A complete corporate makeover: Keppel’s plan for sustainable growth

Large-scale organizational transformations are a challenging undertaking, especially if they’re executed in times of turmoil.

Keppel Corporation, one of Singapore’s leading conglomerates, which started off as a shipyard in the 1960s, has reinvented itself several times in its history. From expanding into the offshore-rig business in its early years to diversifying into multiasset classes; investing and exiting the banking and financial-services business; and ultimately focusing on energy and the environment, urban development, connectivity, and asset management, the firm’s journey has been one of constant change and transformation to hedge risk and create value.

Today, Keppel is in the midst of arguably its biggest and boldest makeover to date under the leadership of CEO Loh Chin Hua. Loh, a seasoned investment professional who began his career with the Government of Singapore Investment Corporation (GIC), Singapore’s sovereign wealth fund, joined Keppel in 2002. Since becoming CEO in 2014, Loh has focused on reimagining the Keppel of the future. He believes that Keppel’s earlier mission statements did not sufficiently emphasize the company’s cohesive and overarching purpose enough, which influenced the market and Keppel’s employees to view the conglomerate through its different businesses rather than as a singular company.

In May 2020, just a few months into the COVID-19 pandemic, Loh and his team officially announced Keppel’s Vision 2030 strategy to transform Keppel and “refocus its portfolio into an integrated business providing end-to-end solutions for sustainable urbanization, with an asset management arm to fund future growth and provide a platform for capital recycling.”1

Environmental sustainability is firmly at the core of the company’s strategy and now an integral part of its new mission statement and of senior management’s performance appraisal process.

Loh is striving to make this transformation the organizing principle for running the business. In this edited interview with McKinsey’s Joydeep Sengupta, Loh talks candidly about his journey to the top role at Keppel, the story behind the company’s transformation, and the challenges of developing a financially successful, sustainable business.

Leading with purpose and resilience

McKinsey: You joined Keppel in 2002 and have been its CEO since 2014. What motivates you and gives you energy?

Loh Chin Hua: My wife asks me the same question. She wonders how I get up so early. This morning, for example, I got up at 5:00 a.m. to do some exercise before coming into work. Having a routine is quite important. But I also get very excited about new things that we’re doing. I’m constantly amazed at some of the things that my colleagues are involved in, especially in new areas like hydrogen.

What gets me going is working with my younger colleagues, supporting them, knowing that they are all very ambitious. They want to do well for Keppel, and they are engaged in interesting ideas that could make a real difference to the world and make it a greener world for all of us.

McKinsey: What were some of the major milestones early on in your professional journey that have led you to where you are today?

Loh Chin Hua: I was always very intense as a young man, and very driven. Of course, that [quality] is important for all of us to succeed in what we do. But now, looking back as an older man, I would say that you don’t need to be so intense. You can sometimes let things happen naturally.

In terms of some events, I would say I was very fortunate. Many of us in Asia go through this; I come from a very humble family background. I grew up in a small village in Singapore, and my ability to get a scholarship allowed me to study abroad. That exposed me to what it is like to live in a different country. When I returned, I was supposed to serve in the Singapore Civil Service. However, that coincided with our first serious recession in Singapore in 1986. As result, they couldn’t place me in the civil services, because they were cutting head counts. That opened the opportunity for me to join a statutory board, and I joined GIC to serve my bond.

Through working at GIC, I was posted to San Francisco and London, and that period opened my eyes to how I see the world. It also gave me the opportunity to immerse myself in a cross-cultural environment. After London, I came back and started investing for GIC in the region, so I was able to go to Vietnam, Myanmar, Cambodia, and other developing countries like India and China. This ability to be cross-cultural has certainly served me very well.

McKinsey: Share with us some of your stories of struggles during your tenure as Keppel’s CEO and how you overcame them.

Loh Chin Hua: We have had mountains of challenges in the last few years. A good example is the transition in our offshore marine business. When I took over in 2014, the price of crude oil was above $100 per barrel. In June 2014, the emergence of shale oil2 changed the whole dynamic, and OPEC was no longer the swing producer. We saw a rapid decline in oil price, which created tremendous pressure.

I remember speaking to some of my colleagues at that time and saying: “We’ve been doing so well in the offshore marine industry, so maybe this is the time for us to use our engineering skills to create a cheaper version of the very successful oil rigs that we have been producing.”

We started a massive change in our offshore marine business in early 2015. We pivoted away from oil toward gas as a transitional fuel. We started pivoting to renewables—using the engineering and solutions we had for oil for the renewables site, like offshore wind, for example. That has been a huge success, but it would not have been possible without the pain that came from the structural shift in the oil market.

It is very difficult for companies to change when things are going well. But, if you think about it, that’s precisely the best time to change. A lot of companies tend to end up riding the first growth engine for too long before developing their growth engine two and three. This is a constant challenge for all of us.

Creating enduring change with sustainable solutions

McKinsey: You launched the transformational program for Keppel during the first wave of the COVID-19 pandemic. What were the drivers for this ambitious transition, and how did the pandemic affect its execution in those early days?

Loh Chin Hua: In recent years, we have seen conglomerates become less interesting to the marketplace. We also recognized that whilst we think we run a very good business at Keppel, and we are very effective at managing our businesses, the market hasn’t really accorded us the proper valuation.

Part of the challenge was that the market found it very difficult to understand what Keppel did, since we have very diverse businesses. As bankers often told me, we may be doing well in one or two businesses, but the market would tend to focus on the business that we are not doing so well in.

