In 1982, T.J. Rodgers founded Cypress Semiconductor Corporation. He established a unique set of management practices that were documented in his 1993 book No Excuses Management. Rodgers' focus on people, in particular in attracting and retaining top talent, was prescient.
Ten years have passed since he wrote his book. David Creelman spoke to Mr. Rodgers about his current views on HR management.
DC- Let's focus first on the foundations. What is your philosophy of business and how does it inform your management of people?
TJR- My theme for people management is simple, and is summed up in the statement, "I want to work with the best, the rest I don't care about."
I believe there is an innate need in human beings to create value. People want to make something worthwhile. The moral value of business is that it gives you a place where you can create value, take pride in having created the value, and share in the wealth that you are creating. This moral value of business is the framework in which we try to run the company and guide our HR policies.
This belief is what companies are about in free market capitalism. The word capitalism has been much abused but there is a moral foundation at its heart. We cannot lose sight of the innate need of human beings to create value. This is a very Randian view and it is the overarching philosophy of business and free market capitalism here in Silicon Valley. I believe one reason for the success and wealth of Silicon Valley is because it is a little island of true free market capitalism.
What people need and how companies must respond to that need are not profit imperatives, but moral imperatives. What is right is freedom, economic freedom and individual freedom. It turns out there is a direct correlation between freedom and wealth. The Fraser Institute in Canada publishes a yearly report on economic freedom in various countries. They evaluate countries on things like whether interest is controlled by the government or the market, are people allowed to immigrate and emigrate freely, and are people allowed to put money into foreign bank accounts. They produce a quantitative economic assessment to create an index of economic freedom.
When you look at per capita GDP, there is a correlation with the amount of economic freedom. Not only are those countries with the most economic freedom richer, they are getting rich faster than those with less economic freedom. In fact, those countries with the least economic freedom have a declining per capita GDP.
Freedom produces wealth and the freer you are the faster you get wealthy. The old saga of the rich getting richer is true. It is not true because there are special economic advantages in being wealthy, but because the lifestyle and mindset required to become wealthy allows that group to continue to accumulate wealth, whereas the lifestyle and mindset that makes people poor and oppressed keeps them oppressed.
DC- It's interesting to hear this. I had the impression that you were more Theory X, carrot-and-stick, rather than building on an innate human need for meaning.
TJR- One of the best business articles that I have ever read, was Frederick Herzberg's 1968 Harvard Business Review piece One More Time: How Do You Motivate Employees. In this article he explained why KITA ("kick in the ass") doesn't work.
Not only does negative KITA, the literal meaning of kick in the ass, not work but positive KITA like bonus programs doesn't work either. KITA programs don't work, never have worked and they are never going to work.
I recently had a discussion about bonus programs. We discussed the concept of setting objectives for the course, measuring if they are achieved, and then giving out bonuses as a fraction of achievement. That approach seems right, but never in my career have I seen a visceral attachment to that kind of bonus program. I have never seen highly motivated teams that had at the core of their motivation a reward program like that.
DC- How can you be very hard nosed without ending up as a Theory X, KITA kind of firm?
TJR- Some of the practices I describe in my book might be misconstrued as Theory X. I don't believe there is anything wrong with being nice to people. However, I don't believe that, for example, giving negative feedback is a Theory X practice. Giving appropriate negative feedback is really a Theory Y practice.
Let me illustrate this by talking about the real meaning of self- esteem. One thing you learn from Orwell's 1984 is that people never contradict by saying something with the opposite meaning, they contradict by changing the meaning of words to the opposite meaning. In my book, self-esteem means I have good self-worth: I know who I am and because I know who I am I can deal in a world of reality. So, for example, as a manager of a company, I can walk up to an employee with good self-esteem and I can say, "Your project is all screwed up." The employee knows I like him, knows I value him, and that I am not threatening his tenure, but he also knows he has screwed up. This employee responds, "Yeah you're right, the project is screwed up. Here is why that is and what I am going to do to fix it." I gave negative feedback, but it is positive with regards to self-esteem.
