Trust, transparency, and accountability: Strategy insights from Battelle’s president and CEO

In this podcast, Heidrick & Struggles’ Chad Carr speaks with Lou Von Thaer, president and CEO of Battelle, a global research and development organization committed to science and technology for the greater good. Thaer shares his experiences driving a restructuring and a complete cultural transformation, focusing on trust, transparency, and accountability. He emphasizes the importance of showing vulnerability as a leader to set a good example and to build a common language that will bring your teams together, especially in unprecedented times.

Some questions answered in this episode include the following:

• (1:03) You’ve been the driving force of a complete culture transformation at Battelle. Can you help us understand how and why your mission-first journey began?
• (7:26) What have been some of the culture’s strengths you've been able to carry through to help you pivot and adapt to this new world of COVID-19?
• (9:07) How do you see vulnerability and leveraging it to help drive change in the organization?
• (10:50) You mentioned that a lot of the smart folks at Battelle are starting to align. How do you know that? What are you seeing? How does it feel different than when you were getting started?
• (18:14) If you were going to give some advice to a leader who’s starting a culture transformation, what would you share with them to help them drive this process through their organization?

Below is a full transcript of the episode, which has been edited for clarity.

Welcome to the Heidrick & Struggles Leadership Podcast, the premier provider of leadership consulting, culture shaping, and senior-level executive search services. Every day, we’re privileged to talk with fascinating people who are shaping the future through their leadership and vision. In each episode, you’ll hear a different perspective from thought leaders and innovators. Thanks for listening to the Heidrick & Struggles Leadership Podcast.

Chad Carr: Hi, I'm Chad Carr, partner at Heidrick & Struggles and member of Heidrick Consulting. In today’s podcast, I'm speaking to Lou Von Thaer, president and CEO of Battelle, a global research and development organization committed to science and technology for the greater good. Lou became president and CEO of Battelle in October of 2017. Through his innovative leadership, the company has continued to grow into the world’s largest independent nonprofit research and development organization, with more than 30,000 employees. Lou, welcome, and thank you for taking the time to speak with us today.

Lou Von Thaer: Thanks Chad, it’s great to be here.

Chad Carr: Lou, you've been the driving force of a complete culture transformation at Battelle. Can you help us understand how and why your mission-first journey began?

Lou Von Thaer: Yes, Chad, and, if you'll bear with me, I think it’s worth going into a little bit of detail. This is the third turnaround I've been part of in my career and they're all different—the people are different and the situations are never the same. But Battelle is a great organization. It has a long history—this is our 92nd year—and it has been a wonderful, innovative organization, it invented the Xerox machines, CD-ROMs, and lots of other things over its history. But it had never recovered from the recession in 2008. It was on a down note and it lost a lot of its mojo. When I came in, what I really found was we were an organization that was doing primarily support services for others’ innovations instead of doing our own. And it was doing a lot of that work at less than what it cost and, as a result, the company was bleeding about a hundred million dollars a year. Since 2008, they'd used up two-thirds of their equity and if we’d continued on the same path, we’d have probably been bankrupt. We had about three or four years left of running the race.

So, we knew we had to make some changes and that was part of why the board brought me on in the first place. What we found underneath was that we still had a great technology depth of people in the organization: great researchers and scientists, and a lot of good work was still being done, just maybe not marketed well, maybe not getting to the right customer and the right spaces. So, we knew—and I very quickly got my head around the fact—that we wanted to get back to being a technology creator, a disruptor in our market spaces. We wanted to focus, instead of doing anything for a buck. We wanted to get back to the places we were strong, which turned out to be chemistry, biology, and advanced materials. And then we needed some new market skills. So, in the first quarter at the job, the leadership team and I changed out about a third of the leadership team. We got some of the right skills that could help us address new market and, in the second quarter, we went through a restructuring. We benchmarked where we were relative to competitors and the places we wanted to be in the market and made structural changes.

