Zsolt Hernádi

Zsolt Hernádi
Chairman and CEO

MOL Plc

Zsolt Hernádi has been Chairman and Chief Executive Officer since 2001. Prior to joining MOL he held senior executive positions with Kereskedelmi és Hitelbank and the Central Bank of Hungarian Savings Cooperatives. He is a member of the European Round Table of Industrials and an honorary citizen of the Corvinus University of Budapest.

 

Watch interview highlights

 

A view from the top

In this short video, Zsolt Hernádi shares his view on today's key business issues: risk, volatility, innovation, talent, and growth

 

Quotes

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

Following the shock the world economy experienced during 2008-2009, the markets overreacted – as did governments in terms of their impulse to regulate the banking system and intervene in the private sector, generally. I think it might take a longer time for the pendulum to swing back.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

Right now, our “homework” is to increase our fitness. What do I mean by that? Essentially, we must maintain our capacity to respond quickly in an unpredictable, ever-changing environment.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

During recent years, the issue of stakeholder management has become astoundingly important. The way in which a company can position itself within the larger society and how it can achieve acceptance within a given community has become a source of value.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

In this environment it is too easy to embrace the notion that the market economy is a bad choice and much stronger state intervention is called-for. And it’s not just about the government setting the framework for competition. Instead, it’s also telling companies what they should be doing!

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

The Arab Spring is a case example that justifies our view that it is impossible to anticipate the unexpected. Our business cannot be protected from certain kinds of risk, even such as countries sinking into a prolonged crisis. So, this reinforces the importance of diversification in terms of the amount of capital we have invested in any given country; and the advisability of working with local partners in certain circumstances so that we do not have to bear risk alone.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

Joint research is an extremely important thing. Unless we are lucky, we will probably not be the ones to discover a major breakthrough solution. But as part of a joint research project we will have access to that intellectual property.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

Talent has become a concern is that valuable members of our technology process staff are nearing retirement age. And the learning curve associated with those positions is quite steep, so it’s impossible for us to simply replace these people from one day to the next.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

Close to 15 percent of energy-related investments around the world fail or are lost because a suitable workforce is not available.

Zsolt Hernádi

Zsolt Hernádi

Chairman and CEO, MOL Plc

The degree to which an HR mindset is integrated into the thinking of the company’s top management – and by that I mean the way management ensures the quality of our HR services – has become much more important to MOL over the past three to five years.

 

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How do you view the world economy right now, and how has the economy impacted MOL this past year?

I think perhaps it was self-delusional to think that the world economy would remain unpunished as a result of the immense amounts of money that was channelled into it through various forms of government financing and monetary easing during the 2008-2009 crisis. Clearly, this has had the impact of prolonging the recessionary climate and will likely have a future inflationary effect as a consequence of the huge amount of cash out there in the economy. Following the shock the world economy experienced during 2008-2009, the markets overreacted - as did governments in terms of their impulse to regulate the banking system and intervene in the private sector, generally. I think it might take a longer time for the pendulum to swing back. Nevertheless, MOL cannot isolate itself from current conditions in the world economy. We work with commodities; therefore, everything that unfolds in the world economy is immediately reflected in our own business. Thus, the sole question for MOL is: Are we fit enough? Or, to rephrase the question, are we less weak than our competitors? If that’s the case, then we will not be the ones, for example, to shut down a refinery, instead, our competitors. And if that occurs, our cash and cash equivalents will last longer than our competitors and we will be able to buy re-valued assets before our competitors can. Right now, our “homework” is to increase our fitness. What do I mean by that? Essentially, we must maintain our capacity to respond quickly in an unpredictable, ever-changing environment. We cannot allow ourselves to consider anything as certain nor view anything as set in stone. We need to look at the landscape as portfolio elements; we have to continuously examine what we can sell and what we can buy at a good price. In doing all that, there is just one question: How can we preserve value and perhaps generate new value? This is what I consider to be our greatest current challenge. I should say by the way - but say very quietly - that it is easier for a leader to mobilise an organisation in stormy times than it is during calm and peaceful periods. When times are good, it takes a lot more thinking to find ways to keep a company awake, to preserve its fitness, and maintain its efficiency.

Have there been changes other than economic ones that have affected MOL?

