Management Insights From The Former CEO of a $1B Company
Don Kania put the company first and held people accountable.
Posted Jul 24, 2017
How does a company grow its revenue from less than $400M to over $1 billion? That’s the growth trajectory Don Kania led when he became CEO of FEI, raising the company’s share price from $19.38 to $107.50 in just 10 years. Learn how Don rebuilt FEI's leadership team to put the company first, when it's appropriate to make executive decisions, and how to rollout strategy changes that hold people accountable. Listen here.
Peter: Welcome to the Bregman Leadership Podcast. I'm Peter Bregman, your host and CEO of Bregman Partners. This podcast is part of my mission to help you get massive traction on the things that matter most. We have a treat today. With us is Don Kania. Don and I have worked together for years, probably a decade or more. Don was with Veeco before he left and joined FEI as CEO. When he was CEO of FEI, he stepped into an organization with a stock of 19 dollars and 38 cents and revenue under 400M dollars. That was in 2006. 10 years later when the company was sold, the stock price was at 107 dollars and 50 cents and revenue was over a billion dollars. So from $19.38 to $107.50 from under 400 of revenue to over one billion, Don did a tremendous job with FEI and he and I worked together for that period of time. So I have both a really nice friendship with Don as well as have learned a tremendous amount from leadership.
Don, welcome to the Bregman Leadership Podcast.
Don: Hi Peter, it's good to be here.
Peter: So Don, let's jump in with what you found was most instrumental in helping you move the organization the way you did. There's obviously a lot of things that you did. I want to focus on both what seemed to have made the most difference and also the people element to it which I think is the team that you had and what you did with the team which I think in our conversations was an important element.
Don: Yeah. I think there was two big elements when you take a step back. One is what the company was doing, the strategy of the company was flawed and I don't that's gonna, let's not spend a lot of time on that today. But I think the other major piece is then to get the job done and to evolve the strategy, you need a team of people and a team of leaders, but more importantly that can execute on that and do it in a way that matches the values that you want to have in your company. And that's, I think, a real important point for people that lead organizations and in particular for CEOs, that how you want this done, particularly reflecting the values that you want the organization to adopt or buy into is absolutely critical to getting the job done that your organization is tasked with doing.
Peter: Great. So let's define this as a story and be really specific about it. What did you find when you stepped into the role and you had enough time to figure out what your team was looking like and what the issues that you were facing were?
Don: A little background that the organization had suffered from a lot of strategy changes and that ended up manifesting itself in the organization with lots of passive aggressive kind of behaviors where particular in the rank and file, if I keep my head down and I do the best job that I can, ah, the strategy will change and whatever, but I'm going to try to do my best.
Peter: And was it a sense of, "I'm going to wait this strategy change out because another one will come and maybe i’ll get on that bandwagon?"
Don: So why bother? Right? So I'll just do the best that I can and that could create some pernicious behaviors, too, where there was a little self-serving activity going on, but at the end of the day, I think we had a good group of people but those, that behavior from management elicited the behavior from the rank and file. That was one.
I think on the management team, there was definitely some weakness with just technical capabilities and certain rivalries and failure to cooperate across international borders within the company, across organizations within the company.
So [inaudible 00:04:18] alignment, a variable strategy, passive aggressive behaviors, and at the end of the day, some of the members of the management team were just weak. And so there was a fixer upper here that required some work.
Peter: How long did it take you to figure that out, right? You're stepping into the role, you don't really know anybody yet. How long did it take you to see what you're describing?
Don: A lot of this comes pretty quick. I remember I committed to the organization when I came in that after 30 days, I had the classic 90 day plan widgetry, right? But after 30 days, I'd get up in front of everybody and tell them what I saw and kind of give them an update. And I'll never forget. I put, "Passive aggressive behavior," on there. You certainly can't put explicit things about the management team but strategy and we need to align the organization with the strategy and that we need to get our behaviors in such a way that we align with the strategy, one, and work together as a team. And I think that was kind of news to the organization that rather than have any kind of individual culture, we wanted a culture, I wanted a culture I guess to be clear, that was about teamwork. Because to get things done, it's a lot of people coordinating on a lot of things. And so we took a very biased view to the organization that would be a teamwork oriented culture and a teamwork oriented rewards system to do with it.
Peter: So you just did something in this conversation that I think you do really well and that I want to point out. And talk to you about how this played into the change that you were making. You said, "Look, what we want is teamwork." And then you said, "Hold on. I want, that's what I want." And I'm curious about the role of you stepping in and saying, "I am the leader and this is ... there's a role for democracy and there's a role for saying, 'This is what's important and how I'm going to make things happen.'" Can you talk a little to that?
