In Good Company with Nicolai Tangen - Atlas Copco CEO: Culture, performance, mistakes and accountability

Episode Date: May 22, 2024

Why does the Swedish company Atlas Copco produce some of the best CEOs in the world? After 7 years in charge, Mats Rahmström has now stepped down as CEO. In this episode, he talks to Nicolai about excellent leadership, the unique corporate culture at Atlas Copco, his biggest mistake, high expectations for employees and how to maintain speed in the organization. Tune in!The production team for this episode includes PLAN-B's Pål Huuse and Niklas Figenschau Johansen. Background research was conducted by Isabelle Karlsson with input from portfolio manager Martin Prozesky.Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi, everybody, and welcome to the podcast in good company. Now, when I started in finance 30 years ago, one of the first companies I met was Atlas Copco in Stockholm. And wow, what a company. I've been following them closely ever since. And they just never seem to stop surprising on the positive side. And one of the things that is driving this is the unique corporate culture, the way they basically produce some of the best CEOs in the world. And today we are really lucky because we have Mats Ramström joining us, who is now stepping down as a CEO. So now that he is no longer the CEO, he can tell us all about it.

Very welcome, Mats. Thank you so much. Just want to kick off first. How would you describe the corporate culture at Atlas? I think it's a competitive edge for the company. It's not so tangible what it's all about, but we are trying really to set high standards for ourselves um not so difficult really but we're talking about you know respect for people show them up showing up on time prepared

take ownership and we have this new excuses uh culture where you actually need to deliver and so the decentralized we are recognized for that We give a lot of freedom to people, but we also give them a lot of accountability to get the job done. And to build that culture, you need to trust people. And we normally say that the one that is closest to the problem or the opportunity is also closest to the solution. So we work a lot on that to make sure that we don't need to escalate a lot in the organization. And then I think the customer focus that we should really bring tangible values to our customers. And otherwise, it might not be worth doing as we spend a lot of time on that.

We talk about raising red flags when we see things going in the wrong way that that is absolutely okay and and i had this job interview the other day and the person i interview finalized the interview by saying she said to me then when sorry for this but she said you cannot bullshit your way to the top of this company. You need to deliver. And I think that summarizes a little bit what we are trying to accomplish here with the decentralized organization, that people actually are accountable to deliver results or making changes that we continuously improve. So Mats, when we met in Stockholm, you said one of the things at Atlas is that there is always a better way.

And I remember I met the CFO a long time ago and he said, you know what? You come into our leader group meetings and even when things are really well, you get the impression that we are just about to go bust because we are focusing in always on just how we can improve things. So how do you create this kind of relentless pursuit of improvement in the organization? There is this one saying by one of our owners, I think it's good, the only tradition worth keeping is the one of change. We talk about that it's always a better way, and it's really embedded in the culture. And sometimes we might be too critical, but they always ask us the question, can we do this in a better way?

too critical, but they always ask us the question, can we do this in a better way? So we really, really encourage people, curiosity, don't be afraid of change. And we use these three horizons to make sure that we really look for what we are present, what can we do short term. But then we talk midterm, but also we talk in the future then and that's very much linked to the global trends. What do we need to explore to understand this in a better way? And then the financial performance is extremely transparent. So it seems like you put numbers on everything and in order to make everybody accountable. Just tell me about that process. on everything and in order to make everybody accountable.

Just tell me about that process. No, but we are, as I see it at least, quite a high performance oriented company. And it might sound scary to many, but I think high performance people like that. And the way for us to do that in the decentralized model is to give the trust. But at the same time, every month we do up to 600 profit and loss and balance sheets. So we knew really to benchmark in between. We knew when to call to

congratulate someone for a fantastic job, but we also called to see if we can support to improve the business. And everything is measured against what we call a mission, which is the assignment you get when you get a new job. So with the authority, the decentralized, it comes with a very clear responsibility and accountability for the result as well. So that's how we do it. You cannot really hide in Atlas Coco anywhere. Tell me about this mission. I thought that was really interesting. We don't have that, right? But when you get a job at Atlas, you basically set a three-year target. How does this work?

Let's assume that I would hire you in a position for something. And then we as a group, we believe that maybe what is the full potential plan for this financially? Should we change the way we go to market? Is there products missing? So we set kind of a little bit of a framework. We say, well, this is what comes with the job. But I think the interesting part is the vision, which we say is then that's the one that's been employed in this position, gather his team to say, how do we accomplish this?

