Leading successful turnarounds.
Webber Kerr’s President Adam Lloyd meets with Tom Rooney, a CEO and Board Member with deep experience in the energy and industrial sectors, leading corporate turn-arounds for NYSE & NASDAQ and private equity backed companies. He has steered three successful corporate turnarounds, and simply put, is the guy you call in difficult situations requiring immediate operational and leadership expertise.
Tom is a global executive having been the CEO of both public and private corporations. He is the former CEO and Board Member of Energy Recovery Inc., CEO of SPG Solar and CEO of Insituform Technologies Inc. The common denominator following Tom through various environments is that he is a driver of positive change.
AL: Tom, your career began in some of the world’s most prestigious construction management firms, how did you evolve to leading business transformations? Where did you gain the knowledge and experience to have done this successfully three times?
TR: I look back now and laugh at how I got involved in leading business transformations. In retrospect my first opportunity at leading a transformation was a suicide mission given to me by a senior executive looking to teach a cocky young executive a lesson. I was a young executive working for a prestigious international firm while finishing my MBA in Chicago. To bring me back to earth, someone at corporate decided to give me a virtually impossible business unit turnaround. I was eager to take on any business challenge so I accepted the assignment, never grasping the impossibility of what I was up against. The funny thing was that I succeeded, in-fact it was a resounding success and one of my proudest moments.
In doing so I started an exhilarating ten-year run, leading business unit turnarounds, followed by fifteen years of leading transformations of global corporations in various industries. I can't honestly say that I was adequately trained for that first challenge twenty-five years ago but I survived and that led to my being given larger and more complex turnaround opportunities. My skills and experience have grown with each and every challenge.
AL: I can’t help relating you to ‘Winston Wolf’ from the movie Pulp Fiction, the guy you call in to fix a crisis. When you are tapped as a change-agent, where do you begin? What do successful turn-around CEO’s do first when they walk into companies that are bleeding cash and have big problems?
TR: That's funny, I've never thought of myself as a Winston Wolf but you're probably right. Another metaphor might be that of an oncologist brought in to save a cancer patient. The matter is serious, the patient is dying and there's no time to waste.
As a corporate turnaround CEO, the most important thing to do is to ensure that there's enough cash flow to survive. Without sufficient capital and cash flow there's nothing left to turn around. In one situation I even helped raise funds for a significant cash infusion prior to my agreeing to take over as the new CEO.
As critical as cash flow is to a company the real challenge for a turnaround CEO is figuring out what's truly wrong with the company because negative cash flow is only a symptom of underlying problems and not the root cause. When a company is failing it's often difficult to tell what the real underlying problem is, but if you can get to what that is you can put in place specific changes that will make a powerful and lasting impact. Assessing the underlying problem is harder than it sounds. When arriving at companies I've been told by board members things like; we have an employee morale problem, we have a cash flow issue, we're losing market share, margins are falling, our growth has stalled, or we keep experiencing financial/operational surprises. These are all symptoms. In order to turn around a faltering company you need to very quickly figure out the root cause, all the while ensuring that cash flow is managed.
Here's the most important thing that I've learned when turning around a company and leading a business transformation...when first assessing a troubled company one of the most important resources to tap is what I call it's "tribal knowledge", which is to say the treasure trove of information held within a company about the company, its people, its products and its industry. Here's the kicker...about 80% of tribal knowledge is accurate and therefore priceless, but about 20% of a company's tribal knowledge is dead-wrong and is effectively killing the company.
Let me give you an example of what I mean. When I got to one large company and I asked the executive team why they thought they were experiencing rapidly declining market share along with declining gross margins they immediately pointed to the uncompetitive cost of their internal manufacturing - a part of their own vertical value chain - and they suggested to me that we close manufacturing and purchase from outside vendors in order to get competitive again. There was absolutely no doubt within the existing management team that this was what was killing the company and the fix should be easy. I listened carefully but decided to first study the issue analytically. What turned out to be the case was that our internal manufacturing was actually extremely cost-competitive and surprisingly it was our highly-inefficient field operations that were killing our competitive position. We immediately made it a worldwide corporate priority to drive higher field operational efficiencies and the results were immediate and transformative.
Another powerful lesson that I've learned about existing tribal knowledge is that most companies - good and bad - lose touch over time with what constitutes their "value proposition" as perceived in the marketplace. That is if they ever really knew it in the first place. I can't tell you how many times I've been brought into companies with great products and smart executives who were selling a very specific value proposition (such as efficiency) to clients who were buying the product or service but were buying it for some other value proposition (such as durability). The most dramatic transformations that I've led included a deep analysis of what our clients actually wanted and needed in juxtaposition to what we were offering. In one case where we did this we doubled our market share while nearly doubling our margins and we didn't change our products or services one bit. We simply began to describe our existing offerings using the key words that directly addressed our clients' needs. I firmly believe that every company in the world can do a better job of understanding and characterizing its value proposition so as to correspond with the actual needs of its clients. For companies in need of a turnaround this is typically a big issue with a lot of easy upside.
