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Lessons from Leaders

London, 29 May 2003

At the invitation of the Dean of London Business School, Laura Tyson, Tan Sri Francis Yeoh addressed a distinguished audience of Senior Executives under the SEP Programme on Creative Leadership. Yeoh discarded his prepared text and engaged the students directly in his lecture. Yeoh described his experience with the participating executives,” I thought I owed it to them to speak from my heart and off the cuff. I sold my two pennies worth on leadership and bought back invaluable feedback. It was a good bargain. I enjoyed it thoroughly.” After an exciting Q&A and cocktails with the participants, Tan Sri Francis Yeoh attended a dinner hosted by Dean Laura Tyson at her residence. Other luminaries were also present.

Full text delivered by Tan Sri Francis Yeoh:

A Different Leadership Formula

By Tan Sri Francis Yeoh

It is an honour to be invited to the London Business School. I thank you for thinking of me. Although I feel something of an anomaly being on this platform before an audience of senior managers in a programme billed as “Lessons from Leaders”, I feel I should be the one learning from you.

If you know of me at all, I would hazard a guess it is because of Wessex Water. I am the guy that unexpectedly won the bid a year ago for this highly reputable water utility, a former subsidiary of the discredited US based Enron. Only to be immediately proclaimed “the Snatcher” by the “Scotsman” who were somewhat peeved we had beaten the Royal Bank of Scotland to the post.

I shall be explaining later how we did it. But in fact the “Scotsman” got it wrong. They didn’t know English history. Wessex was the ancient kingdom of the West Saxons famous for Alfred the Great who resisted the Danish invaders of the 9th Century. So I am more of a latter day Viking. Not your blonde blue-eyed variety but a black haired Chinaman. That is what globalisation does for you – your borders become porous. It used to be the Brits who were the merchant adventurers who went to the far ends of earth. We are now reversing the process. But I promise not to burn the cakes.

At the time we secured Wessex, one of your newspaper headlines asked, “Who the hell are YTL?” Well, we are an archetypal Malaysian Chinese family business that in the span of 50 years has parlayed a modest construction company into 5 listed companies involved in the utilities, power generation and transmission, transport services and property development. Most pertinently YTL was a pioneer in the field of regulated utilities in Malaysia. We now have an impressive list of regulated utilities across three continents.

We were also in the vanguard not only of Malaysia but of S E Asian countries taking enterprise offshore. Our recent foray into Britain confirmed our status as a global player. The latest acquisition of Wessex Water, which is our biggest investment todate, vaulted us into the big league, registered us in Europe and raised our international profile. That still doesn’t tell you who the hell we really are.

Who are we?

Ours is a very different business culture – a Chinese enterprise is by definition a family business within the migrant tradition. YTL’s late patriarch, my grandfather, left Fujian Province in China in 1920 to seek his fortune in the Nanyang, the South Seas. He started a small timber company.

My father expanded into construction. We – my 6 siblings and myself have taken it much further determined to beat the 3rd generation curse – According the Chinese maxim wealth cannot endure beyond 3 generations.

The London Business School will be familiar mostly with Western concepts of leadership in an individualistic culture that surfaces “captains of industry” who often attain celebrity status – Bill Gates or the flamboyant Mr Branson. To reach the pinnacle is a highly competitive contest rightly dubbed as a rat race. In the group consciousness of the East, leadership is a collective effort based on the highest order of trust, which is kinship trust.

The Harvard Business School with their case study method would probably regard us as clannish. Decision-making is collective. The YTL “Cabinet” meets every Monday morning. As you look at our contemporary face you will see that as we grew and became more complex we had no inhibitions about recruiting professional managers.

They too attend the Cabinet. But family members still make strategy and provide the entrepreneurship; our professional staff provide the management.

We are entrepreneurs because we are psychologically conditioned and inured to risk. Any proactive company wishing to grow and expand has to take risks. If the early migrants to Malaysia, my grandfather included, had not had the courage to venture they would never have left China in the first place. Our inherited migrant mentality derives from those first ancestors who came to an alien and possibly hostile land without the protection of education or kin. They found their security in material wealth. Their one object was to create not just a business but a family enterprise – a family fortress. The profit motive is still very strong.

Today it includes a concern for shareholder value and many other obligations we accept with modern business code of a wider social responsibility.But business and entrepreneurship are in the blood. We are opportunistic. We seize the moment as we did with Wessex Water. No risks, no gain. But we do not gamble. It has to be calculated risk. We believe in business savvy – value good business instinct, the knack of choosing a winner – but tempered always by prudence and due diligence.

Above all we rely on another inherited value – the work ethic on which our entire business credo is based. We work hard. We are hands on. My father in his seventies comes in to work every morning. Programmes like “How to become a millionaire” and other get rich quick fantasizing does not appeal. Success has to be earned, the hard way.

I am asked what made me personally a leader I would have to say it was preordained and guaranteed by the accident of birth. I was the number one son. The Chinese family business operates on primogeniture. Having said that, the road to top was no joyride. I had to be inducted from an early age. The dust, vibrations, the pounding and piling of construction works are part of my earliest memories.

