Institutional Knowledge

“I’m kind of a Bishop nut,” says Don Horner, the president and CEO of First Hawaiian Bank, standing in the small conference room adjacent to his 29th floor offices.

There, Horner has created a modest shrine to the bank’s founder, the remarkable Charles Reed Bishop. Housed in a glass case is a small collection of documents and mementos from a career in banking and public service that spanned nearly 50 years and five Hawaiian monarchs.

“We’ve got Mr. Bishop’s general ledger from when he got off the boat in 1846,” Horner says, referring to a vest-pocket account book, which lies open beneath the glass. The ledger, in Bishop’s own meticulous hand, shows that he arrived in the Islands with $75 in his pockets. Also among the artifacts preserved here is the first general ledger of Bishop and Co., the institution that would eventually become First Hawaiian Bank. A quick glance reveals that deposits on Aug. 17, 1858, the day the bank opened, amounted to $4,800. “I love this history,” Horner says. Then he adds, “Because it’s important.”

We agree.

In 1983, to help commemorate the bank’s 125th anniversary, First Hawaiian published a slender book called “Tides of Commerce,” which celebrated the bank’s role in the commercial history of the Islands. Coincidentally, that was also the year Hawaii Business first published its list of what began as the Top 100 companies. Since then, the list — which quickly grew into the Top 250 — has served as an annual portrait of Hawaii’s biggest and most successful companies.

Now, 25 years later, it seems like a good time to look back and reflect on our own record of commercial history in Hawaii. To help us, we sat down with the CEOs of some of the companies that have been on the list from the beginning. These executives must be doing something right, after all, only 16 percent of the companies on the original 1984 Top 250 list have been on the Top 250 every year since. We wanted to know what it means to be a Top 250 company — what does it mean today, and what did it mean 25 years ago? How has doing business changed in the past 25 years? And what are the responsibilities that go along with being one of Hawaii’s largest companies as we look to the future?

Technology

Several themes emerged again and again in conversations with 25-year Top 250 veterans. The first is leveraging new technology. Don Horner puts the change in perspective, “You have to remember, 25 years ago there was no word processing, no personal computers; there was obviously no email, no cell phones or any of those kinds of devices.” These new ways of exchanging and managing information have touched all businesses.

First Hawaiian was quick to embrace the new technology. “We were the first bank to have ATMs; now we’re working on the technology to accept Chinese debit cards — and the Chinese aren’t even here yet,” Horner says.

Horner clearly has a personal affinity for the tech side of business. He points out, “I was the first guy in the bank to have an IBM PC. I was the first to have a Blackberry. I’ve never seen a process I didn’t want to tinker with.” Horner adds that banking remains a relationship business. Nevertheless, technology has had a major role in a stunning increase in productivity at the bank. “I went back and read the 1983 annual report,” he says, “and it really helped me reflect on the times. Back then, we had just over 2,100 employees; today, we have just over 2,200. Yet, the size of the company is five times what it was then. So, we’ve gone from $2.6 billion in assets to $12.8 billion with just a modest increase in staffing. More important, our earnings are up 10 times. In that year, we made $21 million; this past year, in 2007, we made approximately $207 million.” First Hawaiian parent, BancWest Corp., is No. 1 on this year’s Top 250 list, extending a reign that began in 2003.

Probably all of the Top 250 companies have had to embrace technology — though each perhaps in its own way. For some companies, high-tech means hardware. Clark Morgan, CEO of Alaka‘i Mechanical, wanted to show us his plasma-cutting table, his spiral machine and what he calls the “pièce de la résistance,” an enormous Rube Goldberg machine that converts giant spools of galvanized sheet metal into finished ductwork. “It would probably take 50 times longer to manufacture the same product by hand,” Morgan says of the $800,000 machine. And yet, despite the efficiency of this machinery, it has been the company’s investments in information technology that have really driven growth. Sophisticated software called Building Information Modeling (BIM) now coordinates projects from start to finish. “I don’t think we do any hand drafting anymore,” Morgan says. “It’s all on the computer.” BIM allows an estimator to quickly create an invoice for a project, or an engineer to automatically send a list of parts to the plasma cutter down on the work floor. Not bad for an old-fashioned HVAC contractor.

