An interview with Mr. Talgat Turumbayev – Member of BOD of Kusto Group

Reporter (R): Can you share with us about Kusto Group?

Talgat (TT):

The best way to describe Kusto is to refer to the words of Eric Flamholtz, (Founder of Management Systems, and best known as the man behind the strategy for Starbuck’s phenomenal growth in the 1990’s) who said that Kusto is a smaller but rapidly growing version of Berkshire Hathaway. (Berkshire Hathaway is an American multinational conglomerate led by Warren Buffett, known globally for investing in and creating exceptional long-term value across a variety of sectors.)

The Kusto Group is a private, diversified international industrial group based in Singapore. Formed less than 20 years ago, Kusto got its origins successfully turning around under-performing mining operations. Today it is a multi-billion dollar group with more than 10,000 employees and businesses that span the globe. The portfolio consists of mining, oil and gas (upstream and downstream), real estate development, construction and construction materials, agricultural and IT projects. Kusto is led by its Chairman, Yerkin Tatishev along with three other partners, including myself.

Kusto focuses on sustainable investments in emerging market economies because they are the world’s most dynamic, with the highest long-term growth potential. Kusto invests and partners with businesses in those markets, preserving local expertise, combining our management expertise with the methodologies we have developed and shared across four continents. Today we operate in Russia, Kazakhstan, Ukraine, Georgia, Israel, Vietnam and Turkey.

The unique points of Kusto are flat management, a genuine focus on team work, and relying on skilled, often young professionals who are eager to learn from our partners. Kusto aims to make every company a national or international champion in its sector.

R: Why did Kusto decide to invest in Vietnam?

TT: Looking at the array of potential investment opportunities, it is worth stating that it is not easy to invest in a construction company. At Kusto, when we evaluate an opportunity, we always try to invest into strong management, and Coteccons is not an exception in this case.

Mr. Nguyen Ba Duong is an experienced leader and under his guidance, he has managed to create and unite a talented, humble, proactive, and creative team of young managers. If you ever have the opportunity to meet the people of Coteccons, you will immediately understand. They have a very strong corporate culture, are united as family, and care about the company that in turn, cares about them. These attributes are the work of a strong management team.

One example, among many stands out: the young managers’ leadership club. Almost every week the club holds a training program to develop new talent. The implementation of good management practices that motivate people towards the pursuit of excellence explain some of the reasons for the extraordinary growth the company has had in the past few years.

Looking back at our ten years in Vietnam, it is no exaggeration to say that our dream, together with the Coteccon’s team was to build a market leading, multi-billion dollar company that through its excellence would create a positive example and future legacy for Vietnam. Today, we are proud to have achieved part of that dream with our partners – as the company can be counted as a billion dollar company. Now however, we need to realize the second part of that dream – to leave a legacy in Vietnam so that others can see and share in the same benefits.

C: Then, what is next step?

TT: Since day one of our investment in Coteccons, we have proactively supported management on its path to growth, from being a middle-of-the pack enterprise to what it is now- a market leading company. Whenever a company achieves revenue close to one billion USD – it becomes a different business due to scale and size, and it becomes more difficult to maintain the desire for sustainable growth. This is because growth at this size and level requires changes to the “infrastructure” under which operations and management systems function; in essence, the support structure enabling and unleashing growth also needs to grow and change. Applied specifically to Coteccons, our internal challenge is to improve corporate governance and elevate the importance of transparency. This means empowering the Board of Directors to play a meaningful role, relying on audit and other committees so that the company is larger than any one person, and that it has structures that both strengthen and promote the Coteccons culture and the Coteccons goals. We believe these are very critical steps – allowing us to continue to set goals but never any limits.

Looking forward, we hope to target 3-5 billion USD revenue in the next 5 years.

R: What is the role of BOD?

TT: Essentially the role of the Board of Directors is to hire the CEO (or general manager of the business) and assess the overall direction and strategy of the business. In addition, the BOD must provide support to the CEO and part of that means reviewing his or her performance. Finally, at the macro level the BOD should help govern the organization by reviewing and guiding broad policies and objectives. In our observation, challenges usually arise when these guidelines are not followed and conflict can occur when directors begin to meddle too much in the day-to-day operation of the business. Conversely, management is not responsible for the overall policy decisions of the business. That is why in large and effective organizations, the BOD acts independently from the management and thus there is a mutually supportive interaction.

Mr. Talgat Turumbayev – Member of BOD of Kusto Group

C: What other challenges do you see?

TT: There is still much work required in order to create a lasting legacy at Coteccons and one area where we can do more is our social responsibility to participate in the development of change at the country level. This means at times taking a step back and sharing our thoughts, concerns, ideas and suggestions with the relevant government bodies. I see that legislation in Vietnam is changing rapidly in this sector, for example Vietnam is already introducing high-level reporting requirements in line with the global BEPS and Coteccons can and should share its experience and expertise.

If we can say that the economy is a tree, then legislation is the soil; and the richer the soil the better the tree. New legislation is therefore not only about making business easy, it must also create strict liabilities and responsibilities for corporations so that the overall level of economic output and value grows.

In order to prevent cutting corners and rule bending, strict compliances measures must accompany strict rules. For example, in many developing countries one of the problems that corporations need to overcome is the lack of transparency and presence of potential conflicts of interest. In Vietnam for example, it may be worth considering developing even wider related-party definition than currently exist in developed countries to ensure the highest of standards and practices are maintained.

Similarly, enforcement of strict but fair rules is essential if a country would like to develop its local stock exchange. Adherence to these rules will attract more capital and in turn, assure foreign investors who may plan investment and exit strategies based on the maturity and possibility for an IPO. Those markets where strong returns are protected by strong legislation and enforcement tend to be the long term winners.

R: Why do the stock exchange regulations need further development?

TT: The stock exchange, apart from being a hub of both the primary and secondary markets, has a very important role to play in the economy of any country. Stock exchanges facilitate company growth, advance profit sharing, impose necessary rules such as how to become listed (corporate governance), create opportunities for small or minority investors, and in many respects, serves as a barometer for an economy. In developed economies, stock exchanges both encourage and enforce necessary regulatory bodies, helping to issue rules and clarify aspects of existing frameworks in which they operate. The results of these practices are not measured by raw economic capital alone. Rather, by raising transparency standards and discouraging illegal or irregular practices, exchanges are able to accumulate “reputational capital” which is an extremely valuable asset. Along with carrots, there must be sticks and this means having serious punishments for any illegal or irregular activity – well in advance of the fact. Ultimately, the rewards are tremendous for companies, investors, citizens and countries when risk is mitigated by the effective functioning of strong, regulated bodies that can attract foreign and domestic investment flows into the economy.

R: Recently Coteccons decided to postpone AGM. How do you comment on it?

TT: The Board of Directors are preparing seriously and carefully for the next stage and taking the necessary time, which I think is normal and proper.

R: What is your advice to investors and shareholders?

TT: Reflecting on the words of many advisors and my own personal experience, I would say, look for value in management and excellence in people. When you identify it, do not hesitate: invest, commit, contribute your ideas and hold, do not sell. Real value lies in the long term.