Calgon Carbon’s great reformation Featured

9:41am EDT July 22, 2002

At Calgon Carbon Corp., employees are encouraged to communicate by following a set of written guidelines known as “Greet the Messenger” and participate in “brain training” sessions at which they learn to shift out of the “reptilian” thinking mode.

They fill out surveys, on which they register their responses to statements by drawing smiles, frowns or neutral expressions in ’70s style “Have a Nice Day” faces. The same kinds of icons are drawn on financial performance reports, displayed for all to view.

And if that’s not enough, the CEO has a dream catcher hanging prominently on his office wall. So what’s going on here?

Jim Cederna, president and CEO of Calgon Carbon, believes images deliver powerful messages that burn into the consciousness of the receiver. The dream catcher is a Native American symbol which, according to legend, catches good ideas, dreams and visions, while letting the evil ones pass through.

In a very real sense, Cederna has become the company’s chief dream catcher, a dynamic change agent whose mission is clear: to get the company’s 1,100 employees to figuratively capture the good spirits and let go of the bad ones.

And for good reason. Cederna faces the very real —and serious — burden of effecting enough dramatic change to lift Calgon Carbon out of the detrimentally sluggish performance it has demonstrated in recent years.

“Not unlike a lot of companies, we’re in need of change, and we’re in need of rapid change,” says Cederna. “We’re in need of a turnaround, and we recognize it for what it is.”

A superficial look at what Cederna is doing to get Calgon Carbon out of the fiscal doldrums might tempt one to dismiss his unusual coaching efforts — full of flipcharts, motivational techniques, boldly displayed words of wisdom and plenty of smiley faces — as simply New Age snake oil, a consulting fad or just plain foolishness. A closer look, however, suggests a careful strategy to arm a company with the tools it will need to get itself on the right course, condition its work force to confront change, and, ultimately, get its financial performance up to par.

“Financial results are ultimately what we’re held accountable to by all of our stakeholders,” says Cederna. “The best thing we can do for all of them is get good financial results.”

No one is proclaiming a complete victory yet. The company’s stock is still hovering at around $6.50 a share, roughly where it’s been since Cederna arrived more than a year ago. But there are signs that the measures the company is taking are having some effect. Analysts are issuing hold, buy and even strong buy recommendations for its stock.

Internally, an optimistic atmosphere has begun to arise that’s been in short supply in recent years.

What went wrong?

Calgon Carbon’s situation is, in a sense, a bit puzzling.

The company is the leading producer of its core product, activated carbon, which offers broad applications in water and air treatment and is used in a diverse variety of commercial and consumer products. It holds that position in an age in which environmental concerns and consumer preferences would appear to portend success in the market. And the company has been no slacker when it comes to research and development of new products and processes. For instance, it offers services such as the reactivation of spent carbon and engineered solutions for customers’ air and water processing needs.

Nonetheless, its financial performance has foundered over the past six years or so. The company last year showed a net loss of almost $14 million on revenue of $296 million — off almost $5 million from 1998. And investors have demonstrated a lack of enthusiasm when it comes to its stock, which dipped to $5.88 a share last year.

Observers offer different explanations for Calgon Carbon’s lagging performance. The company points to markets in Central Europe that dried up after the break-up of the former Soviet Union and tough price competition from producers in China. A dip in 1993 after a big lift in the wake of the Gulf War seemed to hang on like a bad cold.

Others cite some disappointing acquisitions and uninspired leadership.

“They were moving along the right path, but they didn’t execute very well,” says Neil Berlant, an analyst with First Security Van Kasper in Los Angeles who follows the company’s performance.

There’s been some internal strife and uncertainty, as well. The company lost its CFO in 1997. A few months later, its CEO left, and the board put Tom McConomy, retired president, in the seat as interim CEO. McConomy, a major shareholder in the company, was one of the managers who acquired Calgon Carbon from Merck and Co. in a leveraged buyout in 1985. The company even considered a sale for several months, then took itself off the market and decided to look for a permanent CEO.

Meanwhile, the employees had endured the changes, and not without a noticeable effect.

“The company’s morale was low — let’s say lower than desirable — when [Cederna] arrived,” says board member Robert Cruickshank.

Without question, a lot was riding on the board’s decision on a new CEO. The new chief would have to be able to inspire a work force that had been severely demoralized by the company’s poor performance, restructurings and sell-offs. Board members interviewed a number of candidates, and, not unexpectedly, an abundance of first-rate executives turned out to vie for the top job at the New York Stock Exchange-listed company.

Ultimately, the board decided that Cederna, an executive with a knack for rejuvenating troubled companies — and a rather interesting philosophy about change — stood out from the crowd.

“The elements that distinguished him the most were his enthusiasm and his people skills — and his willingness to commit to get things done,” says Cruickshank.

