Ep. 250: Yerbol Orynbayev - Lessons in Crisis Management and Restructuring
Welcome to the Count Me In Podcast! Join host Adam Larson as he chats with the insightful Yerbol Orynbayev, a seasoned leader with a wealth of experience in both the public and private sectors. Yerbol shares compelling stories and lessons from his remarkable career, including his tenure as the deputy prime minister of Kazakhstan and his pivotal role in restructuring a major bank. His candid insights and practical advice are sure to inspire aspiring leaders and entrepreneurs. Tune in for an engaging conversation packed with real-world insights and takeaways!
Full Episode Transcript:
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Full Episode Transcript:
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Adam: Welcome back to Count Me In. In this episode, we have the privilege of interviewing Yerbol Orynbayev. Who shares his extraordinary leadership journey, and the impactful lessons he's learned. Yerbol's experiences range from serving as Deputy Prime Minister of Kazakhstan, to transforming the Jusan Bank from near bankruptcy to achieving $1.2 billion in profit.
Throughout the episode, Yerbol sheds light on the crucial decisions and strategies that were pivotal in leading the bank to success. His insightful advice on leadership, vision, investing in people, and embracing failures provides valuable lessons for aspiring leaders. Join us as Yerbol shares his invaluable wisdom and experiences, on navigating crisis and driving change.
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Yerbol, we're really excited to have you on the podcast. I'm just really excited to chat with you, about your leadership journey and the different paths you've taken, and you've had quite the leadership journey. What drew you to the different positions that you've taken, and what are some of the lessons you've learned along the way?
Yerbol: Adam, first of all, thank you very much for this opportunity to share my experience about Jusan Bank story, with you, with your program. I worked for the government of Kazakhstan for quite a long time. I resigned in 2015. Before that time, before my resignation, I served as the deputy prime minister and handled economic and then social responsibilities. And, so, in 2018, when I was already with the private sector, working on my own business. I received an invitation from the university, which asked me to help them to set up the investment division of the endowment fund.
So it was a very exciting proposal. I believe they decided to focus on me and then send this invitation to me because during my time with the government, I served as a board member of the National Bank of Kazakhstan. The board member of the Agency for Supervision of the financial organizations. I also, successfully, set up a western-type university in Kazakhstan. So a lot of people knew me very well. So they said, "Okay, why not, after one successful story, one successful project, let's offer him this opportunity."
So in 2018, I started this journey, the Jusan Bank with other banks, and I had this great opportunity to create the investment division of the endowment fund. So that's how I started this particular journey with the Jusan Bank, with its restructuring, creating a new business model based on the ecosystem.
In terms of the lessons, actually, it was very interesting and enriching experience. I learned very valuable lessons. One of them is that you should really understand your business, and then your customers. And, then, currently, there is a great shift, all over the world, in terms of the customers' behavior. New technologies like AI, digitalization, increased computational capacities, and also the new generation of customers, they have completely different preferences. So these two trends kind of changed the whole landscape.
So you have to understand your clients, you have to understand your business within/out, know your customers. Because if you don't know you cannot lead, and you cannot restructure or do some right things without this really deep knowledge and understanding the main foundations of your business.
The second lesson I would say that, dream big. What I learned, in reality, with great vision, with the right team, with the right strategy, with the right implementation plan, you can achieve a lot. So dreaming big it's very important.
The third lesson I would say that always have an exit strategy, especially when you're dealing with the big structures. Together, the whole system, I managed about 10,000 employees. So this is quite big, the price of the mistake could be very high, but you cannot stop development. You have to still innovate. You still should align your business, product, services, in line with the current demands.
So you should innovate, you should do something new, but exit strategy is very important. This is your hedge, that makes sure that the whole structure won't collapse if something goes wrong, this is very important.
Trust your team, I think team is very important. The quality of the people you are working with, their professionalism, their ethics are very important. So as soon as you set up your team, you know that you can trust your people, just let them perform. And in the banking sector, this is more important than even others because teamwork is incredible, this is very important.
I didn't see a person who can just, in one phase, cover all requirements of the banking. You need a strong CFO, you need a strong risk manager, you need a strong chief information officer, so you see this is very complex. Then you can, together, compile the team, or the professionals, who can work together, who can share the same vision, who has very good ethics, only with this one you can proceed.
So this is a very important lesson. If you are unsure about your team, don't start. Because alone you cannot perform, you cannot achieve. So I would say these are very important lessons I learned from my journey with Jusan.
Adam: I think those are some amazing lessons. And maybe as we have this conversation, we'll be able to see how you came to those lessons at Jusan, as we talk through that journey. So when you first stepped into that challenge, they said, "Hey, we want to bring you on the Jusan Bank." What was the atmosphere like? What were some of the challenges and the immediate hurdles that you saw that you had to jump over, as you started that new part of your journey?
