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Digging deep Featured

8:00pm EDT September 25, 2009
It doesn’t take long to realize that Steven Leer enjoys his job. The chairman and CEO at Arch Coal Inc. has a deep understanding of the way the coal industry works, and he enjoys talking about it.

But one shouldn’t assume that this calm, easygoing personality means he takes a laid-back approach to running his business.

When the decision was made to merge Leer’s company, Arch Mineral Corp., with one of its fiercest competitors, Ashland Coal Inc., in 1997, Leer was all business.

“Six months is an outside time, I want it done faster,” says Leer, explaining how long he expects a merger to take from start to finish. “I don’t want to have a problem if the integration team of some particular group is sitting there saying, ‘The guy in the corner office is crazy. We can’t get it done in that time frame.’ In fact, in some ways, I even want that kind of tension going on. The teams have to have people bond from both sides.”

The reason for this particular merger was relatively simple: As coal markets continued to evolve from regional operations to more of a singular national market, the two companies were beginning to do more harm than good through their competition.

“There were obvious duplications of overhead,” Leer says. “To meet the requirements that we felt were necessary to be successful in safety and environmental performance and in meeting the market needs that were growing ever more sophisticated, that size and breadth of resources was going to allow you to be much more competitive in the world than staying a regional company.”

While the merger made sense on paper, there was still the matter of how to physically and culturally merge two separate businesses into one organization that would be stronger. Leer says that it takes a lot of effort to make such a large-scale consolidation work. But experience has taught him that the faster you do it, the better your chances are of being happy together.

“Integrations that take more than six months start to destroy shareholder value,” Leer says. “If people can speed it through, it’s difficult. It’s hard work and it’s a 24-7 approach for a period of months. But it ends up allowing you to get the real value that drove you toward the acquisition in the first place.”

By not being afraid to push his people beyond their limits, Leer now leads a 4,200-employee, $2.9 billion company that produces more than 100 million tons of coal each year. Here’s how he did it.

Keep it moving

Leer took the first step toward reducing the opportunity for conflict in the merger of Arch Mineral and Ashland Coal by creating integration teams. These small units of two to four people would work on bringing the companies together department by department.

The size of the teams was very much intentional.

“I didn’t want the teams to be so large that they had to have a meeting to schedule the next meeting,” Leer says. “Both corporations had systems and methods that had been successful. As we were trying to merge them, I didn’t want to get into long, drawn-out discussions with, ‘We did it this way,’ or, ‘We’ve always done it this way.’

“By keeping the teams small and keeping the teams with very tight time frames, we set up a dynamic where instead of arguing about which way was the better way, it was more like, ‘We need to get this done. Let’s pick a method here because this crazy son of a gun in the corner office expects us to be done on Tuesday. There’s no way we can be done on Tuesday.’ That helped speed up the whole integration process.

“It really puts pressure on the teams to get to the heart of what they should be doing, as opposed to focusing a lot of time, attention and resources on peripheral issues and things that aren’t as important.”

In this particular case, Leer had worked in both companies and had a good knowledge of the people who could step up and get the job done in the quick and effective manner he was looking for.

“You really want to put the stars on the integration team,” Leer says. “By their very nature being the stars, they are almost always driven, self-motivated and focused on getting their tasks done. I don’t find that motivating those teams is hard. They’re probably moving faster than with me looking over their shoulder.”

Finding the people to serve on these teams is usually not as hard as you might think. In fact, you can actually do more harm than good by thinking about these choices too much.

“Your own people will know, often better than you as you go down through the organization, who gets the job done and who maybe is not as effective at getting the job done,” Leer says.

“Sometimes in moving quickly, you will make the wrong choice or make a mistake. You just have to say, ‘I’m willing to do that.’ That has a cost to the organization, but the cost of moving slowly and letting some of the best people, those stars, drift away and get captured by a competitor is more costly than having to go back and re-slot somebody or make other changes six months or a year after the merger. It just is too hard and takes too much time to get to know everyone.”

Follow the same philosophy in selecting a person to head up the consolidation effort and serve as a point person for any related questions. Make sure this person is not you.

