Jack Fusco brought Calpine Corp. out of bankruptcy and led a turnaround

Jack Fusco, President and CEO, Calpine Corp.

For Jack Fusco, the first day on his new job was anything but laidback. Calpine Corp., a major U.S. power company that owns, leases and operates power plants across the country was in complete disarray in 2008. The company had just come out of bankruptcy and its stock was hovering in the $4 range. Morale in every area of the business was as low as it could be and to make matters worse, the economy was just starting to take a dive. Fusco, the new president and CEO, had his hands full.

“My first day on the job was extremely hectic,” Fusco says. “The company was announcing its second quarter earnings on the morning that I started my job here at Calpine. The business processes or systems were antiquated and didn’t keep up with what you would expect for a publicly traded company. So it was extremely hectic getting the financial numbers together and presenting those to the street. It happened to be the very last day that our [earnings report] could be filed on. That’s something I try to forget about is my first day of my first week.”

Fusco didn’t let a bad first week get in the way of his determination to overhaul and turnaround the struggling power company. Here’s how Fusco boosted morale, created a vision and mission and led the company through a dark time.

Asses the situation

Calpine Corp. got itself into trouble because the company was too focused on growth instead of paying attention to the factors that allow for growth.

“I wasn’t here, but from what I can asses, it was the typical founder’s dilemma, which is build, build, build,” Fusco says. “Whether it’s grocery stores or drugstores or whether it’s power plants, they get into really focusing on new stores or new power plants and not keeping your eye on the ball. It was a phenomenal growth that the company had undertaken and the economics of it just didn’t keep up with the growth projections. They basically ran out of cash flow.”

As the organization came out of bankruptcy, there were a lot of different moving parts within the company and it was up to Fusco to make sense of it all and begin to make changes for the better.

“The company still had an enormous amount of consultants that were in running the company in various forms and fashions that were legacies from the bankruptcy,” he says. “So working through the organizational structure and trying to define a structure that made sense where we would have full-time Calpine professionals in those seats rather than consultants was something I had to address within those first weeks of being on the job.”

Due to the uncertainty that bankruptcies carry with them and the worry of what the future held, morale in the company was awful.

“The employee base had just come through an extremely difficult bankruptcy,” he says. “A lot of reorganizing and reorganization had taken place and there wasn’t a whole lot of organizational clarity on who was doing what, so there was a lot of overlap and people were worried. There was a lot of worry that the company was going to be sold, so morale was bad. I think there are still folks and I know there are still employees that worry that the company may be sold or that we won’t survive.”

Despite the tough situation, Calpine had its best financial performance during the worst economic recession and that hasn’t been easy. It’s required the company to increase productivity through a lot of reductions in headcount.

“We tried to do it swiftly,” Fusco says. “You have to try to get it done as quickly as possible so you can start recovering. It doesn’t always work that way, but we tried. We tried to do it on a voluntary basis. If we knew that we were getting rid of one whole group or one whole area, we would do a voluntary program first versus an involuntary program. You have to move quickly and don’t let the company suffer from a 1,000 cuts.”

Calpine didn’t just let go of ground-floor employees, it had to restructure its management team, as well.

“Most of the other management team either left or were asked to leave prior to or at bankruptcy,” he says. “The people that I brought in from the outside were replacing bankruptcy consultants. Bringing in somebody in that case that was going to be a Calpine employee stabilized that position rather than having a third-party consultant firm. Some of them were folks I have worked with in my past, others were here. As I got into the organization and got down a few layers, I uncovered a lot of very talented individuals and gave them an opportunity to rise to the top. They were rough-cut jewels. It makes a much bigger impact if you are able to utilize the existing work force.”

Once cuts had been made and people were put into key roles, it was time to get the company stabilized and moving forward.

“Remember, when I started it was right at the beginning of the recession and our stock dropped into the $4 range very quickly,” he says. “So stabilizing the company and making sure that we could strengthen our balance sheet, keep an eye on our cash flow and understand where all the cash is going so we didn’t run into any tough situations again was paramount. We came out of that very, very well. That was probably the most challenging part of taking over was just the time of when I took over and then having all the other forces outside of us that collapsed.”

