Dato’ T.N. Loy: A Malaysian CEO Perspective on Bribery and Business

Dato’ T.N. Loy is president and CEO of MBf Corporation in Kuala Lumpur, Malaysia. He is also chairman, executive committee of Taylor’s Education Group (Taylor’s). MBf Corporation is an investment holding company representing leisure and tourism services, financial services, and real estate. Taylor’s is Malaysia’s premier private education group providing education services in the form of private schools, preuniversity courses, and university degrees. Dato’ T.N. Loy’s family controls both the unrelated MBf Corporation and Taylor’s business groups.

He got his start in business at an early age. His father had started a factory producing adhesive tapes, called Loytape. A special “short tape” was created, recognizing that standard rolls of tape often lost their adhesion before they were used up because of the high humidity in the tropics. Still a school boy, Loy promoted the tape at school and it soon happened that many children in the school had a roll of the tape with their school supplies. His friends in school called him Loytape.

He went on to study in Singapore, England, and Canada, receiving a degree in economics from McMaster University, Canada in 1983. Returning to Malaysia after earning his degree, he started work as a loan officer in his father’s finance company (Malaysia’s largest). In 1987, at the age of 26, he left MBf Holdings Group to establish a vacation timeshare company on his own, growing it to become the largest in Southeast Asia and making subsequent investments in other ventures.

In 1997, his father’s health suddenly took a turn for the worse, and upon his father’s death at the end of the year, he was called in as CEO. He took over the company at a critical time when all of Asia was in the midst of a significant financial crisis. Like many other companies that were highly leveraged (over-geared, to use a term common in Malaysia), the MBf Holdings Group was not spared the crash of 1997/98. He undertook a financial restructuring of the MBf Holdings Group which saw his family’s shareholding whittled down to a negligible percentage.

With the assets that he had built up, he subsequently undertook a reverse takeover of a part of the restructured MBf Holdings Group in 2003, thereby gaining back control for his family a portion of his father’s former business empire. He named this new company MBf Corporation in continuity of his father’s business undertaking.

Loy was recognized by the government for his business and community contribution when he was awarded the title of “Dato’ ” in 1998.

◊ ◊ ◊ ◊ ◊

Ethix: In the biography about your father [see the review in this issue], he made the statement that he thought the role of government was to be supportive of business, as Malaysia developed. Do you find the government supportive of your objectives in business?

Dato T. N. Loy: From my experience, they are. The government is generally very pro business. They provide a stable political and socio-economic environment without which business cannot thrive. However, if you have a particular problem which you need addressed it all depends on knowing the right people who can lobby your case. I find that the various government ministries which I come into contact with will listen to you and if it makes sense, they will try to help you.

The reputation from outside of Malaysia is that there are a lot of bribery issues here. Is that a fair perspective?

“A lot” is very subjective; and compared to which country? I think in comparison with our neighbors, except Singapore, we are not that bad but that doesn’t imply that we do not have a corruption problem either.

Bribery is widespread. However, its concentration is endemic. There are areas or industries where bribery is more prevalent than others. In some industries it is a disease at every level while in others it is not a big problem. Where income levels are low and there is much bureaucracy, small bribes are asked for to progress things. In those areas they have become a way of life.

Then there are the very big bribes that arise out of greed for awarding contracts with fat profit margins. Because the margins on those contracts are so massive, people do whatever they can to get those contracts.

The government’s effort in fighting bribery has brought a greater awareness of the perils of bribery for our society in the long run. However, for it to be reduced to an acceptable level certain key ingredients must first be in place. Chief amongst them, I believe, is that income levels must rise to a level where people in general do not have to supplement their living.

What’s the difference between a bribe and a service charge?

A bribe involves money or gifts which are negotiated upfront in exchange for some services to be rendered or approval and done in secret because it is illegal. A service charge is a fee for services rendered. It is transparent and legal. In a bribe no receipts are given. A service charge is a business transaction and is properly accounted for.

There can be quite a fine line between the conduct of bribery and the payment of a service charge in our culture. In this part of the world, it is part of the culture to entertain in business. This entertainment can take the form of simple things like an invitation for a meal or a game of golf to the giving of gifts and holidays. Indeed, the Chinese traditionally offer gifts of monies in red packets to children and elders during the lunar Chinese New Year in additions to other gifts.

This tradition of giving has been adopted by business people so that nowadays it is common and acceptable practice during festivities to send gifts to business associates and government officials. I suppose that when the gift is of a small value and reflects a token of friendship and appreciation then it is not an issue. The problem occurs when the gifts are unreasonably high in value such that they are considered unusual and are aimed at getting into the good books of the recipients. But the difficulty is that value is very subjective. A wealthy man’s idea of a reasonable gift may be a poor fellow’s fortune.

