Planting the Seed of Cypress
With a crisp new Stanford PhD diploma and a fresh idea for a specialized microchip technology he had invented, the now Dr. Rodgers shunned an offer from Intel, opting instead for a role at smaller, more nimble Advanced Microsystems Inc. (AMI). The chip he invented there turned out to be a financial failure and he soon found himself on the street looking for work.
Once again he stiff-armed the giant Intel and took a job with W. J. (Jerry) Sanders at Advanced Micro Devices (AMD) working on a memory chip similar to the one he had created at AMI. Rodgers learned a lot from Sanders about image, marketing, and competing in the rough-and-tumble world of Silicon Valley in the 1970s.8 He also thought he could do even better than AMD in the memory chip market by striking out on his own.
In 1983 Rodgers scored venture funding and founded Cypress Semiconductor, taking Sanders’s vice president of marketing, Lowell Turriff, with him. The move spawned a lawsuit from AMD and a bitter rivalry that lasted for years. The climate of the Valley in those days made it more like a medieval turf battle than a civilized game of country club tennis. Rodgers himself formed “raiding parties” to capture the top engineers from other companies for his own ranks.9 The competitive experience seems to have cemented his take-no-prisoners business value system and appreciation of hard work.
“All of a sudden, when you are in start-up, and your friends are going to get put on the street if you don’t make money and are able to pay them,” explains Rodgers about the uniquely entrepreneurial culture of the Valley. “You realize that making the money is good, proper, and moral, and it does good for people.”
He adds, “And you look at how hard it is to do that and how hard it is to compete as a start-up against a big, established company, or Japanese companies as a group, or today the Chinese companies as a group, and you all of a sudden realize that doing that is an accomplishment and it takes all of your skill and all of your energy, and it’s the right and proper thing to do.”
Despite charging hard for decades, Rodgers still maintains a passion and a work ethic not many match. Aside from a daily lunchtime run, he works every waking hour of the day. He tackles stacks of technical journals in the mornings, saying, “Transactions on Electron Devices is not something you read while you are having dinner or a glass of wine.” After a brutal day at the office managing his employees and solving problems, he lugs a Pepsi crate of paperwork home to complete in the evenings from a floating desk in his hot tub.
Like Francisco d’Anconia, Rodgers sees money as simply a benchmark, an indicator of value created, not an end to itself. “I like working— working (and learning) is what I like,” sums up T.J.’s primary motivation, like a true Rand hero. “It is the gratifying thing to me.
“All of a sudden you’ve got a huge manufacturing problem and the puzzle is multidimensional—extremely complicated—and therefore extremely interesting, and always changing,” Rodgers explains eagerly about his inner motivation and source of inherent drive. “What worked two years ago is now obsolete. Either you solve the new set of problems or you’re out of there; the whole Valley’s that way.”
His schedule doesn’t leave much time for philosophizing, and Rodgers claims to have never read Atlas Shrugged or The Fountainhead. Nevertheless, he’s an avid fan of Rand’s nonfiction work—and has quoted several of her more subtle economic and political ideas in his own writings. He even hired a Randian philosopher named Jason Alexander to conduct presentations on Objectivism to his executive staff. “I got almost all of my knowledge of Rand from him,” he relates.
In 1992, Rodgers wrote a book called No Excuses Management (Currency/Doubleday) in which he laid out his no-nonsense operating methods in a playbook for like-minded business leaders. His approach to employees seems to be like a hard-charging football coach—or maybe even a bit like a drill sergeant. There is no coddling. The measures of success are objective. Do your job. Solve problems. Understand and admit your mistakes. Rodgers clearly loves doing business, but with his team, it’s tough love.
“There are people in the world, those who have been through self-esteem stuff when they were kids and got wrecked that way,” sums up Rodgers’s perspective on the popular feel-good management culture. “They screw something up and it costs the company a million dollars because they didn’t care that much. Then they would like to hear, ‘I’m glad that you made that amount of progress, but, you know, we could really improve even further (like lose less than a million dollars) if we did this and that.’ I don’t do that. To me that’s a lie.”
