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September 1, 2009

LEADING FROM THE MIDDLE OF THE STORM

Paul M. Anderson has learned that collective wisdom, if the CEO is willing to listen, is almost always right.

Photo by Trent Bell
 

Paul M. Anderson has handled more than one turnaround. In a 40-plus-year career (see “Paul Anderson’s CV”), beginning at Boeing Co. while he worked his way through the University of Washington, Anderson has been the outsider brought in when things couldn’t get any worse. He has gone from automotive to energy to steel to raw materials and back to energy, carrying with him his tool kit of common sense business practices and hard-nosed decision-making. He has not courted the limelight. In fact, it is almost impossible to find anything written about the man. But the results speak volumes: the turnaround of BHP (see “Chronology of a Turnaround”, below) in the midst of both a recession and a corporate crisis, the merger of PanEnergy with Duke Energy in 1997, the spin-off of Spectra Energy from Duke in 2007.

Forward spoke with Anderson between his trips to Europe and meetings for the three boards on which he currently serves.

Where are you from? Where did you go to school?

Richland, Washington. It’s a town built out in the Columbia Basin desert to support the Hanford Atomic Works. My father was a blue-collar worker, never went to high school. The high school in Richland was wonderful because the average education of the town population was very high, 80% or so had [university] degrees. Then I went to the University of Washington. I worked my way through school while at Boeing, first as a draftsman and then as a junior engineer. But I had an epiphany walking across the University of Washington campus one day. I was behind my counselor and one of my professors, but they didn’t know I was back there. My professor said he thought I would be a great mechanical engineer. My counselor said, “No, he’ll be a lousy engineer because he only cares about the tests.” So I went to Stanford and got an MBA.

All the industries you have worked in—automotive, metals, mining, energy—are suffering. If you put aside the mortgage industry, they may be suffering the most in the recession. Everyone is trying to figure out what to do in this situation.

When I was at BHP and at Duke [Energy], I did exactly the same thing. If I were president of the United States, I’d do exactly the same thing. You have to assess the situation rather than act quickly. Everyone wants you to do something, so the first thing you say, very calmly, is, “We’re not going to do anything today.”

I spent the early days going around to every member of senior management and listening. I asked them about their priorities and objectives. Then on a second piece of paper, I asked, “What would you do if you were CEO?”

In both instances, the collective judgment of the group was correct. They knew what to do, but either they weren’t in a position to make it happen or didn’t have the nerve to speak up or were in the wrong part of the organization. The collective wisdom was always right.

Then you synthesize that and feed it back to the organization. You take three steps, always just three steps.

PAUL ANDERSON’S CV
1962-1963 Boeing Co. Draftsman and junior engineer
1969–1977 Ford Motor Co. Various positions
1977–1990 Texas Eastern Various positions
1990–1991 Inland Steel CFO
1991–1997 PanEnergy President and CEO
1997–1998 Duke Energy President and COO
1998–2002 BHP Billiton CEO and managing director
2003–2006 Duke Energy Corp. CEO and board chairman
2006–2007 Duke Energy Corp. Board chairman
2007–2009 Spectra Energy Corp. CEO and board chairman
BOARD MEMBERSHIPS
Baker Hughes since 1998
BHP Billiton 1998 to 2002, and since 2006
Spectra Energy since 2007
Fluor
Temple-Inland
Kerr-McGee
Qantas

First, you stop the bleeding. There’s a period of triage when you shoot the dying and treat the wounded. You quit what’s losing money, give up on lost causes, get rid of people who are problems. Next, you optimize what you already have. You look for ways to upgrade the portfolio. Finally, you set a strategy for future growth.

You work on them in tandem but you focus on them in that order. You don’t worry about which way to head the ship in the beginning. You talk about the ultimate destination later. You can say, we’re going to Brazil, not Portugal—but I don’t know the port we’re going to tie up at yet.

