Tough love Featured

7:00pm EDT December 26, 2007
Douglas Bergeron has a management style that has been compared to a bull in a china shop.

Bergeron, the chairman and CEO of VeriFone Holdings Inc., a provider of secure electronic payment technology and services, isn’t fazed by the comparison. He’s not reckless; he’s just intentionally decisive and swift in his actions, something he sees as a necessity when a company is in trouble.

“There’s never been a time where I think that I made a mistake as a result of moving too quickly,” he says. “In the situations that I’ve studied, there were more instances of risk being associated with CEOs moving too slowly as opposed to moving too quickly.”

Bergeron spearheaded the buyout of VeriFone in July 2001, then a division of Hewlett-Packard. What he took over was a company that had a lot of problems to solve. VeriFone had a fiscal 2001 net loss of $63.8 million and was dysfunctional in more ways than one.

The culture was inefficient and wasn’t driving innovation. The centralized command structure was cumbersome and slow, and the staff was not performance driven. As part of behemoth HP, the company wasn’t acting like the nimble tech firm it needed to be to survive.

Bergeron was quoted at the time as saying: “They gummed it up with HP bureaucracy and sucked the entrepreneurial oxygen out of it.”

And if it took a bull in a china shop to fix it, Bergeron was willing to break a few things to put VeriFone back on the path to profitability.

Make quick decisions

During the four-month financial due diligence period preceding the acquisition, Bergeron made his assessment of VeriFone, its staff and its culture, forming his own opinions as to the reasons behind its poor financial performance. The assessment period allowed Bergeron to get a jump start on the turnaround when he fired 550 people on the second day following the buyout, launching a cultural shift in the organization and immediately improving the bottom line through cost reduction.

“People were absolutely paralyzed,” Bergeron says. “Having a meeting was a placebo for taking action. Everybody had an opinion, and everything was a community decision. The staff spent most of their time building consensus and little time taking action. The impression that I got was that all staff members were equal because everybody sat in a cube and there wasn’t a leader of anything. It was a socialistic approach to the marketplace, characterized by a lack of product innovation and excess costs.”

VeriFone had 1,350 people on staff at the time of the acquisition, which not only represented more overhead than the firm’s revenue could support, the large staff was contributing to the organization’s process-driven business style, which yielded slow decisions and killed innovation.

“Turnarounds require fast and immediate action,” Bergeron says. “You have to accept the fact that you may not be 100 percent correct about the quick decisions that you make regarding which people to keep but not taking action on poor performers will lead to true mediocrity. Sometimes leaders, particularly in North America, think that they are better off with the devil they know versus the devil they don’t know, so they’re afraid to take action or worse yet, they move poor performers into other positions. The employees are witness to your tolerance for poor performance and soon the entire organization slows down.”

Bergeron initially asked all of VeriFone’s existing managers to evaluate their teams and supply him with a list of proposed staff reductions. To complete his staff assessments, Bergeron interviewed the key managers in the existing organization and came to the conclusion that the entire senior leadership team needed to be replaced.

“While I did a lot of interviews during the first four months, the decision was clear once I completed my assessment of the senior managers and asked them for their lists of employees who should be terminated,” Bergeron says. “If you were a loser on a loser’s list, I really didn’t need to dig any further to find the answer as to who should be released.

“I know that some people may characterize my position as uncaring and dismissive, but the fact is that in order to move forward, you have to make your cuts swiftly. By the third day after the acquisition, it was all behind us, and we were ready to go forward. Making quick decisive cuts is the difference between trying to orchestrate a revolution as a CEO and a shift.”

Decentralize decision-making

After the initial personnel reduction, Bergeron says that he reorganized the company into smaller, more manageable business entities and dispersed those business units around the globe. Bergeron’s reasoning for the move is that he believes in driving the business from the field, not from the headquarters. VeriFone’s numbers not only reflect his philosophy, but they also validate its effectiveness. Two-thirds of VeriFone’s employees are located outside the U.S in field-based business units that allow the staff to work directly with the firm’s global customers. The firm increased its revenue in 2006 by 22 percent in Europe and 57 percent in Latin America compared to 2005.

“I reorganized the organization into smaller, more manageable entities run by a local manager,” Bergeron says. “I give that P&L owner full control, and I don’t get in their way. I hire very strong managers to run the business, but I don’t own the responsibility, they do. I’m always coaching and sharing with them, but we’ll never get to be a $2 billion organization unless the managers around the globe own the responsibility for the results and perform.”

Bergeron acknowledges that companies need some processes and infrastructure, such as IT, human resources and back-office accounting functions, in order to sustain growth. But he characterizes those as the support functions for the organization — not the units that drive the business. Only 50 employees are housed in the firm’s headquarters in San Jose, which includes the executive staff and leaders who oversee a dispersed group of employees who perform support functions — but those support employees are embedded in each business unit. Besides fostering growth, having a lean headquarters staff keeps bureaucracy and slow decision-making from creeping back into the company’s culture.

