Notes on — Plain Talk: Lessons from a Business Maverick — By Ken Iverson
Lessons for a Gazelle CEO
Common sense is not that common in business. A simple yet very powerful truth of most businesses today. Ken Iverson, the legendary CEO of Nucor Steel, managed to grow the company at 17% per year and be profitable for over 30 years. This is no small feat. In his book Plain Talk: Lessons from a Business Maverick, Iverson outlines his business dogma and wisdom to achieve this.
Iverson lessons are simple and straight forward:
- Treat employees fairly and eliminate executive perks that create division in a company
- Eliminate bureocracy and hierarchy that creates problems of communication and slow down the operation
- Give employees a share of the upside of the company and the freedom to improve their performance
- If innovation is important to the business opt for decentralization and freedom
- A manager job is to create an environment where employees can achieve the goals of the business
- Share information with employees
- If you want to innovate you need to take risks. A risk involves the possibility of failure.
- Be ethical. Being ethical is a matter of finding the intersection between what is equitable, right and practical.
The value of Iverson’s book relies not on the complexity of his theories but rather on the simplicity of his approach to business. Common sense, being rational, being fair and acting ethical are great rules for a CEO. By cutting through the inefficiency, mediocrity and bureaucracy that plagues big business Iverson was able to create a profitable, efficient and nimble business. A Gazelle CEO should keep this a priority.
my notes
I’ll focus instead on presenting an alternative set of assumptions and approaches for running a business. I’ll describe how we raised Nucor from obscurity to its current place as America’s third-largest steel company, and I’ll explore our company’s seeming incongruities:
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You see, their department heads had taken pay cuts of up to 40 percent, and the general managers and other officers of the company were earning 50–60 percent less than we had made in preceding years. My own pay dropped that year to about $110,000, from about $450,000 the year before. We
not only shared the pain, we doled out the lion’s share to the people at the top.
When a friend showed me an article, later that year, that listed me as the lowest-paid Fortune 500 CEO, I wasn’t ashamed. The company was not performing. I’d have been ashamed to earn more.
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“What Nucor management has been able to do is get workers to identify their own interests fundamentally with those of management, something managers have been attempting to do, not very successfully, since the dawn of industry.”’
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What we did was push aside the notion that managers and employees have inherently separate interests. We’ve joined with our employees to pursue a goal we can all believe in: long-term survival. We run Nucor first and foremost to ensure that, a decade or two from now, there will still be a place for our children
and grandchildren to work without being laid off. That is our higher cause.
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I ask our managers to focus, day in and day out, on maintaining close bonds with employees, because I believe people are our company’s most valuable resource.
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Our relations with employees are based on these four clear-cut principles:
1. Management is obligated to manage the company in such a way that employees will have the opportunity to earn according to their productivity;
2. Employees should feel confident that if they do their jobs properly, they will have a job tomorrow;
3. Employees have the right to be treated fairly and must believe that they will be;
4. Employees must have an avenue of appeal when they believe they are being treated unfairly.
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We have no performance appraisals in Nucor. People earn according to what they produce, and
those earnings are determined simply and objectively. We also have no job descriptions. We let our employees define their own jobs as they search for ways to optimize their productivity.
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Mainly, that job is to help the people you manage to accomplish extraordinary things. That begins with remembering who does the real work of the business (something managers, with their outsized egos, often forget). It means relying on employees to make important decisions and take significant risks. And it means shaping a work environment that stimulates people to explore their own potential.
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N u c OR, people get what they ought to get from their work: Good pay. Real job security. Interesting challenges. Respectful treatment. The chance to accomplish something every day. A fair and equitable workplace. The pride of being a part of a very successful enterprise.
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Nucor has consistently required its general managers to generate a return of at least 2 5 percent on the assets we place under their control. The assets
belong to the shareholders of the company, and entrusting them to a general manager is like making a deposit at the bank. The shareholders have every right to expect a healthy return.
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Beyond the minimum 25 percent return on assets employed, we require our general managers to abide by the ethical standards of the company and to follow a few general policies set down, as a group, by the general managers themselves. That’s it. All the other decisions are left to the managers and employees of each division.
