The worst of the financial crisis may be over and the recovery,
weak as it has been, still on track. But corporate executives
continue to find themselves in an ominous setting.
Uncertainties abound both in the U.S. and abroad over
everything from consumer demand to government regulation and
policy. This makes for a landscape that is both less stark than
that of 2008 and 2009 and more ambiguous. In crunch mode
executives did well to hunker down, focus on the short-term and
work on controlling costs. Managements now, however, must
engage in longer-term strategizinga tall order when the
outlook holds so many what-ifs.
Conference Board CEO Jonathan Spector believes todays
conditions may present even larger and more difficult
challenges than the financial crisis did.
During the crisis the decision-making framework
needed to operate was somewhat clearer, given the incredible
sense of urgency, Spector says. Now the environment
is more complicated because we have the prospect of a very
sustained period thats not quite a crisis. Its less
clear what the obvious path is.
Gregory Hayes, chief financial officer at Hartford,
Connecticutbased conglomerate United Technologies
Corp., is one top executive who has found that to be true.
I never want to live through 2009 again, says
Hayes, whose company makes products ranging from elevators and
refrigeration units to airplane engines and
fire-protection systems. But when you have this
sluggish growth, this uncertain environment, its hard to
know where you should invest, or how much you should invest.
Its certainly more challenging now.
Hayes is one of the U.S. corporate leaders who are handling
that difficulty best, according to the buy- and sell-side
analysts who voted for Institutional Investors 2012 All-America
Executive Team, our exclusive ranking of the nations
best CEOs, CFOs, and investor relations professionals and
Spector says that what distinguishes the best companies in
todays climate is that theyre not so spooked by the
unknown that they hesitate to grab good opportunities when they
see them. The executives recognized in the 2012 ranking are
quick not only to distinguish good prospects from bad but to
capitalize on the first and abandon the second. Hayes and his
fellow All-Americans are making significant acquisitions
or other investments even as they continue to rationalize their
product lines, supply chains, manufacturing operations and
balance sheets. These executives are undaunted by uncertainty.
Instead, they are managing their companies more intelligently
in the face of it, with nuance and flexibility unseen in a long
while. The best companies are adjusting, Spector
says. Theyre not sitting on their hands.
A good example is Enterprise Products Partners, the largest
publicly traded energy partnership in the U.S. Given the cloudy
macro picture, Enterprise could easily coast on the growth the
energy industry is enjoying. The U.S. petrochemicals
industry is bursting at the seams, says Michael Creel,
CEO of Enterprise, who is rated tops in the Natural Gas &
Master Limited Partnerships sector by both buy- and sell-side
analysts. The industrys good fortune has turned
into our good fortune, Creel acknowledges.
The Houston-based company reported record net income of
$480 million for the third quarter, ended September 30, up
38 percent from the $348 million it reported a year
earlier. Net income for the first nine months of the year was
$1.36 billion, up 25 percent from $1.09 billion for
the same period in 2010.
Yet Enterprise isnt just riding the industrys
coattails. Instead, Creel and CFO, W. Randall Fowleralso
the best executive among his peers, according to both the buy
and sell sidesare positioning the company for further
growth. (Enterprise also boasts the sectors best IR, say
sell-side analysts, and Randy Burkhalter is both sides
pick for top IR professional.)
Enterprises executives are some of the most
astute value creators in the energy space, says Morgan
Stanley researcher Stephen Maresca.
A midstream operator that stores, processes and
transports oil and natural gas, Enterprise has come a long way
since 1968, when Texas-born oilman Dan Duncan founded the
company near a big East Texas oil field at Mont Belvieu (Duncan
was still Enterprises chairman and majority shareholder
when he died in 2010 at age 77 after suffering a cerebral
hemorrhage.) The company went public in 1998, and soon after
began a series of mergers and acquisitions that expanded its
network of pipelines. By 2009, Enterprise had become one of the
largest midstream operators in the U.S., with a network of
pipelines transporting crude oil, refined products, natural gas
and natural-gas liquids that reached as far west as
Wyoming and as far east as New York.