What I said to the person meant I know who you are, I value you as an intelligent independent thinker, I know you can tell me to get lost, walk down the street and get another job. I'm letting them know that I value them enough as a human being not to come in and say things that are nice while sneakily implying there is something wrong. I tell them straight up how I feel and therefore I am accepting them as another person of equal stature. I am not treating them like an employee who has to be coddled and handled in some sort of dishonest way.
Now compare that scenario to the bastardized version of self-esteem we hear all the time, which is that the government has to do this or that because people are stupid, weak and need to be propped up. We are told people are so dumb that we have to control the ads on television so they won't get mislead. We are told people are weak so we have to praise them to build up their self-esteem. We are told to always have a smiley face on because people can't handle criticism. That way of building self-esteem is anti-human and degrading.
What I oppose is the touchy feely nanny company. We are a hard ass company that gives negative feedback when negative feedback is warranted. We also tell people that they are doing a good job when they are.
DC- What do you think of the people management approach of a company like Southwest Airlines?
TJR- I don't know Herb Kelleher personally so I can only make superficial observations. Certainly the antics I saw on 60 Minutes were nauseating touchy feely exercises. I thought the president looked like a foolish cheerleader and demeaned his employees by assuming that silly antics can motivate them.
I cannot believe that in the brutal airline business, a company can exist without a feedback mechanism that reacts directly to negative news. If feedback doesn't contain some negative content then that feedback is being deliberately filtered by management to mislead employees. The ultimate example of that kind of hypocrisy is United Airlines. Just before declaring Chapter 11 they told employees everything was all right. All the feedback was positive, while they were running the ship right into an iceberg. This hypocrisy becomes very obvious when you walk into a room and say everybody is good, everybody is happy, everybody loves everybody else, and 30% of you are being laid off.
Southwest Airlines has succeeded in hard times despite the sugar- coated image they put out because underneath they must have had some way of addressing problems. They could not correct problems if they were not honest with their employees. If they don't have some way of telling a manager, "Hey you are not productive enough. It is costing us too much to move a passenger from Toledo to Chicago and you have to fix that." Then problems won't be corrected and I don't feel they can stay in business. I believe that Southwest Airlines probably has an honest healthy negative feedback mechanism that valued their employees while giving them honest data on underperformance. That's something that doesn't show in the PR image.
There is one other point about Southwest. They have a business model which has worked well and they don't have much bad news to deal with. They just live, at least for now, in a world that allows them to be mostly happy most of the time. Maybe they are living in a blessed world right now but in the long haul their competitors will successfully copy the model and they will have to brave the same issues as everybody else. The final test for Southwest Airlines is whether their culture will be able to stand up when they get beat up for the first time.
DC- Let's look at your specific practices for attracting and retaining talent.
TJR- I can convince people to come to the company, and retain people who are thinking about leaving the company because I truly believe that a company is the people.
I spend a lot of time hiring good people and keeping good people. I really invest my energy and time into it. I don't just talk about it at the company meeting. I convince somebody to join Cypress by talking about their value and their contribution. While we will offer somebody a small raise to come to the company, we deliberately avoid making compelling financial offers to anybody.
The only compelling financial lure is that we are strong believers in stock options. Every employee has a meaningful stock option and every employee with decent performance gets a new option every year. Importantly, the amount of options each year approximately equals what we give out when people join the corporation. We offer people an equity opportunity but they have to have a long-term. They have to want to join the team and put in the years that turns the equity into something meaningful. However, the main pitch is you can do something special and different. You can move to a new level.
For example, I recently spent an hour and half talking with a person we wanted to recruit who was three levels down from me in the organization. That gives you an idea of how much time I am willing to invest in attracting the right people. What I talked about was the technical challenge and how in her current position she was going nowhere. I spent an hour and a half with her on technical papers. She looked at me like she couldn't believe it, "This guy still reads The Journal Of Solid State Circuits!" I pointed out the things that we were working on that would challenge the state of art.
What did she want to do when she got up in the morning? Go to work on something that anybody in a hundred of companies could do? Then I pointed out to her that the philosophy in the company is that people are the value of the company. She was afraid that if her project failed, and I had submitted to her that there was a 50/50 chance of failure, she would be discarded. I said, "If you make an intelligent and energetic effort to make this technology work and it doesn't work then that's OK. I showed her four other major activities in the corporation that were state of the art and said, "Why would I go back on the street and try to hire someone that might be as good as you as opposed to keeping you here?"
