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Craig Shular helped GrafTech International take hard steps toward growth Featured

8:01pm EDT April 30, 2012
Craig Shular helped GrafTech International take hard steps toward growth

Craig Shular is an upbeat guy, but even he accepts that things had gotten pretty ugly at GrafTech International Ltd. in the early 2000s. Debt had surged to more than $1 billion despite net sales in the $500-million range. Shareholders couldn’t flee the publicly owned company fast enough.

“Most people had written us off,” says Shular, chairman, president and CEO at the manufacturer of carbon and graphite products. “The banks had frozen all our facilities. Suppliers were making us pay cash on delivery. It was that kind of environment.”

Big problems often require big cutbacks and this situation was no different. The company ended up going from 10 graphite electrode plants to five and reduced its employee count from 5,000 to about 2,200. Benefit programs had to be completely redone.

“Brutal,” says Shular, when asked to describe the steps that had to be taken at the company’s low point. “A very tough process.”

The challenge for Shular was that in the midst of all this turmoil, he had to find a way to get the employees who remained at GrafTech to buy into his plan to get the company back on its feet.

He had a vision he hoped reflected an optimistic view of the company’s future, but he had no way of really knowing if it could be fulfilled. It was something to work toward, and so it was up to him to take that optimism and build off of it.

“Unless you have a very clear picture at the senior management level and you can articulate that to all your teammates everywhere around the world, you’re going to have a tough time propelling the team forward,” Shular says. “The team is not going to be able to embrace the types of changes you’re asking them to make. That very clear vision that is very well-articulated to every team member is fundamental to enabling and embracing the type of changes that have to happen.”

Shular firmly latched onto that optimism and hoped his employees, who he prefers to call teammates, would join with him and do the same.

Lay it all out there

Shular needed to make it clear to his leadership team how deep the company had sunk and he had to do that before he could move forward with his recovery plan. In that situation, you really can’t afford to sugarcoat the truth.

“Do not hold anything back,” Shular says. “Give the team the exact, blunt, clear picture of your current reality. Here’s where your customers are. Here’s the quality of the product. Here’s what the balance sheet looks like. Here’s what your cash flow looks like. All the various metrics you use to drive your business. Here’s what we look like today and make very clear how that’s just not going to be able to continue. It’s not going to allow us to be successful.”

Shular didn’t stop at his leadership team. He wanted employees throughout the company and around the world to understand that the leadership team was not in denial about the need for change at GrafTech.

“So when someone in South Africa or France or Brazil goes home at night and their spouse says, ‘Gee, what was your day like? What’s going on in the company,’ that individual can articulate the current reality,’” Shular says. “Here’s what it looks like.”

As the cuts were announced, the climate at GrafTech was quite bleak. It was a necessary condition, but not one that Shular wanted to persist for too long. He needed to act with compassion, but also with a bit of urgency.

“If you continue to roll those out over a period of time, you’re going to get a team that is constantly looking over their shoulders,” Shular says. “What’s going to happen next? When is it me? When is it my family? So another very important part of any turnaround is to the maximum extent possible, lay out your plan and roll it out all at once.”

Shular wanted people to understand where the company was and the steps he was now forced to take. But he also wanted them to see a picture of where he felt the company could get to in its recovery.

“What we told everyone was that this was what we have to get done,” Shular says. “If we can get this done, and it will take months and in some cases a couple years to execute on all these, then we have a very good shot of getting to our vision.”

When you’re in a situation where you’re making significant cuts, you’ve got to keep the plan in everyone’s mind. The idea that they might lose their job doesn’t fade easily from the mind of your employees.

“You’re going to have to continue to overarticulate the vision and articulate where you are on the milestones,” Shular says. “Having some short-term milestones where the team can be successful and acknowledging them, highlighting them and celebrating them will help the team toward more of a view forward.”

It’s those little victories that can start the momentum you need to achieve bigger victories, or at least instill a little more confidence in your people.

