A tone from the top

Continuing with the highly successful Chairmen’s Forum late last year, the Sri Lanka Institute of Directors brought together yet another distinguished panel of business leaders to elucidate and evaluate the importance of setting the tone of a company right from the top.

The panel discussion aptly titled, ‘A Tone from the Top’ did just that on 31 October 2012 and featured the heads of 4 leading business entities namely, Abans (Pvt) Ltd Chairperson/ MD, Aban Pestonjee, Cargills (Ceylon) PLC Deputy Chairman, Ranjit Page, Hemas Holdings PLC Chairman, Deshamanya Lalith De Mel and Nestlé Lanka PLC’s former Managing Director/ CEO, Alois Hofbauer. Editor-in-Chief of Capital Media, Shamindra Kulamannage moderated the discussion which took place at the Cinnamon Lakeside Colombo.

The discussion focused primarily on comparing and contrasting the knowledge gained in business school with that acquired in the old fashioned way; through one’s own experiences and lessons learned along the way which were beneficial to both the individual and the corporation. In doing so the panelists shared their own individual experiences, the starting points of their careers and the efforts taken by them to lead the way forward whilst meeting the needs of that all important person; the customer.

Opening remarks

Opening the discussion Cargills Deputy Chairman Ranjit Page referred to the starting point of Cargills, a general warehouse, import and wholesale business that was begun in Colombo in 1844 and its journey there onwards, to become a well known super market chain today with outlets throughout the country. Speaking on the mantra adopted by the company, Page singled out the chief focus points which were adhered to throughout its history: “We looked at what was required for Sri Lanka rather than bringing something from the outside. For this we needed to understand the community at large which included those beyond the urban areas. We looked at the talents of the youth of the country and encouraged them to come up with innovative products and services.” The introduction of ice cream with pieces of fruit in it for example was one such innovation.

The above also required an understanding of the business itself. Food being their primary business involvement, it gave Cargills the opportunity to serve whilst finding ways and means of making it more affordable to all: “At the end of the day carrying a business forward depended primarily on building a brand and making it stronger through the building of trust and values which ultimately required an understanding of the customer.” Page further added that the secret to Cargill’s success was more a simple ‘home grown’ approach rather than a lesson learnt from overseas or in business school.

Referring back to the history of the now well-known consumer products outlet, Abans Chairperson/ MD Aban Pestonjee recounted the hardships involved in starting a tiny shop around the corner during the period of the closed economy. Being a housewife herself the shop was initially set up as a means of reducing the burden placed on the housewife. This however gradually evolved into a power house that catered to the many requirements of equipment for households as well as offices and showcased a variety of leading international brands. Reminiscing on her initial purchases of electronic equipment from embassy auctions; she shared how out of a purchase of twelve washing machines two were purchased for spare parts with the primary goal of after-sale service. The shop around the corner in time progressed into a number of outlets throughout the island and the workshop Mrs. Pestonjee carried out in her garage initiated the many service outlets islandwide.

Hemas Chairman Deshamanya Lalith De Mel speaking on the importance of managing people referred to the significance of gaining commitment from one’s subordinates, peers and superiors as opposed to the setting about of new strategies and theories learned in business school: “You may learn a variety of new and interesting theories on running a business successfully but all of this may amount to nothing in an environment with low or no people management skills.” Using an example from his own career, De Mel shared amongst those present, an approach of devoting 2 days every week of his tenure as Chairman to meeting with trade unions. He was of the view that a cup of tea with the Chairman was a more effective way of solving issues rather than anything else learnt at business school. “The key to a successful business is the management of people and building strong relationship.” De Mel opined.

Nestlé, a household name in many countries, is the world’s largest food and beverage company and has been in Sri Lanka for over a 100 year said outgoing MD/CEO Alois Hofbauer. He drew upon the long history of Nestlé and its humble origins in Switzerland, a small country which turned to global integration through their businesses and companies. The history of Nestlé goes back 140 years to a Pharmacist by the name of Henri Nestlé. The company has operated on its philosophy of ‘Creating Shared Value’ ever since.  Nestlé believes that in order for a company to be successful in the long term and create value for its shareholders, it must also create value for society. They call this ‘Creating Shared Value’ or CSV. Speaking on the Sri Lankan CSV experience Hofbauer pointed out that more than 90% of Nestlé products are produced locally rather than being imported. As a result Nestlé contributes to the livelihoods of over 18,000 local dairy farms at present, he added.

