Ranjay Gulati:
30 years ago, a successful young banker at one of Kenya's largest financial institutions took an enormous risk. James Mwangi left his lucrative job and a promising, if conventional, career to take over a small building society that was staggering towards death's door. It was called Equity Building Society, or EBS. EBS started out in the early 1980s as a savings and loan society, a place where village workers, small farmers, and merchants could pool their money. At the time, most banks in Kenya refused to provide everyday people with even the most basic financial services. Equity had helped fill that gap, but it was in deep financial trouble. By 1993, Equity had been declared insolvent. It was on the brink of shutting down. In my conversation with James Mwangi, the soft-spoken former accountant told me he knew the enormous risk involved when he took the helm of EBS.

James Mwangi:
Yeah, it is true. I made a decision to leave from my previous employer and the decision was painful because my salary declined to a sixth of what I was earning. But the decision to go to Equity had two aspects of it. One was empathy. They were the savers in Equity Building Society, so I could associate and I felt if I could do anything to abate the pain that the village was about to go to, then I could have saved the savings of the villagers.

Ranjay Gulati:
James Mwangi grew up in a small village in central Kenya. His father was killed in violence that erupted during the fight for independence from British colonial rule. That left the family of seven children in precarious financial straits. To survive, James, his mother, and his siblings sold milk, tea, charcoal, and fruits to others in the village. That's where he got his first taste of business and his first lesson in how financially precarious life can be for working people. That's another reason James took on the challenge of rescuing the building society.

James Mwangi:
It was to lift the villagers. It was to give them access to financial services. So I felt that was compelling enough for me to make the commitment so that we could get them back on track. And truly looking back, that objective was achieved many folds and the villagers, of course, were saved from losing their savings.

Ranjay Gulati:
Welcome to Deep Purpose, a podcast about courage and commitment in turbulent times. Hi everyone. I'm Ranjay Gulati, a Professor of Business Administration at the Harvard Business School. James Mwangi went to university on a scholarship, then he began his career in financial services as an accountant in the capital, Nairobi. James rose to the post of Group Financial Controller. That's when the founder of the Equity Building Society, who had known James as a boy, asked for his help. EBS was floundering.

At that moment in time when you made that decision, wasn't there some fear? I mean the calculus here that I'm about to leave a very successful career, fraction of my salary, my brand, my personal brand is a good brand right now, I've had a good career. You're leaving a lot behind. How did you do the cost benefit in your head? How did you manage the fear of maybe this is a very risky move?

James Mwangi:
There was a lot of uncertainty and of course, uncertainty bleeds fear when you are making decisions, but I realized that I overcame fear to make that bold move because I felt one, I had a supportive system. I had a wife who was understanding of the situation. And I also felt I was young enough that if it didn't work, I would still be able to get back to the job market. But I underestimated that if it didn't work, it could have gone with my name. So that uncertainty maybe never played completely into my face before I made decision. When I look back today, yeah, I feel that it was a bold move. If it was today, I would be more risk averse.

Ranjay Gulati:
One of the vignettes you've talked about in the past was going to meet the governor of the Central Bank who also said he was expecting you to be part of this story. You went there on behalf of the Building Society, but then tell us a little bit about that moment and what do you think he saw in you that gave him confidence that if you are part of this, he would support the entity?

James Mwangi:
Yeah, it was an interesting conversation because I took the chairman and the managing director to intercede for them to the governor not to be closed. And the governor asked me, "What will they do that they have not done for the last 10 years? They have had the chance, they have had the opportunity." And then he turned to me and said, "If it was you, I could give you a chance because you could do things maybe differently." And this was because he knew me, I was a very senior banker in the country, had interaction with him. I was leading a fairly innovative group that was growing and had differentiated itself.

My friends looked at me, when the governor said, "If it was you, I could give them a chance." So they wanted to see how I could react. And at that very moment, I realized I couldn't abandon them because I had committed to take them to be given a chance. So I became the vehicle for the opportunity and for the chance. And the governor pushed his writing pad to me and said, "Okay, write the resignation." And picked on his phone to call my managing director to say, "I've poached James to revive Equity Building Society. Replace him as your Group financial Controller." That was a very simple conversation that ended with me joining Equity to do the turnaround.

Ranjay Gulati:
So let's talk about after you joined this organization and the incredible transformation that you have led. Tell us what have been some other kind of risky moments, bets you had to place in this journey. I'm sure there were many big bets that you had to place. So what were some of those? And let's just talk through one or two of those.

