Concrete Strategies for Tackling Climate Change and Sustainability

Briefings Q&A with Fernando A. Gonzalez, 
CEO of CEMEX S.A.B.

Cement is hardly a new product. Its history traces back to the ancient world and the cementing materials used by the Egyptians, Greeks and Romans, the latter giving it the name opus caementicium. But for CEMEX S.A.B. of Mexico, one of the world’s largest producers of cement, ready-mix concrete and aggregate, these building materials have a vitally important future role in helping to address the most pressing environmental issues.

A mission-driven global company that operates across more than 50 countries, CEMEX is committed to being a flag bearer for sustainability and environmental management.

Based in Monterrey, the company sees it as the responsibility of global industrial enterprises to reduce emissions, promote alternative fuels and make products in more sustainable ways—all of which are part of CEMEX’s business practices. Furthermore, Fernando A. Gonzalez, who took over as CEO of CEMEX in May 2014, following the sudden death of chairman and chief executive Lorenzo Zambrano, sees global environmental issues as catalysts for the continued evolution of businesses. “It’s not just about managing the impacts on climate, it’s discovering opportunities—business opportunities—based on the way the economy is going to evolve because of climate change,” Gonzalez told Korn Ferry Briefings.

Moreover, cement and related building materials are key to sustainable construction and development (CEMEX is a founding member of the World Business Council for Sustainable Development’s Cement Sustainability Initiative). “We firmly believe that concrete has to play a major part in any successful transition toward a truly sustainable society,” CEMEX says on its website. “Whether it is the installation of renewable electricity generation, the development of more efficient infrastructure, the building of new roads or the construction of more sustainable housing—all of these activities and others need concrete.”

Given the growth of the world’s population and migration of people from rural areas to cities, CEMEX believes the construction industry is responsible for managing increasingly scarce natural building materials and water in urban development. Concrete, CEMEX added, offers the benefits of durability, and the ability to withstand such natural disasters as hurricanes and floods.

For CEMEX, sustainability and environmental management are hallmarks of the latest phase in its evolution. The company started out as Cementos Mexicanos in 1906. For decades, it did business nearly exclusively in Mexico. Zambrano, who had been named chief executive in 1985 and chairman in 1995, is credited with CEMEX’s international expansion to become a global supplier of cement and building materials, making its first big move overseas in 1992 with the purchase of two Spanish cement companies. Many more acquisitions followed in North America, South America, Europe, Asia and Australia. In its story on his passing, The Wall Street Journal called Zambrano “Mexico’s poster boy for globalization,” crediting him for turning CEMEX into “the country’s first true multinational.”

Zambrano’s death one month after his 70th birthday left CEMEX with an unexpected leadership transition—and big shoes to fill inside the company, which had been founded by his grandfather. (Unlike other family-owned and/or controlled companies in Mexico, CEMEX is publicly traded, and Zambrano was not a large shareholder.) Within 72 hours of Zambrano’s death, CEMEX promoted Gonzalez, then the chief financial officer, to be chief executive. Rogelio Zambrano, Lorenzo’s cousin, was named chairman, in a change of governance that split the top leadership roles.

In late 2015, Gonzalez and his team sat down with Michael Distefano, Korn Ferry’s senior vice president and chief marketing officer; Hugo Lara, Korn Ferry’s senior client partner and office managing director in Monterrey; and Gustavo Solares, a Korn Ferry client partner based in Monterrey. They talked about the legacy of the company (which had sales of $15.7 billion in 2014), how it uses social networks to promote the exchange of ideas across a global workforce of some 44,000 employees, and its vision for sustainability and proactive measures to counter climate change. What follows is an edited version of their discussion.

When Lorenzo Zambrano died, CEMEX faced an unexpected change of command, with you becoming the first CEO from outside the Zambrano family. How did you deal with his loss and with the sudden responsibility of leading the organization?

His passing was a surprise—he was just 70. He was such a recognized person and known for his personal contribution to the development of global CEMEX. But we have a succession plan at the company that we review at least once a year. It allows us to develop and prepare people for different positions. For several years, we all knew the philosophy of our policy was to bring in people, develop people and have professional management.

When Mr. Zambrano passed away in Madrid, the governance committee met immediately, then the whole board met right after that. The decision about successors was quickly made. After working shoulder-to-shoulder with Mr. Zambrano for 25 years, I was shocked and very sad. But I was confident taking on the CEO position. I have managed almost all the CEMEX businesses and all administrative functions at different times. I had the opportunity to manage businesses in six locations, countries or regions. On top of that, I knew all the people in CEMEX, particularly the executive team, and I know how complete and competent the team is—a very strong team of people, very knowledgeable and experienced in the industry.

Let’s talk about the decision to split the CEO and chairman roles.