When I came back to Duke Energy [in 2003, after being at BHP Billiton for four years], I sent a personal letter to shareholders. We had decided to maintain the dividend, and my letter explained why. The cover of the annual report was a handwritten letter from me. When I was at BHP, we wrote a charter, our values, our priorities and I sent that with a handwritten letter to the entire organization. It needed to be clear that this was coming from me, that I was in charge, that I was responsible. You cannot delegate vision and values. The vision, the personal responsibility, comes from the CEO.

People want a father or a mother figure. They want to know that there is someone in charge who knows just a little bit more than they do and who cares about them.

What is the metals industry doing that you think is innovative, that will improve the industry and allow it to recover and be even better after the recession?

I don’t know much about the downstream part of the business any more so I can’t comment on that, but in the upstream part there is a fair amount of innovation. It’s evolutionary innovation, progressive innovation, not breakthroughs. There is so much plant and equipment involved, historical costs in place. Something would have to be unbelievable in order to put it into practice.

At BHP, we had what was called Project M. It was continuous cast sheet, and we put a lot of money into it. When I asked, “What will it take to make money with this?” the answer was that it would displace conventional blast furnaces. But we had blast furnaces. In essence, it would have made everything we had obsolete.

So what we did was enter into a joint venture with Nucor Corp. We put it into a market other than our own and [made] the blast furnaces over there [obsolete].

The current environment has us focused on management when what we need is leadership. How can you break out of the day-to-day to truly lead?

That is the critical difference between a good CEO and a great CEO. In a small organization, you can semi manage and semi lead, but when you become big, you have to make the transformation.

When I got to BHP in 1998, I realized that it was so complex, so big, that I would have to lead. I would wake up in the morning and think about how [the company] was raw materials and energy and Papua, New Guinea, and mines. No one could manage that.

PROTÉGÉS

Many of Paul Anderson’s former protégés went on to serve as heads of major corporations:

  • Kirby Adams, CEO of Corus
  • Michael D. Burke, former CEO of Tesoro Petroleum Corp.
  • Greg Ebel, CEO of Spectra Energy Corp.
  • Fred Fowler, former CEO of Spectra Energy Corp.
  • Charles “Chip” Goodyear, former CEO of BHP Billiton
  • James T. Hackett, CEO of Anadarko Petroleum Corp.
  • David L. Hauser, CEO of FairPoint Communications Inc.
  • Bob Every, former CEO of OneSteel
  • Marius Kloppers, CEO of BHP Billiton
  • Paula Rosput Reynolds, former CEO of Safeco Insurance Corp., now vice chairman and chief restructuring officer at AIG Inc.
  • Gregory J. Rizzo, CEO of Spectra Energy Partners
  • Bruce A. Williamson, CEO of Dynegy Inc.

I spent an inordinate amount of time setting objectives. You have to have something you can measure against. If you have fuzzy objectives or poorly communicated objectives or even bad objectives, you’ve got a real problem. Once the strategy is agreed on, the objectives are in place, each person has four to five things to do and then the organization just kind of goes on autopilot.

The only managing you do as a CEO is to look for exceptions to that. Once you’ve got the strategy agreed on and the objectives in place then when things pop up that aren’t in line with the strategy or aren’t helping meeting the objectives, you have the reporting in place that the red flags go up and you see what to do.

What is different about leadership in bad times versus good?

I have been part of a number of turnarounds, have parachuted into a number of difficult situations. At Texas Eastern (acquired by PanEnergy in 1989), we had eight oil field services subsidiaries that had to be dealt with during the crash of the mid-1980s. BHP was in the midst of a recession and a corporate crisis. At Duke, there was the Enron fallout, the company was teetering on the edge of a liquidity crisis. When you’re in the middle of the storm and have to figure out how to get out of it, there is a different set of things to focus on. It’s very simple because all constituents want the same thing: stability, even-handed management they can believe in. In good times, you’re out there cheerleading rather than tending to the wounded.

Being the outsider makes it much easier. It’s usually just too hard for those that have been there.