My only idea of sightseeing was touring construction sites not Disneyland. Later as a teenager I sat in on Board meetings. I learned some painful lessons like all the family, relatives and all, chipping in to pawn their jewels to save the family concern in the 70’s when the oil crisis hit.

My father and grandfather had been denied any tertiary schooling, so they were determined the next generation would be armed with a good education. So I was sent to England to study civil engineering in England. I had to graduate with honours! I was the role model for the next generation. The family business was an inescapable destiny. Today, I can still detect the amount of sand in concrete merely by the feel and can soon spot sloppy contracting work.

My father departed from the normal Chinese practice. The patron retains control to a ripe old age. He shove the reins to me immediately on graduation. There was no time to waste. The journey starts! I, however, was thrown into the deep end in the belief that I should be allowed to make my mistakes early when they would not be so costly. And so I was given the freedom to indulge an entrepreneurial bent from young.

The element of trust was there from the beginning. Yes, I am motivated by success but not so much for private or personal wealth. The so-called spoils of success are in any case shared. What drives is the obligation – the sacred trust to expand the business to hand on to future generations. There are at present 27 members of that next generation readying themselves to take over. We will have to expand the business further to accommodate them.

Not all Chinese enterprises outgrow their original business. That contrarian streak in our family that I freely confess to have inherited helped us strike out. For one thing we do not follow the Chinese tradition of discarding the girls. Being a Christian concern and operating as a caring “family” we do not retrench workers, therefore we do not over hire.

You still need strategy. Wessex Water affords a useful case study. Globalisation had opened up limitless opportunities. We at YTL resisted the stampede to the huge markets of China because we felt they were not yet ready. Nor did we join our Malaysian Chinese compatriots beating a sentimental path back to our ancestral village. The world was our oyster. We were looking for regulated businesses.

We know from our own power generation plants that these are good, risk free businesses. And even without this very relevant experience of our own we had the salutary lesson of the Californian deregulation debacle as a salutary warning. We were able to play to our strengths. Regulated operations had become our core business in which we were building valuable technical, managerial and financial expertise.

Infrastructure has always been our business. It is a worthwhile thing to be in. As history teaches, the ancient communities of Mesopotamia and the Nile were transformed into fertile agricultural lands with the invention of irrigation systems. Companies in infrastructure in Malaysia are the strategic enabling industries that are helping create the advanced environment of our Vision 2020. Power and water are life technologies – they provide vital services, therefore to a degree are protected. They have a guaranteed cash flow. People will always need water and electricity. And the demand is constant – not hostage to business cycles.

We were also looking for quality. What came up was Wessex Water beleaguered and debt burdened but well ring fenced so that in itself it was profitable. We were able to satisfy ourselves that it had one of the best technologies for the supply of water together with the treatment and disposal of wastewater. By this time we were had billions of regulated assets under our ownership and management. We already had some experience.

The acquisition of Wessex Water for £1.4 billion was regarded a corporate coup – almost became a case celebre. We were up against a consortium of heavy weight banks – the Royal Bank of Scotland, Abbey National and Goldman Sachs – firm favourites to win. Hong Kong tycoon Li Ka-shing was another, and no mean rival.

We managed to outmanoeuvre them in a manner that was perfectly open and above board. The end was dramatic but it was preceded by a lot of sheer hard work – and what proved the decisive factor – an uncanny sense of timing. We were able to pip our competitors at the eleventh hour by a last minute marginal increase in the offer price. Our proposition was simpler, more straightforward, needing the least number of approvals, and therefore faster. We knew the Wessex parent needed money fast.

If I were asked what was the secret of our success I would have to say personal temperament came into it. The temperament comes from my total faith in God. It needed a strong nerve. The repercussions were interesting. At home it silenced our critics who had attributed our business success to high connections and patronage.

Here we had made it big, unaided, and became a force to be reckoned with away from our home turf. “Cronyism” could hardly extend to Britain. I am grateful for the support and encouragement of our Prime Minister in the spirit of Malaysia Inc the collaboration between the public and the private sectors. I derive inspiration from his visionary leadership, not handouts. Dr Mahathir is a man who loves taxpayers because they swell the coffers. My relationship with him is primarily as a taxpayer.

The analysts promptly expressed approval of the Wessex deal. The shareholders also concurred. Where in the past billions of unutilized cash were sitting pretty in the bank earning a mere 3% interest, now the money was put to good use. We have always been concerned to maximize returns and increase shareholder value.

If YTL has a differentiating strength it is in the area of innovative financing. The huge projects, including Wessex that have dominated the corporate map in recent years need tremendous project financing. The choice of safer regulated assets gives us a prior advantage. The banks like us. But we tend to be unorthodox in our gearing. Way back when we got the first …independent power plants in Malaysia, we insisted on financing them in Ringgit.

