Leslie Koo Cheng Yun, one of Taiwan’s top business leaders and chairman of Taiwan Cement Corporation (TCC), passed away January 23 in Taipei. He fell down the steps of a hotel while attending a wedding. The son of Koo Chen-fu, a businessman-statesman involved in Taiwan’s negotiations with China, Leslie Koo studied economics and computer science in Seattle, and returned home in 1977 to work as an accountant for Arthur Anderson. He got his MBA degree at Wharton in 1981 and then went to work for the Taiwan Cement Corporation (TCC), and was eventually promoted to general manager of corporate planning, vice president and CFO, and president. Koo became TCC’s chairman in 2003. Over the next decade, driven by China’s booming cement market, TCC’s revenues and market capitalization quadrupled. This interview with Koo was conducted by Jeffrey A. Sheehan, former associate dean at Wharton, and is adapted from a chapter about Koo in Sheehan’s forthcoming book about business leaders.


Jeffrey A. Sheehan: What were the most important influences on you growing up?

Leslie Koo Cheng Yun: My parents, definitely. My father was a classic Confucian gentleman who had humility, a sense of mission to society, respect for hierarchy, a belief in the need for harmonious relations and a tremendous feeling of duty to all Taiwanese. My parents taught me to be humble, to be honest and to have faith in the goodness of human nature. Of course, I am not like my father, and I never modeled myself to be like him. But I think that, deep inside, I have the same values.

Sheehan: What crises have you faced in the course of your career, and how did you resolve them?

Koo: When [my brother] Chester died in 2001, almost immediately we learned that he had left behind serious financial time-bombs that required the family to assume responsibility for debts totaling over $1 billion. This was a terrible shock to everyone, and I bore the responsibility for paying the debts and restoring the family name. My father’s health had begun to deteriorate and I tried to protect him from any involvement in these financial problems. I was eventually appointed chairman of TCC in 2003 when my father was no longer able to take an active role in the company.

When I assumed responsibility for TCC, I learned that there were many problems that had been neglected for too long. Many of the problems had been either solved or glossed over by my father’s reputation and age. No one could challenge him, of course. In addition, the entire organization was both conservative and complacent. No one took initiative. No one was accountable. There was enormous internal resistance to change. I could see quickly what would happen when my father retired. The organization would still be unable to change, but no one would protect it from shareholders, customers and competitors.

“When I became chairman in 2003, the financial performance of TCC was terrible. The stock price was depressed. The dividend was an embarrassment.”

The staff was characterized by what I call the ‘rationalization of failure.’ Nobody solved any problems, but everybody had an excellent excuse, prepared in advance, for their failure. Failure was rationalized and accepted. I was worried about taking over this organization, and considered quitting. Two things convinced me to stay. First, the market for cement on Mainland China was booming. I saw a business opportunity. But, second, and even more importantly, I knew that if I declined this challenge, the company would no longer be a great company and might even cease to exist. As a responsible person, I could not let this happen. I had a duty to my father, to my family, to the employees, to the shareholders and to society to save the company from the disaster towards which it was heading. I sensed a great urgency to change just about everything.

The board of directors elected me chairman in 2003 because my father asked them to do so, and of course they could not refuse. But as soon as my father was out of the picture, I became a target and was immediately challenged by the board, by senior management and even by some shareholders. My plan to radically overhaul the management of the company was a tremendous threat to many people, and I was under fire all the time.

But now, Taiwan Cement’s revenue has grown four times; market capitalization has also grown four times; capacity has grown six times; and the share price has risen 3.5 times. Taiwan Cement is probably the only major company in the country to have undergone this transformation.

Sheehan: I remember that you once told me that you prohibited certain kinds of emailing at TCC. Tell me about your management philosophy and how you implement it.

Koo: I have what I call a parallel system of communication. Let’s say that the head of manufacturing and the head of sales are having a dispute. I require them to include me in their email communication. This way I know when the infighting becomes dysfunctional. Even junior people can include me in the communications loop if they feel it is important enough. I do not allow finger-pointing. If somebody is blaming another, or making excuses for poor performance, I assemble everybody involved in my office to discuss it openly. No more email. The goal is to solve the problem openly and make sure everybody is accepting their responsibility.

