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Mike Volkema: Solid Values, Changing Times

Mike Volkema has been chairman of the board of directors for Herman Miller since 2000. He also served the company as chief executive officer from 1995 to 2004.

Herman Miller consistently has been named by Fortune magazine as the nation’s most admired furniture company, and has been cited by the magazine among the leaders in all industries for innovation and social responsibility. In addition, Business Ethics magazine has unfailingly listed Herman Miller in its annual ranking of the “100 Best Corporate Citizens.” Herman Miller also received the coveted National Design Award from the Smithsonian’s Cooper-Hewitt, National Design Museum. Industry Week magazine has selected Herman Miller among its 100 Best-Managed Manufacturing Companies in the world.

Volkema has been named to the Forbes CEO 800 list as well as the Harvard Business School’s list of the Great American Business Leaders of the 20th century. Mike is a native of Columbus, Ohio, and was educated at Calvin College in Grand Rapids, Michigan, and Western Michigan University in Kalamazoo, Michigan. He earned a juris doctorate from Wayne State University Law School. He currently serves as chairman of the board for Kids Hope USA, and is a board member of Applebee’s International, Wolverine World Wide Inc., and the Michigan Business Roundtable.

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Ethix: Herman Miller has a legendary history as a company that produces quality products and is a great place to work. For many years its leadership came from the DePree family: first D.J., then Hugh, and then Max. How was it stepping into that line of leaders?

Mike Volkema: There were two CEOs between Max and me. In fact Max retired from the board about the same time that I took on my new role and responsibility. It was his 70th birthday, and that’s the mandatory retirement age for service on the Herman Miller board. In any event, it’s always humbling to follow great leaders. The DePrees left a wonderful legacy.

When I took over in 1995, the marketplace was undergoing significant change and the company was in some trouble. We had double-digit growth in our industry, and we were growing at the same rate, but unfortunately our gross margins were compressing and our operating expenses were out of control. In a year when we should have made reasonable profits, we actually finished just slightly above break-even. So we were in a bit of a crisis.

… it wasn’t about changing the values, it was about a new strategy and structure, and about setting priorities that would help to make the commercial enterprise a success.

In addition, we had a dilapidated IT infrastructure, and to that point our operations had not been focused on world-class manufacturing techniques.

Max and I met from time to time in the beginning and he was always a great counselor. Hugh, Max’s older brother, who was CEO before Max, was also helpful in the early days. D.J. DePree, the founding CEO, was no longer alive. I also took time to meet with the other former presidents of the company. I wanted to find out what they had been trying to accomplish, and as much about the history and heritage as I could. From my perspective, it wasn’t about changing the values, it was about a new strategy and structure, and about setting priorities that would help to make the commercial enterprise a success. I wanted to take the power of the strong values that the company had and use them as a foundation for the future.

Same Values, New Practices

What did you do to make sure that you retained those strong values during this time of change?

To do this we addressed the questions: “What is it we really believe? And who do we want to become?” This led to a restatement of the values of Herman Miller, which we called the Blueprint for Corporate Community. There have been several times over the life of Herman Miller when the leadership teams reexamined the values. The words change, but if you compare these values statements over the years you can see the threads of common values that have been around Herman Miller since its inception. The next thing we did was to promise the organization that we would have a strategy published within 45 days. We wanted to get everyone on the same page so we could begin winning in the marketplace.

I remember a conversation I had with Lou Platt when he was CEO at HP. He said he wanted to keep the core values the same, but the practices would need to change because of the circumstances facing the company. Is this what you were dealing with?

The old cultural practice was lifetime employment, but the value was that people are special and important.

Yes. Our head of HR at that time said it more eloquently than I could have, calling us to distinguish between a cultural practice and a value. Here’s an example of that distinction: Earlier in our history, leaders would say, “If you work hard and do a good job, you’ll have lifetime employment.” But in the middle 1990s no leader could make that promise and maintain his or her integrity. We can no longer forecast the next 10 years with a high degree of predictability. The old cultural practice was lifetime employment, but the value was that people are special and important. The new practice became a social contract with employees to help them build their marketable skills, without the guarantee of future employment.

Leadership must identify the needs of the business and the needs, special skills, and talents of our employees, and then to try to create a match. This led us to take the cap off of tuition assistance for education. It was unlimited for people who could describe how they wanted to improve themselves in a way that we thought the business would also enjoy some benefit. Similarly, if the business wasn’t able to create the opportunities for the employee to grow and prosper as an individual, then we should applaud his or her departure from the company to go take on a new role. We’re not going to think about it as if the employee abandoned us.

Dealing With Layoffs

After a period of growth and prosperity, the business hit some difficult times. This resulted in a layoff, right?

