Recycled vision Featured

8:00pm EDT April 25, 2007
As Steve Demetriou sat and listened during a board meeting at Commonwealth Industries Inc., he couldn’t believe what he was hearing. “Hey, we know how to recycle aluminum, and there’s this emerging market in recycling chicken manure into fertilizer,” someone in the room explained. “Maybe we should give it a go?”

 

At this time a few years ago, the industrial economy, like many others, had declined after the Sept. 11 terrorist attacks, so the company was distressed and contemplating how to make ends meet during the downturn.

As Demetriou listened to the debate about the merits of entering the chicken manure recycling business, he couldn’t help but think of what he was doing at his own company, Noveon Inc., which was also in a downturn in the chemical industry. Instead of entering silly markets, he was focusing his management team on cutting costs and restructuring, so he could tell these guys were severely distracted.

“Rather than the management team coming together and focusing on, ‘Let’s cut costs and let’s sell some underperforming assets and let’s restructure in a downturn,’ they got distracted,” Demetriou says. “They started getting creative ideas of, ‘Well the aluminum business isn’t attractive, let’s go into other markets and other businesses,’ and they started exploring really ridiculous initiatives like recycling chicken manure.”

After the sale of Noveon, he and a core team brought Commonwealth and IMCO Recycling Inc. together in 2004 to form Aleris International Inc. Immediately upon doing so, Demetriou, who became chairman and CEO of the combined entities, shut down all the noncore activities, including the chicken manure initiatives, and made his purpose clear.

“We’re an aluminum company, and whether the market is down or positive, this is our long-term business, and we’re going to strengthen it.”

Upon creating a strong focus, the organization heaved a collective sigh of relief.

“The whole organization was like a sponge because everybody was waiting for leadership and focus and clear direction, and when you get that, everybody bands together from the bottom of the organization to the top much better than if everybody’s wondering why the heck the CEO is spending his time in chicken manure,” says Demetriou.

With a refocusing of the company on its core strengths, Demetriou and his team set to grow the organization by creating a top leadership team, clearly stating goals and finding acquisitions that seamlessly integrate into the company.

Creating a top leadership team
To grow Aleris, Demetriou has assembled the best team possible and empowered its members to empower others so that everyone can move the company forward.

Demetriou insists on everyone having a wide span of control. Instead of having just a few senior people, he chooses to have 17 direct reports, each with a similar chain of command below them.

“If I have 17 people reporting to me, then they have to be 17 great people,” Demetriou says. “If not, then I’d need three or four people in between them to cover their gaps. Leadership at the top — true leadership — it’s understanding that it’s not just being financially savvy and technological. It’s being communicative, and empowering and motivating the people.”

Demetriou talks to them regularly and wants them to clearly tell him what they have done to communicate, empower and motivate their team.

“Show me how you not only empower your people but how you motivate the organization — people get excited by working for you,” Demetriou says. “You could be the smartest guy in the world and have the most understanding of the technical aspects of the product or business, but if you demotivate your organization, you’re going to have lousy results.”

Demetriou says if leaders don’t correct problems on their leadership team quickly, it stunts the organization’s growth.

“We’re all human,” he says. “We all care about people. We all want to give second and third chances, but it’s usually when an issue surfaces that a functional or business leader, part of the management team, is not getting the job done. Most of the time, six to nine months later, you still feel the same way, and you’ve lost all that time if you don’t act decisively, and it’s not in their interest or the company’s interest to drag that process on.”

He says that although it’s hard to let people go, doing so gives the company the opportunity to get an executive who better meshes with the organization’s growth goals and vision.

“You want a common vision and culture, and you go create that,” Demetriou says. “The barrier usually is you want to get there, but you don’t make that decisive move to clean out a couple of spots that open up the opportunity to bring in a couple new people and bring that cohesive team together.”

Demetriou looks for senior managers who will complement his current team and who exemplify the characteristics necessary to empower and motivate.

“At the top levels, the critical success factors are accountability, motivation, communication, vision and strategy,” he says. “As you get deeper into the organization ... that’s where you want deep experience and technical capability, but those people, in order to do their jobs correctly and win, have to have at the top level an understanding of what the vision and strategy is.

“They have to be motivated. They have to come to work and be excited. They have to know what type of goals they’re trying to achieve and be held accountable.”

When he’s hiring or consolidating leadership between companies, he listens to what and how a person communicates with him to get a good read on whether that person would be a good fit with Aleris.

