This action might not be possible to undo. Are you sure you want to continue?
A CEO tells what to do when it happensand how to keep it from happening.
By T.J. Rodgers, William Taylor, and Rick Foreman
ith people, as with most things in business, the best defense is a good offense. A company keeps its most valuable people by treating them fairly, rewarding their performance, and creating opportunities for them to do important work. But there comes a time when every company simply must play defense: A startup is determined to steal one of your top salesmen. or a big company is launching a new product and wants three of your best young engineers. When it's time to play defense, and you have a good case to make, systems can improve your chances of winning.
Two major systems help Cypress Semiconductor Corp. guard against raids from the outside. One is designed to seal off the company from headhunters. The other is designed to win reversals when a valued employee decides to leave Cypress. Without these systems there's no question our com-
pany would have lost some of its best people.
In any company the first line of defense against headhunters is the support staff. That's because the first "barrier to entry" for headhunters trying to steal good people is finding out who they are. The names and titles of our vice presidents are public information; they're listed in our annual reports. The names and titles of all other people are confidential.
Headhunters cleverly manipulate the good intentions of
. support staff to obtain this valuable information. Theil' job is to say whatever it takes to obtain the roster of a department or the names of the members of a new-product team. Our job is to make their job as tough as possible, even impossible.
Our defenses against headhunters begin with something as simple as the telephone book. We treat the Cypress telephone directory as a highly proprietary document. On every page of every company phone book, stamped in bright red, is the following warning:
CONFIDENTIAL. Not to be reproduced. Not to be taken off Cypress premises. This information is proprietary (a Cypress. This stamp is in red. If it is in black, return it (a your departmental secretary immediately!
Then "headhunter control" takes over. We like to test
TJ. RODGERS is CEO of Cypress Semiconductor Corp. in San Jose. Calif. WILLIAM TA YLOR is a former associate editor of Harvard Business Review. RICK FOREMAN is director of strategic systems
and administration at Cypress. This article is adapted from their book NoExcuses Management: Proven Systems/or Starting Fast. Growing Quickly. and Surviving Hard Times (Doubleday Currency).
ACROSS THE BOARD· October t993
how good we are at protecting our borders. Twice in the last few years I've asked a "friendly" headhunter to penetrate Cypress. Both times the firm reported back that we were one of the toughest companies it had come up against.
Of course, it's impossible to completely seal off any company from raids by the competition. Top-quality employees always are receiving job offers. How you react to those offers-how quickly and effectively you make the case for staying with the company-<letermines how many people you keep or lose.
Five years ago, after a frustrating week in which I was called in at the very last minute to save two key people, I wrote a memo that articulated how our managers should
fight to retain valued employees who quit. Intel Corp. inspired much of our approach; for many years its system for retaining key people was a model for doing it right. We modified and added to the Intel principles and developed a system whose batting average has been about .500. This is an excellent turnaround figure that makes our rivals' recruitment jobs exactly twice as hard as they expected-a great reason to recruit elsewhere.
Here's the memo. It speaks for itself. Our biggest headache is getting people to follow the procedures. Every year or so we make another set of copies of the memo, distribute them to our vice presidents and top managers, and remind them how we are supposed to do things.
I have not been called upon to save a valued employee for quite some time. Last week, I became involved in two such instances, both successful, but my job was made much more difficult by our not following the fundamental principles of what to do when an employee quits.
Cypress Semiconductor Corp. Internal Correspondence DATE: Feb. 24, 1988
TITLE: What to Do When a Valued Employee QUits TO: VPs, Mgrs
AUTHOR: T.J. Rodgers
AUTHOR FILE #: TJR-211, Rev. A SUBJECT: Administration DISTRIBUTION:
I realized that I never have stated formally what our policy is concerning resignations. Here it is:
1) React immediately (within five minutes). There is nothing more important to do than to react immediately to an employee who has quit (presuming the employee is one who we are intent upon keeping). The next activity you have scheduled should be canceled; any delay (such as, "I'll talk to you after our staff meeting") is unacceptable. There are two purposes for reacting with a sense of urgency. First, it demonstrates to the employee that he does take precedence over daily activities, and second, it gives you the greatest chance of changing the employee's mind before an irreversible decision has been made.
