10

THE GOLDEN RULES

MAY 2012–JUNE 2012

The eight rules laid out a framework for how we would operate and the principles we would apply as we tried to control the chaos confronting us.

THERE’S AN OLD saying that a leader without followers is just a guy taking a walk. Transforming an organization’s culture requires commitment from the top. But you need to convince people to change their habits and follow you.

All the Nokia board members wanted to do a good job. I never saw any maliciousness or laziness. The problem, as I saw it, was that the board had not been enabled to work effectively.

From my conversations, I sensed a hangover from all those years when the Nokia board had been told that things were under control, only to discover that was obviously not true. Those were years of never getting to the heart of the problems and always being forced to take the management’s recovery plan at face value. These experiences had left people feeling fragile and unsure both of themselves and of the board as a team. We all felt, rightly so, that we had not done a good job.

Our confidence about being able to do better was low. As we had failed collectively, there were also understandable questions on board members’ minds regarding their own role in the future. And while they didn’t not trust the new chairman to lead, the jury was definitely out. The board members needed to be convinced and reassured that we could prevail.

Many companies fail to have a fundamental discussion about the role of the board. Boards often believe their primary duty is to appoint and evaluate the CEO. That’s not wrong—it’s very important—but it falls far short of the full potential of their contribution.

As I see it, a board should do whatever is necessary to ensure the company’s success. It’s that simple. That includes hiring and firing the CEO but so much more, depending on the issues the company is facing.

Nokia was teetering on the edge of a precipice. Everyone—including the board—would need to work together to pull us to safety.

As I looked over my notes from my conversations with board members and senior management, and as I studied my lists of leadership lessons, I thought it would be helpful to try to distill the essence of the behaviors that I would like to see in the board. I probably wrote 10 different drafts of what became the Golden Rules. I proposed the rules to the board in my very first board meeting as chairman when we convened immediately after the Annual General Meeting on May 3, 2012.

The AGM Gauntlet

Nokia AGMs were always big shows. They were held at the Messukeskus Helsinki, Finland’s largest convention center. The usual audience size was around 1,500 attendees. At my first AGM four years earlier, the attendees had been a relatively happy bunch. This year, some 3,000 people had registered, and they were out for blood.

I couldn’t blame them. Our operating loss was over €2 billion during the first half of 2012. Our mobile phone revenues were almost in free fall. We had laid off thousands of workers, and more layoffs were planned for the coming months. Our share price was barely €3, down from about €28 just four short years earlier. Our credit rating had recently been downgraded to junk status. Rumors were flying about when—not if—Nokia would declare bankruptcy. (We were not really short on cash; we were short on credibility.)

If I were in the audience, I would be demanding answers, too. From now on, I would be responsible for providing them.

Actually, for this meeting, I was still pretty much in the audience; I would become chairman only after the AGM. Jorma gave his last speech to the AGM as chairman, and Stephen gave an update on Nokia business during 2011 and answered a ton of questions from the shareholders.

In addition to Jorma Ollila, two long-time members—Bengt Holmström and Per Karlsson—were stepping down. They were replaced by Betsey Nelson, Bruce Brown, and Marten Mickos. Betsey, Bruce, and Marten were the first members I recruited to the Nokia board. They all coupled a technology background with strong business experience: Betsey was a long-term CFO in Silicon Valley software companies, an experienced audit committee chairman, and an active investor in start-ups; Bruce was the chief technology officer of P&G and had been on its leadership team for many years; and Marten had been a CEO at numerous tech start-ups, MySQL perhaps the best known of them.

I felt confident they would be strong contributors as we began Nokia’s transformation. They all proved themselves able to maintain a highly professional and completely unselfish attitude under the most difficult circumstances. Betsey and Bruce later became chairmen of our Audit and Personnel Committees, respectively. (HP acquired Marten’s company in 2014, and he joined HP’s management team. As Nokia and HP play in the same markets, Marten had to step down from our board.)

