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Talk Asia

Interview with Brothers Running the Philippines' Ayala Corporation, Jaime Augusto Zobel de Ayala, Fernando Zobel de Ayala.

Aired April 27, 2012 - 05:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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ANDREW STEVENS, CNN ANCHOR (voiceover): This is Makati, the financial hub of the Philippines capitol. And, at its heart is Ayala Avenue. The nation's answer to Wall Street. An avenue named after the family behind the country's oldest, and one of its biggest conglomerates, the Ayala Corporation.

At the helm today, are Brothers Jaime Augusto and Fernando Zobel de Ayala. They are the eighth generation to handle the family business, taking the reins from their father in 1995. Started by two Spanish immigrants nearly 180 years ago, the Ayala business has grown into a multi- billion dollar conglomerate, with the nation's biggest property group, one of its biggest banks, as well as telecom and utility companies.

In a rare joint interview, we got the brothers' insights on the country's economic growth prospects, its ongoing battle with corruption, and the pressure they face in running a family empire dating back to the middle of the 1800s.

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STEVENS: Jaime Augusto, Fernando Zobel de Ayala, thank you so much for joining me here, on "Talk Asia" today.

JAIME AUGUSTO ZOBEL DE AYALA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AYALA CORPORATION: Thank you.

STEVENS: Let's start with a big-picture of the Philippines' economy. In context with what's been happening globally, we've seen the Eurozone weakness, U.S. weakness, China is slowing - what's the impact, Jaime, on the Philippines from that?

JA AYALA: Well, I think, you know, the world has gone through a fairly seismic shift. What's been quite extraordinary in the Philippines is that a component of the economy that's been lacking in many developed countries, which is the demand component of consumption, has been alive and well in the Philippines.

We have a fairly unique business model in the country - the service economy is very much alive in our country. Manufacturing's been weaker, but the service economy is alive. And there's been kind of a demographic shift, globally, where our service providers in many different fields have been in demand, globally. They, in turn - about 10 million of our countrymen are working, I guess, in many different industries and many countries, globally. And, as they earn, they send their remittances back.

STEVENS: Is that an important part of this Philippine growth?

JA AYALA: Absolutely. You know, I think our -

STEVENS: Too important?

JA AYALA: I think it's a positive thing - about $20 billion are remitted back to the country. That, in turn, drives a lot of our consumption. Our housing, our telecommunication, the needs of households. And so, the economy has continued to move, based on this consumption -led model.

STEVENS: So, Fernando, the economy is growing relatively fast here, in the Philippines now, but the International Monetary Fund just recently said, "It's likely that the Philippines' economy will remain a laggard when you compare it with other Asian countries like Indonesia, Malaysia, Vietnam". First, do you agree with that? And why is that?

FERNANDO ZOBEL DE AYALA, PRESIDENT AND CHIEF OPERATING OFFICER, AYALA CORPORATION: I think the whole of Asia's been growing very quickly. The Philippines has had its challenges in the past. We'd like to credit this administration with a lot of reform that has taken place that has brought about an enormous amount of new confidence - renewed confidence - in the country.

STEVENS: A young administration.

F AYALA: A young administration, it's only been about a year and a half, but so much has been done to restore confidence. They've been extremely careful in how public funds are spent. They've made it very clear that foreign investment would be very welcome and that they will have a level playing field when they come to the country. And we've seen the results of that.

Another aspect that we're seeing, which we're of course extremely pleased about, is that Filipinos have brought back an enormous amount of funds back into the country. If you look at the stock market and the impact that the local funds have had - if you look at the asset management part of all our banking system - it's been growing by about 20 percent or more each year. Which is an indication that Filipinos are bringing their money back and investing in their country.

STEVENS: Isn't a sign, though, Jaime, of the Philippines' economy doing well, is to have - instead of the Filipinos seeking work outside the Philippines - they should be coming back.

JA AYALA: Sure. I think, essentially, as the country grows, obviously, we would like a workforce that can fill the gap, I guess, of our industries as they expand. But it's been quite extraordinary to have a whole range of different skill-sets being developed by Filipinos abroad in the global marketplace. And now many of them are coming back. In fact, many of our senior executives are very seasoned multinational executives who've come back from working in a global space. So, I think it's actually been a win-win for the Philippines.

STEVENS: If you look at the tumultuous history of the Philippines, Fernando, how would you compare this period. Is this a period of relative strength, or do you see something a little bit more, now?

