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March 2012

Rail News: Passenger Rail

Metra CEO Alex Clifford is leading a culture-change charge he believes will restore the faith of employees, riders, board members and legislators


by Angela Cotey, Associate Editor

On a mid-February morning, 12 floors up from the bustling lobby where employees are reporting to work at Metra's downtown Chicago headquarters, Alex Clifford sits in a quiet conference room. He recalls a January day when he gathered the Metra executive team, their deputy officers and one other non-managerial person from each department. Fifty people were provided a pen and pad of Post-it notes, and given 30 minutes to scribble down every Metra accomplishment they could recall from the past 12 months — be it personal, departmental or agency-wide.

In a half-hour's time, nearly 700 Post-it notes plastered the wall. Accomplishments ranged from specific goals that had been met to broader cultural changes that had been initiated.

"It was important for people to see that in addition to running all the trains and delivering 82 million passenger trips and having this incredible on-time performance, there was all this other stuff going on behind the scenes," says Clifford, Metra's executive director and chief executive officer, who joined the agency in February 2011. "It was important for people to pause and reflect on that before we moved into 2012."

For good reason. The 700 sticky notes symbolized the transformation at the commuter-rail agency during the past year. The documented accomplishments were the result of a drive to change Metra's culture, from one in which a select few made nearly all the decisions and employees were not engaged, to one that encourages opinion- and idea-sharing, and places the utmost importance on transparency and accountability.

The transformation is being led by Clifford, Metra's first new chief exec in more than 20 years. The reason behind the leadership change is well known, at least in rail-industry and Chicago-area circles. In 2010, former Executive Director Philip Pagano was found to have taken $475,000 in unauthorized vacation payouts. On May 7, 2010, the day he was scheduled to meet with the board to discuss his future with the agency, Pagano committed suicide by stepping in front of a Metra train.

So when Clifford took the agency's reins a year ago, he was faced with some hefty challenges: Regain trust from the board and legislators. Improve Metra's public perception. Make the agency more transparent. Boost employee morale. As the California native learned more about the commuter-rail agency, he found even more issues that needed to be tackled: a fiscal-year 2011 budget shortfall and long-term structural budget deficit; an enormous state-of-good-repair backlog; a lack of succession planning; and unfilled key positions.

Clifford has been chipping away at the list. During an interview at Metra's executive offices last month, Clifford, in a calm manner and quiet voice, characterized what the past year has been like and outlined his near-term plans. He painted a picture of an agency that has overcome tragedy, with employees who have adapted to change and a leader who is confident in his abilities to transform nearly every aspect of the organization.

The chipping away will continue — and, likely, for some time — but Clifford believes Metra now is well-positioned to put the past behind and address the challenges that stand in the way of making Metra, as he puts it, "one of the best-run commuter-rail properties in the nation."

The extent of Metra's challenges became clear to Clifford his first official day on the job. On Feb. 11, 2011, two reports were issued by outside firms that had been contracted by the Metra board to help improve the agency's management and operations. Strategic security advisory and management firm Hillard Heintze L.L.C., which was appointed in May 2010 to serve as Metra's interim inspector general, released its 2010 annual report on the agency, while accounting and financial risk management firm Blackman Kallick L.L.P. issued a report on risk assessment and internal controls.

The documents showed that Metra's missteps far surpassed Pagano's misconduct. After 20 years under the direction of the same leader — one with an "autocratic" management style, according to the Hillard Heintze report — the agency was left in a precarious position.

"Over time, Pagano's influence undermined the Metra organization in pervasive and destructive ways," wrote Hillard Heintze co-founder and Chief Executive Officer Arnette Heintze in the report. "His policies and practices embedded inconsistencies in management and policy. ... The harmful impact of Pagano's legacy lingers, resulting in an atmosphere of deep mistrust and disillusionment among many employees and a corrosive lack of transparency."

Clifford's own observations of the organization are consistent with the reports' findings.

"My predecessor ruled with a tight fist. He was influenced by an extremely small inner circle and he didn't let many people pierce that," says Clifford. "As a result, you had a great deal of this organization that always perceived themselves as being on the outside and working for somebody who really didn't value their opinion. That contributed to all sorts of morale issues."

Areas of Neglect

Deep-seated morale and transparency issues weren't the only problems. The reports concluded Metra lacked succession planning and information technology, and had outdated policies and accounting systems.