A Model for Board Behavior

On the evening of the AGM, at the first meeting of a newly appointed chairman and the board of directors of a company in the midst of an all-out conflagration, you would expect the agenda to focus on what the board can do to help the company put out the fires.

We didn’t.

The only real item on our agenda was how the board should conduct itself: how we would want to behave.

This idea grew out of my conviction that the smartest thing to do when confronted with a crisis is to step back and take a deep breath before considering all the options. A board—or any team facing a crisis—naturally wants to jump directly to fix-it mode: What’s the core problem, what’s the solution, what’s the plan, and when do we start?

But people will have different opinions. And because of the urgency of the situation, there will be raised voices and bruised egos and hurt feelings that can resonate for a long time.

So my message to the board was this: We’re in this together, and we will work together to make Nokia successful again. Let’s start by talking about the principles of how we make decisions. Let’s consider the values we share. Then we’ll be free to address the practical problems we face.

For example, we might agree, “We will conduct our business in a way that respects our people.” When you start talking about layoffs, there’s a huge range of approaches and an equally large range of associated costs. But if you have decided that you want to show respect to your people in all events, then doing layoffs in the cheapest possible way isn’t just a non-option—you don’t even consider it. If you limit your options according to an agreed-upon set of beliefs, they will naturally guide you toward a certain way of doing things and, as a bonus, will reduce conflict among the board members as well.

These types of discussions are often dismissed—if they’re even thought about—as not being pragmatic or addressing the urgency of the situation. But they will pay off for years and years in a board that is more effective, one that does a better job advising the management team, and one that is more pleasant to work with.

The Golden Rules

The guidelines we came up with crystallized into the “Golden Rules.” The eight rules laid out a framework for how we would operate and the principles we would apply as we tried to control the chaos confronting us. The rules were a little different in 2012, but the core philosophy has remained untouched. The latest version of them is:

1.   Always assume the best of intentions from the actions of others. Operate openly, honestly, and directly, and expect others to do the same.

Give everyone the benefit of the doubt. When someone says something you don’t want to hear, it’s natural to want to lash out. But rather than warping into DefCon 1, stop and remind yourself, “I’m committed to assuming the best of intentions from that guy.” Ask a clarifying question. If you can follow that rule, it will change how you and others behave.

Of course, this is easy to agree to but more difficult to actively live. But agreeing to this rule provides the leader with the opportunity after a verbal annihilation to take the criticizer aside and have a constructive discussion: “Let’s talk about what happened in the meeting. Did you really assume the best of intentions from that person?”

2.   Our philosophy is data-driven and based on analysis. We always aim to analytically map out the alternative future scenarios for the company and strive to understand the triggers and levers related to those scenarios. This sometimes leads us to invest more time in our board work than some other boards do, but we believe this effort pays off in the long term.

The “data-driven” element may sound obvious, but it obliges you to find out how things really are. It forces you to ask questions, and not to shy away from, ignore, or soften something you don’t want to hear. It returns to my saying, “No news is bad news. Bad news is good news. And good news is no news.”

This rule gives me, as chairman, the right and responsibility to require the team to do the necessary analysis. The focus on analysis is also an agreement to put in the extra hours when necessary.

This rule was especially important for the Nokia board, as it required us to change our behavior from the habits we had gotten used to. To be successful, this also required the management to change how it worked with the board.

3.   Be well educated in the company’s business and deeply engaged in the discussions with the management. Expect the management to support you in learning more and to be open, straightforward, and engaged in its dealings with the board.

Learning about the company’s business is important on so many levels, not the least of which is something boards often don’t get involved in: the management of the company. I’m not talking about second-guessing the CEO or executive team or trying to do their jobs. I’m talking about becoming familiar with the issues and the people handling them, so that the board can serve as a brain trust, ready and able to support the management by strategically sharing the benefits of its collective experience.

