Commanding a military unit and leading a civilian business aren’t all that much different, says Don Newsome, the retired rear admiral who is the new CEO of Sarnoff Corporation.
Many civilians may not realize that the Navy runs multiple businesses. Newsome ran one of the largest. For a year, starting in 1995, he commanded the 11,000-person Naval Air Warfare Center. Its headquarters base is on the Patuxent River in southern Maryland, but it also has sites in Lakehurst, New Jersey, and Orlando, Florida.
When he did his doctoral dissertation on comparing a government-run company to a privately-run company, he found it was very similar. Says Newsome: “All decisions are based on the same types of information and the same types of data. The only thing different is nomenclature. Instead of trying to make a profit, the government tries to hit zero. If you make a profit you have to turn around and put it back in something else. It requires more precision.”
Just four weeks after he moved into the CEO’s office at Sarnoff on Route 1, in a 30-minute telephone interview, Newsome tells his first impressions of the new job. He is enthusiastic: “I had known about Sarnoff for many years. Sarnoff is a national asset, absolutely magnificent. We need to keep this.”
The Sarnoff employees have had a chance to get their first impressions too. Newsome is a physics major with a master’s degree in aeronautical engineering who can “talk the talk” with engineers. Though his name is on no patents, he does not intimidate easily. “As I told the folks here, I probably won’t split the atom, but I will certainly know how to explain it once you tell it to me.” He has had one “all hands” meeting, but, as he says, “I am a ‘walk-around’ kind of guy.
His boss is Curt Carlson, CEO of SRI, the California-based independent non-profit research institute, and former executive vice president at Sarnoff, the for-profit subsidiary of SRI. “Curt is a very charismatic guy, articulate, bright, and we hit it off from the first minute,” says Newsome. “He has taken SRI from not so good days to good days. He said a couple of things that made a lot of sense to me, that he expected me to run the organization and not get a whole lot of help.”
It’s too early to tell how well Newsome will do at Sarnoff, but the man he replaced, former CEO Jim Carnes, has high hopes. “The Navy has a tremendous weeding out system, first to become an officer, and then make it to admiral,” says Carnes, who returned to the post after a short term of his first successor, Satyam Cherukuri. Statistics show that fewer than one in a hundred Naval officers are promoted to two star admiral. Some get their second star upon retirement, but Newsome’s second star came several years before that.
Newsome grew up in Harold, a rural town in the Appalachian mountains of Kentucky, where his father was a butcher and his mother was a bookkeeper. She was the driving force to ensure that her three sons went to college. “Only two of us in my high school class went,” he says, “the valedictorian and me.” Upon graduation from Morehead State in 1969, the valedictorian returned home to teach and Newsome was recruited to attend Aviation Officer Candidate School, in Pensacola, Florida. “They put me in a plane and I loved it,” says Newsome.
He logged 6,000 hours of flying time in his 30-year career. He also earned his master’s degree in aeronautical engineering from the Naval Postgraduate School and a PhD degree in business administration from Nova Southeastern University. He accumulated an impressive list of decorations, including the Distinguished Service Medal, the Legion of Merit (five awards), three Meritorious Service medals, the Joint Service Commendation Medal, and the Vietnam Service Medal.
His wife, Ann Marie, has a master’s degree and worked as a program manager for the government. They have two daughters and five grandchildren.
Newsome was a one-star admiral when he commanded the Naval Air Warfare Center Aircraft Division. The next year he moved to Hawaii to be in command of Patrol Wings in the U.S. Pacific Fleet and of Task Force 12. In 1997 he returned to the Patuxent base in Maryland to be in charge of acquisition and R&D for new aircraft and receive his second star. His job: oversee the life-cycle management of 11 aircraft types, including the V-22 Osprey, P-3 Orion, AV-8B Harrier, and H-60 Seahawk.
In 2000 Newsome went to the Pentagon as deputy assistant secretary of the Navy for international programs. He handled foreign military sales, security assistance, international cooperative programs, disclosure, export licenses, and technology transfer.
To give a flavor for his management style, he tells of how, when he came to the Pentagon, he arranged five-hour meetings with 35 contractors with whom the Navy did business, so that he and his team could go over what they expected for each process, a, b, and c. Each of the companies then told how they did a, b, and c. “It was an exchange of information. After you talk to 35 companies, you get a good feel for the way they do business.”
