SLID and top Chairmen delve into ‘Performing While Conforming’

By Cassandra Mascarenhas

The Sri Lanka Institute of Directors (SLID), as part of its ‘Power Evening’ series of events, presented an eclectic combination of chairmen from leading organisations in the country last week and at the occasion delved into the subject ‘Performing While Conforming – What the Textbooks Don’t Teach You’ by sharing experiences from their long and illustrious careers.

From left: MAS Holdings Chairman Deshamanya Mahesh Amalean, Sunshine Holdings Chairman Rienzie Wijetilleke, Thought Leadership Forum Chairman Ranel T. Wijesinha, JKH Chairman/CEO Susantha Ratnayake and Singer Sri Lanka Chairman Hemaka Amarasuriya

Held at the Cinnamon Lakeside, the power evening featured MAS Holdings Chairman Deshamanya Mahesh Amalean, Singer Sri Lanka PLC Chairman Hemaka Amarasuriya, John Keells Holdings PLC Chairman and CEO Susantha Ratnayake and Sunshine Holdings PLC Chairman Rienzie Wijetilleke. The session was moderated by Thought Leadership Forum Chairman Ranel T. Wijesinha.

In his introductory remarks, SLID President Ronnie Peiris stated that events such as these are held to encourage governance and best practices both at the corporate and boardroom level and are used solely for the furtherance of the institute’s objectives.

“Today’s theme being on governance and leadership, it is said that governance and leadership are like the yin and yang of an organisation. Leadership without governance will invariably result in anarchy, feudalism and fraud whilst if we have governance without leadership, it will possibly lead in atrophy, bureaucracy, indifference and mediocrity,” he noted.

“In the four panellists today we have four gentlemen who have learned how to mix the right combination of governance and leadership in bringing their organisations to levels which are above average. They have let their organisations and differentiated them from the rest of the pack.”

Q: Can you share with us a green field project that you were engaged in and what challenges you encountered?

Amarasuriya: This project was way back 25 years ago, but the lessons learned and the processes undertaken remain relevant even today. This was the time of the JVP insurrection and there were no investors forthcoming, nobody wanted to invest in this country, not foreigners and not locals and the country was virtually held at ransom by the JVP.

I had just been onboard for a year or so and I wanted to get the show on the road, we were looking at market leadership and the only way we could get there was by taking over the manufacturing segment.

It’s about the refrigerator business and how we set up refrigerator manufacture here, all with local technology. We didn’t buy any technology from overseas because I was in a hurry to get the game on the road so through our very innovative engineers, we started this project much against the opposition of the local manufacturing industry which had some very powerful people who were very closely aligned with the government of that time.

Q: What would you say was your motivation to start that project?

Amarasuriya: It was our goal to be a dominant player in the home appliance market and the only way we could get there under those circumstances of tariff barriers was to manufacture locally, there was no other way.

Q: So in terms of sourcing raw materials or anything else, what would you regard as your key challenge?

Amarasuriya: The opposition of the local assembly, who as I said before were funders of the government. Secondly, the foreign brands that were coming through the duty free and thirdly, we lacked the intellectual property knowledge of technology which we had to innovate by learning from others. There was a goal in front of us and the main thing was to get there, whatever may be the cost so we dared to nearly do the impossible under those circumstances.

Q: The term ‘going perpendicular’ means to get out of your comfort zone and stop hugging the shorelines and I’m sure in your career you have gone perpendicular and if you did, can you share with us an example.

Ratnayake: John Keells has gone perpendicular on many occasions but for us at John Keells, I think the game changer was SAGT, which was in 1995 when we were part of the Colombo port project. It was a large project by any standards; it was $245 million and certainly by Sri Lankan standards very large and it was even more challenging because at that time in 1995, John Keells profits were about four million dollars so the sheer scale and diving into something like that was a game changer that propelled us into a different league.

Q: Since that was very new, it must have been the first PPP as well?

Ratnayake: It was the first PPP, first large project financing, and was the first of its kind. We all had one goal in mind because initially even at a board level, there was a lot of nervousness on that board because this could have broken John Keells.

There were doubters as usual but Mr. Balendra quickly got everyone on the same page, picked a team to run with it and trusted their instincts because this was ground breaking stuff, never done before.

There were a lot of critics out there but in that sort of environment you have to pick the right people and trust their instincts, you can’t second guess them and that was how this project was done. It was a very small team. One thing, in projects like this, you cannot have large teams – keep them small and focused.

We also had to do it differently as it was such a large project and the type of money it required for us was difficult, so we had to structure the project and phase it whilst we were constructing.

We were also operating at the same time so we had revenues coming in that eased the pain, and with this project, we made money from day one, from the very first month of operation. We eased the pain on the company by structuring it differently. We didn’t have the money, we borrowed. I think it was Standard Chartered who very graciously came out and gave us a line of credit for $25 million.

Q: Could you share with us what the strengths of the banking system were in the late 90s in Sri Lanka, was it about regulation, self governance, the work ethic and I would like to link this up to the recent crisis in America?

Wijetilleke: Actually HNB was directly affected by the East Asian crisis at the time, we had to take over certain facilities from the Emirates Bank at that time and it was doing very well but with the crisis coming up, we had started smelling the warning signals and then the crisis occurred.

At that time, the Western countries were very strict about playing a role in the management of financing bad debts in banks. A few years later, the Americans and British were compelled to take over the banks and now they are the majority shareholders of their own banks.

