As noted by McKinsey Quarterly, Mubadala Development Company is a study in contrasts. An investment company with assets of $24 billion, its businesses deliver both strong commercial and social returns—reflecting the government of Abu Dhabi’s policy agenda. Its subsidiaries span multiple industries, including aerospace, energy, health care, hospitality, infrastructure, real estate, and technology—and while its sole shareholder is the government of Abu Dhabi, it has announced plans to take several of its local subsidiaries public in the next decade. This makes it a virtual incubator of companies that the government expects to play a critical part in the economy that Abu Dhabi is building.
Among the most distinctive contrasts at Mubadala is its charter’s mandate that it should not only be profitable but also lay the foundations for a diversified economy in the Emirate. Its mission is closely aligned with Abu Dhabi Economic Vision 2030, an official document mapping out the Emirate’s primary development areas from a government perspective. In an era when companies around the world seek to integrate social values and the public interest into their business models, Mubadala stands as a vivid example. Its mission and structure are built around what it calls a “double bottom line”: pursuing opportunities that could deliver both strong social returns and commercial profit. In a July 2010 interview, Mubadala’s chief operating officer, Waleed Al Mokarrab Al Muhairi, spoke with McKinsey’s Zafer Achi about Mubadala’s role in Abu Dhabi’s economic development and the trade-offs the company makes to fulfill seemingly competing mandates.
Here is an interview conducted by McKinsey Quarterly:
The Quarterly: How do Mubadala and Abu Dhabi’s development fit together?
Waleed Ahmed Al Mokarrab Al Muhairi: The Abu Dhabi Economic Vision 2030 is a directional blueprint that maps out the primary areas of development for the Emirate. Its purpose is to enable the Emirate to, among other things, shift the balance of its economy from one primarily reliant on hydrocarbons as a source of GDP to one in which nonhydrocarbon industries will play a much larger role. If you look at the different priority areas where Mubadala deploys its capital, you’ll see that there’s a very good fit between what’s articulated in the 2030 vision and what we do. We invest in highly innovative industries that play to Abu Dhabi’s strengths and competitive advantages, such as those that are capital intensive or rely on world-class logistics. Such industries help meet our aspiration to increase innovation and the role of intellectual property in the Abu Dhabi economy.
The Quarterly: How do you meld the pursuit of economic wealth and of strategic social goals in the public interest?
Al Muhairi: We look at a number of filters as we debate the Abu Dhabi Economic Vision 2030 and figure out what makes sense for Mubadala. Those filters range from goodness of fit—meaning playing to our strengths—to things like how significant a sector could be over time and the types of jobs an investment might create. We take a very deliberate approach to picking sectors, picking clusters, and understanding what’s needed to get from a large investment to a thriving, productive contributor to and, ultimately, driver of the GDP and the economy.
Take our investment in Emirates Aluminum. This joint venture between Mubadala and Dubai Aluminum is constructing the largest single free-standing smelter in the world. Phase one is already operational, and we think we’ll be able to reach 1.5 million tons per annum over the next few years, with an aspiration to be a top-three or -four producer worldwide. This investment was a good fit: aluminum is an energy-intensive business and relies on a multifaceted transport infrastructure, both of which we have. It also creates the type of employment we think will be quite beneficial for Abu Dhabi. So in many ways, it meets our priorities. Now, there are many opportunities for deals we might make to support Emirates Aluminum once Mubadala has firmly established itself in that space. For example, we want to diversify and secure our upstream supplies. We don’t necessarily have a target in mind, but we will look for potential transactions.
The Quarterly: Does any part of Mubadala invest for purely financial returns—without a strategic objective?
Al Muhairi: Yes, although all our deployments of capital, even from a financial perspective, have had a strategic twist. For example, our investment in General Electric has certainly turned into not only one of our largest, and most important, deployments of capital on the financial-investing side but also into a very strong and very strategic relationship—as a result of the framework agreement that we’ve put in place. So what started out as, “Hey, we think it would be a great idea for you to invest in GE,” ended up with the creation of a significant joint venture, Mubadala GE Capital, along the lines of a GE Capital, here in Abu Dhabi.
