Trading Places

California's new controller, Steve Westly, wants to put a little eBay into state government.

by / August 1, 2003
Steve Westly settled into a comfortable chair in the mid-size conference room in the California State Controller's Office. Outside the 18th floor window is a commanding view of the Capitol building to the east, and to the north lies the Sacramento River as it winds by Old Sacramento. The scene was nice, but Westly had other things on his mind. He turned to his press secretary and asked, "Have we heard from the rating agencies yet this morning?"

Westly, the newest California state controller, was concerned about whether Fitch Ratings and Moody's Investors Service issued a tier-one credit rating for the state. The answer was extremely important because California desperately sought an $11 billion short-term loan from Wall Street to keep its fiscal train moving.

Upon learning the good news, he let out a jubilant "Yes!"

Westly was understandably happy, having engineered arguably the biggest success of his nascent career in state government.

Though the Controller's Office is his first venture into political life as an elected official, Westly is no stranger to California politics. He's been actively involved with the California Democratic Party and recently was re-elected to his fourth term representing California on the Democratic National Committee.

The other part of Westly's background is most intriguing, however.

Westly spent the previous 15 years in Silicon Valley, ending up in the employment of online auction firm eBay -- one of the few dot-coms that survived and earns profits for shareholders. At the time Westly was hired -- he was the 23rd eBay employee -- the company didn't even have a photocopier and used beach chairs in office cubicles, he said.

Today, eight years after its founding, eBay has 28 million active users and $15 billion in gross merchandise sales. Last year, eBay earned $250 million on $1.2 billion in revenue.

Westly left the Internet pioneer as a senior vice president. He took office as California's State Controller in January.

The combination of business acumen and tech-savviness has many intrigued about Westly as a high-ranking public servant. He isn't the first dot-com businessman to immerse himself in politics and government, but he's proven to be one of the most successful by landing such a powerful position. The former eBay executive, however, will have to tap the full depth and breadth of his business experience and knowledge as CFO for the state with the nation's biggest economy -- and biggest budget deficit.

As controller, Westly has some political reach. He has audit power over state programs and manages the state's cash flow (hence his involvement in arranging the $11 billion sale of bonds to pump some money into the state's coffers). This job has few equals. California's $98 billion budget towers over the rest of the states. And with the fifth largest economy in the world -- bigger than France, with half the population, Westly likes to point out -- California is clearly in a league of its own financially and economically.

Westly's office periodically reports on the financial operations and condition of both state and local government; makes sure money due the state is collected through fair, equitable and effective tax administration; provides fiscal guidance to local governments; and administers the unclaimed property and property tax postponement programs. Westly serves on numerous boards and commissions, including CalPERS, and is chairman of the Franchise Tax Board, which administers the state's personal and corporate income tax programs.

With Gov. Gray Davis facing mounting opposition and possible recall, Westly's name began appearing in the press as a possible Democratic replacement. But according to media reports, Westly has ruled himself out.

For now, Westly -- who's married and has two children -- has deeply immersed himself in his job, and is focused on the state's financial stability and technological possibilities.

Q: Do you feel extra pressure going into the State Controller's Office because of your background at a high-profile company like eBay?

A: I feel like working at eBay was probably the perfect prep for being the controller because it was a job where we were going, literally, nonstop around the clock with huge issues before us -- crises: "The system's going down!" or "We've got to raise a billion dollars" and so on.

Coming here, I think I've had much better prep than, say, a legislator or someone from a traditional business might have had.

Q: Because of the timing? The pace?

A: Because of the pace, the pressure and the rapid change. I'll tell you, this place is all about pace, pressure and rapid change. The other thing I'd add is -- and this is going to sound funny because people have preconceptions of the Controller's Office -- slower, doing accounting, people with green eyeshades. But I have been trained, and I'm used to thinking outside the box.

This is what made eBay successful. I think, at this point, in time people are looking at public representatives to be thinking outside the box. That is my bias, and that's what we're trying to do.

Q: What does the role of CFO of California mean to you?

