Electrifying results

Reliant Energy Inc. was a company without a future in the fall of

After being spun off from CenterPoint Energy as an independent,
publicly traded company, Reliant developed a growth strategy
based on the notion that the electrical business was a consistent
growth business, and that it would be difficult to overpay for

But that’s exactly what the company did.

“The market had literally collapsed, so the cash flows were drying up very quickly,” says Joel Staff. “We had a cost structure that
was focused on what I would call value extraction, as opposed to
value creation.”

By the time Staff stepped in as chairman and CEO, Reliant had
amassed about $7.8 billion in debt, much of it due within six
months. The massive debt helped fuel a widespread feeling among
Reliant employees that the company was not managed well,
which, in turn, strained the working relationship with them.

Many employees viewed management as inept and their peers as
adversaries. Passing the buck and passing the blame were daily
activities, and as a result, the company’s communication infrastructure was falling apart.

The deteriorating atmosphere within the company was affecting
its shareholders. On Oct. 18, 2002, Reliant’s stock, once worth
about $30 a share, traded at less than $1 per share.

On top of that, the financial problems, combined with a prominent role in the California energy crisis of 2001, put Reliant under
the microscope of federal watchdog agencies, adding another
black mark to the company’s reputation.

Staff knew he had to change everything about Reliant, from the
way the company did business to the way employees interacted
with each other. And he had to do it fast.

The first steps

The company was in such bad shape that Staff likened the first
months of his tenure to performing triage.

The first and most important step was to tame Reliant’s growing
debt monster, which was threatening to pull the company under.

“The company was in such a bad financial situation that we had
to get a refinance in place with all that debt coming due,” he says.
“Our CFO at the time did a great job of laying that out for us. He
said that if we couldn’t get refinancing, we’d better go into bankruptcy.”

Company leaders worked through various avenues to find a way
to buy Reliant more time to pay off its debt and reached a last-minute refinancing agreement.

“Literally, we got refinancing on a Sunday night, and we were
preparing to file bankruptcy on Monday morning,” Staff says.

It was only an initial win, but it was a huge one.
“I think a lot of people were really surprised at the financing we
were able to arrange,” he says. “That gave us three years to work
out the problem, and that was absolutely key.”

With the company’s financial picture becoming clearer, Staff
turned his attention to the governmental investigations of Reliant.

“It’s tough to exaggerate how debilitating and time-consuming
that is to an organization,” he says. “We really felt we had to set
those as a priority and get those behind us.”

By 2003, Reliant had settled with the various agencies performing investigations, largely because Staff had helped implement
new best-practices guidelines within the corporate governance.
Along with the new guidelines, Staff and his senior leadership
rewrote the company’s ethics policy and began a process of cascading it throughout the organization.

Staff says each initial victory was important in contributing to the
net sum of turning Reliant around.

“Everything we did was interrelated,” says Staff. “One of the
words I use a lot is integrity. It’s a really rich word. If you go to the
root word in Latin, it means ‘whole’ or ‘complete.’ Everything has
to be complete and whole.

“It isn’t good enough to just have a good corporate governance
policy. You have to be able to stand and do the things that are consistent with who you say you are.”

Building trust

The next step was to rebuild the trust of the work force while
enacting changes to put the business back on the right track.

In a time of radical change, Staff says communication from management must always be open, honest and consistent.

Staff says employees developed a cynical attitude about the company because they were able to find, at least in their own minds,
evidence of mismanagement all around them.

“So many negative things had happened in the company that you
could almost look in any corner and find a problem you could logically assert was caused by, for instance, the trading group or the
people running the plants,” he says.

Staff had to convince Reliant’s employees to trust management
and each other again, and he says the only way the management of
a rebuilding company can gain the trust of employees is to perform
trustworthy actions repeatedly.

“If I come backward from trust, trust really, to me, is founded on
credibility, which is founded on integrity,” he says. “If people know
where you stand, if people can really count on you to do what you
say you’ll do, that’s when you really start to build trust.”

Staff refocused Reliant’s communication strategy on the company’s new core values of integrity, efficiency and high ethical standards, and he used his daily and weekly communications to reinforce those core values.

Every morning at 7:30, employees all across the company
received a voicemail message from Staff. The voicemails were
mostly informational, notifying employees of upcoming events or
recent accomplishments, but he says the underlying theme is hammering home the core values and showing employees that their coworkers are embracing the core values.

