Engineering Carlos Slim Helu's interview performed by Estela Caparelli, published by Epoca Negócios magazine, number 6, August 1th, 2007.
THE LAUNCHING OF PRE-PAYMENT IN MEXICO WAS CHRISTENED “PLAN GILLETTE”
Since childhood Slim always had his vocation stimulated by his father, Julián Slim Haddad. He’s the fifth of six children by Julián with the Mexican of Lebanese descent Linda Helú. According to his biographer, of all his siblings, Slim was the heir to his father’s abilities. As a boy, he used to watch his father buy merchandise in other countries and resell it in his store in Mexico City. At age twelve he opened a bank account with US$400. At 16, he bought his first stock from the Banco Nacional de México, nowadays controlled by Citigroup. At his father’s demand, Slim started to take notes in leather-bound notebooks of the value of his financial movements. He still keeps the notebooks. At the end of the 60’s, while other youngsters from wealthy families spent time in Paris, Slim started the construction of Grupo Carso.
MEXICO IS NOT CHINA
In contrast to Bill Gates – his partner since 2000 for the Internet Prodigy MSN website – Slim is essentially a business man of the old economy that bought a lucrative piece of the new economy. Besides not using computers, he doesn’t like to speak English in public and doesn’t have an MBA hanging on his wall. What makes this civil engineer different from other businessmen, is his keen smell for finding good businesses and his ability to put them in practice. Slim is a strategist of exceptional talent, sense of opportunity and clarity when dealing with numbers. If it weren’t so, he wouldn’t have managed to build a fortune of the magnitude he’s been able to build. The Mexican economy, even if relevant, is not the most important or the most dynamic in Latin America, a continent that itself is secondary within world economy. Mexico is growing at an annual 3%, without offering the opportunities created by the galloping 9% China is experiencing annually. 49% of its 107 million people is considered statistically poor. It’s not a natural breeding ground for billionaires.
Regardless, Slim is Slim. Why? Partly because of the same help Bill Gates relied on to reign supreme for 13 years in Forbes’ list: monopoly. Gates has Windows, which runs on 90% of all computers in the world. Slim has the Mexican fixed telephony market in the same proportion: exactly 91%. Both Slim and Gates face competitors, but both have managed to maintain a high level of control of their respective markets. The other lever, to the fortune of both, is the stock market. In recent years Slim has been benefited by an almost biblical multiplication of the value of Mexican stock. His personal stock value is equivalent to half the value of the whole Mexican stock market, whose index rose 49% in 2006. That is why his fortune grew US$20 billion in the previous year. Gates also became Gates powered by the winds of the American stock exchange.
Although it is true that the income generated by the Mexican fixed telephony market helped him to expand his empire, it also true that it wasn’t the only reason for the amazing growth of the businessman’s fortune. The major evidence of this is América Móvil, the group’s cell phone company, with 125 million customers and sales of US$22 billion. It started out as a cell phone division of Telmex and gained a life of its own in 2000. Half of the businessman’s fortune comes from 30% of its participation in the company, equivalent to US$32.6 billion. According to the Common Sense agency, the company’s stock rose 26.5% in the second semester, driven by its performance. That was the result of a dead-on hit of the past: the introduction of pre-paid cell phone service.
12 years ago, during a meeting with some of his collaborators, Slim presented a proposal to increase sales of cell phones: “We are launching the Gillette Plan”. His idea was to adopt, in telephony, the logic of the American company who sells the shaver and then keeps the customers captive by selling them razor blades. “He asked me to look for a pre-payment model in the world, but there was nothing like that at the time in the market. We had to develop the technology internally”, says Ayub, who at the time was in charge of the project. With a product accessible to the Mexican consumers, Slim captured the market. In 1990, the division that originated América Móvil had 35,000 customers. Nowadays, it has 43 million users in Mexico, out of which 40 million are pre-paid. With this, Slim holds a 77% share of the Mexican cell phone market, facing, among other competitors, the mighty Telefónica, which is present in Mexico with the Movistar brand name.
