Cerberus Operating and Advisory Company CEO Bob Nardelli: Secrets of an Operational CEO
January 20 2010 by ChiefExecutive.net
A frequent speaker at our annual Leadership Summits, Bob Nardelli was asked to give practical guidance to CEOs for managing in tough economic times. Whatever their differences, Jack Welch once acknowledged that Nardelli was the best operations executive he had ever encountered in his lifetime- a remarkable statement considering the source. A 30- year veteran of GE, Nardelli served as president and CEO of both GE Power Systems and GE Transportation Systems. In 2000, he left GE to become chairman and CEO of Home Depot, and in 2007, he became chairman, CEO and member of the board of Chrysler.Â Credited by many with saving the company from extinction, he resigned in May 2009 to serve as the CEO of private equity firm Cerberus Capital Management’s operating and advisory company. He now oversees the operations of some 52 portfolio companies with over $48 billion in combined annual revenue.
During his career, Nardelli encountered virtually every significant issue facing CEOs in recent times: turnarounds, rebuilding iconic brands, CEO compensation controversies and dealing with Washington. Highlights of his remarks follow.
One of the basics in any recovery is finding the best talent. You can never “over-talent” a job in today’s environment. Sometimes I would put individuals on the job to grow them, other times it was to grow the job. Guys would come to me and say, “Bob, I’m bigger than that job.” I would say, “That’s exactly right, because I want you to grow the business.” That’s the environment we’re in.
Confronting issues head-on is something that has been critical. The Chrysler experience probably was one of my most painful personal experiences, particularly the furlough of people in order to survive. To get backing from the federal government, it was necessary to provide liquidity. Any time CEOs approach this solely on the basis of numbers versus families, they are in danger of losing the sensitivity you need in making these decisions.
Bob Nardelli, CEO of Cerebus Operating and Advisory Company, discusses leadership in turbulent times
Managing Turnarounds in Turbulent Times
We [CEOs] have to look inside ourselves and ask, “Do I really believe in what I’m doing?” Do you pass that mirror test every morning? At Home Depot, we took sales from$45 billion to $90 billion. We had four consecutive years of earnings per share [growth] of over 20 percent. We added 1,000 stores. We went into Mexico, Canada and China. We created an $8 billion supply company. We went online and in 18 months added $1.3 billion in sales. We took the dividends from basically nothing to over 90 cents.
Sizing Up Cerberus Portfolio Company CEOs vs. GE’s
All businesses must have good strategies. These must be operationalized, then properly resourced. My code acronym is SORP:Â Strategic Operating and Resource Planning. One must be very granular in the daily accountability of the operationalizing of strategic plans. This means having transparency, accountability and consequences.
The minute you mention consequences, people think you’re threatening to fire them. But that’s not it. When I was running Power Systems, if we didn’t deliver, I had see through accountability-not to the utility but to the end consumer. If I didn’t deliver a turbine on time or didn’t meet the expectations relative to output and performance and cost of ownership, I had to be accountable to my customer’s consumer. You have to think hard about who you are truly serving.Â Â
Now, the way we’re managing the portfolio today is a little bit different from GE because GE relied a bit more on command and control. Every one of Cerberus’s portfolio CEOs has his own board, so my role is a little more challenging because it’s more about influence. Now that costs are under control we’re thinking about top-line growth in this environment, because it will position us better when the recovery comes-and it will.
Private Equity vs. Public Company Scrutiny
When I left Home Depot, I wanted to go to a private equity firm to get under the radar screen; no visibility, just go do my job. Then at Chrysler I was called to attend four Congressional hearings, so it kind of didn’t work out that way for me. I got ambushed, as all of you know. Shame on me. We flew to the first hearing, drove to the second one. I stayed at Holiday Inn Express and at the TA truck stop just to validate that I was going through a lot of pain to sit at the Congressional hearings for six hours straight, while Congress people were coming and going and having a gay ol’ time with us in Washington.
It always looks a little greener on the other side. You don’t have the annual shareholder meeting, but we do have an annual investor meeting, and those investors, quite honestly, unlike the analysts at the AGMs, know what they are talking about. It’s their personal money on the line.
Short-Term Thinking at Public Companies vs. Long-Term View at Private Firms: True or False?
It’s both true and false. At Chrysler, for example, we got rid of $1 billion worth of nonearning assets and were able to do it because I wasn’t worried about having to book a loss that would then affect the earnings per share that would then get criticism from shareholders. I was able to monetize assets that had been sitting around for years to improve the liquidity that we may not have been able to do as a publicly traded company. In today’s environment, it’s more of a hold and grow.Â Private equity in general has to think about how we are going to sustain performance of these companies, now that we probably won’t be able to move them [to IPOs] in three years; it may take three to five years.
Developing a Talent Development Strategy
You have to take it as seriously as you do any capital investment. When I went to Chrysler, I spent about 240 hours going page by page over the top talent to understand who they were and what their backgrounds and aspirations were.
At Chrysler, to be honest, it was very difficult to recruit. People were unwilling to move to Detroit to work for a company whose future was questionable. So I had to dig deep to understand what talent I had and elevate some individuals to take some risk. I had to change the mentality of the organization. Some were cocooned in their views. Some top leaders didn’t have a passport!
We had to get people to think a little more broadly than that. There’s a saying, “If you had a buck, you’d spend 99 cents on talent.” Rings loud with me. If we’re honest, we all probably have leather-bound binders on the shelf with great strategies that no one will ever know about because we didn’t have the talent to execute them.