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That’s the main reason we’ve tried to keep our divisions small. When a business grows beyond 400 or 500 people, it’s hard for management and employees to stay connected.
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Distance yourself from your people and you distance yourself from your base of authority.
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During my morning stroll, I might talk with a dozen or more people. I’d get an up-to-the-minute picture of what was going on in each and every part of the operation. Even more, I’d find out if people were feeling confident or anxious; see first-hand how well our technology was working; and get a sense which managers were struggling and which might be ready to take on more responsibility.
This was also a good way to get people used to seeing me, so I wouldn’t scare them when the day came (as it surely would) that I needed information from somebody honestly and quickly.
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We now ask our general managers to meet with all of their divisions’ employees-in groups of no more than fifty-at least once each year. For a plant with 500 employees, that translates into at least ten employee meetings per year for the general manager. We require each general manager to give us the schedule of their meetings with employees.
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First, the managers don’t talk too much. If you pull employees together merely to serve as your audience, or to force them into participating in some kind of pep rally for the business, you’re not going to connect with them. You’ll push them away. At our employee meetings, the general manager of the division kicks off the discussion with comments that last no more than 20 minutes. Then, the employees take over. They talk about their equipment,
rules and procedures, and anything else that pertains to how they see the business. Management listens.
Second, management takes what employees tell them seriously. Most employees have to screw up a bit of courage to stand up and present a real problem or issue to their managers. If management then just pays the issue lip service, the connection will be lost.
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Talking informally with your employees, conducting surveys, and organizing employee meetings are just three methods for connecting with the people who work for you.
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this: If you want to manage autonomously, you’d better stay connected with your people, and if you want to stay connected with your people, you’d better be ready to give it an honest and sustained effort.
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We don’t look over the shoulders of our general managers and we don’t ask them to submit voluminous reports, explaining their actions. But that doesn’t mean we’re not paying attention. Delegation without information is suicide.
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A lot of managers seem to miss the link between information overload and their compulsion to overcontrol
their operations. But the connection is really obvious. Too much information puts you in the same position as too little information-you don’t know what’s going on. And when you don’t know what’s going on, it is hard to stay out of your people’s hair. It’s hard to tell them “trust your instincts,” and really mean it.
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I’d suggest that you try to focus on information that tells you what you need to know under ordinary circumstances, and that will give you early warning when something extraordinary is going on. If you
experience a precipitous drop in orders, for example, you want to know immediately, so you can find out why and figure out what to do about it.
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When you gather truly useful information efficiently and consistently, you’ll know what’s going on. And when you know what’s going on, you’ll find it’s a lot easier to let your people trust their instincts.
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My point is: Decentralization isn’t “good.” Centralization isn’t “bad.” Each is a sound option under the right circumstances.
Businesses that need to operate uniformly wherever they are-McDonald’s or Wal-Mart, for example-must be shaped by relatively few people. In
such a business, centralized decision making is a very sensible approach.
Businesses that serve diverse markets, on the other hand-or that experience very different conditions in different locations, or that rely more on high levels of innovation and flexibility than on uniformity-are best shaped by a wider array of people…. That is, by the people closest to where the work actually gets done. Those businesses must tell people on the front lines to “trust your instincts.” And businesses that tell their people to “trust your instincts” generally should be decentralized. A decentralized structure pushes the power to set strategy, spend money, make decisions, and create policies out toward the marketplace. It promotes local autonomy.
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Managers at all levels need to assess what is most crucial for the operations they manage and-based on that assessment-choose where the locus of decision-making power should reside. Then they must implement that choice thoroughly, and stick to their choice
over the long term. Whichever way you choose, you give up something. But by failing to choose, you can give up everything.
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The greatest counterweight to divisiveness in Nucor is that the general managers of our divisions are also officers of our corporation.
