape Town, January 26, 2011.

Correspondence via e-mail with Charité Volkwyn in Doha, Qatar, December 7, 2010. Correspondence via e-mail with Johan Holtzhausen in Stellenbosch, January 17, 2011. Correspondence via e-mail with Dries Mellet in Stellenbosch, January 20, 2010. Correspondence via e-mail with André la Grange, January 26, 2010 and telephonically on January 27, 2010. *Without the dedicated assistance of Sharon October, the arrangement of all of the above would have been much more difficult.

In the compilation of the text ample use was made of extracts from the following non-commercial and/or personal texts (with own translations where necessary):

Gee vir my geleenthede, published by Compress for the 10th birthday of PSG in 2005. Die pad wat ons geloop het, published by Compress for the 60th birthday of Jannie Mouton in 2007. The extract about the operation of a microloans business in part 4 under the heading Capitec comes from the volume published by Greymatter & Finch for the 15th birthday of PSG in 2010, Die lewe is ’n keuse, written by Gerrit Rautenbach. Die lesse wat ek geleer het by Jannie Mouton (unpublished). PSG Group Limited, Our investments (February 2010). Curro by Bernardt van der Linde (January 17, 2011). Annual reports of PSG, 1995-2010 and Paladin annual report, 2010. Arch Equity en Thembeka Capital, written by Tonie Fuchs and amplified by Piet

Mouton, 2010. Letter by Jannie Mouton to his children, May 9, 2006, 17 Koloniesland, Noordwal-Oos, Stellenbosch. Ons ouers – Jan en Juliana Mouton – herinneringe aan hulle, lewenslesse geleer by hulle, written by Engela Olivier. Keeromstraat O Keeromstraat, January 2006, by Deon Basson.

Part 1

Think & Grow Rich, Napoleon Hill, Fawcett Books,1983. Ibid. http://www.goodreads.com/quotes/show/241703 How to Win Friends and Influence People, Dale Carnegie, Simon & Schuster, 1981. “Be grateful when life gives you a whack on the head with a brick”, BusinessDay, December 10, 2010. “Top 100 companies”, Business Times in Sunday Times, November 7, 2010. What I’ve Learned Leading a Great Company and Great People, Jack Welch with John Byrne, Headline Book Publishing, 2001.

Part 2

Sun Tzu’s Art of War for Traders & Investors, Dean Lundell, McGraw-Hill, 1997. The Dhandho Investor, Mohnish Pabrai, John Wiley & Sons, 2007. http://www.famous-quotes-and-quotations.com/leadership-quotes.html. Winners Never Cheat: Everyday Lessons we Learned as Children (but may have forgotten), Jon M Huntsman, Wharton School Publishing, 2008. http://images.businessweek.com/ss/07/04/0405_famous_families/index_01.htm “Sweden’s enduring business dynasty”, The Economist, October 14, 2006. “Steeds in beheer”, Finweek, June 24, 2010.

Part 3

“PSG se verdienste styg met 241 persent”, Beeld, March 27, 1998. “PSG-groep het oog op Naspers”, Beeld, December 3, 2005. “Naspers-hoës betaal baie om beheer in maatskappy ‘veilig’ te hou”, Beeld, January 27, 2006. “Twyfel of PSG se mislukte bod vir Naspers waarde ontsluit het”, Beeld, January 30, 2006. The Snowball: Warren Buffett and the Business of Life, Alice Schroeder, Bloomsbury, 2008. Ibid. Outliers: The Story of Success, Malcolm Gladwell, Little, Brown & Company, 2008.