Yes. We had five years where the company grew, compounded at about 15 percent per year, and the stock price split twice. And then we had events we never expected: the dot-com bubble burst, 9-11, Afghanistan, and Iraq. Our industry had the unfortunate circumstance of watching itself back up almost 45 percent over the next few years. During that period we ended up closing several plants and eliminating over a million and half square feet of production space. And we had to tell over 4,000 people that we didn’t have enough work for them. It was difficult times full of difficult decisions.

How did the values affect those discussions? Did you do the process differently than some companies do?

I think we did. Once we’d determined it wasn’t a short-term downturn but one that was going to be more extended and more protracted than anything since the Great Depression, we had to restructure the business and match our capacity with the size of our market opportunity in our industry. But I think we tried to live our values during it.

What did you do specifically?

We tried to make our severance packages generous to help people build a bridge to their next opportunity. We also set up centers for redeployment where people could get help writing their resumes and investigating other employment opportunities. This geographic area is the center for the contract office furniture industry, and we had unemployment jump significantly over the national average for the first time in 30 years. Many people were scared, wondering where they could go to find that next job. And that’s where we tried to step up and give the financial bridges and personal support that were necessary. But that doesn’t take anything away from the fear and even panic that goes into that type of transition.

The old cultural practice was lifetime employment, but the value was that people are special and important.

Maintaining Innovation

There is a tendency for companies to cut back on the innovation at the time of a downturn, because it is longer term. But then they are not prepared for the next upturn. How did you maintain your innovation engine?

Just before the downturn, our understanding of the marketplace suggested that we were going to have to find new market opportunities for the company, so we established the Herman Miller Creative Office. This resembled something that Herman Miller had done many years before, called the Herman Miller Research Corporation, which was based across the state in Ann Arbor, Michigan. The idea was to exercise our research-driven corporate discipline in a way that would allow us to find tangential markets. In the past we had invented “systems furniture” and ergonomic seating, and we needed to revive our innovation engine to create new and bigger opportunities for us and for others. So even during the downturn, we had some people and some significant resources deployed against this work.

This is one of those times where you have competing interests that are very, very difficult to try to balance correctly, but we decided this would be the only area of the business where we weren’t going to cut budget. And that decision was not made without a lot of pain and anguish when leaders asked, “How in the world can I possibly let these very capable, talented individuals go, and yet we’re not going to cut the budget of the Herman Miller Creative Office?”

It was one of those times in which leaders need to carry the burden of a difficult decision. We knew that if we did not keep it, we would add time coming out of the downturn getting that engine started again, assuming it could ever be restarted. As a consequence, just now coming out of that downturn in the last year, we launched a brand new business called Sonare Technologies — a huge breakthrough in sound management, privacy, and confidentiality.

Is this the Babble device?

Yes. We’ve been on ABC’s “Good Morning, America” and in newspapers and magazines around the world discussing this new initiative that we think is going to be one of our new economic engines. So I think we made the right decision to fund this effort through the downturn for the sake of our company, our people, and our customers.

Privacy Technology

Tell us a bit about the technology.

The invention of systems furniture radically changed the way many buildings were built. As more people move into an open-plan work environment, they encountered real issues around privacy and distraction. And we never really responded to these concerns and the need for confidentiality.

Different parts of the world are going to add different value when creating and making products. I’m not personally in favor of protectionism to protect one group of human beings.

There are devices out there that address sound management, like white noise or Musak, which are generally what we call sound-masking systems. The problem with white noise or even what we call pink noise — which is a system we offer called Quiet Technology that’s deployed around a smaller group of people: five, six, seven, eight — is that all you’re really doing is trying to mask sound with a generic sound. So to be effective you’ve got to turn it louder.

What we developed, in collaboration with an organization out on the West Coast called Applied Minds, is a system that blocks cognition. When our human mind can understand one out of every three words, whether we want to or not, we begin to listen in. You may have had this experience in an airport when somebody gets on a cell phone next to you. It’s almost impossible to avoid being a participant in their conversation.

What we learned is that our own voice is the best masker for our voice.

The device that we developed with Applied Minds replicates your voice through an algorithm at the same level of intensity, turning a single voice into a small crowd. In a restaurant, you can’t really understand what people are saying a couple of tables away, because three or four people are talking. And it doesn’t really bother you because you’re accustomed to that kind of noise. In fact it actually energizes us a bit. It’s one of the reasons why we like to be in lively gathering places. With our system, if you were sitting 3 feet away from me and I’m on the telephone, unless you’re a lip reader, you can’t understand what I’m saying. So we block the cognition, or your ability to understand. I think it’s going to be a real success for us. This has huge implications for hospitals, for example, around some of the privacy (HIPAA) legislation, where doctors need to protect the privacy of patients when they talk with them. And, of course, it is important in the office situation with sensitive business information.

