20 percent decline from problems we were having in Florida, where a neighborhood group was mounting an effective challenge to our building permits, even though we had already begun construction on a new plant.
Before the stock plummeted, key board members and senior officers were seriously but constructively concerned about the incident. We started to investigate what happened and how. Roger and I circulated our letter. Beyond thinking about discipline and rehabilitation for those directly involved, we began asking what we could do better in hiring, leadership, and education to minimize the chances of something like this happening again.
After the stock price dropped, the nature of our response changed dramatically. We became panicky, and our emphasis shifted from disclosure to damage control. Much of our attention turned to reassuring our shareholders. A host of lawyers descended on the plant “to protect the assets.”
It seemed to me that most of our leaders, especially board members, were more concerned about the drop in stock price than the breach in our values. One of the lawyers’ first suggestions was to fire all nine of the people involved. When I asked why, he responded, “They will go easier on you at the Environmental Protection Agency.” From my perspective, that was an unacceptable reason for dismissing an employee. Rightly or wrongly, I decided that no one would be fired if he admitted wrongdoing, accepted his punishment, and pledged to adhere to AES values in the future. Under these conditions, seven of nine offending employees left the company one way or another within one year.
Several of our most senior people and board members raised the possibility that our approach to operations was a major part of the problem. It was as if the entire company were on the verge of ruin. They jumped to the conclusion that our radical decentralization, lack of organizational layers, and unorthodox operating style had caused “economic” collapse. There was, of course, no real economic collapse. Only the stock price had declined. In addition, one of our senior vice presidents did a presentation for the board suggesting that “Protect Our Assets” rather than “Serving Electrical Needs” should be the top goal of the company. What he meant was that we should follow a defensive strategy, led by a phalanx of lawyers, in order to avoid legal, environmental, and regulatory wrangles. There was also discussion of adding a new layer of operating vice presidents between me and the five plant managers we had at the time. A meeting of the company’s 13 top managers was convened when I was out of town. At the meeting, a senior officer of the company suggested that our outside counsel should be made vice chairman of the company, with authority over me when “compliance” issues were involved. The officers group took a straw vote that showed 11 in favor of the new organizational ideas and only two against.
Bill Arnold phoned me again about a month after all this trouble began. He asked me not to visit the Oklahoma plant anymore. Under pressure from lawyers and because of an understandable loss of confidence, the plant had decided to return to a “proven” approach to running industrial facilities. Back came shift supervisors, an assistant plant manager, and a new environmental staff department reporting to the plant manager (to make sure water treatment employees did the right thing). These steps increased our staffing level at the plant by more than 30 percent. Bill told me I would not be happy with the changes. He added that employees at Shady Point would feel “uncomfortable” if I were to visit as I had in the past. If I had not been preoccupied with the larger issues of maintaining our corporate values, I might have rejected Bill’s request. I felt hurt and humiliated, but at the time I had bigger problems. I was fighting with the board to preserve our values—and to keep my job. Instead, I told people in AES I had been “fired” from the plant. I did not meet with the Shady Point managers for over six months, and even then we conferred “off campus.” When I finally visited the plant a month after that, I was greeted by cheers. It was one of the sweetest moments of my career.
In the six months following the stock price decline, there was considerable pressure from some board members and officers to “tone down the rhetoric” about values. Several of them thought it arrogant of us to talk about values in public when we didn’t always practice them. “Investors would not treat us so harshly if we didn’t put the values out front so much and then fail to live them,” said one board member. Besides, profits—not values—were what investors cared about, so “let’s not talk about values outside the company,” another board member said. The issue of why we put so much emphasis on values was raised again. “They didn’t work, Dennis. We need to adjust,” is the way one of my associates put it. We engaged in lengthy discussions about whether we should change the way the company described the relationship between values and profits in our public-offering documents. During this time I felt under-appreciated and uncertain about how much support I had among board members, who seemed to like our values only because they generated good press and were popular among employees. I felt I was alone in fighting for our values because they were intrinsically right.
All of this put an enormous strain on the relationship between Roger and me. We spent most of a day at his home discussing what to do. The board had lost confidence in me and my leadership approach. (I believe Roger had, too.) Should we split the company? Should one of us quit? He wasn’t having fun and neither was I. I told him I wanted to stay and make the company work. We decided that I would visit all the board members who had been with the company since the beginning. I would apologize for what had happened and ask them to give me another chance to show that I could lead the company in a way that would make them proud.
One of the things I learned from this experience was that I had done a terrible job teaching people our values and principles. As a company, we did not understand in a practical way how those values shaped the way we organized our work and life together. Our values, perhaps most notably “fun,” had become mere public-relations words. Their connection to the day-to-day operations of the company was superficial at best. Other than a couple of senior staff members and three or four of the plant managers, few people felt strongly enough about the values to adhere to the path we had started down a few years before. This was especially true whenever the share price declined or other economic problems arose. It did not seem to matter to the skeptics that there was almost no evidence that the approach we had adopted in operating our plants had anything to do with the water-treatment fiasco. If anything, most of the serious trouble—the lying and the coverup—occurred because nine AES people at Shady Point had not adhered to our values.
The breach by our Oklahoma group was minor relative to similar missteps by dozens of large, conventionally managed organizations. There was nothing to suggest that operating the company in a more conventional manner would have protected AES from such mistakes. Most important, I was convinced that weakening our covenant of values and principles would take most of the joy out of working for AES.
All this questioning forced me to examine every aspect of my business philosophy. I crammed into a few months a lifetime of learning about people and organizations. I left for vacation that summer realizing that I had nearly lost my job. I knew that if I was to continue pursuing my radical approach to the workplace, especially the highly unorthodox goal of having fun, I would run the risk of being ousted at any time. I had learned that most of the board members did not agree with my philosophy. They weren’t particularly supportive of my leadership approach nor were they the least bit loyal to me. I did not forget this during the next 10 years, even when our stock price was rising rapidly and many board members sang my praises and appeared enthusiastic about my management approach. I kept saying that our values were not responsible for the run-up in our share price and should not be blamed for any down-turns in the future.
On my vacation, I focused on two options for using what I had learned. I could back off, softening my emphasis on values and taking a more conventional line in my actions and communications, especially outside the company. Or I could, as one of the senior vice presidents so aptly put it a few months later, “raise the values banner high and march full speed ahead.” I came back from the vacation determined to march smartly.
I committed myself to teach our values every day in word and deed. I planned regular and frequent travel everywhere