Clifford identified a few other issues. Employees were not provided training opportunities or given the chance to offer their opinions, and key management positions were not filled. Topping it off, Clifford found Metra was facing an $18.5 million FY2011 budget shortfall and a $100 million structural deficit, and state-of-good-repair projects had been neglected.

Although Clifford acknowledged there were times he felt overwhelmed during the past year, he isn't one to shy away from the challenge, he says.

"I'm not a shrinking violet — I'm not someone to go hide in a corner when the going gets tough," he says. "For me, that just means I have to put more time into it and figure out the right solution. And there is always a solution."

Clifford's confidence comes from years of honing his problem-solving and leadership skills. As a young boy, he joined the Boy Scouts of America and worked his way through the program to become an Eagle Scout. He later served four years in the U.S. Marine Corps.

"At a very young age, I experienced the excitement that comes with not only being the person in charge, but also with being able to motivate people to accomplish things," says Clifford. "I think that's been in my blood for a long time."

Clifford's public transportation experience began in 1991, when he became a city councilman in Riverside, Calif. During his two terms, Clifford represented the city council on the Riverside County Transportation Commission, which elected him to serve on the Southern California Regional Rail Authority (SCRRA) board. At that time, SCRRA was just beginning to launch Metrolink commuter-rail service.

Following a brief stint in the private sector, Clifford in the early 2000s joined the Los Angeles County Metropolitan Transportation Authority (LACMTA), working his way through the ranks until 2004, when he was appointed general manager for the Gateway Cities Service Sector, which consists of two bus divisions and an administrative office.

In 2009, Clifford was appointed to a newly created position as executive officer of high-speed rail to oversee the integration of the state's proposed high-speed rail system with LACMTA's services. In that post, Clifford also oversaw LACMTA's interest in SCRRA, which is funded by the five counties it serves.

When Metra announced it was seeking a new executive director, Clifford jumped at the chance. Heading an organization was always part of his personal career path, he says.

He got his wish, though under difficult circumstances. Taking over one of the country's largest and busiest commuter railroads is challenging in itself. Implementing reforms at the agency following an unthinkable tragedy — and doing it under the microscope of scorned legislators, board members and riders — is unenviable.

But Clifford doesn't appear to be fazed. Maybe it's because he's had a year to settle into his new position. Or, maybe Clifford's seemingly calm and collected demeanor has helped him focus on strategically addressing the tasks at hand rather than succumbing to the stress. Whatever the reason, Clifford has been able to make the organizational changes necessary for Metra to gain a more solid footing.

"It's like an emergency room. What's the first thing they do? They stabilize the patient," he says. "That's how I characterize this past year — stabilizing the organization ... so that in 2012, we're ready to really put it into a higher gear."

Clifford first had to make sure he had the team in place to help. He hadn't been on the job long when he learned about 30 percent of the agency's non-contract employees were eligible for retirement in the next three to five years, if not sooner. With no succession plans in place from the previous administration, Clifford needed to convince employees to work through the transition.

"I visited every facility in the organization and met with employees — contract and non-contract — and one of my pleas was to hang in there with us," he says. "There's no better time to leave an agency than when it's at a higher place, and my challenge to them was to stay and be a part of helping to get us there."

Team-building Exercise

He's also has been busy on the recruitment front, hiring new senior managers in posts that had been left vacant because the previous administration either deemed them as unimportant or unnecessary. Among the new hires are Chief Financial Officer Tom Farmer, Senior Director of Labor Relations Jeff Barton, General Council Terry Barnett, and Chief Communications and Marketing Officer Robert Carlton.

By promoting workers internally for some posts and finding new managers outside the agency for others, Clifford's upper management team now is almost in place.

Customer outreach has been a big part of Clifford's stabilization plan, as well. He has visited stations to listen to passengers' suggestions and complaints, and tell them what he's doing to try and resolve them. After two derailments occurred last year, Clifford visited the sites to meet with employees and riders.

The agency also has conducted three surveys to gauge passengers' thoughts on how the system is operating, a proposed fare increase and quiet cars. Clifford also relays critical information to passengers through Metra's monthly newsletter, "On the Bi-Level."

