Overcoming Change Management with Great Leadership

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I'm Kisam Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A Deals.

Hi everyone, my name is Pamela ec. I work on the sales team at Deal Room and I'm happy to announce our next session which is Leadership Lessons to Overcome Change Management Challenges. And in this session, Kisan Patel, CEO and founder of Deal Room will be interviewing Harry Kramer Jr. Harry. Harry is an executive partner at Madison Dearborn Partners and also a professor of Management and Strategy at Kellohag School of Management. So Kisan, I'll hand it to you now.

Thank you Pam. Just to sort of frame things and kick things off, the reason I reached out to you is you got an interesting background. You worked with Baxter about a 25 year career, started off as a financial analyst and ran through the ranks and spent time I think past five years or five years turn of it as CEO. Looking at that experience and then also obviously being involved with some M and A activity there and contrasting it with what's going on in M and A today. And it's interesting when I talk to Corp dev teams integration practitioners, one of the biggest challenges that constantly reoccurs is to change management. It's come along our conversations today multiple times. What I really wanted to focus was specifically on the leadership part that ultimately drives this change in a positive or negative way. Since this is your area of expertise, I'll let you sort of kick things off with some of your points around this topic and then we'll go from there.

It really is a pleasure, Kieson. I've really enjoyed our conversation from my standpoint, whatever I can do to share some thoughts. Happy to do so. I have very few answers like everybody on this. I have many opinions. I never do Q and A, my friend. I do a lot of Q and O and happy to share my opinions on this. And having been involved in this for many years now, when you talk about this whole area of change management. Well, let me break it up for you a couple ways. So, first of all, a lot has changed in some cases, Kisan, not a lot. And what I mean by that is when I was a student at Kellogg, many, many years ago, one of my professors I may have mentioned to you was Al Rapoport, who did a lot of the original work on valuing companies, and he made the comment that 80%, 80% at the time, this was 40 years ago, acquisitions fail, that is, they don't earn a return and it would have been better off for the company not to buy the company. And, and of those 80s turned out, half of them are due to some of the things you talk about in other ones of your podcasts around not understanding how to value companies and getting emotional and so on. But the other half has something to do with what you're talking about, which is the ability to deal with change, the people aspects, the integration aspects of it. And to your point, it really does all come down in my mind to leadership. And when I define leadership in a very simple way, I think of it almost as a sort of three words. Leadership, influence, relate to. And we could spend hours talking about that one word. Think about it. He said, when you're hiring somebody for your company, you're constantly talking to them. What's the fit going to be like? How are these going to fit in with the rest of the team? What's that going to look like? But it's very interesting. We spend a lot of time when we're hiring somebody to make sure that we've got the fit well with people. However, when we make acquisitions, we say, oh, this has got a great present value, the economics look good, it's going to be accretive or whatever, and there's very little time spent on the people dimension. And I got to tell you, Chief, I have a classic Kellogg that's literally called Lessons from the Battlefield. I won't take my shirt off, but if you look at the scars I have from not understanding that, well, you'd be surprised how many scars there are. Again, I'm very honest and open about it, Kisan, because I was a math major and I took a lot of finance and was a CFO early on, I thought it's all about the numbers, and if you get the numbers right, everything is okay. And as I've heard from several of your other speakers here, at the end of the day, and it may sound trite, but it is all about the people. And when I talk about leadership and I say your ability to relate, it's very interesting. I talk about your ability to relate to every single person on the team. And what I'll do sometimes in classes, Kisan, I'll say, how many of you want to be leaders? People raise their hand. How many of you think you relate well to people raise their hand. So don't raise your hand this time. How many, when you go in the building, know the name of the receptionist? How many of you, when you go in the cafeteria, know the names of the people in the cafeteria and how many children, if they happen to be there at night and you're talking to the maintenance person, can you relate to every single person? We often try to do that in our company, but when we're making acquisitions, we don't focus on that at all. Keysight we sort of assume, well, that'll all sort itself out. And I've had situations and I can give you any number of stories, Kisan, but I've been in situations where we would have a lot of very strong engineers, research manufacturing people. And then all of a sudden we buy a company that was really a couple of pretty wild and crazy sales guys and it looks like a great company. Then you have to ask yourself the question, is this really going to work? No kidding around. How are people even going to relate to one another? Is that really possible? Will they respect one another? Can they operate with one another? There is this tendency sometimes to sort of assume, we'll figure this out. And at the end of the day, I would argue I don't care what the numbers look like. If you can't deal with the people impacts and the change impacts, this is going to go absolutely nowhere. So I'm constantly trying to figure out what are some things we can do to make this change easier from a leadership standpoint. I'll give you a couple examples, Kisan, and then you can jump in and anything that you think is helpful. And I was making a list of some of these experiences. One I've noticed is when you want to buy a company, let's say you and I want to buy a company and it's Pam's company. And I argue one of the things we really better know, Kisan, is not only the culture of our company, but what are we really good at? And