Shared vision Featured

8:00pm EDT July 26, 2008

It’s rare that CEOs are promoted from within organizations these days. Given the increasing pressures of the position and the need for quick results, many boards turn to outside hires when the CEO position is vacated. It’s rarer still that company employees would nominate one of their peers for the top job in the company and that the board would heed their suggestion.

But that’s exactly what happened in January 2005 when Mike Klayko became CEO of Brocade Communications Systems Inc.

Considering that the company’s previous CEO and the vice president of human resources had just resigned because of a stock backdating scandal, Klayko entered the role when the company was in crisis mode.

“It was a tough time,” Klayko says. “The company situation was turbulent, and we had lots of internal and external pressures on us, and suddenly, I was the new boy in the CEO suite. The easiest thing would have been to stay in my position as head of sales and marketing or go look for something else. After all, I had been with the company since 2003, and I knew the industry and the sales and marketing division well. When my peers came to me and said that they wanted me and would support me to become the new CEO and I received support from the board and my wife, all of the pieces just came together.”

Surrounded by shattered trust, Klayko says that he needed to rebuild confidence both internally and externally, but he says that he also knew that rebuilding trust takes time.

In addition, another situation waiting for Klayko was the fact that even prior to the stock backdating crisis, the excitement among employees in the company had waned, organic growth had subsided and Brocade had become reliant on a very small product base. In short, he says, the company was stagnant.

In order to establish a platform that would serve as a launch-pad for new growth initiatives, Klayko prioritized his initial repositioning efforts on increasing accountability, establishing a shared vision and creating a new culture. Klayko says that executing his plan consistently, over time, would eventually return trust to Brocade.

Increasing accountability

“My initial assessments of the situation and what to do about it were somewhat easy to make because I had the benefit of being with the company for a while,” Klayko says. “I also knew what my skill sets were, and I wanted to maximize the strengths that I have as a leader, which are setting direction, executing consistently, and holding myself and others accountable. Because of the turmoil, I wanted to get everybody on the same page, and we needed to increase accountability for performance to get the company moving again. You need to have a shared sense of goals and accountability because you’ll never get anywhere as an organization with everyone swimming upstream.

“I kept a high percentage of the management team when I came into the CEO role because we needed to hit the ground running. I know that as single individuals, people in a company can’t change things; when we are all united behind the cause, we can make significant progress.”

Klayko says that he used goal-setting sessions to establish a common performance framework for Brocade. He placed himself and his direct reports on performance contracts and held his performance open to scrutiny and comments from his team.

“I solicited feedback from the employees about how they wanted to hold me accountable and I combined that with how I wanted to hold myself accountable. I created a performance contract for myself and posted it on the intranet for everyone to review and they could also comment about how I was doing,” Klayko says. “Performance contract accountability now cascades down in our organization, and everyone is granular to the same vision, and we all have common financial goals and objectives.

“I think that this has improved our accountability because everyone likes to be measured, people like keeping score. The boundaries are now clear and the staff knows what I’m expecting of them and everybody understands their role in the companywide performance objectives. By posting my performance goals on the intranet, I am open about what I’m doing and I’m demonstrating transparency in my communications — which is helping to build trust.”

Compensation drives vision

By adding metrics to the performance plans, Klayko took the next step in further defining his performance expectations for employees, and then he put even more emphasis on the message by tying employee bonus compensation to company performance. Formerly, employees’ bonuses were predicated on individual performance, now employees also earn bonuses when the team is successful.

“We aligned metric measurements to the performance plan and employees share in bonus compensation when corporate objectives are met,” Klayko says. “In addition, their individual bonus plans are now tied to meeting total corporate objectives. For example engineering earns a bonus when they deliver new products on time because achieving that affects the entire company, and we have a per-employee, revenue-performance metric that’s included in each individual performance plan. We set a new target for companywide performance expectations twice a year.”