But, like I said, I've done this for a while now; I've lived in organizations that had great cultures and I've lived in organizations that had terrible cultures. And I think it was Peter Drucker that first said it: culture eats strategy for breakfast. And I’ve always found that to be very true, so I knew we had to address the culture of the organization as well. When we really looked at what was happening, we found that there was very little transparency. There was a lot of fear that had run around throughout the downturn in the organization—a lot of fear, a lack of transparency, and people weren't really being honest with each other, so it was hard to figure out where the problems were. People were trying to protect their own skin, and it’s understandable. But we had to get back to driving accountability and be able to really understand where we were at, and get back to incentivizing and driving innovation. To do that, we had to go after the culture. So, we talked to a number of folks and we ended up talking to you and Larry with Senn Delaney and set down that path. And that's what got us started down what's been a very successful road for us.

Chad Carr: One of the things we talked about as we began this work with you was this idea of ‘shadow the leader.’ How have you leveraged that concept to help drive some of this change inside of Battelle?

Lou Von Thaer: That was a concept that really resonated with me. It’s funny, I hadn't used that terminology before, but I had developed my own terminology in my head over the years. I would tell people, listen to what I say but watch what I do, and watch what we do in the organization. See and know just how important it is to make this kind of change, make this kind of investment in an organization. If the CEO is not the biggest cheerleader, you might as well stop. You're wasting your time. I wanted to be the one who set the standard, who built this; I wanted people to understand that for us to be successful, we had to be the fastest, most nimble company in our industry, and to do that, we had to be honest with each other. We had to be accountable and we had to be able to share problems and not be afraid of getting killed or thrown under the bus. There's an old saying in the military, where I spent a lot of my career, that you always want to be able to operate inside your competitor’s decision loop, and I think that's true whether you're a boxer, a company—anything—if you can make faster decisions and see accurately where you are in the space and not kid yourself, you can adjust and adapt better. To do that, I think the CEO’s got to be front and center. So, for us, we committed to training every person in the organization. Chad, you've been involved in a number of these. My leadership team and I have spent, I think, five full, two-day sessions together in the first year or 14 months of this. So, we haven’t just gone through the training together—we're using it in every part of how we develop our strategies, debates, and how we then take things and roll them out to the rest of the organization. This is the biggest investment I've made in my three years at Battelle. We've done a number of other big things but this is the one that I think is most important and the one that I've tried to make sure people see my face on, so they know we're serious about it.

Chad Carr: When we came back from the first session to make some commitments around how you and your team wanted to be even more effective as leaders, one of the first things I noticed when walked into your executive suite was it blown up on your door and signed. I have never seen that before. What was the thinking behind that and how have you seen others react it?

Lou Von Thaer: Well, I came from an organization that was a great company and there were good people there, but there wasn't a lot of trust and we had to build that trust. I was a new person and most people didn't know me yet, so I wanted to be very transparent and I've tried to always do that in my career. I've learned that it’s harder to build a company while being transparent but it’s a lot more effective and, in the end, I think, much more successful. So, I try to lead by being as transparent as I can be, and I think it sets other people at ease. It's let them know that they can have these discussions, they can share when issues aren't working, and they can actually demand that we talk about issues that aren't working rather than just wait quietly in their corner to see if that thing pops up or not. So, it’s really helped us.

And I know you want to ask about COVID-19 and what's happened since then, but I think we were really lucky that we got a year and a half of this work under our belt before the pandemic hit because I think we’d have been in a very different situation if that hadn't been the case.

Chad Carr: What have been some of the things you've noticed about the organization—some of the strengths that you've been able to carry through in the culture to help you pivot and adapt to this new world of COVID-19?

Lou Von Thaer: We have accountability ladder signs all over the building. Early on, when I went around to talk to every program in the company and review what was going on, what I mostly heard was why it wasn't successful and why it was somebody else’s fault. Our dialogue very quickly changed to what each person had to do to make it successful, what they were missing, and what they needed from others. And people started working better as teams; we became more proactive.

