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Q1. What were the challenges that the new CEO faced in 2008?Q2. How did he respond to these challenges?Q3. Why did culture play a big role in the turnaround?Please note the answer should be 3 lines mi for each question.
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INS947
Middle East Turnaround:
Strategy at Abu Dhabi Commercial
Bank after the Financial Crisis
12/2013-6000
This case was written by Stephen J. Mezias, Professor of Entrepreneurship and Family Enterprise, and Mohamad S.
Fakhreddin, Research Assistant, both at INSEAD. It is intended to be used as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.
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COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED
IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.
This document is authorized for use only by Omar Alajaji in MGT502 Foundations of Leadership taught by Madhusudhan Prasad Varanasi, Al Yamamah University from Aug
2023 to Feb 2024.
For the exclusive use of O. Alajaji, 2023.
Abu Dhabi Commercial Bank (ADCB) was formed in 1985 as a public shareholding company
with limited liability from the merger of three ‘stressed’ government owned banks, Emirates
Commercial Bank, Federal Commercial Bank, and Khaleej Commercial Bank. The
Government of Abu Dhabi through the Abu Dhabi Investment Council (ADIC) held 58% of
ADCB shares, with the remainder were held by other institutions and individuals. As of the
second quarter of 2013, ADCB was one of the largest in the United Arab Emirates (UAE) in
terms of shareholder funds and market capitalization.
During the decade from 2002 to 2012 ADCB underwent a period of incredible growth until
2008, followed by a spectacular collapse in the wake of the global financial crisis. The next
four years saw an equally incredible turnaround, in which it quickly stemmed its losses and
achieved a new growth spurt driven by internal funds and focused on the UAE domestic
market.
Conceptually, this story is important for at least three reasons: First, the financial collapse was
largely unanticipated as was the speed with which it enveloped virtually every financial
institution in the world. In very short course, ADCB went from a well-touted success story to
an institution under threat. We open the case with a description of the incredible success of
the bank in the early 2000s and into the first half of 2008. Second, the organization responded
quickly and successfully to the crisis; a strong, experienced leadership team was key to this
success. Third, the strategies articulated by the leaders who reversed the relatively sharp slide
are classic examples of addressing both the technical and human sides of a successful
turnaround. On the human side, empathetic leadership by example demonstrated the important
role that people would play in staunching the losses and returning to profitability. On the
technical side, getting back to the basics of the business and creating systems for effective
implementation with an emphasis on rapid, accurate feedback were critical efforts. The case is
a powerful demonstration that success is often transitory, that effective leaders respond
quickly and decisively to crises, and that creating the systems to reverse performance declines
often involves perspiration as well as inspiration.
Incredible Success: 2002 to 2008
As 2007 drew to a close, ADCB was widely recognized as a leader in banking innovation and
customer service; it was growing rapidly and was in a very strong cash position. Any
questions about the sustainability of its success must be seen in the context of its performance
since 2003. Net profits had increased almost five-fold, from US$110 million to US$541
million in 2007. The increase in loans to borrowers had been of a similar magnitude from
US$5,247 million in 2003 to US$20,603 million in 2007. Shareholder equity had increased by
more than two and one half times, and returns on both equity and assets had doubled during
the same five years.1
In parallel, the bank built up its internal capabilities and competencies. The early 2000s saw a
sustained campaign of professionalization that reached deep into the ranks of the staff. This
investment in human and organizational capabilities had begun to win wider recognition.
Lloyd’s Register Quality Assurance recognized ADCB for its Quality Management System,
1
http://www.moneyworks.ae/user_files/uploads/ADCB%20-%20Markaz%20Company%20Research%20June%202009.pdf
Copyright © 2013 INSEAD
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This document is authorized for use only by Omar Alajaji in MGT502 Foundations of Leadership taught by Madhusudhan Prasad Varanasi, Al Yamamah University from Aug
2023 to Feb 2024.
For the exclusive use of O. Alajaji, 2023.
awarding the bank a certificate attesting to this achievement (valid for three years) in
December 2006.
