Change or die

For nearly 80 years, MasTec Inc. survived through the booms and busts in the telecom infrastructure industry.

But the highs of the late 1990s that led to enormous growth gave way to one of the fastest and deepest busts to affect any industry, and it became Austin Shanfelter’s job to lead the company through that troubled time.

“No one could have projected how tough it was going to be,” says Shanfelter, who was named president and CEO in August 2001, shortly after the downturn began. “If you look back at history, at no point has a single industry taken such a decline in such a short period of time as the telecom industry from late 2000 to mid-to-end of 2001. It crashed hard. I knew it was going to be difficult, but I didn’t know how difficult.”

Some of the difficulty MasTec experienced was a direct result of living too much of the good life.

“It was an explosive industry,” Shanfelter says. “Money was flying, being spent on new generation telecom opportunity. MasTec was asked to get into a lot of businesses that, in hindsight, weren’t core to what we did on a daily basis.

“At the time we got into those businesses, we were rewarded well on Wall Street for taking those opportunities. We were a victim of wanting to grow, our customer needs and really an industry that was being overfunded.”

By 2001, the industry was deep into its slide. MasTec, a contractor specializing in the building, installation, maintenance and upgrade of communication and utility infrastructure systems, was forced to write off about $200 million in uncollectible receivables from failed upstart local phone companies.

Shanfelter and his team spent the first few months of his tenure deciding the company’s new tack and then began the much longer execution phase.

“It was a three-year period of time,” Shanfelter says. “It was all hands on deck. There was no one we didn’t deal with in our decision-making, from our managers down through our field managers, to our customers at the corporate level, local and regionalized levels and to our vendors. Everybody was touched in the process.”

One of the major decisions was to divest noncore businesses and downsize from 10,000 employees to 6,500.

“We were in a survival mode,” says Shanfelter. “We needed to cut out the nonsuccessful businesses.”

Shanfelter cut operations in wireless, network services and large-bore directional drilling and in operations in Brazil.

“We did it fairly rapidly,” he says. “You need to get to the bottom of where you make the turn of profitability.”

While establishing financial stability was key, the company explored more facets than just money to decide which businesses to exit.

“We got underneath the numbers,” Shanfelter says. “We got with our clients, we got with our team members and really looked at the predictability of a long-term commitment to that market.”

MasTec sat down with its customers so they could grow together. The challenge was to figure out where customers were going, where the opportunities were and where the company could make money.

“If it showed trending that was more positive, if we believed we had more predictability, capability and capacity in it, then we went ahead and put our energy toward growing and developing that business,” Shanfelter says.

Those that didn’t show signs of a profitable future were divested. The decision to dismantle parts of the business and lay people off wasn’t easy, but it was necessary.

“I’ve always been a person that wants to build things, not tear things down,” Shanfelter says. “You never build greatness out of reducing size. It’s difficult; it’s never easy, and it’s never perfect. What we told our people was, our job was to make sure 6,500 people had work rather than lose a business.

“People worked together to cut out the extra costs that were necessary. It was a team effort to address the situation, not an individual one.”

While most of Shanfelter’s reductions came from the divestiture of noncore operations, some changes came from the need to move the company in a new direction.

“There are people that can do turnarounds; there are people that can drive business forward,” Shanfelter says. “We’ve got a bunch of great people that have survived a turnaround that are driving the business forward. Some of it is you evaluate your personnel and you realize they’re just not up to the task. Some of it is you ask people who have not risen yet to rise, and they do a fantastic job.

“It’s amazing when you put a challenge in front of somebody who has been dying for one their entire business career, how they rise to the occasion. Lastly, you look outside to find expertise that has been there and done some of this before. You try to select them and bring them in as part of your team.”

Communicating the vision
During the turnaround, MasTec had to work through a number of financial crises, including late SEC filings, financial restatements and the renegotiating of bank agreements.

While those issues were being tackled, Shanfelter says the key to minimizing any damage was making sure everybody involved knew as much of the plan as possible.

“We were very active on a daily basis with everybody — whether it was Wall Street, whether it was internal, whether it was a board issue,” Shanfelter says. “We proactively tried to touch base with people on a daily, weekly basis. You can run and try to hide your head in the sand, or you can stand up and deal with the issues head on. We took the position that we needed to deal with issues head on, every day, good or bad. And I think because of that strategy, we got the company back on its feet and we won a long-term commitment from our vendors, customers and associates that is hard to replace.”

Despite his willingness and even desire to talk about MasTec’s position, there were times when federal regulations prevented him from explaining the company’s activities.

“When you’re going through the late filings, you can’t communicate with anyone,” Shanfelter says. “All you can do is communicate with the Exchange.”

Shareholders and analysts often called with questions the company was not allowed to answer. Shanfelter knew those calls still needed to be acknowledged.