A: First, not everybody understands that the controller is the CFO, and that is a very important thing. When you're the CFO for the world's fifth-largest economy, you have to get the job right. It's very important. Because of my background in finance and business, and having worked in government for seven years, I have some of the right background to come in and tackle the technically very tough issues -- like going to New York, raising $11 billion dollars, and doing it at the lowest possible interest rate to ensure you get tier-one ratings. This is very complex.

This is not an easy thing to do. If we had not gotten tier one, which requires a very sophisticated type of credit enhancement, we would not have fallen to tier two. We would have fallen to tier three. It would have been a free fall.

At that point -- even though people might say, "Oh, what the hell, you would just have to pay higher interest" -- we would not be able to borrow the full $11 billion. There just aren't enough people who can do tier three. It's terrible credit.

Instead of having two and a half months of runway before the state runs out of money [because a budget hasn't been passed], we would have had 35 or 40 days. I'm not sure the Legislature gets there then. With 75 days, I think they'll get there. This is a big deal, and complete credit should go to the team. This is where you want someone, if I may say, who is not a termed-out legislator or an ideologue. You want someone who actually understands how to do these things.

I view the controller's job as more than being the CFO because of the 57 boards and commissions I sit on. In many ways, we're the chief infrastructure officers. And in many ways, we're as close as the state has to a chief information technology officer because we have the biggest computer system: the payroll system for the state. In any company, all of the other systems -- like marketing, HR and so on -- hang off the payroll system. This is your major database, and we oversee this.

The second biggest system is probably the Franchise Tax Board, and I am the chair of the Franchise Tax Board. I feel fortunate -- and this is setting a high bar for myself -- that I came in with a background in tech. I'm committed to tech -- overseeing two of the biggest IT systems in the state at precisely the time everybody else is running away from tech.

There have been some very public disasters. People don't want to touch it, and we're going to step up on this. This is a big risk, but something I'm prepared to tackle.

Q: As you just noted, there's been a slew of IT contracts that have failed or not gotten the results they were supposed to. Do you believe the state is taking the wrong approach to some of these contracts? Or is it a lack of understanding?

A: It's all of the above. But first, the state has had some successes, and those haven't gotten enough credit. We're one of the first states where you can set up appointments for the DMV through the DMV's Web site. We're one of the first states where you can get unclaimed property online. We have a great Web site, with more and more permitting and other transactions that can be done online. We've done a lot of things right. We're clearly in the top quartile. That's good, and I want to make sure the state gets credit for that.

Now, why are we not in the top decile? Why have we had these public mistakes? Let me just say, now is not the time to run from high tech and IT. Now is the time to say, "Let's raise the bar." Because we're in a tough budget time, that means technology should be saving us money. We should be leveraging more. The governor says we need to cut 10 percent of our work force payroll. IT helps you do that.

Now is the time to be embracing technology in a smart way, which gets to the thrust of your question. How can we do this smarter?

Number one: reduce procurement times. Everybody is worried about short procurement, and you have to have shorter procurements. It lessens the politicization, and by the way, technology changes so much that an 18-month procurement time doesn't make sense.

Number two: we have to have an integrated plan. I'm very big at pushing for this. At precisely a time when everybody is sort of stepping back, we in the Controller's Office want to step up. The simple fact is we have too many legacy systems in the state. Child-care services has its system, and everybody else has their system. You lose money doing that.

What was tried in the Oracle contract was the right thing, which was an overarching license for the state. A couple of serious errors were made, but that strategically was the right thing to do. We should not back away from that. We should do that again and make sure we do it without making the political mistakes that were made.

Editor's Note: In 2001, California signed a six-year, no-bid $95 million contract with Oracle for an enterprise software license agreement, with the expectation the state would save money over the long run by uniting scores of individual agency contracts into one contract for the entire state. The state rescinded the deal after questions were raised about the cost savings and how the contract was awarded.

Q: How does this life compare to eBay life?

A: As I like to joke, at eBay I was paid a whole lot of money, and I sat in a tiny cubicle. Here I get paid very little money and sit in a huge office. I'm not sure that was a good trade off, but the two jobs are more alike than you might think.

