Paolo Maccario, COO, Silfab, reviews his career path
Tell us about your career path, its ups and downs. Can you start off with where you were born?
P: Born and raised for the first twenty-four years of my life in Turin, Italy, which is famous for the Shroud of Turin and for Fiat — and that’s the reason for the meaning of my life. I went to engineering school in Turin, (the Polytechnic University of Turin) and as I was finishing engineering school, I was starting to look at what kind of experience could be interesting. I started exploring the field, in part because most of the work in the field is in Turin and in part because my field of study, Mechanical Engineering, was fitting well with one of Fiat’s metalworking divisions, so my involvement in casting followed. The military was mandatory in Italy at the time. I didn’t go to the regular service but enrolled in the reserve officers school, allowing me to make some money for nine of the 15 months, but more importantly allowed me to make all kinds of mistakes managing and leading at the Italian army’s expense.
At what stage of the game did you meet your wife?
P: I met my wife when I was 17 and we dated for seven years and got married after I completed my military service; we have been married for 27 years. The week after the honeymoon, I started with Fiat. With Fiat, I spent a year close to Turin, managing a shift in a foundry, in rotating shifts, which was particularly interesting with people that were close to three times my age and who knew all about metal’s mysteries and alchemy. That specific division was exporting a lot abroad so at my part of the plant we produced product that crossed the ocean to General Motors and Chrysler. I had already thought about being involved with North America. There was already a joint venture with a very large Mexican company, too. That was a company in or very close to bankruptcy owned by 50% by the Alpha group; it was offered to Fiat for the proverbial $1.00. They refused but right now that company’s foundries are the world’s largest. So, they ended up buying Fiat’s foundries, not the other way around.
P: Around 1986, the metal casting division called Teksid was becoming globalized. It didn’t make sense to ship material from Italy to North America. I actually moved to Mexico as a quality process engineer in the branch I was describing. It was an incredibly interesting year, because there was a total difference between the heavily unionized Italian labour, very set in their ways with absolutely nothing to lose, and no way to motivate them. In Mexico, they were self-motivated but just a case of Coca Cola would make production records any time. After this experience there was a Teksid plant in Tennessee, also a joint venture but 25% owned by Fiat and a larger American company. When that plant opened, there was already a slow exit of managers from the Mexican operations. So I was asked to join the company in Nashville, starting as a quality manager, progressing through the ranks to a quality processes to plant manager to CEO. This was from 1989 to 2000.
Despite living in the wealthy United States, the workers had incredibly poor personal circumstances. People working at the plant were maybe 40 km away from Nashville, and some had never traveled there. Some of them had moonshine stills in the backyard and as you can imagine the language was not exactly the Oxford English that I was hoping to learn. Even so, they were very incredible people. They saw the competition at that point from everywhere, from China and Mexico, even to our own Mexican operations and gave their very best, with an unbelievable level of dedication.
It wasn’t a unionized plant?
P: We did have one or two unions drives at the time that were completely squashed by the workers. It was a very good plant, a good team. We were far enough from Italy to do our own thing, so to speak, but not necessarily from a technological point of view, but coming from a process standpoint, policies, pay, promotion. The beauty of that is that we were performing much better than any other foundry in the company’s universe. There were a lot of people who were trying to come and see our different approach. Some of those incentives like bonuses for performance certainly didn’t make it back to Italy during my career. It was at the time not necessarily unknown but not allowed within the unionized environment in Italy. A lot of what we did was normal for the United States and Canada and was very good for at least our Fiat division. We had also been making a sizeable amount of money serving what used to be the Big Three and beginning to sell to the Japanese. We are talking about up to the year 2000.
When you talk about employee motivations, productivity and so on, other than the bonus system, what else made it different?
P: There was certainly more participation. I don’t remember ever having employee meetings in Italy that were not the statutory ones for the union. In Tennessee, it was fairly normal to have monthly meetings and a Christmas party. There was certainly more information. Toward the end, because I was then earning an MBA, there was much more structure in what we were doing — from balance score cards, something in Italy that very seldom would have been seen at the time. We were creating our own major index, based on quality of the customers, delivery status, complaints, combining them into a number and monitoring it religiously. It was not something that I was used to but it was being shared with the employees and being linked to bonuses, which was very interesting. There were some examples of people going beyond the call of duty. I remember there was a particularly good year before we started a more structured bonus plan and I announced at the Christmas party that there was a bonus for everybody. I recall the guy at the front just dropping his glass. They were a really good group. We created those incentives; I was young and was reading a lot of books.
Where did you get your MBA at the time?
