Could a Veteran Executive Save Your Company?

These three articles, all written by Lad'ka Bauerová, are reprinted from The Prague Tribune, April 1998.

Some would argue that the foreign advisor is bizarre force - and none more so than the case of veteran executives who request to be posted overseas from the U.S. to put their experience to good use. With careers spanning some forty years, the veterans have few points to prove when they come to the Czech Republic - unlike, some say, expat experts who bulldoze Czech companies and whose behavior is a source of tension. We look at the foreign advisor - expat or expert - and assess his role in Czech business.

In 1990, the air-conditioning and ventilation producer Janka Radotín was an industrial dinosaur with low productivity and 2,000 employees. Today, its workforce is down to 300, productivity has quadrupled, and the company has formed an $8 million joint venture with the largest manufacturer of air-conditioning technology in the world, Dallas-based Lennox Corp. The new enterprise, called Friga Coil, will open by the end of next year in Prague 5 Radotín, creating 300 additional jobs.

According to Janka's general director Martin Roman, the company's turnaround is due in large part to the input of Ray Robbins, a retired American executive whose three monthly visits helped the company more than any commercial consultants they had hired in the past. “One month of his stay cost us the same amount we had paid those consultants for one day,” Roman says. There are many Czech firms that need professional advice, but, in a market where resources are scarce, most business consultants are inaccessible. While lack of finances remains an unsurmountable obstacle for most firms seeking improvement, some firms like Janka have found a solution: Hiring veteran executives who come to the Czech Republic as volunteers, sharing their expertise with local businesses. Carefully selected to match their clients' needs, the former CEOs often help to turn moribund companies into viable market players.

“We were lucky to get an expert who had had a 50-year-long career in our field. He had gone through all positions from design engineer to CEO,” Roman says. He explains how this experience helped Robbins establish a good relationship with the company's employees and win the trust of managers and workers alike: “He always treated everyone as his equals. One of his greatest contributions to the firm was that he taught us how to treat our staff.”

Like other volunteers, Robbins was recruited by the International Executive Service Corps (IESC), an association of retired American executives with branches all over the world. Based in Connecticut, the IESC database registers over 13,000 former CEOs from various fields willing to volunteer in countries with developing economies. The retired executives usually find out about the program via their friends and colleagues. Upon contacting the IESC, the applicants receive an exhaustive five-page questionnaire to complete. After their references are thoroughly checked, they undergo an interview with a field associate - a senior volunteer who already completed a number of assignments. The applicants are only added to the database after passing the interview. After that, all they can do is wait.

Since opening its Prague branch in 1991, IESC has brought approximately 130 experts to the country, helping more than 120 Czech businesses and institutions, including ministries and public service offices.

The IESC had been financed by the American government through the USAID program. But when the support ended in 1995, the cuts forced three out of the four largest volunteer agencies to shut, with only IESC remaining. Dusan Çechvala, the company's project manager, explains that IESC had been able to find alternative funding from the Charles Stuart Mott Foundation, which financed a total of 30 projects during the last two years. He says the most expert-hungry industries are heavy machinery, chemical producers, banking, textiles and glass makers. Çechvala adds that, with the Mott funds running low, the company's focus is slowly shifting to more solvent companies whose budget allows additional expenses for consultancy services. “Still, we are incredibly cheap when compared to any consultancy company,” Çechvala says. “Our advantage is that the experts are volunteers who don't earn any wages as such. The average cost of an IESC expert will be somewhere between six and nine thousand dollars.” So far, the local companies pay for the selection process and the experts' room and board, which on average runs to around Kc 110,000. Every volunteer gets a monthly allowance of Kc 25,000 (in Prague Kc 30,000) from the company, which should cover all their expenses, including food.

No points to prove

“Our experts had had their careers at home. They had nothing to lose here,” observes Hana Obrusníková, former director of Citizens Democracy Corps (CDC), which shut down after the withdrawal of USAID. “They were relaxed and could afford to be completely honest with the local managers. ... This might not always be the case with professional consultants who, after all, are making money, so they have to comply more with their clients' wishes,” Obrusníková explains.

Like IESC, her team in Prague provided volunteer advisors for firms throughout the country. However, she says, the cooperation hasn't always been easy. “Lack of trust and suspicion against anything new still prevails in this country,” Obrusníková says. “And, of course, the language can create a real barrier.” She recounts the most common problem volunteers encounter when they come here: local managers don't spend sufficient time with the experts - and on occasion refuse to provide the information necessary to carry out the assigned task. As a result, she says, the volunteers feel isolated and bored.

