BUSINESS: Julius Tahija
Far Eastern Economic Review
Oct 29, 1998
Business

Entrepreneurs:

Ethics At Work:
Two pioneers of Indonesian business show that honesty and independence
have stood them well through good times and bad

By John McBeth and Salil Tripathi in Jakarta
2117 Words
10/29/98
p72   

They stand rock-solid in an economic landscape littered with corporate
corpses -- two grand old men of Indonesian business who've survived
because of a simple philosophy: stay out of debt, remain liquid, and
steer clear of political patronage. Of course, Julius Tahija, 83, and
Soedarpo Sastrosatomo, 78, have also benefited from some incredible good
luck.

  Tahija, president-commissioner of the Austindo Group, made a plump
profit from selling a chunk of his family's 40% controlling interest in
Bank Niaga, one of the country's most-respected financial institutions.
Barely one month later, in August, Jakarta floated the rupiah and
triggered Indonesia's economic collapse. The stock price of the
venerable bank crashed. Tahija, fortuitously, was already cash-rich.

  It was all in the timing also for Soedarpo, founder of the Samudera
Indonesia Group and a one-time associate and close friend of Tahija.
Soedarpo and his eldest daughter, Shanti Poesposoetjipto, made their
crucial decision two years before the current crisis erupted. Indonesia
accounted for 60% of the business of the group's flagship company,
Samudera Shipping Lines; worried about too much reliance on one market,
they expanded its services to Karachi, Bombay, Madras, Calcutta and
Colombo. That smart move more than compensated for an 80% downturn in
cargo from the mainstay Singapore-to-Jakarta route, as the economic
crisis forced domestic importers to cut back orders.

  Put it down to prudent decision-making, old-fashioned conservatism or
just pure luck. Whatever the reason, it is helping Indonesia's two
business pioneers ride out today's economic storm with aplomb. Indeed,
both remember that the troubled economic times in 1966, after President
Sukarno's fall from power, were far worse than Indonesia's current
crisis. In their survival now, Tahija and Soedarpo represent a rare
breed of business people in Indonesia: debt-free, liquid and
incorruptible. Both made it rich without cozying up to former President
Suharto and his voracious brood during the economic boom of the 1990s.

  To a generation of flashy, newly poor entrepreneurs, the courtly duo
have shown that business ethics and honesty can pay -- and in that they
offer hope in a country awash in economic gloom. "They're people who are
listened to and deferred to," says Eugene Galbraith, an Indonesia expert
who heads group research for ABN Amro Bank. "That's why Suharto couldn't
go after them. They were out of the shenanigans of the New Order, had
excellent relations with international banks and were known to be
reliable business partners."

  Besides survival skills, Tahija and Soedarpo have other factors in
common. They're both pribumi (indigenous) Indonesians, who learned their
trade in Java. The two men also participated in the birth of Indonesia's
independence, and lived in each other's shadow for more than three
decades. Tahija was chairman of Samudera Shipping Lines from 1965 to
1996, while Soedarpo was its chief executive. Soedarpo, in turn, was a
founder of Bank Niaga and served as its chairman from 1955 to 1985 --
the last 13 years when Tahija was the majority shareholder and was
instrumental in setting management and operational policies.

  Both also firmly refused to compromise their principles in the face
of political pressure. In the Suharto heydays when Hutomo Mandala Putra,
the ex-president's youngest son, needed to finance his national car
project, he arm-twisted state-owned and private banks -- such as Bank
Central Asia, Bank Danamon and Bank Lippo, all owned by Indonesian
tycoons -- into giving him soft loans. But Bank Niaga withstood the
pressure. "They wouldn't call us because they knew it wouldn't work,"
recalls Tahija. Adds his soft-spoken son, George, who is
president-director of the family's holding company, Austindo Nusantara
Jaya: "It was an easy call. We grew up believing in being independent.
My father taught me that you never do things where you owe people
favours."

