Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 19, 1993 TAG: 9309190014
SECTION: BUSINESS PAGE: C-1 EDITION: METRO
SOURCE: DANIEL HOWES STAFF WRITER
DATELINE: LENGTH: Long
No one ever told David Goode he'd have it easy as chairman of Norfolk Southern Corp.
Certainly not predecessor Arnold McKinnon, who last year tapped Goode, 52, from a crowded field of longtime railroad hands. A chief consideration: Making sure his successor was young enough, bright enough, to head the $4.6 billion railroad company for more than a decade and lead it during a period of profound economic change.
By many accounts, McKinnon succeeded.
Goode, who celebrated his first anniversary as chairman, president and chief executive officer on Sept. 1, is being widely hailed as a decisive, innovative railroad boss.
Senior executives and board members say he is able to take bold steps without sacrificing the camaraderie he espoused in his earlier years at Norfolk Southern and Roanoke's Norfolk and Western Railway Co.
"David is still accessible . . . still interested in the people he works with," says Henry Wolf, a longtime Goode friend and colleague recently promoted to chief financial officer. "But he understands he's got an awesome responsibility and he's up to it."
Key Wall Street analysts who've almost grown bored with Norfolk Southern's consistent success over the past decade give Goode high marks for attacking smaller but chronic problems, such as the persistently poor performance of North American Van Lines Inc., the railroad's trucking subsidiary.
Goode also has intensified an internal campaign to wring more revenues from existing equipment and personnel - a process called asset management. Analysts love the focus, and bet the results will fall to the bottom line and pay healthy dividends - literally.
"To put it bluntly," says Jeffrey Medford of Wheat, First Securities in Richmond, "he has come in there and definitely taken charge. It's my prediction he'll be named . . . the top CEO in the rail industry. He's got the company strongly focused on looking at how every capital dollar is spent . . . and how it benefits shareholders."
Restrictive government regulation and bloated payrolls have given way to a deregulated, leaner railroad industry eager to compete with rival truckers and each other. Strategic alliances are being forged between historic competitors. Being a railroad - just as being Roanoke - isn't as easy as it used to be.
Even though Norfolk Southern operates only in 20 states in the Southeast and Midwest (with minor operations in Southern Ontario), the company's potential market is worldwide. Exports, for example, comprised more than 25 percent - or 36 million tons - of the 136 million tons of coal hauled last year. And international container freight accounts for more than two-thirds of the company's $346 million container business.
Goode, like McKinnon before him, is traveling somewhere almost every week, meeting with employees or customers. He travels abroad several times each year - most recently Japan - in an effort to win business in the United States from firms overseas.
"I think the pace and the momentum have stepped up" in recent years, McKinnon says. "Deregulation and the economy have come into their own. It's a much more dynamic economy. . . . The marketplace is not waiting for the slow mover."
Quarter after quarter, the message seemed altogether too familiar: North American Van Lines, the trucking concern Norfolk Southern acquired in 1985 for $369 million, had not performed as well as company officials had hoped.
McKinnon and key executives - including Goode, once he was named president in October 1991 - grew increasingly frustrated with North American's apparent inability to contribute to its parent's bottom line. A senior executive from Norfolk, Alan Brogan, was dispatched by Goode late last year to North American's Fort Wayne, Ind., headquarters to conduct a top-to-bottom review of its operations.
Then came the quarterly meeting with Wall Street analysts in January. Joseph Ruffolo, North American's president, was absent - a tell-tale sign. Goode expressed complete confidence in Brogan, and said he had been given "the charge of making whatever changes are necessary to improve performance" at North American.
"We are committed," Goode said, "to take the steps necessary to produce improved performance at" North American.
Two months later, in March, Brogan was officially named head of North American. By June, Norfolk Southern announced its plans to sell North American's two least profitable units in an effort to concentrate on its remaining units - relocation and high-value.
McKinnon acknowledges that "if things didn't work," an executive house cleaning at North American would have been the next logical step. "On David's watch," he recalls, "they weren't working."
So Goode moved. "If you have a company that's making a lot of money, maybe you don't focus on it as quickly," Goode says, calling the North American shake-up "a strategic decision."
