GROWING LEADERS

It's no surprise that Who Moved My Cheese? An Amazing Way to Deal With Change in Your Work and in Your Life, by Dr. Spencer Johnson, is a best-seller. The book is about seeing change as an opportunity, not a problem. "When you look into the future, it's clear that the world is changing so quickly that we can no longer predict exactly what competencies executives will need to be effective," says Dianne Young of the Greensboro, North Carolina-based Center for Creative Leadership (CCL). CCL's group director of partnerships and alliances, Young works with Conoco Inc. in its executive leadership training. The center is a nonprofit research and educational institution focusing on the understanding, practice and development of leadership. Its research has shown that becoming a more versatile learner helps executives learn from their everyday experiences, enhancing their leadership capabilities. "There is a real sense in the energy industry that the speed of change-and the agility that is being required now-is going to call for different sorts of leadership capabilities than what has been traditionally the case. That's the whole point of Conoco's Trailblazer Program. The company is trying to grow its leaders for the new millennium," Young says. Conoco chairman and chief executive Archie W. Dunham calls employees "creators of value." That's why the Houston-based major is making a multimillion-dollar investment in Conoco University, which serves all 15,000 employees in 40 countries. "Strengthening leadership skills at all levels is one of our top priorities," Dunham says. Part of Conoco's nine-month curriculum is world-class executive leadership training, or the Trailblazer program, which seeks to increase Conoco's intellectual capital by identifying and developing at least 150 emerging executives. Trailblazer is a collaboration with the London Business School, a top-ranked European business school; the Center for Creative Leadership; and international consultant JMW Consultants Inc. Participants meet for sessions and use company intranet, videos and reading materials to learn about themselves, business concepts and Conoco. Richard Preng, managing director of the energy practice at executive search firm Spencer Stuart & Associates in Houston, says effective leaders possess various qualities including a good external presence. "How is that individual perceived by Wall Street? By the industry at large? I believe CEOs have a direct impact on the share price of their companies for the reasons of vision and the confidence that they instill in the marketplace," Preng says. Results of a recent Hill & Knowlton/Chief Executive magazine survey bear him out. The survey shows corporate reputation management is likely to be crucial for the next generation of energy CEOs; 94% of them consider corporate reputation a "very important" strategic tool and the remaining 6% call it "somewhat important." Yankelovich Partners, on behalf of Hill & Knowlton and Chief Executive, surveyed the magazine's subscribers last fall. Almost 600 CEOs and other senior managers, including 18 from energy firms, participated in the annual Corporate Reputation Watch survey. Of the energy executives surveyed, 72% place a "great deal of weight" on a potential successor's ability to enhance and protect the corporate reputation. Dain Rauscher Wessels E&P analyst Stephen Smith says most majors annually evaluate midranking managers and determine who has the greater potential to move forward. "ExxonMobil has had a strong record over the years, and it's hard to argue with their performance," he says. Majors generally ensure that potential senior managers get a diversity of assignments and also a broad background through various types of assignments, Smith says. Regarding leadership qualities, he believes an E&P technical background is important. "In terms of other considerations, I think it's the ability to extract essential information from key people and gain confidence of the senior management team," Smith says. So how do oil and gas companies find chief executive officers, and how do those CEOs in turn groom junior executives to move up the ladder as their possible successors? Oil and Gas Investor talked with recruiting firms and three CEOs to gather their observations. The recruiters' statements are contained in a separate story that follows on page 60. James T. Hackett, president and CEO of Ocean Energy Inc. Hackett was named to his post in 1999 after Ocean Energy and Seagull Energy merged to form one of the top 10 largest North American independents. Ocean Energy has exploration and production interests in the U.S., Cote d'Ivoire, Equatorial Guinea, Angola, Tatarstan, Egypt, Indonesia, Yemen, Bangladesh and Pakistan. "A good leader must above all possess the quality of integrity. That means approaching business decisions in a fair and principled manner with the realization that the mission is greater than any individual," Hackett says. "It is also critical that a leader has the communication skills to articulate a strategic vision for the company that can be understood by fellow employees and outside investors. "In addition, effective leaders must be good evaluators