2) Keep the resignation secret. To the greatest extent possible, you should prevent the knowledge of a resignationrrom being publicly disclosed. Keeping the resignation absolutely under wraps is important for both parties. For the employee, it removes a major barrier to changing his mind ill staying with the company, that of appearing to vacillate on a major decision. Once the employee's ego gets attached to a decision, right or wrong, he is very unlikely to change course. If other employees are unaware that a resignation has occurred, the employee who has resigned does not face the embarrassment of a public reversal. The company also is given more latitude when a public announcement has not been made. When I managed to convince one employee to remain at Cypress, there were multiple rumors (all untrue) that the company changed his mind by "buying him back." The company does not negotiate the salaries of employees who have resigned. In addition to the obvious conclusion that management should never disseminate information
October 1993 • ACROSS THE BOARD
6) Use all the horsepower at your disposal to win. With a carefully constructed strategy in place, we can then proceed to win back the employee. The employee first got the message that quitting was a
about a resignation, management should also do everything possible to prevent the employee from doing so. Usually, the best way to convince an employee not to disseminate resignation information is to state the arguments given above: that the employee limits his own flexibility for the future and may unwittingly damage his reputation if he decides to stay.
3) Tell your boss immediately. When an employee resigns, I expect instantaneous communication all the way up through the chain of command to me. I expect that communication to happen within an hour of the time a resignation is received. I will consider management to have done a poor job if any resignation takes more than that time to get to my attention. I can be interrupted in meetings, called out of meetings in outside locations, or called at home (I am listed in the telephone directory). There is no excuse for not informing me (and everyone in the chain of command between the individual and me) immediately when a resignation occurs.
4) Listen carefully to the employee. Once a resignation has occurred and the proper people have been informed, the manager of the individual involved and his VP should sit down and talk to 'the employee, listening very carefully to ascertain the exact reasons for the resignation. Any attempt to retain the employee will be impaired severely unless management listens to exactly what the employee has to say and accepts it. The message from the employee should be transmitted up through the chain of command without any changes, even if it is unflattering to the manager involved. (For example, "I quit because I do not like working for you." Perhaps the company can find useful employment for a valued employee working in another group.) An exact determination should be made of what the employee's options are at the other company. Is the employee looking at a better job, more money, slower pace, faster pace, or a fundamental change in career? These issues obviously will be key in formulating an argument to change the employee's mind.
5) Construct your arguments. Once accurate data have been gathered, you and your VP should sit down and put together a plan to convince the employee to stay, if that is possible. In some cases, a realistic assessment of the situation will dictate that you not try to keep the employee. When Russ Winslow quit Cypress to start his own company, the only reaction that made sense was to wish him good luck. Ninety percent of the. time, however, a good argument can be made that it is in the employee's best interest to stay at Cypress. The only possible effective argument to retain an employee is one that validly claims that the employee's best interests are served by staying at Cypress. Typically, an employee will have quit for two simultaneous reasons: a "push" of some sort having to do with longstanding frustrations at Cypress, and a "pull" from another company at which the "grass appears to be greener." A successful retention argument will expose the advantages perceived for the other company as unrealistic, as well as offering a real solution to some of the problems that caused the employee to consider leaving in the first place. Once you and your VP have formulated your first-cut employee-retention arguments, I should become involved to help set the overall strategy. This strategy should be defined and refined the very day the employee resigns.
