why culture matters: lessons from an EEI panel discussion of energy executives

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1 why culture matters: lessons from an EEI panel discussion of energy executives As the energy industry environment undergoes significant changes, electric companies must shape their cultures to adapt and succeed. This was one of several key takeaways from four prominent energy leaders who participated in a dynamic panel discussion on corporate culture and strategy moderated by Senn Delaney Chairman Larry Senn at an Energy Matters breakout session at the 2013 Edison Electric Institute (EEI) annual convention. This article is a recap of the discussion and key learnings.

2 About the roundtable panelists Larry Senn, Senn Delaney Chairman and Founder Larry Senn is chairman and founder of culture-shaping firm Senn Delaney, a Heidrick & Struggles company. He has been referred to in business journals as "the father of corporate culture based on his field research: the first systematic study ever conducted on the concept of corporate culture. His studies were published as his doctoral dissertation in This led him to an early personal vision of finding a way to enhance the lives of people, the effectiveness of teams, and the spirit and performance of organizations. That vision became Senn Delaney; the first firm dedicated to shaping the culture of organizations. Larry is the author of a new book, Up The Mood Elevator, and coauthor of several earlier books, including the best-selling book, Winning Teams, Winning Cultures, and 21st Century Leadership. Thomas R. Voss, Ameren Corporation Chairman President and Chief Executive Officer Thomas Voss leads Ameren Corporation, a Fortune 500 company with assets of $23 billion. More than 9,000 employees serve 2.4 million electric customers and more than 900,000 natural gas customers across Illinois and Missouri. Voss was elected president and chief executive officer in May 2009, and in 2010 was elected chairman of the board of directors. He previously served as executive vice president and chief operating officer from 2004 to In December 2006, he was elected to the additional position of president and chief executive officer of Ameren s Missouri rate-regulated operations. He has been a champion of diversity both within and outside Ameren. Patricia Pat Kampling, Alliant Energy Corporation Chairman, President and CEO Pat Kampling is chairman, president and chief executive officer of Alliant Energy Corporation. Her broad experience within the utility industry has proven essential to Alliant Energy s ability to ensure competitive costs and reliable service for customers, while strategically leveraging a balanced generation portfolio. Kampling has responsibility for leading the performance and strategic growth of Alliant Energy s regulated utility companies (IPL and WPL), serving customers in more than 1,300 communities throughout Iowa, Wisconsin and Minnesota. She also provides executive direction for Alliant Energy Resources, the parent company of Alliant Energy s nonregulated businesses. Kampling is also a member of the board of directors of American Transmission Company and Briggs & Stratton Corporation. Before joining Alliant Energy in 2005, Pat spent more than 20 years in increasingly responsible finance, treasury, regulatory and engineering positions within Exelon Corporation. Andy Vesey, AES Executive Vice President and COO Global Utilities Andy Vesey leads AES's businesses in 10 countries (Argentina, Brazil, Cameroon, Dominican Republic, El Salvador, Kazakhstan, Nigeria, Panama, United States and Ukraine) and the AES Global Construction and Engineering group. The Utilities group includes more than 50 generation plants serving 11.5 million customers. Vesey joined AES from FTI Consulting Inc. where he was a managing director of the Utility Finance and Regulatory Advisory Practice. Prior to that, Vesey was a partner in the Energy, Chemicals and Utilities Practice of Ernst & Young LLP. He is member of the board of directors of several AES companies as well as the Organization of American States' Trust for the Americas, the Corporate Council on Africa and the Institute of the Americas. Craig S. Ivey, Consolidated Edison Company of New York, Inc. President Craig S. Ivey has been president of Consolidated Edison Co. of New York Inc., a regulated utility with 14,000 employees serving New York City and most of Westchester County, since The company is a subsidiary of Consolidated Edison, Inc., one of the nation s largest investor-owned electric utilities, with approximately $14 billion in annual revenues and $34 billion in assets. Ivey also serves as senior vice president of Virginia Electric and Power Company. He joined Consolidated Edison from Dominion Resources Services Company where he served as senior vice president of Transmission and Distribution from 2007 to 2009, senior vice president of Electric Distribution from 2006 to 2007, and vice president of Electric Operations from 2004 to He serves as a director of Electric Power Research Institute, Inc. He is also a trustee of Hospital for Special Surgery, Inc. Why culture matters: learnings from an EEI executive roundtable [2]

