Lead by Serving: How to Drive Your Construction Company to the Top
I recently sat down for the second time with Jeff Hoopes, Chairman and CEO of Swinerton Builders. We discussed his approach to leading a multi-billion dollar ESOP company, why the structure of his executive team encourages healthy conflict, and how Jeff is striving to leave a legacy of teaching his employees how to make money, build wealth, and be part of a wonderful company. Click the link to listen to our first interview: Strategic Insights into Growing a Thriving Multi-Billion Dollar Construction Company
From Starving to Leading
In 1983 Swinerton Construction made the transition to an Employee Stock Ownership Plan (ESOP) structure, and in 2013, Jeff became just the fifth CEO in the company’s 125-year history. He started as a project engineer back in 1984 without a dime to his name. Straight out of graduate school and with a wife and child to feed, the expense of San Francisco got to him quickly, and he was forced to ask for a raise after just three months.
He had no family members or other connections to the business, but after ten years he began to collect ownership shares in the company. Thirty years after his humble beginning, and decades of sweat equity later, he’s now leading Swinerton into the future as one of the top ten commercial builders in the country.
Swinerton’s laser focus on cost savings and the bottom line contributes to that success, they reinvest their retained earnings back into the company, and they don’t splurge on speedboats or private planes. “We get on Southwest every day with everybody else,” he says, “hopefully early enough to get an aisle seat.”
“It’s like taking care of your home and your family,” he says, “you want to put money away to make sure they’re gonna be OK. When you begin to think about retirement, and getting your stocks bought out, think about bringing up young people to take over the business. It’s all employees, just like us, that came in with no connection to the family, and we worked hard to build our wealth, and to gain ownership shares, and to gain positions of management.” That effort keeps paying off, as Swinerton superintendents, for example, often retire now with a million dollars in shares.
Elected to Serve
Because of the company’s ESOP structure, Jeff regards his role as being a Servant Leader. “I’m voted into that job,” he says. “I have no right to the CEO/Chairmanship. I’ve been asked to do this by my employees. I am put in office to serve them.”
That means keeping the benefits of all his workers firmly in mind. For example, when international organizations have approached Jeff to ask about buying Swinerton.
“I take each offer to the board,” he says, “and we talk about it. If we sold, I could get wealthy. But the young people in the business get nothing. So I can’t do that. I came here with nothing, and I’ve made my wealth. It’s not fair for me to sell this business or disrupt the ability for these young people to build their wealth. So I tell the international companies, ‘No.’ They say, ‘Why not?’ And I say, ‘Because it’s not my business to sell.”
Like other construction companies, Swinerton has weathered both recessions and expansions. Jeff attributes their survival and growth to their willingness to make personal sacrifices for the greater good.
“We’re not that different from others,” he says. “We had layoffs. We tried to keep our top performers working and took care of everybody that we could. I took a 10 percent pay cut. And the employees took pay cuts, to keep people employed, and to keep our best people working. The people that weren’t top performers didn’t stay. But we worked as a family unit to keep the whole thing going.”
Because of this devotion to the company’s survival, Swinerton’s margins nearly doubled during economic downturns, because they focused on always delivering their best performance to ensure landing the next job. During construction booms, things can slide, and people can get into trouble and lose money. “But in a downturn, you focus on every job and every client to make them 100% successful,” he says.
Unlike many construction companies, Swinerton’s executive team keeps the future in view at all times. “We have some people retiring,” Jeff says, “and we’re laying out the next five to seven years.” To aid their task, they create a chart with years across the top and skill sets down the left side. Then the team gets to work, figuring out who will replace the retired by focusing on who can fill each skill set.
“We need somebody on the executive team that’s operations driven. Somebody that’s a business person, a finance person, and a salesperson. Who’s going to be our business partner when our business chief administrative officer retires? Who’s going to manage accounting or H.R., or risk? The key is keeping those skill sets filled on your executive team, with people that can stand up for what they believe.”
Stick to Your Guns
This last point is crucial because, at Swinerton, executives need to be able to hear and say the word, “No.”
“I’ve watched this happen over and over in our business, where a flamboyant, charismatic ego leads a company,” Jeff says. “And 99 percent of the time the company is no longer around. I’ve seen it happen with some huge competitors in San Francisco, where they’ve gotten in trouble, ran out of cash, made some stupid moves, because they didn’t have the right leadership team in place to challenge each other, and the leader made bad decisions. When somebody is a flamboyant ego, no one’s there to check them. They’re just going to say, ‘Yes sir.’ They end up out of cash, getting sold internationally, out of business.”
Jeff’s piece of advice? “The ego-driven leaders surround themselves with yes men. Surround yourself instead with people that can say no.” Because according to Jeff, they’re usually right.
“There’s four of us on the executive committee,” he says, “and I’ll say ‘I want to do this’, and my head of operations will say, ‘There’s no way, that’s not a good business decision.’ I say, ‘What do you mean?’ We always have these open discussions, and the three guys that sit with me in this room are not afraid to challenge. Most of the time they’re right.
“We’re going to arm wrestle until we come to a majority. And when we leave the room, it’s a hundred percent support. We don’t play games. We don’t second guess. We don’t bad mouth each other. We are the decision process for this company, and when we’re done with the executive meeting, whatever we decide is what we go do.”