ACROSS THE BOARD· October 1993
big deal because of your rapid reaction to his resignation. We then reminded the employee that the company truly was interested in him because we listened to what was wrong for as long as it took to hear out the problem. On the second day, the employee should be given the message that his quitting was a mistake, that the company knows it was a mistake, and that the company will singlemindedly try to rectify that mistake. (Cypress will accept only two answers to our proposal that you stay: "Yes" and "We'll talk about it some more.") On the second or third days, during which our position is being presented, the employee should be given the firm impression that we are not continuing business as usual. Schedules are interrupted.' If appropriate, we may meet over meals outside the plant during off-hours. If the employee's spouse is a major factor in the resignation, the spouse is involved in the discussions. Any level of management required to get the job done is brought in. If it takes the president to get the job done (and it does in half the cases), then the president has nothing more important to do than to sit down with the employee. One of the greatest mistakes middle managers make when an employee quits is to assume that I am too busy to interrupt my schedule to keep a good person in the company.
7) Win back the employee by solving his problems. If our arguments are constructed in a timely manner and really do correct the problems that caused the employee to start looking around, we will be successful more than 80 percent of the time in causing the employee to change his mind. Most often, resigning employees like Cypress, its benefits, and the people with whom they work. They usually are threatening to leave because they do not like some of the particulars of their job or their direct supervisor. Their resolve to leave is strengthened further because they have found a job (typically) at a company that is a poor second to Cypress, but which at a first glance appears to offer some relative benefits. By alleviating the root problem at Cypress and stressing the fundamental differences between us and the other company, the employee usually can be made to agree that staying is best.
8) Wipe out the competitor. The next step in the process is to shut down the other company. Two objectives are important here: to
shut down the competitor so firmly that no further negotiations occur with our employee, and to make the competitor believe that it has wasted its time trying to hire Cypress employees. Get the employee to agree to call up the competitor and shut down its offer himself. He should firmly state that counteroffers and continuing negotiation are not desired, that he is going to stay at Cypress, and that his decision is absolutely fmal. Ask the employee to present the data to the competitor in such a manner as to discourage the company from continuing to try to hire other Cypress employees. For example: "There was no counteroffer; I just want to stay at Cypress. I think my long-term best interests are served by being here. The same hour that I told my boss at Cypress I was thinking about leaving, I had meetings with my boss, his VP, and T.J. Rodgers. When they made comparisons between my career at Cypress and at your company, it was clear that I made a mistake in thinking about leaving Cypress. I really do not want to take any time to come over to your company to talk to you; my mind is made up. It would not be helpful to change your offer monetarily; I am fairly paid and have a good stock option. The issue is not money."
9) Prevent the next problem. The last step in the process should really be the first: Sit down, think about your people, and try to project where you might have a problem in the future .•
October 1993 • ACROSS THE BOARD
.T t.J. IOD5EIS
New social contract governs business
• • • • • •
you have just been laid off, along with the rest of your division. Your company is exiting a business in which it is struggling, but not los-
ing a lot of money. Caught by surprise, you never considered moving to another company. You will miss the collegial environment, generous salary and benefits, company-sponsored courses and frequent promotions. Fortunately, the company's severance package is generous enough to allow you time to find another job. Yet you can't help but wonder: You were loyal; why wasn't the company?
Liberal politicians, like Secretary of labor Robert Reich, would attribute your problem to "corporate greed"putting profits above people. Vice PresidentAl Gore would add that companies should treat people like assets, not like "costs to be eliminated."
After the layoff, your CEO might even appear on the cover of Newsweek beneath the headline "Job Killer," and the story inside might note that some CEOs recei ve huge bonuses in the very years they order layoffs. Having read Newsweek, you might even respond favorably to recent proposals by Senators Bingaman and Kennedy that would mandate corporate "social responsibility" as those senators define it, with punitive taxes for errant corporations that fail to follow the good senators' mandates on CEO pay, employee benefits, employee training budgets and layoffs. If corporations won't behave "responsibly," they reason, the government will have to force them to do so.
However, your rush to embrace government control is mitigated by the fact that you admire the way many companies are run. And you are cognizant of the fiascos that ensued when Congress tried to run a small bank, and the White House a
small travel agency. If government can-
not manage these small enterprises, how does it qualify to exert more control over
If you harbor reservations about government intervention, you're in good company. In the title of a 1970 New York Times article, economist Milton Friedman stated, "The Social Responsibility of Business Is to Increase Its Profits." Friedman labeled running a business for any other purpose-sto benefit the environment, the community or the poor-as "unadulterated socialism." He labeled businessmen who talk about s0- cial goals transcending "mere profits" as "unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades."