Other unlikely industries have benefited from the advance of technology. John Schapperle, the CEO of Island Insurance, says, “The ‘Information Age’ has really impacted us — especially in the last 10 years.” Over the years, the programs and systems needed to process claims and assess risk have become increasingly complex and sophisticated. “Now, we’re a very high-tech industry,” Schapperle points out. “We’ve got the best equipment and personnel we can buy.” Eventually, the IT division found that its expertise in numbers crunching and managing data was also in demand beyond the halls of Island Insurance and it began to contract its services out to other companies. In 2002, Island Insurance spun the division off as Hoike, a separate business under the parent company, Island Holdings.

Continuity

Another theme that came up in many of our conversations was continuity. It was an idea that took many forms. For Allen Doane, CEO of Alexander and Baldwin, continuity means knowing who you are as a company. “The rest of the Big Five — AMFAC, C. Brewer, Theo Davies, Castle & Cooke — they’re all gone,” he says. “We’re the only one left, but we’re thriving.” To explain why, he points out, “We’ve kept our focus. If you look at what we did 25 years ago — transportation, real estate and agriculture — we’re still doing those things. We’re just doing them in a lot more places.” Indeed, A&B has grown dramatically over the past 25 years; but it has been, as Doane describes it, “growth around what we already know.”

“The rest of the Big Five … they’re all gone. We’re the only one left, but we’re thriving.”
Allan Doane
, CEO, Alexander and Baldwin

“Because we’re really good at moving containers around,” Doane says, “the first thing we did was establish a logistics division. Basically, we’ve got a business where we act as a kind of middleman. We hire trucking companies and railroads and air freight companies to handle the intermodal shipping needs of our customers. That started about 10 years ago as a backroom function. Now, 90 percent is no longer a backroom function — it’s a business called Matson Integrated Logistics.”

The company’s real estate operations underwent the same kind of scrutiny. Twenty-five years ago, A&B only had projects on its own property, which was a major limit to growth. “We’re a large landowner,” Doane says, “but, even as a large landowner, we only own about 2 percent of the land in Hawaii. We looked at that and asked ourselves, ‘Why not use our knowledge elsewhere?’ We can do what we’re doing outside of the land that we own. For example, 10 years ago, we didn’t do anything on Oahu, because we didn’t own any land on Oahu.” Now, A&B has projects not only on Oahu and the Big Island, but scattered across the Mainland as well. “We’ve reinvented ourselves around what we already were,” Doane says.
Just being local is another kind of continuity.

Many of the Top 250 companies are home grown and still family-run operations. Some, like Island Insurance and Alaka‘i Mechanical, state flatly that they only do business in Hawaii. Similarly, Carl Liliequist, the CEO of Honsador Lumber, points out that, even though Honsador has a transshipment facility in Portland, “All our revenue is generated here in Hawaii.”

But being “local” is becoming harder and harder to define. A growing number of the Top 250 companies now have out-of-state ties. In 2004, for example, Honsador was purchased by Key Principal Partners, a Mainland private investment firm. Still, Honsador’s Hawaii bona fides are legitimate. As Liliequist puts it, “This company is committed to Hawaii. We don’t have any interest in any other markets. And we have great owners who have invested a lot in this business.” In addition, Jim Pappas, the longtime Hawaii businessman who sold Honsador to Key, remains with the company as an active board member and a kind of local touchstone for Liliequist. In much the same manner, Robert Wilkinson, the outgoing CEO at Grace Pacific, benefited from the mentoring of the late former chairman of Grace Pacific, Dwayne “Nakila” Steele.

Kyo-ya, the Japanese-owned hotel and property company, is an example of a foreign company that has acquired local status. “In the 1960s, when Kenji Osano began to buy hotels in Waikiki,” Horner says, “people thought he was a poor businessman. But he was really a visionary.” Osano died in 1986, but Kyo-ya is still very much a Hawaii company — perhaps even more so. Ernest Nishizaki, the COO, is in many ways the quintessence of local management. “My first job in this business was in 1966,” Nishizaki says. “I was a busboy in the Monarch Room at the Royal Hawaiian. In 1993, I became the first local to be general manager of that hotel.”

