Bridget Lai and the Science of Finding a Good Bank CEO

The fall of Bridget Lai as CEO of a very small Malaysian bank raised in my mind many important questions about how we go about selecting the next generation of CEOs of major public institutions, specifically banks.

The bank, Alliance Bank, is smallish by any standards, and the episode inconsequential, except for the fact that Singapore’s Temasek has a stake in the bank, and several international investors would love to merge it with other small Malaysian banks to extract its potential value.

It used to be clearer in the really old days. In the 1960s and 1970s, in most societies in fast-growing Asia, only the upper crust even had children who went on to good universities abroad, were exposed to their family businesses and were suitably prepared for running the more sophisticated public companies that grew on the back of strong economic growth.

Even if these children of the upper crust were mediocre by today’s standards, they were quite unlikely to foul up in their jobs or set themselves up to be criticised. All societies need that upper crust, the generalists whose most important skill is holding the centre. If in the past, the composition of that upper crust was clearer, today we are scrambling to recreate that with the new upwardly mobile, but also with pretenders and wanna-bes.

As opportunities for the under-class expanded, through access to education, social mobility and even geographic mobility from rural to urban areas, the pool of potential leaders appears wider. Add to that opportunities for disadvantaged minorities, it would appear that there is a larger pool of good senior managers with strong corporate skills, one or two layers below the CEO, who should be in the running for the position of CEO themselves.

The truth unfortunately is the very opposite. Now, more than ever, it is more confusing to find leaders from the merely educated, the merely talented or the merely experienced. It is even more confusing to assess what went wrong when dealing with the merely popular, as in the case of Bridget, who had made herself the darling of the local lifestyle media, complete with sumptuous photo shoots of the “glamour CEO”.

The merely popular are an extremely dangerous lot. From the information I am piecing together, I am told that it was Bridget and no other, who tipped off the Malaysian media when she was being investigated by her board on certain decisions made. If this is true, she did have a trump card against her own board, by making it look stupid, and this she did with distinction.

As a result, the opinions in the Malaysian blogosphere on the topic of her resignation are very different from the conversations between people in the know. Malaysian bloggers are today accusing Temasek of a conspiracy to overthrow her. In their view, it was she who was the innocent, who had the benefit of the doubt. It was she who had done an outstanding job in pulling the bank up from the doldrums. It is the board and Temasek that are the evil in undoing her work.

The actual allegations on which she was being investigated came out first through the grapevine – that she had been giving branch renovation contracts to a company controlled by a family member. But because of her popularity, the opinion on even this was divided. Some say that she made this decision as part of due process. Some say that she was a perfectionist and would trust only those she knows. This was a mini Evita Peron, played out Malaysian-style.

If the Alliance Bank board and Temasek were set up by her to look really stupid, they probably were, for having played well into her hands. There should really be no sympathy for a board, if its selection criteria for CEO was faulty in the first place. What in the world were they thinking?

The boards of Malaysia’s largest corporations, especially banks, are very interesting creatures and worth describing. They are made up of an erudite class of Malaysians, both ethnic Malays as well as Chinese and a sprinkling of Indians and Eurasians commensurate with their smaller percentage of the population.

All speak English, live in Kuala Lumpur, and are mostly distinguished professionals in their own right. There is probably close to 300 such individuals in circulation today.

(I have a theory, based on observation, that any country of any size – whether it is mighty China with 1.3 billion people, the US with 300 million people, Canada with 30 million or Singapore with 3 million locals – has just 300 core elites whose interactions with each other form the nexus of power for that country. This nexus is made up not just of corporate types, but important politicians, priests, writers, show business personalities, whose familiarity and interaction with each other holds the centre. Lee Kuan Yew, the father of modern Singapore had made a similar observation once. He is reputed to have said that if you put all the most important people who make Singapore work, it will fill just one plane load, a Boeing 747 to be precise. He was bemoaning that the pool that Singapore draws from was small, which was probably correct. But seen in a different way, the pool at the core is the same for every country, regardless of size.)

The characteristics that unite them and set them apart from the rest of the population are distinct. In the case of the Malaysians, these include the social clubs they belong to, a penchant for tennis, ballroom dancing, overseas travel and for some reason, the love of equestrian sport. Did I forget to mention golf? A very cultured lot, widely read, with a wide range of interest.

Most feign to be a retired something or other in an accomplished previous life. In the case of the men, the mistresses and marrying a second or third wife are discussed melancholically in the same breath as the latest sport or antique car in the stable. The boards they belong to have very long meetings. Very short on strategy, but very long on solving self-inflicted problems such as interested party lending.

