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COMPANY CULTURE

Testing a Company's Commitment to Transparency

When executives at Return Path decided to sell a division, they also had to decide whether they would bend their commitment to openness and transparency.
No Secrets Matt Blumberg needed a little prodding. Angela Baldonero, his HR head, was glad to provide it.
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Matt Blumberg still laughs when he recalls the way his old presentation to investors used to raise eyebrows. It happened nearly every time he reached a certain slide. "It lets them know that our No. 1 stakeholder is our employee base, No. 2 is the customer, and No. 3 is the shareholder," says Blumberg, CEO and chairman of a New York City-based company called Return Path. "And that if they're not comfortable with that, they shouldn't invest in our company."

In the decade that has passed since Blumberg and his co-founder, Jack Sinclair, launched Return Path, this dedication to employees has taken on varied forms: the flexible work policy that allows employees to conduct business from home. The monthly e-mail updates on the company's financial health. The dozens of in-house courses, including one on understanding financial documents that prepares them for those e-mails. And, for the past six years, a true sense of accountability from the top. Once a year, Blumberg has his executive team and board members meet to critique him while he is not present -- a move that the venture capitalist Fred Wilson, who was an early investor and is a member of the Return Path board, calls "one of the bravest things I've ever seen a CEO do."

But as Return Path has grown in size and complexity, cultural challenges have increased as well. The implications of transparency, one of the company's founding principles, have become more profound. "It's easy to be that way when there are only 20 people in the company and you basically all sit in one open-plan room," says Greg Sands, a Return Path board member and managing director at Sutter Hill Ventures, which holds a stake in Return Path. "It gets harder when the company gets bigger." A few years ago, the company's leaders had to ask themselves a question that they never would have expected to face just a short time earlier: Are there limits to how transparent an organization can be?

The current Return Path has little in common with the business Blumberg and Sinclair started in 1999. The company's first product was an e-mail change-of-address service that never took off. "We loved the team, we loved Matt, and we had three investors who really liked each other, respected each other, and enjoyed working together," says Wilson. "We just didn't have a very good business. We basically had a business that stunk." So Return Path went shopping, and in 2003 and 2004 picked up, among other things, a company that had developed a service that helped corporations make sure their marketing e-mails didn't get caught in spam filters. Today, that service is Return Path's core business, one that the company expects to help it reach $35 million in revenue by year's end.

But Return Path had also picked up a problem in its acquisition spree. After Blumberg finished combining the old and the new, Return Path had three distinct and noncomplementary divisions, and it was a remarkably complicated business for one that was bringing in $15 million. "Our time was very divided," he says. "Nothing was getting quite the right amount of focus."

In May 2007, Blumberg left an off-site meeting of his senior staff determined to simplify the business. Within two weeks, his mind was settled. He would seek buyers for a division called Authentic Response. He apprised his senior staff of the decision. Then came the hard part: What, and when, should he tell Authentic Response's 35 employees?

Up to this point, the senior team had usually been able to reach consensus rather quickly. This time, not even close. "It was a very, very divided group," Blumberg says.

Over the next six weeks, vigorous debate was common inside Return Path's Park Avenue headquarters. Jeff Mattes, the general manager of the Authentic Response business unit, worried that clients and competitors would catch wind of the sale. "Would competitors use that information against us?" he says, recalling his concerns. "Would sales folks have a hard time breaking down new doors if competitors were saying, 'By the way, Authentic Response is on the block'?"

Anita Absey, the company's senior vice president of sales and marketing, made the case that an announcement that the unit was for sale, with no buyer on the line, could produce widespread anxiety. "Part of me thought that people may react badly to this," she says, "and that there would be a flight of talent. "

Then there was Angela Baldonero, who had joined Return Path just a few months earlier to formalize and preserve the company's culture. She felt a responsibility, as the person charged with being the voice of the people (in fact, her title was Vice President, People), to make herself heard. Baldonero argued that if Return Path didn't alert the staff or waited much longer, there was a good chance some employees would hear about it anyway. "That would have eroded trust," she says. "And it's not fair for employees to be backed into a corner and be asked questions that they couldn't answer, and to know that they didn't get it from us."

Somewhere in the middle stood Blumberg, weighing both sides of the equation. As he had often done over the years when he faced a critical decision, he reached out to Marc Maltz, an executive coach and organizational consultant.

"I was arguing for as much transparency as he could offer, given the nature of dealmaking," Maltz says. "He couldn't reveal everything, because it may disrupt a deal, but he needed to say more than what he was saying."

Thorough and analytical almost to a fault, Blumberg knew it was time for a ruling. He decided to tell the staff.

"I was cognizant of the fact that it was likely to create some angst and uncertainty," he says, "but it's what I felt was the culturally consistent thing to do."

In the past, Blumberg rarely scripted a presentation for all-hands meetings; notes in the form of talking points would often do. But this time, he felt there was no room for error. He felt compelled to nail the message, both content and delivery.

In the assembled crowd stood David Virzera, who had joined the Authentic Response team a year earlier. All-hands meetings were a regular part of life at Return Path, so he didn't give it a second thought initially. But something about the way Blumberg was carrying himself that day provided a hint. "You could tell he was about to say something important," Virzera says. "It just had that vibe."

Five typed pages and 45 minutes later, the room fell silent. Blumberg had run through his script, emphasizing several points: the logic behind selling the business; an acknowledgment that the company had just started down the path and didn't yet have a buyer but that he felt that creating a bit of short-term uncertainty was a fair tradeoff in order to continue the company's tradition of being honest and up front; the promise that any deal he agreed to would protect the jobs of the majority of the staff. And then he closed by asking something of his employees. "My commitment to the team," he told them, "is continued openness and transparency whenever possible….What I ask of you in return, is keep working hard on the business. Business as usual. Everyone benefits from a strong outcome."

The news wasn't stunning for Virzera; it had become clear that the various business units were moving in different directions. What he found surprising, as a relative newcomer who had previously worked in the financial services industry, was that the company was giving him and his co-workers any kind of advance notice at all. "I got the feeling that we were in this together," Virzera says. "They told us that if they were going to sell the business, it would mean employees, too. That didn't seem like BS. It seemed real."

As it turned out, a sale never did happen. Potential deal after potential deal fell through, until Blumberg and his board determined in December of that year that a spinoff of Authentic Response into its own entity would best serve employees, investors, and clients alike.

So far, the move has proved successful. Authentic Response has grown from 35 to 70 employees and from $8 million to $15 million in revenue. Return Path, which employed fewer than 100 employees post-spinoff in 2008, expects to finish 2010 with more than 200 employees (up from 149 now), and the company has been consistently profitable over the past year and a half, for the first time in its history. Which raises the question of when and how this 10-year-old company will provide an exit for its venture capitalists, who in VC years have waited a lifetime for a return on their investment. Blumberg doesn't answer the question directly, though his accounting and finance departments have begun preparing for a possible IPO. With such a decision would come, no doubt, new concerns about protecting culture.

"That's one of the worries of taking the company public," he says. "But that's a bridge I'm not ready to cross."

IMAGE: Ben Stechschulte
Last updated: Jun 8, 2010




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