When I was a boy in a family enthusiastic about motor boats, I developed a passion for sailing.
Sailing, perhaps uniquely among forms of human transport, is quite autonomous. You need to learn how to read the sky and leverage the wind, whether it be fierce or slight.
Atlantia SpA, the infrastructure company I have the privilege to run as chief executive, is very geared to transport. To be sure, roads and airports are part of the fossil-fuel world, like motorboats, but the lessons of sailing remain: Pay attention, take care, learn all your options and make sure you know how to execute them smoothly.
The most fundamental input in the infrastructure arena is, inevitably, capital. It’s like the wind. And while it can never be free, how you manage it makes all the difference. The corporate skipper must have a vision on how to manage capital – there’s no one-size-fits-all formula but there is a day of judgement! – or his leadership will flounder.
I don’t subscribe to any particularly leadership theory. Maybe that’s what has given me the agility to remain at the helm of Atlantia, originally Autostrade, since 2006! Seriously, though, every case is different, as is every case, every sector, even every decision. Recognizing that, and passionately seeking the best solution each time, is key.
I began as a consultant, working in Paris and Milan. It was great fun. Leadership in that area is primarily intellectual and consists of convincing the client. Then I was CEO of Barilla for awhile, and helped that family-owned Italian icon double its share of the US pasta market. I firmly believe that those kind of results never lie, and often in large retail firms a textbook command-and-control management style can work. You set targets and hound all the company’s moving parts to achieve them.
Atlantia is a bit different. First, its historic core is in operating toll highways, a natural monopoly in a complex regulatory landscape. So a leader needs to create internal drivers of efficiency. Second, the time frame of physical infrastructure investments is much, much longer than in the world of consumer goods. That’s why capital is such a powerful maker and breaker of success.
Sailing taught me that knowledge – of weather patterns, a boat’s abilities, of sail formations and knots – is needed in order to understand options. I’ve imprinted this paradigm on Atlantia. Optionality is our North Star. And optionality is what successful leaders are able to see and insist on seeing before doing deals.
Now, optionality isn’t just about short-term choices. At Atlantia, where I have publicly said many times that we will do “whatever it takes” to make sure we have a high credit rating, the issue is fundamentally one of long-term vision. Mess that up and the intermediate path becomes dangerous.
As Bill Gates once said, people tend to overestimate the changes that might occur in the next two years and underestimate the change that will occur in the next 10 years.
Take a look at Telepass, which is our automated toll payment system. It has long been hailed as an avant-garde solution of convenience, and we will happily acknowledge that one reason it was born in Italy is because we have a very large highway network and agreed to a single standard.
It has always been appreciated by customers and our first-mover role means we’ve accumulated expertise that allows us to become a more attractive highway concession owner elsewhere. It also helps us, for example in Poland, where we are expanding, as Telepass helps us manage greater traffic flows without large-scale disruption while we build more lanes at toll stations.
But fundamentally – and this nobody could fully grasp at the beginning – it’s a payment system that is directly linked to millions of bank accounts. It is predisposed for expansion into other services, such as paying for fuel at gas stations or even paying parking fees and, why not, for car washes. Reliable, trustworthy payment systems cannot be created overnight and are now a huge area of potential growth.
There’s no doubt that the asset value of Telepass is not fully captured in the EUR100 million or so of EBITDA it generates each year. It has optionality – we could in theory spin it off and sell it into a larger entity, or make it an aggregator of a pan-European system. And we very likely will do something like that. The point is we have the good kind of optionality and can make the choice from a position of strength, determining what generates the most value.
The point is to make choices in a way that makes further choices available. This approach allows for greater agility and resilience, which are increasingly essential attributes for everyone.
Let me give a few examples of how this works in practice.
Atlantia recently bought a minority stake in the Venice airport operator. We described this as a financial investment because that is inevitably what it is. We don’t have control, nor any contractually established way to assert control. That option may present itself, and we’ll judge it if it does. Atlantia can wait. We’ve shown that in some of our acquisitions in Latin America, where we started with minority stakes which we were then able – by choice - to expand into controlling positions.
Not all our rivals can do this. One reason we can is because, to cite what I emphasized at the outset, we are passionate about what capital we have. We don’t spend it on dreams. Saying no can be just as visionary as making a high-profile purchase. And we try to keep the cost of our capital down. It’s a method, for sure, but that doesn’t make it easy. Leadership is required to make sure we stick to our course.
Often talk of leadership focuses excessively on innovation. Who is not impressed by the exploits of Steve Jobs and Apple?
But the world of connectivity is not all about technological gadgets. Roads have to be paved, tunnels bored, bridges maintained. These enterprises have more of an epic dimension.
As CEO of Atlantia, I am the custodian of a legacy. The world’s first toll road was built in Italy, in 1924, between Milan and Varese. The world’s first Eurobond was issued in 1963 by Autostrade per l’Italia, our subsidiary and core asset. Autostrade also built the M6, the first privately financed toll road in Britain, as well as the Dulles Greenway, the first one in the United States.
Operating road systems and airports entail huge investments. There’s no killer app that avoids that. It’s about delivery. Our legacy is a sign we know how to do that, and one of my main leadership roles is to make sure we keep our reputation and ability shipshape.
This means no scrimping, no short cuts. In fact, we’re an insourcing company. At Rome’s Fiumicino airport, we even insourced the cleaning of facilities including the restrooms. My rationale is simple: It’s best to own your problems, because otherwise someone else does, and that won’t end well. Fiumicino has since we took it over moved very quickly from being a place for customers’ dismay to one of the preferred airports in Europe.
All of this creates even more optionality value for us. It’s remarkable how much value addition can be achieved if one does things right, which also means doing things in the right time frame, which for us is longer term, and deploying a full skill set, meaning the discretionary ability to cut costs, boost revenue or optimize financing as each case may require.
Technical skills are fundamental but not enough. It’s my leadership responsibility to make sure we are a preferred partner in getting things done. That helped us win the tender to operate the airport in Nice, France, and it helps us draw in financial partners such as pension funds, which offer better terms than more speculative entities. Here’s a secret I’m willing to share: being a reliable investor in infrastructure actually reduces competition in the sector.
My crusade now is steadily turning Atlantia into a global company rather than an Italian one. Airports, along with road concessions in Europe, Latin America and Asia, gear us more to global GDP, which is naturally growing faster than Italy’s. This diversification is not about riding the winds but about creating a diversified portfolio of high-quality assets that enable our superior capital management to continue.
A disciplined Atlantia is a serious cash generator. But we are not maniacally targeting higher dividends. My idea of leadership is never going to be to manage a company for cash – a terrible slogan masking decline. Where many companies have cash, we have extra and growing debt capacity. This too bolsters our optionalities.
One thing can lead to another – lower capital costs means we have more options to expand, and I steer our expansion to be sure that capital costs go even lower. This isn’t just about making money for shareholders, which obviously I’m asked to do, but about sustainability.
Mark my words: Talk of radical disruption may be in vogue at a time of rapid technology change linked to digital communications. But there’s a limit to how many purple carrots people want delivered to their homes. Sustainability is destined to become a popular key word in future Web searches about the meaning of leadership.
And sailboats will outlast speedboats.
The author is Chief Executive Officer of Atlantia SpA.