Part of the sense of continuity at Kyo-ya comes from simply staying put. While other foreign and Mainland owners have come and gone, prey to hard times or quick profits, Kyo-ya has been a durable part of the community. Nishizaki arrived as COO in the midst of Kyo-ya’s decade long reinvestment in its Waikiki properties. “Since 2005, we’ve invested $65 million in renovations at the Sheraton Waikiki,” he points out. “The renovation at the Royal Hawaiian is projected to cost $40 million to $50 million. And, on the Moana, we spent like $25 million, and we’re still finishing up the spa.” That’s the kind of steady, committed investment of a local company, albeit an honorary one.

Of course, local is as local does. First Hawaiian, which is now a subsidiary of the French financial conglomerate BNP Paribas, is an excellent example of a foreign-owned company with decidedly local roots. Horner frames the issue nicely: “There has always been Mainland or foreign investment in Hawaii. There’s just not enough capital here.” But he doesn’t see out-of-state investment as inherently bad. “I call it ‘smart money,’” he says, listing large Mainland companies that have invested heavily in Hawaii in recent years: Costco, Walmart, Walgreen, Whole Foods. He adds, “Over the years, Marriott’s probably invested a billion dollars here.” According to Horner, the issue isn’t, “Is it good to have outside investment?” The question is “Do they have local people making decisions?”
“If not,” Horner says, “that’s probably not good for Hawaii.”

Giving Back

Perhaps the most common motif in our conversations with Hawaii’s CEOs was the chorus for community service. According to Robert Wilkinson, a man who, before coming to Grace Pacific, spent decades as a corporate executive in cities across the Mainland, “There’s more charity here than any place I’ve ever been. It’s almost expected of you as an executive to spend time in community affairs. And I think that’s a good thing. That’s Hawaii.”

Nick Cutter, the CEO of Cutter Management, puts it another way: “Aloha is alive and well here in Hawaii. When times are tough, you’ve got to give back. That circle is what keeps an island community going. You can’t just take out.”

Of course, each company views community service through its own prism. Like several of the Top 250, A&B, through its foundation, has channeled millions of dollars into community nonprofits. But the company’s range of community involvement is much broader than that. Doane gives a fascinating example: “Last week, we did something that, for us, was quite significant. We held a global climate-change symposium here. We got everyone together and brought in some experts to talk about the problem.”

“The world is coming unraveled,” he added. “No one wants more CO2 in the atmosphere. So we wanted to talk about what we do as a company. The point is, we’ve committed ourselves to figuring out ways to reduce it. We’re not going to wait for the regulators to tell us what to do.”

Corporate charity is clearly a source of pride among the Top 250 CEOs. Horner notes, “To this day, First Hawaiian Bank is the largest corporate giver in Hawaii — by a pretty large margin. Last year, we gave out $3.5 million. What’s more impressive, though, we have something called Kokua Mai, which is an employee campaign to raise money for charities. Amazingly, 90 percent of our employees participate in that. Last year we raised $550,000, just from employees alone.”

And for many CEOs, community involvement starts with taking care of your employees, especially when times are hard. Nick Cutter puts it succinctly: “As president of this company, I’ve got a responsibility to my employees. Their bills don’t go down just because new-car sales have gone down. So we don’t do the layoff thing. I’m always telling my managers, ‘Protect your employees. In hard times, if a couple leave, don’t replace them. Let the 12 who have been with you earn a paycheck.”

Horner likes to cite what he calls the “core values” of First Hawaiian Bank. “The first priority is the employee —you’ve got to take care of your family. The second is you’ve got to take care of your customer. And the third priority is to take care of your community. And I think if you take care of those three first, the shareholder will be taken care of, too.” Standing in the little museum on the 29th floor of the First Hawaiian Bank Building, Horner tells a story about Mr. Bishop to emphasize his point. In 1876, Bishop and Co. moved into a brand new building on Merchant Street. The traditional thing when you have a grand opening is to have a big party. But Bishop took a different route. He quietly donated to several charities. Horner would have you believe this is good business.

We agree.

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