F AYALA: No, it's a period of great stability - political stability. And, as you know, every businessman around the world is looking for stability. And it's really playing to the strengths of the country. At the end of the day, investment depends on a very peaceful and predictable political environment. And that's what we're seeing.

STEVENS: OK, set against this backdrop, however, let's talk about Ayala Corporation. Last year, I believe there were record numbers coming from your banking division real estate and your water division. What's 2012 looking like for Ayala?

JA AYALA: 2012 is actually looking very good. As Fernando mentioned, I think the country has moved to a whole different level of governance. People are seeing it, people are respecting it. All our businesses are doing well. In our real estate business, we actually have more projects online than ever in our history. The banking business is, you know, reinventing itself and expanding. In all our different businesses - including our water distribution - we are moving and investing more capital expenditure than ever.

STEVENS: Well, talking about capital expenditure and investing, Ayala launched a new division last year - infrastructure. How big a drag is infrastructure, or lack of infrastructure, on Philippines growth?

F AYALA: Very significant. If you talk of Roadways, toll roads, rail - the rails system - our airports, so that we can encourage more tourism in the country, there's an enormous number of things that can be done. And you've got companies and foreign partners very interested in participating in this, and the banks ready to lend. So, it's a very, very unique time for the country. And we need to take advantage of this opportunity.

STEVENS: How fragile, for want of a better word, do you think this period is? Or do you think it's now quite entrenched that you have a solid base from which the economy can grow?

F AYALA: I mean, you always worry when there's just this much expansion that's coming. You worry that you may encounter some of the problems that other parts of the world have encountered. But we're going through a fairly early period in our growth cycle. And we've had a bumpy ride for a fairly long period of time. We've had interest rates at these levels, with money available for the tenure that we're seeing right now.

There's just a lot of Filipinos that have never had access to basic things in this country. And with a low interest environment, and with the economy lifting up, a lot of people will be able to start affording things like a base can.

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STEVENS: One word that's associated with the Philippines is corruption. How big a problem is it?

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JA AYALA: This is the old International Airport of Manila. It was, I think the first international Airport in Asia. And Makati Avenue and Ayala Avenue were the two runways, I guess, that's the -

STEVENS: So, this road, here, was the international runway?

JA AYALA: Absolutely. Yes. And then, you know, Makati then obviously got developed, but we kept it as a -- I guess as a fitting symbol, I guess, of what this area used to be.

STEVENS: So, as we walk down what used to be a runway in one of the first international airports in Asia, just describe to us - back in the 1940s, when the decision was made to develop this area - what was actually here?

F AYALA: There was very little. Actually, for the first part of the 1900s, there was really very little. It was -

STEVENS: A swamp?

F AYALA: Yes. And it was really only in the 1940s and '50s that the master planning began and we started laying out the roads and inviting investors to come into the area.

STEVENS: Enormously risky.

F AYALA: Very risky at the time, but there was just a huge leap of faith from some of the original investors to come into this area. The first families that went into the residential areas and to the villages, and the first investors here - they've done extremely well as a result of that leap of faith. But yes, the first -

JA AYALA: The center of gravity was actually in the old China Town of Manila. And so this -

STEVENS: Which is how far away?

JA AYALA: Well, it's not long from a distance point of view, but - let's put it this way, it's right on the other side of the city. Obviously, commerce moved along the river - the Pasig River - at the time. And that's where the center of commerce was throughout the history of Manila. So, this was basically moving to the suburbs.

STEVENS: Do you think it's fair to say that the land component of Ayala was the ingredient that really stoked the growth of this company?

JA AYALA: Yes. The massive value creation took place right after the Second World War. I think a lot of it had to do with the land around Makati. Basically, it was farmland. So imagine the value creation of farmland really becoming the center of gravity for the business center, for hotels, for residential. And I think from that, the cash flow starting improving again after the war. And then we parleyed that into a whole range of different industries that have continued to this day.

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STEVENS: One word that you'll both be well aware of, that is associated with the Philippines is corruption, rightly or wrongly. Neither of you have mentioned it. How big a problem is it?

JA AYALA: Well, I think there has been a history. As Fernando mentioned earlier, you know, we have had a bumpy ride as a country. All I can say, and I think we see this together, is that there has never been as much rigor and seriousness on the part of this government in addressing the corruption issue as we have seen under the term of this current president.