His business moves are driven by his own management model, synthesized by himself in a list that contains his ten commandments. In it, the businessman defends simplified structures, austerity of expenses, boldness of ideas and re-investment in one’s own business. In the course of the interview given to Epoca NEGOCIOS, he added an eleventh item to the list: the importance of team spirit and driven executives. “It is people that make things possible, people who are interested, motivated, who wear the team’s jersey proudly, as we say, and who know they are capable of facing every challenge that comes their way”. Slim believes that a company, whatever its size, needs the same agility and flexibility of a small business.
His philosophy is that of clean and flexible companies, with only a minimum of structural hierarchy to drive the business. In them, there is no place for heavy corporate structures, pomposity and formalism, luxurious offices, throngs of advisors and hordes of secretaries, benefits for a group of directors and executives. “We never had a head office”, he says. “A head office often has its operators working for it, instead of working for the operation, for the customer, for the market.” If it is necessary, the businessman talks directly with the lower-level employees. If an employee of a lower hierarchical level calls him up to talk about a serious problem, he answers the call. “He likes to know about things directly from the source”, says someone who knows him well.
The Slim style is far from pretentious. He works in his shirtsleeves and it is said that he always carries his agenda book under his arm as a reminder that he owns his time. How does he divide the few hours of the day among the various companies and foundations? “I don’t divide the time; I never did”, he says. “Sometimes an activity demands more attention and then I come back to it.” Meaning: he attacks problems head-on, in the moment they appear. The halls and rooms of the company have pictures that remind that time is the most precious asset of people and organizations. About his responsibility as leader of the company, he states: “My job is to think”. Slim works ten hours a day. Early in the morning, he leaves home in the elegant neighborhood of Las Lomas, where he’s lived for the past 30 years and rides in an armored Mercedes to his office, located a few minutes away. He doesn’t have a personal helicopter, but when he needs to fly he uses a 6-seat Cessna aircraft owned by Telmex. When he gets to the office, he usually talks on the phone or personally with his sons or sons-in-law, or with Eduardo Valdés Acra, vicepresident of the Inbursa Financial Group, about the day’s work. He likes to be up-to-date on everything. He usually has breakfast with someone’s he’s invited in the meeting room, next to his office, or in the museum hall in the same floor.
THE FORMULA FAILS
“The engineer” (as he’s called in Mexico) believes in cycles and in being persistent. In times of fat cows, he says, it is necessary to maintain austerity, invest on modernization, and with discretion, anticipate the movements of the competition. No getting comfortable. In moments of crisis, when assets are devaluating, it is time to go shopping. This latter part, he learned from Buffet. “All moments are good for someone who knows how to work and has the means to do it”, says his rule number 9. This formula has proven correct, but is not infallible. In 2000, Slim bought CompUSA, an American chain of computer retail stores that today is dwindling in the face of the competition.
Up to the second half of the 90’s, Slim personally directed all operations of Grupo Carso and Inbursa, the financial arm of his companies. In 1997, he decided to back off from his companies’ day-to-day operation after having to face health problems, in the aftermath of heart surgery. By the end of the following year, he placed his sons and sons-in-law at the helm of the business and became honorary president for life of the group. Today, he presides what is notoriously a family business in its structure. His eldest son, Carlos who is 40, is president of Grupo Carso; Marco Antonio, 38, is general director of Grupo Inbursa; and Patricio, 37, is director of Carso Global Telecom and US Commercial Corp. Slim’s sons-in-law also occupy key positions in the business. Arturo Elías Ayub, is spokesman for Grupo Carso and director of Telmex. Daniel Hajj directs one of the most profitable businesses: América Móvil. Another influential person in the decision-making process is nephew Héctor, Telmex’s general director. The first tier of Slim’s companies is totally controlled by men. Of his three daughters, only one of them, Soumaya, works with the Soumaya Museum, created as a tribute to the businessman’s deceased wife. There are only five women in the group’s first team of executives, none of them from the family.