The other thing we did is net restructuring: we actually took three layers out of the organization. Battelle—which is a decent-sized company—we're a little over $9 billion this year; we've almost doubled in the last three years, but we had more layers than Boeing does and decided that was a little bit too much bureaucracy, a little bit too slow in communications. So, by taking those layers out, we forced people to communicate quicker, people became too busy to play the game of trying to hide behind things and see if somebody else would fix their problem for them. The teams responded very well, and I think it’s built an environment in which people like to come to work, people can have much more control over their careers, and they can be successful.

Battelle has a long-term incentive plan and in the 10 years before I got there, it was a three-year plan and you had to hit half the plan to be able to get a payout. The company hadn't done a payout in a decade. Our team is doing very well these days with those payouts, so I think folks are successful, they can be proud of that, and they're also getting the rewards that go along with that as well. So, there's a lot of drivers that all align toward making this work.

Chad Carr: When you think about sharing what you're working on as a leader in the organization, there's some sense of vulnerability there. I know a lot of CEOs that’ll be listening to this will be thinking, well, I don't know if I want to share what I'm working on with the organization, I'm trying to be the visible leader here. How do you see vulnerability and leveraging it to help drive change in the organization?

Lou Von Thaer: I think it’s very important. I've had a pretty broad career. I've been doing this for pushing 40 years and I've probably made every mistake you can make, but those are the things that have taught me along the way. So, I think to help our folks learn that that's OK. To make mistakes quickly and learn and adjust and adapt, that's what successful organizations do. In fact, I came in handing out books to people and doing other things, just to help them read about others who had gone through the process of learning quickly and then changing and not being settled on 20-year research projects, because that's just not the way the world works anymore today. And it’s been exciting because as I always say, it’s good to hire the A students because they can really do great work when you get everybody aligned.

I’ve done three turnarounds, as I mentioned. For two of them, we did this kind of culture work. I did it with a different organization last time. Both were very successful, but this group at Battelle, the people have just done great, our culture surveys have improved double-digits in each of the first two years in every category. We've put a lot of work into it but I think our people have been open and willing and receptive and are making it better and helping us improve. I had ideas and they made them better and then told me where I was dumb. And we continue to adjust, and the output’s just been great. There's been a real team effort up and down the organization.

Chad Carr: Let’s talk a little bit about that output. You mentioned that a lot of the folks at Battelle are really bright folks and are starting to align. How do you know that? What are you seeing, what are you feeling? How does it feel different than when you were getting started?

Lou Von Thaer: We set out using your terminology, blue chips. We set out five areas that we knew we wanted to improve and one of them was becoming an employer of choice. We’re using the cultural surveys in our diversity metrics as ways to drive those improvements. We can see year-over-year double-digit improvements in those areas as we measure those outputs. We wanted to drive innovation. We were down to where we were only applying for a couple dozen patents per year. We applied for, I think, 120 last year, and the idea, that process, starts for us in what's called an IPDR. It's basically the disclosure an engineer does when they have the idea but we haven't yet gone through all the processing and decided if we wanted to invest in the idea and actually go after the patent or not. And we've taken those from the low hundreds per year to over 400 in that last two years. So, we've just been able to turn up the spirit of the organization and great ideas are popping out and it's rolled down to our financials as well. The financials are always the last thing to come through, but we've seen them turn very rapidly, probably two years ahead of what I thought would have been possible coming into the organization.

Chad Carr: If you were going to start this over again, go back a couple of years and start on this journey again, what have you learned that you would share with others that you'd want to do differently or make sure you paid attention to?

Lou Von Thaer: The good news is, I think I got it mostly right this time. I would say that understanding the starting position is one of the harder things when you come into a new organization. Because of the lack of trust and transparency, what's there on the surface isn't always what's really going on. And I could have probably gotten to it a little bit quicker, I think, as I've continued to learn. And I tend to have pretty loyal people that work with me, so, as a result, I tend to be slow to change people out. I've had one or two leaders that I decided to give a year or so because I thought they had the potential, and I was wrong in one case and had to make a change and that cost us some time. But, all in all, comparing this to the first time I did this, it was about 12 years ago and it was successful, but boy, it was a much harder grind than it’s been this time, and I think my experience of doing it a few times has helped me avoid some of those pitfalls I fell into in past cycles.