“Do they know their numbers, and do they have passion?” Demetriou says. “If they’re motivating me, then I’m thinking, ‘OK, they’re motivating their people.’ If they’re on top of their numbers, they know about accountability. If they’re sitting there and I ask about their numbers, and they really don’t know their numbers, and they’re boring and demotivating or arrogant, it becomes pretty clear.”

With the right leadership team, a culture of growth can be created.

“It’s all around culture when you get to the top level because if you don’t have the right culture, vision and the strategy and accountability in the company, it doesn’t matter how smart all the 9,000 people are in the company,” he says. “Dysfunction, demotivation and a lack of accountability will kill even a structurally sound company because it’s not cohesive.”

Communicating goals
It doesn’t do an organization much good to have excellent leadership if those visionaries don’t communicate and work together. When Demetriou formed Aleris, he brought with him a core group of people who had been accustomed to his style, so when he began holding business review meetings, they jumped right in. As new people became part of the team, they got excited about the positive things they heard about in the meetings from the core management team.

The meetings occur every month over the course of two days, with at least an hour dedicated to each facet of the business. Employees and management discuss goals and plans, as well as how the previous month went and the challenges facing them in the upcoming months. It’s not a performance review or a time to hammer people for not making numbers; instead, it’s a positive experience about how to remove barriers and succeed in creating growth.

“It creates an opportunity for sitting around, dialogue, and communicating and integrating,” Demetriou says. “Throughout the year, if everyone is wondering what everybody is doing, it’s very tough to get cultural integration.”

In addition to communication, Demetriou uses these meetings as an opportunity to get buy-in on the company’s goals because he does-n’t close the meetings to any employees. Instead, he encourages anyone to come, and employees outside of Cleveland are encouraged to conference call in.

“A lot of people complain, ‘Oh, there’s a managers-only meeting, and I’m not included,’ so there’s an inclusiveness that, to me, is powerful,” Demetriou says. “When I was lower in the organization earlier in my career, these are meetings I wanted to be in, and now everyone here has the opportunity to do that.”

When people sit in and hear the discussion and thought processes behind decisions, it creates buy-in for changes and plans in the company.

“I’m sitting in the board room, either with people or people on the phone, at all levels, and they hear the questions, and they hear the answers from myself and some of the other people on the management team, and so it makes it a lot easier for everyone to understand and adopt the culture,” Demetriou says.

Beyond simply allowing them to attend the meetings, he solicits employees for their feedback and ideas, and encourages them to speak up during meetings, so it becomes a participatory event as opposed to management wheeling and dealing, with a gallery of onlookers watching the spectacle.

“This is an opportunity to create something special and personally get known, and people complain a lot of times that they don’t have opportunities in companies,” Demetriou says. “Well, here’s an opportunity to show yourself on a monthly basis that you don’t normally get.”

Besides getting buy-in and creating cohesiveness on a management team, monthly meetings also allow the management team to foresee problems and stay on top of them before they fester and permeate throughout the organization.

“In many companies, you can make decisions, but sometimes it takes months for them to surface and then months more for people to march into headquarters and make a big presentation,” Demetriou says. “Here, we like to say that almost every month, we’re on top of the business, and we can surface these issues instantly and make quick decisions. It gets rid of frustration that can develop in the organization from a lack of decisiveness.”

Acquisitions and integration
Both Demetriou’s standards for leaders and monthly meetings merge in the express lane for Aleris’ growth — acquisitions. Four acquisitions in 2005 doubled Aleris’ revenue to $2.4 billion, and the company posted $4.8 billion in revenue for 2006.

When looking to make acquisitions, Demetriou says it’s important to focus on buying complementary companies and then consolidating them. “In all those acquisitions, the primary driver was consolidation, and when I say consolidation, it was the opportunity to gain cost and productivity synergies by getting rid of the redundancies of the two companies that you bring together,” Demetriou says.

When leaders focus first on companies that will add to their core, they’re off in the right direction and have a higher chance of succeeding.

“When you look at most of the stuff you read around businesses, there’s a lot of hype on mergers and acquisitions, but most of them fail,” he says. “We sort of set that right up in front of everybody that we’re going to be a company that bucks that trend, and a lot of that starts with cultural integration and then proving it financially.”