of people, and promoters of talented people who are brighter and different than themselves. Leaders must motivate others by sharing responsibility and authority, then allowing mistakes to be made without banishing people forever from the Garden of Eden. From my perspective, leadership is caring as much about execution as about strategy. In many cases, execution may be more important than strategy." He emphasizes that the most valuable resource within any company, regardless of its assets, is the intellectual capital of the employee workforce. To maintain that resource, Hackett says, effective leaders must be sensitive to the needs and concerns of their employees, and ensure that they are proud of the role their company plays within the industry and the community. Harold M. Korell, president and CEO of Southwestern Energy Co. Korell has 30 years of experience in the energy industry. He became Southwestern Energy's CEO in January 1999. The Fayetteville, Arkansas-based integrated company is focused on gas. Its exploration and production activities are concentrated in Arkansas, Oklahoma, Texas, New Mexico and South Louisiana. He says leadership is the key issue behind successful companies, and that almost everyone who reaches the CEO level shares certain traits. "Intellect, an ability to prioritize and good business judgment are three things that most people who have risen to president or CEO of a company had to have in order to get there. "I think the thing that ultimately separates the very top leaders from the rest is high emotional intelligence. It also is important in attracting the best people." He defines emotional intelligence as having a good self-awareness. "How are you affecting the people around you? How do you discipline and handle yourself in crisis situations? You must have empathy for people and an awareness of what is going on in your organization. Another part of emotional intelligence is social skills: the ability to develop and influence others, communicate with people, manage conflict, build bonds and teams." Richard H. Ward, president and CEO of Grant Geophysical Inc. Ward was named to his post in February 1999, to replace Larry E. Lenig Jr., who resigned. Grant Geophysical and its subsidiaries provide land and transition-zone seismic services in the United States, Canada, South America, Far East and Africa. Grant Geophysical's board of directors was looking for a president and CEO with industry-recognized experience in both domestic and international operations who could help lead the company though the seismic services downturn. "It was also essential for the new CEO to have an extensive background in marketing seismic services to an ever-changing customer base. Finally, the board was seeking a CEO with a shared vision of following prudent business practices combined with clear lines of communication." He believes a principal quality of an effective leader is the ability to communicate "in a clear and positive manner. In our increasingly competitive industry, we must communicate our service delivery capabilities to customers...Further, with the significant stress placed on employees, due to frequent economic downturns, an effective leader must be able to communicate the challenges and the opportunities." We asked these three executives for more thoughts on how they nurture leadership in their companies. Investor How do you groom junior executives to rise to the senior ranks? Hackett You hire and promote promotable people. That may sound too obvious, but in the practice of hiring and evaluating people, it is important to push along people who are promotable beyond the immediate position that is being filled. Otherwise, you lose your ability to continue to make the organization vibrant. Annually, we prepare and present to our board a detailed succession plan for the top three levels of the company. It includes a discussion of each person's strengths and weaknesses, his or her ability to be promoted and to what level over time, and what actions we are taking to develop that individual. In addition, we are implementing a 360-degree evaluation of our senior management team, in which peers, subordinates and supervisors identify each executive's strengths and weaknesses. This tool is more effective than a single appraisal because it is harder to argue with the input and the perceptions of a larger number of people. These evaluations are amazingly accurate. Hearing about a weakness from just a supervisor does not always give a person the strength of conviction one gets when a weakness is identified by five to six people at all levels of the company. The 360-degree evaluation does a really good job of this. The process is totally confidential and purely for self-development. I do not read the reports from the outside firm that produces them, rather I ask the people who were evaluated to tell me what they learned. I want them to share with me how they are using the information to improve. Sometimes, there are debilitating weaknesses that cannot be overcome, but the astute individual utilizes the data to become an effective manager, and those are the ones you want to promote. Basically, we plan to prepare junior executives