Leadership in Changing Times (CEO interviews) - Doug Hammond, Chairman & CEO, NFP

Hey Tariq, thanks for having me. It's an honor. I enjoyed my last talk with you in a live classroom, so I'm happy to be back. To me, in terms of the response, the pandemic felt a lot like the financial crisis. It came upon us pretty quickly, and we had to respond quickly. I think I was pretty lucky: my brother is married to a Chinese woman and he was in China in January of 2020, kind of giving me reports on what was happening there. So I had a little bit of a head start on what was going on and the magnitude of it, and was very keyed into it. The first thing I would say is, as a leader, cry and have all of your panic attacks in your bedroom closet before you go out and face your employees. You want to level set everyone, create a calm for people. You want to be deliberate in controlling fear and emotions, and prioritizing how you need to address what was totally unforeseeable and unknown, nothing that anyone had ever experienced in modern times. For us, the number one thing that we came out of as a management team thinking about response was the safety of our employees. So first and foremost, we need to stabilize the workforce, make sure that they feel that we support them, so that they can serve customers that are also in a state of uncertainty and somewhat panicked about what the impact to their business will be. We need to project control and calm as we deal with our customers. So we cancelled all conventions, meetings, sales meetings, everything in person, very early in March before many other companies did. That was really just benefiting from my experience listening to my brother who was in China. And then we transitioned — thanks to the investments that we made in technology and our back office infrastructure — we transitioned 6,000 employees remotely in a period of about two or three weeks. So we were able to give people a foundation of work in their homes, tell them that we would be flexible in how they dealt with their own issues, and just moved through the process. We created a Coronavirus Critical Response Team of the most competent leaders within our business to address in a very structured way different components of our business. We built resource platforms for our customers that were unrelated to our business — platforms on how to approach and apply for PPE and government opportunities to keep them afloat. We were worried about our customers going out of business and how that would impact our business; we needed to be there for them. We needed to differentiate ourselves, so we created a website populated with resources on how to access capital and other governmental measures. The third thing that we did was protect our balance sheet and our P&L. We stopped all discretionary spending including acquisitions — and we're an acquisition business. We hit the credit markets to build a war chest of capital. I thought there was going to be opportunity coming from other distressed companies, so we built up a war chest of over a billion dollars of capital on the company's accounts so that we would be prepared to address a long-term uncertainty but also pursue investment opportunities. The credit markets at that time were wide open and very receptive to us. At the same time, we began to assess risk at all levels within our business and then make business decisions around that risk. We segmented our business; we looked at areas where we had the most exposure: sports, retail, restaurants, hospitality, travel, transportation — and then we engaged our customers around those areas looking at exposures and how to address them. So really by focusing on those four components — the safety of our employees, calming the troops, getting them to serve our customers, creating resources for customers, building up capital, and evaluating the business areas of revenue exposure — we actually ended up coming out of the year with organic revenue growth. We grew our business at about five percent; this year we grew ten and a half percent organically. It was a pretty good year. We usually grow at about five percent, and during the worst stages of the pandemic we were able to grow by about two and a half percent. So a solid performance during the year, and I think we responded well. We won a lot of fans from our customers; they were grateful that we were there for them.

I haven't completely figured that out yet, to tell you the truth. I think the first thing you need to do is give it to your employees straight. Employees want to know when they are coming back to work and how they are coming back to work. And I think a lot of leaders have misstepped, as I see it, by being very absolute with respect to their expectations of their workforce. I think that's a lot of the reason why the government has gotten into problems. I don't think anybody's been straight enough with citizens or straight enough with employees about acknowledging the uncertainty associated with a moment in history that no one has ever experienced. So when you talk about leading remote employees, you do the best you can in the same way that you did it before. You communicate with them probably more frequently than you did in the past. You still try to create moments where it's safe for us to gather and safe for us to experience one another as people. And you still stay focused on what's most important to them instead of guessing what your employees need. Listen to them as much as possible, focus on where they are. Employees today are focused on child care if they have to come back to the office, elder care, risks relative to an immunocompromised person in their household, and demands of a workplace where they may have to go in under what they perceive as dangerous circumstances — whether justified or not, that's their perception. Employees are focused on their benefits, upward mobility, and why they should stay engaged with your business. So you still have to meet the employees in the same way that you met them in the past; you just have to focus on communicating your value proposition, your culture, what you believe in, your values — probably more than you did in the past because in a real environment as opposed to a virtual one, you're able to reinforce in real life what you stand for and why your company is a place where people want to work. When you're not in the office, you need to just communicate more and be more focused on meeting your employees where they are.