Yerbol: This, actually, was very interesting. So when I took the reins of the bank, the situation was pretty horrible. So I had a feeling like starring into the beast. I just give you one example. The bank's auditors, KPMG, they came to us, after we purchased the bank, and then told us that they won't be able produce any audit report.
They said, "We have access to the accounts, but the accounts are a mess, documentation is such a mess, so we just even cannot interpret them." And the bank did not have people who can interpret and work on this one. So can you imagine?
So 2018, the year they audited, was completely a failure, and according to the regulation you still proceed because the public, the regulator, would like to know. So this is one of the example how the bank was managed. Also in terms of the business and the morale of the employees, it was a complete mess. Two years' worth of the efforts by the government and the bank administration failed to turn things around.
So it seemed like the hope was completely lost. So this was the overall landscape and the atmosphere, environment, at the time we entered the bank. Then we faced, I would say, major three challenges. The first one is the lack of the professionals, and we didn't have a lot of time to search for people, but we had to address this issue almost immediately. So to fill in the gaps in terms of the management was very important, so we successfully did it.
Adam: Those are some amazing challenges that you had to face, and I can only imagine what it took to gain the trust of your employees. And how did you navigate those waters of gaining trust; stakeholders, employees, customers, trying to win back. Because getting an audit like that from KPMG, and having to turn that around and turn the company around is not an easy task. So what steps did you take to try to gain that trust from your team?
Yerbol: First of all, clear communication, so you should be as transparent and honest as possible. Because in this critical situation, and this mostly was crisis management, you should be communicating almost daily, which we did. Then we also came up with the smart strategy, which we called—quick successes. So we wanted to demonstrate that things are in terrible shape, but that we were able to produce, even in the short run, some positive outcomes.
So we came up with this strategy of the short successes. Within three, four months, we already produced new products. We produced even some small app, which addressed the disadvantages of this bank, so it was very successful. Doing this, we also bought some time to focus on our longer strategy, restructuring, recovering from the junk assets, in parallel building our ecosystem model. So this short successes strategy helped a lot.
Adam: Now, there's something you mentioned, the ecosystem model. I remember reading about that, and it's not something that everybody appreciates, in the banking sector. Maybe you can talk a little bit about what the ecosystem model is, and some of the challenges and criticism you faced when implementing it because I know not everybody is a fan of that type of model.
Yerbol: The ecosystem models they're about bundling different services, traditional banking services, with non-banking services. So you bundle them, and then introduce on some digital platforms. So in a nutshell, this is the essence of this model. Behind this business model are two trends. One is the change preferences. So the new generations, they don't like the traditional way of banking. So with the introduction of the smartphones, everybody spends most of the time over there.
So they would like digital way of interacting with the banks, receiving loans, making payments. So the new generation, they're the drivers of this trend. And the second one, of course, the increased computational capacities, which allow these things to happen on the digital platforms. And then the first year we introduced this model, we actually started implementing at the end of the 2019.
And then 2020 was the most busiest year, in terms of the implementation and introduction of this, that our branches, all over the country, and the Jusan Bank used to have more than 150 branches, across the country. The business model of these branches changed significantly.
So when, initially, we introduced, people mostly visited our branches to learn how to use our app, and then how to use our browser. So we just trained, every day, our customers, and they came by themselves. They just wanted to use it, but they had some reservations or some questions, so mostly we spend… By the end of the 2020, we saw that we don't need any branches anymore because people stopped visiting branches. So we managed to rationalize the whole system of our branches, which we ended up with a lot of the savings, actually.
Adam: So it was used to take the bank from how banking has always been done to modern banking, which is kind of what you see now, today. I can't remember the last time I was at a branch, for my bank. It's probably been a year or so since I've been at the bank, so I think everybody's used to that now. But 10 years ago you did everything at the branch. And, so, it shows the sector has changed so much, but it was obviously very successful.
Yerbol: Absolutely, it was very successful. It was very reasonable to do; it was the requirements of the time. But by the time we implemented it was still emerging. So now it's more or less established, at least in Kazakhstan, in the former CIS countries, in China. In a nutshell, the banking still is the same, as traditionally we understand it. This is the intermediary which accepts deposits, and then makes loans, and then facilitate transition of the savings into productive investments, but the way how you do it, completely different.
