JimPinto.com - Connections for Growth & Success™
Centenary Issue
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
  • eFeedback:
    • Jack Welch - GE distribution of rewards was NOT equitable
    • Thoughts on human longevity
    • Downsizing caused by selfishness and greed

Downfall of acquired companies
Case history: Action Instruments

Why do many good companies crash and burn when they are acquired?

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!

Pinto Perspectives:
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 value.

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 employee wrote:

    "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.

Click Another Crop of Sleazy CEOs?

Click How did business get so darn dirty?

Click 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 :

Click Viable Utopian Ideas - website

Click 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.

Click AutomationTechies.com - Products Vs. Services

Click 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 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've had a lot of good feedback on the discussions about human longevity. Bob Hynes [r.r.hynes@btinternet.com] wrote:
    "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!

    "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!"

On the subject of downsizing, Bill Ryan [billpryan@go.com] wrote:
    "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 powerful."

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