Leadership and

Rex Tillerson says turbulent Black times like these require robust strategic planning—long before the crisis hits.

PORTRAITS BY JUSTIN CLEMONS Swan Events

22 INSIGNIAM QUARTERLY | Summer 2020 quarterly.insigniam.com | INSIGNIAM QUARTERLY 23 You have strategies and then you have tac- tics that allow you to implement those strate- gies. Then you have execution plans. At every ex Tillerson one of those levels, part of the development of is a recognized master of leading through un- those strategies has to be to identify the risks. certainty and change. What are the things that could happen that I In an exclusive interview with Insigniam can’t predict and I wouldn’t have any warning founding partner Nathan Rosenberg and the that it’s going to happen? Are the strategies re- IQ team, Mr. Tillerson addresses the challenges silient? Are they still going to be appropriate? of leading during black swan events, those out- Then it drops down to what are my tactics lier threats like the current pandemic that land for dealing with that. Here are a set of tactics with extreme impact. They may be unexpected, and now if I decide I have to implement those but that does not mean organizations should tactics, what’s the execution plan? That’s a not have a strategic vision on how to deal with very detailed, written-out plan with people’s them. names. Who has responsibility for what so He also offers his thoughts on navigating when that day comes, you’re not having to de- complex mergers and acquisitions, and why velop that on the fly. It doesn’t mean that you trust and relationships—even if they are main- can fill in all the blanks. tained on screens in the era of COVID-19— matter more than ever in business. Predicting the unpredictable Here, Mr. Tillerson offers his hard-won When something like coronavirus enve- insights on some of the biggest issues facing lopes the globe, that changes everything. leaders right now: We had been seeing increased geopolitical instability over the last several years, but Leading through black swan events this is something entirely different. Coronavirus is disrupting supply chains and During my career, we always had pandemics business across the globe. There seems to as one of our unpredictable events and how it be more unrest in the world and problems would affect our ability to operate. What kind popping up all the time. How can business of threats would it present to the viability of leaders maintain fidelity to a long-term vi- the business? So we already had plans devel- What are the things that could sion and respond to emerging events strate- oped for how we would deal with a pandemic. gically rather than reactively? Those then are driven down through the orga- happen that I can’t predict and I Black swan events, in and of themselves, nization to an appropriate level so that every- demand a certain tactical and execution re- one, all the way down to country managers, wouldn’t have any warning that sponse. And the way you prepare for those is knew what the corporate plan was—but they you already have a response team or response had to then develop their location-specific re- it’s going to happen? Are the organization so when that happens you don’t sponse to that so they were ready. have to form them. Everybody knows imme- Obviously, that’s different if you’re man- strategies resilient? Are they diately our job is to deal with this black swan aging a country in West Africa versus manag- event. Now, let’s get after it, and you don’t lose ing Canada. With this novel coronavirus, the still going to be appropriate? days or weeks, or in some cases I’ve seen orga- threat to someone in one part of the world nizations lose months while they were floun- could be significantly greater than a part of Then it drops down to what are dering around trying to figure out even how your operation in another part of the world. to organize themselves to deal with it. It’s real- Part of our viability plans were: Could we iso- my tactics for dealing with that. ly a crucial part of how you structure a robust late that operation in that part of the world? strategic planning process. If we had to shut everything down for a while

24 INSIGNIAM QUARTERLY | Summer 2020 quarterly.insigniam.com | INSIGNIAM QUARTERLY 25 Rex W. Tillerson as ExxonMobil Corp. CEO in 2006. At top right, as Boy Scouts of America national president in 2010. Below right, as U.S. Secretary of State in 2017.