What kind of resources do we need? How do we get it done? And we call it the full potential plan. And then they counter with this and say, well, if you want this, you know, I need these resources. I need a little bit more of that. We need to help me out with competence in this area. So it becomes a very friendly handshake where both have been part of developing the plan. And as you said, it's normally between three to five years.

So I think it's short enough to be very tangible, but maybe long enough to be visionary and some stretch goals there. And we believe that it creates, you know, not just the focus on the results, but it creates a focus on the right activities to drive the result. And activities must come before the result comes. So we are kind of trying to create a common view on the activity that needs to happen. And in the same way, you put your management team and the employee in the same boat and say, well, this is what we agreed upon. This is what we're going to try to do. So sometimes we have success and sometimes we fail and then we change. But I think that

togetherness, that we have built this plan together has been very important for feeling that I own this plan. So when you fail at Atlas, what happens? I mean, we can discuss about failure. And if someone takes an initiative, I think business and risk goes hand in hand. You need to take new initiatives to try different things. And if it comes with the best intentions, in which case it doesn't succeed in the way we hope for, is it really a mistake or is it the learning? And we tend to believe it's more about learning. We don't want to repeat the mistakes, but do we want to penalize someone for trying? I don't think that creates a good culture.

So for us, it's not so much a mistake. It's learning. We move on. We try something new. But we will not penalize people for being ambitious and trying things because we need those actions. How do you share the mistakes across the organization? We are quite open, actually. We meet between general managers.

We meet between divisional presidents. And the best sessions we have is normally when we share success and things that we could have done better internally. We share success and things that we could have done better internally. And people are not afraid of sharing since we have this culture that we need to move forward all the time. So there's kind of an openness between them. And we are trying to build this, even if we're kind of a big company, we're trying to build the networks between people

so that they can reach out without me knowing and learn from each other as well. Mats, what's the biggest mistake you have made at Atlas? Wow. It's patience, I think. I'm very brought up in the Swedish way that you give a second chance, which I think is a good thing. But sometimes they say that patience is considered to be virtue, but maybe hurry up should be

one instead. The one thing I think that we might end up with soon, and you can connect. I was thinking the other day that you can connect on Teams or you can connect on Zoom. And I think it's a fantastic tool where you can reach out to anywhere, anywhere in the world. But if we use those tools not to meet each other, then I think that would be probably my biggest mistake. Because I think that culture innovation

happens in these meetings where people actually get together. So I try to say, well, these are the good things with these new tools. Don't stop traveling. Don't stop meeting with people. Don't stop sharing. So for me, I spend a lot of time in that to still to travel, to make sure that people meet and arrange the things that people meet.

And I think that could be a challenge if you stop meeting with people. Now, how do you celebrate success at Atlas? Sometimes we don't stop and celebrate. We are kind of hard on ourselves, but yes, we do try to stop. And last year we celebrated 150 years. And I think that was a fantastic event. We could see throughout history how we have constantly changed. But the cool thing with the celebration was that we spent almost all time looking into the future

and making sure that we really almost all time looking into the future and making sure that we really understand the opportunities going forward this was just after the covid years and we really put the company in front of being industrial but also being a technology company linked to sustainability and some of the mega trends we see this concept of celebration is quite interesting you know i saw an interview with interview with a tennis player, Federer, and they asked him, you know, how do you celebrate? He said, well, when I was young, I never celebrated anything. I just, you know, if I won a match later on that day,

I was back on the court and started to train for the next one. But now, when I'm a bit older, if I win something big, I will actually take the evening off, have a glass of champagne with my wife. We should really learn from him. He's a fantastic player, isn't he? Absolutely. Now, moving on to kind of career progression,

what do you look for when you hire people? Myself, I've always been triggered by finding people that are curious. The culture fit is important. Don't you like to meet people that are passionate? Whatever you do, I like that. It also helps you when you meet with customers. The willingness to learn, to continue to learn new things,

I think has been extremely important. And then the basics for us is everyone has a customer. So you need to understand how you create value for your internal customer or for your external customer. So experience comes with the age, normally you can say, but I think it can be really accelerated. The one thing that I get a lot of questions is the work-life balance. And I'm not so comfortable with that question. And the reason being that it sounds almost like work

is something negative and the balance and the spare time is the positive part of it. And for me, the work I've done over the many years, if I wouldn't enjoy the work part, if I wouldn't feel passionate about that and that gives me energy, maybe I'm in the wrong job. So for me, you need to, of course, there needs to be space for other things in life.

