Fast Company

Power to the People

AES is big, rich - and unlike any company you've ever seen. It builds power plants by handing power to workers on the front lines. Its radical business model has worked wonders in the United States. Can it also work in Hungary, China, and Brazil?

Oscar Prieto had no idea how much his life was about to change. It was May 1996. Prieto, a relative newcomer to AES Corp., an independent producer of electrical power, was visiting its headquarters in Arlington, Virginia. He was meeting with a bunch of his colleagues when Thomas Tribone, a senior executive, interrupted.

"I've got fourteen people from France and some guys from Houston coming in to talk about buying a business in Rio de Janeiro," Tribone announced. "We've only got two AES people. Could one of you show up?" Prieto raised his hand and walked to a conference room down the hall. "I sat in the back and didn't pay much attention," he recalls.

The executives had gathered to discuss the privatization of Light Servicios de Electricidade (known as "Light"), one of Brazil's largest public utilities. Brazil's government had launched a massive sale of public assets. The French delegation - executives from Electricite de France (EdF), that country's giant national utility - along with representatives of Houston Light & Power, was considering a bid on the soon-to-be-auctioned Light. The group saw AES as a potential partner.

Prieto was puzzled. Why would AES be interested? His small company (which then had about 1,100 employees) was focused on the power-generation side of the business - building, buying, and operating plants, and selling the electricity from them to wholesale customers. Light was a massive public utility with more than 11,000 employees and a sprawling distribution system that served more than 2.7 million retail customers in Rio de Janeiro.

After the meeting, Tribone asked Prieto if he would like to play a lead role in this potential acquisition - a $1.7 billion deal that would cost AES about $400 million. "But Tom, we're not in the distribution business," Prieto said. "And I've never done this before."

Prieto, a chemical engineer, had worked for AES for just two years. It was his first job in the power industry: He had been hired to turn around a struggling 650-megawatt power plant in his native Argentina - the company's first joint venture in Latin America.

"You've been through a very difficult partnership," Tribone said. "You know what makes them work."

Prieto, then 43, soon left for Paris to negotiate an agreement with EdF: "I said to myself, What the hell am I doing? I'm handling such a huge, huge job all alone."

But Prieto got the job done. He moved to Rio de Janeiro and became one of Light's four directors. Then the job got really interesting. In short order, AES completed a string of deals: It signed a joint-venture agreement to buy CEMIG - an even-larger Brazilian utility, with more than 4 million customers. It broke ground on a new power plant in Uruguaiana, near Brazil's southern border. It took over the company that supplied electricity for Buenos Aires. And last October, it won a bid to distribute electricity to 800,000 customers in southern Brazil.

Today, 18 months after that fateful meeting in Arlington, Oscar Prieto works out of a 15th-floor office overlooking downtown Rio. He is a director of a major Brazilian company and a key figure in AES's rapid expansion in South America. He helicopters from one far-flung plant to another and oversees hundreds of millions of dollars in construction projects. His division has a combined customer base of 8 million homes and businesses.

"That's what happens when you raise your hand around here," Prieto says with a smile.

At most companies, Oscar Prieto's personal odyssey would be a fairy tale - far too much new responsibility, far too early in his tenure. At AES, it is standard operating procedure.

"God made us all a certain way," says Dennis Bakke, 52, AES's cofounder and CEO. "We're all creative, capable of making decisions, trustworthy, able to learn, and perhaps most important, fallible. We all want to be part of a community and to use our skills to make a difference in the world." Adds Roger Sant, 66, AES's cofounder and chairman: "If Dennis and I had to lead everything, we couldn't have grown as much as we have. People would bring deals for us to approve, and we would have a huge bottleneck. We've shifted to giving advice rather than giving approval. And we've moved ahead much faster than we would have otherwise."

Simple insights - but they have profound consequences for how AES operates. Lots of companies talk about pushing responsibility out from headquarters. Few companies push as hard or as far as AES. Just five years ago, it had fewer than 600 employees. Today it has nearly 6,000 employees (or more than 31,000, if you count those working in its joint ventures). Yet it has never established corporate departments for human resources, operations, purchasing, or legal affairs. Its headquarters staff includes fewer than 30 people.

Lots of companies talk about grassroots teams. Few companies give teams more power than AES does. A few years ago, CFO Barry Sharp estimated that the company had raised $3.5 billion to finance 10 new power plants. But, he added, he'd secured only $300 million of that sum on his own. The rest was brought in by decentralized teams. When AES raised $200 million (about $350 million) to finance a joint venture in Northern Ireland, two control-room operators led the team that raised the funds.

It sounds crazy - but it works. In 1990, the year before AES went public, the company had annual revenues of less than $200 million and profits of less than $16 million. In 1996, it had revenues of $835 million and profits of $125 million. The company opened its first plant in 1986. Today it owns or has an interest in 82 power plants, which generate nearly 22,000 megawatts of power for consumers in the United States, Argentina, China, Hungary, and other countries.