we look at Pam's company, we say, are we going to be able to manage that? And I say, I don't know, what do you think? He said, well, no, we can't do it without Pam, but I'm sure Pam's going to stay. Well, what if Pam doesn't stay? Well, I'm sure She's going to stay. Well, if she's not staying and we don't know enough about that company, there's going to be a real problem. And also, we want to maintain a lot of her people. And I don't know if you've seen this, Kisan, in your background, but very often you and I will buy a company. There's 100 people in that company that we want to maintain. And literally within three or four months, 70% of them are gone. And when we are, Kisan, we're surprised. And as I always say in class, yes, you're surprised, but surprised you're surprised. Why is that? Let's just go through what typically happens and maybe I'll do it as if now he said, I'm buying your company. I'm Baxter, okay? We're a $12 billion company, 55,000 team members, we're around the world, and you've got an interesting product and you've got a team of 50 people, and we buy your company. Now, what usually happens, let's be honest, what often happens is we announce the fact we're buying the company, and then we basically tell your hundred people over the next eight, nine months, when we integrate this together, we'll let you know what your job is going to be and what you're going to do. And then we're surprised that nobody's there. And it's very interesting that there is almost this view of, wait a minute, why would you do it that way? And after getting burned several times, Kisan, what I found the best approach was the following. I'm going to buy your company. Before the announcement comes out, I sit down with you and say, hey, Kisan, what are the five or six things your team is most worried about? And you may say, geez, Harry, they're worried about, is our manufacturing facility in Milwaukee going to stay open? Yes, it is. And here's why. Or you know what, Kisan, it's not going to stay open. But we have a plant in Madison that is. And anybody in your plant that wants to go to Madison will do that, or we'll give them a severance. And we literally walk through what are all the issues they have, and we talk about what we're going to do and being on 10 boards, keys on now with the chairman of three companies. Whenever I will push a CEO now, and I do this a lot, and I'll push a CEO to make decisions pretty quickly, they'll often say to me, harry, we can't tell anybody yet because we haven't Decided. And I'll say, wait a minute now, if you haven't decided whether you're going to keep the plan, Rol, what did you use in your cash flow analysis to buy the company? Are you going to keep the sales force together? Well, we haven't decided yet. Well, if you haven't figured out whether you're keeping the sales force together or not, what was the assumptions you made in your cash flow model to justify? Did you actually do a thorough valuation of the company or did some banker stop by and say, well you can buy this company Kisan, and it's going to be accretive, which I don't view as a great way to understand economics. And so this whole idea of how are you going to treat people, how do you relate to people, how do you want to make this thing work? And here's a little formula that may be very helpful. It's a very simple equation. Change is going to happen. It's going to occur. Here's the bad part. Change plus uncertainty equals chaos. You can jot that down. Change plus uncertainty equals chaos. And the way I look at it is the change is going to happen. Welcome to the real world. But what I've got to figure out, what you and I have to figure out Kisan, is how do we minimize uncertainty? How do we take the uncertainty out of it and do it in a way that we can actually keep people in the organization so that we're not surprised when people suddenly leave. What I find interesting is when you've got change happening or you have difficulty, people freeze up. And again, I'll offer us a little bit of an opinion. They're all opinions, not answers. And maybe how best to answer this. Here's a little three part equation for you. Part one, if I'm buying your company, we tell people what we know, we don't make it up, we don't fly by the seat of our pants. But he said, here's what we know right now, number one. Number two, right now, here's what we don't know, here's why we don't know and here's how we'll get this resolved one way or another in the next week or two. And number three, we will let people know how quickly we'll get back to what we didn't know. Here's what we know, here's what we don't know, here's how quickly we'll get back to you. And I really do believe if we figure out a way to minimize the uncertainty and take on as many of the issues as fast as we can, we'll be able to help ourselves. But I got to tell you, when I look at all the acquisitions that are out there, even people that get the numbers right, because they really don't understand the people dynamics. They don't really understand how are we going to work together, how are decisions going to get made. And we sometimes make up things, we lose a lot of credibility. I'll give you another example I've seen over and over again, Kisan, where I'll buy your company. But in the process of buying your company, I'm a public company, I buy your company. You're very concerned about your independence, Harry. Can we operate independently? Are we going to get sucked into the whole total company? And then when I say to you, oh, no, you're definitely going to be able to operate independently, there's a few guidelines. You can operate independently. Who's kidding who? As a publicly traded company, as you well know, Keyson, every 90 days, as the CEO of the CFO, I've got to get on a conference call with all that crowd from Fidelity and T. Rowe Price and Morgan Stanley, you name it, and talk about what happened that quarter. And if I said in that quarter we're going to deliver 25 cents, I don't think I'm going to say, oh, you know what? We would have delivered 25 cents. Keysan's doing whatever the hell he wants to do independently and the numbers somewhat different. So at the end of the day, how you absorb a company as a public company, how you figure out and openly tell people what the change is going to be and how you're going to minimize the uncertainty in my mind has an enormous impact on how successful the company is going to be. I can give you another example, Chief, or if you want to ask me some questions.

Examples would be great. Actually.