Rodgers does tolerate mistakes from his troops; in fact, he welcomes them, saying, “If they don’t make mistakes, then we’re not pushing them, and if we’re not pushing them, we’re not going to be competitive.” What he won’t tolerate are excuses, ignorance, or apathy. “If a guy comes in and doesn’t know what’s going on, that’s bad. If he doesn’t care that he doesn’t know what’s going on, that’s real bad,” explains Rodgers. His solution? Displayed in a poster on the wall of his office is a horrifying image of a toothbrush—with stainless-steel bristles. “You bring out the stainless-steel brush and rough the guy up a little bit and if he goes away, congratulations—self-selection.”
Rodgers also instills a self-reinforcing culture intolerant of corporate politics. The admonition in Cypress’s values statement “We deplore politicians” isn’t a reference to public office holders, be they Democrats or Republicans; it’s about office politicians. “They try their little politics at lunch someday, and they get zapped,” T.J. explains of a typical misfit who somehow makes it past his arduous new-employee screening process. “Maybe they undermine somebody and they get zapped again, and then they realize that ‘my way of doing business—enhancing my reputation by undercutting others—is not in the interest of the company,’ and what happens is the troops eat them up. They go away.”
Yet despite his tough management style, Rodgers doesn’t see himself as an autocrat. Most of the company’s major decisions, from resource allocations to project priorities, are made by a group of talented executive vice presidents together in a room, with no back-room dealing allowed. “It’s not because I feel touchy-feely,” explains Rodgers, in a rational view of his own limitations. “It’s that I know that any time an organization gets bigger than a hundred, the leader can’t make all of the decisions. You just don’t know enough. Therefore, getting data from layers in the company and chewing on it and letting them think about it, talk to their guys and come back, that’s how you make decisions that work.”
Yes, there’s a pattern emerging here. In his own distinctive style, Rodgers is saying the same things about managing a business as John Allison of BB&T, the Rand-inspired executive we met in Chapter 3, “The Leader.” They both learned from Objectivism to be objective, that it’s reality that counts; lies and evasion aren’t tolerated. They’ve both learned that complex modern companies depend on the independent decision making of good people throughout the organization. But those people must be united by a robust philosophy that they explicitly agree to hold in common. Those who can’t or won’t subscribe to the philosophy have to go; the philosophy serves as a filter to select the best people, and to knit the best into a team.
Rodgers’s course at the helm of Cypress hasn’t always been a straight path upward. The semiconductor businesses is intensely cyclical, not only sensitive to overall economic conditions of growth and contraction, but subject to chip price swings driven by supply, demand, and the inexorable march of new technology under Moore’s law.
The dot-com bust and 9/11 attacks dealt Cypress a major loss of $3.28 per share in fiscal year 2002. Its stock plummeted over 90 percent from its all-time high. Then the Great Recession later in the decade sent profits down yet again. But Rodgers retrenched, cut costs, and focused on what he does best: the fundamentals. It’s like his beloved Packers—it’s all about blocking and tackling.
According to Securities and Exchange Commission (SEC) filings, until just recent
ly the board of directors received no cash compensation for serving the company. Rather, any financial incentives they received were in the form of long-term stock options effectively aligning their decision making to the enduring success of the company. Rodgers himself takes home less than $600,000 in salary—an amount that may seem large, but is modest in the rarefied atmosphere of today’s CEO pay—and he lives by his own rules of pay for performance. When the company is cutting costs to weather a downturn, Rodgers and his executive team share in the pain. According to the 2009 Cypress annual report, “Like all other employees, our executive officers were impacted by the Company-wide pay reduction implemented in the second quarter of 2009. As a result, the base salaries of our executive officers were reduced by between 9% and 11%.”10 Furthermore, neither Rodgers nor his executives received any new stock option grants in 2009.