P: Duke University. It was actually towards the end of my mandate when I knew I would be moving to Canada. There was a request from Italy for a new CEO of the entire division. When you arrive at a certain managerial level within Fiat you are allowed to do some courses for three months, typically the advanced management program at the Harvard Business School. From what I understand it was already a very expensive program but was not providing any kind of real degree. So, instead, I convinced Fiat to let me earn an MBA at Duke. It was the second edition of the Global Executive MBA. There was a lot of traveling involved. Specifically, the first four weeks were at Fuqua in North Carolina, followed by two weeks in Europe with one week in Prague and one week in Madrid, then you would go away and work with your team, distance learning, and also distance communicating with the Skype of the time, and preparing exams and team assignments.
Then we’d meet again for two weeks in South America, Sao Paolo, Brazil and Santiago, Chile. Then we went away and did two weeks in Asia. One week in Hong Kong and one in Beijing. Then again just before graduation it was another three weeks at Fuqua in North Carolina. It was great from the point of view of not just that people that I met at the time, but also, for example, my first exposure to China. At the time we were already working with some Korean manufacturers in the US, so I had already visited our Korean customers. But I had never really seen China until I went there in 1999. That was quite interesting because it was not open at that time but it certainly made me aware of what was going on there.
So after convincing my mother company to send me to Duke, as I was driving to Duke from Tennessee to North Carolina, I received a call saying, “Do you want to be the Italian division’s CEO?” At the time it had 25 locations worldwide and employed 15,000 people. I had to think for 20 minutes and I said, “No.” It was more difficult to explain to my mentors and management why I didn’t want to do it. At the time I had young kids, and also knowing what Fiat at the time looked like, my decision was very easy to reach. It was difficult because obviously my pride would have said, “Wow you should do it.” But in terms of the possibility of managing a company abroad, far from what used to be a very sclerotic and oppressive top management that led Fiat, it was a no-brainer.
Would it have meant going back to Italy?
P: Going back to Italy would have been very difficult. It is different now because I have seen different CEOs. The last two CEOs were uplifting and inspiring. But, the previous ones were a bit more difficult, perhaps more knowledgeable on the automotive side, but very command and control oriented. There were also limited funds, so to speak. Every time we presented our budget to Fiat, my boss in Italy would say, “Paolo do not joke.” We used to call the budget presentation and the quarterly review a “mass with a choir” because it was rehearsed, over and over. You would have the meeting before the pre-meeting. By the time you were presenting the budget, the CEO of Fiat was only ready to shoot holes in what you were presenting. It was not a real discussion. That again all changed later on, but at the time I stuck to my decision not to go back to Italy. Given the decision, they finally realized I was serious; they tried to see what else I could be doing.
In 1999, a company here called Meridian Technologies went from being publicly held to becoming a private company; it was taken private by the two shareholders, Fiat and one of the largest Norwegian companies — Norsk Hydro. The existing CEO was very close to retirement, so they decided to make a change in the management team and asked if I wanted to come to Canada. One of my passions is skiing and when they called me I was in Banff skiing and not knowing the location I kind of hoped to be close to the mountains, so I immediately said yes. By the time I finished my MBA I was permanently in Canada. My family was back in Tennessee. In 2000, if I’m not mistaken, is when they all moved to Canada.
So I came here I became the CEO of Meridian Technologies. Even now, even after a small change of name and a change of ownership, it still is the world’s largest magnesium casting company. So, there was a good reason why it was taken private; there was a lot of desire to make vehicles lighter and magnesium was the perfect opportunity to make lighter components. There was some evolution from a process and a technology point of view that Teksid was bringing to the table and at the time Norsk was our principal supplier, the largest producer of primary magnesium. My first challenge was that at the time we had three magnesium and three aluminum plants.
Where were they?
P: Four plants were in Ontario; three were aluminum and one magnesium. Scattered a bit over Ontario. One of the aluminum plants was in Cornwall. One was in Scarborough, not exactly the perfect place to do casting, but it was the best performing of the three. One was in Wallaceburg, close to Sarnia. The magnesium one was in close to London in Strathroy. There was a fifth plant in Italy just north of Turin and a sixth plant in Eaton Rapids, Michigan.
