BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE
THE CORPORATION

AES's Dennis Bakke: A Reluctant Capitalist
The CEO on putting social service over profits -- and on management lessons from Mother Teresa

AES Corp. is probably the biggest company that nobody has ever heard of. With 118 power plants in 16 countries, the Arlington (Va.)-based power supplier is one of the world's largest providers of electricity, boasting a market capitalization of about $14 billion. Sure, it's an old-line business, but CEO Dennis Bakke and Chairman Roger W. Sant conduct it in a remarkable way. When the pair co-founded the company in 1981, they adopted a unique philosophy. First, people should be trusted. Second, businesses don't exist to make money. They exist to serve.

It's a simple creed, but one that's rather unorthodox for Corporate America and Wall Street. Bakke and Sant divested the company's top execs of all power, pushing decision-making down to the lowest ranks possible. The company tries to make work fun. AES also lives by the creed that social responsibility should come ahead of profits, a mission the Securities & Exchange Commission required the company to state clearly in its risk statement when AES went public in 1991.

The result is a completely decentralized corporation, with 40,000 employees worldwide, no central business strategy, and an evangelical CEO who is out to change the world. Bakke recently spoke to Business Week's Lorraine Woellert in his office overlooking the Potomac River. Here are excerpts from their conversation:

Q: How hard was it for you to give up power?
A:
I love power. I love control. It's fun to make decisions. But I tend to limit myself to one decision a year. It's hard.

Q: So what do you and other top AES execs actually do?
A:
My dream would be that our leaders would be first and foremost the keepers of, the interpreters of, the teachers of our principles and values. That's my first role. My second role is to be chief adviser. My third role: After people make decisions, we start holding everybody accountable. If they're not being held accountable by their colleagues, then the leader steps in and has to be chief accountability officer. The fourth role is chief celebrator, cheerleader. Then, in some cases it's not clear who should make a decision. There are some decisions where it's not obvious, for example, when there are conflicts between geographic areas. So my fifth role is to pick the person who will in fact make the ultimate decision. That goes back to the one decision I make a year. I get to divide up the world. A very powerful job. I get to reassign things in terms of our groups.

Q: I expect you have heavy e-mail traffic.
A:
I don't look at the global mail.

Q: What? I thought you were the chief advice giver.
A:
There's just too much mail. [People] know that. If they want advice from me, they send the e-mail to me. Most people will send to their own group, their own plant. Then they might send it to all the other business leaders in their group or across the world or to the officers or 14 group leaders. If you're not getting asked advice, then people probably don't care about you.

Q: What about the guy in China hauling coal, how is he brought into the advice process. Does he have access to e-mail?
A:
A lot of them do. Again, it's not perfect. It's our goal. We want to make every single person -- we don't care what education level, or what color they are, or whether they work in China or here -- we want every single person to have access to the advice process. They do participate.... There's no staff group that buys trucks. That person goes to the bank. They have to take responsibility for the whole thing.

Q: It sounds almost Marxist: empowering your workers and giving them the means of production.
A:
You're not the first person to say that. I was in Brazil at a press conference and was talking about the purpose of the company. It happened to be just about the time of Mother Teresa's death, so I brought with me a picture of Mother Teresa to illustrate what I meant by serving. I put that picture up there, and flashbulbs were going off and the TV cameras were there and our people were like, "Oh no, what's the paper going to look like in the morning, what's the story going to be?" Sure enough there's a big story, a very positive story. Then there's this little sidebar. It's about me. It says, "Christian or Communist?" I said, "It's perfect!" It was great.

Here's another one: I was in China. I had dinner with a big Chinese business executive, a business guy in China, which isn't easy to find. So I'm going on about how we approach this thing, and he listened very carefully through an interpreter. Then he stopped and said, "You know, we have a word for all that. We call it communism." So I thought, "Well, communism isn't all bad."

Q: But you're not a communist.
A:
I'm very much not enamored about communism. There's a lot of difference. Marx [came] out of the 19th century ideas that mankind could be manipulated, and you could figure out, if you had the right incentives and created the right environment, how to ensure people would be good and would produce. But he didn't believe in the individual. So we've had all these philosophies of organization and structure from the rugged individuals in the U.S. where everybody says "I'm God myself, I'm the God of my life, I run everything myself, and it's all for me."