Golf games and betting is commonplace in business. However, it is not uncommon for people with an approving authority to “win” large amounts of monies in a game of golf. To be taken on holidays and conferences are also other areas where some people have been known to turn those occasions to pay for shopping sprees of people who are in a position with approving authority. I suppose in the U.S. you call it lobbying. But the lobbying here can go very far indeed. It can extend to suggesting, “Buy a nice watch for yourself, and one for your wife, go shopping where everything is paid for.”

It must be remembered that giving gifts is an old tradition in this country. Some people just overstretch that a bit too much. I remember my father telling me about a legal case he had against Citicorp fought under U.S. legal jurisdiction. One of the partners went up to the judge after a hearing and gave him a gold watch! The judge was of course taken aback and asked him, “Are you trying to bribe me?” His response was very fast, “No, no it’s a tradition in my country to give gifts to people.” Of course the judge didn’t accept the watch. So, where does one draw the line between an acceptable gift and an unacceptable one?

Another example is traffic offenses. Traffic offenses used to have to be paid in the town in which the traffic offense was committed. So, here you are speeding along the interstate highway, hours away from home and you get caught for speeding. The policemen who stop you tell you that it’ll cost you RM300 for the speeding offense and on top of that you’ve got to make another trip back on another day to that town to pay your fine. The alternative is RM50 in cash to him for instant settlement. Faced with those choices, it is a very easy decision to make; I can tell you that. The policeman will also unabashedly help you come to the compelling conclusion should you waver.

Although it is now possible to settle your fines without such hassles, nevertheless bribes for traffic offences are still a way of life because by paying a small bribe there is a huge savings and no record of driver’s demerit points.

Has this been changing at all in the last ten years?

Bribery is not condoned and it is illegal. The authorities have made consistent inroads into improving the situation. I think it has improved with the new prime minister who seems to have placed a greater emphasis on eradicating corruption. High profile charges have been made against big time business people with strong connections and even government ministers. This would not have been possible in the past. So, the ACA (anticorruption agency) seems to have been given a new lease of life.

The new prime minister is also not that keen on awarding big projects to one single firm. He’s keener on improving the processes of the government—efficiency, cleanliness of government, less bureaucracy. Removing these causes of corruption will go a long way towards eradicating corruption.

In the old days election time was when money was just flashing all over the place; you know, “Here’s something for you, vote for me.” Now, it’s not such a problem anymore. It is very obvious that money politics is not what it used to be.

What would it take to change that system?

First of all you’ve got to increase the income level. People must be able to not only survive but live a decent existence without having to resort to corruption. The temptation must be removed.

Have an anticorruption agency which is not afraid to go up against anybody. Then, you’ve got to make some high profile charges against some powerful people to send the right message out. Put the fear into the population that the government means business.

Policies and regulations that inhibit the effective and efficient delivery of services must be reviewed. Processes must then be reengineered to improve timeliness and to avoid long delays. Expectation on timeliness must be made clear and transparent. An audit system must then be set up, the reports of which are then made public.

Educate the population against corrupt practices, starting with young children in schools. A high moral expectation, learned in schools, and a background of strong religious upbringing will raise a new generation that will scorn corruption.

The will of the prime minister, his cabinet, and administrators is the most important of all. In other words, fill these positions only with clean and capable people who are prepared to go to war against corrupt practices even if it means turning against their own friends.

You don’t sound very optimistic that this will get fixed anytime soon.

A hundred years. It’ll take at least a generation or two for corruption to be reduced to a level that is considered tolerable. Not only will it take time for the income level to rise, but it’ll take time for a change in norms too.

So you’re seeing the right signs anyway.

Things are improving. For example, passports used to take weeks before they were issued. Now one can be issued in two days, because processing procedures have been simplified. With this reduced and acceptable waiting time, who wants to pay a bribe for speeding things up? This is but a small example and there are so many areas to look into.

Also, people are being hauled up and charged, and that’s a good sign. Business people do not want to pay bribes because it is an unnecessary expense. Why do they want to pay? It’s only when you cannot afford NOT to pay that you must do so. It is an additional expense that eats into your profit, and thus it is a natural tendency to not pay if one does not need to. Bribery also makes the playing field uneven because those that can afford to pay more have an unfair advantage.

Are there any other ethical challenges that you’re confronted with on a regular basis in your businesses?

Making sure the company has no racism, sexist practices, or prejudices like that.

There’s always a fine line to be drawn in this culture, which might or might not be acceptable in the U.S. Business people here entertain a lot. It is accepted and expected. They bring beautiful girls to provide a more conducive, social time. Taking business associates and government officials to night clubs that provide female “guest relation officers” whose jobs are to entertain clients is an ingrained part of our business culture. While I don’t feel that these form ethical issues they might be considered so in a different society.