Part 4

“Die geheel of die dele”, Finweek, November 19, 2009. “Swart groep en PSG Noble Capital wil beheer oor beleggingstrust bekom”, Beeld, June 26, 1998. “Climate knocks crop”, Financial Mail, November 20, 1998. “Ou Mutual se batebestuurders na Harvest”, Beeld, December 17, 1998. “PSG pluk van Nedcor se swaargewigte”, Beeld, January 19, 1999. “Harvest verander naam en aanslag na fondsbestuur-‘boetiek’”, Beeld, April 7, 1999. http://www.rsg.co.za. “PSG Konsult kry T-Sec-ja”, Beeld, May 4, 2009. “It wasn’t an easy six months”, Moneyweb, October 14, 2009. “PSG tweaks fund management”, Fin24.com, June 9, 2010. “Pioneer Foods bied R12 per KWV-aandeel”, Sake24 in Beeld, December 3, 2010. “Sirkel byna voltooi in KWV se ‘boereverneukery’, sê aandeelhouer”, Sake24 in Beeld, December 1, 2010. “KWV nog ’n stap nader aan kommersiële entiteit met nuwe direksie”, Beeld, July 24, 2009. “PSG sal dié help wat teen 1800c wil koop”, Sake24 in Beeld, December 13, 2010.

“Wiese vat nog ’n hap van PSG, belang kan tot amper 8% styg”, Beeld, September 4, 2006. “Mouton and Jooste buy R38m PSG stock”, Moneyweb, October 11, 2006. “Dit gons steeds oor ‘bisarre’ KWV-verkiesing”, Beeld, December 11, 2007. “KWV-aandeelhouers stem weer oor De Wet”, Beeld, January 26, 2008. “Mouton se bedanking wys sy hart was nog nooit by KWV, sê oudvoorsitter”, Sake24 in Beeld, February 10, 2011. http://en.wikipedia.org/wiki/Equator “KWV beantwoord vrae oor oorname-aanbod”, Sake24 in Beeld, January 18, 2010. “Pioneer skik dalk binnekort”, Sake24 in Rapport, June 20, 2010. SMSes, Sake24 in Beeld, February 3, 2011. “Mondvol”, Sake24 in Rapport, February 13, 2011. “Teen dié prys voel boere verneuk uit ‘erfporsie’ by KWV”, Sake24 in Beeld, November 24, 2010. “Wat met KWV gebeur het, is nie batestropery, sê PSG se Mouton”, Beeld, October 15, 2009. “Drankverdriet by KWV”, Finweek, February 17, 2011 “Clover-aandele voor notering oorvolskryf”, Sake24 in Beeld, December 10, 2010. “Monday Comment: Canning of bid for KWV not end of story”, Business Day, February 7, 2011. “Jannie Mouton discusses the speedy deal with HCI and the R257m”, Moneyweb, February 7, 2011. “Servgro verkoop belang in Teljoy”, Beeld, August 27, 1997.

“PSG-groep verwag wins uit Teljoy-belang,” Beeld, October 18, 1999. http://www.patchadams.com “Sakebank se oorname deel van herskikking by klein banke”, Beeld, March 2, 2000. “PSG ná oorname ’n grote in banksektor”, Beeld, April 11, 2001. “Going A1”, Leadership Magazine, June 7, 2001. “Six non-execs out, eight non-execs in”, Moneyweb, March 29, 2010. “How he is reading these stockmarkets. ‘It is more investing time than selling time.’”, Moneyweb, April 20, 2009. “Stone vat VSA se geld-hart 20 jaar later nog sterker vas”, Vrydag! in Beeld, September 24, 2010. “Verbruikers kan tóg opdok ondanks Pioneer-skikking”, Sake24 in Beeld, November 4, 2010. “Baanbrekersooreenkoms vir verbruiker in broodsaak”, Sake24 in Beeld, November 3, 2010. “‘Afgryslike’ gevolge wag as groep nie skik – Combi”, Sake24 in Beeld, November 3, 2010. “Haakplek met Pioneer se skikking in meedingsaak”, Sake24 in Beeld, November 25, 2010. “Tesourie kry sy sin oor Pioneer-boete”, Sake24 in Beeld, December 1, 2010. “Pioneer Foods biedR12perKWV-aandeel”,Sake24inBeeld, December3,2010. Outliers: The Story of Success, Malcolm Gladwell, Little, Brown & Company,2008. “The private option”,Financial Mail, January14,2000. www.mcescher.com