“He likes to win”

It’s no stretch to find similarities between successful business leaders and sports coaches. With Cederna, the comparison is exceptionally easy to draw. His meaty handshake and hulking athletic frame make it no surprise that he played football at Central Michigan University.

Now, at 49, Cederna, who isn’t afraid to joke about his balding head, looks and acts like a coach who is animated by a challenge and determined to make his team a winner.

But by all accounts, Cederna isn’t like the hard-nosed, autocratic disciplinarian who could strike fear into hearts by slamming locker room doors or pacing the sidelines. He seems more like your favorite Little League coach, the one who showed you that the secret of crushing the ball over the fence is to stay loose at the plate, that soft hands are the ones that most easily pick up the hard grounder.

He’s the one that inspired you to win by doing your best, not by making you cower at the specter of the shame you would experience if you lost.

Nonetheless, Cederna maintains a focused, clear objective — to come out on top.

“He likes to compete, and he likes to win,” says Gail Gerono, who heads investor relations for the company.

Rejecting the quick fix

Cederna took over a company that has languished through a lot of its 15-year history. He’s done some of the pro forma things that are expected when substantial change in an organization is needed.

Make no mistake — he has directed his share of layoffs and realignments, the kind of routine housecleaning that takes place when organizations need to streamline dramatically in a short period of time. But he didn’t do anything until he had a chance to ready the employees for the changes and clarify his rationale for the moves.

Significantly, Calgon Carbon is undergoing changes that don’t simply guarantee quick fixes contrived to please shareholders and board members. Employees aren’t getting bashed over the head about cutting costs, beating sales goals and controlling expenses. The change process is going very deeply and very high into the organization and is not being led by a team of middle managers sent out to do senior management’s bidding. Instead, the changes — and the imbedding of the notion of always being prepared to deal with them — are being spearheaded by top management.

“What our model says is that the whole thing rests on the culture,” says Cederna. “This is where we’re very leading edge. There aren’t five companies in the country doing this.”

Openness is the rule

Cederna did some atypical things when he arrived at Calgon Carbon. While the staff did the usual walking-on-eggshells routine around the new CEO, Cederna took steps to assure those around him that things would be different.

He went on a mission to convince employees that openness would be the rule. Instead of jettisoning the senior management team, he shuffled some responsibilities among them and hired only a new CFO, filling a position that was vacant when he arrived and one for which the board thought he alone should identify a replacement.

Cederna says he thought the company’s core products were underpriced, so last fall, Calgon Carbon boosted the price of activated carbon an average of 5 percent, the first increase in four years, and got no resistance from the market.

To demonstrate his sincerity, Cederna gave shares of the company he had negotiated for himself to the employees. In financial terms, it wasn’t a lot of money, but in intangible terms, it earned tons of goodwill from the employees.

“That has made an enormous difference in the attitude of the company,” says analyst Berlant.

Changing the culture

While he knew that turning in improved financial results was the ultimate goal, Cederna decided that the way to get there was to change the basic culture of the organization. He did so by making sure he had three things in order: a clear plan for growth, training to make sure employees were prepared to carry out the plan and a productive work environment. Only with those in place could the company ensure customer satisfaction and a world-class operation.

But the prerequisite was to create a company culture based on trust and teamwork. So Cederna initiated a campaign to change the way everyone in the organization communicated with each other — the foundation for trust and teamwork.

He created “Welcome the Messenger” (see sidebar) to make sure respectful, honest communication was the norm for everyone. In Cederna’s view, decep

tion takes place in organizations when people don’t trust each other. Sales departments overproject because they want to impress the boss, production facilities sandbag so they don’t fall short and management makes bad decisions based on flawed information.

“In reality, if the truth was there, you wouldn’t have a problem,” Cederna says.

Sad, mad, glad, scared

“My theory of change, and my theory of rapid change, is if you aren’t scared and you aren’t out of your comfort zone, then you aren’t changing,” Cederna says.

To help confront the unsettling process that he thought was nonetheless necessary, Cederna called in Rapid Change Technologies Inc., a Minneapolis-based consulting firm that had done similar work at Arizona Chemical, where Cederna worked before joining Calgon Carbon.

“We condition an organization to run a change marathon well,” says Magaly Rodriguez, Rapid Change Technologies’ CEO.

The process that Calgon Carbon used to help employees adapt to change is called “brain training.” Simply put, the basis for the process is the notion that human beings have complex, well-developed brains that can perform a complex assortment of operations and cognitive functions.

When under stress, however, the individual reverts to the control of the so-called “reptilian” brain, the primitive portion that triggers the “fight or flight” response.

In this mode, explains Rodriguez, the only instinct is survival. Change is stressful, so humans tend to retreat to the reptilian brain when they find it difficult to cope with their environment. Creating rational solutions to problems is difficult, if not impossible, in the reptilian mode. Relationships with co-workers, customers and even family members become troubled.