Q: There is a conception that the systems in emerging countries are not that strong and in that instance, in 1998, were our systems, particularly in banks, were we stronger than the banks of Japan and other Asian countries?

Wijetilleke: At that time in the 80s and 90s, the banks here did not have these governance requirements as a conscious requirement but we were simply following those things through unwritten law. In fact HNB and Commercial Bank have an excellent track record of 15 to 20 years of adhering to regulations without being questioned and without having to be told that it had to be done. We were far more superior in adhering to regulations. Things completely overturned when the actual global crisis occurred and it was clear to all of us that the managements of those banks had ignored these requirements. So that is where Sri Lanka definitely came clear.

Q: Do you go looking for wild ducks and if they go tame, what do you do with them?

Amalean: I really don’t know how to answer that question! I think the question is quite appropriate for us during the period 2000 to 2010. From 2003 to 2005, we were coming close to a period where the industry was facing a critical time. Interestingly enough while the industry was preparing for a difficult period, our business was doing exceptionally well.

In fact in 2005/06, it really took off contrary to what we believed. But under that top line, along with that a lot of the other costs started to go up, manufacturing costs, overhead costs, cost of servicing customers, etc., and this was very concerning but because the top line was going up, we didn’t really see this.

I had the opportunity of being a part of the delegation in 2002 to travel to Japan during a conference and I saw manufacturing excellence in all the companies there. Interestingly enough, in 2004 we returned to Japan and we spent the time visiting places, understanding the philosophy and the culture of the organisations.

We then ran an initial pilot at MAS and this showed some really interesting results in terms of reducing costs, operating efficiencies and we then decided to cascade it to the rest of the organisation and because we had brought in this manufacturing philosophy and concept in 2004/05, from the bottom, when we were having trouble in our operations three years later, the cost benefits started coming in and this made a huge change in the organisation and in my view, saved the company.

Q: How do you do your headhunting – how do you identify the talent and how do you retain them and why did you have to go through the downsizing?

Amalean: I think initially we were extremely fortunate to attract some very good talent in the first instance and one of the reasons we were successful in doing that is because we were a joint venture so the profile of the company in the industry was quite high, it was one of the few companies with a joint venture with a MNC so the people joining us were not joining just a family business but were joining one with a joint venture with an international company and also owned a high profile brand like Victoria’s Secret. So with that as the background, we were really fortunate to attract some really good talent in the first instance itself. Once we did that, we had the good fortune to get access to the marketplace, whether it was the US or the UK and to bring home to Sri Lanka world-class technology. These people also got benefit of the good practices that these joint ventures brought, good governance, management practices, HR practices and so on.

Q: When you say good governance, is it as a result of your partnerships that prompted you to build a green factory; what influenced you to invest so much money?

Amalean: We went into the villages and we really saw the difference between the global environment and the village environment and the lack of so much infrastructure and support – whether it was hospitals, schools and such. Over a period of time, we started doing a lot of things in those areas and slowly that became a part of our game plan, of doing the right thing and ensuring as we got benefits out of those locations, that we gave back to the community.

So when our customer Marks & Spencer came up with that particular programme in order to go green, one of their activities was to work with the supply chain to set up green factories. In all fairness, the idea came from them but because of the things we had done in the past, this seemed like the right thing to do next after compliance.

Q: JKH has gone through a series of acquisitions – can you share with us the experience of your Asian hotels acquisition?

Ratnayake: The whole rationale for this was we had this land bank which was totally unutilised and we wanted to unlock that barrier but unfortunately we had not used these assets very productively.

We saw Asian hotels suffering and this had been offered to us some time ago but for some reason we had not looked at it. It was a land deal – we were getting 850 five star hotel rooms for something like under $70,000 a room. To build with the prices of land at the time would have cost us something like $350,000 per room.  The experience that we had there helped us develop the rest of our land bank. We had to make a call during a very small window – again we didn’t have the money but once we decided to go ahead with the deal, we asked Ronnie to call the banks and get some finance and he managed to do that with one call I think.

The brilliant part of that project was the execution. This was during the ceasefire and we knew we had a small window. The execution was meticulously done, we knew exactly who was going where and who had to do what and it went like clockwork and that’s what made this an enormous success. A year and a half ago, we sold five percent of Asian Hotels for $ 25 million dollars.

Q: You were being critiqued in the marketplace for buying it at a price much higher than the normal rate.

Ratnayake: Yes we were found fault with but we were convinced that what we were doing was right. Again, it’s a matter of conviction, when you make a decision you have to have the conviction that you are doing it for all the right reasons and you have to back it 100 per cent.

Q: Would you like to share with us the details about the Sisil acquisition?

Amarasuriya: We had a very challenging target of a 50 per cent market share on our top line and there are two ways you can reach that target. One is to move your revenue line up to the normal strategies and tactics and the other is to buy out the competition. Not destroy the competition, but nicely buy them out.

So the first candidate was Sisil, we debated and negotiated for a long time and we bought the brand – it was not a company acquisition but a pure brand acquisition and it was a win-win because Sisil took the money and started buying AMW shares and became the major shareholder and sold them just before the financial crisis hit in 2008/09.

Then we bought the first electronic brand in this country and it was popular in the Southern and North Central Provinces and the third step was to acquire the Hayleys Consumer channel and these were all win-wins and both parties benefitted.