“Aandele in Escher aangebied”,Beeld, May10,2000. “MCubed verkoop lisensie”,Beeld, March24,2005. “Results and dividend declaration”,JSESens, April28,2005. “Change to board of directors”,JSESens, October3,2005. “Reviewed financial results,”JSESens, June28,2007. “Request for voluntary suspension”,JSESens, July13,2007. Banking to the Poor: Microlending and the Battle against Poverty, Mohammad Yunus, Public Affairs, 1999. http://www.bizcommunity.com/Article/196/82/45534.html “Capitec se model is vir vinnige groei ontwikkel”, Sake24 in Rapport, October 3, 2010. “The hottest banking stock in South Africa”, Moneyweb, April 1, 2010. “Top 100 companies”, Business Times in Sunday Times, November 7, 2010. “PSG’s mistake”, Fin24.com, June 10, 2010. “Far above such sordid affairs”, Sunday Times, October 3, 2010. “A precocious nine-year-old”, Business Times in Sunday Times, November 7, 2010. “Finding the needle in the haystack”, Business Times in Sunday Times, November 7, 2010. “No frills, no fine print – and spreading like wildfire”, Business Times in Sunday Times, November 14, 2010. “Verdien hulle jou aandag?” Finweek, July 8, 2010.

Part 5

Luke16:28-31,Holy Bible, King James Version, Bible Society of South Africa. http://en.wikipedia.org/wiki/Ticker_tape. The Big Short: Inside the Doomsday Machine, Michael Lewis, WW Norton & Company, Inc,2010. The Snowball: Warren Buffett and the Business of Life, Alice Schroeder, Bloomsbury, 2008. “PSG went on buying spree when equities plummeted,” Weekend Argus, January 29, 2011. http://en.wikiquote.org/wiki/John_Maynard_Keynes. “Internetreus koop SA firma vir R3,5 miljard”, Beeld, December 21, 1999.

Part 6

The Artist’s Way at Work, Mark Bryan, Julia Cameron, Catherine Allen, Pan Books, 1998. http://www.nb.co.za/Authors/3429. “Buffett to give bulk of his fortune to Gates charity”, New York Times, June 26, 2006. “Superrykes in VSA gee helfte van rykdom weg”, Beeld, August 5, 2010. http://en.wikipedia.org/wiki/Andrew_Carnegie. The Snowball: Warren Buffett and the Business of Life, Alice Schroeder, Bloomsbury, 2008. www.elyrics.net/read/m/mac-davis-lyrics/oh-lord-it_s-hard-to-be-humble lyrics.html. http://thinkexist.com/quotation/success_is_not_the_key_to_happinesshappiness_is/11048.html. “Special report podcast: Jannie Mouton, non-executive chairman & founder, PSG Group”, Moneyweb, October 27, 2010. Winners Never Cheat: Everyday Lessons we Learned as Children (but may have forgotten), Jon M Huntsman, Wharton School Publishing, 2008. Spreuke van Langenhoven, Jan Scannell, Tafelberg, 1991. William Shakespeare, The Tragedies, The Poems, The Cambridge text, Octopus Books Limited, 1986. The Artist’s Way at Work, Mark Bryan, Julia Cameron, Catherine Allen, Pan Books, 1998.

The Artist’s Way, Julia Cameron, Penguin Putman Inc, 1992. Uitgesoekte gedigte van Malherbe, CM van den Heever, Nasionale Boekhandel, 1954. http://www.quotationsPAGe.com/quote/2771. http://www.brainyquote.com/quotes/authors/j/john_f_kennedy_6.html Matthew 16:26, Holy Bible, King James Version, Bible Society of South Africa. “Woede vlam op oor ‘kripvreter-elite’, Sake24 in Beeld, August 10, 2010. http://www.quotedb.com/quotes/2050. “Die Julius Malema-denkskool”, Finweek, July 30, 2009. http://scottsmb.com/2009/02/16/you-cannot-legislate-the-poor-into-freedom. Atlas Shrugged, Ayn Rand, New American Library, 1996. “Ál meer toelaes vir armes”, Sake24 in Beeld, November 20, 2010. “Werk: SA vaar vrotste”, Sake24 in Beeld, October 27, 2010. “301 werkgewers raak bedreigde spesie”, Sake24 in Beeld, November 9, 2010. “ANC móét meedingverslag bekyk”, Sake24 in Beeld, September 17, 2010. http://en.wikipedia.org/wiki/Mohammad_Reza_Pahlavi. Banking to the Poor: Microlending and the Battle against Poverty, Mohammad Yunus, Public Affairs, 1999. Creating a World without Poverty: Social Business and the Future of Capitalism, Muhammad Yunus with Karl Weber, Public Affairs, 2007. “Competitiveness lost”, Business Day, May 13, 2010. “Rakke wys sakeman is ook ’n storieman”, Sake24 in Rapport, March 26, 2010.

