Can a New Culture Fix Troubled Companies?

March 12, 2013, 7:30 p.m. ET

Can a New Culture Fix Troubled Companies?

By JOANN S. LUBLIN

Bob Flexon, chief executive of Dynegy Inc., DYN +2.03% occupies a 64-square-foot cubicle, identical to the ones used by the 235 colleagues who surround him at its Houston headquarters. Hourly employees sometimes stop by his desk to chat.

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Eric Kayne for The Wall Street Journal

Dynegy CEO Bob Flexon, shown in his 64-square-foot cubicle on an open floor, where 235 headquarters colleagues surround him.

It’s a long way from the expansive office suite, $15,000 marble desk and Oriental rugs that Mr. Flexon inherited when he arrived at Dynegy in July 2011, four months before the power producer filed for bankruptcy.

Under his command, Dynegy shifted its headquarters last May to a single, open floor in a different building.

The move, which saved $5 million a year, is the most visible symbol of Mr. Flexon’s attempts to overhaul the company’s culture. He aims to transform a business previously focused on day-to-day survival into an agile operator poised for growth.

Among other changes, he made frequent visits to the company’s power plants, banned employees from checking email and phones during meetings and restored annual performance reviews. “The idea was to instill a winning spirit,” Mr. Flexon says. Though Dynegy emerged from bankruptcy last October, its cultural restructuring remains a work in progress.

Increasingly, leaders of troubled businesses try to fix the company’s culture along with its bottom line. Since the financial crisis struck in 2008, CEOs have sought to improve collaboration and decision making, recognizing that a strong culture is “a critical component of their long-term success,” says Nick Neuhausel, a partner at consulting firm Senn Delaney, which advised Dynegy.

“The right culture change can—without question—improve results,” says John Kotter, co-author of the book “Corporate Culture and Performance” and head of research at consulting firm Kotter International. But putting a sick business on a healthier strategic path while changing its culture “is much more difficult than most executives realize,” he cautions.

At British bank Barclays BARC.LN +0.53% PLC, whose misconduct has cost it billions of pounds, CEO Antony Jenkins recently said he was “shredding” a self-serving and aggressive culture—by abolishing commissions on financial-product sales, among other things. He said, however, that results would take time. The bank’s top management team disintegrated last summer after it admitted trying to rig interest rates.

One of the highest-profile attempts at cultural renewal is under way at Internet company Yahoo Inc., YHOO -0.88% where new CEO Marissa Mayer has upgraded workers’ mobile devices, introduced free food at company cafeterias and abolished work-from-home arrangements.

Chief executives don’t always succeed in reshaping corporate culture. Randy Michaels ran Tribune Co. TRBAA +0.65% for less than a year during the media company’s bankruptcy. Under his leadership, executives shook up Tribune in ways that often clashed with its traditionally staid management. Mr. Michaels quit in October 2010.

A spokeswoman for Mr. Michaels said Tuesday that he was unavailable for comment.

Mr. Flexon joined the debt-burdened Dynegy after investors rejected two buyout offers, prompting senior officers and the board to jump ship. Demoralized employees wondered “what will go wrong next,” says Julius Cox, vice president of human resources. “It was hard for staffers to focus and be engaged.”

Many bosses were equally downbeat. In a May survey by Senn Delaney, Dynegy executives and middle managers scored low on questions such as whether they felt valued, proud to work there or committed to the company’s future.

In June, the company’s 37 highest-ranking executives participated in a two-day offsite meeting led by Senn Delaney, which included trust-building exercises. In one drill, a pair of managers spent one minute expressing appreciation for each other’s work, then spent the next giving constructive criticism.

More than a few executives rolled their eyes. Some appeared “skeptical about this cultural change ‘mumbo jumbo,’ ” says Kevin Howell, then chief operating officer, who remains a Dynegy adviser.

Others initially resisted swapping their private offices for cubicles.

Management soon drafted a new purpose statement (“Energizing You, Powering our Communities”) and put more emphasis on certain core values, such as safety, accountability and agility. Dynegy estimates it will have spent $425,000 by year-end to train 300 managers in culture change.

Mr. Flexon unveiled the cultural overhaul two days after the company emerged from bankruptcy court. The CEO and management-team members visited the company’s 11 plants to discuss the changes with rank-and-file workers.

Then, executives tried to carry out their pledges. Employees got performance reviews for the first time in two years, with bosses judging their subordinates in part on whether they embraced the core values.

Jesse Strausser, an operations technician at a power plant near Reading, Pa., says the company now evaluates him partly on his involvement in devising companywide cost-saving measures.

Meanwhile, 15 specially trained “culture champions” are attempting to reinforce the message. At meetings, one such champion, Chief Administrative Officer Carolyn J. Burke, says she sometimes chastens a colleague for tapping on his BlackBerryBB.T -3.01% by declaring, “Hey Joe, be here now.”

Mr. Flexon has mounted a “Be Here Now” plaque underneath his monitor as a reminder to avoid checking email during calls.

Several hourly workers say the top brass heeds their suggestions faster than previous management did. “What I have to say counts,” says Mike Kelley, a site safety coordinator for a Dynegy power plant in Minooka, Ill.

During a plant-safety conference last year, Mr. Kelley persuaded Mr. Flexon that the facility badly needed an intercom. The intercom is being installed.

Morale is up, Mr. Kelley says, adding that plant workers “know that safety is taken seriously.”

Employee turnover also has dropped—to 5.8% last year from nearly 8% in 2011, according to Mr. Cox, the human-resources executive. “People are cautiously starting to believe that we can win again,” Mr. Flexon says.

Culture changes aside, Dynegy isn’t out of danger. It is scheduled to report year-end earnings Thursday after racking up losses of $1.19 billion for the first nine months of 2012, compared with a year-earlier loss of $324 million. Dynegy investors count on senior management to deliver results, Mr. Flexon says. But “our ongoing focus on culture is what will make the difference,” he adds.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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