But this hasn't been the fate of William Kirkland, an IESC volunteer who worked for the Prague firm Strategoinvest. Tall and sinewy, the retired investment banker runs up several flights of stairs to his office every morning and teaches his Czech counterparts about morale. “Mr. Kirkland is indefatigable. You think you've talked to him for 10 minutes, and then you look at your watch and realize you have been speaking for two hours,” says Vladislav Svoboda, the company's director of corporate finance. Kirkland came to Prague to advise the firm on how to proceed with Initial Public Offerings (IPOs). “He teaches us to look at [the companies] through the eyes of western investors,” Svoboda says. He explains that it prefers to look for investors abroad, because the Czech public has very little faith in this form of investment. “Our capital market is in diapers; it doesn't work the way it is supposed to,” he says. “Adequate financial resources are scarce in this country. Money is expensive and the usual 20% interest rates are lethal for most local businesses,” he says. Kirkland agrees with Svoboda's analysis. “Here you do not have an active liquid trading in shares,” he says. “The market does not provide information for bankers about the value of the companies.” Still, the retired banker who previously volunteered in Russia, and Zimbabwe marvels at the determination of the locals: “Of all my past assignments, this company has had the highest level of sophistication,” he says.

The biggest problem

The volunteers agree that a major problem in Czech companies is poor internal communication and the managers' inability to delegate responsibility. “The local management held very long and incredibly time-consuming meetings, where very little got done,” says Jerome Brown, former vice president of Alabama-based steelworks Drummond Inc., who is assisting the management of Trinecké železárny in North Moravia. He advises the company's CEOs chiefly on time-management and communication. Brown says he thinks most of the problems come from bad organization creating a lot of room for misunderstanding. “I see a great need for restructuring here,” he says. “With that, you establish simpler organization where information takes shorter routes. They didn't feel their communication was good enough and wanted to improve it. That's why I am here,” he says with a smile.

Tadeáš Kufa, vice chairman of the board in Trinecké železárny, praises Brown's ability to identify problems right away and his willingness to solve them. “Czech companies need to get their priorities straight. We tend to deal with the easiest tasks first and postpone the more important stuff,” he says. “These experts come and don't really understand Czech, but they know right away that a lot of time gets wasted on trifles,” Kufa says.

Clumsy internal organization seems to be a thorn in the side of most Czech firms. Škoda Plzen is yet another example of a factory that recently hired an IESC volunteer to help them with restructuring one of the divisions, Škoda Energo, which was recently formed from five separate divisions. “The basic organization here tends to be more complex,” says Peter Gomm, who came to Škoda Energo as a volunteer early this February. “[Škoda Energo] has whole departments dealing with organization, something I have never seen in the West.” Gomm is also advising the company management on possibilities of forming joint-ventures with foreign partners.

Like it or loathe it, it looks as though the foreign presence is here to stay. And if any of the company's experiences above sound a little familiar, you could do worse than hiring a veteran for the job.

Hitting the right note: the role of the expat expert at Bass Cr

In the beginning, we were very much advisors - working alongside the locals. Bass then took control in 1994 when it acquired a 55% stake in Staropramen and people were placed in line positions. Eventually, the advisors were integrated. At this stage, we're not looking to replace Brits with Brits - we're looking to identify the right person for the job. Having a Czech is important, although it could be people of other nationalities.

A question of leadership

One of the biggest problems for myself - and many other expats - is mastering Czech. Of course, you can get away with it through translators and interpreters. It takes about 18 months to two years to converse comfortably socially, and three to four years to conduct business in Czech. At that stage, you might be able to have a sensible business conversation, but it's not enough to make a sensible business decision - so what's the point? This hurts your effectiveness by 20-30% - because you can't lead if you can't talk.