But I think it's important also to feel that you stepped into something you believe it's fun, it's passionate. And if you lose energy every day, then you should look for something else. And so maybe when I get the questions too early in an interview, maybe I start to hesitate a little bit what's important. a little bit what's important. We had Elon Musk on the podcast recently, and he talked about the ultra-hard culture where you work 100 hours and so on for a period of two years. Now, how much do you work?

I mean, the higher up you go, the more you think than you actually do physical work. So I try to be always available. I don't count the hours. We normally say that we work until we are successful. I don't demand people to work 80 hours a week, but I do demand that we are successful. So that's what I don't really measure time in that sense.

I mean, you can work a lot of hours by getting nothing done. So I think the result counts and people can find different ways of being successful. So for me, it's not the hours, it's the result. A lot of the hiring you do is internal hires. What are the pros and cons on this? Yeah, the experience that we get with an internal hire, knowing customers internally or externally, I think puts a foundation for success. All that said, though, that we could miss out on new ideas, of course, diverse experience. So we do hire externally as well, but maybe it is 85-15.

But what we do get is this really good understanding. And then we open up all jobs with exception of mine to what we call an internal job market. So you need to drive your career yourself. You need to find what path you want to take. And therefore, we get people. Everyone knows they have an opportunity. I think that's a very good thing. Instead of that, the job has been promised to someone else. You can always apply, but you need to show the drive and the success

to actually be qualified to get to the next level. But we do both. But we do see that our customers are getting more and more. They want expertise and knowledge. So it takes a few years to build up the competence that we need. You are keen to get young people into big roles. How do you make sure that that happens? Yeah, I do. I believe that people have much greater potential than they think themselves sometimes. So if someone is passionate and drive and they're willing to learn,

I'm willing to give them a chance. I became a general manager when I was 33. So someone gave me that trust and I want to pay that forward to the next generation. And so far, it's not so much about age. It's more about the competence and the drive. And we are willing to help if someone has a shortcoming in some way, if it's finance or sales or whatever it might be. So we can always help out. But I also like to work with people that has that drive and energy. And likewise, the other way around is I don't think that's so engaging with someone that has a lot of competence, but have a negative view on a lot of things. So I really like to promote people that has the drive.

And how do you see that a young person is ready for a big role? I mean, at the end of the day for us, you're judged by your results. So that you are ready for a new, bigger role is normal that you have done very well for yourself in the present role. We do not do career planning, but we do help people with the gaps. If they say, well, I like to move into this position, this is my ambition. Then we have internal, external trainings that can help them out to make sure that they have the experience that they can actually apply for the next role. How do you work with mentorship?

We do. We do for special categories. We try to help people then to have a mentor. It could both be internal and external. And I think the mentor rule in many, many times it's just to help them believe in themselves that they are ready for the next step. On the other side, isn't a good leader a mentor almost every day? And I think that's even better if we can have good leadership on a daily base to people. Of course, I understand there are things you don't want to bring up with your boss, maybe,

that you need a mentor for. But we use both. But I'm really trying to have a coaching culture from our leadership so that our team is available to the employees on the daily base. And I think that's even more important. And the mentorship program, it's decentralized? It could be both. It could be a region that runs it. And we normally then try to go between the business areas so they get exposed to other leaders. It could also be external program that someone wants help with something,

then we can help them to find someone outside the group. But normally it's regional and we don't do so many group programs, but we are eager then to network between the divisions and the business areas so they get to new business and other people as well. business and other people as well. Mats, moving on to leadership, you mentioned that Atos Copco is 150 years old. And the incredible stat here is that you've had only 12 CEOs during 150 years. True. There can hardly be a company in Europe with those kind of numbers, right?

With that kind of duration of leadership. It's just incredible. What explains this? When we talk about good leadership, we're talking about creating sustainable results. And I think the important part is sustainable, that we do something that is really, really good for our customers, that comes to the benefit for our employees. Of course, society, but also then the shareholders. But we always start in that order. So I think sustainable results is one of the more important things.