Profits versus Political Correctness
Rodgers’s years of slugging it out against domestic and international competition alike also gave him a disdain for noneconomic standards of business success like artificially imposed diversity quotas or so-called social responsibility. In his view, these collectivist benchmarks are based on a faulty moral premise that ultimately does more harm than good for our society and the economy as a whole. “If you go out of college to some big corporation and the first lecture you get from the human resources group is why your company is good because they believe in corporate social responsibility,” Rodgers explains, “then all of sudden, you know, you never get put through the test of really making it on your own.”
His staunch defense of his business methods—finding the best talent regardless of appearance or background, competing to win rather than maneuvering to look good—has resulted in some now-legendary battles played out on the op-ed pages of our nation’s newspapers. Perhaps the most famous was his widely circulated 1996 response letter to a Franciscan nun, Sister Doris Gormley, who criticized Rodgers for the lack of racial and gender diversity on the Cypress board of directors.
Rodgers replied in his letter, which was picked up and reported in a page 1 article by the Wall Street Journal:
Choosing a Board of Directors based on race and gender is a lousy way to run a company. Cypress will never do it. Furthermore, we will never be pressured into it, because bowing to well-meaning, special-interest groups is an immoral way to run a company, given all the people it would hurt. We simply cannot allow arbitrary rules to be forced on us by organizations that lack business expertise. I would rather be labeled as a person who is unkind to religious groups than as a coward who harms his employees and investors by mindlessly following high-sounding but false standards of right and wrong.11
The resulting flood of responses was overwhelmingly positive. Ninety-six percent of Cypress shareholders wrote Rodgers in support. John Allison of BB&T got a similarly positive reaction when his bank announced it would not make loans to develop property acquired under eminent domain. “It seems the liberal-dominated media continue to push us further and further towards the society of Ayn Rand’s Atlas Shrugged, and your position stands out as one of the few against the downward slide,” wrote one individual investor from New Mexico.12
A U.S. Congressman from Washington State wrote, “Our educational system is failing in part because it avoids the need to educate young people that capitalism, profits, hard work, and achievement are not bad things.” Of the 27 lay Catholics who wrote in supported Rodgers’s position, one said, “The Sister Gormleys of the world are neglecting God’s work for dilettante socialism.”
More than half of all responses argued the philosophical point that capitalism is morally good. Even Nobel Prize-winning economist Milton Friedman sent Rodgers a note along with a copy of a New York Times piece he had written in 1970 titled “The Social Responsibility of Business Is to Increase Its Profits.” “He made every point I’d made, but 26 years earlier,” T.J. quipped. Milton Friedman has inspired many advocates of free markets; we’ll meet him again in Chapter 9, “The Economist of Liberty.”
The few negative responses were typically emotional—and anonymous—rants. One called Rodgers a “money-grubbing, narrow-minded elitist . . . desperately holding onto [his] white-male bastion of power.” One Washington resident wrote, “There are a number of educationally and professionally qualified women and minorities who can excel as board members of Cypress and other male/Anglo-Saxon-dominated companies.” The writer didn’t provide the names of those qualified women and minorities, nor did she seem to realize that only two of the five Cypress board members were, in fact, Anglo males.
The executive director of the Council of Institutional Investors wondered whether “CEOs who insist on board clones failed to play high school sports or other security-enhancing activities.” Apparently Rodgers’s two high school football championships and a college career playing for Dartmouth didn’t count. The most succinct feedback was submitted to the Cypress web site suggesting simply that T.J. should “pull his head out of his ass.”
The Conscience of the Nation
In 1999, one of T.J.’s directors called him to let him know that Jesse Jackson was coming to town. “He’s been to New York and called the stock brokerage and the investment banking industry racist,” remembers Rodgers. “Then he went to Detroit and called the car industry racist. So he is going to come here and call Silicon Valley racist . . . probably.”
“You’re not going to say anything, are you?” asked the director. “You understand this guy does this stuff for a living. He’s a low-life, but he is going to rip your ass and you’re going to embarrass the company, so why don’t you just keep your mouth shut?”