When retirement time came, several of those companies came to recruit him. In 2003 he went to EDO Corp., to head the Reconnaissance and Surveillance Systems division in Morgan Hill, California. EDO was founded in 1925 by Earl Dodge Osborn, of the Phelps Dodge family mining interests, and now has 4,000 employees in 45 locations. Known for the Comanche helicopter, among other military products, EDO formed this division by buying Condor Systems, a 22-year-old manufacturer of signal intelligence and electronic warfare systems.
Condor Systems had declared Chapter 11 bankruptcy and, later, was found to be in violation of U.S. arms control laws. Being sure that military contractors adhered to the government’s ethical standards had been a part of Newsome’s role at the Pentagon. He says that is one of the reasons he was hired: “They needed some particular skills.”
“My previous company was coming out of bankruptcy,” says Newsome. It grew annually in profit, sales, and bookings. “We made money every year I was there, and the company stabilized.”
About the time that Newsome resigned, at the beginning of 2006, his division suffered layoffs, presumably from a government contract that was not renewed. Newsome could not comment on that part of EDO’s history. But he agreed that this experience, as well as his military experience, gives him a useful perspective.
“I worked in government programs and that side of it for about 20 years. Like any business cycle, you are going to do well over a course of years. It is peaks and valleys, a sine curve. If your business is dependent on government, and that takes a downturn, you expect a lag. I have seen that happen over a number of years. We have to play that as it goes.”
Seven years ago the R&D side of Sarnoff was stronger, and just 60 percent of its income came from government contracts. After 9/11 and the resulting downturn, Sarnoff found more calls for its defense security and technologies. Now the ratio is 75 to 25 percent, government versus R&D. Newsome intends to grow both sides.
“We maintain a balanced portfolio. In addition to government contracts, we also have products and product sales,” he says. “It’s an important theme for everyone to know, that I see us being in a steady state and starting to grow next year.”
“Let’s grow the business in R&D and in the products area. We have set some pretty good goals, and I think we can get there.”
Newsome says he will focus on three goals:
People. “The key with people is to have respect, respect for the work that they do, and have good people with the proper skills.”
Communications. At least 90 percent of any problem can be traced back to poor communications, he says. He will have “all hands” or general meetings every couple of months, plus newsletters and staff meetings, but, he doesn’t like the “over-communicator,” the person who hits “reply all” on every E-mail. “We all know that person, and that is poor communication.”
Financial success. “We want the company to stay and grow.”
The Princeton area, Newsome finds, is not that much different from California: “Silicon Valley is high technology, and I sure have found this place here to be high technology.” — Barbara Fox
As talk swirls around the Hillier design for West Windsor’s transit village, a Hillier-designed building is in the news. At the Carnegie Center Hillier architects have designed Carnegie 300, 84,000 square-foot building slated to go up next to Carnegie 301, the bank building that fronts Route 1 North. One of the landmarks of the Route 1 corridor, that was designed by J. Robert Hillier himself.
The site, between the bank and the Kiddie Academy daycare center, is now a playing field and has 700 feet of frontage along Route 1. Jones Lang LaSalle, the leasing firm, says in a press release that it is “a rare mid-size build-to-suit opportunity within Carnegie Center.” James Scanlon, Kevin Carton, and Todd Elfand, all of the Iselin office, are doing the leasing.
Site plan approvals for the new construction were obtained two years ago, but ground will be broken only when Carnegie 300 has a tenant signed for nearly 60,000 square feet, Elfand says.
The building will be constructed to be environmentally friendly according to LEED Silver Certification standards. The exterior will be a glass and curtain wall with aluminum accents, and the interior will have upgraded finishes and European-style restrooms. It will have 310 parking spaces.
Next door, in the four-story bank building, 38,000 square feet remain vacant — the entire third floor. “We were brought in to reposition the building to tenants that can be as small as 2,500 or 3,000 square feet,” says Elfand. Just signed: McCormick & Priore, for the fourth floor (see article below).
The Pepper Hamilton law firm, on the fourth floor, is the largest non-bank tenant. Also here are KPMG and Consulting Services of Princeton on the fourth floor, and Goldberg Segalla on the first floor.
