In the two months that he has been with Malaysia’s most profitable newspaper company, Datuk Clement Hii has set tongues wagging in the corridors of Menara Star with some of the changes he has brought about.

He is doing away with a uniform reward system that has been the envy of the industry. He has opened up certain areas at the head office that were previously inaccessible to ordinary staff, including what was once a private lift.

And he is the first chief executive of the politically linked company to give a media interview since it went public in 1995.

“At first, I didn’t know whether it was a good idea to grant this interview. My staff (in The Star newspaper) would say, ‘how come you never gave us the interview but talked to the The Edge instead?’” says Hii, half in jest.

“But since you guys were so persistent, I thought maybe it is an opportunity to tell my side of the story rather than you writing based on hearsay and speculation.”

Former executive deputy chairman Datuk Steven Tan, who stepped down in January after nearly 22 years at the helm, had shunned media attention, somewhat of an irony for a media company.

But there was a reason for it.

Publicity sometimes draws unwanted attention for a politically linked media group such as Star Publications (M) Bhd, which is 42%-held by the Malaysian Chinese Association or MCA through its investment arm Huaren Holdings Sdn Bhd. And when you make more money than all the other newspaper groups, including those owned or linked to Umno — like The New Straits Times Press (M) Bhd and Utusan Malaysia (M) Bhd — put together, it could become controversial.

Hii, the founder of education group SEG International Bhd, was hand-picked by Datuk Seri Ong Tee Keat who was elected MCA president last August to give Star a fresh impetus.

His only media experience was a short stint as the first chief editor of the East Malaysia-based Borneo Post some 29 years ago.

Hii, 50, describes his joining Star as a sort of “homecoming” as a newspaper man.

But it will not be an easy homecoming. Whether he likes it or not, Hii will be compared to his predecessor Tan, who has a solid track record, having steered Star from a loss-making company to market leader with strong earnings and rich returns for controlling shareholder Huaren.

Under Tan’s stewardship, The Star overtook its 164-year-old rival New Straits Times to become the most widely read and profitable English daily, with a circulation of more than 300,000 copies a day. It now sits on a cash pile of around RM600 million.

And Hii has taken over at a time when the high growth of the past decade is tapering off and the country is facing an economic crunch that could last at least two years.

He is certainly aware of the challenges lying ahead of him. Stepping into Tan’s shoes, he could have easily opted to conduct the business the way it was done all these years. But Hii is taking a different approach and is determined to make drastic changes where needed.

“There was no leadership change at Star for a long time (and) Huaren believes complacency may have set in. So, maybe it was time to bring in someone new, to bring new ideas, new energy into the company,” Hii says when asked about the rationale for the change of guards.

“If the group is doing well, we have to move fast to pre-empt any slide,” he adds.

Some of the changes he has made are symbolic but significant nonetheless. Immediately after he assumed his post, Hii opened up a lift, reserved exclusively for the use of his predecessor and VIP guests, to all employees.

“I maintain the philosophy that my colleagues and I are equal. This company is not my personal property. I eat in the canteen and drop by the offices of some of the junior executives. These little gestures became news in the company. I guess staff are not used to such occurrences,” says Hii at the interview in the Renaissance-style office he inherited on the top floor of Menara Star.

“Everyone can (come up to my floor and) see me in my office,” he adds.

While that scored him some points with the staff, his decision to cut costs and do away with what he calls the “socialist” system of rewarding employees may not be popular.

 By a socialist system, he meant Star’s practice of giving all employees a uniform bonus  regardless of individual performances.

“I don’t believe in giving the same rewards to the deadwood and non-performers compared to those who have toiled hard for the company. The staff has heard it from me loud and clear. Everyone will get KPI (key performance indicators) to measure his or her job performance,” says Hii.

He has hired KPMG to come up with a set of KPIs in order to implement the merit-based reward system.

Also on the chopping block is the practice of extending the employment of retired staff, which will now be more carefully done.