“We responded to them by saying, ‘We’re here,’” he says. “The minute we can, we’ll speak more. We got back to them with what information we could every single day that they called. Nobody went more than 48 hours without a response from us. You just have to grind it out and get them what you can get them on the basis that you feel the information flows.”

Shanfelter credits that approach with getting the company through a difficult period.

“Looking back, it was an incredibly strong strategy,” he says. “We saw the proof in that pudding when we went out and did the secondary offering early this year, and we saw a lot of our old shareholders come back in to the deal in our secondary. We couldn’t have even thought about them doing that if we hadn’t done what we did during the troubled times.

“We believed, with the turmoil that we were going through, that one message fit everyone. We needed to be consistent and precise on what we were communicating. At the end of the day, whether it was our banker, our vendor or anybody, they all needed to hear the same story.”

As proof of the positive effect of communication, Shanfelter points to the fact that during the turnaround, the company didn’t lose a single significant customer.

“As a matter of fact, if you look at some of our major customer bases, we increased our market share,” he says. “It’s easy to communicate in good times; it’s very difficult to communicate openly in tough times. People truly see your character and the company’s character in those tough times. We won over people with our perseverance and out-and-out passion for the industry that we’re in.”

While the message outside the company was important, Shanfelter was aware the message he delivered inside the company — especially after laying off more than one-third of the employees — was equally significant.

He says it is difficult to explain to people that the layoffs were the right thing to do, especially in today’s business world, where the average worker views corporate America with a wary eye.

“I’m a person that does a lot of one-on-one and a lot of visits, as well,” Shanfelter says. “We traveled. We communicated, communicated, communicated. I know that’s a cheap word, but whether it was e-mailing, whether it was newsletters, whether it was phone calls, whether it was personal visits, we really worked to stay in touch with our people, our vendors and our clients through the turnaround.”

Shanfelter says a company has six to nine months following a change in the vision when employees question the message they’re hearing from the top.

“Your job is to make believers out of people, and that is a day-to-day process that really involves my entire executive team,” he says. “As you communicate with people and they see the changes are making a difference, they see they are getting something back. They see they are earning more money because we are taking care of those that are more productive. They see that you’re adding something as simple as additional paid time off.

“They see you care about them as individuals. Those things add up quickly.”

Providing leadership
Leading a turnaround is a major challenge, and Shanfelter says you have to give everyone involved — including customers and the rest of the business community — a strong leader to follow.

“It’s a determination of relentlessness that you’re committed to your cause and you’re committed to what it’s going to take to make a great company,” he says. “You involve your team members as much as you can, every time you can, to get them to do the same thing you’re doing.”

To get buy-in, an executive must be willing to do more than dictate orders.

“You’ve got to be willing to work as hard or harder than anybody you’re asking to work harder,” he says. “Our management team works as hard as every one of our workers in the field. It became contagious; you’re putting your money where your mouth is. It’s a day-in, day-out effort and grind.”

Shanfelter says that something as simple as showing up early every day can have a profound effect on employees.

“Over time, you win over people that count on you, that when they come to you with a problem [they know] you’re going to work with them to find a solution and support them whether they make good or bad decisions,” Shanfelter says.

Shanfelter says there are two keys to providing leadership through difficult times.

“You’ve got to have the passion and the perseverance to just grind it out,” Shanfelter says. “You’ve got to surround yourself with incredibly passionate, persevering type people. At the end of the day, systems will help, conditions will help, but it’s about people. It’s always about people.

“I found myself really working to build a stronger and stronger team throughout the process. People know where we’re going and why we’re going there. We’re rowing the boat all in the same direction.”

Shanfelter’s vision and leadership have turned the company back toward profitability as revenue increased from $656 million in 2002 to $848 million in 2005. MasTec posted a $123.6 million loss from continuing operations in 2002 but posted $18.6 million in income from continuing operations in 2005.

Despite the positive impact — or maybe because of it — Shanfelter has not changed his management approach.

“What really changes is your time allocation,” he says. “You take the same energy you were using to fix things and you put that on efforts to grow things and develop things. We still have to communicate with our customers. We still have to communicate with our team members. We still have to communicate with our shareholders. We still have to communicate with our bankers and the people who support our business on a daily basis.

“You do that even more so now. You don’t fall in to the trap that we’ve got everything fixed, we don’t need to talk to those folks. You try to communicate more now, and you try to work proactively on new business.”

The crisis may have passed, but that doesn’t mean Shanfelter is ready to rest.

“There is still challenge ahead of us,” he says. “There is still a tremendous amount of opportunity ahead of us. The difference is, we started to show (improvement) on a month-to-month basis, a quarter-by-quarter basis. Not only do we see it from dialogue with our clients and our understanding of the industry we serve, we see it in our actual performance.

“That’s what gets people excited — when you take on a hard-fought battle to keep your head above water. You go from that to starting to look forward to being best-in-class. That’s where people get real excited, and talent really shows its best side.”

HOW TO REACH: MasTec, (305) 599-1800 or www.mastec.com

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