Don: Yeah. There's a ... You could tell, there's a little battle in the head on this one, right? Because if you choose a team-oriented culture, right, even as a CEO, you're a member of the team, the management team, in particular. But at the end of the day, you're also the CEO and the CEO has last call on decisions and so that was a weapon that I used infrequently. "I'm the CEO, we're going to do what I want." It happened in a couple of MNA instances. It happened in setting some of the value frameworks for the company, teamwork included. I think you have to start somewhere with some of these things and on some things, I'm just not a big believer that you should build a consensus around it, because I always hate the least common denominator that comes out of that often.
So let's just pick, as a leader, you pick a few things, not everything, and then let that be a framework and then I think you have to be open after that to listen to the nuances to have it fit with what you're trying to get done and how your organization thinks and works and particularly for us, a global organization, where you had, we had a big European content, a big Asian content, make sure that the things that you're outlining or your non-negotiables are clear and understandable to them in their own cultural context. So I mean simplicity's really important.
Peter: Yeah. And again I want to underscore what I think you do and did very, very well which is really making a distinction between signal and noise, that there's a lot of noise in the system and I think you were really brilliant at saying, "Here's what's important. All this other stuff is not important." And sometimes the stuff that was really important, if a consensus wasn't being driven fast enough, you had to step in and you chose to step in and say, "Here's what we're doing because this is important and I don't want to spend six years thinking about this." And I think that was very powerful.
How did you help people not see what you were doing as yet another change in strategy that they could sit out?
Don: I think it was seen that way in the beginning. I think it's the classic change management kind of aspects to this is show success, stay the course, pick, explain, stay the course, repeat. Repeat. And then repeat. But then show those successes, show we're doing this because of this, and then say, "Wow. We did this and this happened." And then I put out another simple ... Things have to be simple for organizations. You're not allowed to change the strategy unless you have new information, substantive new information. And in the past, it was more whimsical. And I think we've all experienced that in our careers. But if you kind of put that barrier to change, okay? You woke up this morning and you didn't like that strategy say, "Well, no, can't do that. Sorry, you're stuck." But if you come back with,
"Oh my goodness, we learned," we were a tech company, "technologically we could or couldn't do something," or we learned something about the market that we didn't understand before or whatever, then we can have a discussion.
And I think that helped create a little bit of a barrier to the next levels being having some capriciousness in what they want to do as well. But repetition, repetition, repetition, stay the course, feedback positively when it's there. Admit, hey, if it didn't work, fine, but I have new information and we're going to try something different, but the only reason we're changing is because we learned something.
Peter: Right. So what kind of pushback did you end up getting? Let's move down the line a little bit - you come out and say, "This is what I'm seeing, passive aggressive behavior, it's really important that we're a team, etc." What did you face then?
Don: I think just first it was the skepticism, right? And then there was a process that you and I went through is to work out to some techniques to make it more real, to explore how we can change the behavior, because that's certainly an effort that requires time and consistency to show change. And then there's some people changes that had to happen because there were members particularly in the management team, the executive team, that carried that passive aggressive behavior a bit too far and I'll admit I moved through slowly on some of those points. So we could maybe talk about some of that. But the idea of team change, which, at the end of day though is the biggest message to the organization that there is real truth to the commitment to change and where we're going. And those that don't buy into it no longer are employed by the organization.
Peter: I've said and I really believe that if you really want to change a culture, you have to do dramatic story worthy things that tell people that you're moving in this particular direction. And firing senior level members of the management team is certainly a dramatic story worthy thing.
Don: Yeah. It reminds of the ... I had an executive who was in charge of all of the technology of the company. It was a tech company, right? So in a way, he held the golden keys of the future. And he was passive aggressive to defiant in certain areas and he had to go. But he was one of the longest tenured employees in a critical position and as I explained to the board, I had made a decision to this, they told me I shouldn't do it. Senior executives told me I can't do it. "You can't do this. You can't do this." And it slowed things down but eventually I had to do it for oh so many reasons and the great learning there is when you know it's the right thing to do, you're right, you need to do it. You always do it too slowly because we're all human beings and it's hard to make that call.
And at the end of the day, though, there was, I closed the loop with this particular executive actually a few years later and he even admitted it was the right thing for him, it was the right thing for the company. And these things have a way of working out and the message to the employee base was fantastic and it really was clear that people understood there's a new leadership, we're going in a new direction, there's a commitment to make that happen, and any barrier no matter how senior or how important or perceived to be critical to the future will be in the way of making that change happen.