On one hand, being the controller is such a different job. But the intensity of it and the range of different challenges every day -- where I go from an interview with the premier technology publication to meeting with the Department of Food and Agriculture to talking to the probate referees all in a day -- really requires you to be on your toes. And eBay was very much this sort of rapid change, especially because I oversaw very different things at eBay. I ran international, mergers and acquisitions, and corporate communications at the same time, so there was a lot of diversity.

Q: What are the state's most significant fiscal problems? And how do you see technology playing a role in addressing or solving these problems?

A: Well top-level, this is the largest budget crisis California has had since WWII. It is clearly a generational challenge for everybody in California to figure out how we handle the huge budget challenge before us. Having said that, a lot of people are saying, "Now is no time to think about investing in information technology and in computers."

I am here to say computers are an essential part of the answer. It is not another part of the problem. It is precisely times like this where you have a chance to think outside the box and shake up the system -- to say, "Increased emphasis and investment in information technology and computers can streamline things in California, make us more cost-effective and can, over the long term, help us cut costs."

Technology can be a positive part of the solution, to not only help the state cut costs but make us more customer-service-oriented. I think at the end of the day, the taxpayers in this state are willing to pay their fair share of taxes if they feel they're getting something in return and the state is going in the right direction.

For the first time a couple of years ago, the state made it so you could go online to make an appointment for the DMV. These are types of process-streamlining things that communicate to people that we do know what we're doing and we are moving into the 21st century technology-wise.

Q: What IT challenges does government face that the private sector doesn't? And what advantages does government have over the private sector in the IT arena?

A: The top challenge we have is that because it's a public process, we need to always err on the side of being open and fair, and sometimes that means longer procurement times than I'd like. There's an awful lot of scrutiny by the media. I think sometimes that scrutiny is overdone and it makes the process too bureaucratic.

In the technology world, when you have RFP processes that take one year, 18 months or two years, the technology that's being bid on has already changed by the time you get to the other end. I'm hoping we can shorten some of these processes.

As to the advantages, we've seen a lot of companies that have been very forthcoming in saying, "We know the state is in a tough financial time. We'll help by doing some of these things at cost. We'll donate some technology."

We do get some benefit by being the preferred provider of the state of California, so people offer us some deals and opportunities as well.

Q: The success of eBay is well known and well publicized. What about that success isn't so well known?

A: Three things. First, one of the major reasons for eBay's success is people at eBay moved incredibly quickly. There was an ethic at eBay that you may not get everything 100 percent right, but the race was going to be won by the fittest, and speed and efficiency were everything.

There's a little bit of a lesson there for people in Sacramento and in state government -- in a world of truly international competition, where your competitor is often just a mouse-click away, speed and efficiency are really important.

The second lesson from eBay is that, because we were an online service, customer service was everything. The reason for that is we got instantaneous customer feedback. With more and more people interacting with the state of California online through the controller's Web site -- or the office of unclaimed property's Web site, or the attorney general, or the DMV -- customer service is becoming more and more important. The state needs to do a better job of that, and I hope in the Controller's Office we can lead by using technology appropriately.

The third thing is eBay had a great corporate culture. It was a corporate culture of treating people well, and I guess it's an extension of the customer service concept. I'm working very hard to create a corporate culture in the Controller's Office that when every person comes to work, their purpose is to be customer-service-oriented [and] that there's a real community -- that people expect to be treated well and deserve to be treated well.

Q: What intangibles did your eBay experience give you that you can bring to state government?

A: I don't know about the intangibles, but it sure taught me the power of working quickly, hustling, moving fast and being decisive. As I look around, I think it's fair to say not everybody in Sacramento is as decisive as they should be, and I hope to learn from that.

Q: In several interviews with you when you were part of eBay, I saw references to the frugality of eBay. Do you think those were fair references, and do you bring that sort of frugality to public service?

A: Those were fair references. Just go back to the corporate culture for a bit. Pierre Omidyar, the founder of eBay, and Jeff Skoll, who was the first president, instilled a corporate culture that was exceptional. Pierre and Jeff instilled this culture of humility, which was very much missing in high tech during the boom days, and of frugality.