AS A YOUNG MAN, SLIM DISCOVERED TYCOON PAUL GETTY. HE MADE HIM HIS IDOL.On Mondays, religiously, Slim gets together with his sons and sons-in-law at his home after 10 pm for dinner. The menu is varied, serving almost always a Mexican dish like Chile Relleno (Poblano pepper stuffed with cheese) or Quesadillas (corn tortillas with cheese filling). The home can be considered austere for the billionaire status of the family: it’s got six bedrooms and a small swimming pool. The only luxury is the works of art. Slim shares the place with his eldest son, Carlos, the only bachelor. He insists on saying that he owns no other homes or foreign bank accounts. In over 40 years of business-making he’s never had his name involved in a scandal or complaint. On weekends, the richest man in the world usually takes refuge in nature. He likes to be among sequoias or contemplate the dawn in Los Cabos, in the northwestern coast of Mexico. “He’s very affectionate, his grandchildren adore him. They jump all over him”, says son-in-law Ayub. Slim has confirmed that he is using his free time to write a book with the history of his family.
When I ask him if he is a happy man, he quickly responds: “I think so”. Immediately after, he flirts with philosophy. “However, happiness is not a state, it’s a road with obstacles, problems”, he says. “The road to happiness exists when its main values are clear to you and when you are coherent with them and yourself.” For Carlos Slim, being happy at 67 is synonymous with being with the family, chatting with friends and walking among trees. The interview is reaching its end, the tape recorder has been unplugged, but he asks an aide for a letter he wrote in June 1994 to a group of students. In the letter, he writes about happiness. He reads, then, some parts aloud. “Emotional balance lies in internal life… It is necessary to avoid the feelings that gnaw at the soul, such as envy, jealousy, pride, lust, selfishness, revenge, greed… One cannot live with fear and guilt…” I interrupt and observe that the happiness list does not include anything material: a paradox? Slim responds with a question: “If you had a lot of money, what would you do?” I pause and think about how my life would be with Slim’s fortune, however, before I can answer, he questions again: “If you were married, would you leave your husband, your children?” I answer I wouldn’t. He starts again: “My family, being in harmony with those I love. That is what gives me the most happiness. It is not doing things right or getting the recognition of other people, do you understand?” Absolutely, Mr. Slim.
“I’LL TAKE NOTHING WITH ME WHEN I DIE”
Said by any mortal, such phrase is only a cliché. Said by the richest man in the world, it isn’t. In the exclusive interview given to Epoca NEGOCIOS, Carlos Slim tells us how he manages to deal with the impermanent nature of wealth, what is important in his management model and defines happiness.
What are the key points of your management model? The principles are not new. They are 40 years old and are summarized in a decalogue. These are augmented by something fundamental: the team, the people. It’s the people that make things possible. Interested, motivated people that wear the team jersey, as we say, and who know they can rise to any challenge. It’s necessary to keep harmony in the work team, and make people feel success is everybody’s.
At some point, you said that “Wealth is not important; what’s important is what’s done with it”. What do you intend to do with your wealth in the coming years? No one takes anything with him when he dies. Therefore, I think that wealth should be administered with efficiency, honesty, effectiveness and sobriety to produce more wealth. One of the fruits of wealth is profit and it is necessary to have it redistributed. That exists through fiscal means or salary payment; with an additional job, we can take on things that are not profitable but that constitute a social investment. It is important for example, that people are well-fed, have good health and have a good education. These things are not profitable, but they are a social investment. So, we are strengthening our foundations, which in the case of Carso (the industrial conglomerate that originated Slim’s group), is over 20 years old. The challenge I’ve had for four or five years is trying to fight exclusion and poverty through health, education and employment. That’s my challenge.
How do you divide your time among the philanthropic initiatives and the day-to-day work? I don’t divide time. I never did. When some activity demands more of my time, I tend to it. Company-wise, the one I keep on with is Ideal, whose goal is to promote development and employment in Latin America through productive investment. I also watch the foundations.