One of the things we did after Rogelio Zambrano was appointed chairman and I was appointed CEO is we sat for a while and started writing down what we were going to do with these roles—how to work together and complement each other. It was a three-day exercise.

Rogelio spends most of his time with the board members and also dealing with company issues, particularly with certain external stakeholders—authorities and opinion-makers—and also chairing the board, of course, where the most relevant decisions of the company are made. Rogelio improved the governance of the company, adjusting and creating different committees. There were some adjustments, too, in the governance and some bylaws. Overall, he’s chairing the company, directing the strategy and making decisions for the company.

And, in my case, I’m managing the business—which means traveling a lot. I say that because I decided to make some adjustments in the way we manage the company. The executive committee continues to meet every month, but now we meet in different locations—CEMEX locations. For example, a couple of months ago it was in Warsaw, so I had the chance to meet with the management team in Poland and to meet with the people there.

That’s pretty unique. What is the order of your meetings?

First, I invest a couple of hours in meeting people. Normally I do a brief description of the situation of the company—let’s say 15 to 20 minutes—then I hold open office hours to discuss whatever people want to talk about. Mostly it’s about the role of the business in their country compared with globally, and CEMEX’s plans for the country, or concerns or interest about our financial situation. I tend to think that, for them, it’s helpful; for me, it’s definitely really helpful. It’s an opportunity to see thousands of people per year.

After that, I spend, I’d say, half a day with the regional team. So, for instance, we went to Manila. After the open forum in Manila, I had the chance to visit one of the plants that was close by. And then we met with the regional management team from Asia. After that, during the executive committee meeting, we asked the local management team to participate. These visits and these meetings are very helpful to complement the way we communicate with each other.

That’s a great segue into a discussion of culture and communication within the culture, particularly with your social networks. How do you foster such an environment, and what lessons have been learned?

We have been promoting for people to interact. In a global company that means people have to interact with each other in different languages, in different time zones, across different business practices. In the case of Facebook, which is a social network, things work pretty simply: You share pictures or whatever you want in a very straightforward way. But in a business network, you have to do things differently—the word I like to use is articulate these networks. We develop networks either around common things—for example, the network of cement experts—or exactly the opposite, which is around an issue that requires completely different disciplines or approaches. But we design the networks.

We have six global networks; I assign a leader from the members of the executive committee who, on top of their business management responsibilities, each lead one of these networks. The reason why these networks are working is because it’s an opportunity for people to know each other and to learn from each other. So, a person learns that somebody is doing “X”—a thing that others never thought was possible. And they communicate, start asking questions. The leader of the network, on top of articulating this communication, is responsible for identifying what it is that we can do with these ideas and practices that might create value when replicated globally. So then we create a global initiative that’s coming from all these conversations. And that global initiative is executed through the network.

So, you’re seeing how these ideas can be fostered through a kind of groundswell from the local level and then through the digital networks?

Yes, and I can assure you of that, because when I was based in Europe, I created the predecessor of the global networks—it was regional. To use an example, in 2008 or 2009, we created a network on alternative fuels, which has been a practice in the cement business for ages. But after acquiring some businesses in Europe, we learned how to use an alternative fuel that you can employ in massive ways—believe it or not, household waste and industrial waste. To make a very long story short, we started these conversations. The team in Germany was pretty well advanced in the use of these types of fuels, but their neighbors in Poland had never heard of it, even though they had been part of the same company before we acquired them. We managed to move from almost not using alternative fuels at all, to being the leader in the industry.

And the key to these networks is having a leader who has an ear to the ground and says, “That’s going to be a global initiative,” and then fosters more conversation?

I’m purposefully using the word articulating, because it’s a way to manage anarchy. You have to expect a certain degree of anarchy. This idea of facilitating and providing resources for people to communicate and to do almost what pleases them is a kind of anarchy. But what’s the alternative? For it not to happen at all? Or to post a policy or something so people can read it? It doesn’t work! Or, it’s very expensive. Or, it doesn’t happen very fast.

With global networks, I’m sure people will learn, will share, will act and will replicate whatever creates value. But when, on top of that, you can get these global initiatives, it is, in my opinion, a very effective way for the company to evolve. Going back to the example of alternative fuels, who in the network is making and proposing the ideas for projects? It’s the guys in the plants. Then it goes to the executive committee for a decision. If the executive committee says, “OK, let’s support X, Y and Z,” then the people executing are the same people who made the proposal. You don’t have to sell the idea. It’s theirs.

As you talk about the importance of engaging and empowering people, it brings to mind the fact that, earlier in your career at CEMEX, you were in charge of human resources. How did being in charge of talent contribute to your becoming a better CEO?

That’s an interesting question. There is always a discussion about which stakeholder is more important to a company. Is it the shareholders? They are the owners of the business. Some say they should be the most important stakeholder, and we should all be focused on guaranteeing returns for shareholders, which is true. Some others say, “Yeah, but in order to provide reasonable returns to shareholders, you have to take care of your customers.” If you don’t manage that relationship with solutions, ideas, products or whatever, at the end you won’t be able to please your shareholders. So they say the first priority should be customers.

