"Look who emerged when you weren't looking: Value creation in times of mass destruction."
Luis Carlos Sarmiento Jr., MBA '85, president and CEO of Grupo Aval S.A., delivers Durland Lecture
Luis Carlos Sarmiento Jr., MBA '85, who heads up Colombia's largest banking firm, came to campus Oct. 18, 2012, to deliver the 25th annual Lewis B. Durland Memorial Lecture - Johnson's most prestigious speaking engagement.
Sarmiento began the lecture, titled "Look who emerged when you weren't looking: Value creation in times of mass destruction," by noting his deep affection for both Cornell and Ithaca. It was clear throughout the lecture that Sarmiento loved his time at Johnson and was eager for the current MBA classes to succeed. While expressing every confidence in Johnson's current MBA crop, Sarmiento emphasized that the road to success would be more difficult for this generation, given the state of the global economy.
Despite the fact that Sarmiento is the president and CEO of one of the largest banks in the world, the first half of his lecture was dedicated to explaining how bankers and other leaders in financial services were responsible for the current economy. Sarmiento traced the beginning of the financial crisis to the junk bond era, which, according to him, "forever changed America's way of doing business." He argued that fraudulent practices in the financial industry spread from Wall Street to Main Street, encouraging "financial alchemists" to experiment with new ways of raising, loaning, and managing money. Sarmiento discussed junk bonds, Enron, accounting standards, and the dot-com crash as part of the same, general phenomenon: a cheaper, greedy way of doing business built on financial fraud and misdirection.
In the second half of his talk, Sarmiento discussed the role of Grupo Aval and other banks in emerging markets as viable value creators that filled some of the gaps created when banks in the Northern hemisphere stumbled after 2008. According to Sarmiento, Grupo Aval in particular has taken a long-term, responsible, and sustainable approach to value creation. Grupo Aval has remained committed to principles of cost control, ethical behavior, asset quality, growth, and engagement within local communities - principles that can be seen in the organization's strategy. For example, 50 percent of Grupo Aval's stock floats, and the organization has 120,000 shareholders. Given that Grupo Aval shares are the equivalent of ten cents per share, the bank has made a clear effort to allow smaller investors to participate. Additionally, neither Sarmiento nor his father, Grupo Aval founder Luis Carlos Sarmiento Sr., have cashed out their interest in the bank. Sarmiento Sr., nearing 80, still works 70 hours a week and believes in the bank as a vehicle for creating value for customers and businesses rather than as a vehicle for personal enrichment.
Today, Grupo Aval has $130 billion in assets under management, serves 10 million customers, and has 63,000 employees. The bank has grown in the difficult way, with what Sarmiento called "honest hard work." Sarmiento emphasized that the financial services industry would not regain credibility until the values of honesty, diligence, social responsibility, and good business sense prevailed once more. He appears to have mixed emotions about America's role in the financial services industry; he singled out America as the source of the financial services contagion that led to the global recession of 2008, but he also singled out American regulators and law-makers for special praise in responding rapidly and effectively to the crisis. While he referred to America as still being the greatest country in the world, he also exhorted Johnson students to "go out and explore the world," since so many opportunities now lie in emerging markets.
Sarmiento left the audience with a renewed sense of hope in the ability of entrepreneurialism, creativity, and hard work. He emphasized his belief in Johnson as one of the world's great business schools and expressed his confidence that, despite global economic conditions, Johnson students would always find a way to succeed.