Fear factor Featured

8:00pm EDT May 26, 2007

The need for dramatic change was evident the moment Tom Hoaglin walked into the room.

An enormous stain on the carpet greeted the new chairman, president and CEO of Huntington Bancshares Inc. the first time he visited the executive office in the bank’s downtown Cleveland branch.

“It was a very prominent stain,” says Hoaglin, who was traveling to several branches outside his Columbus-based headquarters shortly after being named CEO in February 2001. “It would have been in view for any customers who were coming in. So I said, ‘What are we doing about the carpet?’ The answer was, ‘We can’t do anything because it’s not in Columbus’ budget to do it.’”

Hoaglin sensed right then and there that big changes — bigger than he originally thought when he took the top job at Huntington — were going to be needed, and quickly. Corporate-controlled budgets that hog-tied employees in the field like this were going to be among the first to go.

“We’re charging them with running an operation to grow their business, to develop clients in their marketplace,” Hoaglin says. “They have to have control of that.”

It was one of many changes to come under Hoaglin’s leadership at the then-struggling regional bank.

“When I came to Huntington, I developed, in short order, a sense of urgency for improving the financial performance of the company,” Hoaglin says. After all, net income had fallen $93 million in the previous year, total assets were down $500 million, yet expenses were rising. The stock was plummeting in response and a snarling pack of shareholders were losing patience with management.

Hoaglin knew treating the symptoms of impending disaster wouldn’t be enough. He needed a cure. That meant systemwide changes.

In the six years he’s been at the helm, Hoaglin has decentralized decision-making throughout the 8,500-employee organization. He’s rebuilt the corporate culture. He’s sold Huntington’s Florida operations and consolidated scores of additional banking offices in Ohio, Michigan, West Virginia and Indiana. He even cut the shareholder dividend.

Still, Hoaglin has earned respect, rather than resentment, both inside and outside the Huntington organization. Perhaps that’s because all those changes yielded results.

Net income has climbed 40 percent since Hoaglin’s arrival, hitting $461.2 million at the end of 2006. Total assets have grown nearly 24 percent in that same time frame to $35 billion and Huntington’s stock price has rebounded accordingly.

Here’s how Hoaglin made change a positive force at Huntington, rather than something to be feared.

Walking the walk

Facilitating change is always easier if you feel a connection to your associates.

“I knew there were some tough decisions ahead,” Hoaglin says. “I knew associates were going to need to have a sense of trust and confidence in their CEO when it came time to hear the difficult changes we were going to have to make. If you believe the person in charge or if there’s some credibility or trust there, then you might be more inclined to say, ‘Well, I may or may not like this, but let’s give it a chance.’”

Hoaglin set about building employee trust with some seemingly simple, yet resounding, actions.

“I learned that sometimes when you’re trying to change a place, symbolic actions are important,” he says.

That’s why he sold Huntington’s corporate plane. “It had become a symbol of excess inside the company,” Hoaglin says. “How can you have credibility with associates or employees when you say, ‘Tighten your belts. We need to cut expenses,’ and then you keep something like that?”

Moving out of the opulent, 34th floor executive suite was another symbolic gesture.

“Employees looked at that and said, ‘Gee. He’s serious about making changes. When he talks about everybody getting with the program and doing things differently and cutting expenses, he’s living that,’” he says.

Hoaglin’s trust-building approach to change paid off quickly for the bank.

In July 2001 — just five short months after becoming CEO — Hoaglin dropped a big bomb.

“When we announced we would sell out of Florida, our associates — especially our Florida associates — were quite stunned, but [they knew] there was a reason for doing all this,” he says. “When it came time to hear that difficult news that we basically had to shrink in order to position ourselves for growth, people by and large felt OK about it. They understood it was part of an overall game plan that could lead to a better performance later.”

And it did. “We took the capital that was no longer required for Florida and we bought back company stock: 9 or 10 percent of the stock that was outstanding,” Hoaglin says. “The effect of that was to increase our stock price. Shareholders and employees looked at that and said, ‘Gee, something’s working. We’re getting better.’ That kind of thing, over time, yields greater credibility.”

Scaring off old ghosts

While Hoaglin was building his credibility with employees, he also uncovered a disturbing cultural theme: fear.

Hoaglin says employees had been afraid to speak up or offer opinions under the previous management. They didn’t question authority or corporate policies — even to better serve customers.

“There was a feeling, rightly or wrongly, that it was better not to make decisions because you might get in trouble,” Hoaglin says.

He had to find a way to unleash employees and convince them it was OK to speak out and make judgment calls — even bad ones sometimes.

