Learning From Danaharta's Success

Learning From Danaharta’s Success

(Danaharta Can Teach US What Competence is About)

The Sun Daily (Malaysia) May 20, 2005

M. Bakri Musa

The recent announcement that Danaharta will redeem its bonds and close shop by year end is a rare piece of good news. At a time when government-linked companies (GLCs) are synonymous with mediocrity and incompetence, Danaharta’s success deserves greater attention.

There are two aspects: one, to study Danaharta with a view of replicating its formula elsewhere, and two, to analyze why we needed the entity in the first place.
This is akin to the practice in my profession where all surgical complications are reviewed. The purpose is to prevent such complications from occurring, and to learn on how best to manage them should they occur.

Danaharta was set up in 1998 in the aftermath of the economic crisis to relieve local banks of their crippling load of non-performing loans (NPLs). Danaharta’s success is directly due to its competent management. It was the rare instance where then Prime Minister Mahathir picked someone truly smart and capable, and then gave him the freedom to run the agency without political or bureaucratic meddling. Mahathir also appointed a distinguished supporting board.

Danaharta’s first chief executive Azman Yahya was atypical in many ways. Unlike the masses of young Malays in the 1980s who were satisfied with merely scraping through third-rate universities abroad, Azman Yahya excelled at the London School of Economics. He then went on to get additional professional training. Many Malays with an Oxford first degree feel that they are already smart enough to helm billion-dollar corporations; they feel no need for furthering their education.

Azman also defied tradition by opting for multinational corporations instead of the civil service, GLCs, or petty party politics.

Danaharta’s first board was also unusual. Chaired by the distinguished Raja Tun Mohar, it included luminaries like Megat Zaharuddin, an Imperial College engineer and the first Malaysian CEO of Shell Malaysia, as well as two accomplished foreign bankers. At a time when Malaysians felt that they had nothing to learn from foreigners, this was indeed a radical departure.

The management style too was different: open and transparent. Its communications and tender offerings were initially all in English and pragmatically targeted to the audience it was trying to influence. Danaharta operates like a business, acquiring NPLs at their discounted market values. More significantly, Azman Yahya was very visible, often making the announcements personally thus giving the impression of an engaged CEO. What a contrast to the usual Sultan Syndrome that we see too often in the executive suites of GLCs!

Danaharta acquired its first NPLs from Sime Bank, a subsidiary of the GLC Sime Darby. Sime Darby was an old colonial company until it was acquired through a pseudo sophisticated and expensive nationalization scheme. Inspired by the “Look East” policy, Sime Darby was a Malaysian keiretsu wannabe. Buying a bank was part of this “bold and strategic” move. Only problem was, Sime Darby had no competence in that area!

Despite Danaharta’s evident success, there is surprisingly little curiosity or eagerness to learn from it.

Had the Danaharta model been applied to Bank Bumiputra, it could have been the locomotive that would have pulled Malays into the modern economy. Instead, the bank proved to be a huge barnacle that nearly dragged Malays and Malaysia under.

Bank Bumiputra was finally put out of its misery, but not until precious billions of ringgit were exhausted. To many, especially non-Malays, the bank remains the symbol of Malay incompetence in commerce. It is a very painful reminder.

There is also no attempt in examining the nation’s worst economic crisis. Danaharta is modeled after America’s Resolution Trust Corporation (RTC), which was set up to rescue a similar crisis of its Savings and Loans industry. Both the RTC and the industry scandal are now history, but not before saddling American taxpayers with billions of dollars. The only redeeming aspect to that debacle is that the key culprits are now behind bars. The connivance of their politician friends were exposed in highly publicized congressional hearings.

Until Malaysia undertakes similar scrutiny, the more important lesson of why it needed agencies like Danaharta in the first place will never be learned. Consequently, expect more Danahartas in the future.