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I’VE READ BOOKS by management experts who say, “A good manager is a good manager in any kind of business. He can go anywhere and succeed.” Don’t believe it. Good management is situational. There’s no guarantee that a great manager in a retail environment, for example, will be a great manager in construction. Experience in the business is a huge advantage. In fact, it is often essential.
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After you choose, you must live up to the obligations inherent in your choices. Under a decentralized structure that urges people to “trust your instincts,” those obligations include making an honest and sustained effort to stay connected with your people, shielding yourself from information overload, and engaging in open, constructive debate. That’s a lot harder than handing out orders, but it is also a lot more interesting.
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Inequality still runs rampant in most business corporations. I’m referring now to hierarchical inequality, which legitimizes and institutionalizes the principle of “We” vs. “They” in Corporate America, just as racial inequality was once legitimized and institutionalized in American society.
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The people at the top of the corporate hierarchy grant themselves
privilege after privilege, flaunt those privileges before the men and women who do the real work, then wonder why employees are unmoved by management’s invocations to cut costs and boost profitability.
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MANAGERS TEND TO see promoting equality or “empowering employees” as a product of their noninterference. Even I find myself counseling managers to “just stay out of the way” of their employees. But the truth is, you can’t be passive. You must attack hierarchy. You have to destroy it.
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Our executives get the same group insurance, same holidays, and same vacations as everybody else. They eat lunch in the same cafeterias. They fly economy class on regular commercial flights (although we do allow the use of frequent flyer upgrades). We have no executive suites and no executive cars. At headquarters, our “corporate dining room” is the deli across the street.
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I’ve learned to stay alert to the signs of an expanding hierarchy: Cliques within divisions … Reams of memos … Conflicts
between department managers … Committees … Communications bottlenecks … Non-stop meetings. Where hierarchy lurks, these evils will rear their ugly heads. I try my best to stamp them out. Our goal is to just let people go ahead and do things.
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I think long and hard before I overturn a standing rule or urge a manager to forgive an employee’s dishonesty. And I don’t do it very often. The main thing I think about in deciding how to respond to such situations is: “When everybody else in the company learns of it (as they surely will), will they believe we did the right thing?” If I suspect that our action will be seen as contradicting our basic values, I won’t make an exception. If I think they’ll see bending the rules as a demonstration of our caring for one another and as something that will be good for the company in the long term, I will.
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SHARING INFORMATION is another key to treating people as equals, building trust, and destroying the hierarchy. I think there are really just two ways to go on the question of information-sharing: Tell employees everything or tell them nothing. Otherwise, each time you choose to withhold information, they have reason to think you’re up to something. We prefer to tell employees everything. We hold back nothing.
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OUR EGALITARIAN CULTURE is a big reason why our managers don’t have to deal with unions or spend a lot of time thinking about how to keep unions out of our company, although our industry is overwhelmingly unionized.
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think some companies deserve unions. Their managers just don’t treat employees right. They use the hierarchy to keep people down. But when a company’s managers treat employees as equals, they earn trust. And the bond of trust enables managers to do things that would never fly in a company based on “We vs. They.”
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The average employee in the United States is also a lot smarter than most managers will give him credit for. If you really want answers you can use to make the business perform better, ask the people who are doing the actual work of the business. It’s that simple. Front-line employees continually amaze me with their capacity to make improvements.
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I’M OFTEN ASKED: “How do you explain Nucor’s success?” My stock reply: “It is 70% culture and 30% technology.” The truth is, I’m not sure if it’s 80 to 20 or 60 to 40 percent, but I’m certain our culture accounts for more than half of our success as a business.
Equality, freedom, and mutual respect promote motivation, initiative, and continuous improvement.
Without a doubt, Nucor’s culture is its most important source of competitive advantage, and always will be.
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To managers and executives who sincerely would like to build a culture similar to the one we’ve built at Nucor, and to gain the competitive advantages we enjoy as a result, I’d offer just this one piece of advice: Be a part of your company. Never set yourself above it.
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The most any manager can do is shape an environment that allows employees to fulfill the goals of the business.