Culturally, this was a huge change in the relationship between the Nokia board and the management team. Now, instead of the board being safely above the fray while the management team is fighting in the trenches, we all stand side by side. When something fails, we’re both accountable and we will bear the consequences together. And instead of pointing fingers, we’ll move on and try something else.

4.   Be prepared to debate, but do it in an informed, unemotional, respectful way. Affirmatively support the decisions, even if you did not win the debate.

We can disagree about the business and business issues. We need to disagree. The last thing I wanted was board members who wouldn’t air their concerns in a meeting and then later confess, “I was worried that might happen, but I didn’t want to say anything.”

5.   Firmly and respectfully challenge the management while keeping in mind that the board is successful only when the management is successful.

We want to assist top management to come up with the best possible strategies, but we can’t help them by just agreeing with them. We need to challenge their plans and thought processes. But we have to do it in such a way that the members of the leadership team know in both their head and their gut that we’re trying to maximize their success. The firm is successful only if the management team is successful. Absolute challenge and absolute support.

6.   We seek to constantly improve in everything we do. All board members are expected to contribute to the improvement of our work, tools, and processes as well as the way we work as a team.

The Japanese concept of “kaizen,” or continuous improvement, is usually applied to manufacturing. But there’s no reason that it can’t also apply to the work of the board. Therefore, all board members are expected to contribute to strengthening our work, as well as how we function as a team. To ensure that happens, periodically ask everybody how we can improve. I often ask every board member at the end of the meeting to give their thoughts on what we could have done better in that particular meeting.

7.   We encourage the management and board members to engage with each other outside the board meetings as well.

Under the previous regime, the CEO was unofficially forbidden to meet with the board members outside of board meetings. Board members meeting with the CEO’s direct reports was even rarer. But in order to delve more deeply into the challenges confronting the company, it makes sense to talk outside of the formal forum.

We deliberately created a rule saying that it’s fine for board members to have those conversations—with one major caveat: It’s very important that the management team members understand that they should regard the board members as highly paid consultants whose opinions and ideas they are free to use if they so decide. However, it’s their call. An individual board member doesn’t represent the voice of the board, and there’s no pressure to agree. And on the flip side, board members are obliged to share their observations with the rest of the board and the CEO by writing a memo soon after their meeting to enable everyone to learn.

All meetings are also shared with the CEO and chairman in advance. We coordinate and ensure that we are close to the optimum in the number of meetings and who meets with whom.

8.   Our board is light on formality and heavy on substance.

Any meeting where we don’t laugh out loud is a miserable failure! This helps you balance between optimism and paranoia. Otherwise, you fall into the trap of just being paranoid. I always aim to get the board to laugh out loud during the first 10 minutes of a meeting. That gets things moving in the right spirit. The darker the tidings, the more important it is to find a reason to laugh as well.

And by the way, suits and ties are not mandatory at board meetings.

These are healthy things to talk about in any company, but especially a company in crisis that’s facing the need for radical change. Ironically, Nokia’s chairman-centric history worked to my benefit. My suggested rules weren’t challenged. Over time, people realized that those changes paid off, and they began to implement them on their own initiative.

The rules also provided a backstop against backsliding. On a board of directors, everyone is a high-profile person, and many have a big ego. How do you rein in these alpha personalities? When somebody deviated from our agreed-upon behavior, it was very easy for me to have a chat offline. “I understand that the pressure is high. I understand there’s a lot of emotion at stake,” I might say. “But you do realize how (the person receiving the broadside) felt and what that does to our board dynamics that we have agreed to nurture.” I was not criticizing that person; I was just referring to what he had already committed to. Because there was a solid foundation of mutual respect, all the board members eventually changed their behavior. At least, a little.

The rules aren’t etched in stone. They’re a living, organic framework that’s flexible enough to adapt to different situations and be customized for the particular demand of the moment. (In 2012, for example, there were only six rules.) Every year before the Annual General Meeting, I review the rules, ask for ideas from my colleagues (that definition includes the CEO and the board secretary), and try to think if we can or should change the rules to better reflect the challenges we’re facing right now, the mistakes we made over the past year, and the misunderstandings that occurred.