James Mwangi:
Equity is a story of bold decisions and bold decisions from the onset because it was technically insolvent, nobody thought it could be revived. So my jumping into it was the first bet. But the second bet came quickly. Now that we have started making progress, we have no financing. And I remember making the decision to acquire the first banking system and the cost was higher than the capital. And when the chairman of the board asked me, "What of, if anything, went wrong and you're spending more than the capital of Equity Building Society?" I said, "Nothing would go wrong because I'm responsible for the decisions." And you can see that bold decision in 2004 was a turning point because we moved from manual systems to the first computerized system. That was a huge transformation from experience of customer. But you can imagine one acquisition or one procurement spending more than the entire capital, but betting that a very big bet if it goes right, it transforms the organization.

The last one maybe I would like to share was two years ago when we felt that with COVID that the customers needed to be supported, and we made a bold decision to withhold dividend payout for two years. Not because we are not profitable, but because we wanted to provide cushion to customers who were affected. And we gave them up to three years moratoriums of both principal and interest and then said that gap, the backing had to be by the shareholders. And essentially, we gave prolonged breaks of up to 45% of all the customers took rescheduling of their loans and the shareholders bore the brunt of that decision by not getting dividends for two years. But you can see, it has paid back in an incredible way because we demonstrated trust and confidence and empathy to the customers.

After two years, the balance sheet of the bank had doubled from 6 billion US dollars to $13 billion. So that decision again was one big decision that looked very bold to give a break for three years of principal price interest repayment, and fortify that with a buffer of capital through withholding dividends.

Ranjay Gulati:
So how do you do that? I mean you mentioned bold action. You've given us some great examples here right now of really decisive, bold decision-making by you. A lot of leaders struggle with bold action. A lot of individuals struggle with bold action. What do you find yourself doing when you have to make such a decision? Are you trying to de-risk it in your mind? Are you saying, "Okay, let's think of the scenarios and the contingencies?" Are you trying to mobilize a lot of people around it so it's multiple of you involved? Or are you driven by this larger compelling empathy and purpose that makes you believe that, I have to do it even if it's risky?

James Mwangi:
There are two aspects to it. The first one that we really test is the fitment to the purpose that the organization has set for itself. There is a perfect alignment and we feel that this is a game changer decision, and then we tend to be very, very bold.

The second one is whether it aligns to our value systems. While the purpose acts as the compass pointing leader to the true north, the guardrails of ensuring that you keep safe is the value system. So if we test, is this boldness driven by conflict? We have to be sure that it's not driven by anything that is different from the values that we subscribe to.

The other one, of course, is what would be the implication of success? And that is really sometimes is the reward that justifies the courage and brings to a great extent the authenticity. If it's really authentic, if it's sincere, if it's genuine, if its probability of success is very high, then we tend to make very bold decision. But they're all driven by the possibility of achieving objective. The purpose is really the overriding reason to help you overcome fear and uncertainty. All these decisions have uncertainty, but you have to really overcome that fear of uncertainty by looking at the possibilities of a game changer movement in the decision.

Ranjay Gulati:
As James Mwangi says, taking bold action requires having a strong sense of purpose to be successful. Too many companies deploy purpose, or a reason for being, as a promotional vehicle to make themselves feel virtuous and to look good to the outside world. Some business leaders have foggy ideas about what purpose is. They conflate it with strategy and with concepts like mission, vision, and values. In my view, truly effective leaders need to develop a clear personal purpose to succeed, but it doesn't come easily.

James Mwangi:
I have struggled a lot with by personal purpose because I've found myself and my life very integrated with that of Equity. I seem to live the Equity purpose as its leader. I have to demonstrate to the people, I have to live the purpose so that they can see and I can inspire them. So to a great extent, I find that the purpose of Equity has become my essence in life. But when I boil it down to the big dreams of the organization, I find putting smiles on the faces of people a very fulfilling reason to wake up every day, whether that then is the personal purpose putting smiles on people's face, but then I look at the Equity purpose is to change lives, give dignity to people, expand opportunities to people, all that contribute to people being happy. So I find the two completely interwoven.

Ranjay Gulati:
Tell us about your childhood. Your mother raised you and your siblings and she obviously played a big role, I've read and heard you talk about. Could you tell us and give us maybe one story even that really exemplifies her role in your life, if you can think of a story?