The owner of both Carnegie 301 and 300 is a subset of Berwind Property Group (BPG Properties Ltd.). Another entity of Berwind owns the former Lucent property, Technology Center of Princeton. Based outside of Philadelphia, BPG Properties has a 20-million square foot portfolio of office, retail, student housing, and industrial properties, plus more than 25,000 apartment units in more than 100 communities (www.bpgltd.com).
McCormick & Priore PC, 103 Carnegie Center, Suite 203, Princeton 08540; 609-716-9550; fax, 609-716-8140. Scott Tredwell, managing partner. Home page: www.mccormickpriore.com.
McCormick & Priore has signed a lease to move its law office from 1,600 square feet at 103 Carnegie to 2,600 square feet on the fourth floor at Carnegie 301. Based in Philadelphia, it has seven employees in this office, including four attorneys. Debbie Steffan, who manages the Philadelphia office, says an attorney will soon be added.
“We represent self insured people and companies,” says Steffan. Civil litigation cases involve product liability, construction and employment litigation, and bad faith disputes.
Greg Soffian of Studley represented the tenant, and the Jones Lang LaSalle team of James Scanlon, Kevin Carter, and Todd Elfand represented the owner, a subset of Berwind Property Group. Elfand points out that tenants of Carnegie 301 will enjoy an in-house cafeteria and gym.
Hase/Schannen Research Associates Inc., 231 Clarksville Road, Suite 2, Box 2061, Princeton 08543-2061; 609-799-3939; fax, 609-799-4134. Paul F. Hase, president. www.hsra.com
Changing demographics have revamped the market survey business, says Elliot S. Schwartz, a partner at Hase/Schannen Research Associates.
The full-service custom research firm is scheduled to move its 20-person office from 9,500 square feet on 231 Clarksville Road to about 8,000 square feet at American Metro Center on June 22.
Door-to-door surveys dwindled when women left the home to join the out-of-house work force, and cyber surveys cadged much of the business from telephone surveys, according to Schwartz. “People can answer at their own pace, and many companies have built online panels,” he says. “We help the clients figure out what they want to do, write questionnaire, and analyze the data on the back end.”
The firm’s online contractor is in Canada, but the subcontractor they call on to analyze the data is Matrix Inc., which has an office at Princeton Service Center.
Schwartz grew up in northeast Philadelphia, and his father was a salesman for a chemical company in Trenton. A math major at Franklin & Marshall, Class of 1979, he earned a PhD in quantitative psychology at Ohio State, and worked in Philadelphia for seven years before joining Hase & Schannen.
Paul Hase grew up in a suburb of Milwaukee, where his father was president of a manufacturing firm, founded in 1908 by his grandfather, which made construction equipment. He majored in statistics at Stanford University, Class of 1964, and earned his master’s there as well. He was director of marketing research at the new products division of Pillsbury and the healthcare division of Johnson & Johnson, and former senior vice president at Research 100, which has since closed its office at Princeton Service Center. He co-founded this firm with Hank Schannen in 1975.
Among its clients are those in the financial services, management consulting, pharmaceutical, and media companies. One recent project led to the U.S. Postal Service’s recent introduction of the Forever Stamp. Another studied on-site decisions at fresh food counters in supermarkets and helped a chain redesign its stores and identify potential new products.
The firm has a reputation, says Schwartz, for tackling the most difficult and challenging projects, whether the problems lie in fast turnaround, or the types of people that need to be surveyed. “We are a smaller firm with very high customer service, and no matter what it is, we find a way to get it done,” says Schwartz.
Lights On for NERC
Until four years ago, power companies worked with each other on a voluntary basis to prevent blackouts. To help them, the North American Electrical Reliability Council (NERC) provided voluntary guidelines.
Then in August, 2003, the lights went out for 50 million people in the northeast and midwestern United States and Canada, and Congress reacted.
Thanks to the new Energy Policy Act effective Monday, June 18, electric power rules will change, and the 70 employees at NERC, based in Forrestal Village, will be the enforcers. Though NERC can impose sanctions or restrictions on the 1,400 bulk power providers, it can also levy fines of from $1,000 to $1 million per day.
“It’s a major change, and it has been a long time coming,” says Rick Sergel, CEO of the electric industry organization dedicated to the reliability of the bulk electric systems in North America. It has a total of 100 employees, about 70 of them in 12,300 square feet at Princeton Forrestal Village. “Voluntary standards took the power grids as far as they could in terms of reliability, and we need to take the next step toward being reliable. We are quite pleased to be doing that on behalf of the organization.”