Another free-market champion, General Electric's Jack Welch, said in an interview with the Harvard Business Review, "The psychological contract based on perceived lifetime employment ... produced a paternal, feudal, fuzzy kind of loyalty. You put in your time, worked hard and the company took care of you for life. But given today's environment ... where no business is a safe haven for employment unless it is winning in the marketplace, the psychological contract has to change: Jobs at GE are the best in the world for people who are willing to compete."
Friedman and Welch are not meanspirited cost cutters, but men who understand that a corporation's true value lies in its people. Both believe that liberating employees' energy and talent is the basis of corporate success. I believe that corporate paternalism-when practiced for its own sake-is bad for the country, its companies, their shareholders and, in particular, for employees who sleep in the comfort of the corporate womb, often awakening to a layoff trauma that could have been anticipated and avoided. I
Corporate paternalism is bad for the country, its
• • • • • • • • • • • • • •
• • • • • • • • • • • • • • • • • • • • • • • •
stress what my view does not mean: In order to be efficient, America's companies must create a Darwinian "eat or be eaten" environment. In fact, I would argue just the opposite.
American workers face a choice: to accept the sometimes tough decisions made by free people and free companies in free marketplaces, or to subject themselves to the dictates of groups that have made a priori decisions on how companies should behave. Those tempted to surrender their freedom of choice to the dictates of liberal proposals might consider that ruling groups change. How would you feel if you surrendered your choice and later your worst nightmare took power in an election? We cannot surrender our freedom to dictators because they happen to espouse specific ideas we like.
Those still tempted to opt for government control should try this exercise. Rewrite the downsizing scenario described in the first two sections of this article. Relabel Section 1 "The Silicon Valley Story," in which an employee, after a long, rewarding stint at a company, quits by surprise to start a venturecapital-funded competitor. End Section 1 with the employee's CEO lamenting, "The company was loyal, why wasn't the employee?"
Then, in your rewrite of the "Government Solution" section, let ultraconservative Sen. Jesse Helms, R-N.C., craft "corporate fairness" legislation that would prevent startup entrepreneurs from competing with their former companies for five years. Does the free-market perspective look better now?
Why free market works
Here are six reasons why the free market serves employees better than paternalism or the best-intended government meddling:
September 30, 1996 Electronic Engineering Times 157
Rules of the new social contrad
First, all companies are owned by shareholders who have a right to expect the CEO's best efforts 'to enhance their investments. I bave received numerous letters from Cypress shareholders reminding me that their retirement fund, or their children's college fund, is invested in our shares. These shareholders demand-and reasonably so-that I fight the tendency to subordinate their futures to some pet corporate objective, such as maintaining a favored business that is hurting the company or pursuing my favorite philanthropic goal-with their money.
Second, most companies treat their people well because of competition, not because of external pressure. Most Silicon Valley companies provide a long list of benefits, right on down to aerobics and weight lifting. But in another industry, such opulent benefits could prove disastrous. Consider a hard-pressed Rust Belt manufacturer forced to provide expensive employee benefits it could not afford: A shutdown would certainly be worse for its employees than a job with meager benefits. The free market says to employees, "We give you excellent benefits, because you are valuable to our company and our shamholders," Paternalism condescends, "For all
the benefits we give, you owe us loyalty."
Third, there is an inherent fallacy in the lifetime-employment mentality, which maintains that all layoffs are bad. Obviously, employees who are laid off suffer trauma. But ultimately, many plant closings benefit those furloughed, their former and future companies, and the economy at large. Consider a hypothetical case in which the law prevents a company from closing its plants. Since the jobs that companies want to eliminate usually are either low-productivity jobs or those that can be performed more efficiently elsewhere, maintaining those jobs traps people in the lowest-efficiency segment of the economy. After the so-called "humane" rescue of many low-productivity jobs, America would become a refuge for low productivity, and its gross domestic product would either stagnate or decline.
