What Transformational Leaders Do
July 1 2013 by JP Donlon
Since taking the job, Cote has made 80 acquisitions and more than 50 divestitures, significantly changing the conglomerate’s portfolio into four business groups: Aerospace and aviation, automation and controls, performance materials and technologies and transportation systems. Today the company is more global than ever with more than 60 percent of its revenue coming from outside the U.S. In the face of a weak economy in 2012, Honeywell grew sales by 3 percent, EPS by 11 percent to $4.48, while generating $3 billion in free cash flow. The company employs 132,000 people in over 100 countries, including more than 20,000 engineers and scientists. “We’ve secured great positions in good industries,” Cote says. “And we’ve managed to do this in a challenging environment.”
Most CEOs coming into a company from the outside tend to eviscerate the top brass and bring in their own teams. Cote chose to work with the existing top talent, signaling a commitment to internal leadership development. Tim Mahoney, president and CEO of Phoenix-based Honeywell Aerospace and a 16-year veteran at Honeywell, recalls a tense moment during the company’s negotiations to purchase EMS Technologies in 2011. Having read a book about the building of the Panama Canal, where the lead engineer cites a former math teacher who used to tell him: “If you have five minutes to solve a problem, spend the first three minutes thinking about how you’re going to do it,” asked Mahoney if he had taken his “three minutes”—a question he frequently put to direct reports.
“I promised him I would call him back with a considered answer,” Mahoney recounts. “The following morning, I told him: ‘I’m confident I can deliver on this one and I’m willing to risk the Aerospace reputation on it.’” Six months later, Mahoney recalls calling Cote and telling him, “We just landed a $2.8 billion order for EMS Technologies that none of us had counted on; $2.8 billion on something that only cost us $491 million!”
“One of the aspects of David’s style that tends to go unobserved, at least from the outside, is the extent to which he is willing to go to develop people and their ability to think for themselves,” says Roger Fradin, president and CEO of Honeywell’s automation and controls unit, who joined Honeywell when it acquired the burglar alarm company Pittway. “He likes to pose questions, such as, ‘If this were true, why wouldn’t that be true?’ instead of telling people what to do.”
Whether booming along New Jersey’s back roads on his Harley Davidson or pheasant shooting near his farm in Dutchess County, New York, Cote doesn’t take himself too seriously—but he is very serious about his causes. Foremost among those are America’s global competiveness and the Fix the Debt campaign, a non-partisan group headed by Erskine Bowles and Alan Simpson. In 2011, he signed a letter with 450 other business leaders urging the president to compromise for the good of the economy. He tirelessly travels to Washington, buttonholing congressmen, administration officials and anyone willing to listen to him about debt reduction. “We are on a path to be spending $1 trillion annually in interest in 10 years,” he notes. “To put $1 trillion in perspective, if you had spent $1 million a day since Jesus Christ was born, you would not have spent $1 trillion by now. That would be our annual interest bill.”
The fact that he hasn’t given up speaks to his determination about most things he faces. Recently Chief Executive spoke to Cote at the company’s Morristown, New Jersey headquarters.
When coming from outside a company, one often discovers a reality different from one’s expectations. When you came to Honeywell in 2002, did you arrive with a transformation plan fully formed in your mind or did you anticipate making incremental changes to see what might work?
One of the first things I did was just get out a lot. I did town halls all over the place so that people could see and hear me directly and also so I could hear their questions and get their perspectives on what they thought about things. I probably touched about 10,000 people in the first couple of months, both here and in Europe. Asia came later.
Initially I thought I was going to do a lot of cheerleading, but morale wasn’t that bad. It was more a case of, “Geez, would you just give us some leadership, so we have some direction because we just don’t know where we’re going.” In terms of formulating a plan, I already had a strong sense that our overall portfolio was right but that there were changes that needed to be made. That was one of the reasons that I got into each of the businesses: to get a sense for what’s performing well and what wasn’t. Do we have a good position? Do we make good money?
The warring factions within the company were not obvious from the beginning and that’s where going out and doing these town halls proved helpful because when someone asked whether I consider myself “red” or “blue,” at first I thought this referred to my being a University of Louisville or a University of Kentucky fan, since that’s what it [would have meant] in Kentucky, where I spent a lot of time. What they meant was whether I was philosophically inclined to the traditional Honeywell (red) way of doing things or to Allied Signal (blue) [approach]. That’s when I thought, wow, okay, I’ve got to pay a bit more attention to this and figure out how to bring everybody together.
So you faced a culture divided against itself?
I soon learned that there was a third culture—the Pittway acquisition. They had their own view of things and their people just disregarded everything else. The legacy Honeywell culture focused on customer delight, new technology and the next great thing that’s coming down the line. But because of their customer delight focus, they would commit to all kinds of things, whether they could do them or not. Execution tended to be weak, as a result. In the end, this [ineffectiveness] just annoyed customers.
AlliedSignal’s culture, on the other hand, was focused on productivity and making your numbers this quarter. But as a result, they hadn’t really invested in the product pipeline in terms of what was coming next and how we were going to keep it going. The focus was too short-term.
The Pittway culture focused on competition—how do you have the best new products and how do you make money doing this? Their view was, whether you’re legacy Allied or legacy Honeywell, you’re both big companies, which by definition means you don’t know what you’re doing, so we’re not listening to anybody. They just acted like they did before the acquisition, when they were an independent company. If they didn’t want to participate, they didn’t. If they didn’t want to show up for something, they didn’t. If somebody told them to do something they disagreed with, they wouldn’t do it. There were three very different cultures to try to bring together.