Jim Hallett bought the company that fired him and transformed KAR Auction into a winner

Jim Hallett, CEO, KAR Auction Services Inc.

Jim Hallett sees his termination as a CEO in a 2005 corporate shakeup as a very humbling experience.

“It was a good thing,” he says. “I needed to leave the company because the culture was getting so bad, and I needed to go away, but from the day I went away, I always knew I was going to try to raise the money and be able to come back.”

But that goal was not out of vengeance.

“There was no retribution whatsoever,” he says. “I was not interested in retribution; I was not interested in getting even. I was interested in getting the company back, getting my job back and putting people in place with the passion, experience and energy to run this company.”

The company, ADESA vehicle auction and its finance division, was doing well financially when Hallett was fired, but by 2007, times had changed, particularly with its culture. Unbeknownst to Hallett, the company had put itself up for sale while he was looking for backers.

“The building was not a very happy building,” Hallett says. “I would be taking over a company that was floundering ― a company that was not performing, a company that was bureaucratic, political, stale. People didn’t enjoy their jobs, people didn’t like to come to work, people didn’t talk to each other. They didn’t interact with each other.”

Hallett solidified a $3.7 billion deal with the help of private equity investors for ADESA, a finance division and a salvage auction division, named it KAR Auction Services Inc. and as CEO, set out to transform the culture in 60 days.

Here’s how he accomplished it in 30.

Lay the groundwork

Turning around a company culture takes analysis and effort. But Hallett had a position of advantage with his firsthand experience. He was familiar with the players in the organization, and even after his termination, he followed the company, tracked the stock and anecdotal information on the street.

He was faced with the realization that turning around the dysfunctional situation would be his biggest challenge.

Hallett would be the CEO, the cheerleader as it were, and he envisioned a loyal and passionate work force listening to his encouragement.

“A cheerleader is what companies sometimes lack,” he says. “They need that guy who can rally people, who can create a culture, create a vision, and then get everybody to line up and march in the same direction.”

Hallett told his new management team he would have the company marching in lock step in 60 days. By using his skill at getting people to line up and buy in to a common vision, it took half that time.

Evaluating the senior management was a critical experience, and it led Hallett to decide to clean house.

“I looked at everybody,” he says. “Every one from the old guard left. I brought some people back into the organization. I recruited some people into the organization. The most senior management completely exited the building. They did an ‘exit left’ and I entered right.”

The evaluation process was straightforward and involved a simple formula.

“I was really identifying people who knew and understood this business, who had experience, who were passionate about this business and loved what they do every day and then who were relationship-driven with our employees internally and our customers externally and with the industry,” Hallett says.

“Anybody who had any of those qualities was shoved aside when I got fired because the new chairman didn’t want to have anything to do with anybody who had dealt with me. If he thought they were somehow still speaking with me, they were history.”

The procedure requires a bit of intestinal instinct as well.

“You use your gut,” Hallett says. “Use your uncommon common sense, street sense, people sense and knowledge, passion and drive for the business. Know what the company needs and know what the industry wants.”

About three to four months in advance of the takeover, Hallett had the plan for his team in place.

“Know exactly who you want, know exactly what you want the organizational chart to look like,” he says. “Quietly and confidentially put the chart in place and have everyone show up on the first day.”

Spread the culture

Sharing the message among employees that a new culture is entering the building takes the skill of a negotiator and the charisma of a leader. Sometimes a bold statement at the beginning of the transformation shows it’s not business as usual anymore.

Hallett removed the main entrance reserved parking spaces for management executives on the first day, and the message was clear ― all employees were going to be treated equally.

“So if you get there first, you should pick your parking spot,” Hallet says. “That in itself says more about the culture without saying a word. You’ll hear, ‘Oh, my God. All this reserved parking’s gone. We don’t have to look at the expensive cars. We don’t have to go by these things when we walk into the building.’”

Next on the agenda was setting the frame of mind for management. Much as military forces have rules of engagement in dealing with the enemy, management alignment spells out standard operating procedures and rules.

“Then hold a management alignment meeting; it could take a couple of days,” Hallett says. “What you’re doing is aligning management and establishing the rules of engagement with your senior management team saying, ‘This is the way we are going to behave. This is the way we are going to talk to each other. This is how we are going to conduct ourselves, how we will handle conflict, how we will handle these different situations. This is how we are going to act with each other.’”

Management needs to commit to the program.

“If you can’t sign up, then walk out,” Hallett says. “Because you know what? The biggest thing we do as human beings is we need to know how to talk to each other.”

It’s important that the CEO and senior managers need to be secure.

“They need to understand what they do well,” Hallett says. “They need to understand what they don’t do well. They need to give everybody the opportunity to be able to express themselves and bring a good idea to you.

“Sometimes the best ideas come from the most unlikely sources. We just need to give them an opportunity to tell us. And I have to be willing to talk about it without feeling threatened or without feeling somebody’s overstepped their bounds or that someone’s taken over my job.”

Being direct needs to be the standard approach.

“When I want to say no, I need to say, ‘No, we’re not going to do that,’” Hallett says. “On the other hand, people have a hard time doing that. They want to beat around the bush, and they want to hem and haw, and they want to take days to do something that you can do in 10 seconds.”

Establishing the rules of engagement allows you to create a culture where employees feel that the door is open.

“They can walk in and we can agree to disagree, but we are always going to be respectful of one another,” Hallett says. “Have the rule in writing. So when senior management agrees to that, make sure you take that a level down, to your direct reports, and make sure your direct reports take it to their direct reports and all of a sudden, it filters through the entire company, and you’ve really created a culture.”

