Growth expert Featured

8:00pm EDT April 27, 2006

Richard G. Newman is sort of a gardener on a grand scale. You could even say he has a green thumb.

However, his special ability to make things thrive produces healthy profits rather than sweet fruits and beautiful flowers, because the 71-year-old Newman grows businesses, not plants. Companies have been flourishing under his care since the 1950s.

His formula? Cultivate core competencies, help clients solve their problems and maintain an employee-focused culture.

“I’m a firm believer in sticking with what you know, surrounding yourself with the best people, aligning their interests with those of the company and putting customer needs ahead of your own,” says Newman. “Do that, and the money follows.”

He’s used that simple formula throughout his career.

Trained as civil engineer, Newman’s first success was to nurture a 16-person engineering firm into one with 260 employees and eight offices that was subsequently bought by architectural and engineering firm Genge. Newman became Genge’s president and made it into one of the largest companies of its kind in the United States.

He then moved to Daniel, Mann, Johnson & Mendenhall. During his tenure, first as deputy CEO and later as president following its purchase by Ashland Inc., the company tripled in size.

His most recent achievement was as CEO of AECOM, the parent entity for a global group of companies that works on infrastructure and facilities projects for governments and private clients.

He took the company from $300 million in revenue in 1990 to $2.5 billion in 2005.

AECOM, formerly known as Ashland Technology Corp., was launched in 1990 as an independent spin-off of Ashland Inc. Newman stepped down as AECOM’s CEO in 2005 and now serves as chairman of the board.

The unusual way AECOM began reflects Newman’s conviction that service businesses must attract and retain the best people, and the best people want more than a job and a paycheck. They’re eager for a role in building a business. That’s why he structured an employee buy-back proposal in 1989 when Ashland reversed directions and decided to sell various divisions it had acquired in its push to diversify.

“If you want to provide incentives, give employees a sense of ownership,” says Newman.

He risked more than $3 million of his personal assets to jumpstart the process of transforming employees into shareholders, and within eight years, AECOM was 100 percent employee-owned. These employee shareholders have earned an annualized 12 percent return on their investment during the past 15 years.

“There was a groundswell of excitement and support within the firm,” says Newman. “Everyone wanted to contribute. It was clear that people were hungry to be a part of this.”

Employees choose whether they want to be shareholders, and approximately one-half of those in the United States, where 401(k)s allow them to invest, do.

The obvious advantage is that by making employees equity holders, they create value for themselves.

“Our success is their success, so they invest in the future of the company, both in terms of money and their day-to-day effort,” says Newman. “The company benefits by getting a steady infusion of new capital, along with the energy and enthusiasm that is a byproduct of this arrangement.”

Mergers fuel growth
Strategic and carefully managed mergers are another key element in Newman’s vision of how to grow a business. Such mergers generate outstanding opportunities for professional development and advancement within the company.

Firms are selected because they expand AECOM’s capabilities, enhancing its geographic reach and skill set. But rather than swallowing each one up and diluting its identity, Newman’s megastructure concept folds it into AECOM’s family of companies. Often, a company continues to operate under its own name and retains its own management team and culture.

“We like to say companies are joining us rather than that we’re acquiring them,” Newman says. “It’s a kind of reverse merger. The model allows us to maintain our brand while bringing in new talent and significant expertise so that we can better serve our customers.

“We typically look for companies that are 5 to15 percent of our size that offer us a competitive edge strategically in terms of location or know-how. But we’re always asking ourselves, ‘Is this too big a deviation for us?’ We never go into mergers looking to save money. In fact, it may even cost us money. The goal is always to improve our problem-solving capacities.”

AECOM is organized into eight distinct operating entities, and groups are either geographically or technically aligned. Each has its own CEO, who reports to AECOM’s COO, who reported directly to Newman until he became chairman.

It is no accident that both the current COO, James Royer, and Newman’s replacement as CEO, John Dionisio, joined AECOM through mergers. Newman sees promotion from within as a significant benefit the company can offer. The operating group structure allows candidates to get acquainted with their future colleagues and demonstrate their capacity for leadership.

Groups and companies cross-sell, collaborate and interact. Know-how is a collective asset. Professional forums are held regularly to keep everyone informed of what resources are available within AECOM. Executives do a great deal of traveling to stay in touch with one another, share with other groups and have dinner with senior managers. The top CEOs gathered for a retreat at Newman’s desert home last year.

“We have a very formalized communications process, but a lot of valuable and meaningful exchange also happens informally,” Newman says.

One essential factor for managing expansion is to have good financial and administrative systems in place.

“Accountants, lawyers, human resources staff — these are the people who support the entrepreneurs who are growing the company and the technical professionals servicing our clients.

“It also requires a leadership team that understands the areas into which you are expanding. We’re a huge organization, so we move like a battleship, making little turns slowly and carefully.”

Attitude matters
Despite AECOM’s size, Newman has relied on some very basic principles to guide it. Mutual respect and trust, or MRT for short, is one of them.

It’s an acronym Newman uses to describe how every person in the organization is expected to interact with one another and with clients.

“It’s essential to listen to other people, even if you don’t agree with them and no matter who they are. You never know who has something you need or where a good idea will come from. I want us to be known as an MRT company.”

He’s also inspired by something he once read describing the three P’s of Japanese managers: persistence, patience and politeness.

“I have always tried to embody these three simple qualities in everything I do,” he says.

And lastly is his attitude toward problems, especially those of AECOM’s clients.

“I don’t believe in cookie-cutter answers,” says Newman. “Every solution should be individualized. Within every problem is the possibility of innovation.”

AECOM continues to grow, even though Newman is no longer the head “gardener,”and he thinks this is due in part to his implementation of a smooth transition.

“One of the most important jobs of a CEO is preparing for his departure,” says Newman. “I have been planning mine for three years. An organization is not a one-man show. It’s essential for everyone to understand that.”

But Newman is busier than ever as chairman, and he is taking his practical perspective about how to achieve stable growth to a variety of other businesses. He’s a director of Southwest Water Co., Sempra Energy Co. and 13 mutual funds under Capital Research and Management Co.

“I’d much rather be working than playing golf,” says Newman. “I love what I’m doing. I always have.”

How To reach: AECOM, (213) 593-8000 or www.aecom.com