Far from a depersonalized indicator, GDP is a measure of our economic vitality that impacts the well-being of everyone. America's GDP, divided by its population, is the average American's salary-give or take $1,000. In other words, creating a policy-however well intended-thatreduces economic efficiency is equivalent to lowering the average wage in this country.l do
Co-ops' goal: a 'triple 10'
Continued from page 142
by appropriate corporate personnel, confirmed their eligibility for hire. Employment of a proven co-op student is seen as a way to acquire a tested resource already familiar with the company's business, work climate, requirements and standards--a person who can function productively from the outset of full-time employment, rise faster to the company's performance/productivity payoff threshold and who, consequently, can help the company to reduce the costs of recruitment, on-the-job training, supervision and downtime otherwise foreseeable when candidates are untested and unfamiliar with the company.)
• Leveraging the student connection. The company may exploit the goodwill achieved with participating students to enhance their recruitment interests by student word-of-mouth.
• Easier access to raculty services. Closer relations via the co-op connection may also furnish an easier path to desired training and consulting services the company might seek from the sponsoring engineering school
• Curricular bene6ts. In addition, closer relations may increase the ability of the corporate participant, if otherwise qualified (especially if also a major financial donor), to encourage the institution to pursue research and offer courses in its academic program that focus on technologies of strategic corporate interest.
• Value from the co-op student's work. The student may provide the company with timely and useful service, including fresh ideas and tangible contribu-
158 September 30, 1996 Electronic Engineering Times
• not see anything humane or kind-hearted
• about becoming poorer.
• Fourth, job changes forced by layoffs
• can often improve the fortunes of em-
• ployees, companies and the economy at
• large. For example, some semiconductor
• companies generate human-productivity
, figures of less than $100,000 in revenue
per employee per year. By contrast, Cy-
press's revenue per employee is about
$300.000 per year.
When an employee leaves (or is laid off
from) a company with low productivity
• and moves to a company with higher pro-
• ductivity, the GDP expands by an amount
• equal to that of the productivity difference.
• Furthermore, the new company proba-
• bly will be able to consistently pay more
• to that employee, because its workers are
• more productive.
• After a period of layoffs, many employ-
• ees end up with better jobs in different in-
• dustries. When AT&T exited the personal
• computer business, for example, we imme-
• diately dispatched a recruiting group to
• South Carolina to find critical talent for our
• PC chip-set business. Our competitor Cir-
• rus Logic got there first and hired more than
• we did, but we came away with a business-
• unit manager and a skilled motherboard de-
• velopment group. We really valued the em-
• ployees AT&T no lon.ger needed; they're
• better off and so are both Cypress and
• AT&T-which can now focus on the
• telecommunications business it dominates.
• Fifth, avoiding layoffs and treating peo-
• pie well is exactly what CEOs must do to
• make their companies profitable for their
• shareholders. While layoffs may be benefi-
• cial to the economy at large, they are in-
• tensely disruptive for companies. All the
• CEOs I know aggressively avoid layoffs,
• because they know the company that can
• attract and keep the best and the brightest is
• the company that will win in the long haul.
• No CEO wants his or her company
• to be unable to hire the best because it
• is known as the company that lays off
• people to tune up its quarterly profit-
• and-loss statement. If that were their
• objective, CEOs could simply cut R&D
• and double their profits overnight. (Of
• course, they would get their comeup-
• pance in a year.) Co-ops' three-way benerds
Corporate social contrad
tions, from which the company may receive substantial productive value at a comparatively low cost.
o Useful insight into educational trends. Through interaction with the student, the company may gain ready access to a window on course content and methodological trends in engineering schools of interest.
o Knowledge from periodic reviews and the exit interview. Solicitation of student reaction during the work periods and at the completion of the program may generate useful insights on company strengths and deficiencies not prospectively available (for obvious reasons) from the company's regularly employed personnel
o Good community and industry PRo The participating company may use the co-op commitment as a publicity feature in corporate communications to
, promote its local or national image.