Address the issues

The next step in Fusco’s turnaround was to develop a vision for the company that would allow it to be a great organization without overextending itself as it did prior.

“The company went through a couple of different cultures,” he says. “The first culture of Calpine was build, build, build. It was very much a development company run by developers. They would acquire sites and construct power plants. That rapidly changed to a company that was focused on trading in a very large commodity trading floor here in Houston. I wanted to change the company to be more asset-centric, to be more focused on power plant operations and not speculative trading and not building for the sake of building. That’s where we developed a vision to be the premier independent power plant company in the U.S.”

To make a significant change like the culture of your company, you need to take a good hard look at your business and what you ultimately want to achieve.

“You need to figure out what your strengths and weaknesses are as an organization or at least try to be nimble enough to anticipate where your sector is going,” he says. “It’s a little bit of a double-edged sword. We were very fortunate that we had great people already in place that could move the company forward for where we thought the sector was headed. In other cases, I can envision a CEO may have to acquire or divest businesses.”

Fusco not only had to review the organization to make changes, but he had to make sure his management team was behind the idea as well.

“We ended up pulling together the executive officer team to develop the new vision, mission and value system so we were all bought off on it,” he says. “I think it is imperative, because it is more than just a one-person job that at least the core group of officers are all bought off on the new direction that the company is heading before it gets rolled out to the work force.”

When moving forward with a new vision, mission and value system, it is critical that once they are changed and put in place that they remain constant.

“For me I know what has been successful is we didn’t change our values or vision or mission. We stayed true to it and we’ve held it steady. We’ve tweaked it a little bit, but for employees to have that consistency and that focus, and they’re not trying to shoot at a moving target, I think is very important. You have to stay true to it until you feel like you’ve achieved it and everybody feels like they’ve achieved the original mission.”

Along with a change in the culture came a change in the company’s focus. Calpine didn’t want to get caught up in too much as they brought the business back from bankruptcy.

“We’ve had a crystal clear focus to be in the wholesale power generation business, period,” Fusco says. “We haven’t tried to confuse the work force by getting into other aspects of the business. We weren’t running off building electric vehicles or trying to build recharging stations or getting into other flavor-of-the month types of strategies. We said, ‘We’re just going to be the absolute best company at providing wholesale electric power to the utilities and retail aggregators.’ That’s what we stayed with and that seems to be rewarding us.”

Fix relationships

Once the key organizational changes had been put in place, Fusco turned his focus to the customers and mending those relationships.

“When I came on board, I asked for a list of our top 10 electric customers and our top 10 natural gas providers, and then I proceeded to call them and introduce myself and my No. 1 electric customer wouldn’t take my phone call,” Fusco says. “I had to work through one of the regulatory commissioners to get them to force the CEO to meet with me just so I could introduce myself. That’s how bad the relationship was. I had to start at the highest levels. It really had to start from CEO to CEO.”

With the company’s new direction came an increased drive to give customers what they needed and that took cooperation on both sides.

“The other key was [customers] giving us time to get our house in order so we could prove to them that we could be the premier operator in the space,” he says. “We focused on delivering above and beyond what the customer expected and not just having a smiling happy person on the end of the phone line to take a phone call when they were upset. Organizationally, we actually created customer origination teams in our different regional offices where they could focus on developing products and services that the customers needed. It was somebody’s full-time job instead of just something they were supposed to do on the side.”

Implementing changes throughout the entire organization takes a lot of communication to make it work. You can’t communicate enough and you can’t give up.

“Don’t assume that the communications are effective at all the different levels in the organization,” he says. “I find even as much as we try to communicate with the work force, it’s never quite enough getting everybody on the same page and getting them all aligned. I’m a firm believer that if everyone has the information that we have, we’d all end up in the same place. So trying to go a little bit deeper and describe why we did what we did and what we expect to get out of it I think is very important organizationally for the employee base.”

Fusco and the Calpine management communicated in a variety of ways. From personal visits to filming quarterly DVDs, they made sure to keep up communication through the change process.

“You need to be clear about what your expectations are,” he says. “Be consistent and follow through when something doesn’t turn out the way you had expected or if somebody’s not following your value system that you enforce it appropriately so that everybody understands that you mean it and it’s not just writing on the wall.”

