CFO and Executive Director – Federated Employer’s Mutual Assurance Company
Following a difficult 2019 when 36 000 jobs were shed in the construction industry, FEM’s Yusuf Bodiat remains positive about the long-term outlook of this sector.
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CIARAN RYAN: Today I am joined by Yusuf Bodiat, who is chief financial officer and executive director at the Federated Employer’s Mutual Assurance Company or FEM, a short-term insurer specialising in providing workmen’s compensation to the construction industry. It has over 5000 policyholders and assets in excess of R6 billion. He is also a member of the FEM Education Foundation and in addition to that he’s a partner in the Partners For Possibility programme, where business leaders are paired with school principals in a co-learning partnership in order to empower principals to become change leaders in their schools and communities. First of all, Yusuf, welcome, how are you?
YUSUF BODIAT: Morning, Ciaran, I’m good.
CIARAN RYAN: Are you in Johannesburg?
YUSUF BODIAT: Yes, I am, we are working from home.
CIARAN RYAN: Yusuf, you are providing workmen’s compensation to the construction industry, give us a sense of what conditions are like right now in the sector, which I imagine has been very hard hit by the Covid lockdown?
YUSUF BODIAT: That’s a good question, I think it’s useful to know that Covid-19 has hurt an industry that was already struggling through a prolonged downturn. Before the existence of this pandemic and in very recent years we had already seen a deterioration in the construction industry, the largest impact of which FEM specifically has seen in its 2019 financial results. Just to put it into perspective and according to some stats I picked up on Statistics SA’s quarterly employment statistics report, the construction industry lost more than 36 000 jobs during the 2019 calendar year, this was before the Covid-19 pandemic had even hit us. Coming back to the current state, during the nationwide lockdown only critical civil engineering and construction for public works were allowed to operate under level four lockdown restrictions. Only when we had eased into level three lockdown restrictions was the full construction industry opened again. This resulted in a large number of construction companies not operating for a number of months and, as a result, not being able to generate any revenue during this time, which is very similar to many other industries that we are seeing at the moment. As a result of this many of the companies are facing cash flow and liquidity challenges. The simple fact being that even though they weren’t generating much or any income during this prolonged time of lockdown, they still had salaries and other operating expenses to settle. So in essence many companies within the industry are finding it extremely tough to operate right now.
CIARAN RYAN: Have you got any sense and do you get any sense from your own business perspective…you mentioned, was it 36 000 people in construction had lost their jobs last year, I guess there would be several thousand more who would’ve lost their jobs during this lockdown. Have you got any idea about that?
YUSUF BODIAT: Yes, it was 36 000 jobs lost in 2019 before the pandemic. We normally wait for the Statistics SA reports to be published, which is after the fact, however, I wouldn’t be surprised to see statistics where a large number of jobs have been lost in 2020 so far and would continue throughout the year.
Providing flexibility for policyholders to pay premiums monthly
CIARAN RYAN: These are clearly extremely tough conditions, maybe the toughest conditions you have faced in a decade or so, have you made any adjustments to your business model to account for the change in economic conditions?
YUSUF BODIAT: From our business perspective we have made operational changes and we have made changes to the way we assist our policyholders or customers. If I can maybe explain both, from an operational perspective we did roll out a work-from-home programme to all employees from about mid-March 2020. I think that FEM was in a very fortunate position where we had already piloted the work-from-home programme during 2019 to a select number of staff but this assisted us in getting up to speed with working remotely, working with Microsoft Teams and Zoom and not getting to see people on a face-to-face basis. We also were required to enhance our IT infrastructure quite a lot as a result of all employees working from home. As it stands today, all staff at FEM are still working from home, the office hasn’t opened yet. I think it’s useful to know that it’s challenging and maybe a bit scary to work remotely from home but the silver lining is that we were still able to successfully hold board meetings and sub-committee meetings remotely using Zoom and Microsoft Teams, which I think has been a huge benefit. Switching gear to a customer of policyholder perspective, we changed the way in which we ask our policyholders to settle their premiums. Just to put it into context, traditionally policyholders at FEM have been required to settle their annual premium within a certain timeframe. So we normally expect a lumpsum payment at a certain time of the year. As a result of the liquidity and cash flow constraints that many of our clients or policyholders are impacted by at the moment, we have allowed our policyholders to settle their annual premiums on a monthly basis instead over a period of time, which should alleviate the pressure they are having from a cash flow perspective specifically.