Clifford has extended his relationship-building efforts to the Class Is over whose tracks Metra trains operate. Clifford has quarterly meetings with Union Pacific Railroad Executive Vice President of Operations Lance Fritz and BNSF Railway Co. Assistant Vice President of Passenger Operations DJ Mitchell — either in person or through conference calls — to discuss service challenges or problems. CN now has committed to quarterly meetings, as well.

An Open Book

Nurturing relationships to regain trust and confidence in Metra won't be enough, however. Agency stakeholders need to know agency execs aren't withholding important information, creating agendas that benefit a select few or making major decisions in a vacuum.

As Arnette Heintze wrote in his firm's 2010 Metra report: "The secretive Pagano documented very little and released information when he had no other choice. We learned of a specific instance, for example, in which he purposely misinformed Metra's board, employees and others in order to accomplish his goals, retain control, and prevent discovery of his conduct and practices."

Clifford has been working to turn Metra into a more transparent organization, but acknowledges transparency is something that needs to be shown rather than said.

"It's one of those hot-button words people like to throw around," he says. "The proof is really how you make that a reality."

During the interview process, Clifford realized Metra was facing a $100 million structural budget deficit.

"I told the board that, and their jaws dropped," Clifford says. "They said no one had ever told them that."

The previous administration had been using $60 million in capital-eligible money annually to fund operations, according to Clifford.

At the same time, Metra execs had not phased in a fare increase necessary to meet a mandate by parent agency the Regional Transportation Authority, which requires all Chicago-area transit services to meet a 55 percent farebox recovery ratio by FY13.

The fiscal issues didn't end there. Shortly after coming onboard, Clifford reviewed the FY11 budget and realized that with escalating fuel prices, Metra was facing an $18.5 million budget deficit for the fiscal year (which follows the calendar year, ending Dec. 31).

Clifford knew it was crucial to air the issues — and quickly.

"We came clean and we came clean fast, and we came clean in a very public way about this problem and let the media vet it, and also told customers through our [newsletter]," he says.

Balancing Act

Clifford and his management team were able to rectify the FY11 budget shortfall by redirecting some increased sales tax revenue, locking in fuel prices, identifying "a number of efficiencies," and committing to holding some positions vacant for "a prolonged period of time," says Clifford.

The efforts closed the budget gap for FY11 and enabled Metra managers to begin focusing on the larger issues: a fare increase and the structural deficit.

Knowing they would have to institute a substantial increase to make up for fares that had remained stagnant for years, Metra officials began churning out presentations on various fare hike options to the board in May, six months before the FY12 budget needed to be approved.

"We had these very detailed presentations that showed what the problem was, what the potential solutions were, what the order of magnitude looked like in terms of service cuts and fare increases, and what we were doing to bring the fare increase down from what could have been in excess of 30 percent on average," says Clifford.

The process garnered a lot of local media attention, but Metra executives didn't mind.

"Why would we want the media to churn out negative articles about us? Well, it's all about communication," he says. "We needed there to not be anybody within the six-county region who, by the end of this process, could say they didn't know Metra had a fare increase."

In addition to the board presentations, senior managers discussed the fare proposals with the citizens advisory board, passengers at stations and local elected officials. On Feb. 1, Metra instituted an average fare increase of 25 percent across the board.

"We were fixing something from the previous administration, which chose to kick the can down the road on this," says Clifford. "If we can manage it right from this day forward ... then hopefully we'll never get to that magnitude of a fare increase again. We now have a stable operating budget."

The state of state of good repair

And a more stable organization as a whole. Now that budget concerns are being addressed, managers have been hired, and outdated processes, procedures and technology are getting a facelift, agency execs are better positioned to shift their focus to positioning Metra for long-term success.

For Clifford, the single-largest challenge yet to be addressed is the state of good repair — and it'll take a while to bring Metra's infrastructure, facilities and rolling stock up to par.

Because Metra officials for many years used capital-eligible dollars to cover gaps in the operating budget, the agency has a state-of-good-repair project backlog of about $1 billion, Clifford estimates.

During the next 10 years, the agency needs to spend about $7.4 billion on state of good repair.

Even when factoring in aggressive assumptions that Congress authorizes mass transit formula money at a slightly higher level in the coming years and the state fully funds bonds that can be used for Metra infrastructure projects, Clifford estimates the agency still will need to fund $5 billion worth of repair projects during the next decade.

