When Emcor lambasted its failing UK subsidiary Drake & Scull, US-based boss Frank T MacInnis asked Tony Whale to turn the firm around. Whale has, but he isn’t out of the woods yet. We met the two to discuss their future.
It is nearly two years since the man on the right of the picture above used the word to describe his feelings for Emcor Drake & Scull. He is Frank T MacInnis, the chairman and chief executive of Emcor Group, and his frustration was caused by his British subsidiary’s £11.7m loss in 2003.
MacInnis’ response was to give the company the mother of all dressing-downs and to replace the management team led by Norman Critchlow. In its place he drafted in Tony Whale, the man on the left of the picture, who had headed up Emcor Drake & Scull’s engineering arm, to turn things around. And turn it around he has. Pre-tax profit is now just shy of £2m and the duo feel able to proclaim that its £2.4bn parent is the world’s largest specialist contractor.
Not that MacInnis is happy yet. He came close to selling the UK business in that loss-making period, and still hasn’t decided its fate: “I haven’t changed my mind yet.
But I have concluded that the new management has earned the benefit of the doubt and the opportunity to rejoin Emcor as a contributing partner.”
That is hardly a ringing endorsement, and it gets worse: “The profits in 2004? They’re not good enough,” before it gets better: “What I’m impressed about is the change of attitude – a disciplined approach to bidding, estimating and so on. Any company can find a way to make a little money. A change of attitude is something special.”
Whale looks relieved. The company is in the middle of a strategic review, which will outline a growth strategy for the next five years. The UK business has been heavily involved in the review, suggesting that MacInnis is more pleased with Drake & Scull than he lets on. On a personal level, the two seem to get on, with animated conversations about their respective golf handicaps. Whale claims to be content with the criticisms: “The US parent wasn’t satisfied and quite rightly so. What Frank is saying is that nobody’s off the hook: every Emcor company has responsibilities and accountability. I feel quite comfortable with that.”
What Frank is saying is that no-one’s off the hook: every Emcor company has responsibilities and accountability. I feel quite comfortable with that.
MacInnis was particularly disappointed with Drake & Scull as it had provided him with the business model that saved Emcor when he took over in 1994.
Emcor was in bankruptcy at the time and he saved it by following Drake & Scull’s example of having a facilities business as well as a contracting arm, allowing the group to win work when construction was in recession. That meant that it could afford to avoid risky building contracts during downturns.
MacInnis remembers: “I said: ‘Hmmmm …
I wonder if this could work in North America?’ At the bottom end of the construction cycle nobody should be in it. The risk–reward ratios are inappropriate for any company. That’s the problem with pure contractors. In those circumstances, they’ve got no choice but to bid.”
The strategy has paid off: the group has posted 39 consecutive quarters of profit, which is the kind of performance that blue-chip clients such as property group CB Richard Ellis and technology company Siemens look for in a supplier.
But MacInnis sees the review as the company’s “crossroads”. Whale may be a little less polished than his boss, but in identikit dark suit, blue shirt and red tie he also echoes MacInnis’ sentiment: “The potential is enormous. We’re capable of looking at everything from concept design to asset management.”
The review marks the end of a transitional period for Emcor. Having come out of recession in the USA, the group is looking at forging strategic alliances with industrial companies. This is essentially an outsourcing market, with Emcor looking after these companies’ estates. However, its plans are rather more ambitious than just keeping the windows clean.
Any company can find a way to make a little money. A change of attitude is something special
Frank T MacInnis
Emcor’s argument is that every major industry, from nuclear power to pharmaceuticals, is being hit by the cost of installing and maintaining equipment. Western industries are particularly vulnerable to this as they frequently have huge investments in infrastructure that is becoming obsolete. To E E make matters worse, they may be competing with emerging economies in India and the Far East that are able to leap-frog them by installing state-of-the-art hardware. A telecoms company, for instance, does not want to have to write off tens of millions of pounds of investment by scrapping its copper wire systems.
Emcor’s plan is to specialise in maintaining and upgrading the old infrastructure so that it remains competitive long enough for the client to upgrade. MacInnis argues that this puts Emcor in a unique market position. He says the group’s closest competition emerges from the likes of automotive giant Johnson Controls and aerospace-to-specialist-materials group Honeywell, both of which have extensive facilities services arms. But MacInnis stresses: “What they don’t have is the scope of construction and engineering expertise that we have. We’ve important capabilities in hardcore construction.”
Whale is clearly impressed by his boss. He declares of MacInnis: “He’s quite a character.”
That MacInnis is quite a character doesn’t always come across, although his public relations team privately insist he is. What’s remarkable about this is that very often PRs are as damning about their clients off the record as they are painfully enthusiastic on it.
Certainly MacInnis is amiable and obviously highly intelligent – he skipped several grades when he was at school in his native Alberta, Canada – but he speaks in considered rather than dramatic tones.
Despite his conservative delivery, he enjoys a media profile in the States that UK contracting bosses can only dream about – he is doing this interview barely an hour after a 10-minute stint on CNN. Across the Atlantic, he regularly features as the guest spot on business programmes, and The New York Times has even run a full-length interview with him on the rights and wrongs of creating a US system of democracy in Iraq. It’s like The Observer asking Ray O’Rourke for his take on North Korea’s development of nuclear weapons.
This shows the contrasting media image of the construction industry in the USA and the UK. As MacInnis puts it: “It’s entirely appropriate that the chief executive of a company employing 27,000 people, generating nearly $5bn in revenue, is asked about issues broader than construction. The fortunes of our customers are driven by broad macroeconomic events.”
His UK chief’s fortunes are more concerned with things at a local level, of course, but for the moment it seems that Whale is keeping his boss’ frustrations at bay.
MacInnis on ...
Future turnover It would be nice to grow this company by 10% a year. That’s a realistic growth rate
Iraq I favour a phased repatriation of troops, to provide a long enough period of stability so that deal-making between the various factions can emerge
Taking US citizenship (he was born in Canada) I owe America a great deal. It’s been a land of opportunity for me and my family
Emcor’s image We are no longer termed a subcontractor; we’re a specialist contractor. We work with other contractors rather than for them
The PFI We are very cautious about the PFI market. It was once driven by contractors, but now it’s run by finance houses
Golf I play off a seven handicap