Its success was even more spectacular the following year. In January 2007, at the Euromoney
Islamic Finance Awards in London, the bank was named ‘Most Improved in the Middle East’
and its Islamic compliant overdraft facility ‘Best New Islamic Product of the Year’. In
February, ADCB launched the first MSCI UAE Fund, the first index fund in the region, and
won a Euromoney ‘Project Finance Deal of the Year’ award for its work with L&T Interstate
Road Corridor Limited. In March, ADCB received the First Class Human Resources
Development Prize in the U.A.E. Banking and Financial Sector, and paid a handsome cash
dividend to its shareholders. First quarter profits, reported in April, represented a 35%
increase over the first quarter of the prior year. In June, Euromoney named ADCB the best
bank in the UAE. In July it was announced that the first half of the year had been profitable,
although somewhat less so than 2006. In October, the bank launched its Touchpoints rewards
programme, which encouraged customers to use multiple products and services offered by
ADCB. At the CEO Middle East Awards in the same month, ADCB was the inaugural winner
of the ‘Bank of the Year’ nomination. The following month, ADCB garnered the ‘Sea Trade
Middle East Award’ for its finance of shipping, as well as the ‘JP Morgan Elite Quality
Recognition Award’.
The start of 2008 was hardly less auspicious. Although profits were down slightly compared
to the incredible first quarter of 2007, the board recommended a 30% cash dividend – a payout of hundreds of millions of dollars. Financial markets continued to boom in the UAE,
boosting the performance of the bank. In April, ADCB announced sale of billions of dollars in
convertible bonds. First quarter profits increased by 10% over 2007, and the share price
surged to a new record. In the second quarter, it continued to grow with a Malaysian
acquisition worth more than US$1 billion and the extension of hundreds of millions of dollars
of credit to Gulf Capital. On the consumer side, there was active creation of new products,
including an index fund focused on regional equity markets, a new co-branded rewards credit
card, and a starter pack for newly arrived expatriates.
The awards also continued, with ADCB named ‘Best UAE Retail Bank’ by The Asian
Banker, and two triumphs at the widely recognized Banker Middle East Industry Awards. An
incredible second quarter was epitomized by the announcement in July that net profits had
jumped nearly 30% from the prior year. New product launches continued in the third quarter
with the launch of Meethaq, a Shari’ah-compliant financial solution. In September, the former
CEO was lauded for his success and a new chairman was welcomed; the boom seemed set to
continue indefinitely. The seeming inevitability of its onward-and-upward trajectory was
reinforced with the announcement of net profits for the third quarter of 2008, which again
exceeded the excellent results of a year earlier.
Those same third quarter 2008 reports, however, contained the first hints that the UAE would
not remain immune from the global financial crisis. Financial firms throughout the country
made provisions against losses and braced themselves for a slowdown. It soon became clear
that the bottom had fallen out of the phenomenal success of banks in the Gulf and the UAE,
including ADCB. In hindsight, it seems obvious that the economic boom preceding the
recession of 2008-9 had a significant speculative component.
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This document is authorized for use only by Omar Alajaji in MGT502 Foundations of Leadership taught by Madhusudhan Prasad Varanasi, Al Yamamah University from Aug
2023 to Feb 2024.
For the exclusive use of O. Alajaji, 2023.
In the US, meaningful regulation had given way to an overwhelming volume of transactions
so convoluted that some had yet to be unravelled for full examination. At least in part due to
more efficient movement of capital across borders, the speculative boom had created a global
boom in liquidity and the general availability of funds. According to Peeters (2011), crossborder deposits and loans from the GCC countries to the rest of the world rose incredibly
quickly between 2004 and 2008. The success of ADCB through the first half of 2008 must be
understood in this larger economic context. Similarly, the fall in the third quarter 2008 was
linked to the fact that it was at this moment that irrational economic exuberance gave way to a
hard-nosed examination of the underlying economic facts.
As the financial herd came to realize that the beliefs that drove the boom were misguided, a
tectonic shift in expectations triggered an awesome collapse. The Gulf region, supported by
massive oil revenues, at first seemed immune to the malaise of global financial centres.
However, by the end of the 2008 easy credit in the Gulf financial sector gave way to
contraction; within a year financial institutions found themselves in grave difficulties (Peeters,
2011). ADCB was no exception, with profits falling before the end of 2008 and very bad
results to start 2009. Analysts downgraded ADCB shares and described its balance sheet as
‘overstretched’. The value of shares in the bank plummeted, weighed down by low margins,
slow growth potential, and high risks associated with its loan book.