When I took on the role as group CEO in 2014, I remember having an off-site meeting for about 100 key leaders. At that time, I put forth the idea that we should look again at our mission statement, but I could sense that people were not comfortable, and the organization was not ready to make that move.

Over the past nine years, we went through some very painful adjustments as the industry, particularly on the offshore marine side, went through structural challenges.3 That created the impetus for change and transformation. Finally, in early 2019, I announced at our global town hall that we were going to put together Vision 2030 to guide Keppel going forward, as we reimagine what Keppel would be like in ten years’ time. At that time, we put together a group of 30 future leaders of Keppel. They initially started working as three separate teams, each with a slightly different vision of the future Keppel.

Through a process of divergence and then convergence, we came up with Vision 2030. This was all done prepandemic. It is quite heartening to see that the plan ended up getting stress-tested by the pandemic. There are a lot of assumptions and trends that Vision 2030 is based on that are still very relevant today. These are trends like rapid urbanization, the energy transition, sustainability, climate change, and the aging population.

McKinsey: How did you go about embedding purpose into the broader organization?

Loh Chin Hua: If you look at how we have transformed ourselves, fundamentally, we have moved from a conglomerate into an integrated business, providing solutions for sustainable urbanization. That took quite a bit of work because we needed to break down the silos.

Some of the operating companies or the business units were also listed on the stock exchange, so they had their independent boards. Over the last nine years, we have privatized a number of our operating companies. Today, you see that the group’s main businesses are all privatized. That has allowed us to allocate capital freely across the whole group. Talent is now also seen as easily transferable across the group, whereas in the past, it was not. That kind of set the stage, and then the question became, “What is the purpose of Keppel?” And that was where our mission to deliver solutions for sustainable urbanization was first derived.

McKinsey: How has your organization and the broader market reacted to Keppel’s transition to deliver sustainable solutions?

Loh Chin Hua: Internally, the Keppelites are very engaged. Our engagement scores in the last few years have been consistently very high, compared with the global engagement scores. This means that Keppelites are attuned and aligned with the purpose of the group.

I think the market likes the idea that we are not just green but can promote a greener world through the solutions that we provide to our customers. But the market is also looking for proof on how we transform and the speed of transformation. There will always be what we call “bread and butter” questions, like: Are you still going to make good returns? Will your ROE remain high? Will you be able to reward shareholders accordingly? While I think the market is positively disposed to this transformation, I don’t think that it is just a matter of providing a narrative. You have to show that you can execute well.

Take our move to renewables, for example. While investors have supported our strategy, they are also wary that with so much capital moving into the sector, the required rate of return could drop.

However, if you look at our DNA, we are very practical. Every renewables project is different, and one has to look very carefully at the market and the feed-in tariffs4 and the risk. For instance, if you are in a market where the feed-in tariffs are quite high, you do not require any subsidies from the government for it to be commercially viable.

While I think the market is positively disposed to this transformation, I don’t think that it is just a matter of providing a narrative. You have to show that you can execute well.

There are many projects where everything looks good on paper, but the question comes down to whether they will make money in the long term. We are quite focused on this, because for us to undertake this as a business, it must be sustainable, not just from the standpoint of climate change but from a business point of view. It has to make the required rate of return.

McKinsey: Can you share some examples of how Keppel is incorporating sustainability into its investment strategy in sectors such as real estate and infrastructure?

Loh Chin Hua: Like us, a lot of our customers and tenants in our office buildings are on a green journey. They are increasingly looking for solutions for decarbonizing, recycling, and water usage. A good example is our data centers. As the world becomes more connected, data centers will be required more, but they are also very big carbon emitters.

Keppel has been at the leading edge in finding ways to make data centers more energy efficient. We have looked at floating data centers, where we are using water, even seawater, for cooling. We are looking at tropical data centers that operate at higher ambient temperatures so they don’t require as much cooling. More recently, we have looked at how we can power data centers using liquid hydrogen or green ammonia.

McKinsey: As you work toward fulfilling your vision for the Keppel of the future, what have been some of your learnings as a leader?

Loh Chin Hua: One needs to be a good student because there are a lot of things one can learn. It is always very easy to learn from someone who is well known, famous, and successful, but I subscribe to the school that there are things you can learn from everyone, even someone younger than yourself.

The ability to adapt is very important because you cannot use the same playbook for every situation. The world is becoming more complex. Global corporations like Keppel will be facing ever-evolving challenges. Leaders will need to be very nimble and purpose led. It is purpose that will lead you through the good days and the not-so-good days and keep you and your teams energized.

Most leaders are very good, natural storytellers, but being able to put forth a strong narrative, not just for the external stakeholders, but more importantly for the internal stakeholders, is also important.

Additionally, leaders need to have the mindset that they are constantly in flux. You have to constantly reinvent yourself to be relevant to the new world. When we set up a transformation office, for example, I told my colleagues that this will most likely be a permanent feature. Even after we overcome this set of challenges, new challenges will come.

Once you get to that magical age—say, just before 60 years—it is very important that whilst you continue to play an important role in the day-to-day P&L of the company for the next few years, the most important thing that you can do is to prepare the team for the future.

Together with my board, I am very focused on seeing how we can get the next generation ready. In the last few years, we have already started to put many of the younger leaders in key decision roles in the group. They are being tested as we speak. And I believe they will form the next group that will take Keppel forward.

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