Ideal has projects for Brazil? Of course. I don’t have a specific plan for the moment, but we feel that Brazil has extraordinary strength and an enormous potential. I believe that there are many renowned businessmen and governments who have been consistent in their economic policies and that have created an adequate climate for business development.
What is the situation of the Brazilian markets in the plans of the group? It’s of major importance. We have very important investments in Brazil in a sector which also has to do with infrastructure: telephony. That market is growing and will continue to grow. On the other hand, Telmex is working with the best technology to offer more services and more competition in all these areas.
How did you receive the news that you’re the richest man in the world?
I didn’t get the news, that’s irrelevant. It’s not a competition. I’m not playing football. I’m more worried about how much we are investing and what’s happening with our work, than with news like that.
However, the news has provoked - once again - more comments that contend that you have become rich from the telephony monopoly in Mexico.
As you can see, all the companies in the group are facing a strong competition. All of them! We have competed in all sectors, such as paper manufacturing against great companies such as Kimberly-Clark and Scott Paper. In the case of Sanborn’s (important Mexican chain of restaurants that also sells electronics, books and medicines), we face competition from Wal-Mart, from Starbucks and other restaurants. In the case of cigarettes, we face British American Tobacco that you know so well in Brazil. With Telcel, the cell phone area, the competition started before. This means the monopoly was held by them. Telmex, our fixed telephony company, had six years of exclusivity, but only in long distance. The competition really started in 1996. In long distance, we competed with the big ones in the world like MCI and AT&T. In mobile telephony, giants like Verizon, Vodafone and Telefónica arrived. Therefore we’ve been competing for years. In fixed telephony, since we are the only ones that service the C, D, and E markets, we have a 100% share. However, a strong competition exists in markets A and B and it will get stronger in the future.
A recent document by the Organization for Economic Co-operation and Development, the OECD, says that prices of telephony in Mexico are excessive. Our prices are half of those in Europe. In countries like Peru, Chile and Argentina, we’re in third or fourth place (in the market). That’s the reality. It’s something real. I’m not suggesting you believe these facts. However, every time there’s a strong competition, the leader is criticized in an attempt to regulate (the market) asymmetrically, weaken it; tie one of its hands or an arm. That’s something we never ask for when we go into the countries we’re in: a competition with tied hands.
However, there’s a limitation in Mexico: foreigners cannot enter with full force into telephony because they are forbidden from controlling companies of the sector. That’s been interesting, because in spite of the prohibition, they can get around it illegally, operating through trust funds. We think that is irregular and it shouldn’t happen. However, we’re not against liberalization. We haven’t been opposing it in the media.
People watch the evolution of your wealth and the poverty situation of his country and ask themselves: How is it possible that the richest man in the world is in Mexico? It’s not in Mexico, but from Mexico. You and other people say in Mexico, but it’s from Mexico.
From Mexico, then. However, I’d like your answer. Well, I’m very happy that there is a company - I wish there were many others – that starting in Mexico, a developing country, has become a transnational company and is successfully competing globally against the big world companies. I’m also happy that investors have bestowed a great value on this company, for the efficient way in which it has developed. Moreover, instead of absorbing other companies or getting in debt, it has followed a policy that favors investors through buy-backs and dividends. This company, which had zero value 15 years ago and which now has a very important market value, is called América Móvil. That fact that it is done from Mexico or from any other place, is not important. What matters is that wealth is being created. I don’t have personal bank accounts, homes or apartments outside of Mexico. I’ll take nothing with me when I die. Therefore, the fact that one of our countries is generating that wealth is great. There are many things being created in Brazil, local groups are creating companies outside of the country. That’s great! It’s very important that foreign investment not only flows into our countries. It’s important that globalization becomes something that we can do from our countries. It’s great that wealth is being created in our countries. An example is Vale do Río Doce, which is growing. It’s really great. I hope it continues to grow
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