Chad Carr: How have you been able to leverage your mission-first culture to help you pivot and be successful during the pandemic?

Lou Von Thaer: It’s probably been one of the nicest stories of my career, to watch how our teams adapted. Once we gave them these tools, we had the common language to use. We saw finances beginning to get better already, and our balance sheet was stronger when the pandemic hit. Back in about mid-January, there was a day when Singapore went from one or two cases of COVID-19 to a hundred. It was in the news, and I sat down with my team that day and said OK, the same number of Chinese visitors come to the United States as Singapore every year; it’s coming here. And, of course, we know a lot more now than we did then. Some people might have thought this wouldn't have been as bad—we had no way to know. But I turned to our team leaders and asked what we could do to help. We’re good at chemistry and biology, we play in some of the areas that are relevant to fighting diseases—we work on vaccines, we do these things. So, I challenged my team and I basically said, don't worry about money, we’re figure that out later on. Let's figure out how we're going to help the world. And the most remarkable thing happened: our entire team went to hundred-hour work weeks almost immediately and, within a week, we came up with an idea based on a study we'd done a few years ago to clean masks, clean N95 masks. We have a few people who were tied to some of the hospitals here in town, have a few people that have spouses that work at them, and it was obvious that there was going to be a massive shortage of these things. The need was going to go up 10 times and most of these things came from China, where the virus was already starting to rage. We had proven a technology that could clean masks, but it had never been done at scale. But suddenly, the country needed hundreds of thousands or millions more of these masks. So, within nine days our team built a full system in 10-by-20 trailers, outfitted it, proved it in, and submitted it for an emergency-use approval to the FDA. The FDA, within about eight or nine more days, gave us the emergency-use approval and then the government, within about five days after that, gave us a contract.

So, we went into something that would have taken three or four years under normal cycles and normal government rules, and within three or four weeks, we were up and running. And, over the next three weeks, we built 60 of these systems and each system was eight ISO vans. We've done more than 3.7 million masks now, and the manufacturing supply chain is starting to catch up so we're starting to wind the system down. We've been working with the DLA and NIH, but it helped fill a gap that the nation really needed filled at the time—Battelle was able to make a difference.

In parallel, there was a standard test that was being used for COVID-19 and the world was already running out of reagents for that test—that was even before the virus got out of China. So, our team developed a very similar test using slightly different agents and slightly different equipment to get around those shortfalls and again, within about a month, we got that test up, got it proven in. We partnered with Ohio State Wexner Center and ripped equipment out of our laboratories and put them in with their folks, and I think we've run about a third of a million COVID tests for the state now, and now we're running them for our own employees to keep our labs open. And if an employee has a family member, a kid coming back from college, for example, they can come and get tests. And we now have a saliva test as well that's just as accurate, that still does the PCR.

Our teams worked with about 10 of the vaccine companies doing vaccine development in various forms and stages, including a couple of the vaccines you're hearing about on the news all the time. We've played a great part in that by supporting and being able to do the safety and efficacy parts, and we're probably in the middle of a dozen or so research contracts to help the government and help the world understand what’s happening with this virus, what it’s doing with our DNA, and how these things are affecting our bodies.

And finally, one of the most fun pieces that we've been able to make a difference with was when the president of the library here in town gave me a call. He asked, how do we run a library? What happens? Are our books contaminated? Can you use them anymore? I said, I don't know. So, he actually pulled together a consortium of libraries and museums from around the country and we’re doing a six-phase study—I think we're about five phases through now—to help them understand everything from paper books to plastic materials to CDs to museum pieces and what kind of quarantines they need and what kinds of cleaning needs to be done so they can go back to work and operate effectively. Three years ago, if this had happened, we would have had some of these ideas, not all of them, and I think we would have struggled to execute on any of them. I think we would have had the idea but I think with our inability to take a risk or our unwillingness for people to take risks, we probably couldn't have made the impact that the company’s been able to make. Our people, from top to bottom, have just stepped up and, if anything, they've worked more hours in the last year than they've ever worked in their lives. It’s just been remarkable. I'm so proud of them.