Enterprise plans to exploit the latest discovery of shale,
from which natural gas can be extracted, at the so-called
Marcellus site in the Appalachian Basin of the Northeastern
U.S. by establishing a 1,230-mile pipeline from the site to the
nations Gulf Coast petrochemicals hub. (Only about half
of the pipeline would be new, as it would interconnect with an
existing one.) The network would be the first to move liquefied
ethane, a feedstock in the production of ethylene, which is
used in manufacturing certain plastics, from the Northeast to
Enterprises storage facilities in Mont Belvieu. In early
November Enterprise announced that it had locked in a major
customer for the pipeline Oklahoma Citybased oil
and natural-gas drilling company Chesapeake Energy Corp.
a huge boon for the project, since Chesapeakes
business would account for 60 percent of the proposed
pipelines initial capacity of 125,000 barrels a day. The
pipelines operation is slated to begin in early 2014.
Enterprise has also simplified the companys structure.
In November 2010, Enterprise Products Partners bought
Enterprise GP Holdings for roughly $9 billion. Less than a
year later, it merged with Duncan Energy Partners. At that
point Enterprise had gathered what had been four different
publicly traded but related entities into just one.
Today our balance sheet is about as simple as you can
get, says Creel. Its much easier for
investors to understand.
Investors earlier cheered managements decision in the
fourth quarter of 2010 to eliminate the incentive distribution
rights that went to the companys general
partnerwhich was controlled by the Duncan Family Trust.
Typically, partnerships like Enterprise provide their general
partners with increasingly large cash distributions, which
siphons cash flows that would otherwise be going to common
unitholders and bondholders. But Creel explains that the Duncan
family gave up those rights for no considerationa rare
movepartly because the family together with management
holds the largest equity stake in Enterprise, 39 percent.
That large insider ownership means were directly
aligned with our public unitholders, Creel says.
Not everything at the company has been going smoothly. A
fire at Mont Belvieu in February 2011 killed one worker and
halted operations for several days. IR chief Burkhalter
and his team responded quickly with a press release laying out
all the facts they had in hand, which limited the fallout.
If you want to earn credibility when things go
well, he says, you have to be accessible when
something bad happens.
Enterprises IR team acted similarly when Duncan
died. We got a press release out quickly, and then I took
calls, Burkhalter explains. The message on the
calls was, Yes, it was unexpected, but he put his
management team in place. He was the strategic leader, but we
have a deep bench and were going to carry on his
legacy. And we have. Thats the way we run our
Caterpillar, the worlds largest manufacturer of
construction and mining equipment, is another company that
could have hunkered down in the face of uncertainty. In January
2010, six months before CEO Douglas Oberhelman took the reins,
the Peoria, Illinoisbased company posted 2009
revenue and profit results that were its bleakest since the
1940s, as construction in the U.S. and abroad all but halted in
the midst of the economic meltdown.
And that followed concerns that the financial crisis would
take a toll on its big finance subsidiary, which though
unjustified posed a huge investor relations headache, says
Michael DeWalt, head of IR for Caterpillar. You just had
to, in some ways, overcommunicate, says DeWalt, whom
buy-side analysts rate the top IR professional in the Machinery
sector. We talked more about the finance company, I took
herds of investors down to Nashville to talk to our people down
there. I took the CFO of our finance company on road shows. You
just have to communicate more when youre in those
Caterpillar not only allayed investor concerns about Cat
Financial but also bounced back strongly in terms of results.
For 2011, Oberhelmans first full fiscal year in the
corner office, revenues and profits look to break records at
the top end. After a stronger-than-ever third
quarter, the company said it expects sales for the year to be
$58 billion. Profits for the first three quarters already
total $3.42 billion, nearly overtaking full-year profits
in 2008 of $3.56 billionthe most in company