Klayko says that he expects managers who are at a high level in the organization to earn more of their total compensation from variable bonus structures, so he favors senior leaders having as much as 15 to 20 percent of their total compensation at risk. He also prefers using objective performance measurements over subjective ones, not only because employees will

be clearly focused on what they need to achieve but because performance clarity eliminates potential discrepancies and that engenders trust.

“Through performance plans that are reinforced via compensation structures, everyone understands their role and how it all ties together and everyone knows what they need to do as individuals in order for the company to be successful,” Klayko says. “There are no entitlements; it’s purely a capitalistic environment. We further reinforce our team performance goals at weekly staff meetings. If one area is falling behind, we call them out, and everybody looks at what they can do to help that part of the team meet their objectives. By keeping everyone apprised of the results, there are no surprises.”

Writing the playbook

Another tool that Klayko implemented to help pull his team together and to reposition the company for increased growth was the development of a strategic plan. He calls the plan the playbook, and it contains multiple chapters that outline the company’s values and specific growth strategies. Klayko developed the playbook in collaboration with his senior management team, and he shares the information with all of the constituencies he touches on a frequent and consistent basis.

“We’ve grown quite a bit from just over 1,000 employees to 1,400 due to some acquisition activity,” Klayko says. “So we have new people coming in all the time, and we use the play-book to get them up to speed and on the same page quickly with what we want to achieve. We share it with everyone: investors, shareholders and customers. Not only does it keep everyone together, but having and articulating our goals from a written plan guarantees communication consistency.”

Having made some recent acquisitions, Klayko says that he also opens up the playbook to the employees of the newly acquired organizations and asks for their input and feedback as part of his assimilation plan. Exposing newly acquired workers to the plan gets them on board with Brocade’s mission quickly.

Klayko doesn’t stop at just receiving opinions from new employees. Following another recent acquisition, Klayko also sought input from the entire base of acquired customers with the goal of showing all 27,000 of them a unified front from the company and its representatives. His theory is that delivering consistent messaging to clients will create loyalty and retention.

Klayko says that he frequently takes the pulse of the organization to see if his playbook is still the right game plan for Brocade and to assess if he’s achieving his goal of instilling a new corporate culture through effective communication of his plan.

“We do one big survey each year, but intermittently, we conduct pulse surveys to test the effectiveness of our messaging,” Klayko says. “We survey to assess our employees’ understanding of the strategy of the company and the role that they play because understanding enhances employee engagement. I also spend more than 75 to 80 percent of my time in front of employees and customers so I can judge their level of understanding on a firsthand basis.”

Klayko says that, in his view, one of the questions on the annual climate survey is a true litmus test of employee opinion about the company culture: “I look at whether an employee would refer their best friend to work at the company as a pulse check on how we’re doing,” he says. “Consistently, the response is that 75 percent say they would recommend Brocade Communications as a good place to work to one of their best friends, and that statistic alone tells me that we are on the right track.”

By the middle of 2006, Klayko says that he was satisfied with the progress of Brocade’s cultural shift, the execution of the business plan and the increased performance accountability within the company, and subsequently, he increased acquisition activity to move Brocade away from its vulnerable position as a one-trick pony.

Revenue for the company in 2007 was $1.2 billion, up 65 percent from 2006 — further validating that Brocade was past the crisis, and the firm was actively engaged in revenue-increasing activities.

Klayko says that while he wasn’t seeking the endorsement from his peers to become Brocade’s CEO, as it turned out, he’s glad he received it.

“Being recognized by my peers for this opportunity wasn’t a goal that I had set for myself, but I’m glad that the opportunity arose,” Klayko says. “I think that there are two things that I’ve learned from becoming the CEO of Brocade Communications: One is that I sincerely believe that if you prioritize the success of others and if you truly help the people around you succeed, you will be a better CEO. The other thing I’ve learned is that you should really try to understand what you’re good at, focus on using those skills, and then surround yourself with great people who are good with all the rest. If you follow those guidelines, success will follow.”

HOW TO REACH: Brocade Communications Systems Inc.,