Adam: I mean that's amazing. It's public record, but you guys were near bankruptcy and it went up to $1.2 billion in profits, and that's no small feat. And it took a lot of leadership decisions, and the leadership positions that you've been in, I'm sure that there are moments of very intense pressure. And maybe you can share some of the specific high-stake decisions that you've had to make and how you approach those decisions. Because not everybody is built to make those high-stakes decisions, especially, in intense situations, and it's very difficult to walk through that. So I'd love to hear your insight.
Yerbol: Thank you, Adam. I think this is a very good question. So to make this transformation successful, at the beginning we split the bank into the bad and the good divisions. Because we dealt with some great garbage, I would say a mess; so how to deal with it? So we decided to split the good part and the bad part. Actually when we implemented this exercise, we set up two different teams.
So one team was focused on the bad bank. So the main purpose was the recovery of the assets over there, and the good banks team was focused on the new model, ecosystems, bundling services, digitalization, and then this perspective stuff, and actually when we implemented it.
We run this exercise through all our clients, and then guess how many clients ended up in the good and the bad bank? Only two clients, existing clients, from corporate clients, they ended up in the good bank. So can you imagine? And this used to be the second biggest bank, in terms of the corporate financing, in Kazakhstan.
So most clients went to the bad bank. So this is, I think, systematically, was the most important decision. Because it allowed us to focus on different priorities. What, I found out it's impossible to simultaneously focus on these two, in a way, contradictory tasks, at least, in terms of the one team.
So this split allowed us to create the framework to proceed. And then what is important, we proposed non-restructuring policy, which was very important. It meant that the board of directors said no to any form of the restructuring, other than the early repayment. Given the Kazakhstani banking practices, it was very new and innovative. Because it was a strong stand against any type of corruption, and ensure that everything is transparent.
At first, most of the borrowers, they tried their luck with us, they tried to approach us. They offered some proposals trying to bend this rule, which is pretty common in Kazakhstan, and restructuring may have very tricky forms. So you may just increase, for another ten years, the tenure of the loan. You may say, "Okay, given the situation with the business, let's lower the interest rate."
Or "Make payments by the end of the maturity not monthly, but let's say once in six months."
So it was very tricky. It looked very reasonable on the surface, and then you always can justify why you are doing this one, but you end up with corruption. So we said and we agreed on the decision makers, on the management side, that no way, because if you do one favor to somebody, then you cannot control.
And, then, as soon as you restructure and somehow involved in this type of questionable type of the practices, then, a borrower knows that he might not return because he's, in a way, in the agreement with the bank. They have this kind of friendly relationship, so it was very important.
So, we said no to these practices, and surprisingly it worked. After people realized that we meant this business, they miraculously found some resources to repay the loans. Because we told them, "Either stick to the agreements—" We didn't sign this, we were new people here, you signed it before with the previous administration. So either stick to this one, or repay and leave us, or if we found that you're doing wrong, you're defaulting, we bring you to the court, and we'll proceed with the bankruptcy or other type of legal cleansing.
So most of them preferred to repay and leave us. They said, "This is something—." And then my team, we ended up with a lot of retention with some people, which we perceived as friends. Politician, judges, members of the parliament, so they said, "Okay, you personally didn't like us, this has nothing to do with personal, this is just the corporate policy." But somehow it worked, and people respected it and they understood that this is the way to do business.
We did it transparently. We announced it, and we stick to this one, we meant it, and we never allowed this type of restructuring. We hired young professionals, as I mentioned, was very important. Because some of the traditional bankers, even in the younger stages, they opposed many changes, particularly the artificial intelligence initiatives, this type of the restructuring, I explained to you.
We hired some professionals, maybe even not with the banking background, but with the financial, particularly from telecom industry. We found a lot of great people. Then we also restructured the whole organizational structure, and this was a very big change. Just to give you a flavor, we had more than 150 branches, across the country, we ended up with 119. So almost 1/3 we managed to optimize, it was a lot of savings. Just bank by itself, employed about 5,000 people, we also managed to downsize.
We had 2.7 million individual clients, customers. So you have to, when you restructure, when you set up a new organizational structure, you should be very careful not to lose them. And, then, about 176,000 small and medium enterprises. So it was kind of the big restructuring, it's not the final list, but just to tell you straight.
Adam: No, I appreciate that. You had to make some really tough calls, especially, when it comes to downsizing and restructuring, and it's difficult. But based on the success of the bank, they were the right decisions, and it's not always easy to make those decisions. And maybe as we wrap up the conversation, you can offer just some advice for people who are saying, "You know what? I'm looking to get into leadership roles."
Sometimes leadership roles can be very challenging, especially, in business environments that you're restructuring things, you're trying to change up things. And maybe based on your experiences, you can give just some advice to the folks who are listening to this and saying, "You know what? If I find my little situation, I can apply some of the lessons that you learned."
