Asian tycoon and Malaysia’s richest man Robert Kuok founded Kuok Brothers with his cousins in 1949. Roughly eight years after the founding, Kuok went to his fellow shareholders — all of them his relatives — and asked them to give up a percentage of their ownership so that they could create an employee stock pool.
Kuok writes, in his autobiography:
[I said] “It’s time we brought a bit of socialism into our company.” I persuaded all shareholders to give up 30% of the stock, which was put into a pool and sold cheaply to our fellow workers. Thus, the Kuoks’ holdings dropped to 70%. In my case, I was diluted from 25 percent to 17.5 percent; Mother came down to seven percent, and so on.
Similarly, the Singapore holding company, Kuok (Singapore) Ltd, in the beginning was wholly owned by Kuok Brothers. Then we issued new shares in Kuok (Singapore) Ltd to our managers and other staff. We later sold more shares in Kuok (Singapore) Ltd to the recently hired employees. Today, Kuok Brothers as a company owns no shares in Kuok (Singapore); the two are like sisters in the Kuok Group.
This move was remarkable for how early it happened, and how rare it was amongst other tycoons of Kuok’s generation. For context, Malaya’s first stock exchange was established only in 1964 — seven years after Kuok created his first employee stock pool in Kuok Brothers. Kuok (Singapore) Ltd — a holding company from the very beginning — has never gone public.
Kuok did have an early experience with Malaysia’s stock exchange, though. Kuok Brothers was reorganised in the form of Perlis Plantations Berhad (PPB), right as Kuok moved his interests to Singapore. PPB was listed on the Malaysian stock exchange in 1972.
In 1974, Kuok set up Kuok Brothers Hong Kong. He was put off by comparatively higher taxes in Singapore and Malaysia, but also drawn to the (then) higher standing of British-governed Hong Kong:
Hong Kong was a much bigger pond than Singapore or Malaysia. I began to see very clearly that the CEOs of the top American, Japanese and European corporations were visiting Hong Kong, if not once a year, then once every two or three years. The senior VPs would go to Singapore and the VPs or departmental managers would visit Kuala Lumpur. That was the pecking order. Today, of course, CEOs are more likely to frequent Beijing and Shanghai.
How did he intend to handle the equity incentives? Kuok summoned his top executives in Singapore in preparation for the move: Richard Liu, Lee Yong Sun, James Lim, Kenny Yeo, and a few others. He told them that he wanted to move quickly: “I have made up my mind that we will open a branch in Hong Kong. I ask for volunteers. Please give me your answer today. Two weeks from today, I want you to be in Hong Kong, ready to work. On the plus side, anyone who follows me to Hong Kong will be well rewarded.”
Kuok describes what happened next:
Lee Yong Sun, Kenny Yeo and James Lim all put up their hands. I asked Richard Liu to commute back and forth, like I was planning to do, to look after both sides of the business for at least a year. [Liu was Kuok’s right-hand man at the time, and remained an important part of Kuok’s company until his untimely death in 2003]. I spent about seven to ten days a month in Hong Kong from 1974, and then gradually it became 15 days a month, 21 days, until eventually I moved there in 1979.
We started with about HK$10 million when I formed Kerry Holdings Ltd, the name that we chose for our Hong Kong operation. The executives who relocated to Hong Kong were allowed to apply for the first allotment of shares in the company. Trading, of course, migrated with me; that was unavoidable, as I was the main trader. Within 20 years, Hong Kong had blossomed into by far the largest of our three group companies of Malaysia, Singapore and Hong Kong.
Kuok very clearly believed in this principle of ‘socialism in capitalism’, as he created the same structure repeatedly over the course of his career. When they moved to Hong Kong, Kuok’s executives purchased half a percent to three percent each of the new company’s shares. Kuok also offered blocks of shares to managers who stayed back in Singapore, because “I felt that a bit of the spiritual force from Singapore came to establish the company in Hong Kong.” As a result of this shareholding structure, Kuok increasingly delegated management of Southeast Asian to these officers. This delegation was important; much of Kuok’s later life was dedicated to building businesses in places much further afield, such as in early China.
In the 80s, Kuok repeated the same practice when he took another Malaysian company public. This was Malaysian International Shipping Corporation (MISC) — the national shipping carrier for Malaysia. What made this interesting was that MISC had a complicated shareholding arrangement. It was a joint venture between parts of the Malaysian government, Kuok Brothers, and Frank WK Tsao. Tsao was then-Chairman of International Maritime Carriers, which was based out of Hong Kong. Tsao took the position of deputy chairman, and his company provided the initial expertise. Kuok Brothers was responsible for running the business. The corporation was formed in 1968.
Initially, Kuok Brothers owned 20% of the company; Frank Tsao took 15%. MISC’s first few ships were ‘blood-debt’ ships given to Malaysia’s Malayan Chinese Association by the Japanese, as reparations for the Chinese massacres committed by the Japanese during World War II. In exchange for these ships, MCA and several other Chinese associations were given shares in MISC. All told, the MCA group, Kuok Brothers and Tsao controlled more than 50% of MISC’s shares.
A year after launch, though, Malaysian Prime Minister Tun Razak instructed Kuok to do a fresh issue of 20% of new shares at par, in order to increase the Malay percentage of shareholding in the company. Razak was under political pressure, given the optics of a wildly successful national shipping carrier not being majority-owned by the Malays. One-to-two years later, Tun Razak requested yet another dilution to the tune of 20 percent, this time to be divided equally amongst the four port cities of Malaysia. This was again at par. Kuok gave way, though he had great difficulty convincing his fellow directors to do so. By this time, Kuok Brothers was diluted down to the second largest owner, with the Malaysian government as the largest.
In 1987, Tsao and Kuok decided to take the company public. At this point Kuok decided to distribute some of Kuok Brother’s own shares to MISC’s employees. In his memoirs, he writes:
Before we listed in 1987, I made quite a radical move, adopting a practice that I had used within Kuok Brothers. I explained to my Kuok Brothers senior directors that the MISC shares were now worth a lot of money, but only because of the great effort put in by other members of the board and many of the very deserving staff. I wanted to take about 15 percent of our shareholding and sell the shares at par to deserving directors, staff and ship captains. Quite a number of people benefited from this move.
Kuok continues, laying out his logic rather plainly:
I have always believed in some degree of socialism when you have made money. You know very well that you alone didn’t make it; it was a joint effort. I was inspired by the example of Genghis Khan, who, when he conquered cities, usually turned the spoils over to his generals and soldiers. He was not selfish, and that is why he became the greatest general the world has ever seen.
This was the basic method:
One technique I employed from an early stage was to maintain reservoirs of shares in each holding company that were not owned by anyone. I had in mind from day one that my co-workers of the 1960s may no longer be the achievers of the 1970s, the achievers of the 1970s may not be the achievers of the 1980s, and so forth. So, we always kept blocks in reserve to reward the new and future achievers. The shares in these reservoirs fill up, too, because many of the old achievers opt for retirement and cash in their chips. These return to the pool and are recycled to the new achievers. Once people turn from an employee to a shareholder, the attitude changes. If we make a foolish investment they feel the pain too. Not only managers are shareholders: clerks and my wonderful secretary in Hong Kong, Miranda Wong — whoever is a performer and achiever — all have shares.