The rules serve as a checklist in times of roiling disruption as well as ordinary ups and downs. They guided us through the tough days we faced in 2012 and continue to guide us today.

The Journey to Transparency

By approving the Golden Rules, the board endorsed a certain way of working and gave me the freedom to begin our transformation. It was a relief to put the cat on the table, as the Finnish saying goes—although our problems were so much bigger than cats that we joked about “putting the moose on the table.” No one could doubt we were in crisis. No one could argue that we needed to change our ways: to create an atmosphere of transparency and trust.

From the outset, when planning the 2012 board calendar, I deliberately added 30 percent more time to be dedicated to board meetings. I pulled the number out of thin air, but that didn’t matter. I knew that we were in trouble and that the more time we spent together, the better we would understand and trust each other.

The best way to run any team and get the team’s support is to give all the members a chance to state their opinion. In the old board, dissenting opinions were often ignored or squelched. That’s something I insisted on changing immediately. At the first meeting, for a particular topic of importance, I went around the table asking everyone to state his or her opinion. It was not voluntary: Everyone had to speak up. As a result, our sense of teamwork and trust started to improve.

We also needed to persuade the management team to trust the board. During the months before my confirmation as chairman, Stephen Elop gave me a lot of access to his top team. Our joint message was: “If you want us to respect you, you’ll level with us. If you tell us, ‘I have a big challenge and I don’t know how to tackle it,’ or ‘I have three plans but I’m not sure which is best,’ we will respect you far more than if you don’t ask for our advice. If you come in with only one solution and try to sell that to us, you may get our support but not our respect.”

Forging an Agenda for Success

I also knew we would have to change the content of the board meetings. We needed to forge an agenda that would put us back on the path to success.

To that end, Stephen and I worked to reduce time spent on topics of secondary importance: corporate governance, share price, compliance, media coverage, and social responsibility. These are meaningful topics but not as important when the ship is sinking. Instead, we focused on fundamentals: our technology, our products, our people, our customers, and our competition, as well as our competitiveness now and in the future. These are the right things to talk about in any company but especially a company in distress.

We tried to teach the management to explain to the board what defines our success in the market. This was not just about stating, “This is what we need to do now.” It was understanding why: Why do we think this technology or this feature will be important? Why will these actions make us good in these things? Why do we assume we’re on the right path? Why is this approach the best way to track our progress?

For each of these topics, the goal was always to find alternative paths forward. If you have only one path forward, you become a passenger. If you have several alternatives, you can make choices. You are in control.

A member of the management team crystallized the difference between the old board and the new board. The old approach was “Don’t you dare bring bad news to us without a solution”; the new one was “Bad news is good news. We will help you find a solution.”

That’s the factual side of enacting change. We also took our first steps on the cultural journey to transparency.

A bit later, the board started having breakfast with rising stars of the company. Before every board meeting, we scheduled a one-hour breakfast meeting with four high-potential managers. They each were given 15 minutes to talk about themselves and the top issues they were facing. Our question was always the same: “What would need to change for you to be more successful in your job?” We are basically trying to get them to complain, so the board could understand what should be improved in the way the company operated.

Strategic Symbols

Other changes were symbolic, but their message was no less strong.

Nokia tradition was that individual board members always had a personal chauffeur to drive them in an Audi 8 or Mercedes S-class luxury sedan to board-related events. But after the 2012 AGM, they all rode to dinner in a mini-bus—and I rode with them. It was a small thing, but it demonstrated a different approach to creating a board culture. The old way focused on appearance and protocol; our way emphasized building a team and getting results.

The next morning—my first as chairman—I started moving the furniture. Most people at Nokia headquarters, including the CEO, sat in an open office setting. The previous chairman, however, had his own office. It was nicknamed “the blue room” because of the color of the glass facing the rest of the office space. People referred to time spent there as “a blue moment.”

