Local Values Meet Mainland Money

How can Hawaii compete globally without losing local values?

August, 2007

As a kid growing up in Honolulu in the 1940s, former Gov. Ben Cayetano thought all bosses were Caucasian. “The majority of the population was Asian back then, Japanese, Chinese, Filipino,” he says. “Everyone who was of color was usually not a boss. If I went to a service station and saw a white guy, I assumed he owned the place. I didn’t even think about it.”

It was a simpler time, Cayetano says.

David Heenan, a trustee of The Estate of James Campell (No. 40 on the Top 250 list), describes a time in history when Hawaii’s top business leaders were an exclusive group who ran the Big Five companies: C. Brewer & Co., Theo H. Davies & Co., Castle & Cooke, Amfac and Alexander & Baldwin. Heenan considers Dillingham and PRI [Pacific Resources Inc.] part of the equation.

“These six or seven companies were powerful,” he says. “If you were trying to raise money for the Honolulu Symphony or Aloha United Way, you knew immediately who the heavy hitters were. You’d call, and they’d respond with significant checks. They enriched the community in many different ways.”

Things are different now.

Head and Heart

“What’s changed is control of our business infrastructure,” says Colbert Matsumoto, chairman of Island Insurance Cos. (No. 70 on the list). “The key institutions and how we do business are changing hands and, as a result, the decisions surrounding us are no longer controlled by people who live here and consider Hawaii to be their home.”

Take for instance, the Hawaii Business Top 250 list: approximately 32 percent of the companies are headquartered outside of Hawaii. Of those, 17 have foreign parents. “We like to think of Hawaii as a community where tradition rules. Instead, we’ve been rocked by demographic changes,” says Professor Sumner La Croix, of the University of Hawaii’s economics department.

The demographic changes are due, in part, to catalysts in the past 60 years. In 1954, the Democratic revolution put more Asians in local government. In 1959, statehood created vast opportunities for local residents. In the 1960s, commercial planes brought the Islands closer to Asia and the U.S. mainland. And for the next 20 years, Japanese investment in local real estate boosted Hawaii’s international appeal. Finally, the gradual break-up of the Big Five decentralized the business community.

Hawaii’s population today is 1.28 million. Between 2000 and 2006, the increase in foreign immigrants to Hawaii, 5,200 annually, more than offset the loss of 1,500 residents who moved annually from Hawaii to the U.S. mainland.

Local executives say globalization has been necessary for Hawaii’s growth Ð but they are concerned with the loss of local identity. “It’s like a double-sided card,” says Mitch D’Olier, chief executive officer and president of Kaneohe Ranch. “The positive thing is there’s more capital brought to a capital-short state. On the other hand, you have a loss of community leadership because the ultimate decision-makers live somewhere else.” D’Olier served as Victoria Ward Ltd.’s chief executive officer before Chicago-based General Growth Properties purchased the company in 2002. “When I was at Victoria Ward, we simply lacked the capital to take on a lot of extra steps,” he recalls.

Off-island leadership is an issue that strongly resonates with Matsumoto. “For someone who considers Hawaii to be their home, who views their customers as friends and neighbors, you have to think twice about decisions that impact the environment, the people and community at large.”

Hawaii residents have an “island perspective” that affects the way they look at the world and relate to the environment, he says. “When you live on an island, you have a limit, geographically and resource-wise. It affects how we relate to one another. We cannot affect the island attitude despite the external forces.”

As Hawaii businesses compete globally and nationally, they will be forced to compromise, time again. It’s a struggle between the head and heart. “The head feels a world that’s increasingly flat and global with technology, but the heart still has the same attitude of Island economies,” Heenan says.

Locals have struggled with it for decades, he says. Perhaps they have to compromise with bosses who have never set foot in Hawaii. Perhaps they don’t want their Hawaii-born children competing with Mainland-born schoolmates for slots at Punahou or Iolani schools. “There’s this tension. It has existed all the time,” Heenan says.

Some people doubt Hawaii’s effectiveness as a strategic location between Asia and the U.S. mainland. “Our time zone has been used as a rationale for putting headquarters in Hawaii, but we haven’t seen much of that,” La Croix says. “Very few companies are headquartered here because we’re a small market of 1.3 million.”

Others point to local wages that are not up to par with the high cost of living and doing business in Hawaii. At $722 per week, Hawaii ranks No. 24 in the nation for average weekly wages, before Oregon ($719 per week) and after Ohio ($725 per week), according to the U.S. Department of Labor. “The price of paradise is high taxes, and the high cost of living,” says Professor Andrew Mason, of the UH population studies department. “It has an effect on wage costs and the willingness of people to migrate to the state for jobs.”

On the other hand, as the state’s unemployment rate continues to hover at 2 percent, more people may want to do business in, or move to Hawaii. “All it’s going to take are more successful stories of people who enjoy living here,” La Croix says.