One last comment on tribal knowledge. Never forget that 80% of tribal knowledge is invaluable and it's often the glue that keeps the company together. The successful turnaround CEO places tremendous value on the existing tribal knowledge but very quickly ascertains fact from fiction. Mark Twain once said "It ain't what you don't know that gets you in trouble, it's what you know for sure that just ain't so".
You might be surprised that much of my preceding answer - in terms of what to do first - is surprisingly long-term oriented as opposed to simple cost-cutting, layoffs and other short-term fixes. The reason for this is somewhat simple. More often than not companies get themselves into trouble and need a corporate turn-around precisely because they've become short-term oriented and have failed to address the long-term, deep underlying issues in the first place. Great turn-around CEO's do just enough to handle the short-term cash needs of the company while focusing the majority of their time on fixing the deep underlying issues. Doing so enables the company to survive in the short run, but more importantly to emerge once again as a powerful, prosperous company with a robust future.
AL: From my experience in placing PE CEO’s, there’s often this idea that the multinational, pedigreed executives (GE, Proctor & Gamble types) with an abundance of resources, don’t fit into turnaround situations. What’s your opinion of this perception and should we be challenging this idea more? What should hiring stakeholders look for in turn-around CEO’s?
TR: Fantastic question Adam! I myself started out my career working at an industry-leading multinational company yet I'm a firm believer that hiring pedigreed executives directly out of marquee companies is extremely problematic. Harvard professor Boris Groysberg wrote a great book entitled "Chasing Stars" on this very subject. I agree with the premise of his book, which is that large and very successful "marquee" companies do indeed have a number of very talented executives but it's nearly impossible to differentiate stars from average performers inside of these companies because the performance of a given executive may simply be a reflection of the success and/or the existing infrastructure of the marquee company as opposed to the unique talent of the individual executive. When recruiting an apparent superstar out of a marquee company you might actually find that you've simply hired an average performer who benefitted from the success of the marquee company.
The best scenario is to find someone who spent a number of formative years at a marquee company early in their career but who subsequently moved on and established a personal track record of success at smaller, less sophisticated companies. Such a person presents the best of both world's; elite training and experience with best-in-class practices followed by an indisputable track record of individual accomplishment.
Beyond looking at where a candidate comes from, hiring stakeholders should look for CEO's who have actually demonstrated success individually leading a turn-around at the divisional level if not at the full corporate level. Certain attributes and character traits are also important such as; tenacity, integrity, fearlessness, strong communication skills and highly-evolved people skills. Finally, it's also important for a turn-around executive to have a wide range of experience across different functions. It's important for a turn-around executive to have proven themselves in several functional areas such as operations, sales, marketing, or finance and not simply to have come up through one discipline. In the rapid-fire world of leading a critical transition a turn-around CEO must draw from many different areas of expertise and not simply see the world through one lens.
AL: When you’re hiring and aligning people to lead turnarounds, what types of attributes and competencies do you look for in your management teams?
TR: When I'm brought in to lead a corporate turnaround one of the most important steps I take is to get the right management team in place. At every company where I've been brought in there are some outstanding executives who are already in the proper position, often there are also talented executives who are good but are situated in the wrong position and finally there are some executives who just don't fit the needs of the company going forward and must be replaced. At the outset it's not always obvious which executives fit into each of these three categories but it's critically important to figure it out and do so as quickly as possible. Nothing holds a company back more than having the wrong leaders in top management positions. Having poor performers in high level positions saps the energy and culture of a company. On the other hand mistakenly terminating or demoting a strong performer sends a shockwave through the company making it hard for the new CEO to establish trust at the company. What this means is that the turn-around CEO must act quickly and decisively and must get the right people in the right positions by accurately assessing the existing talent pool and then swiftly bringing in new talent where required.
Every company and every turn-around situation is different but the common attributes and competencies that I look for in my management teams are (in order); intelligence, infectious enthusiasm, fearlessness, and emotional intelligence. It goes without saying that everyone must be a team player with no "lone wolves". Industry experience is important but only if the functional role absolutely turns on having industry know-how. I also like having a mix of introverts and extroverts within my management team - read Susan Cain's bestselling book "Quiet" for more on that particular subject.
AL: What is one universal take-away all organizations should keep in mind when implementing change of any scale into their culture?
TR: The one universal take-away that I would offer is that change is not only inevitable it's also good for a company. Great companies are constantly evolving and changing - reinventing themselves proactively. Weak companies often were once great companies who enjoyed success but then became satisfied with the status quo and ceased to proactively change. Eventually these weak companies reach a point of failure and are forced into making gut-wrenching changes through a turnaround CEO. I like to say that there are three universal truths in life; death, taxes and change. You don't get to choose when you die or when you pay your taxes, but smart companies choose to make change a day-to-day core competency and in doing so a competitive advantage.
The key is to hold onto your core values but challenge absolutely everything else. Cherish what made the company great in the first place but be willing to move on, evolve and grow. If every company in America did this I might just find myself out of work.