James Mwangi:
I saw my mother having a huge role of inspiring me to become who I am. One of the most bold decision I ever, ever saw my mother when she took me to Form One [the selection process for secondary school], and of course I didn't realize that to go to Form One you needed shoes. I'd never worn shoes. And so my mother was told by the principal that, "No, there is no admission in this school without shoes." And she looked at the principal and said, "What are you talking about? He passed his certificate of primary education without shoes. Admit him. That's what he has come here to do, to study. He's not to wear shoes." And the principal was taken aback, couldn't argue with the mother, but I could see my mother was determined, she was not going to go back home with me because she needed her son to acquire education and she was not going to let anything come between her and educating her son within the means that she had. And my comfort was not of concern to her, concern was me getting education and she didn't care whether I looked like other children or not.

That was one of the most-

Ranjay Gulati:
And Form One is what grade? How old were you?

James Mwangi:
I was about 14. So it's really a very tender age, but I could see her passion for education, yet herself she had never gone through a formal school. She had not attended any formal education, yet believed that what was best for her son was education.

Ranjay Gulati:
His widowed mother stood up for her young family in any number of ways. She resisted pressure from James's uncles to hand over her land, standing up against a culture that restricted the right to own property to men.

James Mwangi:
And I saw her fiercely resist saying, because she's a woman being discriminated, her land being taken away, sort of disinherited anything that she had. And eventually, she got her five acres to herself and that's how she brought us up. So she fought the courses of justice, courses of fairness, and courses of rights. And I see a little bit that maybe I've learned a little bit to stand up to what one truly believe in, whether it's education, whether it's the right of women, whether it's laws that are repugnant to the rights of women, and studying up. And I've seen her win her battles consistently.

Ranjay Gulati:
How do you think about this idea of empathy and helping? One of the things you've done very successfully, even when you joined the Equity Building Society was the sense of empathy and wanting to help the unbanked in Africa. At one point, you even have described that the customers you were going after, as you were thinking about your market, was the customers like your mother who kept her money under the mattress.

James Mwangi:
It's true, and I've observed this great purpose needs to be supported by values, because they define the what and the values define the how. When we went to Equity, it's not just that we removed the barriers to inclusion, but it's how we made people feel. People came to the bank because of the way we treated them, not what we offered them. And that is where I see values and purpose complementing each other in the initiatives that you make. So for equity group, the fact that we focused on the population that was previously condemned as unbankable and completely excluded from the table of resource allocation and condemned to never realize their dreams, it was essential that we enter into the relationship from an understanding of the circumstances and situation and to show a difference in the way we treated them. And I think that's where empathy came in.

But I've also realized most compelling purposes, at the end of the day, they appeal to the inner soul of a person. You do it because there is a personal appeal, it is touching the core of you. And I have realized empathy is a very powerful tool when you are dealing with others, and particularly when you are supporting such that the approach in doing is not seen to be benefactor relationship, but you are one of them, you are working with them, their cause you're empowering. You're not doing it for them, you're not changing their lives, you're empowering them to change their lives.

So it's more of the approach that I find empathy has played a very huge role and it has eased the path, and I guess our efforts have then met or progressed on the path of least resistance because people feed you emotionally and you are seen to be authentic and genuine.

Ranjay Gulati:
So as you think about this, can you tell us a personal story of something you saw which really brought out this idea of empathy for you?

James Mwangi:
I remember, I think it was in 2014, an elder, approximate 74 years of age, came in the morning into the office, found I was in a boardroom, but he chose to sit in and I was finishing the board meeting-

Ranjay Gulati:
Who was this person?

James Mwangi:
An elder from Nakuru Village, that's about 200 kilometers away from Nairobi. And he had traveled all the way from Nakuru Village, a town called Elburgon. He arrived at 9:00 in the morning, but I was in a board meeting. The board meeting ended at 3:00. But he chose to wait all those hours despite being persuaded. And eventually, when I came out of the boardroom and he was ushered in, he said, "I've been here since morning, but I only want to take five minutes. I felt now I'm at an advanced age and maybe I may pass on, but you may never know what you have done to the lives of many of us. I just came to thank you and to know that your day-to-day activities make a difference in the lives of us."

He went on to give the practical example of his life. He was one of the victims of the crashes in Kenya, 2007, 2008 that almost brought civil war in the country. And he became a squatter on the roadside and we gave him a small loan that he bought a piece of land where he put his own house. And he went on to say, "My wife now milks a cow, proceeds of what a loan we got from you. And as she walks to the roadside to sell her milk, like any other woman, she's happy and she's looking young. And for that reason, I felt I should never die before I tell you how grateful I am and that what you're doing is making a difference to people." That, to me, was a turning point that brought it home, what it means to serve people at their moment of need. So that's when I saw feedback on empathy in a very practical way.

