"The economic crisis of 2008-2009 hit us like a ton of bricks."
When Modine Manufacturing's President and Chief Executive Officer Thomas Burke addressed University of Wisconsin-Parkside students recently, he pulled no punches. Speaking publicly for the first time about the Racine-based company's harrowing experiences during the Great Recession, Burke recounted the events that brought this global leader in heating, cooling, and energy management systems back from the edge of insolvency to its present leaner, stronger position.
Serving as the UW-Parkside School of Business and Technology's fall semester Executive-In-Residence, Burke said Modine found itself in a "very challenging situation" in 2008. New orders from many of the company's major customers dropped significantly around the globe as a result of the economic crisis. All aspects of Modine's operations were impacted.
"We saw a 43 percent drop in sales in nine months," Burke said. "Cash earnings vanished...our stock price fell."
Prior to the recession, Burke said Modine's stock was in the mid-teens. At its lowest point, shares were trading at 73 cents and he said many investors became "concerned about the 'B-word:' bankruptcy."
'Saving Our Ship'
With Modine's future in the balance, Burke told students the company convened a "war room." Executives were charged with transforming the company by creating a plan that would allow it to emerge from the recession as a stronger, more focused market leader. It amounted, in Burke's words, to "saving our ship."
"We knew we had to make tough choices and that there would be no second chances. We were playing for the life of the company," Burke stated.
Modine created a four-point plan to address its needs. The plan included:
-- Portfolio rationalization: concentrating on market segments where Modine had a competitive advantage;
-- Manufacturing realignment: "We had too many small [manufacturing] plants," Burke said;
-- Cost reduction: cutting $80 million in expenses; and
-- Capital allocation discipline: putting money into the right projects.
After investigating and rejecting the pursuit of private equity financing, Modine
made a new stock offering with the money raised going to debt reduction. Painful employment reductions were made and every cost cut possible, from the sale of the company's aircraft to having employees empty their own trash cans, was made.
Greater communication was key to the plan's success. While company meetings were reduced across the board, a weekly business meeting was established. There were weekly updates for the chairman of the board of directors, a monthly CEO newsletter to employees, and quarterly "town hall" meetings with employees to provide them as much information as possible.
Under questioning from students, Burke acknowledged Modine's financial crisis created fear among employees and the company's need to dispel that fear.
"You fight that by being brutally honest, by being as transparent as possible.
Frequent and consistent communication at all levels was vital along with town hall and department meetings where employees could have their questions answered and a forum to raise their concerns," Burke said.
UW-Parkside School of Business and Technology Dean Fred Ebeid said the insights students gained from Burke's presentation were the reason the Executive-In-Residence program was created.
"Today, our students learned a great deal about how companies operate--and survive--in a crisis. This was great, inside information that they couldn't get anywhere else," Ebeid said. "This kind of first-hand knowledge and experience is so important for students to know. This was a terrific and informative program."
In closing, Burke said despite the recession, Modine Manufacturing was able to maintain a strong research and development capacity to aid long term growth while it continues to create a culture of continuous improvement."We're not where we want to be just yet," he said, "but we're getting there."