3 An agile culture is critical to organizational success and should be a top priority of energy leaders, a panel discussion reveals Four prominent energy leaders participated in a dynamic panel discussion on corporate culture and strategy moderated by Senn Delaney Chairman Larry Senn at an Energy Matters breakout session at the 2013 Edison Electric Institute annual Senn Delaney Chairman Larry Senn moderated the panel discussion and provided an overview on corporate culture and how cultures can be shaped to improve spirit and performance. convention. This article is a recap of the discussion and key takeaways. As the energy industry environment undergoes significant changes, electric companies must shape their cultures to adapt and succeed. Senn Delaney held a CEO panel discussion at the 2013 EEI conference to investigate what various companies are doing to reshape and implement dynamic new cultures and to enhance performance and better meet the changing demands on the industry. More than 125 energy leaders attended the session to glean insights from our distinguished panelists on why corporate culture matters, how it can be shaped and how to lead culture change. It was a dynamic, thought-provoking experience with many takeaways (see page 7). Panelists included: Larry Senn, Senn Delaney chairman and founder Thomas R. Voss, Ameren Corporation chairman, president and CEO Craig S. Ivey, Consolidated Edison Company of New York, Inc. president Patricia Kampling, Alliant Energy Corp. chairman, president and CEO Andy Vesey, AES executive vice president and COO Global Utilities What is culture and why does it matter to organizations? Senn Delaney Chairman Larry Senn began the discussion by providing an overview on why organizational culture matters, and how it can impact organizations, either positively or negatively. Most companies are like dysfunctional families and they experience turf issues, hidden agendas as well as personality issues. Ameren s Tom Voss agreed: You have a culture, whether you want it or not. When it tends to be bad, it will get worse, when it tends to be good, it will get better. Senn said that when people are at their best, they tend to live the following values or essential qualities seen in healthy, high-performance cultures. They are an interconnected and mutually supporting set of values and behaviors. They all need to be present in sufficient strength to create the positive impact. performance/accountability value: includes a results focus, high expectations and an emphasis on personal accountability versus blaming or complaining collaboration/teaming value: promotes cross-organizational teamwork, mutual support and decisions for the greater good, rather than fostering silos change/innovation/agility value: encourages innovation versus bureaucracy, openness to change versus resistance, support for new ideas versus judgment and leaders as coaches versus bosses ethics/integrity value: leaders model integrity and congruence in words and deeds, and exemplify ethical behavior on a daily basis positive spirit/respect value: represents openness and trust, respect and a positive, hopeful and optimistic environment service/purpose value: focuses people on the organization s purpose and who they serve versus a focus on internal factors safety and reliability value: critical to energy companies, this value is Why culture matters: learnings from an EEI executive roundtable [3]

4 Panelists explored implications of culture on performance, how it is shaped and why it is a leader-led process Culture determines how you do everything. Culture impacts how you define the future. You have to continuously adapt your culture because everything changes all the time. Andy Vesey, AES EVP/COO Global Utilities People expect you to behave differently as a leader and talk more about our values and behaviors. The organization is asking for direction. Patricia Kampling, Alliant Energy chairman, president and CEO We work on our culture at Ameren and we believe that the leadership needs to lead from the front with change and improvements. Tom Voss, Ameren chairman, president and CEO set out as a distinct set of behaviors to serve as reminders of remaining focused on the critical need for safety and reliability in all actions and thinking Shadow of the Leader Senn also introduced the important concept of the Shadow of the Leader to provide an understanding of how much influence top leaders have over the culture and how the rest of the organization behaves based on how the leaders act. We do as the leader does, not as he says. That s why culture change has to start with the leader! People tend to copy behavior and focus on what the leaders are doing, not on what they are saying. Several leaders made observations based on their own experiences as leaders of company behaviors and values. The loudest communication tool you have is lead by example, agreed AES's Vesey. Ameren's Voss noted: We work on our culture at Ameren and we believe that the leadership needs to lead from the front with change and improvements. Alliant Energy s Kampling admitted that she has in the past underestimated the power of the leadership shadow. When I started in leadership roles, I underestimated the shadow of the leader. You need to be overt in your expectations of others; people expect you to behave differently as a leader and talk more about our values and behaviors. The organization is asking for direction." She added: I realize that my staff shadows the leader so I am conscious of being a good role model at all times. This is of vital importance as I cannot be everywhere at all times. I also realize that my values define the company. Making sure key leaders are part of the culture-shaping process makes a huge difference, added Voss. It is the number one job of leadership to address the cultural issues, agreed Vesey. Company cultures must be accountable at all times Energy companies are no strangers to crises, and they tend to respond well during them, such as a massive power outage caused by a hurricane or flood. But some of the panelists pointed out that a high level of response and accountability can be lacking at other times. Companies have almost ideal cultures when a crisis happens and they rally together, however, after the crisis is dealt with they often revert back to the way it was before, noted Voss. He added that Ameren was once like this, but the culture is far different today. During our worst periods we blamed everything and everybody; God, the weather, the governor so we had to change our way of thinking and take responsibility and stop feeling like a victim. That is not easy in a company with 9,000 employees! Why agility matters Energy companies, like so many businesses, have to react faster to a quickly changing and turbulent marketplace today. Long-term strategy is a thing of the past, panelists noted. They all commented on the need for an agile work environment to respond quickly and Why culture matters: learnings from an EEI executive roundtable [4]