“I’m now prudent about hiring new staff and renewing contracts for those who have retired. No one is indispensable,” Hii says.“Many key people or heads of department are nearing retirement age. If we don’t start grooming the younger executives immediately, we will be in trouble a few years down the road.”

Hii stresses the need to trim the “fat and excesses”.

As a large media organisation with annual operating expenses of more than RM600 million (the bulk of which is fixed staff costs), Star now faces an economy that will slip into recession and cause a slump in advertising revenue.

Cost efficiency is definitely crucial for businesses to stay above the water and it is no different even for a highly profitable outfit like Star. Just look at what happened to highly regarded and profitable companies like Toyota Motor Corp.

“There has been a slight drop (in advertising revenue). We have put in place a lot of mechanisms to make sure our circulation doesn’t fall below 300,000 copies a day and our advertising revenue does not fall by (more than) 3% to 5% year on year,” says Hii.

According to Nielsen Media Research, total advertising expenditure (adex) inched up 2% y-o-y in January. The minor growth was better than expected given the unfavourable economic climate. However, advertising agencies are not upbeat about the whole year and they expect adex to be hit by negative growth. In fact, early indications are that adex for newspapers was already down by around 20% in the first two months of the year.

New culture
The change of the reward system signifies Hii’s intention to instil a new corporate culture in Star, which was established in September 1971 as a Penang-based newspaper by a group of politicians and businessmen with the support of the country’s first prime minister Tunku Abdul Rahman. After several years of struggling financially, the MCA took over the paper in the late 1970s and moved its base to Kuala Lumpur to take on the mighty NSTP.

A large number of employees, especially heads of department, are veterans who joined in the 1980s and earlier. A culture change is no easy job, but not impossible.

“Human beings, by nature, are resistant to change. But when change comes, I think most people accept it as long as they realise they are not being victimised or targeted. If we don’t change, we could end up where we don’t want to be,” he says.

Declining adex, coupled with the increasing migration of newspaper readers to the Internet, is posing a major problem for all newspaper companies.

After years of impressive growth, Star’s profit growth, analysts say, has become stagnant in recent years. Hence, they expect it to be an uphill task to generate even a minor 5% top-line growth.

Looking for new related income-generating businesses is certainly a top priority for Hii to mitigate the slowdown in adex. More importantly, this is to reduce dependence on a single product, namely The Star.

The group’s multimedia division, which Hii calls new media, will be one focal point for business development. “This is to keep pace with the migration of print to multimedia,” he says.

Although the advertising dollar for online media is not growing as fast as in some developed countries and its contribution to Star remains minimal, Hii realises that the group has to be ready when new media picks up.

“People are still reluctant to advertise online. (But) certainly, I have to take into consideration the future landscape of Star,” he explains.

On its radio stations, Hii says the group will consider a listing exercise for the division, which is already generating profit, in two to three years.

“The Chinese radio station 988 is doing very well. But we need to work hard on Red FM and Suria FM… hopefully, both can break even in a year or two,” he adds.

Hii has also set his sights on expanding the group’s non-print business.

Star already has several Internet portals. According to Hii, the group is looking to acquire other Internet portals specialising in property information and advertising, online recruitment websites, online shopping and others to strengthen and complement its existing portals.

Star can well afford to expand its business as it had a cash pile of about RM622 million as of Dec 31, 2008.

However, whether the new investments will yield lucrative returns is an issue for the media company.

Star has yet to see much success in the non-core businesses it purchased in the past. The most recent acquisition is the 63.7% equity stake in Singapore-based Cityneon Holdings Ltd — an event and exhibition service provider — last year. This was the last deal under Tan.

To win the bid, Tan had upped the offer price to 61 Singapore cents a share from 58 cents. The purchase cost the group about S$36 million (RM80 million). Due to the decline in asset prices worldwide, Star has written off RM20 million in goodwill on the investment in Cityneon.

“I hope this will be the last time we need to do something like that,” says Hii.

Star’s net profit has grown over the years, to RM138.9 million for FY2008 ended Dec 31, from RM38.17million in FY1995. Such profitability has provided good dividends for shareholders, including Huaren.