Eric and we hired a wonderful woman named Pamela Wheeler as our Chief Diversity Officer. She's pretty involved in all that stuff too, and very helpful to keep me aware of what's going on. So Pam's been great as well.

As I said before, we try to communicate our culture and our values on a regular basis in a public forum. When we think about acquisitions, we think about focusing on businesses that are profitable and we think will grow, but we also think as a threshold matter: what is the culture and what are the values of the business that we acquire? So we generally acquire businesses where the cultures and the values at a high level are not dissimilar to ours. But we dig in on those businesses and really try to understand what's most important to the employees, and we try to demonstrate to those employees where we are aligned and what is different. And if there are things that are different but that are really good that we didn't think of, then we absorb that component of their culture and make it part of our culture. We also don't try to quash what they're doing for their local communities by having a national agenda relative to what we think is really important from a community standpoint. We do have some national charities that we support and national initiatives particularly around diversity, equity, inclusion, and belonging initiatives, but there's tons of stuff happening that the acquisitions keep. I think they like that about NFP; that's part of our culture that we accept what's important to them as well. As far as doing that in a remote environment, as soon as there's a window and the positivity rates are low enough, I'm on a plane and go out to meet the acquisitions and the employees and talk to them. Thankfully that's more often now than it had been over the course of the past month or so. But we still get out there and just try to overcommunicate. I don't really know any other way to do it. I have a philosophy of overcommunication on these points. Part of the agenda in a remote environment is for me to constantly emphasize with the people that work with me that overcommunication is necessary, probably more necessary in an environment like this. And then we continue to create opportunities where our employees gather in safe conditions. For the first time in two years, we are doing a 1,000 person annual summit meeting in March in Austin, Texas. We haven't done that in two years. We try to create an intimate gathering where people can experience the business. We emphasize that new employees join those types of events so they can experience the business and what we're all about. You've got to leverage technology in a more effective way than we have in the past. Forums like this are really helpful in terms of being able to see people's emotions and faces. We're getting more and more used to those things. So it's figured out in some respects as you go along; I don't have a playbook for it other than some of the things we've been talking about.

I would say, before your future leader, you're an employee and you're probably a bit of a follower. If you're working for a rigid leader or a command and control leader, then find another job. You should be as discerning about your employer as about just about anything else professionally. I think being a command and control leader and being a rigid, structured, micromanaging leader is absolutely dead. The world is changing far too rapidly. There's your book and there's a great book by Stanley McChrystal called 'Team of Teams' which is about adaptive leadership and gives a whole bunch of great examples and illustrations. It's a fun read about how the complex, dynamic world that we live in requires pivoting. It's really about the death of long-term strategic planning. That's not to say that we don't think about the future, set a mission around where we want to go and the business that we want to be in, not to say that we don't have a robust business planning process that occurs every year and thinks about the next three years and focuses specifically on the next year. But things happen every single day in our business that require a pivot from what was planned, and if you're not able to deal with that, then you're not going to be successful. And if leaders are not willing to empower smart people to execute to their own judgment within the context of a broader mission, then the business will fail.

I'm an optimistic person but I've got a lot of pessimism in me, and a fair dose of paranoia. So when things are going exceptionally well, I just always think that things can't continue on this way and we need to be prepared for something unforeseen. We always pressure test our business and say, 'What if our revenues went down 5, 10, 15, 20 percent? How would we respond? What are the levers of the business for us to pull in order to be ready to quickly pivot to a more conservative model?' The things I talked about in response to your first question — what are our cash balances, what's our cash burn, what can we stop burning from a cash perspective, how do we protect our balance sheet, how do we reduce and how do we protect our balance sheet how do we reduce?

We relied on all of our prior pressure testing to execute on things very quickly during the pandemic. We needed crisis management in the moment and pressure testing based on new factors. We stepped back and said, okay, we know the things we know from our prior activities, now we have to think about the impact on our business. To understand that, we needed to understand the impact on our customers. So first we looked at which sectors of the economy would be impacted most. We have a very large sports business — NHL, Major League Baseball, some of the MBAs, NFL, NCAA, TPA — all big customers. Sports spectator sports got crushed during the pandemic. We also looked at restaurants, hospitality, travel, transportation. We assessed our exposure to those sectors and made business decisions to protect the company. Then we realized the impact of COVID swept across different zip codes at different times, so we partnered with Boston Consulting Group to build a model that gave us an understanding down to zip codes, based on hospital activity data, of which areas of our business would be shut down most. We were able to manage risk on a zip code basis as well as by sector. My advice is to step back, think about the type of information you need to make smart decisions, and execute quickly. Leaders make decisions with difficult answers, often unknown. The higher the title, the more difficult the decisions. With a good governance model, decisions that can be made at a different level shouldn't come to you. It's important to weigh facts, have access to good data, make decisions, send your workforce off to address it, monitor results, and if you've made the wrong decision, pull back and make another until you find the right path.