CIARAN RYAN: So do they normally pay these premiums on an annual basis, so it’s quite a large lumpsum you would have to pay, now you can just stretch it out over 12 months, is that right?
YUSUF BODIAT: Yes, it’s quite a large lumpsum, they are required to pay us before the end of June each year and what we have done is we have offered them the ability to settle their premiums on a monthly basis up until the end of February 2021. So it does ease it a bit for them from a cash flow and liquidity perspective.
CIARAN RYAN: Are your clients taking you up on that?
YUSUF BODIAT: Many of them have taken it up and I hope that it just assists them in some way.
CIARAN RYAN: Just explain then workmen’s compensation, what would typically bring about a claim and under what circumstances could a policyholder claim?
YUSUF BODIAT: I think it’s useful to know that our client is the construction company, so that’s the policyholder but the life insured is actually the employee. So we insure approximately 5000 policyholders, of which we cover approximately 300 000 lives. Any instance where an employee gets injured on the job or on site would be something that we would look at from a claim perspective. So whether it be an employee who gets injured on site or even if they are injured while travelling to different sites, motor vehicle accidents could also be covered but it’s very specific and it has to relate to an on the job type of injury. There are various types of injuries that could occur, so it could be medical related when an employee has to go to the doctor or hospital or a smallish injury, if we can call it that. There are also longer-term injuries, so if an employee cannot work as a result of that injury, there would be a pension that FEM would pay out to that employee or their dependents for a certain period of time, assuming that the employee passes away unfortunately on the job as a result of that injury, the employee’s wife or dependents would also benefit from that pension that we would pay out.
CIARAN RYAN: Just as a matter of interest, is Covid covered at all by your compensation schemes?
YUSUF BODIAT: That’s a very tricky question and, I guess, it needs to be determined if that employee contracted the injury on the job itself.
CIARAN RYAN: So it could be, if you have a bunch of workers on a building site and one is infected and he passes that on, would there be some onus on the policyholder to prove that the infection was contracted through the workplace?
YUSUF BODIAT: There would be an onus on the policyholder to prove that it was contracted at the workplace, so we would have to evaluate each and every claim on its own merits. It’s a very difficult time we are in because that’s where it’s difficult to prove where the employee contracted the disease, so it is a challenging area that we are in at the moment.
CIARAN RYAN: Can we just shift gear here now and just talk about the outlook for the sector for the longer term, and you mentioned some figures there of about 300 000 lives covered and those are from 5000 policyholders, so those would be, presumably, the employers, the companies themselves. We’ve already discussed how bad the conditions are in the construction industry, what is your sense in the construction industry, are you just seeing a contraction over time, less and less people being covered or is it fairly static?
YUSUF BODIAT: We have seen in recent years a contraction over time and not specifically related to Covid but, as I mentioned earlier, there was a slowdown in the construction industry in recent years, I think Covid has just exacerbated that scenario. I do believe that in the long term the sector will succeed, it just depends how long it takes for the capacity to increase to those required levels of work for the sector to succeed. Infrastructure and the development thereof is critical for an economy to succeed. As an example, I heard a speech by President Ramaphosa a few weeks back, where he was speaking at the Sustainable Infrastructure Development Symposium of South Africa, and he spoke about the short-term and long-term economic benefits of infrastructure investment, where he spoke along the lines of saying that in the short term infrastructure creates jobs and the economic activity from building bridges, roads, schools and powerplants are much needed. But from a long-term perspective it also gets the construction and related services back to work, which encourages them to hire staff and expand capacity. I think the future is quite positive, however, I am just hoping that it picks up sooner rather than later.
CIARAN RYAN: What is the cause of your optimism, is it basically that the president has indicated that infrastructure and construction are going to be very much part of the engine for recovery in the economy or is it something that you are seeing a little bit closer to your chest that you are not telling us?
YUSUF BODIAT: I guess the one thing is that if the president feels that it needs to be done, he obviously has a lot more insight than many people as to why it needs to be done. But apart from just looking at South Africa, any economy needs infrastructure to succeed, you need to build hospitals, bridges and roads, as I said, in order to get the economic activity up. So it’s a requirement for the economy to succeed because without those items or buildings being built, all other sectors would struggle. I think the key for that is we would need the investment coming in, in order to start those construction activities.
FEM’s contribution to education in South Africa
CIARAN RYAN: Okay, right, so you are also quite involved in education, what’s the motivation for that?