Sheehan: This sounds confrontational. What did Confucius say about confrontation?

Koo: It all goes back to accountability. I believe that the bedrock of Confucianism is accountability. If there is no accountability, then you cannot have harmony, humility and respect. The true Confucian is first of all accountable.

The culture at TCC in 2003 was based on the rationalization of failure. The senior team was so entrenched in this mentality that I had to make a complete change at the top. I felt that there could be no reform of the company until everybody in the senior management team was willing to admit their mistakes and commit to reform. I accomplished this mostly through internal promotions but to a limited extent through external hires as well.

I observed that when senior people came to meetings, they always brought a subordinate whose job was to provide facts, statistics and other vital information. I stopped this practice. Starting immediately, all senior staff were required to know everything without needing an assistant. The senior person—and this included me—had to have the knowledge to analyze and solve the problem. The new senior management team deserted the ‘executive floor’ so that they would be close to their staff and understand what was happening at all times.

Sheehan: You are now more than 10 years into the new regime. How are you populating your company with people who embrace change and learn with passion?

Koo: TCC has about 8,000 employees, of whom approximately 500 are in managerial positions. Seven years ago, we started a management training program. We hire around 60 junior people every year, and about one-third of them survive the training. Each year, the 20 survivors are assigned as junior line managers. This means we have added around 140 new managers, all instilled with the right attitudes and trained to be accountable.

“The staff was characterized by what I call the ‘rationalization of failure.’ Nobody solved any problems, but everybody had an excellent excuse, prepared in advance, for their failure.”

Sheehan: When you were appointed chairman in 2003, the consensus was that you would not last long. How did you survive?

Koo: I love it when people underestimate me. It gives me added incentive, but it also gives me an advantage because my enemies let their guard down and feel overconfident. I started by firing or removing many people, including very senior staff. They were outraged, of course, and some of them conspired with board members to get rid of me. They spread rumors in the financial community to undercut my ability to secure financing. It was a bitter struggle. And since the Koo family owned only 5% of the shares of TCC, I did not have enough financial leverage to protect myself in that way. The dissidents started planning a coup d’état at the Annual General Meeting in 2006 when my appointment had to be renewed. So I decided to develop a defensive strategy.

When I became chairman in 2003, the financial performance of TCC was terrible. The stock price was depressed. The dividend was an embarrassment. The future was bleak. Interestingly, less than 5% of the shares were held by so-called QFII (qualified financial institutional investors). As investors, QFIIs are not emotional. They are interested only in financial performance. So I decided I needed to get more of the company in the hands of QFIIs and at the same time to improve the company’s financial performance.

To accomplish these two objectives, I went on a roadshow to meet with institutional investors around the world. I asked each one, ‘Why don’t you invest more in TCC?’ The answers were all the same. First, they said the company was too diversified and lacked focus. As a result, they felt they could not accurately predict our performance. Second, they said our dividend policy was not clear, meaning they could not predict their income stream. And third, they said the company’s bonus policy was too generous and ate into profits that should have been distributed to shareholders. It was also clear to me that for a number of years, TCC had not communicated at all with investors and investment analysts.

When I returned home from the roadshow, I divested all of TCC’s non-core assets. I took the proceeds from this divestiture and invested them in our cement strategy in Mainland China. I clarified the company’s dividend policy. I changed the bonus scheme from after-tax to pre-tax. I started going to investor conferences to explain TCC’s new strategy. I sent monthly business reviews to analysts. I targeted pension funds and sovereign funds. By the time of the AGM in 2006, everything had turned around. The percentage of shares held by QFIIs had risen from 5% to 43% and, most importantly, these investors were satisfied with TCC’s strategy.

Sheehan: What percentage of your success was due to your stubbornness and what percentage was due to your sense of responsibility to your father and your family?

Koo: 80% stubborn and 20% loyal.

Sheehan: Tell me about your strategy in Mainland China.

Koo: It was complicated for our group to go against the government’s policy of ‘go slow’ on investing in the Mainland. It was considered unpatriotic to do so, and no company associated with Koo Chen-fu could afford to appear unpatriotic, certainly not the flagship company of which he was the chairman. So this meant that we were 10 to 15 years behind our competitors in investing on the Mainland. Nevertheless, by 2003 when I succeeded my father as chairman, it seemed like a good time to take the plunge. The environment had changed, and the government was more open to investments in the Mainland. Also, this was a key part of the strategy of TCC to re-position assets after divestment from non-core assets.