“That way, there is at least one contact point that if nothing can get resolved by the integration teams, it comes to somebody who is intimately involved in the daily guts of trying to integrate two organizations,” Leer says. “Heck, I’m not knowledgeable on whether we should use XYZ or ZYX software. You need somebody who will be working very hard because they do have their day job. But you have to make sure you’re still running the organization and the company while you’re doing all this.”

That doesn’t mean you can’t check in on the integration meetings and see how things are going.

“Spend time walking around,” Leer says. “Stop in at an integration team’s meeting or even with an individual team member and ask them, ‘How’s it going? What are the problems? What are the issues that you are facing? Is there anything insurmountable that we can address at a higher level and put more resources on?’”

Ultimately, your job is simply to make sure things continue to get done.

“I don’t mind that they have long, drawn-out discussions as they try to resolve their issues,” Leer says. “But I have a tight time frame. It’s coming to decision time. You could spend a day coming to a decision point but come to the decision point. Don’t sit there and say, ‘We’ll defer this until three weeks from now.’”

Make changes fast

A major move such as a corporate merger obviously can create a lot of anxiety. Employees need to know as soon as possible what their role will be in the new company or if they’re not going to be part of the future.

“The faster you do the integration and communicate to employees what their future is, whether it’s a good future or one where they are not going to be involved in the company, the fairer and better it is for everyone involved,” Leer says. “You really have to focus on how you bring the two companies together. What are the social issues of bringing the various personnel together? How would all the minds be organizationally structured? Those tend to be very intense conversations.”

In almost every merger or consolidation, there is that point of wondering who is going to stay and who is going to leave. That uncertainty can be poison to an organization and it’s why time is of the essence in making decisions.

“You try to get those communication points out as fast and as quickly as you can,” Leer says. “An old boss of mine told me, he says, ‘What you have to understand is the first word in merger is me. Even if their future is we’re going to go through the transition and there is going to be a severance for you, people may not like that answer, but they can respect it and deal with it.’ What the human can’t deal with is the uncertainty. Our view is to try to communicate everybody’s future as fast and as quickly as we can.”

You’re better off making the moves quickly and making a few mistakes.

“If you get 90 percent correct, go back and correct the last 10 percent if you realize you made a mistake,” Leer says. “That’s a much better approach than trying to get 100 percent of every move decided and then saying, ‘We need more time to decide what we’re going to do here,’ and then letting things drift on for six months.”

Sell the plan

You spent a lot of time figuring out whether to merge with another company and analyzing figures and charts and making projections. That same approach to making the move is the one you need to take in selling it to your people as things start to happen.

“You have to go through the rationale and be convincing,” Leer says. “You have to be prepared to explain your strategy. You don’t have to get into all the numbers, and often, the numbers might be confidential. But you have to get into why we are doing this and why we are moving forward with the transaction and what it means to the overall health of the organization. And it’s not just the employees.”

You need to take the position that you are looking to earn the trust of the people you’re speaking to.

“You need to listen as much as you talk,” Leer says. “Take questions afterwards. If you don’t know the answer, say you don’t know the answer. Say, ‘We don’t know that,’ or, ‘We’ll get back to you.’ Don’t try to dodge things or buffalo somebody. It’s kind of like the voting populace. I think the voters are much smarter than the politicians give us credit for. An open, honest dialogue is what you are striving for.”

Sometimes, it doesn’t even hurt to have an employee ready to ask a question to help break the seal.

“Sometimes people are reticent to ask the CEO a difficult question in a large group like that,” Leer says. “See if you can’t use other techniques to get it going.”

Think about your audience and plan accordingly in terms of how you present yourself. But focus primarily on the message you are looking to deliver.

“My personal style is I like to be out in front and not behind a podium,” Leer says. “But some people like a formal, written speech.”

By being out in front with his people, Leer has led Arch Coal to continued revenue growth, reaching $1.9 billion in 2004 and $2.9 billion in 2008.

The key is to always be clear in laying out your expectations of what you want to see happen. It’s also important to know when to rest.

“Everybody is going to feel stress and tempers are going to get a little short,” Leer says. “You just keep pressing to move through it, and once you’re done, you pull back a little bit and say, ‘The last three months have been darn intense.’ So you try not to load another acquisition two months later.”

How to reach: Arch Coal Inc., (314) 994-2700 or www.archcoal.com