Ensuring a constant flow of dividend payments is probably an important mission for Hii to achieve as Huaren is dependent on this cash flow. For FY2008, Huaren will get about RM62.6 million in dividends from Star, based on what has already been announced.

After climbing to No 1 position more than a decade ago, the corporate culture at the Star — as it raked in double-digit profit growth year in and year out — became: “If it ain’t broke, why fix it?”

It is a corporate philosophy that Hii, who  has probably read Who moved my cheese?, does not buy.

But will his effort to take Menara Star out of its comfort zone yield the desired results?

Following is an excerpt of the interview with Hii.

The Edge: How did you end up running a newspaper company from running a college? How did it happen?
Hii: I started my career in journalism, so my coming into Star is sort of a homecoming. Media and education are both competitive industries where innovation and branding are crucial elements and both carry heavy social responsibilities. In the media industry, you don’t misinform, you have the role to inform accurately. I was first offered a board seat as a non-executive director and was appointed executive deputy chairman at the subsequent board meeting on Jan 13, 2009.

The perception is that the position is a political appointment by Datuk Seri Ong Tee Keat, the president of MCA, which is the single largest shareholder of Star. Your comments, please.
Huaren Holdings (Sdn Bhd), MCA’s investment arm — which is the single largest shareholder — nominated me to Star’s board. I think Huaren feels that it is time for someone to give Star a fresh perspective. I am a non-politician although I have many friends who are politicians on both sides of the political divide. At the end of the day, we will all be judged on what we have achieved, not on who we know and what we could have done.

What was the staff’s reaction to your appointment? What’s your management style?
Everyone has his own style of management. I call a spade a spade. But I am also quick and keen to identify and bring up those who perform. A staff member can’t be judged or sidelined based on his or her political inclinations or whom he or she mixes with. Those, whether externally or internally, who had expected a bloodbath in the management and editorial teams when I came in were clearly disappointed. I have not changed any head of department and I have not put in my people. I don’t change people for the sake of changing.

You took over from Datuk Steven Tan who is widely credited with turning Star into the most profitable newspaper in the country and at a time when there is a slump in the economy and advertising spending. Some may say it is a ‘double jeopardy’. What are your views on this?
Double jeopardy or triple jeopardy… Datuk Steven Tan has retired but the core team of Star remains intact. Datin Linda Ngiam as managing director/CEO continues to oversee the day-to-day operations and most of the heads of department are people who have been with the company for decades. They have all contributed much to the success of Star over the years. I believe that if the company is successful, it should be a team effort. Nevertheless, it is a difficult time and we have looked again at our priorities and creating new revenue streams. These are areas where I believe I will spend a lot of my time.

How has it been these last three months? What have you been focusing on? What changes have you instituted or what messages have you sent out to the staff? We heard you have opened “lift No 1” for everybody to use.
I am coming to grips with the structure and inner workings of the organisation. The company will do away with the so-called “socialist policy” of giving the same bonuses and incentives to all employees across the board. I don’t believe in giving the same rewards to the deadwood and non-performers and those who have fought and toiled hard for the company. The staff has heard it from me loud and clear, that everyone will get KPI (key performance indicators) to measure his or her job performance.

The second and third liners should have a chance and a platform to show their worth. Many key leaders or heads of department are nearing retirement age, and if we don’t start grooming the younger people immediately, we will be in trouble a few years down the road.

As for opening up the lift (previously) reserved for the executive deputy chairman, I maintain the philosophy that my colleagues and I are equal. This company is not my personal property. I ate in the company canteen and dropped by the offices of some of the junior executives, and those little gestures became news in the company. I guess the staff are not used to such occurrences.

What have you concluded to be Star’s strengths and areas where improvement is needed?
Star’s greatest assets, I feel, are its overall staff strength and its brand name, which we have built over the years. We have to review our costing in view of the soft market conditions. I intend to cut the excesses and fat — because they do exist after the many good years — to make Star more cost effective.