People management

Manpower is one of or the most important asset of a business entity. As it is ultimately, the people of a company that delivers the goods, the base of a successful company lies in people management. Relating to his experience at Reckitt & Colman, UK, De Mel recounted on how important it was for one’s subordinates to believe that you are reasonable and the setting of tasks, goals and Key Performance Indicators (KPIs) being instrumental in this regard.  He further noted that maintaining a periodic conversation with the overseas or rural subordinates and building trust between them was beneficial.

Adding to the above Page spoke of the open door policies which enabled any employee to approach the management, amplifying the trust between both parties.  One must ‘walk the talk’, lead by example and be answerable to the community.

Business integration

Successful multinationals have one thing in common; A proper mechanism of integrating one’s business in other countries. Speaking on this, Hofbauer described his experiences in Taiwan, China as well as Sri Lanka. Being a business concerning food and beverages, it was important that its products were something very ‘local’ and ‘closer to the consumer.’ Taking Nescafé as an example, he pointed out that even recipes of certain products of international brands could be changed to better suit the local consumer.

Going further on the importance of integration, he stated that it enables ‘giving back to society’ and thereby eventually building one’s own consumer base. It is a cycle that is helpful to both company and the community at large. ” he added.

Facing crisis or conflicts in attempting to conform

Conforming to new practices is not easy. Referring to the supermarket industry in the country, Page felt that for the above to be a reality there was a need to convince the directors and shareholders to keep investing in changing people’s habits and ways of shopping. The changes had to be dealt with inside the boardroom and not merely the market place. He further pointed out that in this aspect it’s not just the brand name but also the manner of driving the volume up, bringing in the efficiency in the products supply and eliminating the waste in the supply chain that can bring about a reasonable return.

“In the industry we operate, there are not many strong Sri Lankan brands. We spend a lot on international brands even though these can be produced locally. We need to develop the daily consumables, and create more brands” he added. This plan he said was quite successful. Speaking on the initial stages of the business he recalled how guts and will power together helped in revolutionizing the super market industry in the country.  “Friends used to tell me not to waste my time by getting into manufacturing. If we hadn’t gone into manufacturing, there wouldn’t be a Cargills today. The market and the country situation and circumstances led us to start manufacturing and we asked the questions: “What do they eat?”  “What do they want to eat?”  “Can they afford it?” We used this as the foundation of our business and made decisions as a team and not as individuals.” he stated.

Replying to a question raised by a participant on conforming to consumer needs, the panel shared the following thoughts. Hofbauer stated that the first insight used by Nestlé was from the inside. He added that Nestlé used its employees; 99% percent of who are locals, as a base to develop new products to suit the country as a whole.  “When we develop new products these have to be liked / loved by our own staff before they are produced to the marketplace. I am more of person who goes into households and conduct qualitative studies rather than quantitative researches. We have to be in touch with the consumer and be close to the product by loving what we are doing, the products that we are manufacturing and by understanding how the products work.”

Providing another angle to the above, Aban Pestonjee whose company dealt mainly with imported products ranked quality and customer care as primary concerns stating that no amount of marketing can succeed in the sale of goods that were clearly not of good quality. Speaking on the difficulties faced in the early years of Abans, during the country’s transition from closed economy to open economy, she stated that even in the absence of bank facilities, it was the persistence, focus on after sale service and loyalty to her customers that enabled her to strike an agreement with Electrolux, her first principal, leading the way to many others.   

Business instinct

A good business also involves good business instinct. Sharing one of his experiences as an employee of a multinational, De Mel spoke on the advice he received from a senior official that proved much more significant than that gained in college: “I was asked by the Chairman of a company to do a board paper prior to an acquisition. Whilst I was taking him through the paper, I could see that he was getting annoyed and finally he shouted out ‘don’t confuse me with all of these facts. Just write a paper that the board will approve.’ Thereafter I sat down and thought about what each Board Member was concerned with and wrote a paper that answered all of that. My paper was approved by the board. It transpired that the Chairman’s gut feeling, a result of the many years of experience rather than a mere ‘instinct,’ helped me that day. Take the gut feel of a person with a lot of experience rather than that of a person without the experience.” he stated.