“Okay,” Rodgers replied. But in the end he just couldn’t hold himself back. After the nun incident, news outlets from the New York Times to the local television stations knew Rodgers was a reliable source for attention-grabbing sound bites on controversial issues. As Jackson ramped up his rhetoric in Silicon Valley, reporters began beating harder on T.J.’s door. He finally relented.
“Do you have a comment on Jesse Jackson?” asked a reporter from Fox News.
“I said, ‘Jesse Jackson reminds me of a seagull,’” Rodgers recounts. “‘He flies in, craps all over everything, and then flies out.’ And then the guy’s looking at me like his jaw drops and he goes, ‘Do you really want to say that?’ And I go ‘Yeah.’ He said, ‘Well, okay.’ Then he didn’t ask me another question and he’s gone.”
After his Fox News television appearance, the San Jose Mercury News invited Rodgers to expand on his thoughts in a more reasoned article, which it published on March 14, 1999. The arguments read like one of Francisco d’Anconia’s expositions on the virtues of a free-market capitalist meritocracy.
My company, Cypress Semiconductor, has 35% minority employees—every one a shareholder. And at the top, four of our nine executive vice presidents, or 44 percent, are minorities. Cypress’ overall employment statistics are typical for Silicon Valley. I invite the Reverend Jackson to send me the resumes of those disenfranchised people who’ve received training from “the best universities.” With 115 open positions we could use them. We hire 500 people per year and still never fully meet our needs—just like other Silicon Valley companies.
. . . But why should Silicon Valley companies be forced to deal with Jackson? He is an economic train wreck who recently wrote, according to his Web site: “Deregulated capital markets, free trade, floating currencies—these are simply mechanisms, not measures of virtue.” And when the markets aren’t free anymore, who will determine what is virtuous—Jackson?
Compare the moral impact of the CEO who says or implies, “Many of you are here because of quotas,” to that of a CEO who says, “You are here because you are the best. Period.” We should not tolerate any degradation in one basic value that drives Silicon Valley meritocracy—despite Jackson’s criticism of it as “an oozing ideology that needs to be addressed.”13
“We only hire based on merit, period. And right now our company is 64 percent minor
ity,” Rodgers reports dismissively—letting the oxymoron “64 percent minority” speak for itself. He’s also proud of standing up to Jackson and not cowering in fear from the deliberately charged words “minority” or “prejudice” that Jackson wields to slice his opponents. “Every other CEO just crawls under his desk and waits for it to go away,” says Rodgers of the typical corporate reaction when Jesse comes to town to spout off about racism.
Rather than take Rodgers up on his challenge to meet for an open debate, Jackson’s camp replied: “We can now officially describe Cypress Semiconductor as a white-supremacist hate group.”14 All we can say about that is that when we visited T.J. on Champion Court, we didn’t see any crosses burning outside Cypress’s headquarters.
Rodger’s in-your-face defense of his moral ground and living a life that simply honors the truth hasn’t been without consequences. “These are my lawsuits,” Rodgers says pointing to the opposite wall covered with over a dozen black-and-white documents. “I always frame them.” And he refuses to settle or be blackmailed into compromising his principles—no matter how drawn-out or expensive the ordeal.
Does he ever end up spending more to fight than to give in to the demands of his extortionists? “It happens all the time,” Rodgers says matter-of-factly. “The idea that that decision is a decision about return on investment is bullshit. . . . They’re calling you a scumbag and a crook, right? So how much money do you have to save to acknowledge that? Then of course it’s ‘without admitting guilt’? Bullshit. You gave them a check.”
The criticism doesn’t seem to faze him much. Not that Rodgers is an unfeeling automaton—in fact, he is an intensely emotional man. But he has a remarkable ability to take a step back from the initial gut reaction to view the situation, and himself, in an objective context. Fortune called him up a few years ago for a piece it was running on the world’s toughest boss. “Two or three years before, they had issued America’s toughest bosses and two of the people that I remember on the list were Jack Welch and Andy Grove,” recollects Rodgers. “They were basically good guys who ran great companies that were tough. . . . So I figured it would be the same thing.”
I Am John Galt Page 24