by helping them understand what skills are needed, then provide them the additional schooling or training and the developmental career opportunities that are required. Korell The first thing you do is try to pick the people who have leadership qualities in the beginning. Some of these things you can't train. You can lay out a framework, but I don't think you can very effectively train someone in emotional intelligence. You have to start out with the best. You should send the people who you expect to move up to management schools. At these schools, you go through a process of being able to understand yourself in regard to emotional intelligence, to see how others regard you and to see how others react to you. I've been to those kinds of schools while I was at Tenneco, and I benefited from them a tremendous amount. It's something we do here at Southwestern, as well. I also think it's very important for the chief executive officer to interact with the junior-level guys who you expect to move up. You should spend time with them. I interact with them a lot. I watch how they react to other people and how people react to them. Another thing is to make them responsible and accountable. I still think the key is to select people who have natural emotional intelligence and try to develop that over time as much as possible. Ward Grant is a relatively small contractor, and the downturn has strained our capability to retain our middle-management personnel resources. Through perhaps not the most cost-efficient short-term strategy, we have tried to look forward to an expected business recovery in 2000 and retain our core management capabilities. Frankly, this has been at the expense of higher overhead retention, but it's a necessary cash investment in a primary Grant resource, our people. Investor A leader must motivate employees, and manage the balance sheet and risk. How does an effective leader do this, in unison? Hackett First, an effective leader should have a history of success in commercial judgments and financial discipline. This factor deals with the issue of proper risk and reward, which is critical to managing the balance sheet and to risk management. Second, leadership requires making hard decisions and taking steps that are sometimes painful to ensure a company is competitive. The humanistic side of management allows clear communication and execution of the necessary competitive strategies For example, we reduced our workforce by almost one-third following the merger of Ocean and Seagull Energy. We expressed our regret that it was necessary to downsize, treated people as fairly as possible in terms of severance, and rewarded those who helped us bring the two companies together. As a result, we had excellent results in 1999 and are positioned for substantial growth in 2000. Much of our success is due to the fact that we were honest about the difficult actions we were taking. We approached the personnel reductions in as sensitive a fashion as possible. The need for the layoffs has been openly discussed during subsequent employee meetings, and we recognize the fact that many of our friends and their families were affected by the upheaval. We also acknowledge that it was difficult for those of us who were left behind, but we must carry on and do the best that we can. In return, the company will make every effort to reward the good performers and help them take care of their families. Each month, our senior management group hosts luncheons for employees with a birthday in that month. We discuss industry and company issues, and invitees are encouraged to ask or submit questions. I learn as much in these meetings as employees who attend. The feedback is very valuable. Korell First of all, I think you need to add a fourth objective to your list-effective communication with analysts, investors and the whole community. When you think about being the leader of a public company, communication is on par with those other three objectives. How do you move all three or four forward? You stay busy. You must be motivated yourself. That is a first requirement. You have to be a person who is intrinsically motivated and you put a lot of effort into it. A first requirement beyond that is to have a knowledge level and experience in the business. You can't become a leader of an E&P company and not have spent time knowing and understanding the business. Someone can put you in that position but, over time, I don't think you will be successful unless you have some of the gut feel for the business. It requires that you think about your job pretty much all of the time. I even think about it when I am asleep. You can't have a lot of distractions. You have to keep your eye on the ball. Something that has been important for me is to get periods of rest away from the business-get away so that you clear your mind at times. It's also important to have a supportive and helpful spouse, somebody who understands and who is interested in what it is that I am doing. Not everyone is cut out for this. That is pretty obvious. The other point is that if you don't enjoy the rigors of the position, you just shouldn't be doing it. Ward A business leader must continually balance