Sergel came to NERC two years ago. He grew up in Florida, where his father had a business and his mother worked at a church. After graduating from Florida State in 1971 and getting his master’s degree in math from North Carolina State, he earned his MBA from the University of Miami and entered the power industry. His most recent job was as CEO of National Grid USA, a public utility with a northeastern service territory. He came to NERC in 2005, replacing Michehl Gent, who was at retirement age.
Some of the new regulations involve trees not trimmed properly near high power lines. When lines get overloaded, they sag, and if the lines touch the tree branches, this could trip out the lines. This chain reaction helped cause the 2003 blackout. The new rules say that a power company can be fined up to $1 million a day for each violation. Each untrimmed tree can be one violation. That’s a hefty enough fine to make the biggest company take notice.
“In defense of the power companies,” says Sergel, “most of the problems are caused by property owners who resist providing access so the rights of way can be cleared.”
If the 2003 blackout occurred today, says Sergel, NERC would order remedial actions and levy millions of dollars of fines. Previous rules had no teeth; they were only guidelines, and compliance was voluntary. Enforceable rules, with teeth, means faster remedies, he says.
The rules apply not just in the United States — including government organizations such as the Tennessee Valley Authority, the city of Los Angeles and the state of Texas — but also in all eight provinces of Canada and a portion of Mexico. But they apply only to organizations operating high tower transmission lines, not the distribution lines on wooden poles on tree-lined suburban streets.
Fines apply even if service is not affected. “We have seen dramatic improvement in stats in number of transmission lines out of service due to tree contract,” says Sergel.
NERC has added staff to train compliance auditors and set up a compliance hotline. Along with eight regional organizations and some trade groups, it has held workshops on the 83 new reliability standards and the monitoring and reporting responsibilities they entail. NERC can’t promise to eliminate blackouts, warns Sergel. “Our job is to reduce that probability. We would measure our success by zero blackouts but our goal is to constantly improve.”
Sergel answers the inevitable question about deregulation: “There are those who have the view that (power problems) are in part related to deregulation but my own personal view is that the issue itself is more related to the fundamentals of the business.
North American Electric Reliability Council (NERC), 116 Village Boulevard, Princeton Forrestal Village, Suite 390, Princeton 08540-5731; 609-452-8060; fax, 609-452-9550. Rick Sergel, president and CEO. Home page: www.nerc.com.
PNC Buys Yardville
One big bank gets bigger, one medium-sized bank gets swallowed up. In an attempt to become the most deposit-rich bank in the three-county area (Mercer, Hunterdon, and Somerset), PNC Bank, which has $123 billion in assets, will buy Yardville National Bancorp, which has $2.7 billion in assets. The boards of both banks have approved this deal, which is expected to close in October.
PNC will pay $403 million, or about $35 per share, for YNB, which has 33 branches. PNC has just finished paying more than $2.1 billion for a Baltimore bank, Mercantile Bankshares Corp., which has 240 branches. PNC’s payment will be divided into $156 million in cash and 3.3 million shares of its common stock.
Yardville’s 33 branches include those in East Windsor, Bordentown, Lawrence, Pennington, Trenton, West Trenton, and Bucks County. PNC has 18 branches in greater Princeton, and could duplicate YNB’s branches in Hopewell, Hamilton, and Lawrenceville. “There will be some consolidation,” says Patrick M. Ryan, YNB’s CEO.
Though YNB was trading for around $35, YNB stockholders are not getting a bonus. PNC’s price is based on a low price per share — 77 cents less than the price at which it was trading on June 6, the day before the announcement. That represents more than a 2 percent discount.
“But the majority of people have a vast upside to their purchase price,” says Ryan. “When I got here in 1981, the stock was $1.” The bank went public in 1995. YNB’s 52-week low was $33.63 on July 17, 2006, and the 52-week high was $40.02 on November 16, 2006. YNB shares dropped to $34.20 after the announcement.
In an earlier interview, Ryan had said that though the bank was profitable, the regulatory costs had mounted to $750,000 to $1 million per year (U.S. 1, April 5).