When I arrived, the mission was to fix or get rid of the aluminum plants. The aluminum was not differentiated in terms of product; everyone could make it. Still in automotive. The plants were also managed in the past independently; they were actually competing with each other just to fill the plant and the field with, let’s call it, loss leaders. And at the same time we were serving the same customer with an aluminum and a magnesium component. One had a very high level of technical prowess and depending on the size also strong barrier to entry, for just having the right machines and the people to run them. The other one was something that already every mom and pop could do, along with the Chinese. Finally, we decided after one year to sell the three aluminum plants. Even two years later people were asking, “How did you manage to sell the aluminum plants when nobody would touch them with a ten foot pole?” In the end, it was a decent sale and good timing because private equity took over the plants. We invested the proceeds in the magnesium side.
We grew significantly and opened a second plant in Strathroy and a larger technical centre, because a lot of our business was design and engineering, followed by the part’s fabrication. We’d reel in the customer at the engineering stage, and then would be the only one able to produce the product we designed. So with a large and wonderful technical centre in Strathroy, we opened a plant in the UK, because a great deal of our Italian production went to Jaguar/Land Rover.
Then we opened two plants in a couple of years in China, the first of them with the largest automotive company, Shanghai Automotive, as a joint venture. Good partners but incredibly slow in terms of execution and with some quirks because of the municipality, the relationship to the party etc. The second one, Chongqing, instead was in an even more exploding area of China — that is probably still one of the largest growing. I was traveling between Shanghai and Chongqing and one day they were producing plastic for automotive and a month later they were creating entire doorframes in plastic and were trying to sell them to the condo developers in Canada. You could see how fast China was booming.
Also interesting is as we were looking for partners, before signing up with Shanghai Automotive and eventually with this entrepreneur, we also saw other parts of China with some other potential partners that were even more difficult to relate to from a corporate and human resources point of view. You couldn’t possibly imagine sending somebody, some manager, any kind of Westerner to go there and because they wouldn’t want it. The conditions were poor and at the same time you could see that performance-based pay was unknown.
If you wanted to do a high tech component they’d make it on an unpaved floor. They’d say, “By the way we just reached our quota so we sent everybody home.” It was interesting in terms of what could and what could not be done in China and it was a fantastic experience from my point of view.
The board was 50/50 between Italian and Norwegian managers. Seeing the difference between the Norwegian attitude to safety and the environment compared to what I was used to in the United States was another eye opener in terms of attention to the person and to the safety that was significantly higher. If you visited your plant in China, the Chinese driver for the Norwegian company picked you up in the morning and drove at the speed limit wearing a seatbelt. Then Fiat’s Chinese driver in the afternoon that would be driving a car with a Ferrari engine in it at full speed with no safety belt, so you see how much you can influence a fast-growing place like China. You can either grow it out of control or within a certain level of control.
Then fast forward, came 2006, Fiat realized it needed money badly; Norsk at the time was expanding significantly into automotive as well. They also realized incredibly fast that autos don’t make as much money as oil and so actually within two years after management made a significant purchase of foundries, they wanted to get out of automotive completely. Between 2006 and 2008, there was already an active effort to sell the division. The first attempt generated a quite interested party but then once they found somebody they didn’t want to sell anymore. That is never a really good idea. It is exactly what you don’t want to do because attitudes and thinking are put in place and you know eventually that the business will be sold. The first attempt was in 2006, then again in 2008, when Fiat’s need for money was even higher — that’s when we ended up doing it. Also in this particular case, private equity was probably not the best choice for the company’s long-term longevity. A few years later, they went through a well-piloted bankruptcy procedure. They went in and out within a day but certainly whatever private equity went into it was completely destroyed. In part because they leveraged greatly with funds from Icelandic Banks — 2008-2009 didn’t do very well for Iceland’s banks (or the entire country).
Selling the aluminum division was a relatively simple process. There were a few bumps but I was not as involved as when we were selling the entire company. For the first time, I was in touch with not just the private equity world but also all the consultants and the investment bankers. It was certainly something that took ten years out of my life as it concerned enthusiasm for the business. One could have prepared everything perfectly but then at the whims of a relatively young kid — or the availability of money — could steer the company’s destiny one way or the other.
I was hoping it could end up in a different place that would have allowed the company to grow. It didn’t, so I decided it was time for me to leave Meridian and I started looking around. There was the possibility of staying with Fiat, which would require either moving back to Italy and I or transferring to another division of Fiat in Chicago. I didn’t want to move there either and I was recruited by someone I had known for a few years who said, “You have experience in aluminum, you have experience in magnesium. How much do you know about silicon?” On the periodic table of elements they are one after the other. So it was not moving too much on the periodic table and I said why, because there was this genial entrepreneur in Toronto, he was from Mississauga and had invented a process to purify silicon, the main component for solar cells solar cells, utilizing aluminum as a sponge to clear all the impurity from the silicon. Quite an interesting process.