When I went to BHP, I did not know a single person. I had interviewed with the board. I was changing companies and countries. I was the first non-Australian CEO. Looking back, I wonder how I had the nerve to do it. You figure out what this group needs and then you give it to them. You have the courage to make the hard decisions.

One of the first things I did at BHP was look at the Ok Tedi mine in Papua, New Guinea. It was the number one enemy of Greenpeace. The mine disposed of tailings via the river. The river had silted up and was becoming acidic. Everyone assured me that it would be fine, that it would clear up eventually. I went and looked and said, “This is just crazy. We have to close this.” Everyone including the prime minister of New Guinea was against it. But it had to be done. The choice was to wait till someone died, till we had a Chernobyl-type incident.

It’s easier if deep down you want to do what’s best rather than being out for yourself. People [figure] that out very quickly.

If that is the case, do we need to replace all the CEOs? Are they the reason we’re in this economic crisis?

It is true that most of the major corporate failings are due to a lack of leadership. You can’t create something out of nothing, but you can certainly destroy it.

Auto executives are a little inbred in their thinking. When Henry Ford II was alive, when I worked there, imports were just coming into the States. He said that he wasn’t worried about imports because no one he knew drove a foreign car. I thought: of course, no one you know drives one, you live in Grosse Pointe, Michigan.

That was also the case at Inland Steel. The vast majority of the company had worked there their whole lives. They were a good, close team—I can’t fault them for that—but they could also circle the wagons and block out the rest of the world. They would talk about when the good old days would return. Well, of course, they didn’t return. They were sold to Mittal [in 1998].

There does have to be major cultural change. I’ll give you an example: When I went to BHP, it was 45% steel. The entire management of the company came up through steel. Regardless of what you did, you had started in steel. A lot of them didn’t even know what their issues were. Group-think had taken over.

Their fiscal year ended at the end of May, so no one ever wrote about the company. Analysts, the rest of the world couldn’t deal with it because they’d have to make a five-sevenths adjustment. No one at BHP was worried about that because it had just always been that way and all of Australia had gotten used to it being that way. There were hundreds of things like that. You couldn’t find the company on registers because it was listed under T—the company was The Broken Hill Proprietary Company Limited.

You don’t have to throw all CEOs out, but you have to throw enough of them out that things begin to change. The CEOs we have need to start listening. When you do that, the buy-in you get from the organization is unbelievable. CEOs need to understand that they are the servant of the organization. There is amazing knowledge in organizations that never gets to the top. That’s the way societies function. It’s not the two or three people at the top that make it work. Corporations can, too.

 

THE ANDERSON MBA

Twelve former employees of Paul Anderson either are or have been CEOs. (See list.) He thinks of them as protégés. “They worked for me long enough that they must have learned at least some of it from me,” he says. They also show, “I’m pretty good at picking people and at surrounding myself with people who are smarter than me.”

Anderson does have “10 basic common-sense ways to think about management” that he has used with MBA classes and that his protégés must have picked up along the way.

  1. Only you and your mother care about the reasons. If you didn’t get the sale, didn’t hit the target, no one cares why. Tell it to your mother.
  2. Take responsibility for yourself. Focus on what you can control and don’t blame things like your gender, your race, your religion, your height for your shortcomings. Go back to school. Learn to speak in complete sentences.
  3. Seek responsibility, not authority.
  4. Make the most of your job, no matter how bad. Figure out how you can learn something from it or use it to get to somewhere else.
  5. Make the most out of your marriage. Too many people compartmentalize their lives. Use your personal life to enrich your professional life and vice versa.
  6. Start thinking about what will happen if you succeed rather than if you fail.
  7. Main-event management—focus on what’s important. Don’t be distracted by things like organizational politics.
  8. Listen. That’s absolutely critical.
  9. Be sensitive to how loud your voice becomes as you get higher up in the organization.
  10. Don’t be seduced by success. You’re never quite as good as you think you are. Julius Caesar had a slave who walked beside him on his triumphal processions through Rome. The slave’s job was to whisper to Caesar, “You are just a man.”