The $24 billion Mubadala Development Corporation, set up by the Abu Dhabi government, was given the mandate to facilitate the diversification of the economy. INSEAD Professor Javier Gimeno speaks to Mubadala’s Chief Financial Officer and INSEAD alumnus Carlos Obeid about the company’s balancing act in terms of managing financial and social investment returns.
Mubadala Development Corporation is a $24-billion investment corporation, headquartered in Abu Dhabi. The company was set up in 2002 by the Abu Dhabi government to facilitate the diversification of the economy. In this Leadercast, INSEAD Professor of Strategy and Dean of the EMBA programme, Javier Gimeno, speaks with Mubadala’s Chief Financial Officer Carlos Obeid about the company’s development. Obeid is an INSEAD alumnus (‘91D) and has been involved in the growth of the company since he joined in 2004.
Gimeno: As an investment organisation, you have a lot of commitments in different companies and projects but one of the interesting things is that you are trying to achieve both financial results as well as social results in terms of the development of the local economy. How do you ensure the optimal balance between the achievement of financial results and social results?
Obeid: Let’s consider the mandate of Mubadala, which the Government of Abu Dhabi has set as diversifying the economy, away from hydrocarbon reliance. We essentially do two things: business development and investments. Our business development efforts involve creating businesses from scratch. We identify opportunities, carry out feasibility studies, bring in partners and create companies in the UAE. When we make investments, we take equity positions in existing companies with the aim of helping them or contributing to their growth and development.
Our primary focus is always the commercial return because we are an investment company and we need to produce a certain return on the capital that is being provided to us by our shareholder, in this case the Government of Abu Dhabi. So our first and foremost target is always to ensure that we have a return that is commensurate with the risk that we are taking. The second aspect is the socioeconomic return and we consider things like how much this particular investment might contribute to the diversification of the economy, how well it fits and integrates with the sectors with the other areas we have, how it plays from a human resources perspective in terms of developing local talent, and so on.
There aren’t really hard and fast rules or specified criteria because sometimes we see that very small investments yield disproportionate socioeconomic returns. For instance, a few years ago we identified that diabetes is a very prevalent ailment in the UAE population. About 25 or more per cent of the population suffers from it, yet diabetes care had not really been at the foremost of the agenda of the authorities here. So we teamed up with Imperial College of London to create a centre of excellence in diabetes research and diabetes treatment and management. Whilst this was a very small investment for us, in the order of a few million dollars, the social impact is disproportionate in relation. The centre today is a highly profitable activity, it’s operating beyond capacity and we are about to open an extension of that centre given the patient flow that we see there.
Gimeno: Over the last ten years or so, there has been a lot of money in investment funds, private equity, all chasing opportunities. What do you think is your competitive advantage? How do you create value as an owner of a company or as an investor of a project relative to other potential investors?
Obeid: The way Mubadala operates is very unique in the sense that we are not just an investor but also a hands-on investor where we sometimes participate in operations. So we may have CEOs, CFOs or marketing personnel being placed in our companies because we believe that this linkage helps them in a number of ways. First, it maintains the link with Mubadala, which has a network of companies and activities they can benefit from. Second, we actively manage the synergies between companies. For example, when we create an aluminium cluster or an aerospace cluster, we try to make sure that the companies in those clusters are actually somehow linked in the way that they carry out their activities. We also try to create those linkages and those synergies, across not only the same cluster, but across different clusters, which generates value for both these companies and Mubadala as a whole.
Gimeno: Can you tell us how you balance the pressures between centralisation and decentralisation in these companies? How do you decide what should be devolved to the companies and what should be done centrally?
Obeid: It’s a very complex question to reply to and is probably one of the biggest headaches that we have at Mubadala in finding the right balance between what needs to be done on a centralised and decentralised basis. The primary aim for businesses is to be successful and for that you need to give them enough autonomy and control because they are closest to the business and they need to make decisions very quickly. On the other hand, in order for them to be able to realise some of those synergies and benefits, we need to be able to pilot and guide these things.
When you look at financing, for instance, we believe we have a competitive advantage at the corporate (level), and therefore a lot of the financing activities that take place even at the individual company level will most likely be done by our team that sits at corporate (level). Similarly the legal activities and risk management activities tend to be more centralised than decentralised. On the other hand, activities like support services or HR [human resources] will tend to be more decentralised because that’s where you need to be more responsive to the individual companies’ needs and requirements, but there is some form of oversight and coordination that takes place. On the business strategy side, all the business planning is more or less coordinated and centralised at corporate (level) because we need to ensure that we are not duplicating investments, we are not wasting opportunities, or we’re not investing in available opportunities.
Gimeno: One important theme of the Abu Dhabi vision for 2030 is the development of talent for Abu Dhabi to become an educational and talent hub for the region. What role does Mubadala play (regarding) that vision?
Obeid: On the infrastructure side, we are helping the government in creating the infrastructure and facilities that help in education. We are building, for example, universities and providing them to the government at a commercial return. We also involved with leading education institutions like INSEAD and the Massachusetts Institute of Technology in doing collaborative research as well as activities that support the development of intellectual capital in the areas that are of relevance or interest to us. For example Masdar, which is one of our flagship companies that is a pioneer in the world on the renewable side, has an agreement with MIT to do research in the renewable sector. The Masdar Institute, which will focus on that activity, started in September (2010) to offer training programmes and courses in renewable energy.
Gimeno: Could you comment on how your INSEAD education influenced your career and your current role?
Obeid: My initial education was in engineering and I had decided that I needed to go beyond the technical know-how. What attracted me to INSEAD was the multicultural aspect and I feel that has played well in my career, because the UAE in particular has a very multicultural community with businesses from all over the world. From that perspective, the INSEAD education has been quite good, both in terms of the broad coverage we have and also in terms of being culturally sensitive and working across cultures and industries.
Gimeno: INSEAD has just opened a section of its top-ranked Executive MBA (programme) here in Abu Dhabi. What would you like to see our current participants learning at INSEAD today?
Obeid: This is an emerging region and emerging economy, and companies like Mubadala are also emerging companies, and you will see a number of such companies being created and developed. That puts a lot of demand on talent that is multi-functional and culturally sensitive. If INSEAD wants to develop, and if candidates coming to INSEAD want to consider the region as an opportunity for them, the areas that they need to focus on and learn are things like entrepreneurship. Companies face growing pains and therefore understanding the challenges that entrepreneurs and companies face in their early stages is absolutely key in order to be successful. The second one is leadership and leadership development, because again being a young company, a young country and a young economy, there is a tremendous demand on leaders and their ability to mobilise resources and talent from across different parts of the world and across different functions, both vertically and horizontally. And of course given the nature of the country and the economies here, being culturally sensitive and multicultural is one of the key success factors as well. So if you focus on these three elements, I think one would have a very strong foundation to be successful.