Are products out today?

Yes, we launched in June of 2005.

Are there other areas of technology that are important to your business?

When operating the business, I believe that technology is a tool. I always try to distinguish between technology as tools and technology as toys. We are in an era where technology and the movement of information is a big key to creating value. If you’re not deploying the appropriate technology tools to support your work, you’re probably out of business. Technology permeates every dimension of the business, whether it’s the design process, the sales process, the production process, or accounting for public reporting purposes. Technology’s a way of life.

Dealing With the Internet

At one point you rolled out an electronic Internet store with your products, and then you pulled it back. Tell me about that decision.

You’re speaking of what we called Herman Miller red, which was started during the height of the dot-com era. We believed that there was a marketplace for hip and cool, lower-cost furniture that might be marketed over the Internet. We also had some retailers that were going to be selling the same furniture. And then of course the dot-com bubble burst, 9-11, and the Iraq war hit our industry. We had at that time five strategic initiatives. We already talked about the Herman Miller Creative Office, and, of course, we had some core business initiatives. We couldn’t do everything. So Herman Miller Red was one of the strategic initiatives that we unfortunately needed to eliminate.

Do you sell any products over the Internet today?

We don’t, but our retail channels do, including a number of e-tailers. So we have not developed our own site, but depend on others to do that.

That’s one aspect of technology. Another one is how you do your design, and I know you’ve done some pioneering work in 3D design.

We use market-available tools for CAD design and finite element analysis. We have been leaders with visualization tools to help describe how our products can work for a customer. In collaboration with an outside firm, we developed a technology called Z-Axis that’s used out in the field and helps make order specification bulletproof. What you see is what you get. We were pioneers in this area. Uli Chi and his team were the developers of this software out in Seattle, and we worked closely with them in the development of the tools.

Sustainability

Herman Miller has always had an interest in sustainability. Where did this come from, and what are you doing in this area?

We’re in the history books as being among the pioneers of those types of program.

Early on the DePrees concluded that no generation had the right to take away from future generations the resources of creation that God gave all of us. And as a consequence we are committed to running the business in a sustainable way. Now, “sustainability” is more modern language, but the same principles apply. For decades we have been recycling things rather than just “take, make, and waste,” which is a vicious cycle that’s destructive.

Where are you on this journey today?

Today, we are active members of groups like the U.S. Green Building Council, and we are key supporters of the LEED Certification process. All of our buildings, by board directive, have to be built or remodeled to at least a silver certification. Many of our buildings have a gold certification. We have a lot of people coming through to look at our buildings, and we want to be able to demonstrate to the most skeptical CFO that you can get great returns from sustainable architecture. So even if they don’t have the heart for sustainability, they will conclude that it’s good business. More than just being a sustainable business, we can be restorative as we recruit and inspire other organizations.

On the product side, we have product development protocols that literally take us to the state of the art where virtually everything that we make attempts to fit into a closed loop that can ultimately be used as a technical nutrient for another product or similar products. We have design protocols where we’re trying to get back to the molecular buildup of all the component parts in a way that they’re easily disassembled, so that you can get access to those raw materials again. We’re not there yet, but we are clearly on the journey.

On the production side, we first and foremost start with a lean manufacturing approach that tries to eliminate as much waste in that process as is possible. And then we also continue to work on how we use scrap and waste and cogeneration of energy. We publish environmental reports on an annual basis to show how we’re doing. We also have an environmental conference every year for our vendors, customers, and even our competitors. We include competitors, and they come, because in this area if we can find a better way to make things through a new sustainable process, we all win.

Outsourcing

Most industries of your kind have pushed their manufacturing to China. Where are you in that process?

First of all, Herman Miller has never been as vertically integrated as some of our competitors. We’ve always wanted to have the flexibility of not being dedicated to a particular process so we could adapt to new materials.

Having said that, we’ve always had different component parts made overseas. It’s unavoidable that the manufacturing function is moving to different parts of the world. We see that as a continuing trend and have resources deployed in Asia and other places to try to understand what that means to our business and who might support us.

Even pay and performance for every employee gets assessed at some level on whether or not they’re living our values.

Do you envision a day, though, when you would have no factories here, and everything would be made in China?

In a talk recently, I said, “I’m a citizen of the United States, and proud to be one. But I’m also a citizen of the world. And what I’d suggest to you is that different parts of the world are going to add different value when creating and making products. I’m not personally in favor of protectionism, to protect one group of human beings, because my calling is to love them all. In America, we will add value through our knowledge workers. We have the best secondary education institutions in the world, bar none. So what are we doing to help our children gain access to that education, to allow them to be the knowledge workers of the world?” I don’t believe that we have to lower our standard of living if we can accomplish that task.