“When you become frightened, you really can’t operate; your brain shuts down,” says Cederna.

Rodriguez says Calgon Carbon’s employees were lacking in confidence, not unlike a sports team that has suffered a string of setbacks.

“They didn’t hate each other, they just had had some hard business times,” says Rodriguez.

To help them regain their self-assurance, Rodriguez introduced a series of tools designed to help Calgon them handle change. The exercises, for instance, emphasized new ways of expressing feelings. Rodriguez taught employees to reduce the range of feelings to four elemental words, showing them how to express themselves by using the words “mad,” “glad,” “sad,” or “scared.”

Then they were shown techniques to help them move out of the reptilian mode and into the cognitive sections of the brain, allowing them to think more rationally and deal constructively with change and new situations. Some of the exercises required drawing graphic representations of their attitudes, particularly relative to how they viewed themselves and the company.

The employees reacted with surprise and acceptance, according to Sandra Liller, manager, personnel and regulatory administration.

“It was so unique and so different, people were really surprised at the style and what we were presenting,” says Liller. “I think people welcomed it because they wanted to see leadership and a new plan.”

Some CEOs might have come in and pressed sweeping change that would have shown results in a short time. While the path that Cederna has taken Calgon Carbon down may look like a slower one, he points out that it may only seem so.

“My experience is that this is quicker because you don’t have to keep going back and fixing things,” says Cederna.

Structural changes

While cultural changes are fundamental to Calgon Carbon’s ultimate success, Cederna did have to make a number of business and strategic changes to produce the financial results. The company spent six months coming up with a strategy to increase revenue and profitability. The process resulted in some pain, with some facilities closed or consolidated and some layoffs.

But it also spawned a strategy for growth, and, Cederna likes to point out, some new jobs in Pittsburgh.

Not surprisingly, the company is determined to retain its position as the world’s top producer of granular activated carbon. To do so, Cederna says he plans to grow its services business, which includes reactivation of carbon and leasing, monitoring and maintenance of mobile carbon adsorption equipment.

He also plans to double the engineered solutions business, which now accounts for about 16 percent of sales. Cederna says he sees significant opportunities for providing solutions for customers’ air and water problems that combine several of the company’s technologies.

Berlant says he sees these as sound strategies for it to be pursuing, given its wide range of solutions to water treatment. Turnkey solutions like Calgon Carbon’s are going to be in demand, he says, as municipal and industrial customers face more complex water treatment issues.

And more stringent water quality standards are expected to increase the demand for treatment equipment, now a $900 million market, according to WaterOnLine, an Internet Web site for water treatment professionals. The industry is looking to private water treatment companies to design, build and operate treatment plants and sell treated water back to municipalities, a trend that could bode well for Calgon Carbon if it is able to crack the market.

A purr-fect market

While the company’s decision to put new emphasis on service and engineered solutions is undeniably sound, Calgon Carbon’s other new initiative is a little less obvious. Long a supplier of activated carbon products to customers who service the consumer market, Calgon Carbon hasn’t been a direct player in that segment.

Nonetheless, it has decided to put a new emphasis on developing products and partnering with “market champions,” as Cederna calls them, to put Calgon Carbon in front of consumers. It lacks expertise in consumer marketing, so Cederna says the company decided to partner with companies that can apply their specialized knowledge to its products. Many of its current technologies, he says, could be adapted to consumer use.

One of its first consumer products, Purrfectly Fresh, a deodorizer for cat litter, is being test-marketed. The company also has developed WaveZorb, a microwave blocker for cellular phones, and a line of odor-removing products for the home.

Change as a constant

The company may be able to take advantage of other market possibilities, as well. A new class of biodegradable plastics called biopolymers, for instance, uses lactic acid in its manufacture. The lactic acid is extracted in crude form from corn, and Calgon Carbon has the technology to produce the refined lactic acid required to make the plastic.

A report on “60 Minutes” earlier this year pointed out the possible threat of methyl tertiary butyl ether, a gasoline additive that has found its way into groundwater and whose clean-up cost has been estimated at $1 billion. Calgon Carbon, the piece pointed out, has developed a product to remove MTBE from drinking water.

With all of the possibilities and new markets available, the pace of change at Calgon Carbon doesn’t seem likely to change, at least not anytime soon. And Cederna, who seems at ease with the discomfort, thinks it should stay that way.

“If it feels like chaos,” he says, “if it feels fearful, if it feels like it’s happening too fast, then you’re probably right where you need to be.”

And so he is.

How to reach: Calgon Carbon Corp., www.calgoncarbon.com; Rapid Change Technologies, www.rapidchange.com; WaterOnLine, www.wateronline.com

Ray Marano (rmarano@sbnnet.com) is associate editor of SBN magazine.