Few things strike the occasional visitor to a new country as the “local way of doing things”. Some of these are deeply rooted traditions. Others are petty and annoying habits masked as traditions. Sri Lanka is home to both. Culture (or traditions) is found in exercises that require the most objective analysis. Recruitment is a [...]

The Sundaytimes Sri Lanka

Investment implications of “the Sri Lankan way”


Few things strike the occasional visitor to a new country as the “local way of doing things”. Some of these are deeply rooted traditions. Others are petty and annoying habits masked as traditions. Sri Lanka is home to both.

Culture (or traditions) is found in exercises that require the most objective analysis. Recruitment is a good example where this props up.

Recruiters in older English speaking economies insist on local experience (at times it is a cute way of being racist, especially when the job requires minimum skill). Meanwhile their Asian counterparts insist on overseas experience (a sick colonial mentality and worrying sign of discrimination against qualified locals). Traditions and culture play an important role in investment outcomes and receive scant attention by analysts blinded by quantitative models.

Having spent the last seven weeks in Sri Lanka, I have picked up on three weakening aspects in society at large (and unsurprisingly within listed companies) that can have a material impact on investors (let alone life).

In no particular order they are empathy, networking and negotiating.

Investment implications of these three aspects come in the form of them being the cornerstone of an important determinant of growth: innovation and entrepreneurship.


What used to be taken for granted and a wonderful traditional quality embedded within the country was the ability to care about someone else.

This was partly due to the lack of any state sponsored social security system as well as the culmination of being grounded in a Buddhist-Hindu religious setting. Unfortunately locals seem to have done a complete reversal on a core foundation of a functional, civilised society. Blaming the “war” is a lame excuse. Ironically, societies who are directly impacted by war tend to exhibit greater levels of empathy as it is an important tool of survival. Part of the blame goes to government policies (now accelerating) of monetising every aspect of life in the country. The excessive charges on basic services unveiled in the recent budget are only the begging of a little understood phenomenon when state capitalism meets neo-liberal economic thought. Forty years of throttling the free exchange of views and ideas amongst disagreeing factions forms a significant part of the rest of the explanation.

Building empathy towards another person depends on (at least) two things.

The first is seeing the world from the other person’s perspective. The second requirement is thinking about how you can help and collaborate with the other person rather than thinking about what you can get from him or her. The investment implications come because no one knows the value of these two principles than a skilled entrepreneur. Entrepreneurs succeed when they make stuff people will pay money for, which means understanding what’s going on in the heads of customers. Self-interest is a hard motivator to get rid of easily. Rather, putting another person first is about one’s self control in doing the more difficult task of helping someone first. These two skills have underpinned the most successful venture capital investments (especially at the angel and seed stages) around the world.

Corporate response to the lack of empathy has been to force down the model of a defunct guru from overseas in the hope that an energizing presentation will lead to an explosion of innovation. Judging from what’s on display in the country and seven years of annual reports (with brimming CEOs one might add), this is as failed an experiment as the capital asset pricing model.
Empathy can’t be taught, it can only be discovered in the right setting under the right incentives.
Trust is what enables empathy. Ron Howard and Brian Grazer, top producers and directors in Hollywood have a legendary alliance and partnership. The essence of their partnership was well summed up by Howard: “In a business that is so crazy, to actually know that there is somebody who is really smart, who you care about, who has your interest, and who is rowing in the same direction, is something of immense value.” With the exception of the word “smart” (which is not a prerequisite for building trust), the statement captures the essence of trust.

We are not a trusting people. There isn’t a beautiful, singular, linear explanation as to why that may be the case. Lack of trust is a major impediment towards general economic growth. Specifically, it is critical for inclusive, distributive growth which has thus far eluded us. Trust marks the difference between those societies that will have a thriving venture capital industry (read: Silicon Valley and Israel) and those that won’t. No amount of tax-relief- carrots the government throws in attempting to make the country a ‘knowledge hub’ will ever make up for the lack of trust between people.


Negotiations try to bring people to a compromise when holding two opposing positions. What is a difficult art during the best of times, is completely absent in most situations in the country. Negotiations between minds are almost absent; instead we are dished out a daily dose of high-pitch vitriol and physicality. Consequences are felt across the business spectrum as employers and employees have stooped to saying blatant lies to each other and to customers.

Pathological lying is the outcome of weak negotiation skills, which breaks any chance of building trust and ceases the opportunity to feel empathy.

That completes a vicious cycle for society and prospective growth in the value of companies. Lying is a big deal in a small world. Just how small is the world? And do we really run the risk of getting caught?

To answer that I turned to a classic experiment conducted over a half century ago by noted psychologist Stanley Milgram and his colleague Jeffrey Travers. They found that the world is smaller and more interconnected than most people suggest. In 1967, they asked 200 people living in Nebraska (a small mid-western state in USA) to mail a letter to someone they knew personally who might in turn know a target stockbroker in Massachusetts (a small state in the east coast of USA, about two and a half thousand miles from Nebraska). The researchers measured how many stops and time it took for the letters to pass hands and reach its destination. On average, it took six different stops before it showed up at the stockbroker’s home or office in Massachusetts.

In other words, the original sender in Nebraska sat six degrees apart from the recipient in Massachusetts. It was this study that birthed the phrase and theory, “six degrees of separation.” It highlights the idea that you may share mutual acquaintances with strangers on the other side of the planet.

If it was six degrees in 1967, the social-media madness of 2013 would put us apart at three degrees, at most. As the highly underrated former US president Richard Nixon so famously put it, “It is never the act. It’s the lie that gets you.”

As citizens look for their economic dividends in a low growth world, and inequality in distribution is on the rise, equity returns from the domestic market will remain hostile to “the Sri Lankan way.” The correct response to the charge “I hate your (unprintable) guts” is not to get drunk, loosen your tie, lift your sarong and rant filth at the top of your voice, generously recalling four generations of the accuser’s family. Instead, the correct, economically beneficial (and high karmic value) response is to reach out with the phrase “Please tell me more”. Such an attitude would attract more FDI and account for higher equitable economic growth than any amount of tax holidays ever will.

(Kajanga is the founder of Delaware-based Centre for Investor Behaviour and currently resides in Sydney, Australia. You can write to him at kajangak@gmail.com).


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