“The biggest is describing events and people who are working
toward our core message,” he says. “It could be someone who has
done something exceptional at a plant. It could be avoiding a lost-time accident. It could be someone who has come up with something innovative. But we do that every week.”

Reliant also reinforced its core values through a multipronged
training system that includes educational campaigns and online
ethics and compliance training. But Staff says there is no substitute for face-to-face communication. It’s the most effective way to
get a point across, and it is the most immediate way to receive feedback.

Every member of Reliant’s leadership team is assigned to visit at
least one of the company’s power plants annually. Each visit is an
opportunity for senior leadership to bring all employees at a location together, speak to them, listen to their concerns and discuss
new strategies.

If the visits produce an idea that could be significant for the
entire company, senior management will put out a message to all
employees seeking feedback.

Staff says trust is rooted in management following words with
corresponding actions, but it’s also rooted in allowing employees
to take a sense of ownership in a company. In the case of Reliant,
Staff wanted his workers to have a voice in the turnaround.

“When all this started, we really had to step back and say, ‘Look,
these really aren’t bad people who can’t do their jobs. We have
some fundamental problems that we need to address,’” says Staff.

“I am reminded of Ben Franklin’s quote, ‘We must hang
together, or we will most assuredly hang separately.’ While
people here were really skeptical about whether we could get
this company turned around, they were really hungry to do

Even with all the positive steps Staff and his leadership had
taken, there was still a dark side to the turnaround. Reliant had
to lop about $300 million in costs from its books, and part of
that meant downsizing the work force by nearly 2,000 people.

At the end of 2002, Reliant employed 5,317. By the end of
2006, Reliant’s work force numbered 3,524.

Staff says it was the most difficult thing he had to do during
his time as CEO. But he says that frankness and a straightforward approach are the best paths to take.

In a situation where you have to do something negative, such
as laying people off, Staff says employees just want the truth.
They might be unhappy to hear the news, and you might take
some heat for it as the company leader, but sugarcoating the
news, or using ambiguous, noncommittal language, will only make
the problem worse.

At first, he says, you can’t really worry about morale because
nobody is going to take the news well.

“Trying to build morale during that time of layoffs, I don’t think
you’re going to be successful doing that,” he says. “My approach is
to be honest with people, let’s tell them what the time frame is, and
then let’s turn to talking about the future and the things people find
motivating. But while it’s going on, all you can do is build credibility by being honest with people.”

Lessons learned

Staff left Reliant’s CEO post in May, staying on as chairman, with
a rebuilt company reputation and a successful turnaround to his
credit. In fiscal year 2006, the company produced $10.8 billion in
revenue, and the stock has recovered much of the ground it lost.
The $7.8 billion in debt that saddled Reliant five years ago has been
pared down to about $3 billion, much of it slated to be paid off long

The company’s culture is much healthier, with well-established
lines of communication and the work force focused on a set of
well-defined goals that includes creating new revenue opportunities as opposed to simply attempting to capitalize on existing

But for Staff, a 30-year veteran of the oil services business who
came out of retirement to head Reliant, the past few years made a
profound impact on him in the form of new lessons learned and
old lessons reinforced.

The first lesson is that a company needs to have good discipline
in its process management.

“Being successful in the future meant building highly efficient,
customer-focused processes that are scalable,” Staff says.
“Scalable parts are important if you want to grow a business.”

The second is that the leader of a company will be called upon to
make tough decisions, and he or she must be willing to accept
accountability for the consequences.

“You have to stand for what you believe in,” he says.

The third is that a company is, at its heart, made up of people,
and every decision you make should be made with an eye toward
how it will affect your team.

“You have to treat every decision with the recognition that, every
day, in order to be successful, people really are going to make the
difference,” he says.

Staff says that aside from providing a paycheck, a company’s primary obligation to its employees is to give them a place to grow
professionally. Without that, your company can never be totally
healthy, and you will lose your best and brightest employees.

“I think that’s what really gets people excited and makes
them want to come to work every day,” he says. “People want
to make meaningful contributions, and they’re looking for the
three R’s of respect, recognition and reward. That helps provide a compelling future, and that’s really what gets people

HOW TO REACH: Reliant Energy Inc., www.reliant.com