The integration process starts with eliminating redundancies, which typically starts with people. When he ends up with two CEOs, two presidents and so on down the ranks, Demetriou has to look for the qualities he wants so he can effectively evaluate who stays, who can be used in other areas and who has to go.

“Unlike most companies, we don’t necessarily have a bias toward our own people,” Demetriou says. “I don’t want to say that negatively, because obviously we do, but we’re open-minded to say, in some cases, some of the best people may be on the other side.” When Aleris bought one company, its president ended up heading the combined recycling business for Aleris, whose head eventually left. This openness on staffing helps Aleris when it’s competing for a sale.

“That information gets around, and when we make the next acquisition, that’s actually one of the benefits we bring,” Demetriou says.

“We try to convince them to let us buy them instead of somebody else because there’s truly opportunity here for your people. We don’t have a bias, and we want to do the right thing.”

Consolidation and doing an accurate and honest review process are also important in terms of facilities. In one acquisition, Demetriou and his team initially thought that if and when they bought a particular business, they would shut its Virginia facility and integrate it with Aleris’ California and Ohio operations.

But once they did the due diligence, they realized that their own California facility was the weak end, so they bought the company and kept its facility open, closing the California plant instead.

“That sets a culture of, ‘Look at what Aleris is doing,’” Demetriou says. “They’re not just being that 1,000-pound gorilla and going in and shutting everybody down. They’re putting the right pieces together and not having the bias of, ‘We’re the best, and nobody does it like we do.’”

To get into that mentality of losing the sacred cows, Demetriou emphasizes the importance of having solid, up-to-date data, and that if other leaders use accurate data, it makes decisions much easier. He said that once he saw the cold, hard data, shutting down his own facility was much easier to do.

It’s also important for Demetriou to involve his people in integrating a new acquisition into Aleris, and to do this, he forms acquisition teams for each functional area, such as purchasing, manufacturing and administrative.

He assigns someone from within the leadership team as the head of the acquisition team and then forms a group below that person. In addition to these leader’s everyday responsibilities, they are also charged with collectively evaluating opportunities to create synergies with the new company and tracking and measuring progress toward attaining those goals.

If the goal is to create $10 million in synergies, then the team finds ways to create tens of millions in case some parts of the the plan don’t pan out. Demetriou holds the teams accountable for achieving these goals by requiring them to report back to the company during the monthly business review meeting.

“When I think about a lot of the failed big mergers that you read about, for me, what happens is everybody gets excited about the opportunity to do a deal,” Demetriou says. “Everybody works hard to get that deal done. Everybody celebrates the results of the deal, and then everybody moves on to the next one and forgets that most of the work now just starts. That’s what we really have to focus on.

“OK, the deal’s done, but now, for the next two years, we’re going to be obsessed with delivering the synergies, and people are accountable for them, so we don’t lose track while we move on to the next deal.”

His process has paid off. With the initial merger that formed Aleris, his team’s goal was $25 million in synergies after two years. At the two-year point, they had tripled that number. The company is also already above target for all four of the acquisitions it made in 2005.

“Redundancies can be handed to you because of your scale, or you make conscious decisions that I don’t need one plus one to run two here,” Demetriou says. “I just need one plus a half, so let’s get the best one-and-a-half from the combined companies.”

Keeping everyone focused on the future and holding them all together through monthly meetings also helps keep Aleris grounded and prevents it from stumbling into ventures such as recycling chicken manure.

“There’s going to be great periods in the markets, and there’s going to be lousy days where the economy is down or the particular market is suffering for whatever reason,” Demetriou says. “But at the end of the day, over the long term, people need aluminum, and they need everything else, and the only way you’re going to win is to be the best in your class, not by getting excited over the short term about another market that’s doing better.”

His formula of leadership, communication and acquisitions has helped grow the company. When Demetriou formed Aleris in 2004, the two component companies, Commonwealth Industries and IMCO Recycling, each had share prices in the $5 to $7 range, but when he sold it in December (Demetriou remains as chairman and CEO of Aleris), the share price sat at $52.50, creating more than $1 billion in equity.

“What I’ve just shown you is a story that shows that getting more efficient with some scale is a lot more long-term successful than starting small in something you don’t really know, you don’t have the scale, you don’t have the efficiency, you’re not the best because others have been doing it for years, but it sounds sexy because that market is doing well. You have to stay the course.”

HOW TO REACH: Aleris International Inc., (216) 910-3400 or www.aleris.com