And the older I grew and higher up I get in the organization, you realize that leadership is a lot about actually making other people, it's not so much about yourself, it's about making other people see their full potential, executing on their full potential, to really be there to ask the questions and try to figure out how you can get people to the next level so i think it's a lot about the people caring about people making sure that they get the resources and the ability to them to to reach their full potential. And I think that also with the 23 division and four business areas,

all divisional presidents have the full value chain so they can practice just like a CEO on everything from R&D to sales and logistics. And I think that's a way of building talents in the organization as well. But good leadership for me is really to surround yourself with talent and maybe that talent

you don't have yourself to build that diverse team. And I think as a team, you can be very, very successful. And that's what we are trying to do in Atlas Coco. How has your leadership style developed with experience and age?

Well, it's a good question since I had my last management meeting last week, and since my management team, they had at dinner then we had some speeches. And if I summarize that, what came out of it, some of them I am proud of, some I'm not so proud of. But they also said that they felt that I always stand behind the people and the promises that I made to them. That's one of the things that they always said that, OK, you do that, you back us up. So I think that is one of the key things that they liked about it. It's really changing the company from industrial to

to be more of a technology uh company has been another key for them that they can see that which i think is is really really good uh i think that is also how we position ourselves for the future and to be linked to the good macro trends. Then on the less positive side, I think they also said that I've been a little bit too stubborn and too straightforward sometimes. So I need still to work on that. We also talked a little bit about the setting high standards and focusing on the results.

So I think that was the feedback I got. And I recognize a lot of these things and appreciate that they were so honest with me as well to bring up the things that I could do better. The straight talking, how does that work when you are a global company and you have different cultures in different parts of the world? I mean, it's not everywhere you can be a straight talker. For me, it started when I was fairly young.

I had to let someone go. And I talked to this person and I said, well, due to these reasons, I have to let you go. It was one of my toughest discussions when I was at a young age. And the person was not angry, but he left. The day after, he came back to me and said, you know, I'm not so upset with you, Mats, but I'm very upset with my previous bosses and my colleagues that they have not brought this up to me before. And I do realize that in some part, that honesty and being straightforward is an

honest way to help people actually to improve performance. So from that day on, I promised myself at least to be very straight when I see something that's good or something that I think should could improve more or less to give people an opportunity to to improve and when I started 2017 with the group I was a little bit afraid that I came from industrial technologies and then the compressor was the biggest business area we had vacuum and also power technique then and i felt well okay so how will my way of doing things be accepted but when i started to meet our people around the world i realized that the atlas koku culture is so strong so it's almost you know as strong as the local culture with some adaptation but it was really easy to feel at home and and focus on a lot of things that we discussed in the beginning so for me it's been fairly easy actually to be

straightforward and and the culture is the important part that brings it's the glue that brings us together independently where we're from, independent of gender or religion. I think that is the thing for us. The Scandinavian leadership model is quite consensus driven. How does that work? For me it's been like I normally say to people at Swedes, I take us as an example then, and say that okay it will take a little bit time until we get to the decision. I will listen to you all. But just to be clear, at the end of the day, I will take the decision. But I think consensus takes a little bit more time until you make your decision.

But then on the other side, then everyone is on board. They understand why we do things. And then execution in a decentralized organization works much better. I think if you have the other way, it's more top-down that the leader takes the decision without people understanding the reasons, then you need to explain the reasons when you actually started the process. So maybe I don't think there's a winner among these two ways of approaching things, but I think either you gain speed in the beginning or you gain speed in the execution.

I think either you gain speed in the beginning or you gain speed in the execution. And I think we are, I mean, you could say that we are a Swedish head office company, but we are not so Swedish in the way we do things. It's fairly direct and it's very, very international to think we do things. Do you think there's something happening in the world and the way we live and work and think, which makes the Scandinavian leadership model more advantageous? For me, it's been independently. I love sports. And when I see strong teams being built, I think you engage people. I think that's a way in the Scandinavian part that they engage them.

We ask them questions. Even if they might not have the key knowledge, they are asked, they feel that they are part of something bigger. So for me, it's always been an upside to that, to engage people, making sure, say hello, you know, have respect for people, always return phone calls, et cetera, et cetera. It doesn't matter. Everyone is important. If you're in this organization, you're important. calls, et cetera, et cetera. It doesn't matter. Everyone is important. If you're in this organization, you're important.