Peter: I would argue that the more critical they are to the future, if they are a barrier, the more important it is that you deal with it, right? Because it's so counter-intuitive. If you've got someone who you think is indispensable to the company and they're not showing up in the way that you need them to show up, AND they're super hard to let go of because they're critical to the future of the company, if you don’t let them go, the message you’re sending is that you can get away with things, if you’re sufficiently important. But the message when you turn them over is the same but in reverse. And a much stronger message than if they were less important.
Don: At the end of the day, in this kind of transition because of the human component is so difficult. It's never as bad as you think. And often times, it's never as good as you think either. Organizations are robust and people fill in the gaps and I'm not a believer in super star culture including myself. So that also fit with the culture elements that we wanted to drive forward in the company.
Peter: How do you convey that last statement in practice when ultimately people in senior levels are often trying to show that they're really indispensable or they're trying to be indispensable or they're trying to show all of their value? And that last statement that you made that you're not into superstar cultures and that you're more focused on the organization, first of all, there's a lot of research to support that on this podcast, David Ulrich and I were talking. And the research that he's done is that a well-functioning organization has four times the impact of a group of talented stars. So in other terms, if you had five talented stars in a mediocre organization, they would be much less effective than a stellar organization with more mediocre people.
And so how do you convey that when you have senior leaders who often want to show how great they are?
Don: I think there's lots of aspects to this. One is the right people and we talked a little about that in terms of the organization. But then teaching trust to the organization, that we're all in this together. Therefore, we have to trust each other and then you have to build up that trust. So we can get the job done and then align a rewards system with that kind of behavior. So we're all in the same boat on the class of rewards system, everybody is, and you know what? We'll all share in the win. Now, there's tiers to it of course. The people with more responsibility as you go up the pyramid or whatever, but okay, that's appropriate.
But at the end of the day, my MBO, my payouts were all tied to the same metrics as my entire management team. We're all tied to the same ones and there was no special for you or special for you or whatever. Nope. And we're all in this together and we all need to make things happen and then you make the day to day operations or the rhythm of the company support that. So when you have meetings, they all orient around getting things done, dealing with problems as a group. No finger pointing. Because the other aspect of having a team that trusts each other and when things aren't working and somebody gets rejected and you move them out that reinforce just a lot of the team dynamic, that okay, we're going to reinforce this behavior. We're going to keep this going forward.
And then within the organization, we all have problems. Management's job is to solve problems. And pick the right ones, pick the important ones, and then it's all hands on deck. It's not about the failure of that individual because if you're on the management team, you've passed the test. Now we're dealing with the practicalities of running a complex global organization. Let's deal with the issues. Let's reallocate the resources that we have to get the job done that we all will be rewarded for. That's easy to say, amybe, but it's hard to do and I was thinking more about this as we've talked is that it requires a certain attitude on the leadership side to be a little selfless in this whole process in that you kind of give up some power to get the benefit or working together.
And then if you think about it from a corporate strategic perspective, I always like to say that where I want my executives spending their time is beating the competition not beating each other. And if you can get that energy all focused on let's go win in the marketplace as opposed to A against B. Wow, to me, that's harnessing the effort in the right place, because it's hard enough winning in business, much less dealing with internal, don't want to do it. And I have no patience for it either. So that's sort of, okay, I'm the CEO you got to deal with that part. I don't really care about ... you need to have a strong enough ego to know, "I'm very confident. I can do this really well. Now let's make this organization go."
Peter: I have to say I think your lack of patience has been a real benefit to the organization because there's a certain point at which you just didn't suffer fools. You weren't willing to let things go to a point where everyone gets frustrated with them. You're able to draw a line and more forward and I think that's a very useful skill when you're trying to grow a company aggressively.
A couple of questions Don about first of all the incentives - when you said everybody lives or dies by the success of the company, were there distinctions between people's incentives if their particular function did well and the company didn't or in the management team was everybody compensated in a way that the organization continues to do well, everybody gets compensated? If the organization doesn't even if your particular function did well, then you're not making out while the rest of the organization doesn't?
Don: That's and 80/20 description of it. We did have a component that was local. But at the end of the day, the funding pool for all the bonus programs, the stock programs, was all driven by the company's performance and within two-thirds of your comp, your variable comp was based on global metrics for the company and then there was an individual piece. But by the time you did the arithmetic, it was a relatively small piece of the puzzle. So if you look at that compensation as part of the incentive to successful and I didn't see that as the only thing.