YUSUF BODIAT: I think from an FEM perspective we believe that there is a dire need in South Africa to improve our education system, from the grassroots all the way to the top. As a result, at FEM we set up the FEM Education Foundation in 2016, so it’s still quite a young organisation, where FEM set aside R750 million to focus on the development of education and leadership within South Africa. This is our way to ensure that we can make a positive impact to society at large but it’s also investing in the future. Without investing in education, who’s to say that we’ll have skilled resources and change in the unemployment status that we currently have at the moment to get a better outcome for everyone in the country. So it’s FEM’s way of making a systemic impact to education in South Africa, to put it simply.
CIARAN RYAN: You talk here about a co-learning partnership where you empower principals to become change leaders in their schools and communities, just give us a sense of how broad that is, do you have any stats, for example, of how many schools are covered by this programme?
YUSUF BODIAT: There are a few entities or organisations that the FEM Education Foundation partners with, the PFP programme is one of them, where a business partner like myself will partner with a principal, basically allowing the principal to learn from the business partner, where the principal would actually run the school as a CEO would. The business partner would also learn other skills from the principal that we obviously don’t have in terms of assisting the community and having a softer touch to life that a principal would have. Unfortunately, I don’t have the stats with me right now, but I think it’s useful to say that from the FEM Education Foundation perspective we do focus on a broad range of initiatives. So this PFP initiative is one of them, we also invest in entities or organisations that look at early childhood development, otherwise known as ECD, where we focus on the younger generation in terms of reading for meaning and learning basic mathematics skills. We also invest quite a large number of funding in other organisations such as the Columba Leadership Foundation and the Make a Difference Leadership Foundation, where we focus on the older youth, from high school to university, in terms of their leadership development skills. So it’s a broad range of education services that we would actually invest in, we’re not just focused on one specific initiative.
CIARAN RYAN: Let’s talk about yourself for a bit now, where did you grow up, where were you educated and how did you end up where you are now?
YUSUF BODIAT: That’s an interesting question, I was born and bred in Johannesburg and I come from a family of accountants, both my parents and three of my uncles are all accountants. So it was meant to be for me. I studied at Wits University, where I obtained by BCom degree and a higher diploma in accounting and I began my articles in the financial services team at Deloitte in 2011. I stayed at Deloitte in the financial services team as an article clerk for three years, following which I went to the United States for a few months for a very short-term secondment. When I returned from the States I then rejoined Deloitte, still in its financial services team as an audit manager from about mid-2014 and in this role I focused on clients within the insurance industry specifically. I stayed at Deloitte as an audit manager for about two-and-a-half years. After that I decided to leave the profession to work in the industry and I was in the fortunate position where one of my clients actually offered me a role as a financial reporting manager. At about the end of 2016 I joined my client, being Lion of Africa Insurance, as the financial reporting manager. I worked in that role for approximately one year and after that I was promoted to acting chief financial officer and that was also for about a year. Towards the end of 2018 I then applied for the role of CFO at FEM and it’s been excellent ever since.
CIARAN RYAN: So you have occupied the CFO position for two years, is that right?
YUSUF BODIAT: I have occupied the CFO position at FEM for a year-and-a-half and I was acting CFO at Lion of Africa Insurance for a year prior to this.
CIARAN RYAN: Okay and I guess there are particular challenges, so you did your articles with Deloitte and you were particularly focused in the financial services space and, of course, insurance would be very much part of that but I guess there are some tricks about the insurance industry which have had to be learnt, no doubt it’s not a simple thing.
YUSUF BODIAT: It doesn’t matter which industry you are working in, you need to be a specialist just for the reason that there are a number of laws and regulations that you need to understand quite deeply in order to just do your job on a day-to-day basis.
‘CFOs need to be disruptive’
CIARAN RYAN: Tell us about the role of the CFO, what’s your feeling about that, you have obviously observed this from your time at Deloitte, from your time when you were acting CFO and now CFO at FEM, how has that role changed over the years and in what way has it changed and in what way is technology driving that change?