When I say that, it's very important, Kisan, to really understand what are you good at? What are you really good at? What I often had to tell folks at Baxter was, I'll give you the bad news and the good news. The bad news is we thought we were really good at nine things. It turns out we're only really good at two or three things. That's the bad news. The good news is most companies, Kisan, aren't good at anything. That's why most of them disappear. If you know what you're really good at and you stick to that and you have the people to pull it off very well. But you know how it works, Kisan, these are all the things we could be doing, this is what we're really good at now. If we start to do something that's outside of that, which we may sometime do, do we really have the people and the knowledge base to be able to pull that off? And I'll give you two examples of my past. I'll change the names, but I'll give you two examples of some of the crazy things that go on at Baxter. We were literally the pioneer in intravenous fluid drug delivery. And every person who was one of the senior executives at one time or another ran that business. And if you're now the president of that division, Kisan, and you're making a presentation, we are feathering you with questions, we're challenging you, we're all over you. But then all of a sudden somebody had the great idea, you know what? Hospitals have got a big issue right now with information systems. Interestingly enough, that was their problem 40 years ago. It's still the same problem. We should really get into the software business for hospitals. That would be a really good add on for us. And I remember thinking to myself, we're not really good at our own systems. We're going to do this for hospitals. But I guess we buy these companies and all of a sudden it turns out that not only did you not know much about it, you didn't even know what questions to ask. Instead of really being able to get into the detail, you're operating at a very superficial level. And where it really got interesting, we said, wait a minute, are we going to be able to operate this? Oh, we'll be able to operate it because Joe is definitely going to stay on with the company. Here's another little tip, Kisan. The way I eventually figured out whether somebody's going to stay with the company when you buy them. A generalization. But it's my observation, it's what I call the island problem. The island problem. I'm going to buy your company. Now you tell me that you're sticking around, it's going to go great, but is he really going to stick around? Is he really going to stay? Well, it turns out it's the island problem. Because the only thing I need to know is how much money you're going to end up with in this transaction. And my observation is if it's an eight digit number, it could be the island problem. And one of the transactions I did, I had a division president who said, we're going to buy this company. And I said, really? Oh yeah, yeah, but Tsun wants to stay. He's a good guy. He's not going anywhere. All right, well, they conclude this transaction. We're going to meet February 1st at Baxter's headquarters in Chicago. And he says, harry, you're the CEO, could you come and attend the meeting to meet Key sign. I said, fine. That's fine. So I Show up at 8 o' clock in the morning, February 1st. It's snowing, it's 9 o', clock, it's 10 o'. Clock. And this guy's saying, I'm not sure where Kisan is. I know where Kisan is. He's out in Iowa. Who in their right mind with $10 million is coming to Chicago when it's 30 below zero on February 1st? And this guy was surprised, and I'm surprised he was surprised. Thinking about what are you doing? And part of this whole idea, I think, about leadership is how do you, no kidding around, how do you minimize, can't eliminate. How do you minimize the surprise? How do you reduce uncertainty? How do you make sure that people get comfortable with change management? And I would argue an awful lot of people in companies struggle the people side of change management. It turns out that you can draw a continuum of change. And I think all of the listeners can plot themselves, their team and their company where they are in this continuum. I'm going to start at this end. This end they hate change gets a little better. I avoid change, I dislike it, I tolerate it, I accept it, I enjoy it, I thrive on it. And not many people get all the way out here, Kisan, but if you get all the way out here, this is where you create the change that other people have to react to. And I think from a leadership and a change management, you almost have to ask yourself, am I reacting to change or am I creating the change? And here's the example I often give to students. I have a hard time picturing the late Steve Jobs or Bill Gates in a conference room, Kisan, talking about how they're going to react to what other people are doing Now I can see them in the room talking about what they're going to do that nobody is going to be able to catch them. So again, are you reacting to the change? Are you creating the change? Are you building a team of people that are willing to take risk, that are willing to get out of their comfort zone? And the analogy I will use with the students, a crazy analogy, Kisan, but anytime I'm on either one of the coasts, East Coast, west coast, and I'm watching people surf, I've never tried it Kisan, I'd probably kill myself trying but when I watch somebody surfing, I always picture the late Steve Jobs about a mile out in the water with some kind of apparatus or machinery that is creating the waves that other people have to react to. And I think what management teams have got to figure out from a leadership standpoint is are we willing to create change and deal with the fact that that sometimes we're going to fail and often somebody will say, Harry, I know at Baxter you guys were willing to take risk and I'm really struggling with that. I can't get my people to be innovative, I can't get them to be willingness to take a risk. Can you help me? So a couple weeks ago I visited one company, he's not a friend of mine and I said I'll call him Joe. I said, Joe, I'll tell you what, why don't we sit down and talk to the last three people who took a big risk and failed. Let's start with that. And he said, well Harry, those three people are no longer with the company. Those three people have been fired. So let's go real slow. The last three people who took a big risk all got fired. And you're wondering why no one's taking a risk. I got to take you, son. If I had known how easy it was to be a consultant, I would have left Baxter a long time ago.

I like how you draw the spectrum of people that don't like change versus thrive on it. In terms of driving changes in approach, would it make sense to identify the change oriented people and sort of get them in the pool first and see if you can draw upon effect around that.

Two reactions, Kisan. One, as you can imagine, we talk about leadership and change. A very big part of this is development. If you work for me, I can be a vice president, you're a director, I can be the CEO and you're my senior. It doesn't really matter. A very big part of leadership is continuous development. I have an obligation as a leader at whatever level. If I'm running M and A for the company and I've got four people, my role is to help those four people develop to their full potential. Part of that is going to be, as you correctly said, I got to find the people that are into this, they're juiced up for it, they're ready to go and help those. Now the people that aren't, I've got to figure out can I work with them, can I help them get better at this or are they just misplaced and it may turn out that Pam's a great person. But you know what? This is not the role Pam ought to be in. Maybe Pam ought to be doing something else. So that ability to evaluate every person, evaluate what their strengths are, how good do I think they're going to be? A change management. Are there things I can do to help develop them? But to your point, if they're slowing things down, I got to move them out of the way and get somebody else who can do it. Absolutely. There's too much going on.

You got to be objective about it, even if it's making the tough decisions.