“Preferably, they are some shorter-term milestones where the team can start to see two months from kickoff, ‘Oh, look what we did,’” Shular says. “So you’ve got to have some near-term successes that you believe you can knock off early in that game to continue to build the confidence in the team. Then you have to celebrate the hell out of those successes. Highlight them, celebrate them, have fun. If you don’t have fun in a turnaround, you’re going to lose a lot of people.”

Get in front of people

Shular couldn’t meet with every one of his employees around the world in the time period he needed to.

So he had to make the visits he could make really count and then rely on technology to fill in the gaps to ensure everybody had a clear idea of the direction he wanted to take. To that end, it wasn’t just meeting with top management at each location and having a catered lunch in the executive conference room when Shular arrived in town.

He wanted to interact with as many people as he could at the locations he visited, even it took all day and night.

“Don’t go in and just meet the day shift,” Shular says. “There are two other shifts. The other two shifts are going to get the message with or without you and I think it’s much better if they hear the message directly from the CEO. I have found that there is nothing more powerful than being on the third shift as the CEO is on the plant floor conducting a town hall.”

If you don’t have second and third shifts, the philosophy still applies. You’ve got to meet with people from throughout your company if you want them to believe that you value their place in the organization.

“Walk the plant floor and spend time with the operators, the men and women who actually make the products and provide services to the customer,” Shular says.

Take the time to field questions and do it with an attitude of patience, not one that conveys a feeling of being late for your next appointment.

“It gives you some direct feedback on maybe how the message is not coming through clearly or is not playing clearly in these countries,” Shular says. “They misinterpreted it. It lets you see that and get it rectified.”

One aspect that you might overlook in delivering information to your people is the mode of travel that you use to get to those meetings. At a time when someone’s good friend at the plant or in the office has been laid off, first-class airfare and fancy rental cars can easily become an example of insensitivity on your part.

“Everybody flies economy,” Shular says. “When you’re in a facility asking them and challenging them to drive continuous improvement every day, whether it’s productivity, quality, on-time delivery, inventory turns, it’s important that not only the CEO, but the entire leadership team walk that talk. So for the CEO to pull up in a big full-size rental car, that doesn’t work for us. I’m going to be in the cheapest, smallest car I can get. I’m going to arrive in economy. You’d be surprised how clear those messages trickle through the entire team.”

To help drive that message home, Shular instituted a policy where no one, himself included, would fly anything other than economy no matter how far or long their flight might be.

“Because of our global network and all the travel we have, for us, that was over a $6 million savings a year to get everybody in economy,” says Shular, who says he flies about 150,000 miles a year.

If you’re trying to balance the cost of travel with the importance of face-to-face communication, Shular says look at what you’re trying to gain from the trip and think about the message you want to convey to your people.

You can’t be ruled by cost but you also can’t be limited by it if it could help your business. It’s often a tricky line to navigate.

“Are we growing customers? Are we taking care of customers? Are we penetrating new markets? Is it going to allow us to be more successful in the future? Is it going to drive cash flow and profitability?” Shular says.

“As a business person, we would weigh those kinds of decisions all the time. We are very careful not to get to a place where we’re so driven by cost that we lose the view and drive toward what is propelling growth. Propelling profitable growth is our No. 1 mission. So the day that we let cost become the decider or the overriding decider, we won’t be in a good place.”

Focus on family

Shular hoped to instill optimism with his people at the same time he was delivering bad news through his approach, particularly with pay cuts.

“We cut salaries, but what we did was all that money that was cut, we put it into our global bonus plan,” Shular says. “What we said to the team was if we hit 1 ½ times target for that year’s goals, we’ll pay out all the bonus money plus all the salary money that had been cut. In addition, we said all the officers’ salaries, which were cut 10 percent, they can never get that money back. That will go into the pool and it will be paid out to all the other teammates if we hit 1 ½ times target.”

