Family-run firm a bellwether of political change

For months, former Philippine president Corazon Aquino has been calling on President Gloria Macapagal-Arroyo to resign. Few joined her call. But shortly before the president declared a state of national emergency last week, Jaime Augusto Zobel de Ayala II, the chief executive of one of the nation's biggest conglomerates, was spotted talking to Mrs Aquino. It was a definite sign that Mrs Arroyo had begun to lose the confidence of big business. As for the Zobels and other prominent business clans like the Lopez family, it was perhaps just business as usual. Both families have surfed the tumultuous tides of Philippine politics in their own way. Clan patriarch, Jaime Zobel de Ayala and son Jaime II were 'active in the two Edsas', said Astro del Castillo, who heads the Association of Securities Analysts. Edsa is the highway where mass protests succeeded in ousting two presidents in 1986 and 2001. Ordinarily, Mr Del Castillo said, the family preferred to deal with political risk at arm's length through the Makati Business Club, keeping its flagship Ayala Corp insulated from politics. Ayala has interests in banking, land development, telecommunications and water. The same is not true of the Lopez family whose jewels are broadcast giant ABS-CBN and power generation firms. Television network chief executive Gabriel Lopez has gone public in his quarrel with Mrs Arroyo. Sources claim the family's alleged attempt to help replace Mrs Arroyo with their former news anchor, Vice-President Noli de Castro, lay behind the quarrel. Using Mrs Arroyo's emergency proclamation, the police have broadly hinted about 'taking over' both families' utilities firms. Both business houses are used to such challenges, having existed for more than 170 years. Their resilience was last tested during the Asian financial crisis of 1997. Before the crunch came, both houses had invested heavily in what they considered the waves of the future - telecommunications and water. The Zobels came out winners. Ayala and its listed investments grew more than fourfold - from a market capitalisation of 77 billion pesos ($11.7 billion) in 1992 to 340 billion pesos now. But the Lopez group, with a market value of 30 billion pesos in 1992, nearly sank under a mountain of debt that peaked at 125 billion pesos - which is more than double its current value of 49 billion pesos. Mr Del Castillo noted that the Lopezes poured investments in 'highly regulatory' sectors - telecommunications, water, power and toll roads - where the government sets rates. The Zobels, he said, were able to maintain 'a good balancing act' so that 'whenever there is a global cycle in terms of business, some of their businesses are down while others are up'. Unlike the Lopez group, '[Ayala's] layers are thicker in management and there's more succession planning, with people constantly being trained' to step in, said an executive familiar with both firms. The Zobels practise self-obsolescence. The chief executive must retire using a family-approved formula called the 'rule of 80', based on age plus length of service. Oscar Lopez, who chairs the Lopez Group of companies, acknowledged where they went wrong. 'We tended to operate like separate fiefdoms,' Mr Lopez told the South China Morning Post. He focuses on the power generating units while eldest brother Eugenio revived ABS-CBN and formed the flagship venture company, Benpres. The brothers' management styles also differ. Xavier Gonzales, Eugenio's number two man, describes his boss as 'intuitive and the most politically astute', while Oscar was 'very studied and deliberate'. Initially, both approaches worked because they were reviving businesses they knew by heart. Then the brothers decided to go into telecommunications. 'We did not know anything about telecoms but we felt ... we should be on the ground getting a portion of [it],' Oscar said. Unlike technology-savvy Jaime Augusto Zobel, Eugenio Lopez had 'a laptop that lay unused', a former employee said. The Zobels bet heavily on new digital technology. The Lopezes 'unfortunately' invested in landlines because they happened to know people in Bell Atlantic, Oscar said. The mistake cost them six billion pesos. Another former employee called it 'a failure of imagination'. Illness disrupted their plans further. In 1994, Eugenio was diagnosed with cancer - the same disease that claimed his father. His battle with cancer coincided with his capital-borrowing binge. He put up Bayantel, Maynilad Water, Rockwell shopping centre and condominium complex, a huge 'technology-intensive' building for ABS-CBN, gas and power plants, and a tollway. 'He always felt he could lick cancer,' Oscar said, 'until it started going up to his brain almost five years after.' Eugenio died in 1999 without turning over the reins to Oscar. 'He had maybe just weeks to live. He was very depressed ... our talks were very limited,' said Oscar, who described his early months at the helm as 'very hectic and traumatic'. His efforts finally paid off last year. Benpres was back in the black after returning the water firm to the government, selling off an asset, and getting creditors to agree to further restructuring. Oscar's turnaround formula: he made the group's chief executives meet regularly in his presence.