My Say: Profit to purpose — my personal journey

This article first appeared in Forum, The Edge Malaysia Weekly, on May 10, 2021 - May 16, 2021.
My Say: Profit to purpose — my personal journey
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I am thrilled to be addressing you this morning. I was told that I have a very diverse audience today — investors, entrepeneurs, enablers,

educators and students — so I thought it would be useful to just share my own journey to here, where, as an investor, I now try to put purpose first. This isn’t about getting caught up in a fad or claiming to be terribly methodical. It is just how I have grown up.

My journey

I have had a long career in finance, starting out as an investment banker in KL back in 1989. It was a time when emerging markets were

being uncovered as an exciting asset class, when we believed in the Friedman doctrine that the only duty of the company was to maximise shareholder value, when we pretended to look up to Wall Street’s Gordon Gecko for his fashion sense but, in reality, also worshipped his mantra that “greed is good” and when governance, rules and regulations were always three to four steps behind financial innovation and, indeed, naughty financiers.

It was a heady time and it is quite incredible how even the best brains, the best brought up and the best educated people were going with the flow. If you weren’t dancing to the music, you looked like a stiff and basically did not get far in your career. And finance was the place to be; where growth was exponential, where as an employee, you could get seriously rich, and where talent could quickly outweigh tenure and experience.

I remember many moments thinking that this isn’t right or that isn’t proper. But I stayed on, I stayed in. So, when I look back, I consider myself one of the guilty ones. I was a full-on part of the international system that was unfair and probably did more harm than good to the world. After spurts of exponential growth in financial activity came devastation that hurt the real economy and people much more than the primary culprits, the bankers and financiers. In 1998, I saw chaos and starvation in many Asian countries and, in 2008, I saw capitalism itself being brought to the brink of collapse. Excesses of global finance also has to take more than its share of blame for both the climate and inequality crises that we face today.

I feel a sense of obligation to now be part of the efforts to find a better, more sustainable path for finance and capitalism. I cannot yet claim that everything I do is on that path, but at my family office and the national development bank (Bank Pembangunan Malaysia Bhd) that I chair, we already do place purpose first. Of course, we need a new generation of financiers, schooled in the lessons of the past excesses and failures and new economic thinking, but, if I may, we also need wisdom from those who lived it if we are really going to evolve a better system.

The early shift away from the pure Friedman doctrine came with corporate philanthropy, or CSR (corporate social responsibility), as it was popularly known. In Malaysia, CIMB took a leading role. In 2007, we set up CIMB Foundation as the bank’s CSR vehicle to genuinely give back directly to society. We embraced the principle that, across Asean, we should help every community where we had a branch or presence. The CIMB Community Link programme was decentralised in that branches would themselves choose the causes they wanted to help with and the bank would make a financial contribution only if staff themselves committed their own time and energy to the cause. Ten years later, CIMB again set the standard by making the voluntary commitment to set aside 1% of its annual profits for CSR.

It is a fact that the CSR dollar can be much more effective than the government’s. I have no doubt that CIMB Foundation did a huge amount of good for society, all the way from free cataract operations for the lower-income group to financially enabling the greatest squash player of all time, Nicol David. In fact, even Thailand’s Patty Tavatanakit, the recent LPGA major champion, was a CIMB Junior Golf development product.

In recent years, though, I began to realise that profit maximisation cum CSR wasn’t enough. It was like going to war, killing as many enemies and causing as much collateral damage as you want while being an exemplary neighbour when you get home. There had to be a better way of fighting wars; minimal collateral damage, limited human casualty. So, in business, profit should not be the prime motivator. Doing well shouldn’t be about just profits.

From profit to purpose

The challenge then is — if not profit, then what? Of course, the vogue term today is purpose; a company sets out its purpose, and profit is a by-product that satisfies shareholders. In my personal investment, I have embraced this paradigm.