This falls into a great topic, Kisan, that I was talking with 30 CEOs the other day related to feedback. Because at the end of the day, I think people confuse feedback because very often I'll say, as a company, do you guys do feedback? And they'll say, oh yeah, we do that. We do that. We have that form and human resources. And once a year I sit down with Kisan and he's sweating and I don't want to ruin his day. We go through this bizarre mating dance. No, that has nothing to do with what I'm talking about. When I say the word feedback, Kisan, it stands for open, honest, continuous, transparent feedback. I have a moral responsibility, Kisan, to help you understand what you're good at, what are the things you need to improve on and what I can do to help you reach your full potential. And very often CEOs will say to me, how do you know if you're good at feedback? How do you know? It's actually very simple. If I'm good at feedback, I will never surprise you. I will never surprise you. In fact, to the point, Kisan, at Baxter for 25 years, very rarely did I have to fire somebody because this ongoing, constant development of you, I have you coming in my office and saying, harry, this isn't working, is it? This really isn't working. You know what, Kisan? It really isn't. And you're not a bad guy, but you should be in a different area. And by the way, I will help you find another job. I will treat you exactly the way I'd like to be treated if the roles were reversed. That's leadership. That's all about change management and how you really develop a team.

When we look at change in large organizations, there's layers to get through. How do you work through that? Looking at this middle management layer, oftentimes we get alignment on the executive level. But then a lot of this stuff tactically needs to be carried out through the middle management level with the frontline. So what are the thoughts or approaches around getting that alignment and making sure that enablement happens through the middle management level?

