President and CEO of CME (Hot Firm #36 for 2018), an engineering firm headquartered in Connecticut that refuses to be affordable and mediocre.
By Liisa Andreassen Correspondent
“If we cannot grow fast enough to provide someone with an opportunity to grow within CME, I am willing to write a letter of recommendation to help them move on to the professional role they deserve,” Cheney says. “I get a lot of disbelieving looks when I say it, but I mean it.”
A CONVERSATION WITH P. BRADFORD CHENEY.
The Zweig Letter: Benefits are evolving. Are you offering any new ones due to the changing demographic?
P. Bradford Cheney: The greatest change we’ve made in our benefits was to go to an undefined vacation policy. Everyone in the firm is expected to take at least three weeks off each year. You can take more with the approval of your supervisor. Taking less than three weeks is discouraged. As we started to grow coming out of the 2009 meltdown, our staff, on average, got younger. There were a couple of issues that started to pop up regularly. Young people would join us straight out of school and struggle to get a few days earned to take a summer or Christmas vacation. As younger staff got engaged, they would stop taking vacations for a year, to allow for a honeymoon. Talk about adding stress to an already stressful change!
Two things became obvious to me. First, it was unreasonable to think that young people didn’t need or deserve vacation time as much as senior staff; and secondly, if we wanted to put our money where our mouth was regarding a focus on delivery of value as opposed to quantity of perspiration, then why shouldn’t we allow people to coordinate leave with their supervisor, rather than some arbitrary additional one-and-a-half days off for every additional year worked? Think about that, the people whom you pay the least you expect to work the most. With a onetime payout for all outstanding vacation, it permanently removed a big liability from our balance sheet and more importantly stopped the feelings people had of being cheated if they lost vacation time for not using it by the end of the year, or just as undesirable, jamming in vacation days at times that may be bad for project delivery just so they didn’t lose them.
TZL: Do you tie compensation to performance for your top leaders?
PBC: We try to pay our people well for the job they are being asked to do. Our goal is to set clear expectations and to provide the support and framework for successful delivery. While bonus payments can be useful in specific cases, I have not found a system that treats employees fairly over the long term and the consequences of reality not meeting expectations (fair or not) can be terrible. Being paid well for the role I am asked to deliver and continuously being helped to develop my professional value and pay level without having to leave the firm, is how I would want to be treated, and we work hard at treating all staff that way. Overall corporate performance and the resulting risks and rewards are really an investor’s concern. I would much rather have key employees own stock and stay focused on the long-term growth of that investment.
TZL: Do you share base salary or bonus amounts with your entire staff?
PBC: Not specifically, but in our world of cost plus contracts and certified payrolls there are few secrets. We work hard to make sure that we’re comfortable with and can explain any pay differentials, one on one, if we are asked or challenged.
TZL: Have you ever closed an underperforming office? If so, tell us about it.
PBC: For years we had offered architectural design services. In recent years, we struggled with the financial performance of that work segment. It simply wasn’t growing and financial subsidies from the firm were needed. About a year and a half ago, we shut it down. We’d been providing that service for decades, and many staff members were less than happy with the decision because they had strong working relationships and friendships with our principal architect. But just as it’s important to make sure people are rewarded for the value they deliver to the company, it’s also vital to step in and make changes when someone is not delivering to their expected role. We’re a small firm, and when an investment isn’t working, we need to be agile enough to adjust. As that hard change fades into the past, we see healthier teaming opportunities with larger architectural partners than we were ever able to realize when we “owned it.”
TZL: Internal transition is expensive. How do you “sell” this investment opportunity to your next generation of principals? How do you prepare them for the next step?
PBC: I am bewildered by the desire in our industry to intermingle employment and ownership. From an employee’s perspective, if you work for say GE, the first advice you would receive from a competent financial advisor would be to not invest your 401(k) in GE stock. If the company goes south (a real possibility few would have expected five years ago), you not only have lost your job, but also your life savings. From a stockholder perspective, bonusing profits to employees so they can afford to buy firm stock, seems rather unfair to the current investors. I understand there is the whole issue of liquidity exasperated by many arcane state regulations that intertwine licensing and ownership requirements (to no avail, I’ve asked people who are much smarter than I am to explain how publicly traded AEC firms meet those ownership rules). I believe that maintaining long-term growth in firm value will create the best opportunities to reward stockholders. Keeping it in the hands of people with an entrepreneurial spirit and a focus on long-term value creation is my goal. Discounting stock or finding money to “bonus” so people can “afford” to buy it seems to rely on rather dubious logic.