Is the era of high revenue and profit growth enjoyed by Star in the last 15 years over? If yes, how do you plan to address it?
We will do everything within our capacity and capability to maintain our position as the No 1 English newspaper. New related businesses that can contribute to overall revenue are being looked into very seriously, and that includes strengthening and growing the multimedia component of the group. This was my top priority when I came in — we call it the new media. This is to keep pace with the migration of print to multimedia. The migration of advertising dollar from print to online is not as fast in Malaysia compared to other countries. The revenue is not that big. But we have to be prepared when the time comes. The crux of our business, however, is still as a news and information provider. Certainly, I have take into serious consideration the future landscape of Star.

Critics say Star is very successful but is essentially a one-product company. How is your Internet business doing in terms of revenue and profit?
We are developing new products and have acquired a few companies as part of our expansion and diversification. We have radio stations, we have a company that does human resource development (Leaderonomics Sdn Bhd), the exhibition company in Singapore (Cityneon) and so on. Star Online and mStar are the fastest growing divisions. Star Online has about 52 million page views while mStar has 3.5 million hits per month. I believe Star will stand up to the competition from the news portals and blogs. We advocate consistency, quality and reliability. You don’t get too much of that on the Internet nowadays. People go to the Internet for speed, for alternative views. But at the end of the day, they still come back to mainstream media for consistency and reliability. I think print media (referring to conventional mainstream media organisations) still has a future in Malaysia and elsewhere because we are very firm on the quality and reliability of news.

Talking about the major challenges facing  print media players…
The least we at Star should do is maintain our No 1 spot in the industry as the leading newspaper and ensure the circulation figure stays much ahead of our rivals and of course, bring in more revenue. Our circulation still maintains at above 300,000 copies… well… theSun says it has the same figures, but at the end of the day, advertisers are the ultimate judges in terms of the effectiveness of advertising through Star.
 
Is the radio station business profitable?
The Chinese radio station, 988, is profitable and doing very well. We need to work harder on Red FM and Suria FM... hopefully, both can break even in a year or two. We may look at listing our radio division on Bursa Malaysia in two or three years’ time. Overall, the radio division is profitable, with a few million in profit.

In hindsight, was it a bad time to buy the Singapore exhibition company Cityneon Holdings Ltd?
That was a decision made by my predecessor. Cityneon is a good company with good prospects. We believe the economic downturn will not have a big impact on its earnings. However, we have just written off over RM20 million in goodwill in our recently announced financial results for 2008 for our investment in Cityneon, and I hope it will be the last time we need to do something like that.

Can you talk a little about your time as editor of Borneo Post?
I was hardly 21 years old when I was appointed the first chief editor of Borneo Post, to start the newspaper from scratch. One of my deputy editors at Borneo Post kept telling me I looked very familiar, and I didn’t have the heart to tell him that he was actually my Form Three English teacher. I was in journalism for less than four years, before I plunged straight into business. I was a young man in a great hurry. For the rest of the story, maybe we can leave it for another day.

Back to the media industry. The print media is not seeing growth. What are the measures you have taken to stop the slide? How soon can the non-print media business contribute substantially to the group and what are the opportunities you see in this segment?
The market conditions are very soft. We are going all out to tell our major advertisers that this is actually a good time to show your presence and build up your branding whereas your competitors try and take a back seat. When you are in a crowded place vying for attention, you can hardly get the attention you deserve. But when a lot of people back away, this should be the time for you to come forward promoting your brand and image. As for the other areas, especially the multimedia component of our business, based on the hits and page views that Star Online has, the income currently does not commensurate with the response we get to the website. This will not happen overnight. I believe that if we can improve on the content and build a stronger marketing team, we can attract bigger revenue in the future. I have discussions with my management team, we are looking at certain portals — property portal, job portal, E-shopping mall and so on… we already have such portals but they are not really standing out in terms of competition. So we have to put more effort either by improving our existing portals or acquiring new ones.