It's a super good question, Kisan, and it's a big enough question. Let me hit it from several different directions. The way I look at it is the following. I'll start at the top. If I'm the overall leader and I got this middle group and then I've got all these folks lower down, if I'm the leader, I will make it very clear, Kisan, to you. Let's say it's you and eight other people at that middle level. I will make it very clear to you in terms of feedback to you, but also setting a clear direction, communicating that direction, holding you accountable and there's consequences. And if it turns out, Kisan, you and the other characters are creating what you probably know, that term of a frozen middle layer, I'm going to put a jackhammer through it and you may or may not survive. Now, you would, Kisan, but somebody else. So this whole idea, my friend, of from the top, I've got to be looking down. I've got to be looking down far enough. I can't just assume when I tell the 10 of you to take care of this and make sure that everybody else knows it, that it's really going to happen. And so at Baxter, I had 12 direct reports, but I literally made sure I got out the 55,000 team members in 103 countries. So they heard some of it directly from me. So something wasn't lost in translation. So from the top you got to cut through it. That's the first part. But equally important, Kisan, let's talk about what we need to do at the lower level. And now let's role play. Kisan, you're at the lower level, you get it. But your boss, for whatever reason, Kisan, your boss, he or she either doesn't get it, doesn't want to get it, or let's not leave out Kisan. They're just not good guys, okay? I don't know what happened to these people. Maybe, I don't know, Kisan, maybe they had the wrong parents. Something went wrong with some of these people. Well, how do you deal with that? And that whole topic, Kisan, is I have a whole class on it and it's called the ability to lead up. Let me discuss this with you for a minute. Keysight. I'll just use you as an example of a guy. Most people, most men and women most figure out how to deal with their team. Now the next level is how do you deal with your peers? You don't work for me, I don't work for you. But I can't get it done without can you help me out? I'll help you figure out your peers. Some people struggle with that. The hardest thing in life is how do you lead up? What do you do when he or she up there is an issue and they're that frozen middle layer. So now let me role play and I'll tell you how that one works. Kisak, let's now say you're at the middle level and I'm at the lower level. You're about to do something that doesn't make sense. Then I got to ask myself that little model again. Leadership, influence, relate. I got to figure out how do I relate to this guy? Do I challenge Kisan in a team meeting? Do I do it one on one? Do I do it in your office? Do I do it on the phone? I'll know enough about you and I'll double underline that word. Relate. I'm going to relate. I'm just making this upkeep sound. But I'm going to relate to you well enough to know you got a big ego and you're not going to listen to somebody below you. You're just really hierarchical. Guess what? I'm not going to get my ego get in the way. I'm literally going to ask myself, maybe I just let it be your idea. Maybe even knowing that, hey, so you're a bright guy. I'll do whatever I have to do to let it be your idea. Let's say that doesn't work. Now what am I going to do? I'm going to look around and I realize the reason I can't get anywhere is you're so hierarchical. Just not going to listen to somebody who's a peer. What do I know? I'm doing my homework and I realize that Julia is at your level. She's also a vice president and she's actually a pretty good person. And I go to talk to Julia and say, hey, Julia, Keysat's never going to listen to you. I'll tell you what, he's at my level. I went to school with him. Harry, let me take care of him. I don't care how we get it done, but I'll use whatever means I have to try to change things so that we can cut through that, through that layer. And by the way, key sign, you want to talk about real Leadership. Now, let's just say I can't find a Julia and you're a real problem. And I have to ask myself a big question. How big of an issue is this? Are we about to spend $100 million on something? We shouldn't spend more than 50 million. Is it a big issue? And by true self confidence and the way I define true self confidence, I'm not great, but I'm pretty good. And if this doesn't work, then I can find a job someplace else. And if I can't sink into you when I can't get around you, then what am I going to do? I'm going to go to your boss, I'm going to Pam. Now, right away some of you are saying, oh, okay, you do that, boy, that could be the end of it. I could lose my job. Well, I had two rules on this. One keeps on. Number one, I don't go to Pam without letting you know I'm doing it. I'll never go around you. And number two, there's nothing I'm going to talk to Pam about that you and I haven't talked about already. So I hope you come with me. This is not a major issue with you. We just have a disagreement. I have a responsibility. And then someone will usually say kisan, but yeah, but what if Pam agrees and you're out? If I'm a value based leader and I'm a strong leader and this is a big issue that you're doing something that doesn't make sense, then how could I stay in the company anyway? I had to leave, I can tell you. And I don't know if you've noticed this Kisan, in all your work, but one of the reasons why you raised this great point about this frozen middle layer, very often there's a group of people that slows things down and really makes it hard to deal with change. And it's a group of people. I don't know if you've heard of this group of people, Kisan. They all have the same name and their name is those guys. We don't even know who they are, but they're there. It's a gender neutral term. We have to wait for those guys and maybe Kisan, if it's helpful, I'll give you one last story here. You may enjoy the folks that are in acquisitions may enjoy. I started my career Kisan. I was in the M and A department at Baxter. I had to do a valuation. My boss was Jerry. He gave me this company of value. I did the valuation. I Turned it in and said, harry, great job. Super job. I just got out of Kellogg. Al Rapaport was my mentor, who was a great guy. I felt really good. You're kind of proud of yourself. And I was going to go back to my cubicle, but I said, jerry, what's the company going to do with this? And he said, oh, Harry, they're going to go ahead. They're going to buy the company. I said, that's super. It's a good company. I said, I'm just curious. What are they going to pay for the company? And he said, well, they're going to pay $100 million. I said, well, now, Jerry, now I'm confused. You told me I did a good job. My valuation said, you wouldn't pay more than $50 million, so why are we paying $100 million? I wasn't trying to be egotistical about it. I thought, okay, I've left something out. I want to learn, I want to get better. And he said, harry, they've decided. Who? Well, those guys. Who are those guys? He said, well, the division president, he's decided. I said, well, if I happen to run into him. Harry, Harry, you're a little hyper. I'm telling you, they've decided. He said, harry, the CFO is approved. I said, the chief financial officer of the entire company has approved this 100 million. And he goes. I said, well, if I happen to run into him. He said, harry, they've decided the CEO is approved. I said, the CEO? Well, if I happen to run. He said, harry, now what? He didn't know, but every young person in the company knew. Kesan. I was there for a month out of school. The CEO, when he was in town, we go into the cafeteria every morning at 7am to pick up a grapefruit. So a quarter to 7 the next morning, Keysan. I'm hovering around the grapefruit and the CEO walks in. I said, oh, you know, good morning, Mr. Locks. He goes, who are you? I'm Harry Kramer. I'm new. I'm in the M and A group. He goes, what are you working on? He's very friendly. What are you working on? I said, I'm working on this acquisition. I love that company. I love that company. What do you think? I said, you know, it's okay. Well, you're not very enthusiastic. I said, well, I'm enthusiastic. I said, I can't come up with a value more than 50 million. He said, why are we paying $100 million? That's what I'm trying To understand. He goes, what growth rate did you use? What margin? And he said, harry, what you're saying makes sense. He said, who's your boss? I said, jerry, he gonna tell you what get Jerry, come out of my office at 11 o'. Clock. Let's work this out. So I race all the way back to my cubicle. I said, jerry, Jerry, you're not going to believe who I ran into. He goes, well, who? I said, Mr. Laux. He goes, Mr. Laus, what's that all about? I sit in the cafeteria, we're talking about this deal. He said, we're going up to his office at 11 o'. Clock. He goes, I've never met him. I said, well, you're going to meet him at 11 o'. Clock. He said, I've been here for 10 years, I've never met him. I said, you'll meet him at 11 o'. Clock. And then of course, his office was this very large room. I thought Jerry was going to have a heart attack. And he said, what kind of growth, Richard? And he leans back and he said, jerry, I think Kerry's right. I think it ought to be 50 million. He goes, what do you think? He said, I think Kerry's right, but I thought that's what you guys wanted to do. He said, who? You guys? Who the hell are those guys? That's when I decided I wasn't going to worry about that frozen middle layer, just not going to worry about it.

How do you encourage that? You're one of the rare breed. That's the ideal mind state that you want. But it doesn't happen. If I talk to a typical person, a large corporation, they don't even go one layer above them. Where I always ask even some of the younger professionals, hey, I'm looking to push up. Well, you understand, what are the strategic objectives for a couple of those levels above you? Will you ever grab coffee and just asked about that and figure out how you can align yourself around some of the bigger problems to solve? And that's a good way to push you up, which is essentially what you did. Here's a bigger problem. You pushed your way all the way up to solve it. How do you foster that? And essentially something that needs to be part of the culture.