When a company selects engineering and computer-science students who reside locally, it stands to generate goodwill in the community.
o Part-time teaching jobs for qualified employees. Goodwill established with the school through the co-op connection may ease the way for qualified corporate personnel interested in teaching to secure desirable part-time positious.
o Serves the institution's educational objectJves. The school that sponsors an effective co-op program may better fulfill its mission to prepare its EE and computer-science students for a professional career. A successful internship program can substantially enhance the student's educational experience.
o Serves the institution's professional placement objectives. By supplying able, well-prepared co-op students who perform creditably in their job assignments, the school fosters a foundation of respect and confidence with the participating companies. That tends to keep companies committed to the co-op program, which, in addition to keeping the supply of work-and often job-opportunities open to interested students, reinforces the company's motivation to rely on the school, via the placement office, to
help fulfill its broader employment interests. A strong placement record clearly helps the school fulfill its commitment to attract, educate and tum out professionally qualified, job-ready students;
o Serves the institution's competitive position. To the extent that the school is in a competitive position vis-avis other' engineering schools, sponsorship of a first-rate co-op program can help sustain an incremental edge in terms of prestige=-compared with schools that do not offer such programs.
o Payoff in enrollments. An engineering school that offers the educational and prospective employment benefits of a successful co-op program, plus a respectable track record of early placements, helps itself to maintain a healthy list of qualified and promising students eager to enroll, which is central to the economy and reputation of the school.
o Strong enrollments, backed by high admission and educational standards, tend to attract outstanding teaching talent. Good teachers gravitate toward the most reputable schools.
o Keeps tabs on industry practices.
There is no better way for universities to keep on top of industry practices, technologies and workplace trends than through co-op programs
Success of the program is not assured.
Certainly there is no single formula for success. But while design features may vary, seasoned professionals in the co-op education business will probably concur on three principles.
o One, if the program is undertaken, every effort must be made to make it operationally sound in all its facets.
o Two, if the program is not comprehensively sound, it probably won't accomplish the objectives set for it, and its value predictably will be compromised.
o Three, a successful internship program is a win-win-win proposition. Everyone benefits: the students, the companies, the school.
Cooperative education is on the rise for good reason. It would be hard to find a better answer to the need for professional experience in the context of a high-quality engineering education.
160 September 30, 1996 Electronic Engineering Times
• • • • • • • • • •
• • • • • • • • • • • • • • • • • • • • • • ,.
• • • • • • • •
• • • • • • •
• • • • • • • • • • • • •
CEOs are obligated to make a profit for their shareholders. And unless they want short tenure, they must make that profit consistently.
Sixth, the choices that companies make in a free market have consistently enhanced the lot of American workers for more than 200 years. The United States invented the economy of corporations, Although corporations existed in Europe prior to 1800, by that time America had only 5 million citizens but more corporations than all of Europe. It is only in the past 25 years, when government meddling has proliferated, that our businesses have not been able to produce continuous income improvement for their workers-the core of the American dream.
Employees should recognize the economic reality of the free market. Just as , they must do what's right for themselves and their families, companies must do what's right for their shareholders. In so doing. companies will almost always do what is right for their employees. Even if markets sometime sag or technologies change, that means releasing people back into the marketplace to find more productive jobs. Very much more typically, during rarely discussed upsizing, companies do what's right for their shareholders by fighting tooth-andnail to attract, reward and retain the best people to build an enterprise.
Employees should understand that their company's only right to exist arises from the value it provides to its customers. Consequently, an employee's only guarantee of employment arises from bringing consistent value to his or her company. The adversarial model, in which companies and employees argue about cost cutting vs. entitlements, is a losing model. Eventually a company with that cancer will succumb to healthy companies where people form winning teams to beat the competition. Winning teams are not forced to trade off among the interests of customers, employees and shareholders. That happens precisely because those teams create the wealth that drives the free market.
T.J, Rodgers is president and chief executive officer of Cypress Semiconductor Corp. (San Jose, COOJ.).
This action might not be possible to undo. Are you sure you want to continue?