An analyst at Oppenheimer, Jennifer Thompson, points out that YNB has 54 percent of its loans in commercial real estate, and that this ratio is larger than average. Ryan counters with the information that, in New Jersey, banks tend to have larger ratios of commercial loans. YNB had $29.5 million in bad loans last year. This year, the first quarter income of $5.1 million is slightly below last year’s.
Ironically, Yardville had expected to face a challenge at the annual shareholders meeting on July 12. Lawrence Seidman, who owns about nine percent of the shares, had planned to use that meeting to challenge the bank on its regulatory practices, among other charges. For the banks in which he has invested, Seidman typically claims that they are underperforming and demands either a management change or a buyout.
Seidman criticized the bank’s retail operations in a May 4 letter: “I do not believe the mark of success is slow growth in quality assets, combined with a bloated expense structure, a high level of problem credits, and most importantly, reduced earnings,” Seidman wrote. “The success you claim to have achieved is actually eroding shareholder value.”
In a double irony, Seidman had taken YNB to court about the date of the annual meeting. Result: the judge changed the date of the annual meeting to July 12. Now, though YNB will not have to hold a meeting on that day, it will pay Seidman $100,053. But if the buyout doesn’t play out, Seidman gets to install two of his own choices on the board.
Signing this agreement were members of the board, including Ryan, George Muller, Martin Tuchman, F. Kevin Tylus, Robert Workman, James E. Bartolomei, Elbert G. Basolis Jr., Jay G. Destribats, Anthony M. Giampetro, Gilbert W. Lugossy, Samuel D. Marrazzo, Louis R. Matlack, and Sidney L. Hofing (who has retired from the board).
“We first talked to PNC a month ago,” says Ryan. “It came together pretty quickly.”
Yardville National Bancorp (YANB), 4556 South Broad Street, Box 8487, Trenton 08650; 609-581-2809; fax, 609-584-5984. Patrick M. Ryan, CEO. www.ynb.com.
Integra LifeSciences Holdings Corporation (IART), 311E Enterprise Drive, Plainsboro 08536; 609-936-3600; fax, 609-275-5363. Stuart M. Essig, CEO. Home page: www.integra-ls.com.
Integra LifeSciences Holdings reported, on June 6, that it will sell $250 million in debt, half of it in senior convertible notes due 2010, the rest in notes due in 2012.
The medical device firm will use the money for such purposes as repurchasing shares of common stock, repaying debt and for general corporate purposes.
Interpool (IPX), 211 College Road East, Princeton 08540; 609-452-8900; fax, 609-452-8211. Martin Tuchman, chairman and CEO. Home page: www.interpool.com.
Interpool says it will spend $7.4 million to fund a cash dividend of 25 cents per share for the second quarter, payable July 10 to stockholders of record July 2.
On July 18 shareholders will meet to vote on the previously announced buyout. Affiliates of the Fortress Investment Group have agreed to pay $796.7 million for the chassis pool management firm.
McDonnell Antes Up
The heirs of McDonnell Douglas have pledged $30 million to Princeton University for a neuroscience center. Housed inside the Princeton Neuroscience Institute, it will do research on how the brain acquires, modifies and stores information during cognitive processes.
This gift will set up an endowment to pay the salaries of staffers, a new faculty position, and four graduate fellowships. In the past the McDonnell brothers have honored their late father, Class of 1921, with a building for teaching physics and six teaching chairs.
James McDonnell III graduated from Princeton in 1958 and is a university trustee. His brother, John, graduated two years later. Their grandfather, John M.T. Finney, was a medical research pioneer who graduated from Princeton in 1884. At one point he was offered the university president’s job.
Their father founded McDonnell Douglas Corp. in 1939. The firm built the first carrier-based naval jets as well as the first spacecraft — the Freedom 7 — to carry an American into orbit. It merged with Boeing in 1997.
Jonathan Cohen and David Tank co-direct the two-year-old Princeton Neuroscience Institute. They try to apply quantitative analysis, theory, and fundamental science to gain insights that could lead to breakthroughs in treating diseases such as schizophrenia and epilepsy. Scientists at the institute are also working on new imaging and microscopy technologies as well as biochemical and genetic tools.
F. A. “Tony” Dahlen, 64, on June 3. A seismologist, he taught geosciences at Princeton.
Tanja Andric, 35, on June 11, the victim of an apparent beating at her apartment on Franklin Corner Road. She worked at Bristol-Myers Squibb.