I was recently invited out for dinner by one of our suppliers. Present, I was informed, would be other business leaders and a certain high ranking government official. “Just friends getting together to eat a good dinner, have drinks, and have fun …,” I was told. When I got there, there were a bevy of beautiful girls. They were girls in life insurance, in business development positions, in modeling, etc. So there we were, a high ranking government official, business leaders, and beautiful young girls all together in a very private dining room, eating a good dinner, having drinks, having fun.

Everybody is using everybody in this situation. The business leaders and I get some private moments with the government official, we get to do a bit of networking, the supplier who organized the dinner probably wants to have some contracts renewed for the following year, the girls are hoping for some business or recommendation from the business leaders present, the government official gets to request for some funds for his charities … all done in the amiable and charming presence of pretty young things.

What’s so bad about that? What is an ethical issue in one society can be very acceptable practice in another. There are of course seedier operations where the girls are there to grant favors.

How do you see the difference between you as a younger business leader and some of the older business leaders in Malaysia?

The major difference is caused by our educational background. Many older business leaders, especially those in their seventies and eighties did not have proper schooling. With education comes a different level of expectation about how you want to lead your life. The older business generation came from a different time with a really harsh environment. They don’t know how to take a break from their work. The word “holiday” is not in their vocabulary. The older business generation only knows how to work, work, and work; the younger business generation, they know a better lifestyle.

Tell us how you view business in the West. Compare and contrast that with business in Malaysia and elsewhere in Southeast Asia.

I’ve only dealt with the big Western companies. Because they operate internationally, they are thus bigger, have lots of cash, and are much more professional and focused in their approach. We are more nimble.

How about practices—do you see any significant cultural differences?

The companies which I came across many years ago would do the same thing the Malaysian companies would do to get a contract. Japanese, Korean, American, Canadian, British, and Australian – they all do whatever it takes to get that contract, just like the locals. So, what they preach at home could be totally different from how they operate when they’re down here and they have a target to meet. Bribing is not beyond them. They were very competitive and pragmatic. I don’t know about now but that was in the early ’90s when I was working with them.

Let’s talk about your education business. Do you feel any tension between the quality of your education programs on the one hand and the pressures for profit through larger class sizes, for example?

The more students we have per class the more profits we’ll make, but the quality of the program will be lower. So we need to manage these contradictory desires. We do so by setting clear guidelines and policies.

We are very clear as a business strategy, that we do not interfere with the academic side. The academic side is charged with delivering top quality education conducted with integrity.

Last month we had a management retreat to review our performance for the first half as well as to set the parameters for next year’s budget. In a session on Strengths, Weaknesses, Opportunities & Threats analysis, one of the participants said that our shareholders were a strong Strength because they do not maximize profits and also they reinvested a lot back into the business. For example, we could have increased our revenues if we had cramped more students into classrooms. But we chose not to do that.

So do your shareholders get unhappy with you because you don’t do that?

It is our strategy as a premium education institution to create an environment which promotes learning and teaching. This means that we cannot have classrooms which are too big that they interfere with learning. It is not difficult for our shareholders to buy into this strategy. We have become a desirable education institution to study in, as a result, and we do make a good profit anyway. So, this strategy works.

Have you considered going to more online education?

We have considered it, but it’s not on our radar screen at this point of time. Maybe in the future. We are keenly focused on our new campus, to make sure that it is a success because it is a huge investment for us.

What do you hope to be doing in ten years?

I hope to be able to focus on one main line of business.

And which business do you have the most passion for?

Whilst I don’t think I have a passion for teaching there are, nevertheless, areas in the business of education which interest me.

Education is a good business because of the opportunity to work with and be a positive influence on people who can then influence what the world is going to look like in the future. Because we are recognized as a premier institution, many bright young men and women choose to study here. These bright young adults usually achieve very good grades and therefore many of them will one day hold high positions. When they do, we hope that the values they learned when they are with us will be carried into whatever they will be doing.

While we are currently heavily focused on students’ academic results, I would like that we also start to work on nonacademic areas that will result in positive character development with our graduates eventually becoming conscious contributors to society.

How would you advise someone from the West who was going to come to Malaysia and set up a business?

The most important thing this person would need to do is to understand how business operates in this country. Don’t assume that what works in your country is going to work here and insist on it. Because if you do that, it is seen as being very arrogant and if there is one thing this culture doesn’t like, it is arrogant foreigners who come here to tell us what to do and how to do it.

They need to also understand and appreciate the culture of this society. There are so many different creeds, cultures, and religious beliefs here. They need to learn how to operate with sensitivity within these different backgrounds.

This interview was conducted by John Terrill and Al Erisman in Kuala Lumpur, Malaysia in August 2004.