Otherwise, you wouldn't be here. So for me, that way of engaging people has been fantastic. And I just steal from sports how they can see how they build their teams and, you know, how they engage people. I love that. You mentioned returning calls. When we met in Sweden, you talked about some rule of thumbs that you have in Atlas. So how quickly do you return calls and we normally say that we should return phone calls within two hours and and all mails within 24 hours sometimes you can

say well i will not be able to get to your you know mail today i will respond tomorrow but we we are eager that the people standing in front of the customers know that they will get an answer. Because otherwise, it could be that, yes, I've seen your mail, but I don't have an answer. So I have not returned your phone call. But at least you need to be there, need to be present. And that is a, it's a very simple, but extremely good way to make sure that you have the speed in the organization. And you know when to expect someone to return a phone call or a mail. I think the returning of calls and mails is so interesting. You know, if you return an email within one minute,

it can be one sentence and people are impressed that you are so quick. If you return, you know, in 24 hours, it needs to be a paragraph. And if you are like three days, it needs to be a page. And so you save a lot of time by being quick. That's a good insight, I think. Yeah, good. Do you think there is a trade-off between empathy and execution? Not at all, no. Why? I think you need it to be able to execute quickly. Why? I think you need it to be able to execute quickly. You need to know your people.

You cannot manage anyone, people in the same way. You really need to understand what the situation they are, what competence they have, and take advantage of their strength, making sure that that is part of the execution. So not at all. I think everyone in a high performance company, I had this excellent interview with one of our new presidents. And I tried to explain to him that, okay, in this job, we're going to expect this and that and that. And he's been with the company for quite a number of years. And he just looked at me and said, you know, that's the reason why I'm in

this company. I like this. And I'm like, yeah, good point. So no, I don't think there's a conflict there. Now, you are moving on to become a board member of ABB, which, by the way, now has a Norwegian CEO, interestingly. But what does it take to make a good board? What is a good board for you? When I look at my board, I like when they're leaning forward. They're challenging me. Is there a better way to do things? They share their experience.

They're available between the meetings to me. They respond quickly to things that I like to discuss. They have the experience of things that I need. And sometimes they're a difficult decision and you need to bounce that off with someone. I've been very lucky with my chairman. We have always had a very good connection. I think we speak on at least on a weekly base. But the other thing is that they stay out of the operational things,

which I find also that there is a very clear line between the giving advice, you're helping, but you're the one executing, you're the one executing on the strategy. I do present the strategy for them, of course, and they say, we'd like this part, but they challenge. So for me, it's been that clear line between what's my responsibility and responsibility and that i can take advantage of the experience that they have but i think we should have boards that are leaning forward that understands the business that has time to you know visit our sites to understand what we do and that's exactly intention for me now and i already have a program with abb that I'm going to visit sites

and countries to understand the business because I don't want to be just using my present experience. I need to understand what they do and how they accomplish value for their customers. So for me, it's been a very good balance with the board I have had in Nafas Koko. Is it important that board members have industry knowledge? I think you need both in a board.

People with industrial knowledge, financial knowledge, so on and so forth. But the one thing that I've been thinking about to run our company, the 172 billion internal, where It's difficult for me as the CEO just to understand all the applications and all the products. So you cannot expect that from a board member, but to have the experience to be able to, without telling me or anyone else,

just saying, have you thought about this? What do you do about pricing? I think that experience is very valuable to me. That's the way I see it. Should board members be shareholders? Absolutely. Why? I think they are part of the future of the company. We have a commitment to our shareholders and I think they should be on that journey with us and just show that they are engaged in the company. Now, you have one big shareholder, the Wallenberg Group, which has been instrumental in developing Atlas

and a lot of other very fine Swedish companies. What is the advantage of having a big long-term shareholder? Swedish companies, what is the advantage of having a big long-term shareholder? As I mentioned in between then that in my case, I have a Poke Wallenberg and Johan Forssell on my board representing the big owner investor. I think they have 17%. And of course, to be able to have a long-term owner with a long-term interest in the company makes it possible to make investments in R&D that will pay off in a few years, to build new facilities, to do things more long-term that is needed to be successful. And they see it more like when we sell it 150 years, so what do we do the coming 150 years? Then they have knowledge about the

company they're very good sounding board in between meetings and they can sell okay if we look at this acquisitions for example we really support that this is where we're heading um so so for me that's been it's been very good to have someone that is solid long term and also there to help and give advice. Well, Matsi, it's been incredibly useful. A lot of fantastic advice here and we look forward to following the progress

for the next 150 years as well. Thank you. Thank you so much.