The Long Road Back: 2009-2013
One response to falling share prices, earnings turning to losses, and massive exposure on the
balance sheet was turnover at the top. At the time when The Asian Banker named ADCB
Deputy CEO Ala’a Eraiqat ‘Promising Young Banker’ in the Gulf region, he had already been
a leader in the organization for nearly five years. Eraiqat had joined the bank in January 2004,
to lead one of the teams that would restructure ADCB for the massive growth that followed.
His first efforts focused on establishing a wealth management unit. Success brought the
decision to combine retail and wealth management – dubbed the ‘consumer bank’ – under his
leadership.
The new CEO believed in openness, and began by taking action to ensure that every
employee – everybody everywhere – was aware of the crisis and of each hard-won success
that came from the turnaround effort, no matter what part of the bank they were employed in.
Eraiqat needed all the help he could get as he prepared to go before the board the following
month and present a negative balance sheet. He worked to deepen connections among people
at the bank. Among the top one hundred people in management, his vision was that none
could say they did knew nothing about some other division. This dense network of
connections at the top would create spill-overs to all levels, ensuring that openness created
value with the flow of information to every corner of the organization. It was ‘all hands on
deck’ to explain how the bank’s prior strategy had produced massive losses and reveal that
there would be no dividends for two years. If Eraiqat was going to ask the board to trust him
(and his team) to reverse the losses, he wanted to make sure he had the entire organization
behind him. He encouraged a broad dialogue about turnaround strategies and a level-headed
approach to the market: Stay good, stay humble; meet every client, talk to them; be there, be
visible, be aggressive.
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This document is authorized for use only by Omar Alajaji in MGT502 Foundations of Leadership taught by Madhusudhan Prasad Varanasi, Al Yamamah University from Aug
2023 to Feb 2024.
For the exclusive use of O. Alajaji, 2023.
The working lives of the management team revolved around almost daily communication of
some kind with a key stakeholder. There were regular presentations to analysts and others
such as Moody’s and S&P. Each one was like reporting a bad result to the boss. The
management team realized that if ADCB was to rebound, a solid, trusting and transparent
relationship with its board of directors had to be reinforced. The emphasis was on the
introduction of corporate governance that was both welcomed and supported by a mutual
conviction between board and management that this was pivotal to the on-going recovery.
Despite the bad news, Eraiqat and chairman H.E. Eissa Al Suwaidi did not want unnecessary
losses of the human capital which had been cultivated in the years since 2003. ADCB had
recruited large numbers of skilled people with a commensurate commitment to training and
education; these were one of the most valuable assets of the organization. To demonstrate
their conviction that results come from people, they made a commitment to every staff
member of the bank that no one would be fired on account of the crisis. Simultaneously, the
top managers clarified a set of initiatives that would channel individual performance to
improve results and keep people in their jobs. It was never suggested that anyone had a
guaranteed job: underachievers could still lose their jobs, but high achievers would still be
rewarded. Attrition was also used to reduce labour expenditures – for months after the crisis
departing personnel were not replaced.
Having reassured people about their jobs, the top management team could now share their
plan for improving performance and engage the personnel of the bank in winning support for
its implementation. A new climate and culture at the bank facilitated an almost spiritual
campaign to achieve the best possible results from its people. This participative approach
contributed in many ways to the success of the turnaround; the philosophy that results come
from people reverberated through the new ADCB. For internal stakeholders at all levels, from
top managers to line employees, identifying with and knowledge of the bank were essential to
reversing poor performance.
The team stayed on focus with a simple message involving neither exotic formulae nor
financial magic. Reversing the bank’s financial fortunes would require change to entrenched
practices that previously produced good performance and were particularly difficult to
unlearn.
They initiated the difficult but required changes with a series of coordinated actions under the
heading ‘Our Plan’, signalling an immediate and unwavering focus on operating
improvements and the bottom line. To sustain profitability, they launched pricing initiatives,
tactical cost-cutting, doubled down on collections, and expanded the search for new sources
of deposits aggressively. There was a sustained effort to boost liquidity, particularly in terms
of operational actions to monitor and manage liquidity with rapid feedback and a series of
initiatives to free up capital.