While communication plays a huge role in driving the company through change, not everyone will get onboard and you need to be prepared.

“That’s the harder part is trying to give people ample time to get onboard with the new vision or the new mission or the new company and when do you cut the cord versus when do you keep continuing to counsel or work through the issues,” Fusco says. “It’s not always going to work. In some cases it may just be better for the employee and for the company for them to move on.”

While letting someone go who isn’t willing to adapt to change is the right move, no one wants that to happen. You have to be out in front of employees and customers making sure you are aware of what is going on.

“I’m a very informal person, so on the employee side, I just like to show up at the plant and talk to them,” he says. “Since I have been in power plants most of my career, I actually understand what the issues are and the technology that they’re dealing with. So I think that helps add some credibility. It’s the same with the customers; I think I’m an approachable person. Getting the customers to trust the new management team was important and part of that trust was that we actually heard what they were telling us and we made changes to make it better for them. Reorganizations are hard. Change is hard for everybody and we’re all human beings. You have to be fair.”

Move forward

A turnaround is the hardest thing a company will ever go through, and it takes a strong group of employees to help drive a company through such a hard time.

“The biggest factors for success as a company today have been our employees,” Fusco says. “They’ve been extremely professional through all the change and extremely hard working. You have to get a great team. It’s much too big for any one person and you’ve got to surround yourself with great people that you all trust and you all work together seamlessly. That’s the No. 1 most important thing for a CEO.”

Through Fusco’s hard work and determination the company is once again in a good position. Relationships with customers are strong and operations have improved.

“We focused a lot on our customers and making sure we were meeting the needs that they needed from us, which was very important,” he says. “We focused on our operations and our productivity. Here at corporate, we put in a new business system that helped us process our financials a lot faster and much more transparent. At the plants, we put in a new scheduling and operating system that helps us plan our work better and actually got us to figure out more of the root cause of our problems we were having. We fixed those and we got our fixed outage factors to come way down from where they were in the past. So we were delivering a much more reliable product that our customers needed and wanted, and they felt more comfortable with our operations and in return we got higher-priced, longer-term contracts from them and that helped stabilize the company quite a bit.”

Things have improved to the point where growth is back on the agenda. Last year, the company bought Connective Energy for $1.6 billion in cash.

“That to me is a real success story to go from bankruptcy to where you’re buying a former competitor and consolidating that into the business,” he says. “I think we’re in an era now where we have stabilized the company.”

Today, the company employs more than 2,100 people and had operating revenue of $6.54 billion in 2010, up from $6.46 billion in 2009.

“We are Calpine, and we’re back and we’re strong and we like our position in the market, and we applaud our employees for everything they’ve been through and now we’re moving forward.”

HOW TO REACH: Calpine Corp., (713) 830-2000 or www.calpine.com

The Fusco File

Jack Fusco

President and CEO

Calpine Corp.

Born: Modesto, Calif.

Education: Bachelor of science degree, mechanical engineering, California State University in Sacramento

What was your first job, and what did you learn from it?

The first power plant job I had was when I was a junior and senior in college. I worked out at Rancho Seco Nuclear Power Plant. My first job ever was working for my father in his janitorial business. At about the time I could walk, I worked for my dad washing windows, picking up wastepaper baskets and cleaning bathrooms. That’s where I got a lot of my work ethic from were those early days.

What was your biggest fear when you took over as president and CEO of Calpine?

My biggest fear was that we were going to have to file for bankruptcy again. I’m well beyond that today, but when I started, when you’re fresh and the economy does what it did within the first month of being on the job, it was very uncomfortable.

Who is someone you admire in business?

Jack Welch. He changed the way I thought about work when I read his first book, “Control Your Destiny or Somebody Else Will.”

What is your definition of success?

For me, it centers on employee development. If I can take the treasurer and help him become the best CFO, I get a lot of satisfaction out of that. We spend an enormous amount of time on our succession planning throughout the whole organization. So trying to create something that’s long lasting and sustainable that has multiple layers and professionals on the bench means more to me. Concurrent with that would be our reputation. When people think of Calpine, they have good thoughts that we are a leader in the space or a leader in environmental quality and not something else.