By Burton, Jonathan
Chief Executive (U.S.) , No. 142
Family: Married, seven children
Education: B.A, Economics, Yale University, 1962; M.B.A., Wharton School, 1967.
First Postgraduate Job: Consultant, McKinsey & Co.
Outside Interests: Board member, Ballet Arizona; Trustee, Thunderbird School of International Management.
Favorite Ballet: Romeo & Juliet Operating Philosophy: "What's right" matters, not "who's right."
Oil prices are scraping the bottom of the barrel, chemicals are in the tank, and the power-plant business is dim, at best. If 80 percent of your company's revenues relied on these three sectors, how would you manage?
You might learn from Bernard Rethore, the chief executive who has the formidable assignment of putting the flow back in Flowserve, the world's largest independent industrial pump and valve producer. "Industrial works of art," Rethore gushes proudly about his products. Trouble is, economic turmoil in Southeast Asia and Latin America has rusted the industrial works of whole economies, creating a fierce headwind for this Irving, TX-based manufacturer and its facilities in 29 countries.
Flowserve's business is highly cyclical to begin with, but Rethore is confronting the worst industry conditions in years-unprecedented circumstances that are largely out of his control. Historically, petroleum and chemical prices have maintained independent orbits. But the Asian meltdown sent the value of both crashing simultaneouslydelivering a one-two punch to Flowserve's revenues and margins. Sales of $1.08 billion in 1998 were down from $1.15 billion in 1997. Net earnings slipped to $48.9 million from $51.6 million.
Now Rethore is hitting back. Once a decorated master parachutist in the U.S. Army, he's encountered tight spots before. He is battening hatches in an attempt to position the firm and its 7,000 employees for an eventual upswing. "The challenge of cyclical businesses," he says, "is to find how to maintain shareholder value through the downside and the necessary steps to really capitalize as the market comes back."
The challenge must seem a Sisyphean task, two steps forward and one step back. Still, Rethore is philosophical. "You can't control the wind, but you can learn how to adjust the sails," he explains. "We have strategic advantages that we are capitalizing on to a degree that others are not yet doing."
Size and a strong balance sheet provides ballast. Flowserve was formed through the July 1997 merger of Durco International and BW/IP, a pump company that Rethore joined as CEO in 1995. Over the past 18 months, the combination produced considerable savings from streamlined operations. Cost of capital is paramount to Rethore, who has implemented an Economic Value Added (EVA) program. "EVA is our principal measure and overarches all of senior management's long-term incentives," he says. "We need to earn more with our capital than the cost of borrowing it. …