For seven generations, they have built job-creating enterprises that helped grow the Philippine economy.
Their history is entwined with that of the country, through the long colonial period and two world wars alongside domestic economic and political cycles. Indeed, in the last 183 years, it has evolved from an agricultural trading house into one of the largest, most diversified and most admired conglomerates in the country.
Conglomerate Ayala Corp., the country’s oldest business house, traces its roots to Casa Roxas, set up in 1834 by Antonio de Ayala, a poor young man from the small town of Ayala in Spain’s Basque region who worked as assistant to Domingo Roxas, descendant of settlers who arrived in the Philippines by way of Acapulco in the late 1770s.
While the Spanish upper class settlers scoffed at farming, Roxas embraced agriculture, cultivating sugar and cotton in his Batangas and Laguna farms. Together, these two men put up a small distillery whose best-selling brand (eventually sold to other groups), Ginebra San Miguel, is still the country’s most popular gin.
From Casa Roxas likewise came Southeast Asia’s oldest bank, the Bank of the Philippine Islands—one that preceded the local central bank system and issuer of banknotes. Another Philippine crown jewel, Manila Electric Co., also traces its roots to the group, which set up the first street car service in the metropolis.
One defining moment in Ayala’s history was the purchase of what was then the idle estate San Pedro de Makati for P52,800 in 1851. The portion left to siblings Jacobo, Alfonso, and Mercedes Zobel de Ayala when family assets were divided in 1914 eventually became what we know as Makati, the country’s first modern central business district. By the 1960s, the group became one of the most successful property developers in the country.
Such enviable growth did not happen quite by accident. On the contrary, the conglomerate not just survived but thrived because of a series of strategic moves and unwavering commitment to a vision, which is to be “the most relevant, innovative, and enduring Philippine-based business group, enabling shared value and prosperity for the many markets and stakeholders we serve.”
In a recent rare occasion where Jaime Augusto Zobel de Ayala and his brother, Fernando, were keynote speakers in the same forum, the Zobel brothers shared with the Shareholders Association of the Philippines valuable business insights as they reflected on the rich history of the Ayala group.
“We try to ensure that the next generations know that they are not merely owners but also stewards of business. Each new generation should know early on the difference between ownership and stewardship. Ownership is like possession, stewardship is a fiduciary role,” Jaime said.
1. Stewardship of family legacy
The Zobels try to promulgate the “stewardship” principle to the younger ones by educating them on the family’s history, what it has achieved through the years and its role in the national agenda. Their hope is that this will instill a sense of pride to build on the family legacy and inspire the next generation to make their own distinct contribution in the future.
2. Strong work ethic
Jaime explained that family members must understand that they must work to prove their worth to deserve something. Unlike the feudal system of old, the Zobels do not award positions as a birthright or entitlement. Within the family, the Zobels value educational achievement and encourage the next generation to likewise work hard to gain the respect of the professional managers.
He also pointed out that only he (chair and chief executive officer) and Fernando (chief operating officer) hold senior posts within the group. A few eighth-generation Zobels have joined the organization but they all started from the ground, similar to how Jaime and Fernando were trained.
Based on data from the Family Business Network, only 30 percent of family businesses last into the second generation; 12 percent remain viable into the third generation, and just 3 percent operate into the fourth generation or beyond. “Mismanaged” succession diminishes the value of the rest. Having scions with a feeling of self-entitlement is bad news for the family business and bad news for the investors. The Zobels are very well aware of this thus guard against it.
3. Stability and unity within the family structure
“Family unity is critical for business continuity,” Jaime said, highlighting the need to inculcate the right values in family members. When family members bicker among themselves, the resulting shareholder squabble could lead to the loss of family jewels.
Research from the Egon Zehnder-Family Business Network said at least one key family member—but no more than three—should be “standing at the center of the organization like the sun in our solar system.” These are the people who “personify the corporate identity and align differing interests around clearly defined values and a common vision” and the kind of corporate leaders who “focus on the next generation, not the next quarter.”
