Two top executives at Standard Pacific Homes have resigned from the company as part of a massive downsizing initiated by the company's new CEO Kenneth L. Campbell, who is also a partner in MatlinPatterson Global Advisers, the private equity firm that infused the ailing company with about $600 million in cash last summer.
Clay A. Halvorsen, the company's executive vice president and general counsel and secretary, resigned effective Feb. 20, and Andrew H. Parnes, executive vice president and chief financial officer, resigned Feb. 24.
They were replaced Feb. 25 by executives who had reported to them. John P. Babel, 38, who had been the company's associate general counsel since 2002, was appointed senior vice president and general counsel and secretary. John M. Stephens, 40, the company's former corporate controller, was appointed senior vice president and chief financial officer. He has worked for Standard Pacific in a variety of positions since 1996.
In a wide-ranging interview Feb. 24, Campbell said he is positioning the company to operate as a much smaller entity and said that sometimes means replacing higher-paid executives with the experience and skills to run a $4 billion company with those with skills adequate to run a $1 billion company.
"We have put perfectly good people in these jobs," he said. "These are really good sharp young people...These people are eager. The board is totally comfortable with them."
The move wasn't just about cutting salary expenses, he said.
"If you want people to change the way they think, you can't leave the same people in the same jobs and expect a different way of thinking. You have to change it enough so it doesn't look familiar," he said. "If you leave the same people in the same place, you are going to get the same outcome. With the train going this slowly, the risk (of making dramatic changes) is not that great, and the risk of continuing to do the same thing is obvious...A little chaos is a good thing."
And Campbell says he's been creating chaos since he took over the position in December 2008. "The cost cutting began in earnest the day after I got here."
Standard Pacific, which occupied two buildings at its Irvine, Calif.-based headquarters, moved out of the fancier one that had been the executive offices and combined operations into the smaller, less well-appointed building. "So now it's a crowded busy space."
And the slashing of positions has been ongoing as the market has continued to deteriorate faster than expected.
"We had this plan back in December that had been developed with the help of an outside consultant, but by the time they rolled it out, it was already outdated," he said. "I came in, and we immediately did an adjustment in that...We needed more significant cuts with lower revenue assumptions...It's been a moving target."
That's unfortunate, he said, because it's better to do the cuts faster and all at once so the employees who remain can start to concentrate on business and start to think positively rather than worrying about losing their jobs.
"We have got to figure out how to make the place fun even if we are operating in this horrible environment," he said. "Even if it's dumb stuff, we need more pizzas and more beer and to celebrate more birthdays."
From peak to trough, Campbell estimates 75% of the company's employees will be gone. "When you have already cut 60% of the people, and now you have another 15%, you are not dealing with people with performance issues," he said.
And those cuts can't just come from the bottom, he said. "You have to squish it from the top."
"It's just an extraordinarily human painful thing to do," he said of the layoffs. "You feel crummy...What you have to do, and what I have unfortunately done before, you have to really believe that you are going to save the patient...If you don't think you can save the company, don't lay off people. We are going to survive; we are just going to be smaller for a long time."
A turnaround is going to take a good deal longer than MatlinPatterson estimated when it took a 65% stake in the company's stock last summer in exchange for no more than 49% board control.
"We have a pretty long-term time return as an investor," he said. "We said six to eight years...hoping it would be five," he said. "Now I say six to eight, believing it. The trick for us is to be as big as we can be and to be as well-positioned as possible for the turnaround," he said.
With the company right-sized, the next steps are to improve operations and to review the company's entire business strategy.
"We want to be in markets where, when there is a recovery, they recover," he said. "There is an argument for broad diversification, but we are not going that way. We are concentrating on being in markets where, when the increase in demand occurs, we will be there first."