His next gambit: An alliance with Philadelphia-based Consolidated Rail Corp. jointly to haul freight between both systems and opening key north-south routes for Norfolk Southern. "As a matter of strategic planning, we recognized we were more partners than competitors," McKinnon says. He, Goode and others had long sought ways to access Conrail's network across the Rust Belt, McKinnon says.
Goode forged ahead, announcing on April 1 that Norfolk Southern had sold Conrail an equal interest in its Triple Crown intermodal subsidiary. The business, using trucks and trains to deliver consumer goods to customers across the eastern half of the country, would use the rail networks of both railroads, expanding opportunities for both.
"It's a win-win situation," Goode says, conceding that the deal brings economic advantages that otherwise could be achieved only through a wholesale merger of the two companies.
Goode's juggling intensified during the summer.
Rains soaked the Midwest, submerging miles of track in Missouri and forcing competing railroads to reroute traffic along each others' lines. Repair costs are expected easily to exceed $10 million, Goode says, declining to be more specific.
At the same time, striking United Mine Workers continued to block coal production at three key Southwest Virginia mines served by Norfolk Southern, even as the company's export business remained bleak because of nagging recession overseas.
Then a key vice president, merchandise marketing chief William Voltz, died of a sudden heart attack, forcing Goode and other key executives to reshuffle the personnel deck again.
All in July.
"I proceed from the assumption that every year is an unusual year," Goode says. "It's really a personal challenge. The job is a tough, demanding, 24-hour-a-day job . . . that requires constant attention, and it's not easy to get away from."
No one ever said it would be easy, least of all McKinnon.
McKinnon praises Goode's readiness to make tough decisions, some of which can affect employees' lives. Take the recent buyout offer Norfolk Southern extended to white-collar employees:
"When [Goode] saw changes that needed to be made, he stepped in and did it," McKinnon says. "I've been very pleased with the way David's taken charge, and that's why I recommended him to the board."
T. Marshall Hahn, chairman of Georgia-Pacific Corp. and a member of Norfolk Southern's board since 1985, agrees. Goode is "decisive and he's disciplined," he says. "And yet, at the same time, he has a warm, caring way with people."
Some financial analysts say Norfolk Southern has become so lean, so efficient in recent years - it's the perennial industry leader in operating efficiency - that it can't get any better.
"Anyone who says we're as lean and mean as we're going to get just doesn't know Norfolk Southern people or Norfolk Southern customers," Goode says. "You don't see it the way I see it. I think we will always keep our eye on [working] to achieve increasing improvements in our efficiency and operations."
This is not the sound of a CEO satisfied with the status quo - even if that does mean being the industry leader in safety and efficiency. Indeed, key executives say Goode has focused their attention sharply on the revenue side of the income statement, calling for broad reappraisals of company equipment and personnel and how they are used.
"It's a reality that we live in a very, very competitive world and we have to invest smarter," says Wolf, the new chief financial officer. "I hope the end result will be increased profitability [and] increased cash flow. That's what the objectives are."
Senior executives, for example, are focusing on better rail car and track utilization and re-evaluating the company's real estate holdings to see if more lucrative lease arrangements and royalties can be arranged.
Already, fruits of the process are appearing: Earlier this summer, Norfolk Southern and CSX Transportation Inc. officials asked the Interstate Commerce Commission to approve consolidating operations on NS track running between Charleston and Columbia, S.C.
Medford, the Wheat, First Securities analyst, predicts the in-house spending hawks will end up producing a capital budget for 1994 that is markedly smaller than previous years, usually around $700 million - after including carry-over expenditures from the previous year.
The freed capital - Medford expects it could be as much as $200 million - could be used to raise shareholders' dividend, repurchase more stock or fund more lucrative investments. New acquisitions are unlikely, officials and analysts say.
"On balance, I hope the capital budget for '94 will be less than it was for '93," Wolf says. "That's my expectation."
The trick, warns McKinnon, is finding the right balance: "I know some of my predecessors whose predecessors cut capital costs and looked great. But then their successors had to double up" capital budgets for maintenance and new equipment.
by CNB