obtain financing for the facility without making ARCO responsible for any of the $181 million required. The ARCO treasury department (a typical staff department found in most large organizations) did not agree and would not allow the ARCO operating group to proceed with the project. “You can never do what you are proposing. It will never work,” was the response of some of the junior and senior treasury staffers at ARCO headquarters. They seemed to be saying, “We know all there is to know about financing and we are in charge here.”
At the time, ARCO was widely respected both inside and outside the oil industry as one of the most progressive and well-managed companies in the world. To me, however, ARCO seemed no different than the bureaucracy I had seen in the federal government. It had layers of hierarchy, and important decision making was the purview of a few senior people. Young, smart people in staff offices ran roughshod over executives with line responsibility for creating and running the businesses. It took over a year to persuade them to change their minds and get on with the project. The plant was eventually financed as we had proposed.
I asked Roger a rhetorical question: “Are ARCO and other large organizations the way they are because (1) they are large, (2) because of the age of the organization, or (3) because of their values, principles, and philosophy? I hope it is No. 3, because someday AES could be old and maybe large as well.”
I desperately wanted AES to be a different kind of organization. Our only hope of creating a radically different kind of company was if a particular set of principles could drive and shape the business regardless of its size, complexity, or age.
Our first attempt to write down the principles that would define AES did not take place until several years after the company started. Approximately 20 of the company’s 50 employees gathered for a two-day retreat at a conference center outside Washington, D.C. One of the sessions focused on completing the Seven-S framework made famous in the bestselling book In Search of Excellence, which was coauthored by Bob Waterman, an original member of the AES board. As the term suggested, Seven-S entailed organizing a business around seven qualities beginning with the letter “S”—strategy, skills, staff, and so forth. At the center of the Seven-S framework was “shared values.” Most of that day’s discussion focused on the central values we hoped would drive the company. We also dutifully described how we saw the other parts of the framework, but they seemed less important to us. After a few years, only the shared values remained an integral part of AES’s corporate discussions.
The shared values we wrote in the circle of the diagram that day were Integrity, Fairness, Social Responsibility, and Fun. Other important words were used from time to time to describe our aspirations, but they never made it to the center circle. Concepts like ownership, trust, and accountability were subsumed in the four overarching values we chose. No purpose or goal was defined at that time because the Seven-S framework curiously did not have a place to describe the primary reason that an organization existed. AES’s purpose was articulated a couple of years later, and in the ensuing years it gradually became an integral part of our shared values and principles.
When Roger Sant first used the word “fun” to capture the kind of working environment we wanted to create, neither of us could have guessed at its layers of meaning. It forced us to think through exactly what was meant by “fun” and the best ways to explain it. We defined fun to mean rewarding, exciting, creative, and successful. The idea that a company could be fun kept AES fresh and vibrant for years.
At the time, Apple Computer was the darling of the fledgling high-tech industry. One thing that set it apart was the beer parties it held every Friday afternoon. We were very clear that this was not what we meant by fun. Nor did we believe that business success or “winning” made work fun. Nor was fun related to the type of tasks an individual performed. What we meant by fun was captured many years later, in slightly broken English, by an AES employee writing from Kazakhstan: “The common principles of integrity, fairness, fun represent AES culture which are mostly convincing. They are also the basic spirits. I work on the site whether day or night, whether weekend or working days, whether with pay or without. In this kind of working environment, my talent was fully exerted. I felt a lot of fun to use my talent and experiences accumulated throughout years of hard work. I feel I am standing on the shoulder of a giant fulfilling the social responsibilities.”
People I have met—regardless of class, income, nationality, and education level—want a chance to meet the needs of their families while doing something useful for society.
Joy at work gives people the freedom to use their talents and skills for the benefit of society, without being crushed or controlled by autocratic supervisors or staff offices. The World Bank recently conducted a study of 70,000 poor people around the world. One of the questions asked of respondents was this: “What is your most pressing need?” The answer was not social services or homes or other material things. What these people wanted most was the freedom and wherewithal to be entrepreneurs. This was not surprising to me. People I have met—regardless of class, income, nationality, and education level—want a chance to make the most of their abilities to meet the needs of their families while doing something useful for society.
When we made “integrity” one of our shared values, we defined it in the classical tradition. The word is derived from the Latin integra , meaning wholeness or completeness. It is the same root word from which we get integer (whole numbers) and integration. It has to do with how things fit together in some cohesive and appropriate way. Being truthful is part of what it means to have integrity; living up to commitments is another.
I believe that integrity requires an organization to communicate the same message to the general public that it does to its own employees. That means openly admitting mistakes to shareholders, bankers, and governments. Readers of my letters in AES annual reports may have noticed that I took pains to discuss our mistakes and problems during the year. The letter was meant for all stakeholders who helped us achieve our purpose, not just shareholders. I believe they all deserve the same basic information, both positive and negative. Integrity also means fully explaining values and corporate purpose to all stakeholders, especially when these principles are unconventional, potentially controversial, or hard to understand.
Business executives don’t spend much time talking about values, so misunderstandings and disagreements are bound to occur. Once, when we were in Minneapolis to raise equity for AES, a potential investor left the breakfast early. On the way out the door, he laughingly told one of the investment bankers: “They can have all the fun they want, but not with my money.” Another humorous incident—there were many others that were not so funny—occurred when we prepared a slide presentation before a public offering of AES stock. We designed a chart to try to explain what we meant by “fun.” We gave it to our investment bankers to review:
The investment bankers reviewed the chart, added one circle, and sent back the revised version:
Several years later, when a consultant from McKinsey was giving a presentation about AES, one of our executives asked why he hadn’t mentioned our shared values. It turned out that the consultant was enthusiastic about our values—for all the wrong reasons. “They really reduce labor costs,” he said. “Employees love these values, and they work harder and more productively because of them.” This is the pragmatic line of thinking about values that I had fought since the early days of the company. It ignores the moral dimension of values and regards them as nothing more than a means to make money. The distinction was articulated by an Oxford professor named John Kay: “There is a real difference between saying to your workers, ‘We care about your welfare because we do,’ and saying, ‘We care about your welfare because that will make you work harder for us.’ ” Employees can tell when values are genuine and when they’re adopted