The push-pull between insiders and outsiders is nothing new. “Good jobs in this town are a precious commodity,” Heenan says. “If you’re in a competitive race [for a local job] with somebody else who may have done an interesting stint in New York, and you have to play in that league, you start to develop a defense mechanism. You might say, ‘I’m going to call Uncle Wally in the Legislature.’”

What To Do

The big question is: How do local businesses compete with outsiders, without compromising local values?

Occasionally go away. When D’Olier first worked for Hawaiian Airlines, his boss repeatedly called him a Hawaiian Eskimo, for living in an igloo and not paying attention to the world outside of Hawaii. “I was mad, because I was working hard!” D’Olier recalls. “I was in denial, but the more I thought about it over time, I think he was right.” Today, the attorney, former educator and real estate developer stays on top of industries by attending off-island meetings several times a year. “All of us need to keep our eyes peeled for developments in our industry globally,” D’Olier says.

In some cases, local offices with offshore parents have an edge over Hawaii-owned companies. Heenan, a former president of Hong Kong-owned Theo H. Davies group, recalls how “guys from Hawaii who never had the opportunity to work internationally” were able to travel to Canada, Taiwan and Hong Kong.

Know your executives. Why do the same local companies donate to local charities, year after year? Because it’s easier for nonprofits to ask Hawaii-based executives for money. A Top 250 company president who didn’t want to be named says that his firm “gets hit up for donations time and time again.” Although the executive is more than willing to write thousands of dollars in checks every year, he says, “When you ask some of these people who are seeking contributions if they also asked Wal-Mart and Costco, they say they don’t know who to talk to.”

Buy local. Matsumoto of Island Insurance wonders how many Hawaii companies Ð and individuals Ð invest their money in Hawaii-based public companies, such as Hawaiian Electric Industries Inc. (NYSE: HEI) and Maui Land & Pineapple Co. (AMEX: MLP). “People need to think critically about their value choices; what is going to be good for our community?” he says. “It’s a struggle to move in that direction, but I think there needs to be a greater consciousness on the part of the community.”

The same goes for shopping at Hawaii-owned stores and buying Hawaii-made eggs instead of Mainland eggs.

Educate yourself. Local leaders say Hawaii’s workers live in a knowledge-based economy, and to remain competitive, students must be ahead of the learning curve. “Kids coming out of our schools today will graduate and be obliged to interact with the world even if they don’t leave Hawaii,” says Robert Witt, president of the Hawaii Educational Council and executive director of the Hawaii Association of Independent Schools. “Beyond that, many of our grads will find careers that will put them face to face with other countries all over the world.” In addition to developing a good work ethic, he suggests learning foreign languages. Don’t just learn them, but speak them fluently, Witt says.

Practice local values. Jean Hamakawa isn’t partial to local candidates when she interviews potential employees at Bank of Hawaii Corp. (No. 9 on the list). The executive vice president and director of human resources looks for genuine people who will mesh well with the bank’s local values. “You have to careful when you hire,” she says. “You want someone who is supportive of the local community, someone who has the same sense of values when understanding your services and customers’ needs.”

At First Hawaiian Bank (No. 1 on the list), whose parent is Paris-based BNP Paribas, the majority of senior managers were born and raised in the Islands. The key to success at any company is “to establish and maintain and to walk and talk its core values,” says Don Horner, the bank’s president and chairman of the board. “Who the investor is, is important, but what’s equally important is the management team and its values.” Key executives need to adhere to the old adage, to act local but think global, he says.

Cayetano says problems erupt in the business and political communities when outsiders “who don’t know Hawaii’s history try to force their culture on everybody.” Instead of fighting a war, Hawaii-born residents have the responsibility to teach local values. “If people are exposed to our history, our state and our cultural values, in the end, it will all work out,” he says.

Be confident. D’Olier saw it all the time when he coached children’s soccer teams from Hawaii: In the first 10 minutes of the game, his players would hesitate against teams from the U.S. mainland. After a while, they’d gain confidence. “I think everyone needs this type of experience,” he says. “Part of [the lack of confidence] is we live in a remote place that’s very far from other places. We need to believe we can compete with the other guys because there’s an enormous amount of talent in Hawaii.”

How can Hawaii compete globally without compromising local values?
“There has to be more dialogue among players in Hawaii about the choices we’re making, because we’re going to sell future generations short by decisions we make for the short-term convenience. People need to think critically about their choices and ask, ‘What is good for the community?’”

-Colbert Matsumoto, chairman, Island Insurance

“You don’t have to sacrifice your core values to be a global citizen. We have to be well-educated, well-connected, and we have to reinvigorate language training and international training. I think every kid at UH should have an overseas tour of duty.”

-David Heenan, trustee, Estate of James Campbell

“The old adage is absolutely true that Hawaii businesses need to behave local and think globally. We need to be true to our roots and heritage but be strategic in our thinking because the marketplace around us requires to be relevant.”

