SCG of Thailand is one of the country’s largest conglomerates with fiscal 2014 consolidated revenues of more than 487 billion baht (US$15 billion) and profits of 33.6 billion baht (US$1.03 billion). Like other companies in Thailand, it experienced tough times during the financial crisis of the late 1990s. The real strength, which stood the diversified manufacturing group in good stead when the tide turned, was the commitment to human resources excellence, says president and CEO Kan Trakulhoon. “We did not lay off or fire any employees,”he explains in a wide-ranging discussion with Ravi Aron, professor at Johns Hopkins Carey Business School, and Knowledge@Wharton.
Below are edited excerpts from the transcript:
Ravi Aron: SCG has just celebrated its centenary [Siam Cement, the original parent company, was set up in 1913]. What was the vision when SCG was founded? What was the role that it was going to play in the Thai economy when it was set up 100 years ago under a royal charter?
Kan Trakulhoon: [For the centenary] we collated all the data and information, and documents. We found many valuable documents from the past. [SCG started] from the vision of King Rama VI. He wanted to establish a cement factory for the development of the country. At that time, there were only a few cement plants in the entire region. We used a lot of wood for construction of houses. But we had also started to import cement.
When King Rama VI went to Europe, he saw a lot of solid construction using cement. So he had this vision. Siam Cement was the only heavy industry in Thailand and in the entire region as well. We have been a pioneer for heavy industry; later on, we also started the first steel mills in Thailand and many other businesses.
Aron: What are some important milestones in SCG’s history? What would you say are some key defining moments?
Trakulhoon: We started in 1913. In the first 60 years, we were managed by four Danish CEOs. We had bought all the cement manufacturing machines from one company — FLSmidth of Denmark. We had the first Thai CEO just about 40 years ago. I am the 10th CEO and the sixth Thai CEO.
In 1972, after 61 years, we started to “group”the companies. I do not know [whether it is more appropriate to say] restructuring or grouping. By that time, we had several businesses. We had about six companies. So we grouped them and, for the first time, used the words Siam Cement Group. This was five years before I joined in 1977. By that time, we were already known as the Siam Cement Group.
Another important milestone was when the Stock Exchange of Thailand (SET) was started in 1975. We were one of the first listed companies. Eight companies were listed that year. But only four have survived; four were delisted.
Another milestone was during the Asian financial crisis in 1997. As one of the largest companies in Thailand at that time in terms of assets and revenue, we faced a lot of problems. We had a large debt which ballooned as the baht depreciated. In 1998, the debt was roughly about 247 billion baht (about $13 billion then).
“In 1997, we had about 140 companies —active companies…. In one year, we sold 56 or 57.”
At that time, the baht fell to its lowest level of 57 [to the dollar]. By January 1998, it was back to about 45. Today, it is about 32-33. We started major restructuring in August-September 1998. The crisis started on July 2 when the Thai government devalued the baht. But we recovered quite fast.
I was the head of the restructuring team, working with McKinsey. We spent about five weeks looking at the options. We identified three core businesses: cement, paper and chemicals. Even building materials and ceramics were branded only potential core. A few years later, we included them in our core businesses.
I think this was the biggest restructuring ever in the group’s history. We sold more than 60 companies. In 1997, we had about 140 companies —active companies —and we sold more than 60. In one year, we sold 56 or 57. We had a lot of joint ventures —for example with Michelin. In some, we sold 100%. But in the case of Michelin, we reduced from 55% to 40% [share]. We hold 10% now. We will sell the rest of the shares later on.
The number of people also reduced from 35,000 for the consolidated group to approximately 16,000 in 2002. Right now, we have about 49,000 employees. But we did not lay off or fire any employees. We sold companies, mainly to our partners and the employees attached to that company no longer belonged to us. By 2002, we recovered and turned profitable.
In 2006, we announced our vision: to be recognized as a successful business leader by 2015. For 100 years, we had no vision statement at all for the conglomerate. We had a vision for each business unit —for cement, for building materials, for paper. But, as a conglomerate, we never established any vision statement. In 2006, we started to do so. In August 2002, I had been informed by the board —by my predecessor —that they had selected me to be the next president. I would be president and CEO from 2006 to 2015. I had about three-and-a-half years to prepare myself.
My team —my junior team and I —developed this vision together. The formation of the vision started from 2004, but we got approval only after I became president in August 2006.
In 2013, we integrated three businesses —cement, building materials and distribution —into one. We called it the SCG cement building materials (CBM) group. So, today, we have three core businesses —the CBM group, the chemicals group and the paper group. Another activity is investment. Investment is the one non-core asset from the old days.
These are all the big milestones for the company.
Aron: One of the things I was struck by was when you said that when the financial crisis happened in 1997 and you sold many of your companies, you did not lay off anybody — even at the height of the crisis. Was it your intention to preserve the integrity of the workforce or did it just turn out that way?
Trakulhoon: It is something that impresses me, too. At that time, I was working in Jakarta. I learned that the crisis was very serious for the company. The currency had depreciated so much. We lost a lot — about 56 billion baht in 1997. But I talked with the boss and we believed we could afford it. But the human capital cost [is something we could not afford].
The management also saw that, if we laid off people, we would create more problems for society. The country was in very bad shape; 56-57 financial institutions had collapsed. There were a lot of layoffs and it was a very difficult situation. The interest rate was also increased to 20% or something like that. There was no money, no cash.
