Post-Enron management philosophies for surviving uncertain times.
Chuck Watson
Chairman and CEO of Dynegy"The real leaders are those that figure out how to get things done beyond what they could get done themselves."
The Executive
Age: 52
Undergrad: Oklahoma State University, B.S. in business and economics
Board memberships: Dynegy. Founding member of the Natural Gas Council. Also serves on board of Interstate Natural Gas Association of America, Baker Hughes Inc., on the executive committee of Edison Electric Institute (EEI) and is on the board of trustees for the Baylor College of Medicine.
Earlier in Career: Director of Conoco
The Company
Market cap at end of 1Q 2002: $10.56 billion
P/E ratio at end of 1Q 2002: 12.83
Revenue 2001: $42 billion
Net Income 2001: $648 million
Employees: 6,600Managing an energy company used to be so much simpler. Your company was called a utility, your earnings were regulated, and you didn't have to know how to deal with pesky little problems like mergers with a partner that you thought was worth the fire-sale price of $9 billion, but in reality was worth maybe $270 million. Maybe.
Welcome to Chuck Watson's world. It may be more like your own world than you care to think.
From a meager staff of six in 1985, Watson has built Dynegy into a 6,600-employee company with a $9 billion equity market value in 2001, and a compounded growth rate of 45 percent. Yet, even with such impressive company performance, Watson has remained focused on what he calls the Dynegy vision: striving to be a leading global energy company respected for the manner in which it delivers value to stockholders. That philosophy, Watson says, is something he has had with him all along, and was formalized into a vision statement at Dynegy about two years ago. And, he says, it's a philosophy shared by all senior management at Dynegy.
Watson is a big believer that senior management must all buy into the same philosophy if the company is to be run consistently. At Dynegy, he says, most of the senior management has been together for years, and have "grown up" in the company with the same Dynegy vision that Watson espouses.
While vision statements are often maligned in the Dilbert-world of cubicles, companies with managers that truly walk the walk of their vision statements can improve not only employee trust, but also productivity, according to Marti Smye, president of coaching and executive development at Korn/Ferry International. When management is honest and open with its workforce, she says, performance usually improves. Smye says she has seen really big turnarounds in companies where the employees' attitudes were quite negative initially. To make such a dramatic change, she says, the CEO and the senior team made an honest, concerted effort to communicate not only company goals, but also why management was taking particular actions. "[T]he workforce is very forgiving. People do want to believe," she says. "Most people want to do a good job, whether they work to live or live to work," according to Smye. Moreover, she says, most people prefer honesty to dishonesty, even if the news is bad. "It's taken a lot of management a long time to learn that," Smye says.
A Matter of Culture
Of course, one management team that never seemed to learn about honesty and trust spent December and January testifying before Congress. And Dynegy almost merged with that company. Despite a string of successful acquisitions since 1995, Dynegy may well be remembered most for the acquisition that wasn't-Enron.
In retrospect, the cultures of Enron and Dynegy couldn't have been more different. Watson says at the time the ill-fated merger deal was made, he, like most people in the industry, knew that Enron was full of hard-chargers. What he didn't know, though, was how far past the line many Enroners charged.
How did Watson propose to mesh the Dynegy and Enron cultures? Watson is not entirely sure. "From the day of the Enron transaction announcement," he says, "there was a surprise, and one of the biggest was the Enron culture. ... [I]t never dawned on the world that Enron had a culture of living on the edge, and being encouraged to do so," he says.
Indeed, the culture at Enron was one of three reasons that Watson gives for backing out of the merger (the other two being Enron's lack of short-term liquidity and overall long-term viability concerns). Watson says he became uncomfortable with the continuing bad revelations from its then-merger partner. "It is difficult to daily have your merger partner not cooperate. It sort of wears you down," he observes. While initially he thought that he could put the Dynegy brand in front of the Enron business, he now thinks that doing so would have taken longer than he wanted to endure. "It would have been a difficult transition to stamp the [Dynegy] brand [on Enron]. I wouldn't have tolerated having individuals off the reservation," Watson says. Dynegy is a team-oriented company that doesn't encourage individuals to play outside the rules.
A culture of honesty can go a long way, notes Smye, particularly if it is hand-in-glove with open communication. She points to an example of a company that made communication and honesty high priorities during an acquisition that management initially expected would take 18 months to complete. "They tried to reduce the uncertainty as much as possible. A lot of leaders think that once they announce the merger or restructuring, the job's over." But Smye maintains that the merger announcement is where the management job truly begins, because that is the point at which most employees become the least focused. Yet because the company management she consulted with was so honest and open with their employees, Smye says, they accelerated their acquisition by eight months. "For them, that was a huge cost savings," Smye points out.