The difference though is the kind of people they allow to enter and leave that cohort of 300. In a country like the US, an efficient electoral process means that there is constant renewal of opinion setters and incumbents every 4-5 years. In smaller and less robust countries, as many Asian countries are, the same names keep coming up generation after generation.

The Malaysian variety is sufficiently self-renewing so as not to be staid, as compared to the Philippines, Taiwan or the Middle East, where class is reinforced by family. The best thing to be said about Malaysian boards is that the ruling elite class is clearly defined, because in countries where it is not there is only chaos. When we see Malaysian corporations making it to the top of international corporate governance rankings, it is this class that is responsible for the integrity of the system, because they understand the rules.

The worst thing to be said about Malaysian boards is that they are a class unto themselves, disconnected from the dramatic shifts taking place at the grass-root levels in the country, where they are supposed to find and nurture the talent to run the corporations whose boards they sit on. In as much as they are personally wealthy and capable, they can sense that it does not take much for them to be replaced by dud political appointees, civil servants, ex-army generals and even their personal drivers in a country where the social stratification is shifting in very unstable ways.

It is into this fold that these “board of directors” occasionally invite someone new, like a Bridget Lai, to run their important corporations. Central to the process is how they select from the merely managers to become CEOs. When they tap someone like Bridget, they trasform her from a pedestrian into one of them.

If seen against this background, you will be able to see why her appointment as CEO of Alliance Bank, no matter how small an institution it is, should have been made with greater care. If indeed it was Temasek that was responsible for selecting her as a CEO, they should be castigated more than the rest of the board. After years of experience, mistakes and learning from selecting friends, partners and leaders for their businesses across many countries, if they do not already have a simple but tested methodology to select CEOs of their institutions, then they have nobody to blame but themselves.

They had a strong pool to choose from. She was a retail banker in a foreign bank, no more and no less talented than her peers. If she fit the criteria for the job, so did about 5-10 other similarly qualified candidates.

Until her appointment as CEO of this bank in 2005, few outside her bank, Standard Chartered retail bank in Malaysia, even heard of her. My personal contact with Bridget in one episode was when she was disgusted with The Asian Banker, and therefore with me, for not awarding her the Best Retail Bank in Malaysia in the year that she was head. Our evaluation process is quantified as much as possible, and also it runs independent of me by a team of researchers validated by independent external judges.

To be sure, she had done well in the short time she was head of retail at StanChart, but others had done better and had probably pipped her on the numbers.

Her e-mail correspondence with me on the topic alerted me to her tumultuous temper. The signs to me then were that she was probably a very passionate and capable senior manager, but not astute enough to be CEO. He fellow senior managers at Standard Chartered Bank in the region, either humoured her ambitious streak or had reservations about her coarse style, not a good indication in a conservative industry like banking.

With few exceptions, board meetings of Malaysian banks are acrimonious, especially if the class difference between the board members and the CEO and management team is immediately recognisable. It was into this world that Bridget Lai, oblivious to the dynamics of the boardroom, found herself in and played her cards wrongly. It was not that she did not have strong and good ideas to implement, but selling these ideas to a board of enfranchised men required a certain verve.

In only a few situations is this acrimony avoided. One, when the CEO or the chairman is an hereditary member of the ruling class. Usually because their parents were royalty or important political figures, so that the sense of entitlement is undisputed. Two, if they were the founders of the organisation. Three, in very rare cases, when there is a really astute and capable corporate leader who holds his own, as in the case of Azlan Zainol, previously the CEO of Arab Malaysia Bank and currently the outstanding CEO of the Malaysian Employee Provident Fund (EPF) or the former CEO of Maybank, Amirsham Aziz.

I found that Malaysia proves the point that some ethnic Malays who have that combination of an instinct for feudal hierarchies, a strong sense of community, and a strong academic background and skills as their base, make very good CEOs.

Azlan and Amirsham were the outstanding ones among them, but so was Hasan Merican, the former chairman of Petronas – reputed to have created the best run state-owned petroleum company in the world.

The current CEO of CIMB, Nazir Razak has the potential to grow into this. For all his faults, Nazir is growing into that cohort of leaders of international calibre for large and complex organisations that banks are – and there will always be only a few of them.

Unfortunately for Malaysia, this class of capable ethnic Malay corporate leaders is an exception rather than the norm, in a country where a culture of entitlement has perverted even what is good. But that class exists, and we have sight of it in case we need to recognise the pedigree in others like them.

I would have paid attention to the pedigree. Bridget, interestingly enough is East Malaysian Chinese, from the Malaysian state of Sabah, in the island of Borneo. That should have been something that Temasek should have taken into consideration in a dispassionate way – there is no recognisable pedigree of men or women with her background who have gone before her and are captains of industry in Malaysia today.

