SwampFox

Dave Maguire: One of the most impressive people I have met

Dave Maguire, the former CEO of KEMET Corporation, died Thursday. He was one of the most impressive people I have met. Few who knew him would disagree he was a very focused businessman. Like a Shakespearian character, the key to his success, his focus, was ultimately the source of the challenges KEMET faces today.

The highly successful entrepreneurial companies I have been involved with have been reflections of the personalities of their CEOs. Their growth tended to be limited to the CEO's personal skill set. That might be $20 million in revenue, or in KEMET's case it was $1.6 billion in revenue. Processes, procedures and even the personality of managers themselves throughout KEMET exuded Dave's personality.

I joined the management team of KEMET in December 2000, and immediately toured seven or eight manufacturing plants in the United States and Mexico. At each facility, the manager giving me the tour would eventually say something close to, "What makes this plant successful is perfect quality, 100% on-time delivery, and declining costs." Some would say it with a Spanish accent, and some with a Simpsonville accent, but they all said it.

When I got back, I walked into Dave's office and told him that was one of the most impressive things I had ever experienced. It wasn't long, though, before I began to realize that one of KEMET's greatest strengths was that it had an incredibly strong culture; and one of its greatest liabilities is that it had an incredibly strong culture. It was something easier to see as an outsider than it was as someone who had grown up in the culture.

In the 1950s, KEMET was a subsidiary of Union Carbide and a world leader in getters for vacuum tubes. Most of the Allied electronics in WWII used KEMET components. When Bell Labs invented transistors, it spelled the end of vacuum tubes, but fortunately Bell Labs also invented tantalum capacitors to support their transistors. Dave was a newly minted engineer from the University of Michigan when he joined KEMET in 1958 just as they were making the transition from getters to capacitors. Over the next 40 years, electronics was to be a highly cyclical industry. By 2000, Dave would proudly boast that he had been through eleven electronics industry cycles. Young turks on Wall Street would be enraptured as he described the CB radio cycle, and then the minicomputer cycle, and then the PC cycle....

Dave told me on a flight to Wall Street one time, that KEMET's business strategy which had been developed as a subsidiary of Union Carbide was simple. Make enough money at the top of a cycle that they keep you around, and don't lose so much at the bottom that they shoot you. Dave wasn't being flippant; he really did see the key to success in simple terms like this. This worked great until a Union Carbide subsidiary pesticide plant blew up in Bhopal, India in 1984, and Union Carbide decided to spin out all their non chemical related businesses, including KEMET.

Union Carbide couldn't find a buyer for KEMET, so in 1987 they sold it to the management team, who bought it by investing $1 million of their own money and borrowing $210 million in debt. Now that's a leveraged buy-out! Dave stuck to his strategy, and over the next eight years there was one of the greatest booms in electronics ever, driven by the rapid deployment of cells phones and a massive PC upgrade cycle created by Microsoft's release of Windows 95. Dave and the other KEMET partners made a gazillion dollars. My dad told me it was better to be lucky than good. Dave was both.

From the 1950s, KEMET built a North American manufacturing footprint to service the North American dominated electronics industry. Then in the mid-1990s, something fundamental began to change. As electronics like cell phones and PCs began to mature, the profit margins began to drop, and the return on manufacturing assets began to decline. KEMET's core customers, like Motorola and Hewlett Packard, began selling their production facilities to electronic manufacturing services companies ("EMS") like Flextronics and Solectron.

When Motorola and Hewlett Packard had juicy profit margins, they would make KEMET a "preferred supplier" and even pay a small premium for "perfect quality, 100% on time deliver, and declining costs." But the EMS providers had very thin margins and so were intensely price driven. The EMS companies began moving their facilities to Asia. The first manger of an Asian facility was typically an American who spoke English and had grown up with the KEMET brand. The customer would ask why was he buying parts made half way round the world, and the explanation was, "We're the KEMET you've always known with perfect quality, 100% on time deliver, and declining costs." That kinda flew. But then the next manager was a Chinese who spoke Mandran, and KEMET just didn't translate into Mandran well. So KEMET opened it first production facilities in China in 2003, but that was at least a decade too late.

After being at KEMET awhile, I began to go to Dave with ideas to do different in response to the changing marketplace. I'd walk into his office and make a suggestion, and the response would be, "Well John, if that were our strategy that would be a terrific idea." A month or so later, I'd try again, and then again a little later. Probably none of my ideas were any good. Other senior managers watched my antics with amusement. Soon I began to realize that many managers over many years had done what I had done and gotten the same response. Eventually they all just quit walking into Dave's office with new ideas.

How many electronics products could a young engineer have become involved with 1958 that remained virtually unchanged from a technology perspective over the next 40 years, like tantalum capacitors? Dave's great strength was an intense focus on incremental, continual improvement, and that skill set matched up perfectly with the capacitor industry right up until the very end of his career. Many people can't sustain that disclipline over time because they get bored, then they get in trouble. The industry KEMET is in has been stuck in a ditch since 2000, and KEMET hasn't yet figured out how to climb out. KEMET now has a new CEO with a new team, so perhaps there will be a new day soon.

I learned two great lessons from Dave. The first was the power of disclipline and focus. Dave stuck with what he was good at for 40 years, and created a lot of wealth for himself, his partners, and his shareholders. The other lesson I learned was the power of culture. When the world changes, people resist the inevitable. What you hear is that, "If we get back to our focus and execute like we used to, everything will be OK." Even they know it's not true. This isn't an intellectual problem. They see the same data as everyone else. This is an emotional challenge. They just can't believe they can't come to work and do the same things that have been successful for the past 40 years and not get the same results.

The source of our greatest successes over a long period of time can become the source of our greatest challenges when the world changes in fundamental ways. That's a powerful lesson for all of us.