At the time, silicon, after gold, was one of the most precious elements in the world because of the semiconductor and solar industries. There was not enough silicon to go around; it was creating not only a need for a new process to producing it but it was also was driving a lot of money into the market. Venture capital and private equity would have done anything to put their hands on somebody able to produce silicon with a cost significantly less than the standard Capital-intensive process. Not only that but the invested capital could be deployed much faster at six months rather than three years and at one order magnitude of capital expenditures compared to the conventional process.
This was my first foray into the solar industry — and an entrepreneurial company. I was leaving a company with 1500 people and joining a company with probably 12 people and zero revenues.
You were suddenly an entrepreneur.
P: Suddenly an entrepreneur. Having to do it all, so to speak. It was quite a roller coaster because the price of silicon was still rising. I joined the company in January 2008 and by December of that year; the price of silicon had reached $430 per kilo. By March 2009, it dropped to $30.
Silicon is not plentiful?
P: Metallurgical silicon is reasonably plentiful because to make it, you only need coal and silica or sand. The reality is that the purified silicon is not as plentiful. In an industry that was more than doubling every year, requiring $3-4 billion dollars and three years to construct a silicon purification factory, the market was underserved and opportunities lost.
Everybody was investing, and capacity could not yet equal the demand. Therefore, people started literally scavenging for silicon, digging for scraps, literally digging under ground to obtain silicon rejected by the semiconductor industry and that they had buried there. But as usual, with that high demand and with high profit potential, an incredible boom began of constructing silicon purification plants in China. From then on, the reason the price actually went down was in part due to the economy improving but also because in a few years there was enough capacity in China to practically serve the world market four times over, totally outstripping the demand.
That created quite an interesting change of business plans — the sky was the limit…let’s put it this way, we received and refused offers of $400 million dollars for a company with zero revenues. Eventually, we managed to sell the company to a customer, which made a lot of strategic sense although the price tag was significantly less than the other offer. But what was interesting about that company was that it was linked to both upstream and downstream and there was a real possibility of strategic alliances that could have both saved the company and created a bridge good enough to extend beyond the silicon business. Unfortunately, some of those strategic alliances were related to aluminum smelters belonging to a large worldwide aluminum company that suddenly discovered the difficulty of moving from an automotive to a solar market while the economic meltdown sank the auto industry. So we never ended up closing the most interesting strategic alliances although we did gain a very good relationship with that customer who purchased the company, a California-based start-up producing cells. Bit difficult to see a significant future, considering the growth and economies of scale that were happening in China and the cost of everything in California, so again it was time for me to move. An Italian company wanted to open a Canadian subsidiary and that is where I am right now.
What ever happened to that company Paolo?
P: 6N Silicon, after changing ownership, achieved significant promises of grants from the United States to build a much larger plant. We were producing an excellent product, but in smaller quantities. Very small. Still the largest purified silicon producer in Canada but nothing compared to some of the larger German, Norwegian, Chinese companies and US. To achieve the economies of scale and the cost that we were expecting we needed to spend a lot and obviously the VCs, especially the Canadian VCs, were not exactly ready for that. Also for them, some of their companies that were worth billions of dollars had become worth hundreds of millions of dollars, so they retrenched quite a lot and the desire to invest in a technology was lost and to a large extent I would say that the decisions were wise because even now there is still a large supply. Even if some of the Chinese companies are starting to go out of business, the Chinese government is literally not letting them exit even if they continue to lose money. There is still a rich supply right now of silicon. Eventually, they decided to close the 6N Silicon plant.
You became an expert at financing then?
P: Creative financing, yes. To create bridges. It seems like creating bridges in the solar industry is unfortunately more common than I had hoped. In part because it doesn’t matter if it was China or Canada, it is very much driven by policy and politics and therefore your strategic plans are driven a lot by what is happening in this particular case at Queen’s Park or in China. If they decide that they want to consolidate the number of suppliers or even if there are trade barriers that are created between one country and the next. It requires being creative and tiptoeing rather than going full out. I believe that what was good about this company is that we didn’t necessarily tiptoe; we went slowly with a very significant investment that is painful to a point if you are not fully utilizing it. It has been very useful because once again it has proven, “better beats cheaper,” which is one of the rules of business. Having a product in a plant that is better, in spite of being smaller than the Chinese companies, is still allowing some traction on the market with some customers. In this particular case, it also allowed some Chinese companies to use our facility to produce their modules, produced by us and labeled by them.
Paolo will discuss the solar industry more in Part II of the PEO Knowledge Accelerator