Identifying the pedigree is something that the British colonialists did for 150 years, keeping life simple for themselves and enabling them to keep a vast empire economically active with minimum fuss. The East India Company managed a vast region of more than 100 million people then (and maybe a few hundred more tigers than today), with fewer than 1000 young men under the age of 30, straight out from university. That is how effective they were just by being focused on not shaving against the grain.

It is something that Temasek should be doing not just in Malaysia, but in all countries in which they operate. There has been hardly any CEO talent of international standing from the main communities in East Malaysia, and the ones that come closest are still far off, so what exactly were they betting on?

She may come from a wealthy Sabahan Chinese family, or she may not. The wealthier Chinese families in Sabah send their children to be educated in the best universities in Singapore, Australia, New Zealand and the UK. On the outside they have that veneer of respectability , but many retain that coarse hungry persona inside that was vital to their survival in this challenging jungle state over several generations. A persona that is completely misplaced in a more gentrified setting.

The issue of characterisation here is not whether they are good or bad people, but that the environment in which they are nurtured defines them. Even if Bridget was different from all the Sabahan Chinese in corporate life, in the absence of a recognisable pedigree, the board should have chosen slowly, tested and maybe even groomed her over several stages to see how she could be expected to behave when her mettle was tested.

Wealth, power and status do not help everyone to become more refined. All evidence indicates that those who stay on in Sabah or Sarawak find themselves becoming even more greedy as they grow older, because it is a region with very few economic opportunities to become wealthy outside of the timber and land concessions. The failure of the East Malaysian family that owns Bank Utama in Sarawak to make the transition, when they tried to move over to Kuala Lumpur and run Malaysia’s third largest bank at one time, is another object lesson on pedigree, and there is no lack of them.

I notice instead that there is a larger than usual number of successful corporate and public sector leaders in Kuala Lumpur, who are from another Malaysian state, that of Kelantan on the east coast of the mainland. A very interesting phenomenon indeed.

The reputation of Kelantan today is that of a backward state run by stubborn Muslim fundamentalists. Stubborn they always were, but in their original form, they were also a people with an incredibly robust culture. It is the home of “Boria” and Dikir Barat”, virile men and attractive women. It is home to a range of robust communal sports that refuses to die in a modern world – cockeral fighting, top-spinning and kite flying in the powerful monsoon winds. These build men and women who interact vigorously with each other and with the outside world. Every now and then, I run into a few men and women from Kelantan, who with a Western education and a strong spirit, do very well as corporate and government leaders in the capital city. How is it that a state that is so backwards throws up such men and women of quality, I don’t know fully just yet, but that pedigree certainly exists.

Every country and regions have these variations in terms of the talented. In Indonesia, you would classify the Bataks as natural entrepreneurs, the Javanese as rulers, and you would stand that rule on its head at your own peril. Even in China, where 98 percent of the population is Han Chinese, I would not hold a Chinese from the provinces of An Hui or Guangdong to the same standards as a Chinese from Shanghai in banking. I would be more comfortable with an Indian from Maharashtra or Karnataka to be CEO of an international bank, rather than a Bengali or a Bihari, no matter how genius they are intellectually (which they are).

Strangely enough, I did notice that Islamic banking in Malaysia and elsewhere was at one time attracting the wrong pedigree, sometimes to drastic effect. The evidence is that Islamic banking does have a crisis in the dire lack of CEO talent and the kind of people it has been attracting.

Almost at the risk of being categorised racist or a bigot, anyone evaluating candidates for leadership must start with some assumptions and try to find the correct candidate’s groove. As it is a very changing world, you carry several permutations and combinations in your head and test them again and again, hoping to be proven wrong for the sake of humanity. It is a trial and error process that can take an entire lifetime to muster, and judges the selectors as it does the persons selected.

I run an international business, and in my small organisation of fewer than 40 people now, there is already about 12 different nationalities represented, so I cannot be accused of being a bigot by any measure. In fact, I believe that thinking in this way is in effect the anti-dote for racism and bigotry, because you deal with a hidden hand by giving it a name.

I find that taking a preliminary view of where people come from cuts out so much of the pain that follows from assuming that everyone is the same. All international companies have to take a view on this, and working from there, hope to be proven wrong and discover new talent from the least expected regions. It can even be positive, because people from some regions are far more talented than others in different things, from website design to marketing to sales to software to management. You shave the wood along the grain.