5 remain competitive. AES s Vesey remarked that a large part of what leaders do is try unsuccessfully to predict the future, when they should be focused instead on creating agility. We as people are wired for security and we believe that tomorrow will be the same as today. We are constantly looking for patterns and trends to follow and then when the trends don t work in our favor, we throw around blame and say we are not agile. But the job is not to predict the future; the job is to build strategies for all scenarios. The culture we should create is a culture, from the top down, which prepares a company for many scenarios and outcomes." Vesey added: "In essence you are building a watchtower, creating an agile and anticipatory culture within the organization. And if you want your people to do this, you need as leaders do this first! This is not a one-time job, he warned: You have to continuously adapt your culture because everything changes all the time. culture versus financial performance EBITDA margin growth in enterprise value to book value growth in net income to sales performance by quartile bottom cultures top cultures 68 Organizational health: The ultimate competitive advantage. Scott Keller and Colin Price, McKinsey Quarterly June 2011 Organizational culture is now well researched and strongly connected to financial performance, and is the ultimate competitive advantage. Senn Delaney's Larry Senn referenced a McKinsey article describing organizational health being about a company s ability to align, execute and renew faster than competitors to sustain performance x 2.0x 1.5x Kampling agreed: Being change-ready is important; it s OK if we don t know it now. Reaching that state is the big challenge. Larry Senn noted that another industry trying to navigate a sea change is health care. That is why we have a lot of clients in the health care industry. They want to be ready for what is coming at them. They want agility. Creating a positive spirit through the essential values Ameren s Voss said there is an ongoing, conscious effort to focus on a positive spirit in the Ameren culture, even if that means some people who did not fit in to the desired culture have to move on. We make a conscious effort to improve our culture and improve how people feel about themselves, however, we realize it is very difficult and some of our people could not get out of this mode of thinking and they actually had to retire early. We now make a constant effort to elevate the mood. One way I do this is give people who are doing something I appreciate a blue chip with my name on it as a When you get your culture right, you have a two to one chance of succeeding. Tom Voss, Ameren chairman, president and CEO Voss said that culture has been a key success factor at Ameren. When you get your culture right you have a 2:1 chance of succeeding. Since we started this contoken of my appreciation. The feedback has been great. Kampling said she pays particular attention to this, because she knows people react better and are more engaged in a positive environment: I like to reinforce the positive at all times. She also advised people to always keep the culture in mind when choosing future staff or new roles. Don t take a job for the title; take it for the culture! As a young, female engineer starting her career, she made a conscious effort to do this rather than trying to fit in to a culture. Do this and you will stay longer, have better opportunities to grow and enjoy yourself. Culture s impact on performance A healthy, high-performance culture impacts financial performance, increases employee engagement, and can have a positive impact on safety and reliability and customer satisfaction, Senn told panel attendees. He referenced a McKinsey Quarterly chart that describes organizational health as being about a company s ability to align, execute and renew faster than competitors to sustain performance, and is the ultimate competitive advantage (see graphic above). We tend to treat culture as a soft issue but it should be considered hard, said AES s Vesey. Culture determines how you do everything. Culture impacts how you define the future. Culture impacts how employees interact. Why culture matters: learnings from an EEI executive roundtable [5]