Watson, too, tries to communicate well and often with employees in newly acquired businesses. To transmit the Dynegy vision and bring the new business into the Dynegy fold, Watson says, management's philosophy and expectations are communicated not once, but several times. Watson says he also makes sure that newly acquired employees understand that their bonuses are not determined solely by individual performance, but also by their team, or division's performance, along with overall company performance. He has a saying about performance: "It's not what you do, it's what you get done." Watson expects teamwork to produce superior performance at all levels of the company. "The real leaders are those that figure out how to get things done beyond what they could get done themselves," he says.
Wading Through Uncertainty
In uncertain times, Smye says, people stop thinking about their jobs, and they start thinking about what the big picture means for their company, and how that big picture is going to impact them. In other words, water cooler conversation skyrockets and productivity plummets. In times of change, Smye maintains, successful companies must be able to get and keep their employees focused on both their own job, and also on achieving the company's goals.
From a strategic planning point of view, management also needs to resist the strong urge to circle the wagons, and focus solely on retrenching as a way to ride out uncertainty, according to David Crosswhite, managing director of Strategos. Some retrenching, such as adjusting the company's cost base, is perfectly appropriate. "But also you need to continue to think about a new, different, and proprietary point of view about the future," Crosswhite argues.
At Dynegy, navigating treacherous waters has meant thinking not only about short-term company performance goals, but also the overall long-term value of the company. Watson says when it comes to keeping the workforce on track in chaotic times, it's important to remember that for employees, "it's not only about making money, but their quality of life-can they be proud of the company, not just satisfied with their job?" That translates into thinking about ways not only to make working at Dynegy more motivating for employees, but also in a manner that adds value to the company.
One of the keys to gaining focused, productive employees during uncertain times is trust in management, according to Smye. Yet, she says, "I think we have a lot of companies not that successful [at] building trust." In the midst of a faltering economy that has caused layoffs-and generated mistrust-stands the huge betrayal of trust that was Enron. As Smye puts it, "Enron has increased distrust ten-fold." That loss of trust means that more than ever, leadership has to be people-oriented in order to get the work done. For Smye, that means a people-oriented management tuned into trust issues. "A people orientation is an important business case, it's not just the Sixties and everyone holding hands and singing 'Feelings'."
Mergers and acquisitions are inherently full of uncertainty. Whether or not they have the same level of uncertainty as the failed Enron/Dynegy merger, Smye emphasizes that the key to managing mergers successfully is open communication, and especially, talking to employees and managers very frankly about their fears during times of change.
Yet confronting fears and change is no easy task. Fears don't go away on their own, Smye says. If not discussed, they go underground, and kill or impede business plans in the form of resistance. Talking about fears-whether or not under their more palatable labels of obstacles or concerns-and developing an action plan for each of them is critical, she says. "You can't skip over that part. That's what really good management has to learn. That's why there's so much more dialogue in a good leadership company," Smye points out.
Crosswhite agrees that having an open internal dialogue is critical for companies to develop a new perspective on themselves. That new perspective, he says, is key to discovering how to be innovative, and to having a different point of view about how to serve customers and stakeholders.
Yet an effective internal dialogue cannot be simply about spreadsheets, facts, and analysis, Crosswhite says. The emotional capital that has been invested by managers and employees alike needs to be addressed. "If you think about the difficulties of working through deep-seated, long-held beliefs, [such as] how we've succeeded in this business, maybe even for the last 50 or 75 years, there is not a spreadsheet that is provocative enough to change those views," he says. "It has to be a combination of fact and face-to-face work." Even with the best of intention, Crosswhite observes, sometimes the internal dialogue about change in the company is not going to be honest, absent facts and data.
It is tempting to avoid looking at issues that have heavy emotional investment. They are often messy, not to mention painful. Many managements would rather avoid such topics altogether-and that's a pretty common reaction, Crosswhite says, whether or not the company in question is in the energy business. But he says such self-examination is crucial. "On an individual level, what happens is that one needs to not only learn new things, but unlearn things that one believes has made the organization successful for the last 25 years, or that one believes has made one[self] successful for the last 25 years."
Companies may think they can avoid the self-examination process, but Crosswhite says he doubts companies can effectively transform themselves without doing it. "[I]t's extraordinarily difficult. If companies have changed without working through that type of dialogue, we haven't seen the example." The only exception to that rule, he says, is a total management swap-out, which is not an acceptable answer for every organization. "You just can't have total management swap-outs as the norm, as opposed to the exception."
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