I decided that the only way to succeed would be to take an unorthodox strategy. Cement is a capital-intensive industry, and a traditional industry, which means that it is risk-averse. The traditional strategy is to build a plant, bring it up to speed, determine that it will be successful and then start the whole cycle all over again. I rejected this strategy because we were so far behind that we would never catch up if we built plants one-by-one. My strategy was to build six plants at the same time, thereby entering the market as a major player and announcing our arrival on Mainland China. Not surprisingly, the existing staff at TCC told me this would not work. The staff I sent to Mainland China to work on this strategy plotted to assure failure. I fired these staff and replaced them with young people.

I also made the decision that we would source our equipment locally. This decision was criticized because the quality of the equipment was poor. But the costs were less than one-third of the equivalent machinery imported, so we could afford to retrofit as needed and still be ahead financially. An additional benefit was that the government of China was excited that we were buying so much heavy equipment locally. We also created jobs, which made the local government happy.

Sheehan: One reads a great deal about the problem of corruption in China. How do you deal with this matter?

Koo: TCC has a firm policy about corruption. We do not engage in bribery of any kind, including lavish entertainment and pay-offs to officials. While this policy has slowed us down in the past, it is now perfectly consistent with the anti-corruption drive of Xi Jinping, China’s president. Instead of corruption, we engage in friendly cooperation with our competitors and with government officials.

I do not go to court when there is a dispute. I follow the Confucian rule, which is to work things out on a person-to-person basis. This is something I learned from my father, and it still is the dominant way of life in the Chinese business world. In order to do business successfully on the Mainland, you must go beneath superficialities to understand the true nature of problems and to identify the key figures, who may not be the ones with the big titles. Remember that Deng Xiaoping at the height of his power had no government position whatsoever.

Sheehan: What does money mean to you?

Koo: It’s hard for me to work only for money. I have to work for something larger than myself; for something of higher value. We should be good at what we do and try to make money, but accumulating assets will never be my goal or my motivation. I have always tried to work for larger goals than my personal wealth.

Sheehan: What will you do with all this money you have accumulated?

Koo: I am not going to be a philanthropist. I think that philanthropy is ego-driven. I have real doubts about how much philanthropy and government aid can accomplish. I believe that encouraging, mentoring and funding entrepreneurs is a much better use of my personal fortune.

“I love it when people underestimate me. It gives me added incentive, but it also gives me an advantage because my enemies let their guard down.”

I have already started doing this, but when I retire, I will devote full time to compassionate capitalism, both through my expertise and also with my money. Pure philanthropy is not for me. I will start an angel fund and teach entrepreneurial skills to young people. I am convinced that heavy taxation and forced redistribution of wealth is not the answer to poverty. The answer is to create more wealth by empowering the natural drive and entrepreneurial skills of the young. Don’t make them wait forever. This has been proven many times in Silicon Valley. And look at how societies around the world have benefited.

Sheehan: Most of the Taiwanese tycoons I know have bodyguards. But you do not. Why not?

Koo: I think that it is a terrible insult to admit that you cannot walk among the common people without being at risk. I am not that kind of person. I also think it is snobbish to have a bodyguard. You are just trying to show how rich you are.

Sheehan: What was your biggest mistake and how did you learn from it?

Koo: Being willing to admit mistakes and to learn from them is central to my personal as well as my business philosophy. And I have made many mistakes. Mistakes are just part of life’s journey.

Sheehan: How do you want to be remembered in 100 years?

Koo: I want to be remembered as a survivor. I always prepare for the worst, but I always believe it will be sunny soon. I always push myself to do my best. And I will survive. I am sure of this … I felt that way when I was under attack in 2003 after I became chairman of TCC.  I also have varied interests and I never stick to a single thing. I am always ready to move on to the next thing. And I have a warm heart.


Editor’s note: This interview has been adapted from a chapter in Jeff Sheehan’s forthcoming book and was originally published on Knowledge@Wharton.  View the original post here.