“What we did was to say, ‘Every Huntington associate is valued and respected. If we respect you, we acknowledge the background you have, the experience you have, the judgment that you bring to your position. We want you to make decisions to take care of customers. We’d rather have you make a bad decision than to make no decision.’”

Still, not all employees were convinced that this new CEO meant what he said. After all, Hoaglin’s predecessor, Frank Wobst, had led the bank with a much different approach for the previous 20-plus years. The old culture was deeply ingrained in many employees.

“This isn’t something that changes overnight,” Hoaglin says. “It takes years to do. It takes a CEO hammering over and over again that this is OK and this is what we want. But fast-forwarding five or six years, while some people in the organization are still more reticent than others, by and large we’re a company that does feel better about going ahead and making decisions and being unleashed.”

Empowering employees had a profound effect on the bank, too.

“We started to grow again,” Hoaglin says. “Huntington hadn’t been growing for a while, and that really triggered a very positive change.”

Getting buy-in

Another way Hoaglin shined a favorable light on the changes he had to make was by getting employees involved on the front end.

“I think it’s really important to spend whatever time it takes to get buy-in for the changes you are going to make, as opposed to simply saying, ‘Here’s what we’re going to do. Like it or lump it,’” he says.

That’s why Hoaglin devoted nearly three years to letting employees help develop a new image for Huntington.

“We spent a lot of time on that because we felt it would be a great way to unite all associates across the company,” he says. “As opposed to a CEO waking up and saying, ‘This is what our vision is going to be, this is what our core values are going to be, now do it,’ we got lots and lots of people around the company engaged in it. Different levels of the organization, different geographies, different lines of business were coming together and saying, ‘I think the value should be this.’ It was a lengthy process, but when we got to our conclusions, they felt very good about it.”

Employees were also able to articulate the values and vision more effectively to their team members since they’d been directly involved in the process.

“We stood a much greater chance of getting an enthusiastic embrace of those than we otherwise would,” Hoaglin says.

After all, history is often the best teacher and Hoaglin knew mandated changes hadn’t lasted under the old Huntington regime.

“Huntington went through a major exercise to reduce expenses in the late ’90s,” he says. “There were probably some great reasons for doing that, but it got perceived — rightly or wrongly, fairly or not — as a top-down driven thing. The CEO wanted this done. People down through the organization didn’t buy in to it. They did what they had to do in order to get it done, but they didn’t really believe in it or support it. So after it was all over, expenses came back.”

That’s a scenario Hoaglin doesn’t want to see repeated on his watch.

“You want people to feel as if they had some degree of input to the change,” he says. “They may or may not like the decision, but at least they got their two cents in.”

Weeding out the wary

Even when employees are involved in change, not everyone follows along happily.

“Some people embrace change,” Hoaglin says. “Others are clearly opposed to it and it’s not difficult to figure out who those people are.”

Then there are the reluctant ones. Hoaglin says watch them closely.

“They say the right things, but they may not be leading their teams enthusiastically because deep down inside they don’t want this change to happen or don’t believe in it,” he says. That’s where it gets really hard, trying to ferret out where the breakdown is and who is really on board and who isn’t.

“Over time, you figure out if you have people who just shouldn’t be in the organization — not because they don’t have talent, but because they just don’t buy in to whatever it is you’re trying to do.”

When Huntington was changing to a decentralized decision-making model, for example, some leaders who resisted the move ultimately had to be let go.

“As enthusiastic as associates out in the field were about this change, we had people who previously had a lot of power who weren’t real enthusiastic about it,” he says. “You preach and teach, and coach and give people opportunities to embrace the changes.”

But in the end, “a few handfuls,” by Hoaglin’s estimate, just weren’t able to get fully comfortable with the new Huntington and had to move on.

“It’s hard,” he says. “But when an organization confronts change, people watch the leader. It could be watching the unit supervisor or manager or it could be watching the CEO. And everything starts to break down if the right behavior isn’t modeled, if the actions don’t connect to the words.”

Looking ahead

Hoaglin is proud of what his company has accomplished in the past six years.

“We have made the changes that were necessary to improve our performance and improve our service,” he says. “Now we are on solid footing and we’re acquiring.” Huntington’s purchase of Sky Bank is set to close later this summer. That, too, will mean changes.

“As you get bigger, it’s harder and harder to make sure your culture stays intact,” Hoaglin says. “There will be changes about how you communicate across a larger organization, how you extend that feeling of connection across a larger employee base. But the changes we are going to have to confront in the future won’t have to do with how decisions are made or where decisions are made, or what the business model is or what your customer value proposition is. We’ve got those in place and we’re on the right track.”

HOW TO REACH: Huntington Bancshares Inc., (614) 480-8300 or www.huntington.com