Chad Carr: If you were going to give some advice to a leader who’s starting a culture transformation, what would you share with them to help them drive this process through their organization?

Lou Von Thaer: First, it’s really hard. Culture is hard. It sounds like everything went great for us, but we had—and Chad, you were in some of them—we had gut-wrenching, tears, fights—we went through lots of hard things bringing this team together, getting human beings to meld and come together for a common purpose. You have to understand that you're going to have to go through that at some level along the way, that if you don't, you're probably not really changing your culture and you're just doing the surface. Lots of companies only do the surface clean, as I call it, and very few of them get the results they're hoping for.

A second piece of advice is that simplicity matters. For these things to work, you have to train your whole company. The first time I did this, I worked with one of the big consulting companies and they did a great job, but it was kind of more like preparing for a Harvard Business Case review. The concepts were a little harder and it was tough to get it to stick in the organization, and it took a lot longer because of that. Chad, I've told you this: the greatest compliment I think I can give the Hendrick & Struggles and Delaney system is that it’s got those things you learn in kindergarten and forgot. It’s very elegant; people can see it, it’s easy to remember and easy to use, and I think that's really valuable because equally important to the actions it provides are the fact that it gives us a common language. If somebody's being a jerk in a meeting, you can walk out now and instead of calling them a jerk, you could ask, what was your shadow of the leader like? And everybody knows what you're talking about. It provides a constructive way for us to talk about that.

And then, the last thing I’d say is that the CEO’s got to be in on it. I mentioned it before, if the CEO isn’t the biggest cheerleader, don't bother. Don't let one of your divisions go out and do it on their own, you're just going to waste your money. But if you're willing to do those things and put the work in, I think it's very, very doable and possible. It's just a matter of commitment, like most things, and you have to be willing to do the hard work.

Chad Carr: You mentioned purpose. One of the most inspiring things I got to experience in this process was learning about mission first. Can you talk a little bit about mission first, what it means to you and how it’s been helpful for you as you rally the troops?

Lou Von Thaer: Battelle’s a unique organization; it’s the first nonprofit I've ever worked for, and we are a nonprofit but I think of it this way: we don't take donations, we compete for every penny we get; we compete against for-profit companies. But then, instead of paying dividends, instead of paying shareholders, we give that money away. And we have a mission defined around that. The focus is primarily around STEM education, to help teach the next generation, particularly in communities of economic disadvantage. The company is on a path to try to get to a million kids a year and really make a big difference. Because of that mission, while everybody needs to be paid fairly, money is not the most important thing. I took a pay cut to come here. I’m still treated very well but I gave up the stock options and the percent ownership of the company from my past deals and all that, and so did many others that came here. It’s really important for us to rally around our mission. We chose to brand this program mission first, and it really aligns on everything we do, creating resources to execute that mission. And that mission impacts lives in our communities and around the country and around the world. It’s something our team constantly rallies around, it gives everyone a sense of good, a sense of fulfilment. So, whether you're the inventor who’s going to get 20 patents this year with the breakthrough that's going to cure cancer or whether you're the person who’s making the accounting system work 5 percent more effectively, we can all align around the value our work is bringing to execute this mission.

I, myself, am a first-generation college graduate out of my family. That degree changed my life in ways I could have never imagined at the time. We want to give that opportunity to a lot more kids and our whole company rallies around that. It puts that sense of purpose in everything that we do.

Chad Carr: Lou, thank you so much for taking the time to speak with us today and sharing this advice with other leaders who’ll be approaching the same sorts of issues.

Lou Von Thaer: Chad, really my pleasure. And it’s been a pleasure working with you and the whole Heidrick team. I want to continue doing it for years to come.

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