would it be OK? And if we couldn’t, then how were we going to prop that organization up if Your strategies they became disabled by the event? How were don’t change we going to protect the shareholder interest and protect the assets and the people? very much It all ties back to the viability of your funda- mental strategies. Your strategies don’t change or very often very much or very often unless you have some kind of an event like a breakthrough technolo- unless you have gy that just completely changes the nature of some kind of your business model and you have to respond to that. But by and large, your strategy is lon- an event like a ger-term looking. They’re how you align the change and I’m not going to do it. took two or three years after the merger for us automated world, as long as things are work- entire organization. breakthrough When people are committed to one anoth- to be able to explain to our Mobil counterparts ing, to just kind of perhaps say, OK, things are Everybody knows this is what we’re trying er, then they tend to take on whatever chal- why we did things the way we did. working so I do not need to tend to that. to do over the long term. Now here’s the way technology that lenge is put in front of them and they succeed. When it was all over, we would look back We all know everything doesn’t run just fine we want to do it. Here are our tactics, and just completely every year on how the organization was un- 100% of the time. The reason you need the everyone then translates that down to their The not-so-secret ingredient derstanding this. Mobil’s senior people got it change management procedures is for the day operating level and their location and factors changes the behind successful M&As first, which was kind of interesting. I would they’re not running fine. Because the day they’re locally that they’re having to manage. Every- nature of your Can you talk about leaving the world of have thought they would find it the most dif- not running fine is when everybody has to man body’s geopolitical factors will be different in mergers and acquisitions? When you were COURTESY U.S. DEPARTMENT OF STATE ficult. They saw the value of everyone having the oars and pull together as one team and trust the countries they’re operating in. a young man you played a critical role in tremendous clarity around what our rules that I’m not blaming anyone here. We’re all just business model bringing two huge companies, Exxon and and our norms were. Tremendous clarity working together to fix the problem. The difference between and you have to Mobil, together. I know that there were around how they as an individual were going If you don’t have that relationship, then you success and failure other acquisitions that you made while you to be assessed, how they were going to be de- run the risk that when things go wrong people You have experienced both successes and, respond to that. were CEO. How did you lead acquisitions veloped, how they were going to be judged are going to immediately go into the fortress at times, failures. What have you noticed and bring companies and culture together, performance-wise. They had tremendous and put the defenses up to protect their own about the throughlines of each batch of ex- But by and large, not just the financial side but the culture clarity around what happens when you step interests instead of saying let’s just fix the periences? What are the commonalities you side, the people side, the customer side? across the line. They saw the value of that in problem. So if you know that as I implement take away and apply to future endeavors? your strategy When I was CEO, I never was interested in bringing the organization closer together. this automation or I implement this new tool Reflecting back on my own experiences of is longer-term just buying somebody’s assets and tossing Most people thought that when you do that that is going to, by its very operation, re- when something worked—and when it wasn’t their people aside. There are others who did that you introduce an element of fear within duce the contact between myself and those successful, why did it fail—it ultimately boiled looking. They’re that and they weren’t particularly successful. the organization, and fear is never good inside interfaces, that’s a change management that I down to the relationships within the organi- So when we would evaluate M&A opportu- of an organization. That clarity brought tre- need to identify and I need to put in place and zation or within the work team or whatever how you align nities, we would do a lot of research and try to mendous cohesion within the organization. implement proactive actions, not just reactive level you were trying to affect. understand the organization that we were going because there weren’t all these questions actions. And then you want to follow up with When it failed, it was generally because the entire to get married to. What was their culture, what about how this really works and then ev- some way of measuring, are we all still good? people weren’t committed to each other. We organization. were their values? How strong were their inter- erybody starts making up their own version Do I still have those relationships intact? Do I always like to say they “just weren’t commit- nal mechanisms for enforcing their values? of how it works. Everybody knew how it have an understanding that the day something ted to the change.” But having gone through In the case of the Exxon and Mobil merger, worked and everybody had bought into it. goes wrong this is how we’re all going to deal a number of periods where we had to do this, it really was a marriage where the fundamental with it? We’re going to deal with it together. I attributed our failures more to the lack of values were very similar. They were almost the CLOCKWISE FROM TOP LEFT, PHOTO BY JASON JANIK/BLOOMBERG VIA GETTY IMAGES; COURTESY OF BOY SCOUTS OF AMERICA; Proactive change management Automation introduces change management the cohesiveness of individuals and their com- same. The only differences that existed were Does automation and an increasingly digital challenges because it has a tremendous impact mitment to one another and not so much to Exxon was big and more disciplined in what world put more distance between the com- on the people—whether it’s robotics or wheth- the fact that maybe they said I don’t like this we demanded of people than Mobil was. It pany and its customer? It is tempting in an er it’s programming that allows you to handle