The entire leadership team collaborated to embed a culture of risk management throughout
ADCB that began with ensuring that audit and control represented a robust risk management
approach that was more efficient and responsive to the market. Costs were contained with
reductions in external spending that resulted from keeping required functions and costs inhouse and maintaining a tight control on recruitment. The often repeated mantra was that
everyone at ADCB should spend as if it was “their own money”, a guiding principle captured
in the question: “If it were your money, would you still buy it?”
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This document is authorized for use only by Omar Alajaji in MGT502 Foundations of Leadership taught by Madhusudhan Prasad Varanasi, Al Yamamah University from Aug
2023 to Feb 2024.
For the exclusive use of O. Alajaji, 2023.
Many programmes achieved significant cost reductions in this way. Printing costs plummeted
as people shared best practices, even selectively removing colour cartridges. Utility costs
were cut thanks to volunteers who coordinated the use of electricity and air-conditioning
after-hours in all the buildings and branches. The simultaneous launch of an Operational
Excellence programme helped to implement positive change and ensure that cost-cutting did
not compromise quality across the bank’s operations.
These concerted efforts contributed to record operating income in 2009 at the point when the
tidal wave of defaults that swept the globe reached the UAE. ADCB had holdings in several
entities, including Global Investment House, Dubai World, Saad, Al Gosaibi, and two banks
in Kazakhstan that became insolvent. Record operating income was insufficient to
compensate for massive losses from the financial collapse, and the bank announced a net loss
of AED 500 million (US$135 million) for the year.
While it was difficult to be upbeat about performance in light of this net result, the top
management team was confident that their decisive action had been the correct course for
ADCB. This was underscored by the fact that the bank demonstrated growth in all areas of
income. More importantly, the investment in human resources and new systems, which had
been a key part of the crisis response, would prove to be significant sources of value in the
longer term.
The challenge in 2010 was to institutionalize the positive aspects of the response to the crisis
of the previous year. The top management team worked to ensure that the new conservatism
that had allowed them to survive the crisis could be turned into a long-term strategy for
growth. With this in mind, they allocated time both among themselves and with important
internal constituencies across the bank to reflect on a three-year strategy. A prime objective
was to build resilience; as the global financial crisis continued, the need to make provisions
for loan losses and other bad assets would continue. Shoring up the defences that had
permitted record operating income in 2009 was the first order of business; ongoing
reinforcement of very conservative financial policies and a low-risk appetite culture was
crucial.
The new strategy and new culture were designed to reinforce one another by emphasizing
four pillars: growth, stability, service excellence, and risk management. The first (growth)
involved a focused effort to expand domestically by focusing cross-selling and customer
retention in Abu Dhabi and throughout the UAE. The second (stability) emphasized a target
of building a base of local depositors to reduce dependence on fickle international money to
fund the operations of the bank. The third pillar (service excellence and efficiency) would
ensure the loyalty of increasingly important domestic clients while containing the costs of
providing an experience that would reduce customer churn. The fourth pillar emphasized
rapid achievement of world-class standards of risk management, making ADCB a role model
of corporate governance, financial reporting, and operational transparency to stockholders and
other stakeholders.
The long road to institutionalizing these four pillars of the strategy after the hard work of
beginning the construction was made easier because, from the beginning, the new
management team had focused on people. Investment in training in areas as diverse as
marketing, technology and operations grew rapidly, and there was a widespread
understanding that this was an investment for the future.
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This document is authorized for use only by Omar Alajaji in MGT502 Foundations of Leadership taught by Madhusudhan Prasad Varanasi, Al Yamamah University from Aug
2023 to Feb 2024.
For the exclusive use of O. Alajaji, 2023.
Eraiqat and his team had succeeded spectacularly. When he had stood before the board to
relay such bad news barely a month after becoming CEO, the share price was hovering
around AED1.20. By early 2013, a clear trend to more than four times that price was
underway. Net profit for 2012 was approaching the US$1 billion mark, capital adequacy was
more than 22%, and return on equity was almost at 14%. A new strategy for success focused
on the domestic UAE market – particularly local businesses and consumers – had been
formulated, implemented and refined to produce consistently good results.
References
Peeters, M. 2011. “The Changing Pattern in International Trade and Capital Flows of the Gulf
Cooperation Council Countries in Comparison with other Oil-Exporting Countries.” Journal
of Knowledge Management, Economics and Information Technology.
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