I asked for the walls to be moved and the space changed into an open office. I had a table installed like everyone else. In that open environment, I started meeting with people, asking questions, listening, and learning.

During the months preceding my chairmanship, I learned that the previous chairman, following a Nokia tradition of having his official portrait painted of himself before leaving office, ran a global search for a talented portrait artist. He picked an American painter and had him move to Finland for several months and finish two portraits, one for the company and one for his home. The idea of spending a significant amount of money on an individual portrait during a time of crisis did not feel right. I informed the staff that from now on a photograph of a departing CEO or chairman would be sufficient.

These and many other small actions combined to send a strong emotional signal of a cultural shift gaining speed.

Then, on June 18, 2012, Microsoft knocked us flat.

Turnarounds Start with Trust

During those early days, there were a lot of things I instinctively did right without fully understanding why I did them. Only later did I realize that the core goal of every interaction was to build trust.

Laying down a foundation of trust is absolutely paramount. In times of trouble and complex circumstances, trust both greases the gears and is the glue that holds everything together.

Instilling trust started the moment I welcomed everyone to our first board meeting. It may not have been explicitly stated on the agenda, but implicitly it was my first order of business. Each board member had to be able to trust all the other board members. The board as a group had to trust the chairman. The CEO and the management team must be able to trust the board. Trust must flow out to our employees, suppliers, partners, and investors.

Trust is built on two pillars: transparency and equality. Transparency encompasses sharing data, developing the discipline of analysis, encouraging board members to talk with the CEO and management team, and sharing the content of those discussions. Equality means a lot of different things ranging from giving everybody an equal opportunity to be heard to nurturing a team spirit by riding in the same bus.

In the spirit of both openness and equality, we started to evaluate the board members much the same way management is evaluated in a 360 degree–like process.

I launched an annual anonymous numeric evaluation process. All board members receive a personal grade for their contribution during the past year and a grade for their expected ability to contribute in the future. The board members’ contributions are also evaluated by the management team members with whom the board had meaningful engagement. Suddenly, the board members were no longer untouchable. The fact that management could safely give feedback on the board’s behavior in general, as well as on the individual board members’ behavior, gave the board the right to contribute more actively to secure a future for the company. Trust is often about balance. Or in this case, checks and balances.

Trust must constantly be reinforced. It cannot be taken for granted. That reinforcement can only be done by unfailingly setting an example: by encouraging people to seek out and share bad news, by not punishing them when they do, by constantly rewarding accountability, and by recruiting people who already think accordingly.

I also made changes that required trust. One was starting a regular evaluation of the CEO where I interview the CEO’s direct reports one-by-one. (I do this in all companies where I am chairman.) Naturally, I discuss my observations with the board. The board should have a strong understanding of the type of CEO they have and what his or her strong and weak areas are.

I hold these interviews at least annually, and for new CEOs more often. We go through five areas: how the CEO develops the culture in the company; how she leads the management team; how the relationship between the individual being interviewed and the CEO is evolving; how the board could better support the management team; and, last but not least, what future plans does the individual have and is there an interest to, one day, perhaps serve as the CEO of the company.

I ask a lot of pragmatic questions about how the management team meeting agendas are created, how the CEO deals with conflicts, how easy she is to get in touch with, how she supports personal development, etc. In the course of these discussions, I get to know the CEO in a different way, but also learn to understand the team dynamics better. Once the interviews are completed, I think deeply on what I learned and how I could best help the CEO. I then go through all my findings and thoughts with the CEO in a spirit of brutal honesty, while maintaining anonymity for the management team members.

I remember that neither Stephen nor Rajeev were exactly happy with the process when I first discussed it with them. Over time, though, it became part of our standard routine, I believe, and helped both CEOs to manage the company better.

As trust filters across an organization, you will see clearer communication and greater transparency, all of which will lead to a greater range of ideas and suggestions from your employees and colleagues. These are the innovative ideas and suggestions that are necessary to jump-start a company’s turnaround.