The secrets to BDO’s success

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MAP Insights

This column is the acceptance speech delivered by the author when he received “MAP Management Man of the Year” award on Nov. 25.

What am I doing here?

When I first heard the official news that I was being awarded “MAP Management Man of the Year 2019” by the Management Association of the Philippines (MAP), it didn’t sink in right away. I was travelling in Spain on business when I received the first few congratulatory messages. (One of the first ones was from Gigi Montinola, chair of the Judging Committee. Gigi happened to be in Spain at the same time — however, he was on a wine tour while I was working. Lucky guy!) It was only after a few days had passed and the MAP press release got around the mainstream media that it finally hit me. It was a combination of joy, honor, and fear. Yes, fear. As I stand hear before you accepting this award, I can’t help but think of others who came before me. With his recent passing, we are all aware of John Gokongwei’s life story and his struggles to overcome the death of his father at an early age to build the empire that JG Summit is now. I am fully aware of Mr. Henry Sy’s struggles from a humble sari-sari store to building the largest business conglomerate in the country. I saw firsthand my boss Tessie Coson’s struggles to bring the SM Group, especially the bank and the retail business, to where it is now, and the biases she had to overcome in the process.

I am now faced with the question: Am I bound to disappoint?

I am here now so let me then start by saying “A very big thank you to the MAP for the honor.”

As a professional, I am realistic. This award is for what we have accomplished as an organization and I am here receiving this because I happen to be the face of the management of that organization.

So please allow me to share this honor with the real people deserving of this award — the people in BDO.

First, to Tessie, for her confidence in us, for her drive and ambition that pushed us to take the bank to greater heights, and for her consistent and unwavering support throughout the years.

To the Board of Directors, who have been a very effective stewards of the bank, providing guidance on our strategy, direction, and governance. Special mention is due to our independent and non-executive directors who have been invaluable to our growth and success and a good stabilizing influence on all of us.

To my partners, first to Sonny Jacinto and Josie Tan who share with me the burden of management leadership in BDO. They also share Executive Committee and Executive Director responsibilities with me.

Then to my partners in the management team, who are also with us today. They are the real bosses running the individual businesses. If you believe we are successful, it is because of them. They are the ones grinding it out day in day out.

And of course to 37,000 plus members of the BDO team. The clients see the bank through them and not through me. Our success is largely through their good execution. To the BDO team, we couldn’t have done it without you. So thank you!

Last but definitely not the least, I would like give tribute to biggest factor why I am here now — the support of my family. My wife Loida, who has always been very supportive of my career and the long hours that go with it. She’s been with me through thick and thin, from New York to London and back to Manila now. My parents, my first, my current and my most important mentors and cheerleaders. Daddy is here now. He’s the stabilizing factor in my life, and for those of you who describe me as calm, it was his philosophy that lay the foundation for that serenity. My mother, who passed away two years ago, was my most vocal cheerleader. (Mommy, if you’re looking down on us now, this is for you and thank you for giving the good word up there for us.) My brothers, Raul and Lorenzo, who were my support system growing up. Raul is based in Silicon Valley. Lorenzo is here now. He is my sounding board and adviser, not only on business matters but on a lot of things as well, including cars, food, and interior design. And my children, who give me the right perspective and are constant reminders of the more important things in life. My son, Matthew, is here now.

And I would like to add a special thank you to my adopted family — the Lasallian community, who were very influential during my formative years. Bro. Ray and Bro. Bernie are here now.

(I guess from that alone I have used up my 30 minutes.)

Beyond the thank-you’s, I was at a loss on what to share with such an accomplished group of people. I took the route regularly travelled by professional managers, which was nothing extraordinary.

So when I saw Riza Mantaring at the Industry Academe Council meeting two weeks ago, I took the opportunity to seek her advice. She said just talk about your experience and your management philosophy. So I will follow that advice and that’s what I will do now.

Let me share with you a little bit about our journey in BDO.

BDO started out as a savings bank. Decent in size, well-managed, and possessing a good business model supporting primarily the SM retail businesses. It was a good start for the ambition of Mr Henry Sy, Sr., but probably just that — a good start. Mr. Sy always had the ambition of becoming No. 1 in banking. The drive to fulfill that ambition started when, in quick succession, Tessie converted the bank license of BDO to a commercial bank in 1994 and to a universal bank in late 1996. While the licenses placed BDO in the big league, its organization was largely unchanged. That was when Tessie decided to strengthen the organization and build the management core to take it to commercial bank levels. I joined them in 1997 when it was ranked then 20th in terms of resources.