Again, I told people, "If you want to come to FEI and you're only interested in money, don't come. If you're interested in being well reward in a successful organization and driving and doing great things in the marketplace and learning how to do stuff to win and learning how to build teams and working as a team member, then you should come to FEI."
Peter: It's so obvious when you say it. And yet it's so clearly not what you see in most organizations. I can't tell you how often I look at organizations and the focus of competing with each other seems to take precedence over the focus of collectively competing in the marketplace.
Don: And not to say we did everything perfectly because there were, I stupidly created issues at points in time and sensitivities came up when we started to talk about secession planning, how to do secession planning and things like that. And particularly for my position which I decided at the end of the day, it's a stupid idea for the CEO to be involved in secession planning for himself. That's a board responsibility. And the CEO may be a member of the board but it's not the CEO's responsibility to do it and you need to get that off your plate because it creates so much political behavior that you just don't want it.
Peter: So now everybody's trying to be loved by Don in order to-
Don: And everybody else, too, right? So this is just crazy. Don't go there. And that was a very liberating commentary I learned from another executive friends of mine. I was kind of anxious over this whole, because the board was pushing me, "Oh you need to have a secession." Okay. Good. Duh. Then you start thinking about it and then I was struggling with that and I started thinking, "We could do lots of different things." And of course, the consultants want to push all kinds of baloney on you that you shouldn't do.
And then somebody said to me, "It's not your job. It's the board's job." And it was a very liberating comment because I'm a board member and I could certainly offer opinions. But at the end, the board needs to own secession at my level. Certainly, within my team, I own that part. But that I also push down into the organization, too, because the other side learning in this whole thing is when you're building trust and you're building a team, promotion from within is such a powerful tool, because people understand the cultural expectations explicitly because they've lived it. And so it's so much easier to do that than as we've discovered bringing people from the outside into an organization that has a team culture can be difficult.
Peter: It was very hard. There were a lot of missteps which would have been very, very hard to predict but because the culture at FEI was so collectively aligned as a leadership team of people who were fighting together for the team and for the best of FEI as opposed to their individual interests, it was my experience as we were working together, it was very difficult to find people who could step into the team and give up their egos in order to really be part of that team. Everyone talks about it but when it actually comes down to it, share your experience, but my experience was it was very hard to find that.
Don: It was, but having said that, right, if you think about it, it varied between, I think seven and eight, this senior management team over the years. Only two lasted from the very beginning. And then of that, I think about half and half. Half came from the outside and half came from the inside over time. And so we were successful at bringing people in but it was the failures. I learned how to fail fast and pivot.
Peter: That's the point, right? Which is from the learning you made from the first time with that executive is it was, you were much faster at seeing when someone wasn't going to be able to work out and making that call.
Don: And then I think the other comment to make, though, is what came with the teamwork culture was also the fairness and we jointly made a mistake of someone agreeing to come and we hired somebody. We were always very respectful in any kind of separation whether it was a longterm employee or a short term employee. But I don't think we ever completely cracked the nut of how to identify cultural fit via the interview process.
I think that's, people, especially again, executive level, are very polished. They understand the nuance. They're able to present themselves in such a way, but that's probably future work for someone who is employed.
Peter: Don, this is such a pleasure. We didn't get to the values piece but maybe what we can do is do a follow-up. Let's see the comments that we get from the podcast. But we can do a follow-up and have a conversation, if you're willing, about values. Because I think it's so critical and I think it's the kind of thing that most organizations give lip service to and you really worked hard to make it a critical piece of the work that you were doing. And I think that's a useful conversation. So maybe we could pick that up next time.
Don: I'd love to.
Peter: Don Kania is our guest today. Again, he was the CEO of FEI. He brought the stock price from 19 dollars and 38 cents to 107 dollars and 50 cents when it was sold. Revenue went from under 400 million to over a billion. A very successful leadership venture. And I'm so appreciative both of your friendship and of all of our work together and also of coming on the Bregman Leadership Podcast. So thank you for sharing your wisdom with our listeners.
Don: It's been a pleasure. Thank you, Peter.
Peter: I hope you enjoyed this episode of the Bregman Leadership Podcast. If you did, it would really help us if you subscribe on iTunes and leave a review. A common problem that I see in companies is a lot of business, a lot of hard work that fails to move the organization as a whole forward. That's the problem that we solve with our big arrow process. For more information about that or to access all of my articles, videos, and podcasts, visit peterbregman.com. Thank you Clare Marshall for producing this episode and thank you for listening.