TZL: When did you have the most fun running your firm, and what were the hallmarks of that time in your professional life?
PBC: Right now. We are winning bigger projects and delivering value to our clients in ways we could not have imagined 10 years ago. As a result, many of our people have been able to step into more meaningful and challenging roles. Seeing key staff take ownership of the idea that we can and will grow to be a much bigger organization, and work hard to create the culture, processes, and systems necessary to be that bigger vision, is just the best experience ever.
TZL: In one word or phrase, what do you describe as your number one job responsibility as CEO?
PBC: Change implementation.
TZL: What happens to the firm if you leave tomorrow?
PBC: Nothing. They are entirely whole without me. I tend to be the one who sees business opportunities earliest, but they would pick up that role quickly.
TZL: With technology reducing the time it takes to complete design work, how do you get the AEC industry to start pricing on value instead of hours?
PBC: It has started. Since 1996, average industry profitability (EBITDA) has gone from 6.5 percent to more than 11.5 percent. More and more firms are recognizing the value of business skills and are folding MBAs and CPAs into their leadership teams. Over time, that knowledge will change the industry.
TZL: If the worker shortage continues, do you see wages increasing to encourage more talent to enter the AEC space, or will technology be used to counter the reduced workforce?
PBC: Yes and yes. As the demand for engineers continues to grow, pay scales will be pushed higher. Many clients resist the increases, but at their own peril. I have seen large firms make the choice to stop working in certain states as wage caps and short-sighted contracting restrictions squeezed their margins to the point where they clearly had better places to put their capital to work. If you think about it, states will lose the best firms first, as the most talented are always in highest demand and therefore more portable. “Affordable and mediocre” is not much of a motto!
AI is going to enter our space far faster and more profoundly than most of us are able to imagine, and when it does it will seriously change the role of engineering professionals. We’ve all seen the software that balances cuts and fills on a site, now extrapolate that to an entire roadway or commercial site design. Think about it, every bridge is like a hand-tailored suit. It will not stay that way. When you talk to the AI community, there isn’t much, if anything, they’re afraid of tackling.
TZL: Diversity and inclusion is lacking. What steps are you taking to address the issue?
PBC: I’ve had some fascinating conversations about diversity and how it delivers value to an organization. A few years ago, I posed a question to a classmate as we discussed a case study that had demonstrated companies with diverse boards of directors financially outperformed those with homogeneous ones. The results were inarguable. Diverse boards made for more valuable organizations. The cause was attributed to the value of diversity of thought, experience and background. I asked if it might be at least partially attributed to the fact that homogeneous boards may have members selected based on existing access, friendships, and familiarity, where boards displaying diversity were more likely comprised of individuals selected based on demonstrated skill and abilities. I have always been unhappy with how my question was brushed aside so easily.
Here’s my point: I think it has worked significantly to CME’s advantage to recognize that talent resides in all genders and races, and if you focus on finding, hiring, and nurturing talented individuals you naturally end up with a diverse workforce and the additional advantages which come with a wider range of personal experiences and perspectives. Our people are hired and promoted based on talent. As a small, for-profit firm, we don’t have the wherewithal to narrow our talent search beyond the skill sets a role requires. Our staff, to a person, is in their role based on their professional ability. We cannot afford anything else. It is not a surprise to me that our focus on professional ability and potential has led us to far exceed the AEC industry’s average measures of gender and racial diversity. Talent resides across the full spectrum of gender and race, and I believe CME is proof of that.
TZL: A firm’s longevity is valuable. What are you doing to encourage your staff to stick around?
PBC: Well the answer to that is pretty straightforward – growth and a commitment to help every staff member develop and grow their professional value. If we cannot grow fast enough to provide someone with an opportunity to grow within CME, I am willing to write a letter of recommendation to help them move on to the professional role they deserve. I get a lot of disbelieving looks when I say it, but I mean it.Subscribe to The Zweig Letter for free.