6 scious effort of focusing on our culture, our reliability is up, our performance is up and our stock price is up. Culture can help troubled companies overcome challenges What company has not faced major changes in the marketplace? Energy companies have many challenges and most of them will require a culture shift to overcome those challenges. Craig Ivey, president of Consolidated Edison Company of New York Inc., shared how the utility is addressing the cultural challenges that arose from an audit. We are going through a tremendous amount of change at the moment. After an internal audit, we identified four barriers to long-term success. all four combined might be insurmountable, he told the audience. Safety was also a big issue. When he took the reins, ConEd had a OSHA recordable safety record in the third quartile of performance. Today, it has achieved its best safety record ever, with an OSHA incident rate of 1.2 with no fatalities, a 45-percent reduction in injuries. He has also worked hard to change the command and control, military-style culture that created a sense of fear and inhibited authentic communications. At Consolidated Edison, it was a very command-and-control culture; people were fearful of people at the top because leaders were often recruited from the military with the result that it was very difficult to obtain intelligence from the field. When people are fearful, they won t give you information you need to know as a leader. Ivey stressed the importance of culture change being owned by the CEO and top leaders. I had to create a situation in which people did not feel uncomfortable talking to me. Every moment of every day I have an opportunity to show that I am just like them. I cry, I laugh and I put my pants on one leg at a time. I get in line for coffee just like everyone else and I hold the elevator. I want people to get over the perception they have of the leaders. So, for me the leader s shadow is one of the most important things. The four barriers include: financial (high investments) regulatory (relationships with regulator, micro-management, fees & fines) environmental (fishbowl situations) cultural (we don t see ourselves as others do; command-and-control culture) Every moment of every day I have an opportunity to show that I am just like them. I cry, I laugh and I put my pants on one leg at a time. I get in line for coffee just like everyone else and I hold the elevator. I want people to get over the perception they have of the leaders. So, for me the leader s shadow is one of the most important things. Craig Ivey, Consolidated Edison of New York Inc. president Any one of these barriers is significant; Why culture matters: learnings from an EEI executive roundtable [6]

7 Learnings from the 2013 EEI panel on why culture matters: What is culture? Culture is creating a sense of who you are as an organization and representing that culture in everything that is done in the organization. Culture is the history of the organization that defines how things get done. Culture is the attitudes, belief sets, values, written ground rules, and unwritten ground rules that set the tone of the organization. Why does culture matter? You can t predict the future or even plan long term, so you need to create an agile, anticipatory culture to be able to quickly adapt to changing business situations. Culture can work for or against you; when you get the culture right, you have a 2:1 chance of succeeding. Culture determines everything you do and it should be the #1 job of leaders to address cultural issues. A leadership focus on improving culture positively impacts performance, reliability, safety and even stock price. Companies with a strong culture perform better, are more agile, resilient and financially successful. What should top leaders focus on regarding the culture? Culture tends to be treated as a soft issue, but it should be considered a hard strategy. Culture should be a top concern for CEOs; culture transformation must be part of the organizational strategy, as important as setting strategy and vision. Executive leaders cast a powerful shadow on the organization and therefore must walk the talk and be role models of the culture and values or they will be seen as unimportant. In order to change a culture, key leaders must be emotionally committed to personal change and aligned around the desired culture's values and key drivers of the culture. Culture change can occur from the top down or from the bottom up; it is important to engage people at different levels of the organization to embed cultural change. Bring the desired culture to life through a positive spirit and appreciation for those individuals who demonstrate the desired behaviors. Culture fit should be a top consideration in hiring and in choosing your own roles and companies to work for. Learn more about how you can shape your culture Senn Delaney, a Heidrick & Struggles company, has decades of experience guiding the leaders of energy and utilities companies to create thriving organizational cultures that achieve consistently better business results. Learn more about work in the energy industry: Contact us: Nick Neuhausel, Partner & EVP and Energy & Utilities Practice Leader nneuhausel@senndelaney.com t (562) Why culture matters: learnings from an EEI executive roundtable [7]

8 about Senn Delaney Senn Delaney, a Heidrick & Struggles company, is widely recognized as the leading international authority and successful practitioner of culture shaping that enhances the spirit and performance of organizations. Founded in 1978, Senn Delaney was the first firm in the world to focus exclusively on transforming cultures. More Fortune 500 and Global 1000 CEOs have chosen Senn Delaney as their trusted partner to guide their cultural transformation. Senn Delaney s passion and singular focus on culture has resulted in a comprehensive and proven culture-shaping methodology that engages people and measurably impacts both the spirit and performance of organizations. corporate offices Los Angeles 7755 Center Avenue Suite 900 Huntington Beach, California, t (562) London 40 Argyll Street London W1F 7EB United Kingdom main office line: (from the U.S.: ) Web site: Video channel: sdtv.senndelaney.com 2014 Senn-Delaney Leadership Consulting Group, LLC. All rights reserved. No part of this may be reproduced in any form without written permission of Senn-Delaney Leadership Consulting Group, LLC