26 INSIGNIAM QUARTERLY | Summer 2020 quarterly.insigniam.com | INSIGNIAM QUARTERLY 27 Tillerson & ExxonMobil: “I Fell in Love” ex Wayne Tillerson was born in Wichita time) was just one of the companies he was your strengths were and what you needed Falls, Texas, in the spring of 1952. He interviewing at, and it was not his first choice. to work on and great coaching. Not that I R grew up in small towns in Texas and “I didn’t know anything about the oil in- didn’t have some lousy supervisors, but I Oklahoma, the second of three children. His dustry, and I had offers to work elsewhere,” learned a lot from them as well—what not father, a bread salesman, later became a he says. “But a couple of recruiters were to do. It was this very structured process professional organizer for the Boy Scouts of relentless. They wouldn’t take no for an of developing you throughout your career America. Mr. Tillerson joined the organi- answer. They told me not to worry about my and then at some point you become the zation and eventually earned the rank of lack of knowledge about the oil industry and developer instead of being developed.” Eagle Scout. He maintained close ties to the said I’d figure out the business.” After win- The company’s principles spoke to him, group as an adult, serving on the boards of nowing down 17 offers to three, Mr. Tillerson as well. “The values were really well aligned the national and Dallas chapters and serving chose Exxon, even though it was not the with mine. I liked the structure and the dis- When I was CEO, I never as national president of the Boy Scouts of highest-paying job. “I figured that if it didn’t cipline of the organization. I loved the risk America from 2010 to 2012. work out, I could go back to one of the other management aspects of it. I got to manage Mr. Tillerson showed a similar loyalty to two companies later,” he says wryly. a lot of risk at a very early, young age,” Mr. was interested in just ExxonMobil—once he decided to take the job. But there was no looking back. “I fell Tillerson says. “The whole experience was After graduating from the University of in love with engineering and the compa- just perfect for me … I passed up a lot of Texas at Austin with a bachelor of science ny,” Mr. Tillerson says. “They had great big money to stay with them because I just buying somebody’s assets degree in civil engineering in 1975, he began employee performance appraisal systems believed in the organization, believed in and tossing their people his job search. Exxon (as it was known at the where you really got to understand where what they were doing.” aside. There are others who companies, you can only harm shareholder You learn from the people who don’t do value. That’s never going to enhance things. well by the examples they set. I saw these I don’t think it’s healthy for a group of things that were failing and I said, I know you did that and they weren’t CEOs to get together and say we’re just all don’t want to do that. Then you begin to think going to agree to behave this way—because if you’re not going to do that, what do you do particularly successful. everybody’s business is different. Their orga- instead? You begin to develop a more creative, nizations are different. When you start trying positive side of it. to cover up like a bunch of quail to protect Some things that are important are the yourself, I’m not sure you’ve got your eye on things that don’t change. Most important are your own shareholders’ interests. the values that the organization embraces and volumes of things much more efficiently. May- this is how you ought to run your business, I almost always resisted those kinds of mass that people who come into that business en- be before you had to have 10 people do it and which I find a little bit fascinating. statements. You’re there to identify legislative terprise know what those values are. That’s now you need one. But I really just see automa- In terms of how you respond to it: If you and regulatory issues helpful to U.S. businesses the heart and the lungs of the organization. tion as the next set of tools that are deployed. know that what they’re trying to pressure you and capitalism and those that are harmful, and People have to understand these are our values They’re kind of akin to my growing up with a to do is going to diminish the value of the busi- then as a group try to go in and make your case. and you’re only going to be successful if you slide rule and then at some point early in my ca- ness, you have a fiduciary obligation to resist The value of the Roundtable is it has so can embrace those and promote those. reer, I got a four-function calculator, and then that. I would go meet with activist investors. I many segments of the economy represent- The second thing that is enduring is orga- I got a programmable HP35, and then I got a would meet with the big fund people when they ed—from manufacturing to financial. nizational discipline. If you can’t do that then programmable HP45, and then five years later I were pushing these things and explain to them Then it’s fine to pick some societal issues you’re setting yourself up at some point for got a desktop Mac and so on and so forth. That this is not going to create shareholder value in that you know are important to the economy chaos. Where that discipline really becomes vi- dramatically changed what I could do, but it re- our case. You just had to be persuasive, and most generally. Of course, when I was there it was tal is when you get into a crisis, when you get ally didn’t impact the relationship issues nor did of the time that would work. It depends on the all about education. Educating the workforce, into managing a serious threat to your busi- it impact the way organizational issues had to issue, but the only response to it is to engage and educating the up-and-coming workforce and ness. It’s that organizational discipline that gets be managed. then make your case to your broader sharehold- dealing with some of the things that were cre- you through it because everyone knows what’s ers when it gets to a vote. I never lost one, so that ating labor issues in the U.S. economy. expected of them. Everyone knows what the The new face of shareholder activism approach worked for me. playbook is. How have you seen shareholder pressures The value of constant learning I’m not saying it’s an instructional manual, and demands change, and how do you recom- On Business Roundtable’s redefining and organizational discipline as much as people knowing how to interact mend business leaders approach that space? the purpose of a corporation How has your thinking about business with their senior management, with the next Shareholder activism has been around for a How about the Business Roundtable redef- changed and evolved over the years? What level up. They know how to take the directives long time, but it has certainly evolved and tak- inition of capitalism? What would you say recommendations do you have for readers? that are given to them. They know how to feed en on a different face with not just institution- about that? I don’t know if my business thinking has information back to them so that it’s useful in al investors now, but large funds like Black- I probably would have resisted that if I were changed or just evolved. Obviously, you’re trying to solve the problem. Rock. We’re all reading about the directives still on the executive committee there. Any constantly in learning mode or you should be. Organizations that don’t have good discipline they’re sending out to companies to tell them time you start homogenizing the Fortune 500 If you’re not, you’re making a huge mistake. generally don’t get through crises very well. IQ

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