We at Zak Capital, my family office, invest in opportunities that pass our internal impact test. We don’t invest just to make a return; we invest when we first think that our capital can be part of making an important contribution to a bigger cause. We invested in the Genesis Fund because we believe that it fills an important space, to enable young technology businesses to raise less dilutive debt capital. We recently invested in agriculture because we believe food security should be a national priority for Malaysia. We invested in many start-ups in the hope that we can help them achieve breakthroughs that meaningfully impact areas such as healthcare, the environment and inequality. One investment where all of this comes together is Tanihub, one of the companies in Genesis’ venture debt portfolio.

Tanihub is an Indonesia-based company that applies technology in the agriculture sector, with the aim of raising the livelihood of small farmers. Agriculture is a main source of employment in rural Indonesia, employing around 40 million Indonesians, most of whom have been left behind by Indonesia’s economic growth.

Tanihub allows consumers to buy fresh produce directly from farmers, while providing them with an alternative and legally registered source of loans.

Are we sacrificing performance in our quest for purpose? Perhaps, but not necessarily. There is plenty of data that shows that investors and companies that drive impactful outcomes can also deliver strong returns and profit. It is not a question that I dwell on, though; I just find greater fulfilment this way.

The challenge of multi-stakeholder companies embracing purpose and other non-profit priorities is far more complicated. Many small companies just need to make money to survive; they can’t afford other priorities. Despite the best efforts of Larry Fink of BlackRock and others, public companies are still benchmarked by financial returns relative to their competitors. Institutional investors are now according premiums for companies based on their ESG (environmental, social and corporate governance) metrics, but a read of analyst reports will tell you that things have not changed very much; return to shareholders still rules. And there have been some high-profile CEOs who put purpose first but were soon deemed underperformers by institutional shareholders: The recent fall of Emmanuel Faber — CEO of the French Danone Group described by Financial Times as “one of the most visible advocates of a more responsible capitalism” — is a big case in point.

Squaring the circle

So, how do we square the circle? To marry capitalism’s “survival of the fittest” tenet with a purpose-first culture. To imbue ESG (or climate change or sustainability) into the corporate agenda and make capitalism work to also save the planet. To evolve a system that is fairer and more inclusive. To compel today’s generation to do the work in order to make things better for future generations.

I do not have all the answers but I think we have to engineer reforms on multiple fronts. Let me just share five thoughts on moving towards a more sustainable and fairer financial system.

Market participants and private enterprise will not go very far in self reforms; in the end, they are wired to fight to win and be paranoid about each other. We will need bigger governments to impose rules on ESG and CSR and ensure compliance.

Accounting rules can be used to realign behaviour; for instance, by charging for social costs such as damage to the environment. Nothing drives corporate behaviour more than real profit-and-loss statements.

Tax systems have to be more progressive so as to afford more effective safety nets and redistribution policies. For instance, I could never understand why, in Malaysia, glove companies made billions of super profits from the pandemic, yet super taxes were not imposed on it to help pay for the cost of the pandemic.

There needs to be better international coordination on ESG and taxation to minimise cross-border arbitrage. Degradation of the environment and amplifying inequality cannot be inter-nation competitive tools.

Governance frameworks should encourage, or even ensure, greater diversity on boards, not just in gender but also in age, ethnicity and background, so that companies are more in tune with society. One of the last things I proposed as chairman of CIMB was to always have a young, under-30 member of the board. Unfortunately, I ran out of time.


In conclusion, from the vantage point of an old-time finance professional, I would like to call on my fellow old timers to step up to help make a better financial system — we owe it! As for the younger generation, until we overhaul the system comprehensively, you must live with its many imperfections, but this shouldn’t stop you from imposing your own better value systems and self-restraints to progress a better world. If most of you just follow your conscience, instead of Friedman or Gecko, I think we will already have a much better financial system.

I love that Genesis embodies this spirit; I am glad to be part of their network and honoured that they let me have your attention this morning.

Datuk Seri Nazir Razak delivered this keynote address at the Genesis Alternative Ventures Annual Forum 2021 on May 6

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