The management took some measures. When the baht depreciated, we allocated all our resources for exports. Domestic demand dropped by about 50%. There was new capacity — new plants — starting up in 1998 and 1999. So we put all our resources behind exports. This helped.
Anyhow, the key is that we value our people. We had to stand by that. Also, we believed that we would recover. So, when we recovered, we would have to have our people ready. The speed of recovery would be much faster if we had good people with us. We were mainly in manufacturing; we needed [expert] knowledge. That is one of the issues. If we have people, we must take care of them. It is not only retaining our employees; we had to also do a lot of training. We continue to provide training, even for new recruits.
We did not stop recruitment. At that time, most of the country had stopped recruitment. But we still recruited about 200 to 300 new employees. They held bachelors and masters degrees; some were PhDs. Normally, we recruit 500 to 600 people a year. Last year, it was 900. I think that is good.
“The public sees us as a good corporate citizen, not only in Thailand but also in ASEAN.”
So we had good people ready. When opportunity came to us, we recouped. In 1998, it was really bad. After 1998, we exported to ASEAN countries. But there was still a crisis because Asia had a crisis. In Thailand, by that time, we had no layoffs at all. It was quite calm and people were collaborating with the government. So we passed through all these crises quite peacefully. Back in 2001, we had already started to recover. We repaid all the debt on time with no problems.
Aron: The one question I want to ask you is: Companies are often known for something extraordinary —a source of excellence about them. At Toyota, they talk about manufacturing excellence. At Apple, they talk about innovation. Singapore Airlines is seen as a lighthouse company for customer centricity and customer service. How do you see SCG? What are the things that SCG is known for?
Trakulhoon: To tell you frankly, even I do not know.
But in Thailand we have the TMA —the Thailand Management Association. They do a survey of the top companies in Thailand. At the beginning of every year, they send a questionnaire to the CEOs of the top 500 companies by revenue. They have six or seven categories —human resource management excellence, quality of services, innovation, marketing, CSR, environment, things like that.
For 10 or 11 years in a row —from Day One —we have been No. 1 for excellence in human resource management. For CSR and the environment, we have gotten [the excellence award] seven or eight times, or we have been No. 2. This is from the survey. In innovation, we have been No. 1 for the past six years in a row. In the beginning, there was Nokia, Samsung, consumer products and things like that. But, amazingly, in the past six years, we have got it.
In human resources, I think we have done quite a good job. The management, from generation to generation, looks at human resources very carefully and with dedication. I myself spend a lot of time on this. I teach classes at SCG and I share my knowledge with outsiders as well. We also won the SET Award for corporate governance. The public sees us as a good corporate citizen not only in Thailand but also in ASEAN. So, if you ask [me to define what SCG stands for] I will say people excellence….
Knowledge@Wharton: You said you grew mainly through M&A. But what was your approach to developing a global mindset among your own executives so that they would learn to think globally and also pay attention to local market conditions?
Trakulhoon: I talked to my HR team [and asked,] “How can we strengthen our core values until 2015?”We developed our new culture. We would like to develop our culture to be an innovative one. That’s why the informality. We stopped wearing ties. We took away uniforms. We strengthened our four core values and we added another two words — open and challenge.
Many of the companies we took over in Thailand were listed. They had very different cultures. We asked them to follow our four core values. They would also have to be open. They would have to challenge. But that could come later on.
Our due diligence team has to work with the company after we have taken it over. They have to train the employees. That is our strategy.
[Our greenfield cement plant project in Myanmar] is much easier because we recruit new staff. We send them to Thailand to be trained and also to absorb our culture —our working culture, collaborative culture, teamwork culture. At the very beginning, we instill the four core values. The culture issue has been very important to drive the company forward. If we can win the hearts of the employees, we can get good results.
“Our due diligence team has to work with the company after we have taken it over. They have to train the employees. That is our strategy.”
Aron: What is your vision in this extraordinary investment that you are making in human resources in SCG?
Trakulhoon: This is the culture of sharing knowledge in the company. We have a lot of classes internally and also open classes. We have sent people to Harvard, Wharton…
Knowledge@Wharton: That is truly impressive. Could I ask what your personal philosophy about managing people is?
Trakulhoon: I don’t know if you know the word metta.
Knowledge@Wharton: Yes. I am familiar with metta. It is a well-known Buddhist term. I think it means loving kindness in Buddhist philosophy.
Trakulhoon: Yes. Yesterday, I spent two hours with my new recruits —a group of 119. I talked for two hours. I spent two hours with them for the first session. We spent almost a month training these new recruits. So I really feel a bit tired. Last week, I spent three hours with the section heads —with a group of almost 120-130. I told them I wanted to share my knowledge with them to make them better. I want them also to do the same. This is my philosophy.
And, of course, I really adhere to our four core values (adherence to fairness; belief in the value of the individual; dedication to excellence, and concern for social responsibility).
Fairness. I can swear to you I never make any decision about our human resource management with any bias. And that’s from Day One, when I took charge. I never abuse my power. I am also very ethical. I think this is very important. Leaders have to be very ethical because you have to settle a lot of issues. Ethically there is only one way but if you want to do some other things you have a hundred other ways. With fairness, we can have a lot of good friends.
I am not really result-oriented. I never set very challenging targets. If the process is good, we positively agree on the target. Then we reach the target and we get a good result.