The latest one was really the story that has gone around from that decision we made of giving people only payment breaks of up to three years. And I saw how the masses, the population responded by consolidating their banks. Most people are multi banked. And what people did was then to aggregate their banking to Equity as a feedback. And then constantly we received this message, "If it were not for Equity, if it were not for the decision we made, our businesses could have busted. There was no way we had to close the restaurants or if you insisted on us paying, there was nothing we could pay from." And you could really see the emotions of the people.

But the real thing is that the emotions then are backed by their actions. They have consolidated their banks. The bank has doubled when the banking industry has shrank.

Ranjay Gulati:
Many successful business leaders connect purpose and profit in what is often called the simultaneous solve. They aim to deliver profits and social benefits in tandem, solving multiple challenges at once. But research shows that it's hard to make such idealized goals pan out. In the case of Equity Building Society, James Mwangi had to convince shareholders to forego their dividends so he could waive customer interest payments until the economy recovered. I asked him if he views this kind of purpose-driven decision as a kind of tax that a business must pay to really flourish.

So some people like to say that let's connect purpose to profit and this very example now, you have to make a very tough decision where you're telling shareholders, "No dividends, but we are going to give customers longer time to pay back their loans, or no interest at least, interest waiver." Is purpose connected to profit in some way for a business or is purpose like a tax on business that you must pay?

James Mwangi:
Purpose, for me, is a basis of a business model, of a business model that combines social and economic, a model that brings shared prosperity, a model that has a twin capability, a socio and economic model. And so purpose can be profitable in the sense that it propels the economic engine to do better because of the brand. And that's what we have experienced in equity, that our purpose has not, in any way, affected our ability to do business.

And then I would almost say that doing good and doing well are not mutually exclusive. You could be able to do both of them simultaneously and they can be encompassed in a business model. Purpose then brings stakeholders and particularly community and society, as a stakeholder and a beneficiary from the prosperity being created by a business. If I extend that, I would say then it's a recognition that community and society is a stakeholder and that is then represented by the objective of the purpose.

Ranjay Gulati:
Let me go back to the hard challenges. What are some of the hardest challenges you have faced in your journey so far?

James Mwangi:
The first biggest hurdle that I had to do was leaving a very comfortable job where I was earning 360,000 Shillings to go and earn 60,000 Shillings, a sixth of what I was earning. My wife was troubled, I was newly wedded. We had just got firstborn son and here I came from a very humble background, I didn't have a financial support system, we were dependent on this. That was very difficult at a very personal level.

At the office level, the professional level, many decisions. And particularly, I remember one of the latest one when Kenya government decided that all the banks in Kenya that had given loans to the national airline, Kenya Airways, would exchange those loans with the shares. And I said no, because I felt the customer's deposit cannot be turned into shares of a failing airline. And I'm glad I did that because eventually the depositors would've lost a very significant amount of money. So that was a real professional test between you and the government of our country and studying it, going to courts where government would have the upper hand, but going all the levels to the Supreme Court to get you a right.

Ranjay Gulati:
So what gave you the courage and the energy to want to do that?

James Mwangi:
Two things. The first one was that it was right. By law, it is wrong to convert depositors' money into speculative shares. I felt it was not legally right and I felt it was not right to be speculative with the deposit, the trust that had been given. So that was a real test and that's what gave me the courage to stand up to that challenge.

Ranjay Gulati:
How have you evolved as a leader? How have you evolved as a person? What has changed in you in this journey?

James Mwangi:
I think the journey of Equity, which is now a journey of 32 years, has been a journey of huge transformation at a personal level. It has been a very humbling journey and it has really molded me because of really great success, to take success with a lot of humility. While I'm the face of the success, it's a success of contribution of many.

The second one is to learn how to be collaborative. To build an organization, you need a very collaborative personality, such that you give room for the others, you promote common understanding, and you give each other space. The third one is what we have talked a lot about, being courageous and vote to make very difficult decision. There are times that you have to make the right decision and concentrate, what we have now done is to use purpose as the compass to point us to the right direction. I remember when COVID struck, beyond making the decision, we asked ourselves, if our purpose is to change lives and to give honor and dignity to people and expand opportunity, what should we be doing in a COVID situation? Our purpose then indicates we should be saving lives.