Hofbauer shared an incident which took place over ten years ago, when Nestlé sought to introduce a brand of liquid coffee in China – something that was virtually unheard of at that time and place. After months of planning and restructuring strategy their joint partner decided to pull out of the project leaving Nestlé to continue with the project on its own or withdraw. Their decision to continue with it ten years ago and the years of hard work resulted in a business worth over USD two billion today.

Other factors pointed out by the panel included the creation of realistic budgets rather than producing those for the mere purpose of pleasing the board, being aware of the needs of the customers, keeping a step ahead of your competitors and ‘sustainable value creation’, a process that encourages unlocking value in the future which is a long term vision rather than a short term goal.

Speaking on expansion De Mel pointed out that the situation in Sri Lanka is different from around the world due to the smaller market which provides limited opportunities: “Say that you are doing a business well. But the market is small and even though your business is throwing out a lot of cash, what are you going to do with that? You have to then move out of your safe, comfortable area and move into new areas. When you go into new areas, even though you may have the successful formula in business processes you may not have all of that knowledge which is intimate to that product. This is why you have conglomerates in Sri Lanka. You want to grow, and you want to grow at a certain rate but you can’t grow in your segment; hence you move into new segments.”    

Speaking on the above, Pestonjee added that successful expansion can be achieved by companies expanding on their core businesses which are areas that they are familiar with. She took as example her own company, Abans which has expanded its business in the avenues of finance, transport… etc.

Answering a question on the Code of Ethics and shareholder value of corporates, the panelists had the following to say. Page spoke on building the trust, being innovative, maintaining a happy workforce and customers. This he said added to shareholder value. Further the Independent Directors, and the Sub Committees led by these Independent Directors served in maintaining the ethics factor of the company.

Speaking on the above De Mel added: “One has to increase shareholder value. This is a fundamental job of a company and its management. To do this you must continuously increase your capital base and sustain or improve the return on the capital. This means that from the cash generated you are increasing your capital base, expanding your activities, going into new activities and at the same time keeping your return on capital employed or aspiring to increase it. That is increasing shareholder value.” Speaking further on dividend payments he added: “Part of the cash you generate will be paid out as dividends. The benefit to the shareholder comes in two ways. Cash dividend and by increasing the value of a share. If you have a good market both of these will work. But unfortunately the Colombo market does not work quite logically.”

A question was asked on bribery and corruption and the stands taken by the private sector in particular with regard to this. The role of Independent Directors was highlighted which saw the panelists share their views on the overall role of corporates as well as the citizens.

Answering a question on doing the ‘right thing’ as opposed to ‘the most profitable thing’ each panelist referred to an individual experience that led to a landmark change in the company. Mrs. Pestonjee shared with the audience her experience in receiving the agency of two competing brands merely by being honest and refusing to give up the trust of one principal for the other whilst Mr. Page related how listening to a set of farmers speaking their hearts out on being unable to get a market to sell their produce, led to Cargills spearheading the use of plastic crates in reducing wastage during the transportation of food from the central province to Colombo. He spoke on how the innovation of the supply chain proved to be the turning point of the company’s career and eventually brought down the wastage factor to a single digit. This has also led to certain international rating agencies carrying out studies on the supply chain of Cargills.

Responding to a question on recognizing and dealing with the shop around the corner that offers informal credit, the panelists felt that one should try and make one’s business more competitive through its internal processes rather than looking at the shop as your competitor. For this purpose you need to create a new market with the convenience, perhaps in opening hours, quality of service, customer care etc.

In closing, the panelists responded to questions on identifying and nurturing young leaders by listing out qualities such as commitment, loyalty, and willingness to change. Team players were regarded as a good asset although it was also suggested that certain individuals perform quite well on their own. Hence it was up to the management to identify the areas in which its employees showed greater capability.

Whilst Page believed in looking at internal talent and growth within the organisation and creating an environment that enabled a person to grow from the bottom and remain within the organization, it was also stated that in certain circumstances particularly in the aspect of skilled labor, training was a continuing process, with many employees opting to leave for greener pastures. In such situations it was invaluable that greater efforts are made at training whilst making the workplace friendly enough to make them stay.

In closing the panelists offered suggestions on constructing a brighter future for the country such as conducting sustainable business practices and ensuring a proactive private sector that was willing to collaborate with the government to address regulations that throttle growth and to help to build a framework rather than sit back and complain.  This successful evening was sponsored by Dialog Broadband Networks (Pvt) Ltd. The print media sponsor was Wijeya Newspapers Ltd.