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Grupo Aval S.A. CEO Delivers Durland Lecture

10/26/2012

Luis Carlos Sarmiento, Jr., MBA ’85, discusses value creation in times of mass destruction


The 25th Durland Lecture—Johnson’s most prestigious speaking engagement—was delivered on Thursday, October 18, 2012 by Luis Carlos Sarmiento, Jr., MBA ’85, president and CEO of Grupo Aval S.A., Colombia’s largest banking firm.

Sarmiento began the lecture by noting his deep affection for both Cornell University and Ithaca. It was clear throughout the lecture that he 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.

The first half of Sarmiento’s lecture was dedicated to explaining how bankers and other leaders in financial services were responsible for the current economy. He traced the beginning of the financial crisis to the junk bond era, which, he said “forever changed America’s way of doing business.” Sarmiento 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. He discussed junk bonds, Enron, and other 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, who had filled some of the gaps created when banks in the Global North 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 company has 120,000 shareholders. Given that Grupo Aval shares trade at the U.S. equivalent of $.10 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. Grupo Aval has been built the difficult way, with what Sarmiento, Jr., called “honest hard work.” He emphasized that the financial services industry would not regain credibility until the values of honesty, diligence, social responsibility, and good business sense prevail once more.

The Durland Lecture series was initiated in 1983 by Roy H. Park - late chairman of Park Communications - and a group of donors. Past Durland lecturers have included Thomas W. Jones, co-chairman and CEO of Citigroup’s SSB Citi Asset Management Group, Abby Joseph Cohen, managing director of Goldman, Sachs & Co., Mark Bertolini, CEO of Aetna, and Lucio A. Noto, chairman and CEO of Mobil Corp.

 

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