So a couple things, Chief. Part of it in my mind is as a person trying to develop people. Have you explained to people what the expectation is? Here's something he said, and maybe you can see this in your own firm. Even if you like your job, I'll be a little philosophical and Then I'll get very specific. What I have noticed is even if you like your job, you like your role, we often get frustrated. That's just part of life. It's a job. And you have to ask yourself, I ask myself what causes frustration? And I've noticed that what usually causes frustration for me is, is making assumptions. We all know that little problem of what happens when you make assumptions. So I decided many years ago, Kisan, I get out of the assumption business. I'll give all your listeners a little four step model. It'll help your life, Kisan, in a big way. It goes like this. Number one, you set clear expectations of what's expected. Number two, you communicate it over and over and over again. By the way, that's three overs. Kisan, you may know this, that the average person needs to hear something three times until they've heard it. Of course my wife Julie will say until she's told me something 10 times, I haven't heard it. But that's my own little personal problem. Number three, you hold people accountable. And number four, there's consequences. Set clear expectations, communicate it over and over and over again. Hold people accountable and there's consequences. Now to get to your point, if I've got a team, the people are on the screen here or on my team and it's the first meeting I have with you, Kisak, I would literally say to you folks, hey, look, a big part of your job, Kisan, is now to challenge me. And by the way, if you're thinking, oh, I'm going to challenge Harry, what's going to happen? It's going to be the reverse of what you think. Kisan, if you don't challenge me, there's going to be a problem whether you're going to stay in this job or not. Okay? Because this is a key part of leadership. I have absolutely no need to be right. Kisan, I'm trying to do the right thing. And with all your experience, Kisan, maybe you've seen this. When a leader says, let's assume I'm the leader, when I say, hey, Kisan, this is what I want to do, what I obviously meant to say, this is what I want to do if it makes sense. But I'm paying you a lot of money. So if it doesn't make sense, I'm expecting you to say, wait a minute, Harry, and you can be respectful. Wait a minute, Harry, you're the boss, Harry, you can do that. You can pay 100 million for it if you want to. You're the boss. But, Harry, are you aware of the following three things? Are you aware that the growth rate is only going to be X? Are you aware that the margin is only going to be one? Are you aware that the cash flow. And you may then say to me, I wasn't aware of that. Here's what an optimist I am. He said, I've been doing this now for 40 years most of the time. And with your experience, you may have seen this as well. Most people at the top of organizations don't purposely do stupid things. Then you say to yourself, how does it happen? I think it happens because they make the assumption, here's the problem, that people are going to challenge them. But if they haven't set the framework to allow people to do it and they haven't watched that the people that challenge are successful, well, then nobody's going to do it. And the way I've always trained people on this, Kisan, is If I've got 10 people on the team, and I will literally say, let's assume that there's 10 people on the screen and Pam's one of them. And I say, what do you guys think? And Pam literally will say, harry, here's why I think you should do something different. In many organizations. Kisan, to your point, everybody's waving goodbye to Pam. They're waving goodbye. Okay, this is her last day. She's obviously out of here. But when I say, wait a minute, Pam, tell me about that. And why do you believe that? Why do you think that? In fact? I'll tell you what, Pam, why don't you run the team to follow up on that? All of a sudden, this is when you lean over to Julie and say, we're waving goodbye to Pam. I think she got promoted. I think this guy is serious, that he wants to be challenged. And I'll give it to you one other way, Kisan. I love the students at Northwestern, Kellogg. They ask great questions. One student literally said, what is the biggest lesson that you did not realize at Kellogg that you now know? And I think the biggest lesson I learned over time pretty quickly, based on the story I just told you, is that if you're one of the few people, Kisan, if you're one of the very few people who tells people respectfully exactly what you think, I never would have thought that would be an enormous competitive advantage. Here's the real world. You're the leader and there's eight people to work for you. And you say, this is what I want to do. Seven out of eight people, I think Kisan are going to say themselves. All right, let's think about that a minute. This is what Keys on wants to do. Let me think about that. I got a million dollar mortgage, two cars. You know what? Keystone sounds great. Sounds great. If you're the one guy who literally says Keystone, Keystone, you're the boss. If you want to do it, we can make it happen. But Keystone. Before you press the go button, are you aware of the following three things? In my experience what you would say to me is tell me more about that, tell me more about that. And if you don't say that, then I'm in the wrong organization. Why would I want to be in an organization where the senior people are doing really stupid things but I always want to give them the benefit of the doubt because most of the time nobody gets to them. That's been at least my observation.

I like the idea of basically inviting the challenge and fostering that to become part of the culture because people get comfortable doing it and then it just becomes a natural habit. You mentioned before leadership, influence. Relate to. Can we talk more about influence? Because it's essentially one example of hey, let's sort of set the tone here. But I feel like there's a big component. There's obviously relating, understanding the uncertainties and really minimizing it. But then when it comes down to influencing the other ways you look at it, how do you draw upon those changes through influence.

