JimPinto.com - Connections for Growth & Success
No. 100 : October 10, 2002
Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
- Downfall of acquired companies - case history: Action Instruments
- Yurko in deal to buy Eurotherm Drives from Invensys
- Study: 1 in 8 CEOs have high-risk traits
- Viable Utopian Ideas
- Automation: Products Vs. Services
- Jack Welch - GE distribution of rewards was NOT equitable
- Thoughts on human longevity
- Downsizing caused by selfishness and greed
Downfall of acquired companies
Why do many good companies crash and burn when they are acquired?
Case history: Action Instruments
Action Instruments, the company I founded in 1972, grew to be a
world leader in industrial signal conditioning.
I thought I had a good view of all the possibilities when I sold
Action in '98. Action had a strong management team, was growing
profitably, with money in the bank. We spurned several juicy
offers from larger conglomerates to hook up with Eurotherm,
then an independent, medium-sized ($300m) UK-based public company.
Today, Eurotherm is a melting iceberg, and Action has declined
to a decaying shell.
Beyond just taking a dig at the incompetents that caused the Action
demise after it was acquired, I'd like to present Action as a case
history, to review the corporate ailments that are contributing
significantly to the current automation business decline.
As the world-leading manufacturer of temperature controls,
Eurotherm had significant technology (low-level analog ASIC chips)
plus world-class manufacturing and significant European sales
channels. I had known the original Eurotherm founders personally
over many years and appreciated the employee-orientated culture,
which I felt was a good fit with Action. This was Eurotherm's
biggest ever acquisition and I was anxious to get involved to
build the company to the next stage of growth and success.
Well, just 6 months after Eurotherm acquired Action, Invensys
(then Siebe) acquired Eurotherm - sold out by Klaes Hultman,
the Swede who was originally brought in by the founders to
generate growth. Hultman proved to be a cutter, not a builder;
he ousted Jack Leonard, one of the original founders, and
brought in Peter Wade (from Drives) as COO. Wade was a good
technical manager but outgunned as a charismatic leader.
The original Eurotherm founders were aghast at the prospect of
being acquired by Siebe (CEO Yurko was known to generate flaky
financials); but as minority shareholders in a public company
they were powerless. Peter Wade was railroaded into accepting
the Siebe deal and things quickly went to hell in the proverbial
hand basket. Business stopped while everyone immediately got
immersed in the interminable treadmill of monthly forecasts,
financials, budgeting & re-budgeting.
Peter Wade quickly made his exit, leaving Eurotherm in the hands
of Peter Tompkins, an incompetent manager and yes-man. Tompkins
has been doing little else than staying afloat and making reports
for a bloated Invensys hierarchy. Under his management, Eurotherm
continues to shrink steadily, and the people culture has been
decimated. Bill Perry, the manager of Eurotherm USA, was scheduled
to have departed 4 years ago, but seems to hang on as a Tompkins
stooge. Several potential buyers have asked my opinion on
Eurotherm - you have it here.
For 3 years after acquisition by Eurotherm, Action generated good
growth and profit, achieving levels that earned pre-agreed bonus
payments for management and employees. Less than 2 years after
that, all the key managers have departed (not one remains),
manufacturing has been sub-contracted, the sales & marketing ranks
have been depleted and the company has been reduced to 1/4 of its
former size. Revenues have declined to less than half, and margins
are high - Action is being milked mercilessly into the ground!
Why does this sad scenario seem to repeat? Because good leaders
disappear in large organizations. Key decisions are made
remotely, through an endless, mindless reporting chain, fuelled
only by futile forecasts, and budgets that are re-adjusted
regularly to match shrinking results.
In today's corporate environment (particularly in larger companies)
senior people seem to work hard: a/ to protect their jobs; and
b/ to achieve personal bonus objectives. And the bonus plans are
bogus - most often ill conceived and passed down the line to fall
in line with the higher-ups bonus objectives. This appears to be
a higher priority then building legitimate customer and shareholder
Invensys represents just another example of what has become too
familiar in today's corporate climate. Financial fiddling becomes
the focus. Leadership is demolished systematically, and the result
is a stream of bad decisions that generate a downward spiral.
Companies move to the next level of performance with "A" players.
Most "A" players in big companies are forced to compromise their
drive and innovation, supposedly for the sake of "team-playing".