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I’ve found that, as employees, many people want first and foremost to be appreciated for who they are. They want to be acknowledged as unique individuals-each with immense and unrealized potential. All
too often, though, their managers cast them as drones. Small wonder so many employees are emotionally detached from their jobs. They move through the workday like zombies-numb, blank-faced, waiting for quitting time, so they can resume living.
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More broadly, their studies showed that the work environment can have a profound effect on work performance.
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I’ve found that people’s desire to improve, achieve, and contribute are virtually universal. Very few employees are apathetic by nature. However, they can be conditioned into apathy by their environments. (For proof of that, observe people at work in most big corporations. You’ll find plenty.)
I should stress that by “environment” I mean the cultural as well as the physical world in which people work. The ideas, attitudes, and assumptions that surround them are as critical-and are often more critical.
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Here’s a twist for you: By delegating most major areas of responsibility, focusing our attention on shaping the work environment so employees can find most of the answers without our help, and conceding that we, the managers, don’t always know just what the heck we’re doing, we seem to have earned more credibility and authority than we could ever gain by acting like bosses.
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Things won’t get much better, I’m afraid, until those businesses drill all the way down to their seminal ideas about management: “Managers hold the key to business success.” “Managers are the brains of the operation.” “Managers must command, control, and micromanage the business.” If businesses hope to find out what employees can really do, that is the level where the change must begin.
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Choosing the Right People. Not every employee wants his or her work to be challenging, and not every manager will entrust major decision-making authority to employees. So, if you want employees to assume more responsibility for business success, you must make the capacity for innovation, flexibility, creativity, power-sharing,
and so forth a clear priority in hiring and in weighing candidates for promotion. Often, that means changing how you screen candidates.
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Reallocating Managers’ Time. Managers typically spend far more time planning, instructing, and inspecting than they do listening, experimenting, and analyzing. Your company’s managers will have to reverse that ratio to make their employees engines of progress.
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Letting Employees Guide Their Own Development. As employees take on more and more responsibility, management must give them more development opportunities and more development latitude.
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Providing Information to Employees. When you make employees primarily responsible for the success of a business, they demand more access to information. That’s only natural. They need it. At Nucor, our official information policy is to “share everything.”
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Letting Employees Invest in Technology. Are your senior managers ready to let someone else make most decisions as to what technology is worthy of investment? Well, it’s time for them to get ready. This has been a crucial element of Nucor’s success, at any rate.
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Concede once and for all that employees, not managers, are the true engines of progress, and dedicate your management career to creating an environment in which employees can stretch for higher and higher levels of performance.
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I’ll let you in on a little secret: Most people will work hard for money! In fact, we find that motivating people boils down to: a) the opportunity to earn an above-average income; b) job security; and c) opportunities for advancement. You can pretty much throw away “good training,” “clean bathrooms,” and the rest of the list of what motivates employees.
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At Nucor, we never know exactly how much we’ll have to pay our people for their day’s work. The sky’s the limit. For their part, our employees start each day with no guarantee that they’ll earn a competitive wage, because base pay for Nucor production jobs is usually set below the industry average.
The key is, base pay is just a fraction of what our people have the opportunity to earn. Nucor production employees can also earn weekly bonuses, above and beyond base pay. In recent years, weekly bonuses have run from 100 percent to over 200 percent of base pay in our steel mills.
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What must employees do to earn their weekly bonus? Two things: a) work in teams; b) produce!
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The gist of that concept is that the company supplies the equipment, training, benefits program, and other fundamental support, and leaves the rest up to the group. So, in a sense, each group is in business for itself. Work groups set their own goals for exceeding the baseline and work out their own ways of pursuing them, guided only by this certainty: The more they produce, the more they earn. They have a simple stake in the business.
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Nucor’s engineers, secretaries, clerks, receptionists, and other nonproduction employees have their own bonus plan, keyed to their division’s return on
assets employed. This encourages them to be efficient in their own work, to build and maintain strong customer relationships for the division, and to do whatever they can to help the people who produce our products. Bonuses for nonproduction employees run up to 25 percent of base pay in some divisions, but the bonus in some divisions may be zero if they don’t generate an adequate return.