That figure could rise, though. Metra soon will launch an asset study to determine the actual (rather than estimated) useful life of various structures by inspecting them.

As one small but significant step toward meeting the state-of-good-repair funding needs, Metra's board has agreed to Clifford's proposal to no longer transfer capital-eligible money to the operating budget. After shifting $60 million from capital to operating last year, Metra transferred nothing for the FY2012 budget.

But coming up with the lion's share of the money won't be easy. Convincing elected officials to pony up funds to install new track, ballast or signals is far more difficult than asking them to help fund a new station or line extension.

"Elected officials love ribbon cuttings. If they're going to help you out, they want a new station in their district or increased service," says Clifford. "And while those are great and should be in our strategic plan, they come after [maintenance]. I have to figure out how to put the sexy back in state of good repair."

Clifford hasn't yet determined how he'll get the message across and engage local leaders in his state-of-good-repair mission. But he does have a clear vision of what Metra service could be like if the repair needs are not addressed.

"You'll have an increasing level of service disruptions that will occur because locomotives are breaking down prematurely since we didn't rehabilitate them on a 15-year cycle. We'll have to run slower because we didn't keep up with state of good repair on tracks and signals," he says.

Metra also will be devoting resources to implementing positive train control (PTC) — and contrary to a push from other freight and commuter railroads to extend the 2015 deadline, Clifford believes it should remain in place.

"I come from California, where one of the worst commuter-rail accidents has occurred [in Chatsworth]. I understand firsthand the importance of PTC on our system," he says. "Now ... I'll be there with the rest of my colleagues across the nation saying the feds need to step up to the plate, but regardless, I'm committed to meet that deadline."

Metra estimates it will cost $150 million to $160 million to install PTC systemwide. When Clifford took over as executive director, Metra had "only put its toe in the water" as far as PTC implementation goes; Clifford had to "reenergize and accelerate that," he says. For starters, he included $28.5 million for PTC in the 2012 capital program.

In addition, the state of Illinois has included $100 million for Metra's PTC implementation in its bond program, although getting the state to issue the bonds has been difficult.

"The floating of bonds requires debt service and puts a burden on their already-tight budget, so the state has not been good with keeping with the pace of the bonds they're supposed to float on our behalf," says Clifford. "But if they do their part, we do ours and the feds even give us a token amount of assistance ... we can make this happen."

Participation Required

The "we can do this" message is one Clifford has been relaying to Metra employees, as well. In addition to addressing the organizational and budgetary issues at hand, Clifford has tried to make employees feel more a part of the organization. As the agency's first new CEO in more than two decades, he knew it would take time for workers to adjust to a new manager and management style — particularly because Clifford's way of doing business appears to be far different than Pagano's.

Clifford says he has a participatory management style; he relies on employees' feedback and opinions, and creates an atmosphere that's conducive to healthy but respectful debate.

"As a matter of fact, I'll chastise my team if they don't engage because I don't want a bunch of head-nodders working for me," says Clifford. "I want people to talk about the issue on the table, provide their expertise on it and give me quality information so that when it's time for me to make a decision, I can make a good one."

Department managers have been involved in the budget process, as well.

"Before, budgets were not participatory. The executive director got in a room and hammered it out with a handful of people, and then everybody else was told what their budget was," says Clifford.

When Clifford began formulating the FY12 spending plan, he met with each department head to discuss their performance during the past year, what they expected to do in the year ahead and what they were requesting in the next budget. Now, department managers are required to provide monthly updates on their budgets, and explain any negative variances and what they're doing to get back on track.

"Because they were a part of the budget plan and had a chance to influence it, they can be accountable for it," says Clifford. "The previous administration couldn't do that because the money was just doled out to [the departments]."

Accountability. Transparency. Stability. Clifford is on a mission to instill all three attributes. A balanced budget, freed-up capital dollars, filled-out management team and more empowered employees have been a good start. But getting employees to buy in to large-scale organizational changes for the long haul is never easy. It requires a day-in, day-out commitment from those leading the charge to ensure higher standards are met. Clifford says he's committed to holding up his end of the bargain.

"It's important for me to send a message and live by it — that I walk the talk," he says. "We all work for the same company and we all follow the same rulebook, and I impose that upon myself."

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