We have many examples of investments that start out as financial investments but take on a strategic angle. But nothing prevents us from looking at pure financial plays—and we will do so increasingly over time.
The Quarterly: How do you trade off financial returns against strategic contributions to society?
Al Muhairi: We tend not to compromise on this. Part of the thinking is that if you start making those trade-offs, you’ll end up on a slippery slope that can take you places you wouldn’t ideally want to be. So we always use financial returns as the first filter when making an investment. If it passes the financial test, we look at the strategic metrics and see if, together, the financial and strategic metrics create a cluster or businesses that make sense from an Abu Dhabi perspective.
If our shareholder asks us to do something that makes sense only from a social perspective, we’ll try to turn it around and engineer it in a manner that respects the mandate of Mubadala to produce economic returns. If that doesn’t work, we’ll go back to our shareholder and say, “We don’t believe this is the right project from Mubadala’s perspective.” And the government of Abu Dhabi and our board of directors are quite adamant about staying true to both sides of our mandate.
The Quarterly: What about the trade-offs between the responsibility to produce annual returns and long-term goals that are 20 years out?
Al Muhairi: Because of our bondholders, we are committed to being very transparent about our financials, which we release twice a year. We have our pro forma midyears and then we have final statements we release at the end of every year. We’re committed to doing that and think that’s done wonders, from a transparency perspective, for Mubadala. But we are an investment vehicle that is quite mid- to long-term focused. Our board has given us very, very clear guidance: “The shareholder wants you to think seriously about developing these clusters. We know you can’t do that on a six-monthly timetable.” So it’s important to keep yourself honest. It’s important to be transparent, hence the six-monthly reporting. But don’t lose track of your vision.
We’ve taken that advice to heart, and that’s really the way we manage as an organization. Not having the intense quarter-on-quarter expectations takes away some of the pressure but none of the discipline.
The Quarterly: Mubadala has a renewable-energy initiative, Masdar. How does that fit into your mission?
Al Muhairi: Masdar signals a commitment from both the leadership of Abu Dhabi and Mubadala to deploy significant amounts of capital into an area we think will have superior financial returns—and which we’ve also identified as a target area for innovation and growth from an economic-diversification and -development perspective. In many ways, Masdar is similar to our health care initiatives, our aerospace initiatives, our technology initiatives. You can think of it as our renewable-energy initiative. Now, it tends to be a little bit more encompassing than some of the others, in the sense that it has embedded educational partnerships, including venture labs and accelerators. So it’s a very holistic view of how we want to approach what we hope will be an important sector in Abu Dhabi’s economic future.
The Quarterly: How do you deal with the limited availability of talent and labor in Abu Dhabi?
Al Muhairi: It’s one of the things that we’ve had to tackle quite quickly. Everything we do, in health care, aerospace, semiconductors, even Masdar—all that revolves around how we find solutions for human-capital issues. It’s something I spend a lot of time thinking about.
As a result, we’ve worked quite closely on curriculum issues with the Abu Dhabi Educational Council, for everything from primary schools to tertiary education. And we’ve tried to find models that work for the different types of positions we need to fill in different industries. For example, in the semiconductor industry we need people with a polytechnic type of background, all the way to PhDs who can help us on manufacturing and process design. So we work with the authorities to create the linkages between industry and academia, and as a third and important pillar we’re thinking about how we can use R&D to help bridge that talent gap as well.
The Quarterly: This is certainly important for the economic diversification of the Emirate, but doesn’t it add to the portfolio companies’ cost of doing business?
Al Muhairi: I wonder if that’s true. The way we think about it is educating our own people and getting them in productive industries. Any way you look at this, it’s positive for the economy and therefore has benefits, whether through social dialogue or the impact educated parents will have on educating children.
Source: McKinsey Quarterly