I'll address it in parts. Regarding loyalty and the great resignation, I was not a particularly loyal employee before I found the right job at a place where I thought I would have more opportunity and where I enjoyed the people. I bounced around quite a bit looking for opportunities. I think looking for more opportunity and a better workplace is smart, whether during a pandemic or not. Staying somewhere you don't like or that doesn't satisfy your career or lifestyle objectives is not a smart move. Employers owe it to you to create an environment that responds to your needs. If managers aren't providing professional development and engaging with employees, they aren't doing their job. You have to do what's best for you, and the employers that win are those that create a great workplace. Promoting from within is part of it. When you say you prefer to promote from within, you're saying loyalty and performance are rewarded. Managers are sometimes reluctant because they think they can find a more perfect fit externally. I've always believed nobody should be ready for a promotion; you need employees excited to learn the extra 15 or 20 percent. It ups the game. I started in legal, moved to compliance, became head of strategy, COO, worked in acquisitions — I never had all the goods to do the job, but it was fun to learn more. Promoting from within creates an environment where people are excited about opportunity. My philosophy has evolved; as our business has gotten more complex, skill sets sometimes don't exist internally, so we have hired more from the outside to bring in new perspectives. But I hope 75 percent of promotion opportunities come from inside the company.

I think communication and honesty. I witnessed a lot of executives saying everybody's back to the office on this day or else, which damaged credibility and wasn't honest. Starting from a place of 'this is something I've never experienced, I'm going to do my best but some decisions will be wrong, bear with us, we're here to listen' — that went a long way in keeping the workforce stable. We also ramped up employee assistance for mental health issues. Over-communication on a regular basis and honesty are more important than anything else. The tactical stuff — evaluating cash flow, business impact, getting capital — that's the meat and potatoes of being a smart business person. The harder part is the softer side: engaging your workforce with humility, compassion, and honesty. You can't buffalo people when they're balancing a baby in the background, home school, and health fears. I have a 91-year-old mom who lives down the block, and I'm her primary caretaker. Talking about that with employees humanizes the situation. We saw employees logging in at 9 p.m. after putting kids to bed. You need to accept and celebrate that. The softer side of addressing what came out of the pandemic was a unique characteristic that helped us.

I go out of my way to do that. I was the third or fourth employee at NFP back in 1999, so it was easy to know everyone then. The biggest risk to our company is scale and getting bigger because it's harder to engage and connect with employees. I go out of my way at employee functions to sit at a table where I don't know anybody and ask questions. I reach out on a regular basis to employees who connect with me through social media. We have an internal social media platform called Workplace, where I'm pretty engaged. If I see something interesting, I pick up the phone and call the employee directly. I try to make sure it's okay for employees to email me or ask questions. Sometimes I do feel isolated and frustrated when I can't meet folks personally. That's the gasoline or solar power for me. I get my best ideas from the field — sitting down with people and asking about pain points, technologies they're using, what competitors are doing, lost opportunities, where we're falling down. I try to call out questions and responses that help people engage and let them know it's okay to tell me stuff that's not good. I still get surprised when employees are nervous talking to me; that's not what I want. I want people to feel comfortable.

In my business, there are generally no absolutes. I don't mind a hybrid work environment. We're mapping it out: about 20 percent of our workforce will be mostly remote, 40 percent want some office exposure (two to three days), and another 20 to 25 percent want to be in the office full-time because they live in a city with a small apartment and young kids. We've begun designing all our new offices around a different type of work environment that supports a hybrid lifestyle. There are some businesses within NFP, like call centers, where being in the office is more important and we're more rigid; we have lost some employees because of that. But where we can be flexible, we accommodate. Managers need to be more proactive in assessing performance rather than restricting employees to an environment where they have to be seen. I used to work at law firms where senior partners walked the halls to see who was in early or late. I thought that was stupid because I would go home to see my kids, put them to bed, and then work until midnight. Optics of being in the office aren't that important. Also, with diversity, equity, inclusion, and belonging, a lot of promotion bias comes from hanging out with supervisors. A hybrid environment can create a more objective performance metric. It's good to develop relationships, but I think creating a consistent metric around evaluation could be a real positive for DEIB initiatives. Hybrid is here to stay. If I told everyone they had to be back in the office in two months, half my workforce would walk out the door. You have to trust that most people are highly responsible and will get their work done. If someone is abusing it, you manage that. So you just have to get better at managing and observing performance remotely.

Thank you.