The Monumental Task of Transforming Malaysian GLCs

The Monumental Task of Transforming Malaysian GLCs

M. Bakri Musa

www.bakrimusa.com

The 2009 midterm review of the ten-year “GLC Transformation Initiative” would have Khazanah, Malaysia’s sovereign fund that controls most of the nation’s biggest GLCs, focus on three major objectives:  one, national development, meaning, growing equity, improving total productivity factor, and developing human capital, specifically that of Bumiputra; two, performance; and three, improving governance, stakeholder management, and shareholder value. 


The last two should be the cornerstone of any corporation; no marks for stating the obvious.

I am surprised that there was any mention that these corporations should also be profitable. That has to be the top priority, a corporation’s reason for being. If it is losing money, then it would ipso facto be a drain on the public treasury. The corporation then becomes part of the problem, not part of the solution. As for the first–national development–that is broad enough to include Tun Razak’s original initial three objectives.

      My model corporation must first be profitable; that is the only way it can sustain itself. If a GLC is not, then it becomes a burden on the government. Then no matter how superior its services, valuable its products, or noble its intent, those would all be for naught. It might as well be part of the public service. A model GLC must also pay its most valuable asset–its workers–well and above the prevailing wages. You cannot be a model corporation no matter how profitable or lucrative your “return on equity” is if you operate a sweatshop and expose your workers to dangerous work environment. Someone else would then have to bear those costs. 


There are other more pragmatic reasons for paying your workers well, quite apart from getting the cream of the crop and then retaining them. The greatest contributor to low productivity of workers is high turnover.

Henry Ford had another reason for paying his workers well. He wanted them to be able to afford to buy his products–Ford cars–thereby increasing his customer base.

A model corporation develops the potential of its employees and not treat them as contingent cost items, to be disposed of when you hit a rough patch, as is the practice with American companies. The Japanese knew something about this, hence the lifetime tenures of their workers, although I would not go that far. That would only replicate the job security mentality and regressive culture of the civil service.

Virgin’s Richard Branson’s top priority is his employees. Treat them well and they would in turn treat their customers well. No wonder his brand is premium.

Last, my model corporation treats the community and the environment where it operates with great respect. It does this through commission, by being positively engaged in the community, and by omission, by not polluting or degrading the environment.

The current buzz phrase to reflect this new consciousness is “Corporate Social Responsibility” (CSR) with its aura of altruism and philanthropy. However, if you cannot link CSR to your company’s profitability then it would remain a fuzzy “feel good” concept. Henry Ford did not have to pay his workers well as there was plenty of them at that time. He did it to expand his market, which in turn contributed to his profits.

Call it what you will, the central idea is to align the interest of all stakeholders–shareholders, workers, vendors, customers, and the community. They are all interrelated. If your community is prosperous, so too would your company as those community members are your potential customers. If your workers are happy, they will do a good job and the products they make and customer service they give will be superior, as per Branson’s insight.

In a “Big Idea” article in Harvard Business Review, Michael Porter and Mark Kramer advanced a comparable concept of creating shared value, of “creating economic value in a way that also creates value for society by addressing its needs and challenges.” To them, “creating shared value is not social responsibility, philanthropy or even sustainability, but a new way to achieve economic success.”

Enlightened corporate leaders have internalized this or comparable philosophy because it contributes directly to their companies’ profit as well as advances the cause of their communities. As a result these companies are widely-admired, valued by investors, and most important of all in terms of social contribution, respected by the communities in which they operate.

Take Nestlé. Not too long ago it was the object of wrath by NGOs and pediatric associations for aggressively promoting its baby formula. The campaign was great for Nestlé’s profits but bad for the babies in the Third World as the milk powder would often be mixed with less-than-clean water. While in the short term the company benefited from the increased sales, in the long run it earned the wrath of the community and professional bodies, as well as mothers. The company suffered not just in bad publicity but more to the point, dead babies no longer needed formula.

Creating shared value is, as its CEO Peter Brabeck-Letmathe put it, “a fundamental part of Nestlé’s way of doing business that focuses on specific areas of the company’s core business activities–namely water, nutrition, and rural development–where value can best be created both for society and shareholders.”

The company has endowed a prestigious award, The Nestlé Prize in Creating Shared Values. Its inaugural winner was the International Development Enterprises in Cambodia. It recruited groups of rural entrepreneurs to be Farm Business Advisors (FBA) to sell a range of products and services to help small-scale farmers improve their farming techniques. Those were simple things like drip irrigation kits to reduce labor and water usage while improving harvest and consequently their income. FBA creates shared value in that if the farmers were to be successful, then it too would profit as those farmers would then buy more products and services from their advisors. The system would flourish only if there were real values being created. As a result everyone would be heavily invested in its success.

Nestlé concept of shared value arose in response to its need for a steady and reliable supply of high quality cocoa for its famed chocolate products. Instead of pursuing the traditional route of scouting the global market to get the best price and quality, or with investing in cocoa futures, the company provided capital and expert help for its existing stable of cocoa planters in Africa so they could produce superior cocoa beans of consistent quality.

The company invested in research in West Africa to produce high-yielding pest-resistant cocoa varieties and shared the results with the farmers. The company also trained them in better horticultural techniques and built schools and health clinics in their communities. Those initiatives were not necessarily philanthropically motivated; instead they contributed directly to the company’s return. If workers had to deal with sick family members, they would less likely be focused on their work. Their productivity would suffer and the absenteeism rises. When they and their family members are healthy they could focus on planting high-yielding and superior quality cocoas. That in turn enables the company to pay them more as it is assured of a steady and reliable source, thus ensuring the future success of both the company as well as the community.

To less enlightened corporate leaders, the digging of wells and building of schools and clinics would be considered outside of the company’s purview even though those investments would directly benefit their vendors and workers. Those expenses were “externalities,” to be borne by someone else, usually the government.

Nestlé could also build those facilities far cheaper than the government by using its economic clout to extract the best bid. There would also be no associated corruption or the local politician’s “take” as there would be with a government project.

Nestles’ concept was comparable to the old company town model where the employer was omnipresent and benevolent, owning the workers’ homes and the stores they shopped, as well as controlling and profiting from their workers’ domestic activities. The benefit however, was all one-way, into the company’s profit column. With Nestlé’s “shared value” concept however, it is the sharing of common or at least agreed upon values, goals and mission between the company, workers, and the community. Nobody is subservient to or controlled by anybody. The benefits flow both ways–for the company a steady and reliable supply of a top quality ingredient (cocoa); the community, enhanced income from producing a superior commodity.

Next:  The Lessons For FELDA

Adapted from the author’s book, Liberating The Malay Mind, published by ZI Publications, Petaling Jaya, 2013. The second edition was released in January 2016.