Degussa Chairman Utz-Hellmuth Felcht: "I Live with Limits, Not Rules"Published: August 10, 2005 in Knowledge@Wharton
Degussa, the world's largest specialty chemicals company, is based in Dusseldorf, Germany. It has five divisions with 21 branches, and its products include Plexiglass plastic sheets, among others. Utz-Hellmuth Felcht, chairman of the company's management board, started his career at Hoechst in 1977, which he left in October 1998 to join SKW Trostberg. In 1999, the first year with Felcht as chairman, SKW saw earnings before taxes of 327 million euros, the highest in the firm's history. Felcht in February 2001 oversaw the merger of SKW and Degussa-Huls into a combined company called Degussa. In the first of a two-part interview with Knowledge@Wharton, Felcht recently discussed his leadership and management style and his approach toward mergers.
Knowledge@Wharton: In 1999, the first year that you were chairman of SKW, the company had its best performance ever. How did that come about? What management initiatives did you use to drive that performance?
Felcht: Well, 1999 was not a miracle, and certainly I wasn't the reason why the company had its best performance. When I became chairman, I tried to encourage management to work in a decentralized way. I let people take more responsibility and do things on their own without waiting for the boss to answer every question. That was a major change, especially for a German organization where people often think hierarchically and avoid risk by pushing decisions upwards rather than thinking for themselves. That's my management style. I don't make decisions for people if they can make decisions for themselves.
Knowledge@Wharton: How did you develop that style?
Felcht: During my 21 years at Hoechst, I always was against bureaucracy. If young people ever came to me to ask, "We want to do something this way, is it permitted?" I would send them away and say, "Don't even ask whether there is a rule. If you think it's the right way to do it, do it." If you ask whether a rule exists, in each organization you will find a bureaucrat who will say, "Hey, we don't have a rule for that - we have to create a rule." I live with limits, not rules. I have always tried to encourage young people to do things their way. They need to accept the risk as well as the responsibility. That's one of the fundamentals of my style of leadership.
Knowledge@Wharton: What is the toughest decision you have had to make?
Felcht: After 21 years at Hoechst, during the last eight of which I was on the board, I decided to leave voluntarily. I didn't agree with the direction the company was going, but I was in a lone, minority position. In the end, I had two choices: either to duck or to be myself -- and that meant leaving. I have always believed in being able to come home in the evening and look at myself in the mirror and say, "I took no garbage from anybody."
Knowledge@Wharton: Is it possible to explain what your position was that was not well received by the other board members?
Felcht: Well, if you look into that history, you will see that Hoechst was split up, and now it's gone. It was a 131-year-old company, and one of the five largest chemical companies in the world. The board wanted to split it up; I didn't agree with that. The company had many diverse activities. I believed that we had to treat those individual businesses differently and not in a central style, which had been the tradition, but we did not need to break up the company. We just needed to put the right people in the right places and treat the individual businesses differently. If you're in a commodity business and the pharmaceuticals business, you have to treat them differently. You can't run them the same way. But the rest of the board, especially the CEO, wasn't willing to try a different way. They said, "No, we have to split it up." I didn't want to go along with it, so I left. It is not easy to leave a company where you have had a successful career of 21 years, without having a new job, at age 51 or 52. You leave a lot of friends behind.
Knowledge@Wharton: In retrospect, was it the right decision?
Felcht: It was the right decision. No, there is no regret. But I also don't want to speak badly about Hoechst because 96% of the people I met in those years were all reasonable, nice fellows.
Knowledge@Wharton: One thing that is striking about your career is that you've overseen quite a few mergers, the most recent of which was the merger of SKW and Degussa-Huls in 2001. How do you approach mergers? How can you ensure that a merger doesn't destroy value but builds it?
Felcht: Well, those are two questions. How do I approach a merger? I think there are a couple of principles. There is a book called, Five Frogs and a Log, which asks the question, "Five frogs are sitting on a log and three decide to jump; how many remain on the log?" The answer is five, because there is a difference between deciding something and doing it.
My motto always has been speed, speed, and speed. We had a board -- three people and I - in which each person came from a different company. It wasn't just a merger between SKW and Degussa; it involved five or six companies. Each person only knew a certain part of the company.
