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Talking Points

Poor employee communications can undermine the best-laid strategy.
Edward Teach, CFO Magazine
May 8, 2006

Of all the functions under the corporate roof, employee communications is the one that most managers pay lip service to. It's not that they regard it as unimportant. Executives acknowledge that when it comes to effecting major change — a shift in strategy, or a merger, or a restructuring — employee communications can potentially make the difference between success and failure. Moreover, most managers, including CFOs, will admit they could do a better job of keeping everyone on the same page.

Yet, when change is in the works, the task of telling employees about it tends to slip down the to-do list. In fact, that's the number-one mistake companies make in a change situation, says Deborah Barrett, director of the MBA Communications Program at Rice University's Jesse H. Jones Graduate School of Management. "I've even seen that in merger situations," she says, when managers have realized practically on the day of the announcement that they didn't have a plan to let employees know what's going on.

That's not the only way companies fail to communicate. Generally, managers overestimate how well they convey messages about change, says Barrett, who previously worked as a consultant at McKinsey and Hill & Knowlton. "When you find that there's dissension, and the rumor mill is controlling the message, then you know you're not out in front of the communication," she says.

And even if they think they've done enough talking, managers may not have done enough listening. At one Houston energy company, senior managers conducted monthly road shows for employees, which ought to be a good thing. But the road shows consisted largely of PowerPoint presentations, with no opportunity for questions. "Everybody was bored," Barrett says, "and the managers were thinking, 'Why are we here?'"

Says Paul Sanchez, global director of employee research for Mercer Human Resource Consulting: "I can't tell you how many times, when we've worked with a company and done an employee opinion survey about how things are going, that the communications dimension is one of the lower reported factors."

A Common Understanding
Making internal communications relevant and effective begins at the top.

"The first and most important thing is to have a clear understanding about the importance of communicating comprehensively, promptly, with as much transparency as is possible," says Sanchez. "That has to start with a commitment from the leadership group that they will work as hard as they can to create a communication environment that shares with employees a mutuality of interest, a common understanding, and alignment on goals."

No one understood this better than Lou Gerstner at IBM in the 1990s, says Sanchez. In his 2002 memoir, Who Says Elephants Can't Dance? the former CEO repeatedly stresses how critical communication was to IBM's turnaround, and devotes a 54-page appendix to memos he sent to employees. Gerstner "realized very early on that it would be impossible to move IBM without winning the hearts and minds of people," says Sanchez.

If the CEO is often the self-proclaimed chief communication officer in a major change situation, the CFO "is in a more influential position than almost anyone else in the senior leadership group to invigorate communication," says Sanchez. "He bears such responsibility in the organization that he can be a green light or he can be a red light by virtue of the things he says. If he takes a positive attitude, it can go a long way." By the same token, CFOs can "eviscerate" communication if they take a conservative attitude toward what management can tell employees, says Sanchez.

Only Connect
To help managers become green lights for communication, experts recommend a number of best practices, including:

Make communication a two-way street. Maintain a healthy internal dialogue, through regular meetings, employee surveys, E-mail, intranets, and blogs. "Make sure you respond to questions, and respond quickly," says Barrett. As for dealing with complaints, you're better off doing that face-to-face, she says. An electronic exchange of views could end up on the Internet, with the result that "your whole internal dirty laundry is there for the world to see."

Meetings, ideally, should have a Q&A component. "People will have a chance to interact, and that will defuse a lot of discomfort and hostility," says Barrett. "Many times, people just want to be heard." At the Houston energy company, she persuaded the PowerPoint-using managers to build in time for questions in their monthly road shows. "That shook things up!"

Hire an employee communications officer. Most such officers are placed in either corporate communications or HR, but Barrett advises against the latter arrangement. Human resources is associated with policies, procedures, and legalese, she explains, "and all of us want to run away from that."

Form a team of ambassadors. To help get the change message out, Barrett recommends creating a team of employee "ambassadors." They should be drawn from different functions and levels across the organization. An ambassador can speak the language, or jargon, of a particular group, whether it's marketing, R&D, sales, or assembly-line workers.


Write a story. Sometimes, Sanchez will help clients write a core narrative of their change process — "Here's where we were, here's what happened to us, here's what we're doing about it now, here's our vision for the future." The story then becomes a common basis for communicating change.

No Holds Barred
One company that puts a lot of effort into employee communications is Cadence Design Systems. Cadence, which makes software and systems for chip design and testing, holds "15 or 16" employee roundtables a quarter, says Bill Porter, senior vice president and CFO. Each roundtable is hosted by a senior manager, and each is aimed at a different corporate function. Typically, anywhere from 10 to 20 employees attend.

"Anyone can come," says Porter. "We usually send out an E-mail in advance to a random selection of attendees." What's on the agenda? "Whatever questions people want to ask. It's no holds barred." Employees recently asked Porter, for example, why Cadence incurred a $30 million tax bill to repatriate $500 million in foreign earnings last year under the American Jobs Creation Act. (Cadence had good uses for the cash, and the tax bill was much lower than it would have been under normal circumstances, explained Porter.)

Internal communication became a higher priority for Cadence when Michael Fister became CEO in May 2004. Fister reorganized the company around functions, says Porter, and "anytime you have organizational change like that, communication is very important."

In addition to the roundtables, managers hold formal, quarterly meetings, in groups of 200 to 300 people. Each meeting features a Q&A session. Fister also chairs a quarterly meeting with the extended management team, where highlights of the quarter are presented and specific initiatives are discussed. The attendees also view an in-house-produced video on a different area or geography of the San Jose, California-based company. Since about half of Cadence's business is done internationally (the company has 5,000 employees worldwide), senior managers also make site visits abroad. Porter does about two per quarter.

Managers periodically undergo communication training, says the CFO. "You can always improve your presentation and your ability to take questions." Written communications, such as a recent note discussing proposed changes to the employee stock purchase plan, are handled with the same care.

"Communication has to be a continual effort," says Porter. "You can never do a good enough job." In addition to informal direct feedback, periodic surveys tell managers how well they're doing. After Fister introduced the change in organizational strategy, "we heard people say, 'We don't understand the strategy,"' says Porter. "We realized we had to reinforce it, with a separate round of strategy communications.

"We have to make sure," he concludes, "that we overly communicate." Because we all know what happens when there's a failure to communicate.

Edward Teach is articles editor of CFO.




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