In reality, the incompetent managers in charge are insecure and
they look for ways to neutralize the innovative drivers. The result
is a bureaucratic mush of mediocrity. Good people simply leave in
frustration, and the incompetents remain in charge, incapable of
driving the company to the next level. Ultimately everyone loses.
Yurko in deal to buy Eurotherm Drives from Invensys
On Monday of this week (7 Oct. 02) it was announced that Invensys
had sold Eurotherm Drives for $145m to "NewCo" - a partnership
between the Drives management team (including Dan Barnhouse,
President) and Compass Partners. Compass includes, of all people,
the infamous Allen Yurko, ex-CEO of Invensys and chief-architect
of its sad decline.
Eurotherm Drives was the original Shackleton Drives part of Eurotherm.
Peter Wade, the Eurotherm COO before Siebe was himself at Shackleton
when Eurotherm bought Dan Barnhouse's N.Carolina-based drives systems
integration company about a decade ago. Dan Barnhouse didn't like
Peter Wade and Eurotherm management. When the British CEO of Drives
retired, he became CEO and pushed for Drives to be split off soon
after Siebe/Invensys bought Eurotherm. Dan had been trying for some
time to raise capital to spin off Drives; the surprise is the partner
he has chosen (NewYurko).
Many Drives employees are more than a little nervous. One long-term
"Well it looks like Eurotherm Drives just can't shake Allen Yurko.
Today it was announced that he and a venture capital group purchased
our beloved company. I think it's probably just a matter of time
before this company implodes."
For the year ending March 02, Drives revenue was $115m, with profit
of $20m. Net operating assets (the basic sale) are about $40m, with
goodwill of $158m ($31m written off reserves) relating to the
Eurotherm acquisition. The sale price of $145m is 1.26X sales and
7X earnings. It would have been interesting to observe Yurko
negotiating the deal with Haythornthwaite....
Invensys was trading at around 50p this week. After getting recent
stock options at 100p, one wonders just how long Haythornthwaite
will hang on to this job. In my opinion, after all the juicy pieces
have been sold, the Invensys carcass that remains will also inevitably
be piecemealed off to the vultures that await. Perhaps Yurko will be
negotiating to buy Invensys next?
Study results: 1 in 8 CEOs are high-risk
Dennis Koslowski treated TYCO like his personal piggy-bank.
Sleazy accounting and cooking the books goosed corporate profits
at WorldComm. Palatial homes and luxury lifestyles for the
top brass at Enron and Global Crossing.
Greed and corruption have always lingered at the edges of corporate
America, from civil war profiteers to the inside-trading scandals
of the '80s. Yet the new millennium has ushered in a wave of fraud,
corporate malfeasance, investment scams, ethical lapses and conflicts
of interest unprecedented in scope.
Executive-search firm Russell Reynolds and personality-testing firm
Hogan Assessment Systems, recently conducted psychological profiles
of more than 1,400 managers at large US companies. An organizational
psychologist gave them 28 true-or-false questions on rule compliance
and interactions with others to gauge their level of integrity.
The troubling results: One out of eight CEOs can be termed
"high-risk". That makes them far more likely to break rules than
the remaining 87%. Evidently, many CEOs believe that the rules
do not apply to them, and are extreme in their lack of concern
for others. They rarely possess feelings of guilt.
Punitive laws have changed recently - 10-year prison terms for those
caught cheating (instead of 5). How many sleazy CEOs will change
their behavior for this increased penalty? Instead, most high-risk
executives are busy, covering their tracks and transferring assets
overseas - just in case.
Something fundamental needs to change in American business,
to insert the element of conscience and fair play.
Another Crop of Sleazy CEOs?
How did business get so darn dirty?
Making Execs Give Back the Cash
Viable Utopian Ideas
One of my preoccupations these days is to writing, speaking and
thinking about "Soft Solutions" for the hard problems that confront
our world. The tragedies and doubts caused by the 9/11 terror, major
corporate betrayals and the consequent stock market debacle, the
intense struggles between religious and ethnic groups are some of
the fundamental issues facing us as we venture into this uncertain
century. I have written some articles that scare even me; I don't
want to publish them without including at least some ideas that can
generate positive solutions.
