Risk Management

Jim Ayala, Chief Executive, Ayala Land

The business of building communities with "soul" in Asia.
Tom LeanderJuly 8, 2008

There’s something unexpected about Jaime “Jim” Ayala, chief
executive of Ayala Land, the Philippines’ largest and oldest real estate company: he’s not an Ayala. He doesn’t hail from the nation’s long-standing, leading business family (Jaime Zobel Ayala is chairman of Ayala Group). Never mind: this is an Ayala who has thought deeply about the company’s mission. The Ayala Group has won admirers for its ability to build transparent businesses with strategies that reward minority shareholders as well as the family. Jim Ayala studied engineering at Princeton University and management at Harvard Business School. He worked for McKinsey, helping to set up its offices throughout Asia. As a consultant, he advised Filipino administrations on energy development, tourism, and building outsourcing centers. Today, he sees his role in Ayala Land as giving him the “scale” to help improve the country’s economic and social conditions.

After developing the high-end Makati business
district and Cebu Business Park, Ayala
Land seems to be going downmarket. Why?

We see this as the way to support and capture — in terms
of business strategy — the next phase of development in
the Philippines. We’re now targeting residential communities
and “mixed-use” communities — a mixture of
businesses and neighborhoods, where tenants might be
business process outsourcing (BPO) facilities and call
centers. We parallel city management in many respects,
forming associations of tenants that share payments for
roads which we own, for example. City management often
doesn’t have the wherewithal, the budgets, and maybe the
internal integrity to make the right things happen.

Are you in a position to do this?

We’ve worked over many decades in building townships
and cities. We’ve learned how to master-plan it
properly, to ensure safety, security, and traffic management.
We know how to work with local governments
to build real communities.

What’s a “real” community?

Where is the soul of a city? People talk about Singapore
being antiseptic and sterile. Singapore has improved,
but it’s still different from other cities which have an
authenticity to them, like New York or Hong Kong. In
places like Fort Bonifacio, we’re building communities
with access to arts. We encourage and help install art
installations and areas for performance. We’ve set up a
linear park that functions as a high street, and relocated
vendors from Chinatown and Manila’s flower market,
so everyone — all incomes — can shop there.

You’re also building communities around the
Philippines’ off-shoring industry.

We have three product lines. One is a central business
district, which involves a traditional office headquarters.
Another is to build around a call-center BPO, but more
on the outskirts of a city. We also build large campuses,
and we’ve been pushing our campus product in the outlying
areas — in what we term “next wave cities.” We have
projects in Baguio, Davao, and Cagayan de Oro.

Will development get hit by a U.S. recession
and a global slowdown?

A downturn is eventually good for outsourcing — companies
need the savings more than ever. We haven’t
really seen the full effect yet [of a U.S. recession]. Our
high-end property sales to overseas Filipino workers
are down, but they are strongly up in the mid-market.
Sales are down in the U.S., but we’re shifting some of
our sales effort to Europe and the Middle East.

What of inflation and higher interest rates?

Inflation is a burden on our cost structure, in fuel
and steel prices, for example. People are feeling the
bite of higher prices in gasoline, electricity, and rice,
and this is affecting consumer confidence. But some
are thinking of buying property. Mortgage rates have
remained low — despite the fact that real interest rates
have gone up.

What are your views on future business prospects
with China?

China is an important nation and will be a big investor.
We need to develop relationships. We have projects
there. Chinese investors are also coming here, and they
tend to come to us first. We’re selective about partners.
There are people who are like us in terms of value systems
and governance. Some Chinese companies have
been heavy-handed, making deals at the top without
going through the governance processes.

Yet you have no choice but to engage?

The Chinese are looking for resources and locking them
in. The Philippines is right on their doorstep, and we have
an enormous amount of resources. But I don’t think the
Chinese feel very welcome here at the moment [in part
due to a government bribery scandal allegedly involving
Chinese telecom vendor ZTE]. We’re hoping for longterm
relationships with the right Chinese partners.

Is corruption the biggest problem facing the

Corruption is a big issue, not just in the Philippines
but in other countries around the region. But it’s not
just corruption; it’s the ability to execute at the governmental
level. In the Philippines, there’s a litany of
high-priority projects that never got to the operating
stage. They were hobbled by judicial intervention in
contracts, for example. That’s why we [at Ayala] put
in our own roads, our own electricity. We can’t rely on
other actors, particularly the government.

What do you like to see in your CFO?

Governance is a very big factor. It’s not just about making
sure we follow the right steps, but making sure the
control processes are in the right place and that there’s
integrity in the system. I like to see forward-looking
information, especially in terms of risk management.
I expect the CFO to set up the enterprise risk policy,
looking at business continuity, liquidity and cash. I also
look for performance management. This helps monitor
the trajectory of the company, helps us know what
we need to do to create shareholder value.