Who will be the next Joe Fink?
It might sound like a movie title, but at CNX Gas Corp., the answer to that question is something Nick DeIuliis, president and CEO, hopes is repeated often.
Looking for a better way to monitor the company’s 1,800 gas wells in Virginia for safety and operational effectiveness, Fink, one of the company’s field operations employees, came up with a solution that CNX calls “smart well” technology, a patented system that allows the wells to be monitored for safety and allows other routine activities to be automated, all from a central location. It reduces the need for on-site visits to the wells, thereby reducing travel and manpower costs. “Now that gentleman is the lead operator for our Nittany project,” CNX’s new venture in Indiana County, says DeIuliis. “That’s the guy we’re going to put $50 million of faith in over the next two years. I’ve got the utmost confidence in him because I know there’s a guy that gets the culture. “Nobody told him to go find a better way to do it. He saw it, followed through on it, tested it, took a chance. He proved it out, and now we’re using smart well technology all across the company.”
A “Do as I do, not as I say” breed of CEO, DeIuliis has built an organization at CNX in a matter of months since it was spun out from CONSOL Energy Inc. in 2005 to focus on the exploration and production of natural gas and coal bed methane. The operating units that were combined in the spinoff had posted combined 2002 revenue of $151 million. By the end of 2005, the entities united under the CNX banner had revenue of $613 million.
DeIuliis makes open communication an obligation, not an option, employs a flat organization just 300 employees and joint accountability that makes everyone in the company accountable to everyone else. That kind of culture, says DeIuliis, encourages innovation such as smart well technology, and a lot more.
Define the box
With a relatively small work force, DeIuliis says he can keep the management structure flat, giving each employee a wider range of responsibility than they might find in much larger organizations. That helps him attract employees who enjoy an atmosphere where they have more freedom to act and, potentially, more immediate impact on the entire company. “My view is you’ve got the duty to define the box,” says DeIuliis. “[Set] the general limits. Keep them simple, keep them clean and consistent on how we enforce them and make sure everybody has access to them, everybody understands how it works and the ramifications if it doesn’t work. “Within that box, leave as much flexibility as you can, leave as much autonomy as you can to let those people do what they do best.”
When it comes to finding people who will thrive in a less-restrictive management structure, DeIuliis gets involved in the selection process. He says that identifying the right candidates isn’t an exact science, but there are ways to hedge the bets. “I think one of the things you can do to increase your chances of success is be very open and direct with them in terms of what the culture of the company is,” says DeIuliis. “The culture of the company is pretty simple, it’s pretty straightforward. The rules tend to be uniform. How we compensate our people for cash payment plans, for example everyone in the cash payment plan is eligible that’s on salary and the equation for everyone’s the same.”
One for all
In a flat organization with a wider span of responsibility, each team member is expected to look beyond his or her own area of concern to assist others. A marketing issue, for example, isn’t simply one to be dealt with by the marketing team. “You have a duty, not just for your own specific goals, but a collective duty for your fellow co-workers to supplement that effort where you can,” says DeIuliis. “If we do that, we all are rewarded, and if you can’t do that individually, as a group, we’ll all suffer. The employee has to understand that in the interview process and be comfortable with that process. That’s what works well for us here.”
The joint accountability that DeIuliis values is expressed starkly in the company’s incentive payout plan for salaried employee and applies to all, regardless of their department, including DeIuliis. CNX measures three controllables to calculate cash payouts: safety, unit cost and production. If the company falls short in any one area, there’s no payout to anyone in the salaried group. “My equation is the same as the last person who joined the company,” says DeIuliis. “It goes back to measuring the three things that we call our key controllables, things we have an impact on collectively as employees: safety, unit cost and production. Those three things we impact day-in, day-out. “If someone gets hurt and all of our operators in the field don’t get a payout on safety because someone got hurt, I sure as hell should-n’t be getting a payout, either. If I am, it’s an inconsistency. So I think the leadership in many ways comes down to consistency. Tone at the top is important as a first step, but saying something is one thing, but doing something you say to me is a whole magnitude better position to be in.”
There is probably no aspect of the company that DeIuliis is more passionate about than safety, an area where he most emphatically expresses that he, himself, needs to be a model of joint accountability for the rest of the company. As an example, he points out why it’s important to observe the 15 mph speed limit posted on the long driveway to the company’s headquarters. “The only thing you’re going to hit is a turkey crossing the road, but those are the rules,” says DeIuliis. “To obey that when you’re coming or going, as the CEO or a senior manager of the company I think is terribly important.”
The near-obsession with safety has had its benefits. CNX hasn’t experienced a lost-time accident since 1994, and by the fourth quarter of 2006 had passed the 2 million man-hour mark without such a mishap. “That’s something that you don’t see anywhere else in the energy industry,” says DeIuliis. “It just so happens that we’re the low-cost provider in Appalachia. Well, I don’t think it’s a coincidence. I think those two things go hand-in-hand. There’s joint responsibility when it comes to safety that you don’t often see in other companies.”
Closer to the top of the organization, DeIuliis stays involved in the key issues that affect the company. With Sarbanes-Oxley compliance, for instance, he takes an active role, one he believes sends a clear message to the organization about how important it is. “For Sarbanes-Oxley, I go to the meetings, I take an active role,” he says. “It’s important because it’s important to our shareholders. It’s a significant amount of time and resources that we’re putting into play at the expense of the shareholders. I want to make sure that we’re reaping the benefits.”
Communication is not optional
For DeIuliis, failing to communicate openly is not an option, and there is little regard for anyone who waits to see where the consensus is heading before weighing in on an issue. “We had to adopt an entirely different culture,” says DeIuliis. “This culture, because of the flat structure, is one of openness, and my view is a manager, employee, anyone at the table has a duty not the right or privilege it’s their duty to speak their minds no matter what that might be or how that might fly in the face of the consensus around the table. “The only thing that will get you in trouble with regard to how you conduct yourself within the company in terms of what you say is to not speak out.”
DeIuliis met resistance early on to opening up communication in the company. A trip to a field office in Virginia early in his tenure met with an unexpected response.
CNX’s COO, who accompanied him on the first trip, warned DeIuliis that the culture there tended to be a little more deferential than that of their counterparts in Pennsylvania, that people weren’t accustomed to speaking their minds as freely to their superiors. DeIuliis talked about the company’s plans and expectations and encouraged employees to share their thoughts. The loudest sound in the room was the noise from the fluorescent lamps. “The hum of the lights was deafening,” says DeIuliis.
DeIuliis says the key to keeping the information flow open and honest is to encourage everyone to speak up and not to stifle any opinions. DeIuliis, self-admittedly not the most patient person in the world, nonetheless took baby steps to get the employees to open up over time and gradually gained their trust, primarily by following through on his promises to build his credibility with them. “You need to prove yourself to them by backing up what you’re saying with what you do,” says DeIuliis. “There’s going be to that first person who’s going to step out and say something, and it might not be something that’s positive, that we’ve got a problem. You’ve got to think through how you’re going to respond.”
He says that today, the dynamic has nearly reversed.
“Fast forward a year-and-a-half, I can’t get out of the room. I come in the room, I don’t get 30 seconds to talk,” DeIuliis says.
But as involved as he is across the company, DeIuliis views his role as a rather simple one.
“At the end of the day, I don’t do much of anything other than make sure our people are fairly and accurately compensated and make sure that our investors and stakeholders understand what we’re about and how we go about our decision-making. Other than that, I’m a cheerleader.”
HOW TO REACH: CNX Gas Corp., www.cnxgas.com