Not surprisingly, AES is a darling of Wall Street. Its 1991 public offering valued the company at $750 million. Today it has a market value of around $6 billion. Together, Bakke and Sant own about 25% of AES's shares - which translate into personal fortunes of roughly $750 million and $900 million, respectively.

But even more remarkable than the economic value that AES has created are the social values that it embraces - the ideas around which the company is built.

If It's Not Fun, Don't Do It

The AES mission statement declares that work should be "fun, fulfilling and exciting." But that doesn't mean Friday-afternoon beer busts. It means growth, freedom, and achievement. At AES, having fun means being challenged.

"Fun happens when you're intellectually excited," argues Sant. "It's people interacting with each other - with one idea leading to another - and getting frustrated if there isn't an answer. It's the struggle, and even the failures that go with the struggle, that make work fun."

Bakke and Sant couldn't have picked a tougher business in which to have fun. Power-plant work is hard, dangerous, and often boring. Most employees get trained in mundane, highly specialized tasks: Materials handlers move fuel to the boilers; technicians regulate fuel and temperature levels; electricians monitor and help maintain generators and other equipment.

"Specialization is the root of a lot of boredom," says Bakke. Even worse, he argues, talented specialists tend to dumb down the rest of the organization: "As soon as you have a specialist who's very good, everyone else quits thinking. The better that person is, the worse it is for the organization. Now the information goes through the specialist, so all the education flows to the person who already knows the most."

The Front Line Drives the Bottom Line

Bakke and Sant are idealists. They are also clear-eyed realists. They abandoned long ago an illusion to which most executives cling - that only the people at the top have the wherewithal to run the show. The best way to exercise power, the AES founders argue, is to give it up.

"The modern manager is supposed to ask his people for advice and then make a decision," says Bakke. "But at AES, each decision is made by a person and a team. Their job is to get advice from me and from anybody else they think it's necessary to get advice from. And then they make the decision."

What happens when leaders renounce their authority? Their companies become faster and more nimble. In Brazil, AES's bid for CEMIG bogged down when a joint-venture partner couldn't make up its mind. "We made our decision within days," says Alessandra Marinheiro, the AES project manager who helped fashion the bid. "But our partner had to ask its board for approval, and that board had to ask another board. We delayed the bid - only to have the company pull out because it couldn't get final approval."

That didn't delay Marinheiro, 24, an entry-level financial analyst who became a project manager with responsibility for more than $2 billion in acquisitions - after less than a year at AES. On the day before the CEMIG auction, she lined up a new partner and reworked the bid. "We called Tom Tribone and made a decision," she recalls. "Other companies can't do that."

Every Person a Businessperson

There's another reason why AES disperses power so widely. "If all information about finance goes to the finance department, and all information about legal matters goes to the legal department, it's impossible to get well-rounded people who can think about the whole world," Bakke says. And it's well-rounded people, he argues, who deliver extraordinary performance.

Sound fanciful? Consider the career of Scott Gardner, 29, who joined AES in 1992 right out of Dartmouth College. Gardner joined a team developing a $200 million cogeneration plant in San Francisco. "It involved a lot of work and few people to do it," he says. "I took on tasks that ranged from designing a water system to negotiating with the community to buying and selling pollution credits."

Gardner also helped lead a bid (ultimately unsuccessful) for a $225 million cogeneration plant in Vancouver, British Columbia. When a similar deal materialized in Australia, Gardner volunteered for that assignment. Two weeks later, he was on his way to Brisbane.

"My task was to understand an unfamiliar regional power system, develop a design for the plant, and prepare a financial and technical bid document - all in six weeks," he says. When Gardner's proposal made the final round of competition, his division manager had him negotiate the terms of the $75 million deal. "The stress was incredible, but I was having fun," he says.

His bid won. "I held a press conference and was interviewed by local TV stations," says Gardner, who has left AES to attend business school. "I had to pinch myself to be sure this was happening."

Don't Just Make Money - Make a Difference

There's no denying AES's financial success. But Bakke and Sant didn't start the company so they could cash in. Bakke is a devout Christian whose ideas on business trace back to his religious beliefs. Sant is an environmentalist who has been active in organizations like the World Wildlife Fund and the Environmental Defense Fund. "This isn't about maximizing profits," Bakke insists. "We do this because it maximizes our ability to have fun and make a difference."

Of course, building and operating power plants is not one of the world's most environmentally benign endeavors. That's why AES tries to compensate for the emissions that it generates. When it built a coal-fired plant in Montville, Connecticut, it calculated that it would generate 15 million tons of carbon over 40 years. It planted 52 million trees in Guatemala - enough to offset those emissions.

As AES has moved into the developing world, its social initiatives have moved beyond environmentalism. It has funded medical care in Kazakhstan, organized food banks in Argentina, built schools in China. Roger Sant says AES started shifting gears when it built two 340-megawatt power plants in Pakistan, where the adult literacy rate is less than 40%. "You can't go to Pakistan and say that the number-one priority is global warming," he argues.