So the way I think about Kisan is if it's a famous, if I can relate to each person on the team, and I mean really relate, their ability to let me influence them goes up exponentially. And where I find the major problem is people truly do not take the time to really relate. I'll give you a really good example. Let's just say I've got a team of eight people and I've got to get the job done. And the boss calls up and says, hey, this is a serious project, we need to get this done in the next week. Which means it's going to be 6am to midnight for the next six, seven days. All of a sudden it's four in the afternoon and Jessica gets up to leave and people are saying oh my goodness, she's not committed. No, I know Jessica well enough to know that she has an 80 year old grandfather with Alzheimer's that she has to pick up at the clinic at 4pm and I know when she gets him home at 5:30 she's going to get on a laptop and she's going to be churning this stuff out faster and better than most of the people that were there at the office. I also know that we've got to get this done. And it turns out that Marcia doesn't stroll in until 10 in the morning. But I happen to know she's a single parent with a four and a five year old that she has to drop off. So in other words, if I can relate to each person, I can understand each person and I tell everybody we got to get the job done. But you know what? We're going to create whatever flexibility we need to so that you can also live some sort of a life balance. I got to tell you, Kisan, people will do anything for you. I often would get asked by people, they'll say, the fact that you were the CFO of a $13 billion company when you were 36, you must have been this really bright guy. And this is not a humility comment, Kisan, but to be honest with you, I was never that bright. But I had three really good things going for me that relate to your comment about related influence. And here we go, three things. Number one, I took the time, Kisan, to get to know everybody. And when I say everybody, the people in the cafeteria, the maintenance people, the analysts, other divisions, I took the time to get to know an amazing number of people. Number one. Number two, as a result of getting to know everybody, I was able to figure out who are the really good people. And then number three, no matter what position I was in, whether I was a first level manager with three people or the CEO with 55,000, I tried wherever I was, Kisan, to the best of my ability, to create an environment that everybody wanted to work for me. And here's a real simple equation without any numbers. If you know everybody and know who the really good people are, and you create an environment that everybody wants to work for you, you're going to look incredibly good, you're going to perform incredibly well. But that means you take the time to relate to everybody. And I'll give you a good example, Kisan, right now I'm giving this advice to every CEO I run into. Now people say, well, with COVID and this Zoom thing and being separated, Harry, I'm trying to keep the team alive. So, Harry, every couple of days I get on a call with the 10 people and how are sales? What's happening? How are we doing? Well, that's part of it. But if it was me, never opinion now, if it was me and I had 10 people before that meeting where I called and had all 10 of them on the line together. I would call Key Son. Every one of those 10 people individually, I would literally say, julia, how are you? How are your grandparents? Hey, you're a single parent. How are you doing? Hey, Key Son, how are you doing? Anything I can do for you, boy, if I remember you correctly, you got a one bedroom apartment. But boy, if your wife is also working remotely, how are you doing that? I will demonstrate, Kisan, and this is not words I will demonstrate. I care about you as much as I care about myself. And there's a line, I can't remember whose line it was, Kisan, but it went something like, nobody cares what you say until they see how you treat people. Until they see how much you care. I don't think you're going to run a very successful organization. And that has to do with the more change management you have, the more uncertainty you have. You better create an environment where there's a lot of trust and a lot of vulnerability so people feel that they can really relate to you.

That's really great. It takes a level of empathy. Show you care and then folks will tend to reciprocate. They sort of lend you that same similar understanding, understand your goals and want to help contribute it. But you got to put a foot forward to try to understand where their head's at, what are their concerns and goals and drivers. Let's make up a scenario. We go about acquiring a company and you got a favorite European country.

Belgium.

Belgium. Okay. We're acquiring a business in Belgium. And Harry, I'm struggling with you. I can't get them that team to do anything on our project plan right now. And I don't know, I'm struggling with this whole gap between. It's difficult for me to just go knock on the office door and get over there because in a different country and there's cultural differences. These guys love to go out and drink and I don't even drink. What's some advice to help with that kind of situation when the cross cultural elements involved as well.

I got to tell you one of my favorite topics because at Baxter, 70% of our sales, almost 80% of our earnings some years was from outside of the United states. Of our 55,000 team members, two thirds of them were outside the United states. The last 12 years I was with Baxter Akizan, I always spent at least three or four days a month in Europe and three or four days either in Latin America or Asia. Why? Because at the end of the day, you can't relate to people unless you're with Them and obviously we have the whole Covid thing. Now I gotta be careful with the zoom thing, but I gotta tell you, if you're buying a company in Belgium, you better be in Belgium. And whether you like to drink or not, you better be there. Maybe you're holding one beer for four hours, but you are there and you're with them and you relate to them. I'll give you a couple of examples. Your ability to truly relate to people. He said, here's the way I look at it. I would never visit a country and get off the airplane in Brussels without knowing the history, the religion, the politics, the style, the way people work. I want to demonstrate to you, if you're in that country, I respect and I care and relate to how you operate, then I can start to say, hey, Kisan, here's some things that we need to accomplish. Here's why we need to accomplish them. Here's the expectation. Does that make sense? Am I missing something? Do I need to do anything else to prove to you how important that is? You can ask me anything you'd like. I'm open to the discussion. But now this is what we need to accomplish. And I really believe your ability to understand uniquely every country that you operate in becomes very important. You tease about, you're in Belgium, you don't like to drink. Well, two things about me, I don't drink much and I certainly don't sink. I certainly don't sink. But let me tell you something. The number of recordings that have been taking of me about 2:00 in the morning, okay, With a glass of wine in Tokyo, singing I Left My Heart in San Francisco, I'm still trying to get the original tapes to destroy them. You better do whatever it takes to be able to get stuff done. And you mentioned Europe, the number of Americans. We're all bad at this. But if I was going to tease Americans in general, there's always this view of, oh, I'm going to Europe. So they get on the plane at 5 o', clock, but they're watching movies, they're having drinks, they stay up and then all of a sudden around three or four in the afternoon, they're ready to crash. And I said, well, no, wait a minute, we're in Germany or we're in France, we're about to have a three hour dinner with these people. Well, we'll order pizza. No, you don't understand. The ability to have a two or three hour dinner to these people is huge. So you better do it, Kisan, I've got A lot of history that when I got on an airplane at 5 o' clock to go to Europe, I set my clock for midnight. I put immediately, do not eat, do not drink, don't watch a movie. It is midnight when that plane lands at 7 in the morning, I'm on European time and I'm going to at least midnight or one in the morning. Your ability to relate uniquely to wherever you are. So when you're in Japan, there's a certain level of formality. When I'm in Latin America and I'm in Brazil or whatever, I'm at people's home, they've got a little disco ball in their basement and we're dancing at 3 o'. Clock. Whatever it takes to demonstrate that you can relate to people has an enormous impact on how productive you are.

