'A firm that can bottle critical thinking has a real future'

BUSINESS INTELLECTUALS: I interview Stephan Malherbe about the future of consulting, lessons from crises, the failures of the Competition Commission and who he would like to invite for dinner

This is the ninth interview on Our Long Walk, my blog about the past, present, and future of South Africa. I talk to South African business leaders to gain their perspectives on the lessons from history. Previous interviews were with André de Ruyter, Herman Mashaba, Jannie Durand, Paul Clüver, Magda Wierzycka, Anton Rupert’s biographer Ebbe Dommisse, Phuthi Mahanyele-Dabengwa and Michael Jordaan. Please consider a paid subscription to access the full interview and all of my twice-weekly content, including columns, guest essays, and summaries of the latest relevant research.

Stephan Malherbe is the founder and chair of Genesis Analytics.

1. Genesis Analytics was founded in February 1998, a few years after South Africa’s democratic elections and a few months after the emerging markets crash of 1997. How did these events shape the vision and early strategy of the company?

Practical optimism is a hallmark of our firm. That’s not so unusual, but what is unusual is that we are optimistic about sparking progress with big, historically rooted challenges, and to do so at scale. That optimism comes directly from my experience of growing up in South Africa in the high-apartheid 1970s, becoming a politically active adult in the 1980s, and then returning to the country in the 1990s. This is our curse and our blessing as a people: our optimism in the face of history, in the face of gathering clouds – and once in a while, we pull off the impossible.

The emerging markets crash was actually the first big international issue we worked on, analysing the causes and implications of the crash for the international organisation of securities commissions, IOSCO. Their report on the crash was ultimately an amalgam of our work and that of the Malaysian capital markets authority. That crash changed my perspective of the world: I realised that emerging markets were no longer on the periphery of the world, but right at centre of the action. That realisation pulls through into all our work today, a quarter of a century later: we are focused on the Young World, the mostly southern group of countries where 75% of the world’s young people live. The global point of gravity shifted in 1997, again with the financial crisis in 2009, and is again shifting now for demographic reasons.

2. In 2008, writing about the financial crisis for the Five Million Jobs initiative, you drew a parallel between the then global financial crisis and South Africa’s 1985 debt crisis. In the consulting industry, how important is good working knowledge of history?

The consulting industry rivals the tech and financial sectors in its pervasive ignorance of history. At least we are not like politicians who seem to feed off the wrong kinds of history. But the lack of historical perspective is devastating for all three those industries. In finance, we forget the causes of financial crises only to repeat them; in consulting it makes our advice narrow and infertile. But it is in tech that the absence of a historic understanding of power, people and risk will cost society the most dearly. 

I should add though, that economics has a lot to answer for in this regard. Orthodox economics with its fixation on short-term equilibrium, and its modelling of human agents shorn of most human attributes, emboldens decision-makers to ignore the messy reality of life and the weight of what went before.

This, by the way, is a direct consequence of theoretical economics taking inspiration from physics, the dominant science when neoclassical economics was being formulated. This point may seem a bit abstruse, but economics would have been wiser and more useful had it modelled itself on biology. Biology is a profoundly historical science due to the process of evolution. It has had to wrestle with issues such as contingency and chance, continuity and disruption, path dependency and innovation, and also interdependence and power, in a far more profound way than economics has ever done.

The laudable exception to this, of course, is economic history. Economic history may be the most useful academic discipline leaders of all kinds can be exposed to.

3. A few years ago, the Competition Commission blocked the sale of Burger King on public interest grounds, despite no clear threat to market competition. This decision shows the growing tension between market efficiency and social objectives in South Africa’s competition law. How should the Competition Commission balance economic empowerment with the need to maintain a competitive market?

I was deeply involved in the formulation of South Africa’s competition policy and statute in the late 1990s. I remain convinced that all sophisticated societies require some policing of large companies and mergers to promote competition. It is technically tricky and expensive, but we have a half-century of practice and learning from the world’s largest economies about how to do this well – and by now, 25 years of South African experience. One cannot promote capitalism and not accept that competition should be actively promoted – the competitive process is at the heart of all claims about why capitalism works for the people, as opposed to just some people.

But I don’t think that the public interest component of our competition system has been a success. Initially it was limited to employment considerations in mergers: this was understandable, although conceivably labour legislation would have been a better tool. The broadening of public interest in our competition law has, to my mind, been ineffective in achieving its goals and counterproductive in its side effects. Most worrying, it has brought about a direct politicisation of the process by giving the minister of trade and industry an opportunity to bargain for concessions, and if no deal is reached to act as a spoiler. It is telling that in the recent attempt by BHP to acquire Anglo American, the SA competition process was effectively wielded by Anglo as a kind of poison pill – even though there were few evident competition issues. This is deeply unhelpful to an economy for which growth and investment are imperatives.

I think the root cause of all this is a kind of instrument myopia on the part of our competition policy-makers and regulators. In short, they act as if competition regulation is the only thing going on. But our government has many policy instruments to protect workers, to bring about economic empowerment and to shape industrial policy – and it’s not shy to deploy them. Those instruments can be and often are more considered, more comprehensive and more cogent than the partial and frankly paint-by-numbers interventions of competition bodies in policy areas in which they are not versed.

4. How has Covid shaped the way Genesis operates? What are you looking for in recruits that are different from before?

Covid wholly changed us. On Day One of the pandemic, we were 120 people in 4 countries. Today, we are shy of 400 people in 25 countries. This is a direct consequence of the pandemic. The pandemic taught us two things. First, that we could work effectively with distributed teams using tech. We leaned into this from the very start. For many positions in Genesis we hire anywhere in the world. It is entirely everyday for a Genesis team working on a project to have members based in four widely disparate geographies. This has allowed us to access talent, and build networks and partnerships, across the world. It has made our work better. It has made us a far more interesting place. And it has enabled us to do work in 115 countries and counting.

To pull this off one needs a very strong culture, and even more important, shared habits of work. We are very explicit about this, to the point of having our own language for how we work with each other and what we owe each other as colleagues. This spills over into how we work with clients and partners.

The second thing we learnt was this: it’s better to be at the coal-face of impact than to deliver clever insights. During the pandemic, we worked on behaviour change, vaccine distribution and how to re-open the economy as quickly as possible. In all these endeavours what really mattered were clear goals, strong partnerships, and proximity to resources and power. That started a journey from being a consulting company to being an impact firm: we’re still on this journey, and we know that it will change our shape as firm.

It also changes whom we hire. Previously we majored on analytical types. These days we still want thinkers, but we have a broader understanding of what effective thinking means for getting difficult things done. And we really want thinker-doers: people who understand, but can also pivot to action, work with others, and know how to get things done in complex situations.