During recent years, the issue of stakeholder management has become astoundingly important. The way in which a company can position itself within the larger society and how it can achieve acceptance within a given community has become a source of value. Society has become much more sensitive to the way a company does business. Given the current economic contraction, some stakeholders say to themselves: “Companies have had the good life, they spent their money, and in the meantime I, the simple little guy, am suffering.” And this, at least in part, has been the basis for governments and various authorities to justify their intrusion into the market economy. In doing so, they set a very risky precedent, namely, suggesting that there are better ways - other than the well-known and well-established ways - of running a market economy. In this environment it is too easy to embrace the notion that the market economy is a bad choice and much stronger state intervention is called-for. And it’s not just about the government setting the framework for competition. Instead, it’s also telling companies what they should be doing! In other words, it is intervening in specific company issues involving profitability and corporate strategy.

I am not saying that the kind of free-wheeling market economy that emerged in the 1990s was the sole road to salvation. But, some say that the free market has had its chance and misused it; and therefore intervention is required. That kind of attitude, in turn, presents a great opportunity for the world’s politicians to decide that they must control things. This is why it is so important for companies to gain the trust and acceptance of their stakeholders and the communities in which they operate. For the sake of its own sustainability, a company today must elevate the importance of stakeholder management.

Has the current environment prompted changes in MOL’s strategic direction?

Whenever a CEO presents today a fixed, rock-solid, five-year strategy, I tend to smile, if ever so slightly, because I really do not believe any such thing can work today. We can define strategic directions and make decisions along the way. But I cannot define an exact strategy and its required steps for the long term. So in our organisation, during our strategy planning process, we assume that external factors will change; and we review conditions every six months and - if necessary - modify our tactics. This continuous rethinking incorporates quantitative considerations, as well as changes in qualitative ones. This is where one needs to revisit core organisational functions and determine whether or not they require alteration. Our core functions include talent management, our relationship with society, and the maintenance of employee morale. Over the recent period, we have put substantial emphasis on these areas. But going forward, we will need to pay even more attention to them, since they are becoming ever more central to our business.

In the years ahead, will there be any significant changes to the shape of your business?

Efficiency and diversification: These are going to be our company’s mottos in the coming years. Efficiency is a must - it’s just something that is necessary during times of recession. Diversification is also a watchword for us. This is necessary because there is no way for us to determine, for example, how crude prices will develop. We see trends, but nowadays trends are contradicted on almost a daily basis. We also watch trends in consumption, but there is no way for us to know for sure whether consumption will go up in one region or another, or by how much.

Are you going to enter any new markets?

Naturally, we are going to make investments. We are not holding back on our plans. But I will also tell you that we will certainly gravitate to regions where growth is based on exploration and production, which now generally speaking is a more lucrative business.

What impact did the “Arab Spring” have on MOL’s strategy? And how does MOL manage local stakeholders in uncertain or volatile environments?

The Arab Spring is a case example that justifies our view that it is impossible to anticipate the unexpected. Our business cannot be protected from certain kinds of risk, even such as countries sinking into a prolonged crisis. So, this reinforces the importance of diversification in terms of the amount of capital we have invested in any given country; and the advisability of working with local partners in certain circumstances so that we do not have to bear risk alone.

Do you think the world economy will return to normal functioning?

Things will not return to their previous form. Everything has changed; the players in the world economy will not forget what they experienced. In the future, the way economies function is going to be different. More active involvement by governments will gain wider acceptance. With this might come the negative consequences of protectionism, which, for the time being, I consider the greatest threat. Still, let us hope that policymakers will reject protectionism because they see that it would only incorporate more conflict into the system. Nevertheless, the new state of equilibrium that eventually emerges will doubtlessly include stronger government involvement.

Generally speaking, to what degree do changes in the external environment influence MOL’s risk profile?

Change in the external environment typically has an immediate effect on us. Nevertheless, one must recognise that MOL is a subset of a larger set of entities and forces. In other words, if the large set moves, so do we. And so, it is vital to ensure that our relative position does not become any worse. This is the really important thing! It is our relative position that we always have to secure. I can’t change the environment in which we operate. We have to exist here and do the best we can.

Do you expect the EU to assert greater control over national budgets of their members as a requirement of EU membership?

I believe the crisis is not yet grave enough for that to occur. We have not yet reached the point where various countries are willing to surrender some of their decision-making power. But I will not rule out the possibility that the time may come when everyone is going to realise that there is no way forward other than greater integration, which incorporates more powerful financial controls by the EU.