I continue to receive a stream of good ideas, comments and
suggestions - "thought currents" - that stimulate the process
and continue to generate positive energy.
I have been involved with a new book (not yet available in print -
I'll let you know when the hard copy is published). "Viable Utopian
Ideas", a collection of 47 essays that provide insightful and
stimulating food for thought. Hopefully, this will help us to think
more deeply about who we are and where we want to go, to re-think
our mission in relation to humanity. Maybe we can create the future,
rather than simply react to the present!
Art Shostak's editorship of these essays on the intriguing concept
of Utopia is timely. These viable utopian ideas are a combination
of dream, detail, and determination. Dreams to help us to focus
beyond the present; details to keep our feet on the ground, and
force us to stay pragmatic; and determination, which reflects
recognition that we will not see the task completed, but at best
advanced. The task is a moving target, and each generation must
define it anew.
"Viable utopian ideas" deals with just about any and every area
of life. Fourteen parts of this book, complete with 46 essays
(45 written for this volume), introduce this many-faceted, and
multi-disciplinary subject. Perhaps this will whet your appetite
to think more, and do more.
Feel free to initiate a dialogue with any (or many) of the
contributors using e-mail addresses deliberately included
in "Notes on Contributors." And join the online forum to discuss
your own utopian ideas and contribute to the development of the
Second Edition of the book.
Visit the Viable Utopian Ideas website - read summaries of all essays - join the on-line forum and discussion :
Viable Utopian Ideas - website
Pinto essay: Hard Problems Need Soft Solutions
Automation - products vs services
With the recent worldwide decline in the automation business,
many major suppliers are trying to generate growth by becoming
"total solution providers", rather than just product manufacturers.
In my opinion, while this strategy may generate additional
short-term revenue, in the long haul it is a business mistake.
You might like to read my article on this topic - it has just been
published (Oct. 2002) by AutomationTechies.com on their website.
AutomationTechies.com - Products Vs. Services
JimPinto.com - Products Vs. Services
After reading Mitch Carr's comments in support of compensation for
GE's Jack Welch ("as much as he can get"), a former GE employee
(11 years) responded:
"I would agree with Mitch if the distribution of rewards within
GE had truly been based on the same principles for all employees
- top to bottom. Unfortunately, based on my observations, it was
not; pay raises, options and other perks were not consistently
given to the top performers and contributors (as defined by
performance reviews, peer input and measurable achievements),
rather to those that toed the line, developed special relationships
with top executives and spent their time sucking up rather than
doing their jobs. Perhaps it was different at higher levels with
more direct visibility to Jack Welch? Perhaps my division was an
exception? The feedback I hear from employees at other GE divisions
does not differ significantly.
I've had a lot of good feedback on the discussions about human
longevity. Bob Hynes [firstname.lastname@example.org] wrote:
"I agree that in a situation where all employees participate in
a true merit-based reward system, those that perform should be
rewarded handsomely for reaching, or exceeding, their goals.
On the other hand, it is not fair to lavish rewards on only those
at the top or those with the right connections - to a good extent
I believe this was culture under Jack Welch (though to be fair,
he may not have seen below the middle layers of the organization)."
"I first got interested in longevity and the wonderful word
"gerontology" with Kim Stanley Baxter's Mars trilogy. One of
the characters says, "You do things differently when you live
for a thousand years". I am sure you would, but I don't know
about getting married again!
On the subject of downsizing, Bill Ryan [email@example.com] wrote:
"I think the gerontologists will crack this. The problem seems
to be DNA breakdown, and knowing the problem will probably lead
to a fix. What I like about this most is the lack of waste in
terms of human resource, and the opportunity it would bring to
study other things. Again though, the problems in the wake of
such a breakthrough would be many, and I wonder if we are ready.
Still, I guess I don't need to worry about it as, for sure,
I myself will not see it!"
"The story about automation industry downsizing made me think that,
where I work the same thing was happening in many ways. I see greedy
and selfish people throughout out the company, more so than ever.
I guess this is true in business today across our country. Many
unwarranted appointments are made and given with no merit or regard
to experience, competence, trust or loyalty to the company. There
seems to be no sense of pride or ownership in the product, where
the work culture or atmosphere is that of distrust and every man
for himself. I see people creating unnecessary overtime that surely
will eventually bankrupt any company, no matter how large and
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