That decision process then filters down through the organization, in face-to-face meetings with Area Managers, and Division Managers, who may raise their objections. “I have one partner who’s from the craft side—he started swinging a hammer for us 40 years ago at 18 years old. He challenges me the most at every meeting because he has a different perspective. He’s a field guy. And I’m saying, ‘We should do this.’ He says, ‘Craft can’t do that.’ And he’s right most of the time because he’s been out there swinging a hammer.
“Then I have another gentleman on the executive committee that runs risk accounting, and he’s always saying, ‘That’s not a good investment, because I can get a higher return doing drywall.’ So we have all these different perspectives, and we respect each other. ”
The average tenure of the folks in the executive group is 30 years. It can be challenging to stay in a working relationship for even two years, so how have the Swinerton execs made it work for so long?
Get the Pack Mentality
“One day we want to retire, with enough money to travel and feed our families, just like everybody else,” Jeff says. “So we rely on each other. One person can screw things up. So we’re partners. ESOP is so important to tie people together. Without the ESOP, I don’t know how a lot of companies do it, especially if one person owns the whole company. How do you get your employees committed? How do they get their share of the company? How do you reward them if they get a salary and get a bonus, but they don’t build any wealth? Our goal is to build wealth for employees.”
That’s the distinction Jeff sees between the ESOP structure and the traditional top-down structure that can often encourage dictators. “I’m looking for the next hundred years,” he says. “I have a list of all my high-performing employees—who’re doing well, who needs training, who needs mentoring. We’re looking for the next hundred years, unlike the guy that’s demanding and beating on the table—that company won’t survive past him. We see it all the time; his kid takes over, and it fails. We’re all about nurturing the future. I’m not going to be the guy that screws this thing up and sells it. My goal is to make these young people wealthy, and give them the business as a gift.”
Take Care of Your Family
Part of that family-style structure means looking out for their employees in times of personal challenges. Jeff mentions one senior staffer who’d worked at Swinerton for 28 years, who got divorced and then went AWOL. “I sat down with him three or four times and said, ‘You OK? You’re not holding up your end of the bargain right now.’ We stuck with him…through it… He went through two years of hell. It was difficult, but we got him some counseling, and right now he’s a superstar. He’s doing better than he ever did before. It’s just patience.”
The ESOP can be challenging for the young and the short-sighted. Because they put equity back into the business, it can take a while for workers to see good money, and they could bolt for greener-looking pastures. “But the young guys that last here about 15 years, all of a sudden they realize they’re building wealth,” Jeff says. “All of a sudden they’re making 20 percent a year on their shares, and they’ve got a nice basis. We have to be patient and nurture those people along.”
Reinvest to Get the Returns
But to make that work takes strategy. “We have to make money every day,” Jeff says, “and we have to put on the bottom line every day to build this thing. You can do 20 to 1 on your equity. So if I have 200 million dollars on my bottom line, I could do 4 billion in revenue. I need 250 million to do 5 billion in revenue. That’s the basic rule of surety support. So if we want to keep growing, we have to keep putting money in retained earnings on the bottom line. We don’t have a choice.
“And we balance everything with retained earnings, return to shareholders, and the cash bonuses. This whole thing’s like a big math equation. I’d like to see my shareholders in the next few years have 500 million in equity—a nice pool of money that is theirs. We want to get to the point where they can make whatever decision they want; they can do any work they want, they can be the size they want, by growing that bottom line. We don’t need to grow the top line. We really don’t care. It’s all about the bottom line.”
Check Your Ego
Construction can be an ego-driven business, with leaders hungry to see their names on the most prominent towers. That doesn’t impress Jeff much. “Building these big towers—forget the ego side of it—doesn’t matter. We can build power plants and make double the fees. We’ll create all the power plants we can. It’s all about getting a return to shareholders. Everything we do is maximizing the EBITDA to return to our shareholders through cash bonuses, or stock appreciation, or paid taxes. Ninety cents of every dollar that we received in EBITDA went to employees.
“I’ve looked at so many different companies, and I think the biggest travesty is when you have owners trying to retire, and they utilize the ESOP to do it. It’s a disaster because there are two conflicting camps. The guy staying gets stuck with the bills to pay the guy out that’s leaving. And if the guy that’s leaving gets four times book value, and the stocks are really worth book value, they’re paying this massive premium and they’re borrowing money out of the bank to buy these shares at an inflated price.
“That’s why we have to be so careful with ESOPs. I just saw one in Atlanta with shares valued at one hundred million dollars, and they borrowed all this money, and they closed loan, paid the owners out, and then it got revalued at 20 million. In a matter of weeks.”
“It’s equity divided by the number of shares. Real simple. We don’t do market appraisals every year. We’re a pre-1986 ESOP, so we’re able to do that. And we want to be steady. No games—everyone is treated the same in and out. You get your appreciation.”
Leave Behind Real Wealth
When Jeff reflects on his desired legacy, his thoughts turn to the next generation. “I think I’ve shown our employees how to make money. And before, we were typical G.C., and every year just trying to make a buck, which is ridiculous. You need to rethink what you’re doing because it’s not for all the effort and pain and blood and sweat and tears to make 1 percent or less. I mean that’s ridiculous.
“I don’t remember one building I built that I care much about—it’s just a building. I’m not an ego guy—now we built lots and lots of huge towers, and they’re pretty, but I mean that’s what we do. I have a great group of partners and young people who’ll take it over and move it forward. That’s what I’m most proud of.”
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