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At the officer level, Nucor ties bonus compensation to return on shareholder’s equity-a vital performance measure watched closely by most stockholders. The more earnings our company returns to investors, the more money our officers earn.
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Even more disturbing is how executives constantly abuse their power to shield themselves from harsh reality. They give themselves big bonuses and raises (rubber stamped, of course, by their boards) even when the companies they lead lose money. They claim that their compensation is “tied to the goals of the company.” But much of the time, that’s just nonsense. For it to be true, the goal of the company would
have to be, “Pay our executives lots of money, come hell or high water.”
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That doesn’t mean profit sharing isn’t important. We use it as a way to help our employees prepare for their futures and to share in the success of the business. Working men and women can be very well set up when the time comes for them to leave Nucor. Some of our long-term employees have hundreds of thousands of dollars in their retirement accounts.
At the same time, we do what we can to make sure the 10 percent of profits we share each year with employees won’t be taken for granted in the short term.
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Four times, that I can recall, we have paid our employees an extraordinary bonus. We do it only when the company is generating record earnings. And we pay the same amount to every employee. (Officers are excluded.) In distributing the extraordinary
bonus, we make it clear that this is an exception, not a precedent.
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If you want to do something that employees will really appreciate, do something for their families.
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At minimum, pay systems should drive specific behaviors that make your business competitive. So much of what other businesses admire in Nucor- our teamwork, extraordinary productivity, low costs, applied innovation, high morale, low turnover-is rooted in how we pay our people. More than that,
our pay and benefit programs tie each employee’s fate to the fate of our business. What’s good for the company is good-in hard dollar terms-for the employee.
At Nucor, we expect compensation to do more than keep people from quitting. We expect it to give everyone a simple stake in the business.
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“You can spend your whole career in this environment and you won’t end up very satisfied. If you really want to do things in business, you’d be better off going into a small company that will let you get some real business experience.”
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If you are a young manager still choosing your career path, for example, consider the advantages which only a small business can offer. I can tell you from experience, working in a small company lets you get your hands on everything. You can actually see how the whole business fits together, end to end. You’ll learn about operations, accounting, research,
marketing, sales … and that breadth of perspective will prepare you for just about anything you’re likely to encounter down the road.
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In The Practice of Management, Peter Drucker wrote that “A company is as large as the management structure it requires,” and that “In practice, any business that needs more than six or seven levels between rank-and-file employee and top management is too big.”` If Drucker was right, think of the possibilities! Hypothetically, a business could grow ten-, twenty-, or fifty-fold in terms of revenues and still retain its small company character! All it would have to do is limit the number of its management levels. This is precisely what we’ve set out to do at Nucor, which is approaching
$4 billion in annual revenues with just four layers of management.
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THE NOTION THAT “bigger is better” is ubiquitous in business thinking, yet so implicit, we rarely give it notice. It is the natural product of the consolidation of enterprise into larger and larger units, culminating in the highly successful and awesomely powerful
mega-corporation. Bigger works in business. But smaller works, too.
Big businesses longing to act more like small ones will have to face up to a harsh truth: There is no shortcut from big and bureaucratic to small and nimble. Big, bureaucratic companies cannot truly change until executives, managers, and employees alike embrace the virtues of smallness.
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RISKS
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Of course, people won’t try to accomplish extraordinary things if their managers won’t tolerate failure. You should take care to never criticize when things turn out badly. That’s a surefire way to stop people from taking prudent risks. As the manager of people who made decisions that turned out badly, remember you were the one who allowed them to fail. So if you must dish out blame, give yourself a good helping first. That often curbs the urge.
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I have no desire to be perfect. In fact, none of the people I’ve seen do impressive things in life are perfect. They never settle for latching onto one approach or mastering one way of doing things. They experiment. And they often fail. But they gain something significant from every failure. That’s what it takes to achieve, I think, in business as well as in life.
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You can’t put your ethics in your pocket when you become a businessperson. If something is wrong outside the realm of business, then it’s wrong inside the realm of business.
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