How transformational leadership can work

By Andy Savitz

Ethical Corporation • August 4, 2008

New columnist Andy Savitz considers what it takes in a leader to really change a company for the better

Perhaps the only point of agreement between Barak Obama and John McCain is that the United States of America needs dramatic change.

Both candidates are campaigning as change agents.

Obama’s slogan is “Change you can trust”. Meanwhile McCain campaigns on “Reform, Prosperity and Peace,” which, if you stop to think about where America is today, is just another way of saying “change.”

Neither candidate has been specific about what change is needed nor about how he plans to make the change. I doubt that either one has a detailed plan for change that goes much beyond the hope to change his own address to 1600 Pennsylvania Avenue.

Perhaps you’re wondering what this has to do with the theme of sustainable business.

Actually, the connection is simple.

In the world of sustainability, corporate executives are trying to change their organizations in all sorts of ways, from culture and systems to the way they recruit and compensate their people to how they measure and report their performance.

What can this year’s presidential candidates learn from business leaders about creating change?

I’ve written before about how Mike Morris, one of my favorite CEOs (and clients, although I had very little to do with what follows) has created culture change at the electric companies he has been invited to lead, from Consumers Energy to Northeast Utilities (NU) and now American Electric Power (AEP).

At NU, Morris worked with his deputy Dennis Welch, the VP of Environment, Health and Safety to turn New England’s largest power company from a cantankerous, arrogant, regulatory scofflaw into a model of environmental compliance.

On arrival, he announced that he would not tolerate obstructionism or hardball tactics when it came to dealing with regulators.

Within days, he set an example by going to see the Connecticut Attorney General and legislative leaders, and traveling to meet with employees at the plants for face-to-face discussions on critical compliance issues.

At the same time, he appointed Welch to create a company-wide environmental management system.

Plant managers and employees would now be evaluated on their ability to make their programs compliant and keep them that way.

As a result, NU drastically reduced its legal problems and was ultimately able to sell its “troubled” (i.e. historically non-compliant) nuclear power plant (aptly named Millstone), for hundreds of millions of dollars more than its predicted sale price.

Now Morris and Welch are making change again at AEP, one of the nation’s largest electric companies, which also happens to be one of the single largest consumers of coal on the planet.

For over a century, AEP has been an innovator in the electric business, with hundreds of patents to its credit. But the company’s ability to create solutions, along with its gigantic size and financial success, led to a sense of hubris and an our-way-or-the-highway approach to doing business.

When Morris arrived, deregulation and climate change were already rocking AEP’s world. Reliance on coal, our dirtiest source of energy, was increasingly under attack. He realised that the company’s culture needed to change and change quickly.

Morris sent a strong message, first to his leadership team and then through the ranks: “In today’s interdependent world, our ability to succeed as a business will be based on our willingness and ability to work collaboratively with all of our stakeholders, not just tell them what we plan to do.”

He then modeled this behavior, not only by demonstrating direct, solid and useful relations with political and industry leaders, and with AEP unions and employees, but also by showing candor and honesty in discussing the company’s strengths and weaknesses.

For example, Morris wrote in the company’s first sustainability report that, despite many accomplishments, “2006 cannot be counted as a good year for us. One of our employees died on the job doing what should have been a routine task, and a contract worker died in a fire at a construction site… [T]his is completely unacceptable to me, to our company and to our employees.”

The report also detailed the company’s positive and negative environmental, health, and safety impacts—unlike many sustainability reports, which are filled with pure “happy talk.”

After 18 months, Morris brought Welch to AEP as Executive Vice President of Environment, Health and Safety with a broad portfolio and a mandate to create new programs to back up his words. Welch buttressed the company’s health and safety programs with clear accountability standards.

He launched a stakeholder engagement process with Ceres and national environmental organizations, and held periodic environmental calls with them like those the company held with investors and financial analysts.

This year, the company has expanded the process to include stakeholder engagement at the regional, state, and local levels.

Will this new approach provide AEP with the breathing room it needs to develop the new clean-coal and other technologies it must have to succeed for another hundred years? The jury is still out. But it’s fair to say that Morris, Welch and AEP have been a breath of fresh air in the debate over how to address climate change.

Which brings me back to our presidential candidates. If they’re serious about change, Morris and other corporate sustainability leaders like Chad Holiday at DuPont and Katsuaki Watanabe at Toyota, who are transforming their companies for leadership in the 21st century, have a lot to teach them.

Lessons about sending clear, unambiguous messages concerning the need for cultural change, and then matching their own actions to their words. And about altering processes and incentives within an organization (or an administration) so as to reward new modes of behavior.

Fourthly, about establishing lines of communication and accountability with outside stakeholders of every kind, including those usually considered adversaries; and, above all, about practicing genuine transparency—which, of course, is possible only when you really have nothing to hide.

If the next president practices policies like these, he’ll go a long way to restoring the faith in government that millions of Americans have lost in the last decade.







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