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I have my own definition of leadership that I've kind of conjured up over
the years.
It's creating an environment which is the operating words,
in which you attract the best and brightest people.
Those people can then use their judgement autonomously to make decisions.
Those decisions are consistent with the mission and vision of the company, and
with whom you share not just the financial but
also and importantly the psychic rewards of success.
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I think the first principle for me of leadership is the idea of stewardship.
And as in contrast to proprietorship, stewardship is about
what we can do together to build something great that we can then be proud of.
And proprietorship is what can you do today to make me more rich and
famous and successful.
And you can walk into an organization and listen to the leadership talk about
the company, and in the first 10 seconds to 20 seconds, you
can understand whether it's a stewardship or proprietorship by the vocabulary.
In proprietorship, the vocabulary is I, me,
mine and me, and in stewardship, it's we, us, and ours.
And as soon as you hear those words, you know exactly what's going on.
I'm a believer in that, in that concept of stewardship,
and then I think the job of leadership is to build trust.
And building trust in my personal opinion means you have to trust first, and
that's something many people are very reluctant to do, not just in business, but
in their personal relationships as well.
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I think the way you build trust is by going first.
And in a company, that means sharing information and
decision making with people beyond what is normally expected.
Can that trust be betrayed?
It can be.
But the cost of the occasional betrayal
is far lower than the benefit of building trust with the rest of the people.
As an example of building trust, I recall when we were a small company of well,
I mean 35 people or so, and the executive committee was
sitting in a room saying, we really have a lot of shares outstanding.
We're hiring these people.
They think they're getting more than they actually are getting because they
don't do the math.
We all do percentages, and it just doesn't feel good.
So we probably ought to do a reverse split of the stock.
And so then, we had this lengthy discussion and of course,
it was like oh well, all the engineers are going to get mad at use because
they feel like something was taken away from them.
I said, well, why don't we let them make the decision.
I went into the company meeting that we use to hold once a week because we were
that kind of company, and I said, walked in holding a $10 bill,
and I said, anybody have two fives for a ten, and we changed money.
And I said, so you're indifferent whether you have a ten or two fives,
which means we're hear to talk about a reverse split, and
then I said we're going to tell you everything we know and
tell you the reasons why we're talking about it, and it's your decision.
Whatever you want to do, we'll abide by that.
So we had this lengthy discussion.
I learned that day that the only thing engineers like better than engineering is
financial engineering.
We decided that we would go ahead and reverse split the stock.
The only objection they've had was, well when we hire people,
we might not be as competitive.
And I say if you tell them what you now know,
you will have won the war of integrity and forthrightness, and
they thought about that and said that's a good thing.
So two things came out of that session that I thought was very interesting.
The first, I sat down with my executive team, who was a little reluctant on this,
and I said, I think it's worth noting that when
we educated them with all these things, that they made exactly the right decision.
More importantly, for exactly the same reasons that we would have.
So therefore, we can trust them to do the right thing if we
give them the information, and I think that was illustrative.
And then the second part of the anecdote is that
in my mind there's no doubt that had we said we're reverse splitting the stock and
then giving them the exact same information, that some of those people
would have walked away feeling like somebody picked their pocket.
Somehow or another, I got screwed in this deal.
So that was an exercise that how many companies give the decision of
capital structure to the engineering base, the 35 engineers.
Nobody.
Trust is, it's like a bank account, it's like a savings account.
Someday, you're going to have hard times, and
you going to want people to stand by you and do the right thing.
And if you haven't made any deposits in the trust bank,
then there is nothing to take out.
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I give advice to my students about board management,
and it's a little different.
So the advice is that if you don't listen to your board, you may or
may not get fired.
But if you listen to your board, you'll definitely get fired.
[LAUGH] And what does that mean?
That means that a board of directors, and I serve on many boards,
a board of directors actually wants the CEO to run the company.
And when they start telling the CEO what to do and the CEO starts doing that,
then, in fact, they're running the company and boards of directors,
they fly in at 30,000 feet once a month.
They do a pulse check, and then they get on their airplane and they fly out.
So they don't really know what's going on in the company.
And the CEO has to actually take responsibility for what's going on.
Now, that being said, you can't be rude, you can't be abrasive,
you can't be confrontational, but you have to take responsibility.
So if you want to do something, you go socialize at an event,
you work with people, you sell them, and it's your job to do that,
it's your job to sell your ideas.
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In 1994, we set in place a five year strategy for the company,
and it called for, in a way, transforming the company in a way that
we couldn't afford to do organically because we were very small.
And so we decided we would have to do this through acquisition.
Unlike many acquisitions, which are you wake up the next morning and
say what's your name again?
[LAUGH] A lot of acquisitions are like that.
But this is one that we had thought about for a long time.
We probably looked at 20 companies over the years.
In 1997, three years later, we finally found the right partner,
and we were both public companies at the time,
and we announced that we were going to do this merger.
And Wall Street got mad at me.
Our stock went down by two-thirds.
Our investors called my board of directors to tell them
to fire that moron that's running the company, ruining a great thing.
Of course, we had been working with the board for years on this idea, so
they stood by us.
We were 36 million the prior year, they were 36 million the prior year.
We closed the deal.
We shed $15 million of their business.
Our stock was in the toilet.
But we finished the year at $128 million, and we became a hero.
Now, two years later, we did the second act
of the same strategy which involved another big gigantic merger.
I went to Wall Street, and I said, remember me?
Last time, if you stuck with me, you made a lot of money?
They didn't listen, they just hit the Sell button and moved on, and they got
mad at me and they called up my board of directors and told them to fire me again.
We merged a $200 million company with a $200 million company, and
we just hit $700 million.
So we did the right thing for the company.
No question, we did the right thing for the company.
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