In addition to frequent e-mails and weekly conference calls, Bergeron keeps his arms around the operation by holding meetings on a quarterly basis that include regional sales managers and key senior management attendees from critical organizations, such as engineering, supply chain, finance, marketing and HR. Status on business initiatives and sales results are typically discussed along with longer-term project needs.

“The key to managing strong people who are dispersed globally is frequent communications,” Bergeron says. “I spend a fair amount of time reviewing data, and I’m always talking to the top influencers in the company. The key is consistently communicating the strategy so everyone’s on the same page.”

Reward performance

Bergeron says that creating a high-performance culture attracts high-achieving employees. In the Silicon Valley’s ultracompetitive recruiting market, Bergeron says that VeriFone hasn’t had to steal top performers from other firms. He says that top performers have been attracted to VeriFone because it’s a fun place to work. Since making his staff cuts early on, VeriFone has grown both organically and through acquisitions increasing its employees to 2,500. He augments the environment through above-average pay and internal growth opportunities.

“Our total compensation is in the top 25th percentile for our industry group,” Bergeron says. “We have a feel-good environment, and most people work remotely so it’s nice to not wake up to an alarm clock every day. The prior CEO was always flying around closing deals, and the idea of hitting a sales quota was merely a suggestion. Top achievers want to be in an environment where they can accomplish and be recognized for those accomplishments. When people know that they’re being measured and what they’re being measured on, they’ll perform. If people don’t perform, you have to get rid of them.”

Bergeron says that the feel-good work environment at VeriFone not only attracts employees who seek accountability for results, it retains them. The company averages a voluntary turnover rate of less than 15 percent annually, which is among one of the best rates for a Silicon Valley tech firm.

With so much recent success, the company has created its own positive vibes in the recruiting marketplace. About half of the company’s work force receives stock options, and with the escalation in the stock price, those employees have received substantial financial rewards for their contributions. In addition, Bergeron favors promoting employees from within the organization.

“People want to feel that their contributions are valued, so we always look first to make promotions from within the organization,” Bergeron says. “You have to think about what kind of message you’re sending as the CEO if you don’t consider your own employees first for any new opportunities.”

Given Bergeron’s disdain for processes, there’s no formal structure for engendering internal promotions at VeriFone. However, Bergeron has demonstrated his beliefs through example by promoting more than nine senior executives from within the ranks, including the chief information officer, three general mangers and four vice presidents.

Quickness counts

The results leave no doubt that Bergeron has accomplished a great deal since taking over VeriFone. In the six years since the acquisition, the company has become the leader in the secure electronic payment technology and services industry. Its net revenue was $581 million in 2006, and it posted a net income of $59.5 million. Along the way, both company profits and the stock price have soared, generating a huge payback for all investors, including Bergeron and many of the company’s key employees.

Bergeron points to innovation and new product development as well as several strategic acquisitions that have been byproducts of the corporate culture and significant contributors to the company’s market leadership position. But overall, it’s his energy and rapid decision-making that’s given velocity to the business growth.

“We’ve grown so fast so quickly, it’s important that employees across the globe hear the same consistency in our message and our strategy so you have to be out in front of people,” Bergeron says. “CEOs often shirk that responsibility, but it’s important to demonstrate a level of competent caring and an energy level for the direction of the organization, the only way to do that is by getting out in front of the employees.”

As the company moved from turnaround mode to growth mode, he has stuck to the same basic principles to move VeriFone forward.

“Our first acquisition was ourselves, and since then, we’ve made three more,” Bergeron says. “It’s really added to our earnings per share because we’ve looked for acquisitions that have complementary distribution channels or technology that we need, and it makes sense to make the acquisition because we don’t want to take two years playing catch-up by developing the technology capability in house.”

Bergeron says that he looks for similarities in culture between VeriFone and the firm he’s considering acquiring, and if he doesn’t find the acquisition to be merely plug-and-play, he’s likely to discount the price knowing that he’ll be facing restaffing costs.

“First of all, the acquisition needs to be priced well or else it just doesn’t make sense,” Bergeron says. “Then you have to integrate the two companies immediately. You can’t soft pedal around it, so just go ahead and do it. You can’t really finesse the changes that you need to make because it’s not like you can put the acquisition through the sausage machine and it’s going to become a different firm.

“I would tell CEOs that if you have to replace everyone, do it. It eliminates the push back from those who are resistant, and life’s too short to put everyone through that — especially those who can’t tolerate change. In the long run, you’re doing those people a favor and, hopefully, they’ll land on their feet.”

HOW TO REACH: VeriFone Holdings Inc., www.VeriFone.com