Yerbol: This is a great question, and then just to bring one example, you have to be ready if you start this journey. When things go fine, they're okay, usually, this is because of your boss and the board of trustees or the management board. But when things go wrong, usually, it's on you, you have to be ready to accept it, somehow it's unfair but this is the reality. So this is the prerequisite for somebody who would like to try.
In terms of the lessons for leadership and successful implementation. You need to have a vision, a strong vision. Based on the knowledge of your business customers, if you don't have this vision, don't start your journey, this is very important, it's not sufficient.
As soon as you have your vision, you have to clearly communicate and build a shared vision, both with your employees, with your team, top managers, and also articulate this one to the customers, it's very important. It's in a way like the social contract, in the words of the French philosopher Rousseau, around this one you can build something.
But if there is no vision, if it's not shared with your team, you're kind of doomed to fail. So to create this vision, actually, we created, setup Jusan club, and then the Jusan club was very instrumental. It was the monthly gathering of executives.
So we could informally discuss, share our success stories, learn from each other, and in this way you create this oneness. It's not like words people read, but people are usually very skeptical. You need some examples, you need some informal type of the communication, which make them believe into what you are saying. And then when peers share, this is very important, both mistakes and the successful stories.
Investing in the people, very important, particularly in our case because it was, in a way, a completely new business model based on the new technologies, digitalization, so we introduced the chief learning officer. She got a PhD in education from Cambridge University.
So she was very successful, in terms of the assessing needs and training the whole staff, based on the different levels. And we even set up two educational centers to train our own IT personnel. In IT mostly you need some writers of the Python or some coders, and you don't need most of them to be a bachelor or master degrees from universities.
Of course, we tap potential of our universities, also. We'd take the first in the line, in terms of our computing schools graduates so we hired most of them, particularly for the IT department. But in the lower value-added activities, you usually don't need this qualification.
So you need somebody, even after high school, with good skills in the mathematics. So you just train them and then usually three, six months is sufficient, and it's very difficult to find them in the market, actually. So we trained our IT personnel by ourselves. So learning, investing, in the people is very important.
Clear KPIs, very important. Try to stay away from the shadow zones. Try to articulate them as clear as possible. Leave no room for misinterpretation. Address all this gray area because this is your contract and this is your expectation.
So people must be very clear in terms of the expectation, in terms of their duties. Embrace failures, it's inevitable in such type of the new disruptive models. Nobody did it before, so you experiment usually. So don't be very tough on the people, they're learning because you are learning, too. So learn from their failures and their mistakes, don't punish.
Talent focus; I used to have a rule which I called 90 days, usually three months is sufficient to understand. Because some resumes are, sometimes, reading very difficult to understand,
whether it's artificial intelligence prepared it, or people, somehow, in the fancy way, prepared it, but unless you really try them in the field.
So usually 90 days is sufficient to understand whether a person can deliver. Usually if you have some doubts, I provide another 30 days, but by six months it will be sufficient. And then do you have a clear understanding, whether you're okay with the guy or not?
Or maybe you did a wrong decision in terms of the qualification, so maybe just to send to other division. But if not, if it doesn't work, allow this person to leave or do something else. Motivation is very important. Focus is people can perform when they are on the stage. It requires a lot of attention which you cannot do all the time.
So monetary, non-monetary, building the system of incentives, so that is part of the culture, new business culture, very important. So they understand right signals, they know how to proceed. Monetary incentives, also very important, and then hard work, there is no substitute for the hard work. There is no silver bullet. As long as you understand your business, you have a great team, then the hard work is indispensable.
So this is, in a nutshell, the lessons, in terms of the leadership, I learned and wanted to share based on the Rousseau story, and I think people can learn something from this.
Adam: I agree, and Yerbol, I just want to really thank you for sharing your story, on the podcast. I know that the audience can learn so much, and thank you so much for coming on.
Yerbol: Thank you, Adam. Thank you for this opportunity to share my experience, and thank you for having me.
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Creators and Guests
Guest
Yerbol Orynbayev
Yerbol Orynbayev is an independent financial services consultant and former Deputy Prime Minister of Kazakhstan, and is now based in Washington DC. He advises leading financial services and technology companies and has held a number of senior positions in private financial, research, and technology companies. Prior to his consultancy career, Orynbayev served as the Deputy Prime Minister from 2007-2013 and Aide to the President on economic policy from 2013-2015. He also worked as the Governor of the World Bank on behalf of Kazakhstan, and helped to steer the nation out of the Financial Crisis in 2008. He was Chairman of First Heartland Securities and held a number of Board-level roles at the National Bank of Kazakhstan and Agency for Regulations of Financial Markets.