How would you take that to somebody that struggles with relating to people, demonstrating you care and turn it into somebody practical? How to.

Again, I'll just use you as an artificial example. Before I allow you to get involved in international acquisitions, I'm going to test you, I'm going to train you, I'm going to try to develop you. And if it turns out in a very open, honest way you're not capable of that, fine. We'll put you in a job that you don't have to deal with it. There are certain things that are not optional. Okay. It is not optional that you can't relate to people and be involved in international acquisitions. That's just not optional. Okay? So I will see what I can do. If you can develop it, and if you can't develop it, you're not going to be in the role. It's just way, way too key. Way too key. It's everything. The ability to relate.

I got one about leadership. You're doing a deal, you're acquiring another company. How do you assess the other side's leadership approach? Because we talk a lot about compatibility of culture and how well is that going to align to have things come together nicely and really focus on hitting the strategic goals that we set out to accomplish. But how do you get a sense of that in some of these deals? And I feel like that's the big theme. What we've seen as a shift is going from a pure finance focus to more inclusion with all this consideration around the people and getting that alignment so that we can get the integration out of the way and really focus on the real value drivers. How do you go through and really get a sense of that target company's leadership approach? And then from there Build on how you're going to work with them.

Since I'm probably not going to be acquiring any companies with anybody on the line, I'll tell you all my secrets here. And some of them you're probably going to say it's pretty simple or pretty basic, but you're the CEO of a company that I'm seriously looking at, and the numbers look good. And I really think economically this is going to make sense and could add a lot of value. But now to your point, you always ask great questions. What kind of a leader are you? Like, what's this going to appear to be? How good of a fit is this going to be? A couple of things. One, when I come here, maybe we're meeting at a hotel if we don't want to meet at your company and you're there with your top seven people and we're doing a due diligence review, I am really, really anxious to see, I really anxious to see. What's the chemistry between you and those other seven people. Do you have to be the answer man? Do you have to be the smartest guy in the room? You don't give the CFO or the CMO or the head sales guy. You're jumping in everywhere. And I always find it interesting when you leave the room to get a drink of water, are these guys, like, in silence because their vocal cord has been ripped out? Because there's no way they can say something without you in the room? Trust me, there's no way we're buying that company. Okay? Because you get hit by the proverbial beer truck, I'm out 100 million bucks. So we're not buying a person, we're buying a team. And how well you work together, how well you relate to the other members of the team, I think become very important. How good is this team of being able to keep things simple? Do they use common sense? Is there a rapport where people are working hard, but they also have a little bit of a sense of humor? All those things in my mind become really key. Then the other one, and you may have heard of this one, Kisan, because I've said this enough, now that a lot of people are stealing this, I love to take you out to lunch and dinner. And I am dying to watch how you treat the waitress, how you teach the busboys. Okay? Are they sort of way down here someplace? I have never gone into a restaurant without finding out the name of the waitress, where she went to school, what she's working on, and developing a relationship with that person. And I'm really kind of curious because if you're one of these hierarchical guys and we combine these companies and you treat my people like that, this isn't going to work. So I'd rather find out these things before we buy the company. And that's why there's going to be a lot of due diligence meetings. There's going to be a lot of luncheons and dinners, and I want to meet as many people as I possibly can.

Picking up clues. Harry, what's the craziest thing you've seen in ma?

One of the craziest things I've seen these are opinions, again is when people get really confused of the difference between strategy or something that's strategic and what the real economics are. So let's assume for a minute the people issue is taken care of. I had one division president who came up to me and he said, harry, we need to buy this company. And I called the guy, George. Why George? He says, harry, it's very strategic. I said, what's the economics? He said, harry, no, it's very strategic. And I said, george, I get that, but can we talk about economics for a minute? He goes, what do you mean economics? I said, well, how about present value? Let's start there. And this guy literally said to me, harry, this is strategic. Way beyond net present value. Let's think about that a minute. Beyond net present value, okay? As a math major, that's like the shortest distance between two lines is no longer a straight. Now we're in non euclidean geometry. That was that guy's last day as a general manager. Okay? In fact, some people will disagree with this, Kisan, but I tease people to say if it's not economic, it's not strategic. No, no, it's really strategic. Okay, well, Harry, no way out there. No way out. We took way out there into account when we calculated the net present value. I get a little emotional about that because he said, you have to know I was never the chief financial officer of Baxter. My card said cfo and that stood for cash flow officer. Show me the money. And if it is not strategic, it is not economic. I love it.

That's a great story, a great example. Harry, thank you so much for your time. I enjoyed this conversation and learning from you.

It's been a lot of fun. I wish you the very, very best. If anybody wants more information related to leadership, change management, things we talked about, my Kellogg students have set up a website. It's just Harry Kramer.org and if people go there, the Kellogg students. They've got the videos there, they've got the books there, there's a blog post there. Then I respond individually to every single email. Kisan, if any of your audience has any follow up questions that they didn't get a chance to ask today, I'm always available.

Yeah, I noticed that you're incredibly responsive. I feel like that's no leadership trait. We can have another conversation around thank you for taking the time to explore the world of M and A with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kisan K I s o nealroom.net M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog@dealroom.net blog thank you again for listening to M and A Science. See you next time. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned by or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.