Is MOL paying greater attention nowadays to risk assessment and risk management?

Yes - at every level. Like most corporations, MOL has a financial risk management committee that, on a quarterly basis, reviews changes to our risk profile. The committee produces various reports and issues them for the Board to read. Nowadays, these reports are not just formalities; they’ve become the subject of focussed consideration and debate. A year ago, the Board resolved to include these reports as a point on its standard agenda. We emphasise the importance of risk management with respect to restructuring within the organisation. This in part, involves risk forecasting and, in part, risk monitoring, as well as putting certain risk reduction measures in place.

What role does innovation play in your organisation?

I prefer to break innovation down into three parts. First, you have conventional innovation; second is the organisational fitness that I mentioned previously; and third is what I usually refer to as “soft” innovation. Conventional innovation is exactly what we think it is: basic research efforts. We participate in basic research by ourselves, as well as a member of much larger joint research projects sponsored by the EU. For instance, in cooperation with several universities, we’re working on the development of second-generation bio-fuels and their utilisation for industrial production. Joint research is an extremely important thing. Unless we are lucky, we will probably not be the ones to discover a major breakthrough solution. But as part of a joint research project we will have access to that intellectual property. Innovation has another aspect that is related to organisational fitness - in other words, how we can work smarter, more efficiently. Collectively, the minor improvements that we make can have a major impact on our operating efficiency. So, this is another important approach to innovation: to kindle good ideas, give them visibility, and evaluate their worth. If an idea proves to be good, we put our backs into how we can immediately incorporate it into our business. The third part of innovation, as we conceive of it, is “soft” innovation. This, in essence, is nothing more than what you could call adaptability - in other words, the degree to which an organisation is capable of adapting and functioning as a learning organisation. The first element of innovation - participation in basic research - is obviously not an everyday affair, as it flows from major decisions. The second element of innovation demands management participation. But the third element of innovation requires the entire management team to be engaged in the company’s daily operations.

Is it possible to apply an innovation created in one region to the entirety of the Group?

Yes - at least with regard to well-defined technological matters. But as you know, society, culture, customs, and standards are different in every country. So a suggestion that you might find objectionable may be perfectly acceptable elsewhere. We can try to improve things from a technological perspective, but we cannot force our opinion on anyone. One cannot go out and say, “I will change cultural habits dating back millennia just because that might help us do things more efficiently”. You always have to place innovation in the context of a given social environment and achieve the best you can.

Is the matter of talent a strategic one at MOL?

Within growing companies, talent management is an indispensable management tool. So, indeed, as we’ve grown, talent has become a key issue for us. The other reason talent has become a concern is that valuable members of our technology process staff are nearing retirement age. And the learning curve associated with those positions is quite steep, so it’s impossible for us to simply replace these people from one day to the next. Also, let me mention two statistics. First, close to 15 percent of energy-related investments around the world fail or are lost because a suitable workforce is not available. The second statistic follows from the first: Currently, three percent of our workforce participates in a MOL program called, Growww. This programme is targeted at graduates fresh out of college and is meant to support their integration and development within our organisation. In effect, these new hires are going through their second university here. And I am proud to say that for the second year running, non-Hungarian university recruits at our company group outnumber domestic graduates. This now encourages me to describe MOL as a Central European company headquartered in Budapest.

To what extent does MOL rely on a mobile workforce?

This is very difficult. Here in Central Europe, people are generally reluctant to work abroad. We are trying to focus on this issue by using substantial incentives to encourage mobility.

Has the HR become more integrated into top management? Have the reporting lines associated with HR changed?

Yes - but I do need to add that on its own, changing reporting lines is just a technical tool. HR plays an important role at our company, but the way HR actually operates in practice is even more important. The person to whom a manager sends HR reports will always remain a technicality in my mind. On the other hand, the degree to which an HR mindset is integrated into the thinking of the company’s top management - and by that I mean the way management ensures the quality of our HR services - has become much more important to MOL over the past three to five years.

Do you divide your time differently now than in the past?

There has been realignment. MOL reorganised its governance in April 2011. In that reorganisation, stakeholder management, HR, and talent management have been given more visibility. And as a consequence, these areas are now much more of a focus for me. Operations management - which is extremely important, because after all, this is what generates cash-flow - has become less of a daily focus, some of my responsibilities having been shifted to others. In particular, issues around stakeholder management have taken up much more of my day, and this is what keeps me busy most of the time.