We started out with a modest strategy, a good niche player with businesses that are competitive in their own markets. Our current mission then reflected, and still reflects, our current thinking “to be the preferred bank in every market we serve.” We do not intend to be all things to all people. But where we are competing, we strive to excel. Even now that we are a full-service bank, we try to remain focused, and strive to be good at what we do, and not simply bank on the strength of our size and scale.

Being good, however is not solely about products. It is also about service and reliability. We realized that clients value us not so much for our products but for our service — personalized, cheerful (despite of our staff’s long stressful hours) and accommodating. And, yes, you are right, we are always willing to find ways to help the client. Hence, our tagline “we find ways.”

Armed with simply two basic client philosophies — focus and service — we went on to grow the bank.

However, it was not meant to be easy. Shortly after I joined (four weeks to be exact) the Asian financial crisis hit us. To make matters complicated, the BSP then instituted a policy of restricting branch expansion to encourage consolidation. For a small commercial bank like BDO, it was like being set up and packaged to be acquired.

For me that was another aha moment as I asked myself: “What did I get myself into?”

Mr. Sy and Tessie were reassuring though. In so many words they said, don’t worry, we will grow the bank.

Hence our journey began. We started with the basics. We went on to implement our core IT system and to re-engineer our key processes. We strengthened our bench with the addition of officers at all levels. To expand our network, we went on a series of M&A transactions. First was Dao Heng bank, followed by First e-bank, Banco Santander, and then UOB. In 2002, in-between the M&A activities, we did our IPO.

We were able to thrive basically as a niche player.

It was not long before we came to our next strategic crossroad. As a niche player, we were doing well, but we were too concentrated, lacking scale, and it did not give us a lot of room for the growth our investors (read Mr Sy and Tessie) were looking for. We had a heavy large corporate lending concentration, our retail and middle market businesses were concentrated in Metro Manila, Cebu, and the Bacolod/Iloilo corridor. Our team bench was relatively shallow. It was clear that we needed to elevate our operations in a big way to fulfill the potential of our franchise.

It was then, in the latter part of 2003, that we decided to pursue the SSS’s stake in Equitable PCI Bank or EPCI for short.

We completed the first step of that transaction on Dec. 30, 2003. (May I take a brief moment here to set the record straight — we have been criticized for the timing of the deal and implication of impropriety that went with it. The deal, despite the timing, had the full SSS board present, including their lawyers and support staff.)

Little did we know that it was the start of a tortuous journey for us, especially for Tessie. It was difficult for her, but she displayed her strength, tenacity, perseverance, and courage during this period of difficulty. (Our special thanks to Mr. Sy and the entire Sy family who were with her in support all throughout this process.)

She persevered, and we finally completed the deal that culminated in a successful tender offer. We received shareholder approval thereafter, making us then the third largest bank in the country, very close to the second though.

We got our merger approval in the middle of 2007. The next challenge was execution. It was supposed to be the largest merger in Philippine banking history, but people will only remember it fondly if we were successful. Otherwise, it was another case of ego indigestion — biting off more than what we can chew. To complicate matters, we were actually merging three institutions — Equitable Bank, PCI Bank, and BDO — as the merged EPCI bank had not fully completed their integration. The EPCI bank run in 1999 derailed EPCI’s integration plans, and to management’s credit, they focused on and were successful in stabilizing the bank in the years following. But integration had to take a back seat. Even their officer terms and compensation policies had not been integrated.

We put the team to work and we completed something we did not realize we could — complete the merger integration in 11 months. That was a sight to see — teams from both sides working together to achieve a historic milestone. We kept raising the bar to the point that by the tail-end of the eleventh month of integration, we were already converting over 50 branches a weekend. Some of my colleagues jokingly complained that there were no longer any contractors available in the country. They were all working on our branches.

We finished the integration by summer of 2008, then the global financial crisis hit. And by some accident, we became the largest bank in September 2008.

That was another aha moment for me: “We created a big bank. Did we just create a big problem for ourselves?”

Needless to say, we survived the crisis and moved on to diversify our business to make us less vulnerable to business cycles. That was when the advantage of size, scale, and diversification became apparent. Shortly after, we closed our savings bank and we completed five more acquisitions. Rather than help, the savings bank just confused the market as we didn’t have a clear differentiation in value proposition.

The good news now is that we have doubled our productive capacity, our branches, our management leadership, and our market coverage. This became our platform for expanding into new markets and territories. With the combined entity, we have remained as one of the biggest banks in the country, with a strong market share in almost all product areas. During the 22 year period, we completed our IPO, did 10 M&As, completed five major capital raisings, had 25 bond issuances, and completed or unwound four joint ventures. We were more busy than a bulge bracket investment bank in Asia.