financial resources with the need to position the company for future growth, and at the same time, mitigate business risks. We have elected not to compromise our safety programs because this is an obligation we owe to our employees, customers and shareholders. We are continually challenged to demonstrate to employees with action, not merely words, the importance of working safely. This requires us to openly explain how an unsafe work record leads to higher insurance costs and additional financial pressures at an already financially challenging time. Finally, we must withstand the temptation to take on more debt than is absolutely necessary, in order to preserve balance-sheet liquidity that will be necessary to capitalize on future contract opportunities. THE RECRUITER'S PERSPECTIVE Some energy-company CEOs stand out as exceptional leaders. Recruiters describe how they find these candidates. When Max Lukens stepped down at Baker Hughes Inc., the oilfield service and supply company quickly appointed Joe Foster as its interim chairman, president and chief executive officer while searching for another leader. Spokesmen for various executive search firms contacted by Oil and Gas Investor all cite Foster's accomplishments at building Newfield Exploration Co. and his overall reputation as a gifted leader. When asked what attributes set Foster apart from his fellow oil industry CEOs, recruiters say he keenly understands the industry's direction and can envision the steps needed to keep a particular company well positioned. "Foster is one of the most, if not the most, respected executives of the independent sector," says Richard Preng, managing director of the energy practice at Spencer Stuart. "I think companies that have very strong management teams include Santa Fe Snyder, Ocean Energy, Burlington Resources, Vastar Resources and Anadarko Petroleum." In addition to those names, Randy Lowry, managing director for Russell Reynolds, cited Raymond Plank at Apache Corp. "Joe Foster has been a great one, but I think if you look at a company that is successful in carrying out its strategy, Apache is as good of a team as you can find. That's really a team between chairman Raymond Plank and president G. Steve Farris. They each have a clear role. Between them, they have stayed focused with their strategy and just done a masterful job of growing that company," Lowry says. Steve Raben, also a managing director at Russell Reynolds, notes that staying focused is critical in a business where there is such wide, and unfortunately frequent, price swings. "How many people have tried to execute the Apache strategy but done it at the wrong time? They have not had the focus. They have not had good value discipline." Preng emphasizes vision. "Good leaders understand where their company fits, not only today, but also down the road in that marketplace. Number two is the ability to hire, motivate and retain the best. You can have all the technology in the world, but unless you have the people to fly it the right way, you're not going to have success." Lowry called Enron's chairman and CEO Kenneth L. Lay stellar at surrounding himself with really, really talented people, such as Enron president Jeff Skilling. "It's not just the ability to pick good people, but attracting and retaining them. Effective leaders provide people with opportunity, with challenge. They provide people with an opportunity to spread their wings so that they feel like they have meaningful input into the business-that they are not just executing someone else's input." Preng said James Hackett, Ocean Energy Inc. president and chief executive, has done a good job of assessing his management team and making some changes. "The changes are not only those of bringing people in from the outside, which has happened in one or two occasions, but also shifting and reassigning responsibilities and roles to better fit the individuals and their capabilities within the company. Jim is very good at giving people more responsibility." Raben notes that Ocean Energy is actually the result of a combination of four companies: Seagull acquired Global Natural Resources, Ocean Energy merged with United Meridian Corp., and Seagull was merged into Ocean Energy. "The strategy and the content that Hackett offered to the combined boards of these companies, now Ocean Energy, was that of a very commercially oriented leader who was not afraid to be aggressive. That was teamed with a very good chief financial officer, in William Transier. If you go back to what Hackett said within his first 30 days of being announced as the CEO of the combined companies, he laid out very clearly that they were going to rationalize assets and refocus their efforts," Raben says. Another trait of effective CEOs is being a good communicator, Raben says, adding that both Hackett and Harold Korell of Southwestern Energy demonstrate that trait. Lowry says the communication style takes various forms among CEOs, and he believes all successful CEOs are very good communicators. "I think Korell is just a superb communicator. We actually were involved in recruiting him into that company. We were looking for somebody to come in and succeed the longtime chairman