It would have been cheaper and easier to go to the greenback. Our strategy proved a blessing in 1997 when we were spared the foreign exchange losses that decimated many of our compatriots. Most companies moreover can obtain finance up to 10 years for these ventures. We managed to stretch the loan to 15 years, which shocked the bond market, we invented the 15 year bond market in Malaysia.

When making the case for project financing the acid test is an assured cash flow and the prospect of reasonable returns. We do not resort to recourse debt.

Today, our strong balance sheet makes us a formidable player. If the proposition is right we can do a One Billion US Dollars worth of new acquisitions per year without stretching our reserves.

We keep in reserve a considerable nest egg close to 5 billion Ringgits. We do not bet our last shirt. Nor have we ever been tempted to fritter our money on grandiose schemes – have never over reached ourselves. We believe in prudence – and there will always been one of those siblings in the family Cabinet who is an accountant seeing to that. Multiple ownership means multi disciplinary talents at our disposal. The family is highly supportive of each other.

However once we have left the negotiating table and the deal is struck the real task begins. A lot of technology, financial planning and good quality management is needed to implement infrastructure projects. This is precisely where we have built our core expertise. Business diversity, and ours is now quite extensive, serves to raise business proficiency. We eliminate a lot of inefficiencies – cut a lot of the fat from the system. Our focus is consumer needs. We aim to deliver high level services at low prices – a First world product at Third World prices. Our express rail link to the KLIA is the cheapest in the world. Our products are priced to be affordable to the consumer.

We bench mark against both international standards and the Chinese work ethic. We pride ourselves on delivery in record time even if it means working around the clock. In Malaysia construction sites are never still, not even on Sundays and Public Holidays, or through the night. It’s a 24-hour activity. When our famous and fabulous Twin Towers were being built YTL achieved a 54-hour continuous cement pour for a 4.5-meter deep foundation.

But in going global there is a new dimension to be tackled. When you cross national boundaries you cross cultural frontiers. When you think globally you also find yourself acting locally. In taking over Wessex Water we inherited a foreign work force, which mandated cross-cultural understanding. It was our first big foray into Britain. But we were comfortable on two counts. First, the pillar-boxes are red, the traffic drives on the left, English is spoken.

In Malaysia the British legacy is our democratic system, our institutional framework, our rule of law and our business culture. We feel at home here. Secondly Malaysians are comfortable with diversity. We have a long history of dealing with multicultural, multi racial differences. It is if you like our specialty, our social technology. We respect local cultures. This brings me to the question of ethics.

Honesty in Chinese business is a strict code of behaviour within a moral and philosophical framework at the center of which is the overarching virtue of trust. Trust in business dealings is more potent than the black letter law of the contract. Not that we don’t honour our contacts. At YTL amongst the siblings’ Cabinet there is a lawyer present, vigilant in ensuring compliance with all our legal obligations. But trust is a categorical imperative. To understand this we have to go back to cultural values. In the East relationships are of prime importance; logic and law, in that order, come after in the scale of things.

In America being a supremely individualistic society, law which exists to protect the individual, comes first, logic next and relationships last. In Europe with its centuries old tradition of good rational analysis, it is logic first, then law and relationships very much last. The West fears to compromise the objectivity of its business dealings. In my part of the world moreover, relationship are more than chemistry but relationships of trust. A man’s word is his bond.

To betray this is to lose all. This is all the more pertinent in today’s world where the culture of violence and fear has led to a deep erosion of trust among nations. Malaysians believe in constructive engagement between countries.

Malaysian business elevates corporate citizenship to a global commitment. Corporate governance, financial transparency, accountability are all part of our integrity system. And so what is leadership in the modern context? It has been said that globalisation has created a level playing field. But as our Prime Minister points out it is not the playing field that matters – it is the players.

And all too often it is a case of giants versus dwarfs with the developing countries cast as dwarfs in this universal contest. I’d like to think that for once we at YTL have been able to take the field among the giants and that we shell be able in future to continue to compete on a global scale.As a final word if I were to single out the definitive characteristic of a leader it would not be the textbook application of the universal science of management. It is being the first mover – seizing the right time. And daring to be different contrarian even.

With YTL quite often when others don’t want something we want it – and have often succeeded. You can be different if you make sure you don’t get in trouble.

You have to be something else also – an enthusiast – to have passion. People tend to see “utilities” as the name implies as boring. They are not – they are exciting. There must be an element of passion in enterprise as well as in, say, politics.

Once again who really the hell is YTL? To our critics, we are like Don Quixote, we dream the impossible dream. To our supporters, they know we will march into hell for a heavenly cause. Wessex’s concession in perpetuity is the nearest thing to eternal life that squares with my faith. As a practising Christian I see myself as a humble steward of God’s wealth. And in the final analysis for me, it is God who writes the script and I am just a little willing pencil.

God bless you and thank you very much for your attention.

London Business School Address by Tan Sri Francis Yeoh, MD of YTL Corporation, in London on Wednesday, 28th May 2003









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