It's especially hard to keep your temper under control. You have to be patient, you have to explain and try to build consensus. But in fact, there's lots of telling to do. It's a tell culture, not autocratic in the sense that it's dictatorial - but it's also not just telling, it's telling how. Of course, one could counter this by saying that they've come a long way in eight years. But there is [still] a lack of understanding regarding what the job's about and what [Bass'] expectations are Although there is a tendency here for people to make excuses, some are learning to be proactive, learning that's OK to make mistakes. That in itself most Czechs can't understand, which inevitably builds up frustrations

There are three things Czechs care about: buildings, beer and girls - I'm not sure in what order. One important thing is that we never told them how to brew beer - that would have been a problem. “You're the experts,” we said - and indeed they are. We looked at the efficiency of sales and distribution, engineering and finance and implemented change. Over four years, I think it's been accepted. Nowadays we still try to stress how important customer service is. We tell our staff that we don't have a God-given right to customers just because we produce great beer. We have to work for them.

Looking back, in our battles with IPB and Nomura, it may have been easier to have been Czech. On the other hand, our competitors criticize us for having “an all-Czech management team.”

The future

“Consider the scenario: the Bass office is small and has someone like an executive chairman and an assistant working there, giving directions to the Czech general manager, [and] all the operations are controlled by Czechs. But I think this would be too isolated. I believe we've got the mix right - and eventually we'll pull the expats out.

Of course, from a local point of view, there are advantages working for a foreign company ... learning new skills, opportunities to go overseas . I have to say that younger people are just as good here as they are in the UK.

Being realistic, foreign investors in local breweries are inevitable. Pilsner and Budvar will likely be owned by foreign hands, but there's less of a problem if they're not owned by foreign brewers. Nomura is going for Radegast and Pilsen - but they're not brewers, so they seem OK.

As for salary discrepancies, Czechs understand that British people have alternatives and that they bring a marked contribution difference. As long as this added-value is demonstrated, they don't mind too much. Having said that, I did have to explain to 200 people why salaries for the British are so high. The reason is that they bring skills.”

Çokoládovny's bridge over troubled water

We faced a potential problem a few years ago of tensions between expats and foreigners in that there were 30 expats [not only in top management, but also in middle management positions or functional specialists]. I stress a potential problem, as now we have only 15 expats in those kinds of positions. We have actually managed to replace lots of people with locals.

Our ultimate objective is to replace five or six of them by the end of 1999. We will retain about 10 in the future, and they can be any kind of expats - with a company as big as Çokoládovny, a big company for its shareholders, we have a role to play in terms of training. We no longer need to be assisted by foreign managers, and people from our sister companies of Nestlé and Danone come to be trained here. It's a crucial role of any major company.

Teething troubles

I admit that there were tensions at the beginning. A few expat individuals stormed in after privatization and they imposed their own working style, without being able to listen or communicate. I was born here [but spent 25 years in Western Europe and the United States] and I really came as a cultural bridge. I had been working abroad and I believe I was hired precisely to overcome the problem. My job was to make things change to a market-oriented way of working - and to give the local people a chance to be part of our growth.

More than half of our top managers are local, and that's taken about four years since privatization. It's evolved quickly: We explain what the shareholders want, and that's much more effective coming from a Czech. It's acceptable, and prevents them from arguing, “It doesn't work here.”

Another advantage of being a cultural bridge is that I can listen to Czechs: to their proposals, and to their ideas for new products or marketing schemes. The majority of the time, these suggestions are absolutely valid.

Reasons to retain expats

In my view, these fall into two categories. Firstly, if they're good professionals in their field. Local people recognize this immediately. Secondly, one should keep expats on if they're excellent communicators, passing on invaluable training and know-how. It's no good hiring those in the top of their field who simply can't communicate.

At Çokoládovny, one major condition for employing expats is that they learn Czech. Not all succeed but some are absolutely impressive. We also help expats to understand the local culture, organizing events like a traditional Moravian pig-killing two years ago things that they would never come across in their expat communities.

Salary discrepancies are not a source of friction. There's really not a significant difference; it's not high at all. This is particularly true for young expats who come to be trained here - they're definitely under the same conditions as locals. Of course, we do help with things like housing costs, because they're much higher for expats.

But remember, Çokoládovny is big by even Nestlé and Danone's standards. We've overcome a priori the prejudice against Central and Eastern Europe. Expats here are given responsibilities they would not have in their own country. For example, there's a very impressive 34-year-old Frenchman who's been working here for a couple of years. Imagine, when he was just 32, he was running a factory of over 600 people.

On the other side of the coin, locals realize that expats have to bring added value; they won't automatically be in the top positions in the company. There are really no bad feelings - except when people are no good.


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