Along with the rules of engagement, Hallett created a mission statement and core values. “The first thing is, somebody said, ‘If you don’t stand for something, you stand for nothing,’” Hallett says. “So you’d better stand for something. We created our core values, such as honesty, integrity, customer service. So what do those core values do? You need to reference those whenever you’re making decisions. That’s how simple it is.

“When you have to think about whether you’re going to do something or not, whether something is within integrity or whether it has to do with employee relations or customer service, or if it has to do with one of the values of the company, you reference your values, and they’ll pretty much guide you as to what decision you ought to make.”

Build the success

Getting employees to engage in the new culture is a process that is accomplished a little bit at a time. It requires coaching, with frequent huddles to make sure everyone is on the same playbook.

By holding breakfast meetings every Friday with 20 employees from different areas of the company, Hallett got the chance to meet the entire company over a year and a half.

“I told them about me, the history of the company, the vision for the company and some of the things we wanted to do and where we’re going ― however we are going to get there ― and got them to tell me something about them,” Hallett says.

“I’d start those meetings with, ‘OK, let’s go around the room, and let’s tell the group something that nobody in the room would know about you.’ It’s amazing how people engage. Then tell them something they didn’t know about you.”

Gestures like that established employee willingness to buy in to the culture. To make the transformation less intimidating, managers should be aware that cultural learning experiences will be many, and at many locations.

“Culture happens in the hallways, culture happens in meetings, culture happens in the parking lot, in the coffee shop,” Hallett says. “Culture happens everywhere around you.”

Watch for red flags that could derail the infusion of company culture ― gossiping is a sign that there could be a problem.

“Nobody would ever walk into my office and complain about somebody else without bringing the other person with them,” he says. “When you feel people being political, people might be saying something but meaning something else and that’s just street sense — you know the guy’s full of it. He’s really making a statement about something else but he’s really trying to make a statement about himself. That just comes to bad street sense, right? It’s pretty hard to get that stuff past me.”

Hallett says that he must not only set an example for employees but set the pace.

“The speed of the boss is the speed of the game,” he says. “I know that everybody watches what I do, what I say, how I behave. I think that rubs off very quickly. I’ve gone to people and said, ‘Hey, you know what? I think you maybe need to not have sharp elbows — maybe you need to be a little more careful with the way you handled that situation or the way you spoke to that person.’ I’m not afraid to tell someone, ‘You know what? That probably wasn’t the best way to handle that situation.’ We are really a company that tries to focus on these values.”

Aside from the intangible aspects, tangible improvements such as upgrading technology go far in enhancing company culture.

Hallett realized that employees were becoming disenchanted with outdated computer systems and had to address the situation and those feelings. It meant spending enough to bring office technology up to speed.

“First of all, it really reinforces to your employees that you are committed to the industry, and you’re committed to them,” Hallett says. “Secondly, the customers absolutely feel it in the way that they do business and transact with you. If they’re not feeling the technology spend and the investment in technology, quite frankly, they’re not going to trust you to do business with you.”

The results of the culture change were dramatic, and business exploded at KAR Auction Services for its 13,000 employees. Revenue topped $1.8 billion in 2010.

“It was like hitting a light switch,” he says. “Customers were basically saying, ‘Where do you want me to send cars?’ ‘How can I help you?’ I mean, not every single customer, but our business took off like a rocket.”

If management is committed to employees, that fact will encourage a harmonious working relationship that leads to longevity — and low turnover.

“Make everybody feel like they’re loved, and they’re well-compensated and they’re fairly taken care of ― and yes, there will be challenges, like everybody else,” Hallett says. “But at the end of the day, nobody will be looking to get out the door.”

The Hallett File

Born: Kingston, Ontario, Canada, on the beautiful St. Lawrence River. My father was a railroader and my mother was a stay-at-home mom with three little babies. My dad died when I was 8 months old. So I never knew my dad and my mom never remarried. We were dirt poor. I lived in a house that burnt coal in the winter and had an outdoor toilet.

Education: I went to Algonquin College in Ottawa, Canada. I got a degree in recreation management. I was going to college because all my friends were going to go, and I didn’t want to have to study anything really hard.

What was your first job?

I mowed lawns and shoveled snow. Then I became a newspaper boy. If you’ve ever had a newspaper route in the country ― in the city, you can deliver 100 newspapers in 20 minutes ― in the country, it would take you an hour and a half.

What is the best business advice you’ve ever received?

A guy once told me, a great mentor, a great friend of mine, ‘You know what, Jim? There’s nobody better than you.’ And he elaborated, saying, “You’re no better than anybody else, but there’s nobody better than you.’  The same guy also told me, ‘You know what is the difference between you and the guy you admire or the guy that you look up to or the guy that you want to be?’ And his answer was, ‘One good year.’ And that’s the truest thing that’s ever happened in my life. It took me one good year. That’s all it took.

Whom do you admire in business and why?

I admire a guy by the name of Pat Butler. He owns multiple car dealerships and multiple RV dealerships in Canada. I admire him because, first of all, of his entrepreneurialism. He is very quick, very fast, very decisive, very agile — all those words that go with an entrepreneur. I’ve kind of modeled myself after that. I like the fact that on the outside he’s a crusty, rugged old character and on the inside he’s the most compassionate man I’ve ever met in my life. We talk every week.

What’s your definition of success?

Professionally, when everybody wins. Employees, customers, shareholders. And you know, that was really the big thing. When that management team was here for two years, there were some that took care of themselves and ran off with a pot of gold. When I’m done, there will be hundreds, thousands of people that will be taken care of. I think I can say that with a great deal of clarity.

How to reach: KAR Auction Services Inc., (800) 923-3725 or www.karauctionservices.com

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