Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : SHANGRI-LA HOTEL, KUALA LUMPUR
Tarikh/Date : 27/05/94
Tajuk/Title : A DINNER BY THE HARVARD CLUB
OF MALAYSIA
I wish to thank the Harvard Club of Malaysia, for
giving me the opportunity to be with you tonight and to
deliver a speech on 'The Management Philosophy for
Malaysia'.
2. As a nation, we have 37 years of experience in managing
the transformation of Malaysia from a two-sector primary
producer into a vibrant and broad-based "economic miracle",
if I may quote the World Bank. We have learnt many
important lessons in management during this period. Looking
back, I think we have managed to get to where we are today
simply because we dared to change: to possess the humility
to accept what cannot be changed and the courage to change
what cannot be accepted, and the wisdom to distinguish one
from the other.
3. Since Malaysia's goal is to join the ranks of the
industrial nations, it would make sense for us to study
their accomplishments as well as their failures, and to
emulate their management practices to the extent that they
can be of help to us. Frankly, there is no shortage of
management literature on the success stories of Japan and
the West. However, it also appears that some of the best
management theories and ideas have proven to be mere passing
fads, or to fail when challenged.
4. The 1980s witnessed a spectacular rise of management
schools, management consultants and gurus who capitalised on
the insecurities of Western managers fearful of foreign
competition and economic decline. The new gurus give
importance to the human element in management philosophy.
5. Amidst all this gurus' hype and the lure of new
management fads, what can we in Malaysia use, if at all?
Stripped to their essentials, these management theorists
have two things in common: First, they are all on the side
of change; and second, they all provide lots of expertise
for us to sift through and to choose from.
6. Malaysia has moved into big business. Billion ringgit
companies are not so uncommon now. Obviously huge
diversified corporations cannot be managed like a family
business or a sole proprietorship. Big corporations need
professional managers. Sole proprietors and company
founders are seldom trained professionals. To expand and
build a business empire the proprietors and founders need
the help of professional executives, CEOs and managers.
7. But in the U.S. the pendulum has swung too far.
Professional executive officers and professional managers
have come to be regarded as so important that the
shareholders, even substantial shareholders, have lost
almost totally their influence and role in the company.
8. Power corrupts. The powerful CEOs in the U.S. and
other western countries are no exception. And so we find
that by 1993 most U.S. CEOs make about 150 times the average
salary in his company. In 1974 it was only 34 times. The
CEO of Walt Disney took in US$203 million in 1993, about one
half million US dollars a day. The CEO of Travellers came
in second with US$53 million. The record went to junk bond
dealer Michael Milken who took home US$550 million in pay.
You all know where he ended. Even bankrupt U.S. companies
continue to pay huge sums to their executives, the managers
who had apparently managed the companies to bankruptcy.
9. Why did the shareholders, the owners of the
corporations tolerate the grasping CEOs and executives like
Milken? They tolerated because public adulation of the CEOs
has made shareholders almost irrelevant to the company.
Holding only a tiny fraction of the shares, widely
dispersed, without the means to know and to contact each
other, they depended almost entirely on the glossy quarterly
and annual reports for information on their investments.
The CEOs and executives were not beyond misleading them
through these reports.
10. Knowing that the main concern of the shareholders was
the dividend paid out, they made sure that the businesses
generated handsome profits. This was done by cutting back
on research and development, by sale of assets, by not
expanding or diversifying. It was fine for as long as they
had no competitors. But the moment competitors,
particularly foreign competitors, appeared on the scene with
better and cheaper products, the profitability of the old
corporations could not be sustained. And so in the late
80's the great corporations of America fell one by one.
11. But the CEOs and the executives were not worried. They
had already prepared golden parachutes, etc, for themselves.
They were replaced at great cost but the new incumbents were
just as costly and as powerful. The basic philosophy
remained.
12. The Japanese too regard their shareholders as
irrelevant. But a different culture prevails in the great
Japanese corporations. CEOs and executives are not highly
paid. Instead they are long on company loyalty, regarding
the success of their corporations as a matter of personal
responsibility of all the executives and employees. They
are community oriented rather than personally acquisitive.
Off and on, rogue managers are exposed but the general
picture is one of grim dedication to the company and its
success. A lot of national patriotism and loyalty also
comes in. And so, despite relegating shareholders to the
background and treating them as irrelevant, as do the
American corporations, Japanese companies managed to expand
and compete successfully with their foreign rivals. Despite
believing more in market share than profit margins, many
Japanese companies make it to the Fortune 500 list. Clearly
the culture of the people plays a role in the management of
companies.