I was offering the opportunity to go to work and feel like a valued, important person. At Cypress you can work on a problem that isn't even defined. You can work on a problem for which there is currently no answer and when you have answered the problem you will be recognized by people all over the world. What else would you like to do when you get up in the morning?
That is always my pitch. For people who latch onto that their motivation will be almost uniquely determined by the interest they have in what they are working on and the resources the company can provide to them to fulfill the basic human need to do something important and interesting and valuable.
DC- How do you hang on to your talent?
TJR- The method for turning people around who are planning to leave hasn't changed in my 20 years at Cypress. First I blow through the flimsy, "I have a job offer from Wedge Tech down the street for $20,000 more than I'm making here". The employee is hoping that I will just say, "Well gee all that money is pretty hard to turn down, we don't typically do counter offers so I will let you off the hook." However I don't buy that financial argument and I chuck it off the way a good linebacker shoves off a block in a few hundred milliseconds and then gets ready to make a tackle. I shuck off that financial argument because it is almost always not the real reason people leave. I say, "Assume the pay is the same, now tell me what is really wrong."
I may have to come at that question from several angles before they open up, but they eventually do. I usually find out that the company is not providing them with what they need for the work to be an important part of their life. You can work ten or twelve hours a day in Silicon Valley and if you are not excited about your work then you will burn out. Nobody ever burned out from hard work when they were excited about their project.
People who are not excited start taking the recruiter phone calls that they didn't take in the past. They know they are not happy and they know they want a change. Sooner or later they get a convenient, rational motivation for changing, more money, more stock, an exciting business plan or whatever. When we learn they are thinking of leaving I invite them into my office.
Our process for reacting when a valued employee wants to quit is our single most important HR practice.
DC- Can you take me through a specific example?
TJR- I have a vice-president who told me he had been approached by another firm and he wanted to talk to me about the offer before I was reacting to a fait accompli. In this case, the offer was for a much larger job, more value and therefore much higher pay and stock. The first thing I did was ask HR to do an equity study on all the vice- presidents. They concluded that Cypress had allowed a lot of the VPs and me to drift below their market value. I will never make a counter offer that isn't consistent with our equity standards. If I have to make a counter offer in an area which is inconsistent with equity I address the entire group. In this particular case I had to ask myself if I was willing to give every vice-president at Cypress Semiconductor Corporation a raise in order to maintain equity with this guy. I checked with the board and HR and got the go ahead and within a week. I fixed both the stock equity and salary problem which cancelled out the economic motivation.
We moved on to the next level where this guy says he likes me, he likes Cypress but still in his gut feels like moving. He analyzed why that was-and this is the point that many people move without having analyzed their internal motivation-and he said the reason is that while he'd moved up the ranks, he'd be doing the same thing for his entire career and was tired of it. He realized the reason he was thinking about going with the other company was because they were giving him a chance to run a business.
Now we understood that both he and the company had not been thinking hard enough about his career. The only way to fix that problem was to give him a satisfying job.
Unfortunately, good people headed all of my divisions so I didn't have a job for him. Now at that point you could probably try to use career path planning to tell the guy I can't fix it right now but if you give me a year it will be fixed. I felt that wasn't good enough. I called up one of my division managers, a guy who has been with the company for 16 years and said, "I need your job." He said, "Okay, what for?" I explained the problem and then I worked out a new job for him.
DC- How did the move turn out?
TJR- The VP turned out to be a very good business manager, and he's still working for us. The fundamental value pitch has to go back to the underlying philosophy of basic human needs to contribute, add value, be proud and happy with what you are doing. Everything else is spreadsheet crap, corporate trappings, it isn't the main issue.
DC- It's always interesting to see an HR practice that has really stood the test of time.
TJR- Of my fourteen VPs, eighty per cent have more than ten years tenure and at one point in their career more than half of them have tried to resign. I would have lost them had I not intervened to turn the situation around.
DC- Thanks for sharing these practices with our readers.