Refining Culture at American Refining Group
Many acquisitions fail because of differences in culture between acquirer and acquired. This was a challenge for American Refining Group, Inc. (ARG), when it acquired the much larger Bradford Oil Refinery from Witco Corporation. Witco was diversifying out of the petroleum business and had always had a corporate-oriented top-down culture. How ARG managed to convert the Bradford facility into a financially successful, employee-centered, healthy culture is a lesson in leadership and determination.
The acquisition would be a financial challenge for ARG. Witco had recently sold off its best-known product lines, leaving behind one-third of its oil production without markets. ARG needed to find new markets and new products if it were to succeed. With the help of a combined team of ARG and Bradford Oil Refinery executives, the company successfully produced new products that were sold into new markets.
Jeannine Schoenecker began her career as an assistant controller with ARG’s predecessor, American Oil Refinery, in Pittsburgh, Pennsylvania, in 1985 and was promoted to controller in 1986 and then to vice president of accounting in 1991. As VP of accounting, she participated in the acquisition of the Bradford Oil Refinery in 1997, becoming the CFO in 2008 and president and COO in 2011. As president, she and Harry Halloran, Jr., the CEO and owner, made a momentous decision to change the culture of ARG.
The culture she inherited as president had not changed much since the acquisition. One reason for this, according to Schoenecker, was ARG’s dependency on the previous management team to teach them the business, which was very different from ARG’s business. Once ownership gained confidence in how to operate profitably, it made the bold decision to promote Schoenecker and begin the process of changing the company culture.
Unlike her predecessor, Schoenecker moved to Bradford and became immersed in all aspects of the business. She had a “feel” for the workers, whose backgrounds were not very different from her own background, growing up in a working-class suburb of Pittsburgh. One of the first decisions she made was to build credibility by working every shift in every department to get to know the workers and their working conditions.
Refinery workers are vulnerable to many hazards, and the company had a history of serious accidents. Schoenecker decided to make safety a priority, and in one initiative developed a permit system for every maintenance job. This system would reduce the risk of accidents but also add costs. While getting some pushback from workers, whose compensation was impacted by costs, she was able to convince workers that the company valued their safety and was willing to invest in a system that ensured workers were protected from work hazards.
Honesty and transparency values were part of the new culture. When the refinery closed for 14 days due to a fire, Schoenecker did not try to sugar-coat the incident. She shared the facts about the shutdown and the uncertainty of when the plant would reopen. While raising uncertainty, this candor also increased the trust level between workers and management.
Communication was an important strategy for culture change. Quarterly town hall meetings were held for every shift to inform workers about the business. Dashboards were used to display company performance, safety, quality, budgets, costs of cleanups, and capital projects. Compensation and bonuses were tied to the metrics shown on these dashboards. The company formed an employee stock ownership plan that gave employees 7 percent ownership in ARG. This gave extra meaning to the dashboards, which provided employees with vital information on the financial health of the company.
When management decided to switch from 8-hour to 12-hour shifts, it tasked the workers to come up with a workable system for implementing the new, longer workday. This would eliminate the previous paid overtime for work over 8 hours. Working with the human resources manager, workers came up with alternative 36- and 48-hour work weeks, which were implemented with their full support. Schoenecker viewed this change as a win-win decision, with management gaining more efficiency and workers getting more days off from work.
One of the biggest obstacles in changing the culture was the resistance of first-line supervisors. Most of these supervisors were technically competent but lacked the leadership and communication skills required to implement the new culture. In response, management created a leadership school to train supervisors. To make the training obligation-free, management offered supervisors the option of other jobs if they did not want to continue as supervisors. This program was instrumental in cascading the culture to the entire workforce.
ARG also created a four-step process to facilitate the change. The first step was to justify the change: was it really needed? This was followed by a clear set of improvements that would result from the change. The most time was spent on the next step, the impact that change would have on employees and how to mitigate its negative consequences. The company wanted to make employees aware of how the change would affect their work and how to cope with the change. Finally, to put the change in context, the company sought to explain what would remain the same for workers. This four-step process addressed the need to involve workers in the importance of change and to engage them in its implementation. It was designed to reduce resistance and increase acceptance of change.
Success was measured using several metrics. ARG used a scorecard to measure goal attainment. Examples of goals measured are profit, number of safety violations, spills, product quality, number of employee job certifications, and training. These metrics reflect company values and are shared with employees at town hall meetings and on dashboards.
The company has never had a layoff. When the Pittsburgh refinery was sold, the owner kept the back office, which served the Bradford facility. This added cost, but job security and loyalty to employees were part of the culture that CEO Halloran had established since the founding of ARG. Similarly, when the plant was closed for 14 days due to a fire, no one was laid off.
To be terminated by the company, an employee would need to fail to live up to one of its cultural values. If counseling and a formal performance plan failed to change behavior, the employee would be let go. This zero-tolerance policy for counter-culture behavior applied to management as well as lower-level workers. It was also in contrast to the old culture, which never terminated employees, even those who demonstrated toxic behavior.
When asked why she created a value-driven culture, Schoenecker’s response was enlightening. She was raised in a working-class family and neighborhood and learned at an early age to respect people, regardless of their station in life or work. She was able to empathize with workers, an attribute that helped gain their acceptance of her leadership and change initiatives. Her CEO, Harry Halloran, Jr., similarly believed in people and supported the value-driven company culture. She and Halloran formed a strong team with a clear vision, shared values, and commitment to create alignment between owners, management, and workers.
Like other healthy cultures, ARG is very connected to its community. Management is given flex time to engage in several not-for-profit boards. Up to 3 percent of its bottom-line revenue supports local organizations and charities. It also supports a grass-roots initiative of workers who manage a scholarship fund to benefit family members of employees. This commitment to the community was reciprocated when the company had a spill that entered a nearby creek. Rather than blaming the company for the incident, local government and businesses reached out, asking how they could help with cleanup. Clearly, the bond between the company and community is built on trust and mutual support.
This is no ordinary story. Jeannine Schoenecker is no ordinary leader. Her self-effacing leadership style is built on humility, honesty, and transparency. She infuses confidence in her employees with a positive attitude while at the same time exhibiting vulnerability and a willingness to admit her mistakes. She gives credit to her Vistage peer advisory group for contributing to her success by providing a forum for learning. Committed to lifelong learning, she encourages her employees to do the same. She believes growth requires change, and change requires the ability to adapt. It is not surprising that she carries a picture with her of a dinosaur with the caption “Adapt or die.”
The culture change at the American Refining Group is an excellent example of adaptability and renewal.
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