Corporate Governance

Last year, you left the CEO position and became the chairman. So you’ve made the split between chairman and CEO. How does that work?

On a personal level or organizational level?

Both. From a governance point of view, some point to the dual role of chairman and CEO as an important factor in the ethical breakdowns in the United States in the past decade. But then splitting the task creates issues of the division of responsibility.

On a personal level, this was a fairly easy decision for me. I’ve always believed that leadership tenure runs in seven- to 10-year time frames. On a personal level I always knew that I would need a time of renewal, and I also believe that organizations need renewal by having new leaders with fresh ideas. So I had always intended to not let my tenure as CEO get beyond 10 years.

Having gone through that economic downturn, I told the board that my experience was like taking a group of people on a mountain-climbing expedition. You’re on the way up the mountain, making great progress, and everyone’s applauding. Your goal is to reach the summit within the time frame that you predicted. And then you hit some inclement weather and your job as a leader changes. You know that your job now is to get as many people down safely to the bottom of the mountain as possible. And that’s what we did. After that, I said the weather will clear and we will enter a period of economic recovery. You will need to pick the next leader, for the new mountain and the next seven- to 10-year climb.

They encouraged me, along with the new CEO Brian Walker, not only to stay on as chairman but also continue to work on the Creative Office. And so far it’s worked out great.

… both Brian Walker and I believe that separating those roles, just from a governance standpoint, functions better.

We actually had a model where David Nelson, who was on our board, became the chairman when I became CEO, and those roles were separated until David hit the mandatory retirement age of 70. One of the saddest days of my working career was when he retired and I took on the chairman’s role, coupled with the CEO role. I found that to be very difficult. I found it much easier to work hard as the CEO and be the advocate for what leadership wanted to try to get accomplished and not be the person who had to facilitate the meetings, and complete tasks that are awkward for the CEO, including leadership compensation. Now we had a designated lead director, which helped a bit when the two roles were combined, but whether Enron had happened or not, both Brian Walker and I believe that separating those roles, just from a governance standpoint, functions better.

Would you say it’s working well at this point?

Yes. We’ve already had some circumstances that demonstrate it’s the right model to use. For it to work, you have to make sure that the CEO and the chairman aren’t in competition.

And how do you ensure that? What steps do you take?

It helps that my personal belief is that there isn’t success without a successor. So when Brian took on the role of CEO, I was his biggest cheerleader. I wanted to watch him succeed in that role, and I was ready to move on. When I had gotten the nudge to become CEO, I had my own awakening. I had always done a pretty good job of compartmentalizing the different parts of my life. I had work life, home life, church life, etc. But as I took on the role of CEO, for reasons that weren’t purely logical, but more to respond to a need, I committed that I would not separate who I was from what I did, and not let what I did become who I am.

It’s been an easy transition for me personally and I think if you tested Brian Walker he would suggest that we’re handling the roles well. He’s the CEO and I’m the chairman and those are two different and distinct roles.

What kind of ethics programs do you have for your organization?

Ethics feed directly into the articulation of our values. We don’t separate them. Of course we have things like codes of ethical conduct, but our values have become our guiding light. And, we have done a lot of work around the values; even pay and perform-ance for every employee gets assessed at some level on whether or not they’re living our values. Employee surveys have sections that test how leadership’s doing around living our values.

My definition of ethics is not just damage control but also mission control, which is consistent with what you’re saying.

Precisely.

Our world continues to change, and the organization needs to change with it.

Preserving Values for the Future

As you look to the future, what confidence do you have that Herman Miller won’t drift away from its core values?

I don’t think that D.J. DePree ever wanted to fix the organization in time, or Hugh Depree, or Max, or any leader who has been here. Our world continues to change and the organization needs to change with it. The hope is that our foundational values remain constant, but strategies and top priorities change with the needs of our rapidly changing world.

Brian Walker went through the same renewal with his team, asking what they believed and what they were committed to. He had to go away and ponder on our values personally. We then had an op-portunity to assess whether there was a significant migration between what we believed historically and what we believe today, and I don’t think there has been. They’re amazingly close, even though they use different language or communicate those things in slightly different ways.

I also think that the board’s an important piece of governing the ongoing relationship with the values. Boards don’t turn over nearly as fast as management does. Many of our board members are attracted to Herman Miller because of who we are, and what we believe, as an organization.

There are two things the CEO can’t delegate: vision and values. The clash comes when leaders want to use power rather than be guided by our values. I’m confident that Brian Walker will protect the values of the organization over time and lead the organization to new heights.

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