-Don Horner, president and chief executive officer, First Hawaiian Bank

“We need to stay in touch with what’s going on outside of Hawaii, and that’s one of the things we can do to stay competitive.”

-Mitch D’Olier, president and chief executive officer, Kaneohe Ranch

Hawaii’s Population

¥ There were 1.28 million people living in Hawaii last year
¥ Between 2000 and 2006, the increase in foreign immigrants to Hawaii, 5,200 annually, more than offset the loss of 1,500 residents who moved annually from Hawaii to the U.S. mainland
¥ Overall, the average annual population gain from 2000 to 2006 was 13,000 people
¥ Caucasians (whites only, with no other ethnic mix) increased from 25.9 percent in April 2000 to 28.6 percent in July 2006. The number of Caucasians increased an average of 9,227 persons annually during that period
¥ The mixed-race population fell slightly from 20.1 percent in April 2000 to 19.4 percent in July 2006
¥ In July 2006, Asians (Asian alone or mixed Asian) accounted for 55.6 percent of the state’s total population
¥ Native Hawaiians and other Pacific Islanders comprised 21.4 percent of the population
¥ Caucasians (Caucasians only or mixed Caucasians) accounted for 42.6 percent of the state’s population

You’ve come a long way, Hawaii

In the past, Hawaii’s business community did not always get along. Below are examples of prejudice, taken from Richard Budnick’s book, “Hawaii’s Forgotten History,” a collection of newspaper stories dating to the early 1900s.

March 26, 1996 Ð Business executive Hung Wo Ching dies. He served on the boards of Bank of Hawaii and Alexander & Baldwin and was a trustee of Bishop Estate. He had once said, “The haole community does not realize that by not É integrating their companies, they are forcing young Orientals to go into business for themselves. [We] are going to give them a hard time. It’s short-sighted.”

Feb. 9, 1995 Ð The Hawaii Civil Rights Commission awarded $2,500 to a worker who said someone called him a “haole,” intending it as a racial slur.

Dec. 7, 1983 ÐThe Pacific Club voted to approve women as members. Andrea Simpson was accepted the following year. Honolulu’s first female mayor, Eileen Anderson, received a customary membership on April 30, 1982. She did not accept.

June 21, 1971 Ð When Matsuo Takabuki took oath as a Bishop Estate trustee, Kawaiahao Church bells rang for 45 minutes to protest a non-Hawaiian selected to the position. More than 1,000 people marched in Waikiki the following month.

Feb. 20, 1969 Ð In his State of the State speech, Gov. John Burns said Hawaii’s immigrant population suffered from “a subtle inferiority of spirit É” that became a “social and psychological handicap in life.” He urged lawmakers to “keep Hawaii Hawaiian.”

April 16, 1968 Ð The Pacific Club lifted its 117-year Caucasians-only policy and admitted Philip Ching and Asa Akinaka, the first Chinese-American and Japanese-American members. Some members quit in protest. Three years earlier, Gov. John Burns rejected honorary membership to protest the club’s rejection of Supreme Court Justice Masaji Marumoto.

Dec. 14, 1963 Ð Realtors accused Bishop Estate of preventing non-Caucasians from buying homes in Kahala. Realtors claimed they were required to bring homebuyers to the Bishop Estate office for an alleged ethnic check. The homebuyer had to bring a wedding photo if the spouse was absent. Author James Michener, married to a Japanese, said he left Hawaii because he could not buy a Kahala home.

May 12, 1959 Ð Walter Dillingham, owner of Hawaiian Cement, and developer Henry Kaiser argued at a Waianae public meeting about a proposed Maili cement plant project. Dillingham called Kaiser “a visitor.” Kaiser accused Dillingham of “underhanded” tactics to stop competition. Said Dillingham: “I don’t think it is a very nice thing for a visitor to Hawaii, no matter how many millions he’s spent here, to attack a son of mine, and of Hawaii.”

Nov. 19, 1945 Ð The Outrigger Club apologized to champion swimmer Keo Nakama when the club manager refused his admission. Nakama was invited by member Bill Smith. The Outrigger Club banned Asian guests from eating lunch.

Jan. 16, 1943 Ð John Balsch, president of Mutual Telephone Co., told Washington, D.C., “Japanese will achieve absolute dominance of the islands within 20 years” and that “Hawaii must be kept Caucasian.” Adm. Chester Nimitz and Gen. Delos Emmons ignored him.

Oct. 13, 1922 Ð Gov. Wallace Farrington said Hawaii’s AJAs, who “erect a little Japan” with foreign-language schools, will be confronted with “an increasing feeling of suspicion and distrust.” In 1923, he signed a law requiring all teachers and government workers to be U.S. citizens, excluding Asians from such jobs.

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