Lessons from the Recession
Six CEOs tell us how they guided their firms around the shoals of recession, emerging even stronger on the other side.
When the recession hit, the value of overseas customers suddenly struck home, according to Hunter McShan, president of McShan Lumber in Pickens County.
Photo by Caroline Summers
Breathe deep. What former Federal Reserve Chairman Ben Bernanke calls “the worst financial crisis in modern history” seems squarely behind us. Though we’ve yet to fully recover from the Great Recession, the economy is off life support and gradually on the mend.
Key managers in several sectors of the Alabama economy look back on the 2008-2011 recession years and reflect on what the financial crisis taught them. All survived and some even thrived, thanks to foresight, careful planning, new direction and plain old belt-tightening.
Alabama’s behemoth auto manufacturing industry steered through some rough patches. James Bolte, president of Toyota Motor Manufacturing Alabama Inc. in Huntsville, says, “Toyota Alabama was not immune to the slump that deeply affected our industry during the recession.”
Toyota Alabama approached the recession with “shared sacrifice” at every rank: non-production periods, reduced work weeks, executive pay cuts and no bonuses. “Our goal was, and is, to preserve the long-term employment security of our team members. When others in our industry were closing plants and laying off workers, we didn’t lay off any team members, not one.”
Discovering ways to increase productivity with less and the benefits of adaptability were significant lessons learned, Bolte says. “During the economic crisis, Toyota Alabama focused on improvement efforts that allowed us to accomplish more with fewer resources. For example, we became more efficient with various production processes and cross-trained team members to expand their skill sets.”
Focusing on improvement opportunities not only helped the company survive but strengthened its workforce as the economy improved and sales increased. Toyota Alabama recently launched a new V6 engine line, which Bolte says is the most aggressive expansion project in the plant’s 11-year history.
Law firms also felt the brunt of the recession. As senior partner, Crawford McGivaren, of Cabaniss, Johnston, Gardner, Dumas and O’Neal in Birmingham, points out, law’s interconnectivity to other industries made it especially vulnerable. He notes that in 2004-2005, Birmingham was headquarters for four out of the 25 major banks. Only Regions remains, which has left a dearth of corporate legal work.
“We operate very leanly anyway, so we didn’t have to make any big adjustments during the recession,” says McGivaren. “Some firms had to let go of 35 or more people.”
Although his firm never indiscriminately added lawyers, today hiring is increasing “a tiny bit,” he says. Having practiced law for nearly half a century, he understands firsthand the volatility of the economy. “Forty-five years have taught me that things are not only going to go up and up. You certainly have to manage your business under the assumption that things can get worse. It can be dangerous, even fatal, to believe tomorrow will always be better than today.”
McGivaren believes his firm’s relatively small size helped it ride out the latest recession. There are larger law firms in Alabama, but his is clearly among the largest, and he’s unimpressed by that, saying, “I can’t spend size.”
Construction also was hit hard, owing to its ties to the subprime mortgage collapse. Jeff Stone, chief operating officer of Birmingham-based Brasfield & Gorrie, says being the largest general contractor in the Southeast was a plus and a minus during the recession. A plus — the company’s sweeping diversification allowed it to shift to markets hurt less than others, most notably health care, which comprises 35 to 40 percent of its business.
Stone says health care construction stayed moderately stable during the recession and the company had a “fair amount” of school work, a result of decisions made prior to the downturn. He says work in the public sector declined during the second half of the recession and has yet to recover.
A minus — Brasfield & Gorrie is so large that it was competing with itself, with several offices within the company going after the same projects. The company learned to take a more cost-effective approach by allowing only one office to compete for a project. Along with Birmingham, offices are in Atlanta and Columbus, Ga., Dallas, Jacksonville, Orlando, Nashville and Raleigh.
“We learned you must stay somewhat lean in your operation, so we trimmed some fat,” Stone recalls. “We found we could operate leaner, so the recession provided a bit of a cleansing effect.”
The number of employees and equipment purchases were two areas where streamlining occurred. And some perks were eliminated, such as a company-wide beach outing. Stone points out that employee benefits were part of the trimming process.
Another lesson learned was the need to closely watch changing construction trends. Before the downturn, Brasfield & Gorrie’s multi-family housing market was about 5 percent and now is 10-15 percent of the firm’s work. When the single-family housing market plunged, it left a greater need for multi-family housing.
When the housing market fell so did the lumber industry. Domestic orders for wood products dwindled at McShan Lumber, a family-owned sawmill operating in Pickens County for more than 100 years.
Foreign countries routinely called to place orders, but before the recession there was no incentive to fill them, company President Hunter McShan says. When domestic housing construction dried up they began taking foreign orders, increasing the company’s export business from 15 to 70 percent. Customers are in North Africa, Norway, Mexico, the Caribbean and many other parts of the world.
“We ship to more countries than states, but we’re still small, 60 employees at one plant,” says McShan. No employees were let go during the recession and retention is exceptionally high with several generations within families working at McShan Lumber.
“U.S. construction is stronger today, and so is the export market so we try to serve both. We learned a lot during the recession and became more market sensitive,” says McShan.
The financial crisis didn’t slow down Selma-based American Apparel, which Chief Operating Officer Chuck Lambert says has been the country’s largest provider of military uniforms for the past 25 years. Sales increased by $40 million during the recession, due both to the purchase of Wellstone Apparel in Greenville, S.C. and to the need for flame-resistant combat uniforms for soldiers in Iraq and Afghanistan. Flame-resistant uniforms are twice the price of ordinary uniforms.
Maintaining a diversified product line and employing workers who can adapt to change were important lesson learned during the recession, Lambert says.
City government struggled during the recession, and economic forecasters say for many cities, reaching prerecession employment levels could take years. Yet two types of municipalities fare better in a recession — college towns and state capitals.
Auburn University is a stabilizing factor in Auburn’s local economy and a major buffer during downturns. City of Auburn finance officials say satisfactorily weathering the latest recession was also due to robust budgetary processes, proactive financial management, aggressive yet selective industrial and commercial recruitment strategies, a diversified revenue base and top-rated public schools.
Auburn’s city council established a goal for maintaining fund balance in the general fund of not less than 20 percent of expenditures and other financing uses. Consistently exceeding this goal puts the city in a financially stable position allowing for flexibility during financial slumps.
“Even university towns aren’t immune to recessions, and we saw the importance of keeping an eye on the continuation of economic development and creating new jobs,” says Mayor Bill Ham. “We took a very conservative approach to all our processes during the recession.”
The city, for example, kept up with infrastructure and paving needs that easily could have become deferred maintenance items, Ham notes. Pricing for these jobs was at the lowest point during the recession, and Auburn had the reserves to take care of them.
Jessica Armstrong is a freelance writer for Business Alabama. She lives in Auburn.