I believe frugality led to eBay being the one firm that's been profitable every quarter of its existence. There is a lesson here for state government on how to always be humble in serving the people and in being frugal. By and large, state government is frugal because it has to be, but there are always ways to do more with less.

Q: What do you think public agencies can learn from companies like eBay?

A: The two things are moving quickly, which government always needs to do a better job of, and second, being more customer-service-oriented. I'll just add one other point to this. At eBay, there were some people who were billionaires, and there were people who were truly world-class executives.

I didn't fit the first category, but I hope I fit the second. I'll tell you, every employee at eBay sat in a cubicle, and that was a reminder that they were no more or no less important than everybody else in the company. There are a lot of trappings of power in Sacramento and a lot of big offices, and I hope we can play some of that down over time.

Q: You touched on the nimbleness of eBay and how the company used instant customer feedback to build itself. Given that background, what is your opinion of California's current electronic government initiatives?

A: I'm actually proud of the state. There are a lot of great successes in our e-filing area, in the DMV, and I'm proud of what's happening in the Controller's Office. There are a lot of great successes that have been lost in the highly publicized problem areas, like the Oracle contract.

It's important to take stock of the fact that we've made some big steps forward. Now we need to overcome the highly publicized problem areas and get to the next generation of successes. We're working on some things in the Controller's Office I hope will carry us to the next level in terms of streamlining the unclaimed property process and so on.

Q: As CFO, how you plan to ensure that state IT projects meet both cost and performance goals, and can be justified based on agency needs?

A: Let me do my best to give you a short answer on that one. First, before you even get there, it's important for statewide officers to stand up and say, "Technology is important, and it is a priority even in a tough financial time."

Second, once you get the buy-in to move ahead with key IT projects, you just need to maintain a common sense businesslike approach to getting these things done. What are the goals we need to accomplish? What are the concrete steps to getting there? And how can we get through these steps in the quickest way possible.

Some of my staff, both at eBay and here, have said, "Boy Steve, you're awfully impatient." They're right, but when it comes to information technology and perhaps government in general, being impatient is a virtue and something we need a little bit more of at state government.

Q: I realize it's a little early in your time as controller, but what from your background at eBay impacts your role as CFO of the state?

A: I think, again, my background at eBay gave me a sense of immediacy and impatience. I believe I'm pushing the organization, I hope, in a positive way. Second, there's been a little bit more focus on being customer-service-oriented, and with a large organization of about 1,100 people, I hope we're doing that -- moving forward in a customer-service-oriented way.

Third, maybe just a little bit of outside the box thinking that I think is characteristic of eBay. We're going to try some new projects here, taking things to the next level. One of the ideas we've bandied about here is with unclaimed property. In the old days, you could call an 800 number. I think Gray Davis did that, and that was great because for the first time, people could immediately dial in and find out whether they were owed money.

During Kathleen Connell's term, they created a great Web site, so you could see online whether you were owed money. Even then, if you were owed money, you had to fill out a form, send it in, and then the form got touched by two or three other people before a check got back to you. We're going to see if there aren't creative ways where we can take that to the next level, where we can get automatic payments.

We're always trying to push the envelope here, and that's very much a part of the eBay legacy.

Q: Do you think, right now, IT is being used properly to save the state money in this time of budget crisis? Or do you think people don't understand the potential there?

A: We can do a lot more. An awful lot of elected officials have not worked in business and don't have much of a background in technology. I think that's starting to change. There are some very smart people in the Legislature that have some background in high technology or have worked in high tech, and I'm hoping that by my running for statewide office, I will serve as a little bit of a role model -- that more people from business, and especially more people with a tech background since high tech is the state's largest industry, will say, "You know what? I can really make a difference in government."

In the old days, people said you had to be a lawyer to go into government. More recently, people have said the big issues of the day are budget and finance issues, and we need more M.B.A.s. I think there will be a point in time where people say government is really about the most cost-efficient provision of services, and that means we need more people with a technology or IT background.

I'm hoping I can be part of that symbol of the future.
Shane Peterson Associate Editor