Philippine powerhouse Ayala may look outside family for next CEO

[SINGAPORE] The head of a family-owned empire that's worth tens of billions of dollars said his company may be ready for an outsider at the helm.

Jaime Augusto Zobel de Ayala II, the chairman and chief executive officer of the Philippines' Ayala Corp, said a CEO from outside the family is one option when the group passes power to new leaders. Part of his legacy, he said, has been paving the way to make such a move possible.

"I like to think the team we have in place could provide leadership at any point for Ayala if my brother and I were to disappear," Mr Zobel said in an interview in the Makati business district, which his group built. "We have all kinds of options for leadership both at the professional level and potentially the family level," he said, referring to three family members from the next generation who are currently working at the company.

Succession is a key issue in the Philippines, where families either control or have a large stake in many of the biggest companies.

Ayala traces its roots to a small distillery founded in 1834, with the controlling family descended from Europeans who arrived during the colonial era.

It's a powerhouse in the country. Ayala Corp is the holding company for a group that includes Ayala Land Inc, the largest property developer by revenue, Bank of the Philippine Islands, the oldest lender, and Globe Telecom Inc, the biggest mobile phone company. Those four entities alone have a combined market capitalisation of more than US$36 billion. Mr Zobel's family owns 47 per cent of Ayala Corp, which has large stakes in the others.

Mr Zobel, who's now 60, has been running the company for a quarter century, with his brother Fernando serving as president and chief operating officer. Asked to evaluate his years in charge, he said he's worked to retain an entrepreneurial spirit and make the company more relevant to Philippine society, both by revamping existing businesses and entering new areas such as healthcare and education.

Different company

"Ayala today is very different," the Harvard-educated Mr Zobel said. "We began to realise that we wanted a company that was far more relevant to the social and economic needs of the vast majority of Filipinos. We became far more inclusive. Ayala Land changed from a one-product company to a five-product company."

Before, Ayala Land catered primarily to the elite of Philippine society. Now, it has residential projects targeted to different income groups. The bank, BPI, has broadened its customer base beyond wealthy individuals and the middle class and entered areas such as microfinancing.

In healthcare, an area where the Philippines is underserved, Ayala plans to double its clinics and expand its drugstores over the next two years. And in education, the company is operating high schools and universities, aiming to address a gap between the education that's being provided in the country and the technical skills needed by industries such as call centers.

If stock prices are any guide, Mr Zobel's time as CEO has been a success. The stock has risen almost fivefold since the end of 1994, beating a 179 per cent gain in the Philippine Stock Exchange Index. Ayala Land and Bank of the Philippine Islands have climbed 399 per cent and 429 per cent, respectively, in the period.

"Zobel stepped on the pedal and spread into a lot of businesses, making Ayala arguably the most diversified Philippine conglomerate," said Manny Cruz, a strategist at Papa Securities who's covered the country's equities for more than two decades. It has a "presence in many key promising industries", he said.

Local rival

But there's another view on Mr Zobel's time in charge, one that compares Ayala to another giant of Philippine business, SM Investments Corp. The group founded by the now-deceased Henry Sy has shot past Ayala in the league table of the country's largest companies. SM Investments is now the biggest listed stock, with a market value of about US$23 billion. SM Prime Holdings Inc, the shopping mall and residential development arm, is No 2, valued at about US$21 billion. SM's lender, BDO Unibank Inc, has surpassed Bank of the Philippine Islands by market value. And SM Investments already has a CEO from outside the Sy family.

"Ayala was overtaken by SM Investments, which made concentrated bets in areas that benefited most from the growth in consumer spending in the past two decades, like retail and real estate," Mr Cruz said.

For Gerard Abad, the chief investment officer of AB Capital & Investment Corp, Ayala's cautious nature means it's built to withstand difficult periods. But it also means it doesn't make the most of opportunities when things are good.

"Ayala is the perfect name for investors who are conservative with risk," he said. "It's the stock investors want to hold during hard times. But it's not a high-flier during good times as Ayala's conservative stance stands like a speed bump."

Asean, China

Mr Zobel, unsurprisingly, has a different perspective. It's true, he said, that Ayala has remained in business by being careful in its decision-making. And the kind of longevity Ayala has is definitely "hard to come by". But it isn't achieved by being closed to new things. Now, for example, the company is preparing to invest more overseas, particularly in South-east Asian countries, while building on its partnerships with Chinese firms such as Ant Financial, SAIC Motor Corp and Huawei Technologies Co.

"Sometimes, longevity is associated with stodginess, slowness and conservativeness," Mr Zobel said. "But I'd like to think that during our term, my brother Fernando and I kept the spirit of reinvention alive that has led to the kind of longevity that Ayala has today."

Perhaps that's also why, when choosing the next leader, a big - and unusual - change may be at hand.

BLOOMBERG