AES's practices are undeniably radical. They are also distinctly American. Decentralized authority, open-book management, challenging jobs - this is the new formula at more and more young U.S. companies. So what happens as AES goes global?

Five years ago, almost all of AES's operations were on American soil. Today, after billions of dollars worth of acquisitions and joint ventures, two-thirds of its holdings are outside the United States. AES now generates 20% of all the electricity in Hungary. It operates one of the world's largest coal-fired plants - in Kazakhstan. It has a stake in six plants in China and five in Argentina. The biggest challenge facing Bakke and Sant is whether they can do business the same way in Hungary and China as they do in Texas and Oklahoma.

Oscar Prieto's work in Brazil is a test case. Light Servicios de Electricidade, established almost a century ago, is Brazil's answer to Consolidated Edison. Founded by Canadians as a private company, Light was seized by the Brazilian government in 1979.

"That's when time stopped around here," says plant supervisor Ricardo Silva, 48, as he rides a rusty cable car to the top of a water pipeline that feeds 10 generators at Light's 600-megawatt Fontes complex. "Nothing much has happened since."

Fontes, Light's largest generating facility, is situated on a former coffee plantation in the mountains west of Rio. Until 1990, it employed more than 1,000 workers - and housed them and their families in a bucolic village built by the company. A lot has changed at Fontes since privatization. For one thing, Prieto and his colleagues have slashed the workforce by more than two-thirds. They designed a generous severance package, but there's no denying the dislocation. "A lot of people had to move away," says Silva, who has worked and lived at Fontes for almost two decades.

Such stories make Roger Sant wince. "But keeping three times as many people as you need doesn't work for anyone," he says. Adds Oscar Prieto: "The people who remain behave differently; their humor changes; their habits change. There's an inverse relation between the number of people and the quality of behavior."

That's the case at Santa Branca, a small Light facility that sits along the Paraiba do Sul river, northwest of Sao Paulo. Until AES took over Santa Branca, its only function was to redirect water to another hydrostation located down river. Yet it employed 32 full-time workers. "How many people do you need?" Prieto marvels.

Prieto chose Santa Branca as his initial experiment in transplanting AES's bottom-up culture into Light's top-heavy bureaucracy. First he announced a massive downsizing. Then he unveiled an upgrade - a $35 million construction project that will enable Santa Branca to fuel two hydroelectric generators. Then he asked for volunteers who would run things the AES way.

He quickly picked Carlos Baldi, 34, an engineer from Fontes, to be his leader in Santa Branca. "I knew he was the right person," says Prieto. "He was young, eager to do more." Then, after agreeing on shared goals and expectations - zero accidents, thrifty construction budgets - Prieto turned Santa Branca over to Baldi.

Didn't Prieto worry about distributing too much power too fast? "I trust people - without fear or hesitation," he says. "The best way to let them perform is with absolute freedom: I release you of all constraints, including the constraints imposed by your boss."

Freedom "was very scary at the beginning," says Baldi. "Every time I had to make a decision, I thought, 'Should I call Oscar?' But he just said, 'You know better than I do - you decide.' "

Now Baldi operates the same way with his people. Claudio Jorge Coelho de Souza, 36, runs electrical-engineering projects at Santa Branca. "I'm always getting his opinion," says Baldi. Aldir Cardozo Carreiro, 47, a former maintenance supervisor, oversees the facility's entire $1.3 million operating budget. "Aldir had never done anything like this," says Baldi. "So we got him an accounting program. Now he budgets salaries, writes contracts, oversees all maintenance."

What's next for AES? According to Dennis Bakke, it involves going beyond how people work to how they're paid. Bakke has long been critical of U.S. wage-and-hour laws, which require that non-management workers be paid strictly on an hourly basis. Such laws "are one of the major hindrances to creating a fun, meaningful and empowering workplace," he wrote in a letter to then-Secretary of Labor Robert Reich in 1996.

Bakke's argument has fallen on deaf ears in the United States. So his company is introducing change in places where the barriers aren't so formidable. Plants in Argentina, Pakistan, and England are moving to an all-salary format. So are plants in South America.

Oscar Prieto experimented with the idea at Cabra Corral, Argentina, another privatized hydroelectric plant that has experienced a big downsizing. "We broke all the rules," says Prieto. "No overtime. No bosses. No time records. No shift schedules. No assigned responsibilities. No administration. And guess what? It worked!"

Now Prieto is unveiling a similar approach at Santa Branca, whose employees have punched time clocks throughout their working lives. Even for free spirits like Carlos Baldi, the new system is a shock. "Brazilians want to know exactly how much money they're going to have at the end of the month," Baldi says. "And they want to know that they're never going to have to work on Sundays."

Prieto and his colleagues know they're in uncharted territory. But they're eager to explore. "If you treat human beings fairly, they will respond as adults," he says. "It's a matter of believing in people."

Alex Markels alexm@nyct.net is a former staff reporter for the Wall Street Journal. He is writing a book on AES's values-driven culture.

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