  For Soedarpo, who left the diplomatic service because he didn't like
to be "bossed by people I didn't agree with," getting into bed with the
powers-that-be was never an issue. "I made it a point to be as
independent as possible," he explains. "That's one of the reasons why I
didn't integrate my business with any of the Chinese conglomerates. It
was the same with Suharto. All those people want to do is control you."

  Both Tahija and Soedarpo acknowledge their companies would have grown
faster if they had made strategic alliances with politically connected
companies during the boom years. But judging from the sorry state of
many of those partnerships today, staying independent was a wise
decision. Tahija has a partnership in ailing cable-maker Kabelindo Murni
with Mohamad "Bob" Hasan, a Suharto associate and former trade and
industry minister -- but that's as far as it goes. In fact, the Tahijas
invested in Kabelindo in 1972 at Hasan's invitation, not on their own
initiative. During the Suharto era, they did not seek to expand the
relationship with Hasan, either. Most analysts also emphasize that, in
the early 1970s, Hasan was less influential and quite different from the
swaggering, golf-playing Suharto friend he became in the 1990s.

  Integrity is important to Tahija. The word appears in the "vision"
statement of the Austindo Group, which manages investments in financial
services, mining, infrastructure and agriculture. And it pops up with
the regularity of a religious incantation whenever Tahija talks about
business values. "It may sound trite, but it's true. He lives by his
principles. He is a model for other Indonesian businessmen," says Haroen
Al Rasjid, who worked for more than two decades under Tahija and
succeeded him as chairman of the higher-level board of commissioners at
Caltex Pacific Indonesia.

  Julius Tahija learned the merits of honesty at school, after his
fifth-grade teacher kept her promise not to mete out punishment if he
and his friends owned up to letting rats loose in the classroom. Later,
as a teenage trader selling rice door-to-door from an ox cart in prewar
Surabaya, he adopted a complex code of behaviour and ethics from the
local Chinese; he has adhered to it throughout his business life. Among
the code's key elements, listed carefully in his colourful autobiography
published in 1995: Never cheat customers. Spend only what you earn. Pay
debts promptly and in full. Keep overheads low.

  He voiced his views on another obstacle to business in an article he
wrote for the Harvard Business Review in 1993: "Corruption is always and
everywhere an impediment to business as well as to morality. Corruption
wastes resources, discourages investment, cuts productivity and nurtures
enterprises whose success can only be temporary."

  Tahija's boyhood memories of the economic depression of the early
1930s also served him well. "Having learned what happened then, the best
thing is to make sure you are in a liquid position," he says. "That
practice has helped me through my life. You have to look ahead and
reason out what could happen."

  Bank Niaga is perhaps the best evidence that Tahija practised what he
preached. Sound and well-managed, the bank stuck firmly to a policy that
other financial institutions -- now bankrupt -- ignored: It never lent
to its own. To people inside and outside the industry, that set Niaga
apart from most other banks that routinely violated elementary
conflict-of-interest codes. There was a downside to playing it straight,
though. "They had trouble lending money because they couldn't find
anyone like themselves," muses ABN Amro's Eugene Galbraith. "You know,
business does take some risk."

  For all their shared principles and steadfast faith in the future of
the country they helped build, Tahija and Soedarpo are no longer the
best of friends. And the reason is Bank Niaga. "The real break came when
Julius sold his shares in Bank Niaga," says Soedarpo, leaning back in
his armchair in a comfortable eighth-floor office overlooking a busy
Jakarta freeway. "He didn't tell anyone until after the deal was done.
We're still friends, but there's not that close feeling any more. You
don't do that to friends."

  For their part, the Tahijas say they sold their shares in Bank Niaga
because they reluctantly realized that its growth would require
increasing amounts of capital at a time when they were seeking to
diversify into other activities. Indeed, notes Tom Inglis, head of
research at ING Barings, Indonesian banks needed capital injections
every two years during their growth years. "The choice for banks was
stark," he says. "You either stopped growing or you got other investors
into the bank."