Our journey continues now in a more competitive environment. We have the entry of non-bank competitors. We are exposed to more moving parts, and the world is more volatile and more inter-related. The challenge is upon us, but I have no doubt our team will continue to live up to the challenge.

We have often been asked what is the secret to our success. There is no secret to it, it’s just the basics done well.

First, we try to remain focused. We cannot be all things to all people, so we pick our markets carefully. Strategy for us is not one big idea. It is simply good resource allocation.

Second, it is simple management by objectives. But we make the objectives simple, clear, and discreet. We give our Business Unit Heads the resources and let them run with it. We avoid overlapping objectives. If we have to, we double count. The most common source of conflict is when people fight over who gets the credit and who gets the resources. Defined responsibilities, defined goals, defined resources minimize that.

Third, we focus on the team, not the superstars. We emphasize team goals, team rewards, and individual contributions to team success.

Fourth, we believe in our people. We start with the assumption that all can and will do well if given the right environment and support. Be that environmentalist that creates the milieu for people to succeed. Accept that no employee is perfect, so live with their shortcomings. Anyway, wouldn’t you rather deal with the devil you know than the devil you don’t?

Lastly, never lose sight of your market. Products are products, capabilities are capabilities, technology is technology, but only market acceptance will allow you to make a profit.

Much importance has been placed on technology, products, and capabilities these days. Therein lies the problem if you focus on those. You move too fast, the market may not be ready. You commit too soon, the technology may change. You wait, you may get left behind. You do not prepare, you may be caught unaware. In the end, you really have to watch your customer.

Our success has always been measured in terms of size. We never set out to be No. 1. That was not our goal. We wanted to be good at what we do — one client, one product, one transaction at a time. Becoming big was just a by-product of doing what we do relatively well.

I think my 30 minutes is almost up so let me end now with leaving you all with some food for thought. Certain management practices have come in vogue and I think we need to ask ourselves whether we have swung the pendulum too far.

First, we all accept that governance is important, almost indispensable for sound management. However, the adherence to global standards have taken on a turn towards compliance to global prescriptions. Universal principles of fairness, integrity, accountability, transparency, and performance are sound. But universal prescriptions may not apply to all markets. Worse, we may get addicted to scorecards and awards based mostly on checklists against generic prescriptions.

In developed economies where corporate ownership is dispersed, the use of independent directors is a good way to create the proper checks and balance mechanisms on management and management-nominated directors. In our environment, we forget that majority shareholders share the same desire to ensure management’s propriety. Have we placed too much reliance and burden on independent directors at the expense of the major shareholders? Let’s focus on the output, not on who’s doing the work.

Second, are the principles of fair competition helping or hampering our economy? I would venture to say that that the US and European models may not be the best for a country like ours. Should we follow more the Korean model, where they nurture national champions in different industries so they can compete regionally or globally? Besides, how do you define a proper competitive landscape? Is it local, national, regional, or global? I would say in the banking industry it’s all those. But we should be cognizant that everybody is in a global playing field.

Third, what constitutes good corporate management practice? Often, the Western practice tilted the pendulum of value creation towards achievement of short term gains. Much emphasis has been placed on quarterly profits and share gains, but not enough on long-term investments, market share, or franchise growth. Asian investors (primarily family owners) look at improving value of the business for the next generation. In Asia, majority shareholders (mostly family controlled) are “brands” that have withstood several generations. Let’s not lose sight of those values.

While there is always room to strike the right balance, when share prices tumble, the tendency is to err on the side of short-term gains.

Lastly, we all have to be ambassadors of the country. We are in a sweet spot now with good and broad-based growth. We may like what we see (glass half full) or may not (half empty). Regardless of our view, let’s all work to fill the glass more. Our optimism or pessimism will not change the situation, but our concerted action to expand on the positives will clearly go a long way.

In closing, I am reminded of my first encounter with Mr. Wash Sycip when I joined SGV some years back. He said that (and I am paraphrasing here) our careers will only grow if the institution grows, and the institution will only grow if the country grows. Therefore, as management practitioners, we have a responsibility to help our economy grow. And that means making an effort to influence policy issues that hamper the growth of our company, our industry, and our nation’s economy.

Please allow me to end with that call to all MAP members and management practitioners.

Thank you.


Nestor V. Tan is the President and CEO of BDO Unibank, Inc.