13. As I said large Malaysian corporations have only
recently appeared on the scene. Only yesterday they were
family-owned and managed. But in order to gain access to
capital and to make capital gains, they have converted to
public limited companies. And public limited companies
cannot be run like family companies.
14. More and more professionals are taking over the
management of companies. Clearly if the companies are to
grow and prosper they need to accept new management methods.
Should they copy the Americans or the Japanese, or should
Malaysians have their own management philosophy?
15. Culturally we are different from the Japanese.
Malaysians are very fond of the 51 per cent share. Everyone
of them, whether individuals or companies, wants to have the
exclusive right to control the company. Obviously if they
have the majority share they can push through their wishes
irrespective of the views of the other shareholders. The
company may lose but the majority shareholders may still
make something for themselves.
16. In a company with small capital, dominance of one
shareholder over the rest may not seem unfair. But in a
multi- million dollar company the 49 per cent shareholder
has a lot of money at stake. Just because the majority
shareholder has one or two million dollars worth of shares
more, does not render the minority shareholder's stake
insignificant. Indeed, if things go wrong the minority
shareholder will lose almost as much as the majority
shareholder; to be more precise just 2 per cent less than
the majority shareholder. Not having a say in the affairs
of the company is, for the minority shareholder, not right.
17. One reason why the Government stipulates that each
shareholder in a bank should not hold more than 20 per cent
of the share is because of this. Powerful shareholders can
play havoc with banks. With everyone holding no more than
20 per cent each, voting power cannot override good ideas or
prudence.
18. The same should apply for all corporations. No one
should hold such an absolute majority as to ignore the views
of others. In any institution prudence and good ideas
should prevail. And they will prevail if no one has an
overwhelming majority. When all shareholders are minority
shareholders, prudence and good ideas should have the
support of a sufficient number of shareholder directors as
to prevail.
19. Shareholder directors on the board, holding
sufficiently large stake should be able to exercise some
authority over the executives, particularly the CEOs. High
pay, bonus and share options are good incentives but they
should not be excessive. There should be a sufficiently
knowledgeable Board so as to ensure that the professionals
are not doing the wrong thing, especially in feathering
their nests. Dividends are good but reasonable expenditure
on R&D, expansion and diversification must not be dismissed
by management. The long-term interest of the company must
receive due consideration even though short-term profits
cannot be totally ignored.
20. A good strategy is to have one of the substantial
shareholders directly involved in the management. He should
have sufficient leeway to act when good opportunities come
by suddenly. Of course he should seek management
concurrence and Board approval as soon as possible. But he
should have a sufficiently free hand. He will perhaps go
wrong but not for long if the Board is alert.
21. So what is the management philosophy for Malaysia?
Basically it is that owners have a role, an important role.
Business is not a profession to be left entirely to
professionals. Professionals should make sure that the
administration of the business should be correct and proper.
They should see that every part of the business functions
properly. They should be up-to-date in terms of the latest
management techniques and technological innovations. They
should be innovative in management and in the progress of
the corporation. They should, above all, know how to handle
people, including possibly the Board. But they must accept
that the owners, i.e. the shareholders or the proprietors,
must in the final analysis, have a bigger say in the
management of the company. Professional managers may stand
to lose if the company fails but it is not what they had put
in, but what they had been given. On the other hand, owners
will lose all that they had put in.
22. Malaysian managers, whether professionals or not, are
really too fond of staying within Malaysia's well-defined
area of expertise. They like doing what they have always
been doing, perhaps on a bigger scale. They also like to do
what other Malaysians are already doing. Just as the
prospective Malay shopkeeper would open a 'kedai kopi' after
others have already opened several in a particular location,
the Malaysian managers would go into properties because
others are doing so. New business should be left to others
to start. Malaysian managers would venture only when it is
no longer adventurous.
23. Malaysia has looked West and it has looked East.
Malaysia has accepted change when change is due. In
management, Malaysia has been innovative and has even dared
to try some new approaches. That it has been fairly skillful
in making the choices is evidenced by the sustained growth
over some 37 years of independence.
24. The time has come for the industrialisation process to
be more Malaysian-initiated. Our workers have already
proven their ability to acquire new skills in the industries
started by foreigners. Surely our entrepreneurs and
managers are as capable of acquiring the skills needed to
venture into new areas of businesses particularly
manufacturing.
25. At the beginning I said that we got to where we are
because we dared to change. To progress we must not only
dare to change but to be prudently adventurous. Provided
our managers and owners play their roles in the way
outlined, provided we really practise good responsible
management, we can make new and unfamiliar businesses pay.
Be prudent by all means, but be adventurous also.
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