For the seventh-generation Zobels, Jaime and Fernando are definitely the anchors of the organization.
“Fernando and I provide leadership and participate in major strategic, financial and management decisions,” Jaime said.
“As family members and owners, I do believe it’s our duty to ensure that business survives, succeeds and grows and ensure that family ownership structure is stable amid other stockholder groups and, to ensure that it will grow from one generation to another,” he added.
4. Sense of patriotism
The Zobels recognize that the Philippines has given the conglomerate a platform for growth and that the Ayala group should continue to play a key role in the country’s development.
“We don’t operate in a vacuum,” Jaime said, adding that the conglomerate’s growth agenda could never be separated from the growth agenda of the country. He cited the need for “imaginative capitalism,” one that integrates social issues into the strategies of the corporation. Like many other companies in the country, Ayala aligns itself to the needs of the communities and society as a whole.
“Business can’t thrive in a failing economy,” Fernando added.
Thus over the years, Ayala has invested beyond its banking, property, telecommunications, electronics manufacturing and water utility businesses to include power generation, infrastructure and e-commerce. Recently, the group has also expanded into soft infrastructure— such as education and healthcare—in response to the needs of the community.
5. Separation of business of business from business of family.
In making decisions, Jaime said there must be a “sharp focus on quantifiable results and metrics so business won’t be compromised by unreasonable family needs or interests.”
Although family-led, the Ayala conglomerate is run in a professional manner with clear objectives. As such, it has been able to attract professionals who usually stay for a long period.
Fernando added that when Ayala hires people, it’s not just competence that it looks at but also character. They must have the right values and the right personality to gain the trust of family members and executives.
In the 1970s, Ayala was transformed from a limited partnership into a corporation, eventually listing on the Philippine Stock Exchange in 1976.
It was a major milestone for the group as this pushed the conglomerate to benchmark itself against the metrics set out by the local and international investment communities.
Board diversity
At the boardroom level, Fernando said the group encourages diversity in thinking.
“Across our board of directors, we have a combination of knowledge, experience and expertise to address market challenges and opportunities, from economics, business, finance and technology,” Fernando said.
While each director is encouraged to pursue independent thinking, the conglomerate encourages a culture of trust, openness and constructive dissent, he said.
In this regard, Ayala supports the nine-year term limit for independent directors.
“We believe this is the appropriate tenure for an independent director to gain deep familiarity with the business to be able to provide valuable foresight but still maintain impartiality,” Fernando said.
Beyond compliance
“Our approach to transparency has dramatically shifted from mere compliance to a strategic mechanism that can drive competitiveness and long-term growth and value for Ayala,” Fernando said.
As such, he said Ayala sufficiently informs investors about its strategy, governance, financial performance and business risk, given that all these were imperative to make sound investment decisions.
“We stated our five-year plan to make investors understand what we’re thinking, which also imposes greater accountability for ourselves to execute the aspiration,” Fernando said.
In its annual stockholders’ meeting last year, Ayala announced a plan to diversify its revenue stream and double net profit to P50 billion by the year 2020 under a five-year vision that also seeks to expand its position across Southeast Asia.
The “Ayala 2020” roadmap also aims to boost return on equity (ROE) to 15 percent, expand equity earnings contribution of businesses outside its four largest business units (banking, property, telecommunications and water utility) to 20 percent and increase the earnings contribution of international businesses by 2020.
Levels of disclosure have likewise been elevated to include discussions on environment, social and governance aspects, he said.
“We view disclosures as more than just a published document. It extends to interaction with capital market participants such as equities analysts and investors,” Fernando said, “We have a robust investor relations program that focuses on access to Ayala’s senior management, roadshows, analyst briefings and company visits.”
As a result, the group has been able to attract a good number of blue chip institutional investors who have become long-term partners and shareholders, such as Mitsubishi, Singapore Telecoms, JP Morgan, DBS and GIC, Fernando said.
As such, the Ayala group is well placed to remain successful for generations to come.