Star has a huge cash reserve of more than RM600 million. Are you looking at more acquisitions? Having said that, Star has a RM200 million bond. Will you refinance the bond or settle it next year when it is due?
We are going to pay off the RM250 million bond next year because our fixed deposit rate is so low. So, after that, our cash reserves will drop to RM300 million to RM400 million but by next year, we would have more money given our operating cash flow (of about RM200 million a year). Given the current economic situation, we have to be careful how we are going to spend our cash. But having said that, that does not stop us from looking at good opportunities. My main objective is to bring in new revenue streams. You have mentioned that we are a one-product company. I hope that we can reduce dependence on print in the years to come.

So, acquisitions will be more in media or non-media-related businesses such as Cityneon?
Even exhibition, I would consider it as one of the media businesses. Online portals and all that… they are all media. In general, we are looking at new businesses that would have synergies with the group. We should have a good head start in these businesses with the backing of Star, a strong company, whether in terms of financial backing or in terms of getting the right people.

How much has the advertising revenue fallen over the last couple of months?
There has been a slight drop; it’s still too early to say because now is only early March. We have put in place a lot of mechanisms to make sure our circulation does not fall below 300,000 copies a day and our advertising revenue does not fall by 3% to 5% compared to last year. On the other hand, we are also more careful in our spending, our expenses, and by having a leaner and meaner staff force. We are more stingy now, in terms of recruitment of new staff or renewal of service of those who retire. These are the areas where I think we have to be more careful about.

How many months’ worth of newsprint is Star sitting on? Six months?
Star now has 15 months’ worth of newsprint stock, which is too much. I am going to bring it down to six months. I am not going to buy more in the next eight or nine months. I want to conserve more cash. We have a committee. Well, since I came in, I haven’t made a single purchase.

Can you elaborate on doing away with the ‘socialist’ reward system?
Now, everybody gets the same two months contractual bonus and, say, three months’ ex-gratia. But with the KPIs, it’s good for those who have performed because instead of three months’ ex-gratia, maybe now you can get five months or more. So, three months will not be the maximum. Depending on your performance, you will get anything from zero to five months. Down the line, I think people should accept the challenge. Star as an organisation has been very successful. There must be something that they have done right all these years, but I think nobody is indispensable, and you have to put a proper structure in place. So whoever comes in after me will inherit a very structured organisation based strictly on merit, moving forward. We have appointed KPMG advisory services to come in, to give us their perspective on the whole works and give us their recommendation… at the same time, I have set up a steering committee to look into this. We are serious in taking the bull by the horns, especially in difficult times like these. The KPIs will be put in place this year so that by the end of the year, we can assess the staff on merit, and for the ex-gratia to be distributed accordingly next year.

What has been the reaction of the staff to the KPI system that is going to be implemented?
Well, human beings are resistant to change by nature. But when change comes, I think most people would accept it as long as they realise that they are not being victimised or targeted. They all have to realise that change is a continuous and ongoing process. If we don’t change, we could end up where we don’t want to be one fine day.

Aren’t you worried that staff morale would be affected with the merit-based reward system you are implementing?
I think those people who have anything to fear are those non-performers, hiding behind the skirts of those who perform. I am being very straightforward. I know that in management meetings, people view me as too serious and too direct. But I suppose they need to get used to the (new management) style. I know after so many years, they are used to a certain culture but if you have a new team in place, obviously they have to make adjustments. Having said all that, I think most of the key people are very good staff, who have really contributed to the success of Star over the years. In fact, Datin (Linda Ngiam) and I are looking at giving some of these key people greater responsibility and job scope to enable them to be identified for bigger things in the future. Instead of taking care of one department, they can be harnessed to oversee a few departments. This is not about bringing in new people, it’s about strengthening the human resources that we have.

Star now has four executive directors. How do you sort out the responsibilities between yourself, Datin Linda Ngiam and Ng Beng Lye?
Ng has been tasked with overseeing all our subsidiaries, such as the radio businesses and the Singapore company. It’s very important to have a person from the holding company to monitor and help grow these subsidiary companies. At the end of the day, whatever losses or profits they make would be consolidated into Star’s accounts. Datin Linda Ngiam handles the day-to-day operations. We have sorted it out. We work as a team. We have so much to do. We have agreed on each other’s responsibilities and job scope. We have to capitalise on each other’s strength. For me, I am looking at new business development, corporate matters, and I have a few departments reporting directly to me, for instance, finance and human resource. In general, my responsibility is to make the company a leaner and meaner organisation, and take it forward to greater heights, based on new perspectives, new ideas.