And we ended up devoting $17 million to protect the doctors in 116 hospitals. And for three years, we provided those hospitals, which were dealing with the COVID situation, with all the PPEs they required because we felt that was the purpose. Now you can see it required a lot of boldness for a bank to take the responsibility of health of a nation. I think I've become very analytical, such that as you take these bold decisions, you appreciate that it's calculated risk. It's not just an open risk. So you become very analytical. You try to simulate a situation, you try to do war games just to ensure, so you become cautious but bold. You're managing your fear very consciously that I will not fail to make a decision, but I will make a decision from analysis of information and fact to reduce the probability of long outcomes.

Ranjay Gulati:
The global pandemic was a time of deep crisis for many companies, large and small. It was also a profound stress test of how leaders and their organizations hued to their core purpose or failed to do so. James Mwangi remembers the day in March of 2020 when the president of Kenya reported the country's first case of COVID and what protocols the country would enact in response.

James Mwangi:
And one of them was to close businesses. And then quickly we asked ourselves, if the requirements is everybody stays at home, how do people pay loans? And then, of course, then we set our research department to do a deep research on past pandemics. And the striking outcome, they did that for 800 years, was that no pandemic has ever been dealt with less than two and a half years.

Ranjay Gulati:
Two and a half years?

James Mwangi:
That's how long it takes for you to find the solution. And truly, if you look at COVID, it took two and a half years to find the vaccine, it took three years to have the vaccine fully given to the population, and that is what informed that if we were to provide the solution to the customers, it had to coincide with the period for which we expected the pandemic. And that is why I said, you have to do deep analysis. You have to have your data as you take these bold decisions. You mitigate fear by having facts and knowledge. It's not that you don't fear, you mitigate fear to make decisions by having deep understanding, deep facts, and knowledge about the situation. And that is then why you're able to make big decisions, because the risk is mitigated. The fear is managed.

Ranjay Gulati:
So once you understood this, and even though you're mitigating fear by calculating how many customers, two and a half years, you still had to make a big decision.

James Mwangi:
A very huge decision. The first one was that we will suspend the dividend pay for two consecutive years. That would build up about $300 million to create capital buffers. At the same time that was not building the liquidity buffers we required because 45% of the loans are no longer paying and they're not paying interest, they're not paying the principle. So we had to go again to the market and borrow $1.5 billion to fortify the bank from a liquidity point of view.

So once we build the capital buffers, then we build liquidity buffers. And we felt this was sufficient then to cushion the bank for three years. Fortunately enough, the customers responded to our empathy by rewarding us with consolidating their bank. So essentially, this withheld dividend became new capital to far the growth for the bank because the bank doubled during the two years of COVID. So that's how we saw it. And purpose, as I said, helps you to find really what you should be doing because, as I said, a leader becomes the true north of where you should be going during difficult times.

Ranjay Gulati:
You have said in other contexts that you will retire in 2032. Whenever that will be, I don't know, but how are you thinking about what do you hope is your legacy? What will be your legacy as you look back at what you accomplished in your time at what is now Equity Group Holdings?

James Mwangi:
Maybe 10 years back, if you asked me that question, I would've said my legacy would've been disruption and democratization of financial services, bringing financial inclusion. We started when only 4% of Kenyans were banked, now 87% of Kenyans have access to financial services. But looking back today, they will be more defined by the work of our foundation. We have 60,000 kids that we have given scholarships. We have about 761 kids we have found global university scholarships. When I look at that, the impact of that generation and what we have really created, their work, most likely, will define what I'll be remembered for. 87% of all those kids are orphans, and yet now they have access to education that they could never have accessed, and I believe we have created the next generation of leaders.

Ranjay Gulati:
In many ways, you're serving that kid without any shoes.

James Mwangi:
Absolutely. It's really the little James Mwangi where nobody would've seen who they would ever become. I feel every child should be given a chance. Society gave me a chance. And if I was never given a chance, Professor, I would not be with you today.

Ranjay Gulati:
I've been speaking with James Mwangi, Group CEO of Equity Group Holdings. Equity is headquartered in Nairobi, Kenya and serves more than 18 million customers in six African countries. Equity's purpose is to provide inclusive financial services that transform livelihoods, give dignity, and expand opportunities.

For more of my conversations with leaders in the business world, navigating the 21st century business environment, visit my deeppurpose.net website. While you're there, you can also find out about my book titled Deep Purpose. Companies that are serious about establishing and working towards a deep purpose find that it delivers game-changing results for the workers, shareholders, and larger society. So, visit with me at deeppurpose.net. This podcast is produced by David Shin and Stephen Smith with help from Jen Daniels and Craig McDonald. The theme music is by Gary Meister. I'm Ranjay Gulati. Thanks for listening.