  Tahija remembers that difficulty: "We needed someone with the
capacity to grow the bank. We'd had it for 25 years and during that time
we only got 2%-a-year return on the stock." Son George points out that
global liberalization would have meant the entry of bigger, well-funded
international banks. "The rules of the game were changing fast,
diminishing the role families play in running banks," he says.

  The sale of Bank Niaga has given Tahija what few Indonesian
businessmen have today: cash. The Tahijas are today worth an estimated
$300 million, of which about $220 million was from the Niaga sale. The
family first sold a 30% stake at 8,000 rupiah a share, boosting Austindo
Group profits to 265 billion rupiah in 1997 (then worth $60.6 million)
from 41 billion rupiah ($17.4 million at the time) in 1996. Tahija has
since sold another 5% stake, at just 260 rupiah a share, and retains 5%.
Over the past year, he has been conserving his fortuitous nest-egg and
quietly looking at investment opportunities, but has no immediate plans
to expand.

  Meanwhile, his palm-oil and insurance businesses are making money; he
also has interests in 11 gold concessions in Indonesia and a promising
coal deposit in southern Burma. He retains a 14% stake in Puncak Jaya
Power, which supplies electricity to Freeport Indonesia's giant
copper-and-gold mine in Irian Jaya. Nonetheless, the Austindo Group
hasn't escaped the economic crisis unscathed. A crippled Jakarta early
this year cancelled a contract with the group to build a 200-megawatt
geothermal power plant in Lampung in southern Sumatra.

  Like his former associate, Soedarpo has adopted a wait-and-see
attitude to the future. Flashing his brilliant trademark smile, Soedarpo
says it is "pure luck" that he expanded Samudera Shipping Line's
services when he did -- thus warding off the worst consequences of
today's economic crisis. But echoing Tahija, he points to another reason
for Samudera's good fortune. "The thing that really saved us was that we
never went into a big credit line," he notes. "We never went beyond our
means." Adds daughter Shanti: "We deal with foreign exchange in our
business, so we always know what the trends are."

  Ironically, the former Suharto administration played a key role in
the expansion decision. Denied a licence in 1980 to operate feeder
services -- that connect from main ports to outlying areas -- between
Singapore and Jakarta, Soedarpo was forced to look outside Indonesia for
business. He subsequently sold his 11 bulk-carriers and concentrated on
interisland shipping services and oilfield logistics, and hauling logs
and later plywood to Japanese markets as part of the non-oil export
boom. Today his ships carry 30% of Indonesian plywood to Japan.

  Although luck came into it, Soedarpo also says it was "logical
thinking" that persuaded him to expand his services into South Asia in
1996, later cushioning the impact of Indonesia's economic crisis. "You
can't be dependent on a sole source in any business," he reasons.
Greater volume also gave him a discount at Singapore's port, where he
now rates as one of its top 10 customers.

  Staying focused on its core business of shipping and related services
has also helped the Samudera group stand firm in swirling economic
winds. Despite the challenges facing the shipping industry in the year's
second half, the group recorded a net profit of S$11.5 million ($6.8
million) in 1997, a 15.4% increase over 1996. More importantly, gross
income for the Samudera line's newly expanded container-shipping
activities ballooned to S$16.6 million from S$10.6 million, up 57%.
While Indonesian trade may have languished, Samudera's overall cargo
volume rose by 34%.

  Vasu Menon, research manager at Keppel Securities in Singapore, is
bullish on Samudera. "It is a fantastic stock, a great company," he
says. "They are not flashy; they are conservative and decent. They are
profitable and real long-term players." As for Soedarpo, brokerage
analysts in Singapore and Jakarta estimate he is currently worth $250
million.

  Soedarpo maintains a steely confidence in Indonesia. With its natural
resources, he asserts, the country simply can't fail. If Indonesia
slides back economically, he believes that is only because of the way it
is managed. Tahija agrees. "We have gone through a lot, but we'll come
back," he says. "Setting a good example to people is the most important
thing. We have to get a man on top whose integrity is beyond question."
There's that word again.