There had been a merger two years earlier where people had been chosen for the top positions by an external agency. They interviewed three people from one side, three from the other side, and then after six weeks a decision was made about who got the job. That meant we ended up with one happy person and five unhappy ones. It was also much too slow, so we decided not to do that.
My colleagues on the board and I met one day to decide on the top positions in the organization. We knew it would be a decentralized organization -- that was a positive lesson I had carried over from Hoechst -- because we were in different businesses. We sat in a living room and looked at one another, and the conversation went something like this: "Do you have a good controller?" "Yeah, I have a good controller." "Can he do the job?" "Yeah, I think he can." "Okay, I don't think my controller is that good, so we'll take your controller."
We followed the same process for other positions. There was no compromise or balancing -- we didn't say we must have so many people from Degussa and so many from SKW. We ended up randomly filling the positions with each of us knowing just 25% of the people. We built it on trust. In one-and-a-half days we filled the top 80 positions completely on trust. We said, if 5% of these appointments don't work out, we'll tell them peacefully later on, but we need to get out there so that everybody knows where he or she stands.
Knowledge@Wharton: How did you communicate information about what was going on in the merger?
Felcht: We established a communications process. The merger was announced on a certain day, but the real merger took place, because of legal reasons, roughly eight months later. We created a newspaper and decided from the beginning that each time we made a decision about the merger, we would publish it immediately so that everybody would know. The newspaper's name was Ix+ a number; Ix was the week the merger was announced and +2 meant it was two weeks into the merger announcement. So, we had newspapers called Ix+1, an Ix+4, and an Ix+6, but no Ix+2, Ix+3 or Ix+5. Why? Because there were some weeks when nothing happened. It took people some time to realize this. People would come up to me and say, "I missed Ix+2." I said, "There isn't an Ix+2, because between Ix+1 and Ix+4 we didn't make any decisions."
We also used the newspaper to educate people. We had articles that explained what was going to happen next in the merger; for example, that we had to have a special shareholders meeting and things like that. We explained everything, and we kept it simple. When we explained what was going to happen, it took all the nervousness away. The blue-collar workers did not think the guys in suits were coming to take their jobs away.
We said we wanted to become a specialty chemicals company. That involved selling businesses that accounted for one-third of our sales, which had revenues of $6 billion. It was known from day one that we would sell those businesses -- and some of them had been around for 100 years. The people in those businesses asked us, how will you do that? I said, "We're going to take three years, we are going to do it one after the other, and we're going to do it openly. You all will see how we do it. We'll find a good home for you." Some 22,000 people were involved, but during the whole divestiture process, we did not have a single case of a strike or a protest, because we did everything openly. If you do things openly -- and this is another lesson I've learned in my life -- you take fear away from people. People can live with almost anything, even if it's very bad, if it's done honestly and openly and communicated honestly and openly. People also want quick decisions.
We could do all this because people trusted us. I once met a man in the U.S. who told me, "My approach when I meet somebody new is, he gets a certain amount of mistrust. Then he has to work the mistrust away, so that in the end I learn to trust him. That gives me the advantage, and I will never be disappointed." I said, "I can't work that way. Everybody I meet gets a certain amount of positive trust. I may be disappointed at the end of the day because the person may not be worthy of that trust. But otherwise, I can't work if I have to worry constantly about whether or not I can trust someone. I have to have a trust atmosphere."
Knowledge@Wharton: After mergers it's common to have layoffs. Did that happen in Degussa's case? How did you handle this?
Felcht: Yes, we had a restructuring process which took three years. We announced from the beginning that it would probably cost 3,000 jobs; in the end we lost 7,000. But we did all that in communication with employee representatives. We did it in a fair way.
I was at a meeting in New York two-and-a-half years ago. There were some 25-year-old smart alecks in dark suits who thought they knew everything better than anyone. One of them said to me, "Prof. Felcht, when we hear you're restructuring, you don't chop heads enough or kick ass enough." Everybody laughed; it was embarrassing. It took me a minute to answer. I said, "Young man, let me tell you something. If you haven't heard of enough layoffs at Degussa, I'm proud of that. Actually we had to lay off 7,000 people. And, by the way, when we speak about our employees, we do not use the kind of language you are using. We want everyone who lost his job to leave the gate of our plant with his head held high and proud to have worked at Degussa. That might be a little more expensive, it may be less sensational, but that is our style." Nobody laughed anymore.
Knowledge@Wharton: What is your long-term vision for Degussa?