How long do you see yourself being at Star?
I will be here as long as I am needed... this is the political way of saying things, huh?

As you know, Datuk Steven Tan’s remuneration package has been the talk of the industry. What is your remuneration package?
Directors’ remuneration in a public-listed company is public knowledge. You will know when Star releases its annual report. I don’t ask how much your pay is! (laughs) I am not here to judge (how much Tan was getting), I am happy with what the board of directors has offered me.

How does Huaren influence management in terms of finances, for instance, dividends, and editorial policy?
Dividends are decided by the board of directors based on cash flow and the company’s needs; I don’t even have contact with the directors of Huaren. Editorial policy... is the problem. People ask, ‘what is your editorial policy?’. I told my editorial people — you must do the right thing and do it right. That is what you need to do always. I mean, how do you put a policy on paper, who do you support, who do you not support, are you referring to that? We have a role to play in nation building, that is foremost, and we need to be mindful of the needs of the rakyat. Sometimes, the media tends to do sensational stories just to get readers but I think in the long run, this doesn’t work. We have to stress quality and reliability. Of course as a newspaper, as you guys would know, we can’t please everybody.

Are you involved in editorial matters since you have the experience of having headed Borneo Post?
We have a very strong editorial team, where some are good columnists and good writers. I leave it to the editorial team to do their job. I would only contribute my ideas if there is some added value. Otherwise, the professionals should be left to do their job. I tell each and every member of the editorial staff that they don’t need a commission to do a good job.

How did you get to know Datuk Seri Ong Tee Keat? How did you get this position?
I didn’t know this position was so convoluted until I came in here. I didn’t know it was so coveted until I came here. I thought it was just another challenge, another job. You see, the chairman now, Datuk Leong Tang Chong is not really known as a supporter of Datuk Seri Ong Tee Keat. And Tan Sri Dr Sak Cheng Lum (a director) is known to be very close to Tun (Dr Ling Liong Sik). So they are all still here (on the board). There is a lot of speculation. Everybody thinks I will bring in new editors and all that, but nothing like that is happening. It’s just that... after so long without leadership change at Star, Huaren may believe that complacency may have set in. So maybe, it is time to bring in someone new, to bring in new ideas, new energy to the company.

If you talk about complacency… from what perspective? We all know that Star is the market leader, is making good profits and has strong cash flow…
So, are you saying that if it is doing well, don’t touch it? There’s a different way of looking at it. If it is doing well, before the slide starts, move fast and stop the slide and bring it to greater heights. There are always two ways of looking at things. The good years have been there for a long, long time, all the staff are enjoying all the benefits. As a result of those good years, fat and excesses could have occurred, without people realising it. You need an outsider to come in, who doesn’t know most of the people in the company, to be able to take an impartial perspective of the whole organisation.

What is the age profile of the editorial staff?
A lot of them are approaching retirement age. A lot of them, not just the editorial staff. A lot of these people have been with the company 20 to 30 years or more. There must be something in Star that has kept the people here working for so long. These are talents, these are experienced people, but on the other hand, you need to bring up the younger people. If the older people never go, the younger people would never have the chance. I am trying to remedy this as soon as possible. Those with the ability should be given the chance to shine, will be given the chance and the platform to shine. And I believe many of them will rise to the challenges.

Is there a firm decision that Star will freeze hiring for now or not renew the contracts of those who have reached retirement age? Otherwise, how are you going to get new talent or retain the talent you need?
No. It’s just that we are now more stingy. We are more selective in hiring new people as well as renewing the contracts of those who have reached retirement.

This article appeared in the Cover Story page, The Edge Malaysia, Issue 747, March 23-29, 2009