I’m in the group who says the most important stakeholders are our employees because they are the ones who will be pleasing customers. You need the right people in the right place, day after day—because I prefer to have excellent execution, rather than the best strategy that I cannot execute at all! It sounds like a cliché—people are the most important asset—but when you think of who is going to be doing everything, it’s people.

So you’d better invest in people: Prepare them by shifting and rotating assignments. For instance, we hire people just when they finish university, and we have professional development programs for two years for them to decide what their main interest is. (We hardly hire executives from the outside except for some very specialized areas.) We start moving them and preparing them, little by little.

Can we shift our attention to the CEMEX Way, which has been part of the company for a long time? How has it morphed, and what do you see for it in the future?

CEMEX Way has evolved—now it’s One CEMEX. When Rogelio and I defined our roles, as I described earlier, we also defined our priorities. To be sure, we have a long-term vision, and we will act in alignment with that vision. But at the same time, we defined priorities that have more to do with short-term issues than with the strategic and long-term issues. We also clarified our operational model. The way to describe it is very simple: We produce and sell cement, ready-mix and aggregates. (In 2014, cement accounted for 45 percent of CEMEX’s sales; ready-mix concrete, 39 percent; and aggregates, 16 percent. By region, the three largest are Northern Europe, 27 percent of sales; the U.S., 24 percent; and Mexico, 20 percent.)

The model we think is appropriate for a company like CEMEX is what some people call the replication model; it’s standardizing as much as possible. Another way to describe it is invest once and use it many times. So if you’re investing in a solutions system or whatever for Europe, also do as much as possible globally. Of course, you have to adapt things locally, but the idea is to manage as one company. So, one of the priorities we set is One CEMEX—the evolution of the CEMEX Way.

We continue to believe in standardization. We also believe that there are opportunities for a global company to properly and effectively manage itself with much lower costs. For instance, over time we have been centralizing all transactional areas, all the back-office areas. We discovered another step: to outsource all our back-office activities.

One CEMEX has all the same ideas about standardization, reducing costs and expenses, integrating a global company and managing it as one company regardless of the complexities of being in so many countries. But we cannot standardize blindly; it can be risky.

Can you say more about that?

Just to describe one example, it’s not the same thing to sell in an emerging market—Mexico, Colombia, the Philippines, Egypt—as in a developed one—the U.S. or Europe. In an emerging market, about 70 to 80 percent of cement is sold in bags to retailers (although on a per country basis it may be slightly different). In the U.S. or Europe, 90 percent of cement is sold in bulk, directly to ready-mix companies. We are selling cement everywhere, but in one country or type of country we have to get to retailers, while in the U.S. and Europe we have to be integrated with the ready-mix companies. It’s about being sensitive or more sensitive to the characteristics of our customers and the way to manage businesses in each and every geography.

The philosophy behind your marketing practices—acting consistently globally, but with local-market sensitivities—is also reflected in other areas: the environment, controlling climate change and supporting sustainability. Can you talk more about that?

Global companies, or at least global industrial companies, have to decide what their position on certain issues is. Climate change is one example. You have to take a position. You cannot take a position for CEMEX in the U.S., another one for CEMEX in the Philippines, another one for CEMEX in France. Global companies need to have global positions. You cannot have a philosophy on a regional or country basis.

What is CEMEX’s position on climate change?

We do completely recognize and believe that there is a change in climate because of all of us. Our position paper on climate change states, in part: “The overall economics of dealing with climate change are clear. There is sufficient evidence … that the necessary action to prevent dangerous climate change is far less costly than the consequences we will face if climate change goes unchecked. The economic argument for taking action early is clear.”

By understanding and accepting the challenge, you start discovering ways to minimize your environmental impact. That is very important. But we also see an economy evolving because of climate change or sustainability. I mentioned the alternative fuel example. One of the reasons we want to use this type of fuel—household waste, industrial waste—is because, on average, 50 percent of the content is biomass. And if you use biomass, you get CO2 credits. So it is a good business proposition—and not just about avoiding emissions. In one of our plants in the U.S., 40 percent of the fuel is peanut shells! This is the organic material we are using instead of coal or natural gas.

Another thing to consider is growth in the global population, which will accelerate urbanization. But due to rising costs, cities in the future will grow up—not out. A great natural byproduct of this vertical expansion will be containing infrastructure and real estate in a way that is a far more efficient use of energy and resources. It will impact not just the raw materials used.

So because there’s both an economic rationale, as well as just a basic human need, you’re hopeful that there’s time to do something about climate change?

Yes. There will be technology allowing us—meaning all of us—to act, so we better do it.