Shular wanted to show people that he wasn’t just slashing to reach a number and that things would never be the same again. He wanted to provide a sense of hope that if people worked hard, they would be rewarded for it.

He also wanted to show a sense of understanding that a recession and cutbacks are generally tougher on employees than they are on management.

“Significant portions of the management team cannot get any bonus unless the people get a bonus,” Shular says. “We don’t have a situation where the senior management team made a pretty nice bonus and the rest of the team got nothing or a very meager bonus. We all sit in exactly the same bonus pool and we all have the same metrics and we’re very much aligned. Having the right well-aligned incentive compensation program is very important to driving teamwork.”

As it turned out, his people did work hard and did earn that money back.

“The team that year hit 1.8 times target,” Shular says. “All that money, including the officers’ money, got paid out to all the teammates.”

If you show yourself to be an ally of entry-level employees and middle management as well as top management and the leadership team, you’ll fare a lot better earning support for the things you want to do. And you’ll probably find the results are better too.

Shular recalls something one of the employees said at a meeting he had with the third shift at a plant that GrafTech had acquired as part of its turnaround.

“He stands up and says, ‘Gee Craig, do you think we could get our fishing competition back?’” Shular says. “And I say, ‘Fishing competition? How is that work? What’s that all about?’”

Shular discovered that employees at this location at one time had an annual redfish competition that had become a company event. The previous owner had let the event fade away, and Shular was being asked if he could help get it back on the calendar.

“I said, ‘As long as you invite me,’” Shular said with a chuckle. “And so we reorganized and reinstituted it. It was last October. We have 150 teammates at that site and 78 joined the competition over a weekend. … It’s important that leadership drive fun. Work should be a fun process. When you think about it, we spend a majority of our time at work. In my view, the only reason we all work is for our families. If you don’t believe that, look at any individual that gets a promotion or a success at work or accomplishes a hard-fought goal. The first person they call is somebody back home. So we’re all here because of our family.”

Keep driving forward

One area that wasn’t touched during the company’s recovery was research and development.

“In fact, we grew R&D,” Shular says. “It was so paramount to us that we would have to invest in R&D and spend a lot of time on innovation that we moved our global headquarters here to Parma to be right next door and under the same roof as our R&D operation.”

The relocation of headquarters, along with the acquisition of several companies that broadened the expertise and capability of GrafTech, was evidence that the company wasn’t just looking to recover, but that it was looking to continue growing.

GrafTech had made some significant strides. The banks were looking at the company much more fondly and the company’s market cap had jumped to $3.2 billion.

But Shular was already thinking about the next downturn and what could be done to lessen the blow it and keep the growth momentum going.

“We knew a recession was going to come eventually, they always do,” Shular says. “I don’t think anyone knew when, but one of our mantras each day was, ‘We’re a day closer to the next recession.’ So we didn’t want complacency to fall into the company. We had done a great turnaround and everyone was patting us on the back. We didn’t want to fall into the usual trap of, ‘Hey, we’re pretty good.’ So we kept a mantra that we need more new product development, more patents, more innovation and continued relentless drive on cost structure and productivity.”

The next recession did come, of course, and it was a big one. Net sales took a dive from $1.2 billion in 2008 to $659 million in 2009. But sales got back over the $1 billion mark in 2010 and GrafTech reached $1.32 billion in 2011 with a market cap of $1.9 billion. 

The company is also back up to 3,181 employees.

“Today, we sit with almost 800 patents and patent-pending operations, one of the largest in our space,” Shular says.

“So that’s the turnaround, that’s building a spectacular balance sheet and that’s having a great balance sheet and a great team that is very, very nimble in the trough and can still play offense. So we expect as these economies continue to recover to emerge with a bigger, better and stronger business model and be the clear low-cost producer in our industry with a lot more science, technology and patents than when we entered this recession.”

How to reach: GrafTech International Ltd., (216) 676-2000 or www.graftech.com

Takeaways: Be honest about your problems. Consider costs. Always prepare for the next recession.