STEVENS: The corruption, would you agree, is endemic in the Philippines, and it's going to take, perhaps a generation for it to be brought under control. Is that a fair comment?

F AYALA: It takes time. It takes time. And it depends on what particular area - we've had the benefit, as a company, to have been operating for many years in this country - we've built relationships, we've operated many parts of the country. And we have not experienced some of the problems that people claim that they might have experienced.

But, overall, you do see corruption in many of the countries in Asia and throughout the world. And you want to see a government that leads by example and works on improving the situation. It's hard to eliminate corruption completely in any country. But you want to see improvement, and certainly, this government is showing that it will go after corruption and it will improve that particular condition in the country.

JA AYALA: Maybe just to add to what Fernando is saying, if you look at any development equation, you know, as you move up the per-capita GNP curve, people get more educated, standards move up, governance moves up. Corruption indexes also tend to fall. I have absolutely no doubt that, as the Philippines continues its fairly sharp climb, now, up GNP curve and as people start to earn more, as people start to get better educated, as people start to demand higher levels of governance, invariably, the whole corruption issue also begins to decline.

STEVENS: The Chief Justice has been impeached on charges of corruption.

JA AYALA: That's correct.

STEVENS: The immediate - or the former President is facing electoral fraud accusations. Her predecessor spent time in prison for charges including economic plunder. There is a mountain to climb here, isn't there?

JA AYALA: It is. The challenge is there, but actually it all boils down to leadership. And I think we have a current president and his cabinet who basically said, "We have to turn a new corner on the governance front". And I think everything that they have done up to now is basically setting a whole new bar and a whole new standard. And they are basically walking the talk.

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UNIDENTIFIED MALE: We see now the nation we aspired to be, which is rising, slowly, in our land. As one nation, with one faith, and with the world looking at us, let us then continue on with this majestic past.

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Stevens: The Marcos years were marked by widespread corruption and cronyism, obviously. How did your company - to your knowledge - navigate those years? Stay out of being compromised?

JA AYALA: Well, I think, number one, we've had a long tradition in the country and there's never been an engagement with a political front - that's number one. Number two, we had a number of foreign partners. I think, to a certain extent, that made us a little bit immune from some of the changes that were taking place on the industry front and the economic front.

That having been said, there were times when we were selling one lot a month in our real estate company - that's one lot a month - that's nothing. And so, financially, it was quite demanding. I think it was less the political issues at the time, but also the economic forces that were really at their worst. And so, managing a company for survival as opposed to growth was the norm then. And those were some of the challenges that he faced, while staying away from the political turmoil that was beginning to take place.

STEVENS: Talking about politics, your parents both marched in 1986 in the anti-Marcos - the People Power Revolution - which led to his ouster. That was a very political statement by them, wasn't it?

F AYALA: It was, but there was a general feeling, and I was here at that time and I spent a lot of time also with my parents and with that whole political movement. Really, everyone felt in the country, that it was a time for change. We needed new political leadership and we needed democracy back in the country for the country to survive - it was basically survival mode. And the business community had traditionally basically focused on business. I think that was the one time that everyone felt we had to step forward and make a statement.

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STEVENS: You're a very keen athlete - you're a triathlete, you're a marathon runner. You had an incident a few weeks ago. What happened?

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STEVENS: You had an incident a few weeks ago - you're a very keen athlete - you're a triathlete, you're a marathon runner. You came off the bike in a rainstorm - you had to be helicoptered out. First of all, just tell us - what happened?

F AYALA: It was - there was strong rain just before the race, and this is a risk that you take in any race that you go into. So it was a bit slippery that day. And I was one of the unfortunate cyclists that went down. But it's all part of the sport.

STEVENS: You're also both keen motorcyclists. And you have instituted almost a family tradition now where you and other members of the family will go off on motorcycle trips anywhere in the world. Tell me the reason behind that. Why did you decide to do that?

JA AYALA: I think one has to define, because motorcycling has all kinds of connotations for people. We - both Fernando and I like the adventure component of it. We like being able to, you know, take the beaten path and go discover countries and locations. It's been quite extraordinary.

And, you know, we've had a chance to see the Philippines through eyes that most people have not seen. And a lot of that is thanks to our ability to get off on two wheels and move around.

STEVENS: Did people recognize you? Have they ever recognized you in these far-flung places?

JA AYALA: I don't think we're there for long enough for anyone to recognize us, but both Fernando and I, from an early age, we were both backpackers and we actually traveled around the Philippines extensively when we were young. We just -

STEVENS: As backpackers?