“Mouton sê hoekom hy loop by US”, Rapport, October 19, 2009. Atlas Shrugged, Ayn Rand, New American Library, 1996. www.gastronomicfightclub.com/blog/food/2008/04/gorats-steakhouse-omahane.cfm. The Snowball: Warren Buffet and the Business of Life, Alice Schroeder, Bloomsbury, 2008. “Sweden’s enduring business dynasty”, The Economist, October 14, 2006. http://www.poemhunter.com/poem/if/

Addendum A

http://www.quotedb.com/quotes/3143. http://www.dictionary-quotes.com/all-men-of-action-are-dreamers-james-ghuneker/, The Pathos of Distance, James Huneker, C. Scribner’s sons, 1913. My Life & Work, Henry Ford, 1922. The Fall of the Human Intellect, Swami Parthasarathy, Ventura Cultural Foundation USA Inc, 2007. Leaders: The Strategies for Taking Charge, Warren Bennis en Burt Nanus, HarperBusiness, 1997.

The end

At the age of 48 he was fired as managing director, but in the following 15 years he built up an amazing business empire. PSG has material interests in various companies with an overall market capitalisation of R61-billion. Moneyweb calls him the “Boere-Buffett”, whilst Finweek has called him “an opportunist”. He won’t mince words about BEE, but he could find it in his heart only once in his career to personally ask a colleague to leave. Read how Capitec’s phenomenal success started off, what he makes of the Pioneer Foods cartel saga and why he shrugs off the anger of many in the wine industry about the plans he had with KWV. Does he have the “ability to predict markets” like Finweek suggests? In this book, Stellenbosch tycoon Jannie Mouton shares the lessons he has learnt from his life in business.

Is Jannie Mouton the most influential Stellenbosch businessman at present? That is what the magazine Finweek asked in November 2010 after the announcement of the intended KWV takeover. Mouton, non-executive chairman of PSG, chairman of Paladin and Zeder and director of Steinhoff, PSG Konsult and Pioneer and founder of Capitec, almost needs no introduction. This chartered accountant worked at Federale Volksbeleggings and Kanhym before he cofounded SMK and later became managing director of this broking firm. After that he built up the PSG empire. Carié Maas studied marketing at the University of Pretoria and journalism at Rhodes. Highlights from her career include the position of production editor of Finansies & Tegniek and Finance Week (now Finweek). She was deputy editor of the travel magazine Wegbreek, sister publication of Getaway, where she received an ATKV award for her writing. She has freelanced for a long time as copy editor for Beeld en Rapport and also as journalist for magazines like Rooi Rose and De Kat. At present she is a copy editor for Sake24 in Beeld and Rapport.

Tafelberg, An imprint of NB Publishers, A division of Media24 Boeke (Pty) Ltd 40 Heerengracht, Cape Town, South Africa PO Box 6525, Roggebaai, 8012, South Africa www.tafelberg.com

Copyright © Carié Maas 2011

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Available in print: First edition, first impression 2011

First edition, fourth impression 2012 ISBN: 978-0-624-05301-9

Epub edition: First edition 2012 Second edition 2012 e-ISBN: 978-0-624-05325-5 (epub)

Mobi edition: First edition 2013 e-ISBN: 978-0-624-06128-1 (mobi)