Also, this is the much more enlightened view than the current tendency of sticking to one’s own nationality or type, as so many institutions across Asia still do. Alliance Bank assumes that its CEO has to be ethnic Chinese. In a multi-racial Malaysia where people like Azlan Zainol and Amirsham are able to rally troops at all levels at the one end, and hold their own in very tight board meetings on the other, you wonder why boards limit themselves in the way they do. With the right mental tools, we are able to broaden, not narrow our choices.

In the same vein, I have enough of an open mind to be surprised by where talent can come from. In the same way that Jack Welch of GE was when he outsourced world class technology development to India, one of the least developed countries on the other side of the world from the United States. Who would have thought? What did he see?

The second criteria is really that of “wanting the job”! In Singapore, you would find a whole cohort of senior managers who have proven themselves in very sophisticated government, state-owned enterprises and multi-nationals but who have no clue how to promote themselves.

Like the 10 or so senior managers in Malaysia who would have easily qualified for Bridget Lai’s job as CEO of a small bank, there is probably a similar cohort of 5-10 Singaporean retail bankers in the same age group, who would have easily qualified for Bridget’s job if measured on the same considerations.

The Singaporean managerial class tend to castigate their peers who are self promoting, wrongly assuming that if they do their jobs well, the boss will know how to look after them. In a country that creates members of parliament without having to directly stand for elections, the Singaporean technocrat is unique in presuming that it is his right to be invited into the ruling class without having to prove himself. The ability to promote oneself is an important step for anyone who wants to move into the ruling class. It is the way they do this that determines if they qualify or not.

Wanting the job is so important because that is what separates the men from the boys, or the women from the girls. It is the best indication of how the candidate will hold out and carry herself when the heat is turned on.

The best CEOs I know showed in a serious way that they wanted the job when they were still managers. I still recall Yvonne Chia, who now heads Hong Leong Bank. She first entered the fold of CEOs when she was considered to head RHB Bank from the ranks of a senior manager at Bank of America. In Singapore, Chua Sock Koong was dressed the part long before she made the transition from CFO to Group CEO of Singapore Telecoms.

Bridget was shamelessly self-promoting, no doubt about that. This is what probably brought her to the attention of the board in the first place. In this respect, it is not that she was wrong, but that the board probably limited itself in the number of people it looked at as a result.

A robust field for talent is one where several ambitious and competent people are self promoting in the right way. It is a challenge, trying to persuade a competent manager who is not self promoting that he or she is CEO material. But more than ever, it is still incumbent on the board to know the difference between the two.

So what about merit? On its own, meritocracy has become perhaps the most dangerous criteria to look at when selecting leaders in today’s capitalist society. It assumes the right of anyone who has been to a good university degree from Harvard, Princeton, Cambridge or the more prestigious local universities to be considered for positions of leadership.

In the old days, there used to be a secondary pre-selection process that would sieve those who would go to these universities in the first place, so it was never meritocracy in a pure form. They used to be young people from the ruling classes themselves. Even the poor students on scholarship aspired to the same values.

Today, with the democratisation of education, these same universities are churning out A-grade graduates by the thousands, not hundreds, but without first honing their internal value system. Their narrowly defined career objectives (to make money, to run up the corporate ladder fast, to be rewarded today not tomorrow, to retire at 40) and a strong sense of entitlement is the deadly combination that is being played out on Wall Street today.

Inviting someone from the managerial ranks to become a CEO is a topic that is close to my heart, because this is the process by which the industry, and countries as well, prepare for the leaders of tomorrow. This process of transition is taking place in an entirely accidental way today. The so-called head hunters do not help either, throwing confusion into the process without the integrity of evaluating each candidate in a dispassionate manner.

The Bridget Lai episode set the stage for me to discuss some of the points that have been brewing in my head since I wrote that iprimer in 2004, “Choose Your Leaders Wisely”. I also draw from the work my staff do internally for our Leadership Awards Programme for CEOs in the financial services industry in Asia today (see http://www.asianbankerawards.com/leadership/). The body of knowledge I am drawing from is rich. The process has a time as well as a value dimension to it – we evaluate CEOs once every three years, and a cohort of “Promising Young Bankers” every other three years.

Boards should realise that the invitation for a manager to become a CEO of a bank is a sacred transition in more ways than one. You are selecting a “first amongst equals,” and creating the ruling class for the next generation.

The fall of Bridget Lai is a stark reminder that the field is, now more than ever, crowded out by pretenders of every kind, from the greedy to the insecure to the narrowly-skilled. Even if she was not any of these, she was most of all unprepared to be elevated to the status of the ruling class. The board of Alliance and Temasek are to be held solely responsible for that decision and the unfortunate consequences they have brought on themselves as a result.