JA AYALA: Yes. As backpackers. And then we moved around. We actually discovered many areas that we then developed from a real estate point of view, because we enjoyed them so much when we were young.

STEVENS: Your family name has an impeccable reputation in this country. But nowhere have I read of either of you showing any interest in parleying your business skills and your business position into politics. Is that true?

JA AYALA: Well, there's never been an interest on the political front in the family, and certainly I don't think it's a driver of Fernando and I. We, I like to think, are dedicated to public service in other ways. Fernando and I are both involved in the non-profit sector. I like to think we've been committed to the broader social development goals of the country through our engagement in civil society, non-profits, and many other areas, aside from just the business engagement. I think there's a lot that one can do for a country beyond the realm of politics.

STEVENS: Jaime, I want to ask you about your company. 178 years old. It's been through dictatorships, it's been through rebellions, it's been through world wars, it's been through occupation. What, simplistically, do you think is the secret of its longevity?

JA AYALA: More than anything, I think the company has always sought to align itself to the national goals of the country every since its founding back in 1834. And that's made us intrinsically part, I guess, of the fabric, I guess, of the nation. We have not remained static. We have adjusted to the changing times. Change is not something that neither of us fear.

And, I think, there has always been a very strong entrepreneurial drive, I guess, in past members of the family. Where I guess they didn't sit back and say, "This is our business and this is the way it's going to be". No, we've kept an eye on the changing times - the economy, technology, partnerships - and tried to adjust for those changing times and be relevant, I guess, to the needs of those times. I think that's been a major element.

STEVENS: Your brother mentioned the world "entrepreneurial", but if you talk to most people about the Ayala Corporation, a word that we'll use - that will say, "It's a very well-managed company, but it is conservatively managed company". Can you be conservative and entrepreneurial at the same time?

F AYALA: I think so, absolutely. I think entrepreneurial is really about starting major new initiatives. And through history, we've gone into new businesses over time. The water industry - we knew very little about the water industry and about managing the water system. There weren't any set rules at the time. It was uncharted territory for us. But we wanted to fix the water system of Manila. And we knew that that would have an impact on a lot of people that had no water in the past. And we've made a success of it. So, I think we've shown that we can be entrepreneurial. At the same time, we know that the world goes through very deep cycles and we want to make sure that the company continues over a very long period of time.

STEVENS: Jaime, growing up Ayala, did you have that weight of expectations on you? Did either of you? I mean, you had the responsibility for the family name. Eighth generation.

JA AYALA: No way. I don't think it is that way. It was certainly not the way Fernando and I grew up. Our parents always pushed us academically. They pushed us to be independent. And it just so happened that, you know, from graduating from school, actually, my intention was to continue working in the United States.

But at that time, my father said, "Look, why don't you come back? This is an emerging market country, things are happening. Why don't you come back for a couple of years and see how it goes, and if it doesn't work out, no problem. We have plenty of good managers". But, you know, I fell in love when I came back and started working here.

STEVENS: So, no pressure there? You didn't feel pressure?

JA AYALA: No, no, no. There was actually - you know, there wasn't a lot of business discussion at home when we were growing up, and so the pressure was light. But obviously, we're aware that there had been a tradition.

STEVENS: What's the secret of mixing family and business successfully?

F AYALA: I guess it's in the way that they handle their children - with an enormous amount of fairness, giving everyone their appropriate amount of time and giving everyone equal opportunities. And so, that's what we've had in our family, and we just get along extremely well. We're a family of seven. It's Jaime and I and five sisters. And we're very, very close. And I think that'll serve us very well in this generation.

STEVENS: Would you like to see your children be the ninth generation leaders of Ayala?

JA AYALA: Of course, it would be wonderful to see that family tradition continue, but the whole issue of governance on one hand and professional executive leadership on the other are two separate issues. And we just want to make sure that it's our duty - and Fernando and I feel it's our duty - to make sure that Ayala remains a progressive company with progressive leadership.

STEVENS: Do you think that this conservative side of the business - or your business management - comes down to the fact that you see yourself more as a custodian of the family brand?

F AYALA: Very much so. We are stewards for the next generation and, again, this is something that has been mentioned again and again to the family members. So your focus is always on the legacy, on the history, and really looking forward to the next generation and making sure that you pass the baton in the same way that it's been passed on to you.

STEVENS: Great. All right.

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