and CEO. There were a lot of sensitivities there since he was succeeding a 30-year CEO. Korell not only successfully succeeded the CEO but really positioned Southwestern Energy for growth, and it has started happening." An example of a CEO who came to a start-up company with a focused strategic plan is Roger L. Jarvis of Spinnaker Exploration Co., Lowry adds. "Jarvis really knows the business. He had a great deal of focus on a strategic plan. He sold that plan to the board. He subsequently sold that plan to the market. He has been more than highly successful in managing the execution." Raben says partnership factors play into Spinnaker's success. "It's another combination in the partnership of a very strong CEO and a superb CFO, Jim Alexander, a former investment banker and a complement to Jarvis. Often, a characteristic of a good, strong CFO is that person is the alter ego of the CEO. He or she will put on the contrarian hat and push back on a business proposition that may be under consideration. The same is true at Cooper Cameron." Spinnaker also had the advantage of its investors. Petroleum Geo-Services provided a technical competitiveness and the New York-based E.M. Warburg, Pincus & Co. LLC contributed private equity. (For more on Spinnaker, see "Setting Sail," February 2000, Oil and Gas Investor.) "Warburg Pincus was the financing genesis behind Joe Foster and Newfield Exploration 10 years ago," Raben says. It's not just the demands of mergers or emerging start-ups that cause a board to think carefully about leadership qualities. Sometimes, a board must consider making a change at the helm, even though awkward. Such was the case at Triton Energy Ltd. Renowned as an elephant hunter for finding the giant Cusiana and Cupiagua oil fields in Colombia, the Dallas company expanded operations in search of more big finds. Expenses started to escalate, aggravated by debt and the timing of falling oil prices. The board felt that the CEO was losing focus and stepped in to pursue new leadership. The CEO resigned in July 1998 and management embarked on a restructuring. It sold a portion of a developing gas project in the Gulf of Thailand to Atlantic Richfield Co. for cash. In August 1998, Hicks, Muse, Tate & Furst of Dallas agreed to buy up to 35% of Triton for a total investment of up to $350 million. James C. Musselman, a new Triton director, was named interim CEO in October 1998. Musselman finished the company restructuring begun by the board and became permanent CEO. He fostered confidence between himself, Al Turner, chief operating officer, and Greg Dunlevy, vice president and treasurer who is now CFO. The new team pursued drilling a high-potential structure offshore Equatorial Guinea, before the price rebound had gone too far, resulting in a record world-class discovery last year. WHEN HIRING A RECRUITER It's crucial for a company to be comfortable with its search firm. Recruiters must understand your needs before they can find the best candidates for your company. This understanding comes from involving the search firm in the company's goals and overall human resources development plan. Some tips for companies follow. Interview the search firm itself. Where have they been successful and where have they failed? What do their clients say about them? Who have they rejected? Who has rejected them? Involve the search firm in your goal-building and overall resource-development plan. Allow the firm to talk to everyone. Make sure they have a clear understanding of where you are and where you want to be. The creation of a partnership-trust relationship ensures search success. Listen to the recruiter's pitch to candidates. Review the accuracy of the presentation after a few days of recruiting and determine if it is effective. Let the recruiters do their job. Don't run a separate search of your own. Give recruiters information instead. But do decide what you want to know about candidates, and make sure the recruiter includes that information in the interview. Ask for details about final candidates. You have the right to know why the person is being recommended, how they were found, who was contacted, what the current salaries are, when the candidate is up for review and what issues you should question in your own interview. Review all internal candidates first. Have the recruiter involved in your employee relations program to ensure that morale is kept intact. In the "getting to yes," use the recruiter for assistance with final negotiations. Suggest interaction with candidates' spouses, to make sure the deal doesn't fail because there isn't buy-in from the spouse. Have the recruiter act as a buffer to handle difficult, detailed questions or discussion. Don't put all of your eggs in one basket. Always have a backup in case the first candidate doesn't work out. Have a follow-up meeting with the recruiters to evaluate what they have learned during the search. Get all the information you can for the money you have paid. Get a guarantee. If things do not work out within a one-year period, require your recruiter to find a new pool of candidates at no additional cost, except expenses. Source: David E. Preng, president of Preng & Associates, Houston