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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Making Patient Capital Pay Off

Dr. Saillant posted the note on the company bulletin board, along with a long, handwritten reply. The truck was a Ford company car on a long-term lease, which he hadn’t yet had time to return. Dr. Saillant switched shortly after the incident to a hybrid-electric Honda with New York plates.

Then, before making the staff cuts, he asked everyone at the company to participate in a three-day course on learning organization principles. This included such organizational-learning mainstays as the “ladder of inference” — a training tool that shows people how easy it is to jump to erroneous conclusions. The course also discussed the idea of sustainability, a management philosophy spawned by the environmental movement that encourages businesses to protect the world’s assets for future generations. (Surprisingly enough, most of the people at Plug Power had never heard the term sustainability, even though their product would be marketed largely on environmental grounds.) Such values were now considered a key source of competitive strength for Plug Power; “cultural suitability” was one consideration in determining who would stay, says Dr. Saillant.

When a company makes values explicit that way and uses them (in effect) as a litmus test, there’s enormous pressure on the CEO and other executives to walk the talk. Dr. Saillant responded to that pressure by giving more responsibility to more people. By the time I visited Plug Power this year, the company had generated a management structure resembling a set of concentric circles. Semiformal groups of executives and selected high performers met regularly to establish long-term goals and priorities. One group of individuals, the (self-named) “Spark Plugs,” had generated a set of strategic plans, including a values statement for the company that said: “Our future children will know our company was one steward of the energy transformation.” It was apropos: Children rank high in the Plug Power cultural consciousness. The company invites employees’ family members to picnics, holiday parties, and other company events and publishes a calendar featuring drawings by employees’ children. The most prominent feature of Dr. Saillant’s office are pictures of children — his own grandchildren and other kids. All these kids represent, among other things, a reminder that people stay at Plug Power for reasons that transcend money.

“I got here when the stock was on its way back down,” says Spark Plug Koren Hart, “and it was still a lot more exciting than many other places. A lot of the drive comes from helping to create something that’s going to be around a long time. People are not stifled here when they have an idea. Sometimes they’re told, ‘We can’t afford to focus on that now. But you can work on it on your own time.’ And that’s a nice freedom to have.”

You can imagine Grant’s Investor being skeptical about children’s calendars and talk of value that transcends money — particularly from a company with Plug Power’s history. The fact remains that Plug Power is struggling to find the cash it needs. Revenues have nearly doubled in the last year, from $6 million to $12 million, but $12 million is still far less than the company demands. In March 2003, the company closed on an acquisition of a cash-rich fuel cell manufacturer called H Power — in effect, a move to bring in cash by paying for it with stock. Wall Street is still, at best, neutral: RBC Investors (part of the Royal Bank of Canada) downgraded its rating on February 26 from “hold” to “underperform.” The industry analyst there, Jarett Carson, credited Dr. Saillant with “excellent progress in cutting expenses and [bringing] the company back from the brink.” Nonetheless, he noted a Catch-22: If the stock price goes up, there’s increasing incentive for the original investors to sell their shares — particularly some of the GE investors who have their own labs to fund in a difficult economy.

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