YUSUF BODIAT: I think the CFO role in recent years specifically has tremendously changed. CFOs of the past were traditionally focused on retrospective financial reporting, where they would look at financial reporting, controls, compliance and how to keep up with regulation, and I think the role would be confined to those few aspects. That obviously won’t do much good when faced with disruptive forces in the industry or the economic environment as we are seeing right now. I think as a result those CFOs would perhaps struggle to find a way to utilise the modern technology through innovative business models. I think the current CFO or CFO of the future needs to be skilled in various different areas or have a more rounded view of all aspects of the business, whether it’s analytical skills, the strategy of the business, being tech savvy specifically, which is obviously helping us a lot while working remotely. I think a CFO also has to have a lot of social skills and the one thing that I have picked up recently is that CFOs need to be disruptive, I think that’s the word that’s most useful. Disruptive needs to be used in a positive way, where a CFO would need to ask what comes next and plan for the future. I think being in the crisis that we are in now with Covid-19 and in lockdown, everything is changing quite quickly and if you can’t adapt to change I think that’s where people would struggle quite a lot.
CIARAN RYAN: Have you automated a lot of the routine functions that you would do, the normal bookkeeping, the recordkeeping, have you been able to do that and what kind of tools do you use for that?
YUSUF BODIAT: At FEM and in my previous role I was fortunate enough to be part of system implementations, both from an underwriting and operational perspective and accounting systems. I think the key is to make sure that the systems speak to each other and that as much as possible of the manual work that can be done by the system gets done by the system, so we are not spending time pushing numbers and typing out long reconciliations but rather analysing the numbers and asking why as to how. I do think that every organisation is in the process of automating their systems or has [done so] but I don’t think anyone is at that point where the computer has taken over completely. I do think that in some instance you need your gut feeling to tell you whether the number is right or wrong. So I think it’s a bit of both, where you need that experience, that gut feeling, but also the system to enhance your reporting, to add the efficiencies and to make sure that you’re spending your time where it’s needed. Not focusing on, like you said, the bookkeeping but rather the strategy part of the business and forward looking.
CIARAN RYAN: Would you be involved, for example, in the strategic development of the organisation? You are sitting there at the board and you’re guiding that, you’re providing the figures and the intellectual input on that side?
YUSUF BODIAT: Yes, as an executive committee team we are equally responsible for the strategy and I play a key part in specifically the financial aspect, where we ask what if and what comes next, planning for the future. But also just the overall business strategy, if there are any different opportunities that we need to look at in the future, any changes to the business, those are quite key. To put it simply, in the past people – and not just CFOs, any type of role that you have – you would have succeeded if you were very specialised in a role, whereas I think now you actually need to be well rounded to understand everybody else’s roles. So as a CFO you need to understand the IT aspects quite well, you need to understand the human resources aspect, you need to also understand operations to a large degree and a think the most important thing that a lot of people miss is the risk and compliance aspect because that’s something that if you miss out, you and your company could get into a lot of trouble.
CIARAN RYAN: So a lot of time spent on risk and compliance, no doubt a lot of time spent with dealing with your people, your staff and now you’re having to deal with them on a remote basis, how does that work out?
YUSUF BODIAT: For us specifically it’s working out quite well. As I said, we implemented a new accounting system during the latter part of 2019, where we were kind of forced to use Microsoft Teams specifically in order to work with the consulting firm who was assisting us in building that system. So as the FEM finance team we are working remotely quite well, the team sits on Microsoft Teams the entire day, there are a lot of messages and discussions happening on it. You’d think that we were in the office if you look at the number of comments or queries that are coming through on that channel. I think that the systems do play a big part just because if you do focus on manual paperwork, printing, signing, scanning documents back, that’s where you are going to struggle. If your team is able to work remotely and work with electronic forms, for example, using PDF and Word to do all your work that’s where you can find it a bit easier. The difficulty with working remotely, which I have found specifically, you are not having that face-to-face interaction with your team. I think that’s where we need to find better ways to bond with our team, as much as we put the cameras on when we have our daily meetings to catch up on what the events for the day are, it’s difficult to get that body language and judge how a person is actually feeling and if they are in a good or bad space just for that day. So I think we are in a good place in terms of working remotely, I do think that there’s still a lot of work for all of us just to get involved to make it work better.
CIARAN RYAN: Just a final question here, Yusuf, we are running out of time but you seem to be quite positive about the future, even though the construction industry has been through such difficult times, are you positive?
YUSUF BODIAT: I am positive, just because whether you are positive or negative the outcome would probably be the same, I think it may just be a little bit better if you are positive about it.
CIARAN RYAN: That’s a positive note on which to end. Yusuf, thanks very much for joining us today on CFO Talks. That was Yusuf Bodiat, who is the chief financial officer and executive director at the Federated Employer’s Mutual Assurance Company or FEM.