Then you have Marx and some others who said, "No, no, everything is the workers and the state and all for one and one for all" kind of stuff. But what I've just explained to you is how we deal with that problem. Yes, celebrate the individual, but you are part of a community, and my way of linking them has been this advice process, to try to bond those two things. I also don't believe in manipulation.

Q: Do you see yourself or your company inspiring copycats?
A:
I don't want people to copy us for the wrong reasons. We're usually copied because people want to make more money, so that would be totally the wrong reason and would totally fail.

Q: What sort of reaction do you get from your peers at other companies?
A:
They say, "This is a very strange company."

Q: Do AES people leave to start their own companies?
A:
No one leaves.

Q: What's your attrition rate?
A:
I don't know. It's probably microscopic. Do you think Mother Teresa [liked] her job? Our people serve with every bit as much passion as any company senior people you've ever seen.

Q: What does this kind of talk do
A:
This part doesn't depress it as much as when I go to Wall Street and say the purpose of business is to serve the world and not to make money. That's pretty scary. The board's not real happy with that.

Q: So where do profits come in? And where's ownership?
A:
Profits are very important. They are in fact not the goal of the company, but they are the just and fair reward that needs to be paid to investors who invest in your enterprise.

Q: Well, according to your model, investors and banks should be equal.
A:
Exactly. That's where we come out. Then you have people who work inside the company. What do we do for those people? They get paid a salary, and they get a bonus and maybe stock options. Profits are just like pay and salary.

Q: And that's basically where you break from Wall Street and the rest of Corporate America.
A:
I think that our shareholders are owners. But they're only one of the owners. The people inside the company, as Clarence Darrow said by the way -- and I don't agree with him on most things -- but the person who invests their time and effort in a company is just as much an owner as a person who puts their money in as an investor.

Q: Are you a capitalist?
A:
Yeah. In effect I'm a capitalist, I guess. But I'm not a capitalist who agrees that capitalists are the rulers of the land.

Q: Aren't you planning to write a book?
A:
Two years ago I [decided] not [to] have a book done about the company. It was maybe a bad decision. I don't know.

Q: So why didn't you do the book?
A:
I thought it would put too much attention on the company.

Q: What, you're modest now?
A:
Yeah, yeah. No, I'm not modest.... It's not just me. There are a whole lot of folks who've been involved. The second part, the more important was, it seems to me that books tend to come across as though they've figured it out. They've got a product. It's finished. As though we'd almost arrived and we got our act together. And that was an impression that would just turn me off. Because we are on a journey. We have hardly come close to perfecting what we're doing.

Q: You're still a work in progress.
A:
We're going to be a work in progress for the next 100 years, hopefully. Every year we learn something new, something that was inconsistent with our philosophy that we did because everybody else was doing it.

Q: You're hiring process must be pretty stringent
A:
We don't hire very many people, frankly. Of the 40,000 people who work at AES or AES affiliates, less than 1,000 were hired.

Q: How often do you fire people?
A:
All the time. One of the least socially responsible things in the world is to have one extra person working when they're not needed. In other words, an unproductive person. When they're added to the rest of the group, it makes the whole group unproductive. In either case, it's a travesty to the society to keep that person in an unproductive role. The compassion comes with how you do [the firing] and what responsibility you take for that transition. As much as I feel strongly about letting people go, in 99% of the cases they're doing it voluntarily. We're paying them significant amounts of money and letting them choose whether they want to stay or want to go. So we're paying enormous amounts of money in order to soften this transition from unproductive activity to productive activity.

Q: What's an enormous amount of money?
A:
From six months to three years' worth of compensation. I heard in India in one case they were going to offer 10 years, and the government said no, that's too much. So we're going to offer five years.

Q: Do you live by that philosophy outside the office?
A:
I hope so. Part of what we mean by integrity is you don't have private lives and public lives. "Business is business." Have you ever heard that? What I think people mean by that is there are special rules in business. Leave you're little Sunday School attitude at home. What we would like is to train more people to be the same person inside the company and have the same values and principles as they would at home. So we don't have this sort of schizoid life that most people have to live.



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