D CEO October 2012

OCTOBER 2012

B U YO U T B U S T ?

HOW HUBRIS MAY HAVE HOBBLED ENERGY FUTURE HOLDINGS [PG. 72]

RX FO R H E A LT H CA R E

CEO

FIVE BIG HOSPITAL CHIEFS SPEAK OUT [PG. 52]

T E X- M E X R E D U X

ON THE BORDER’S CEO ON WHY HE HATES LIME-GREEN AND PURPLE [PG. 38]

CEO W W W. D M A G A Z I N E . C O M

OCTOBER 2012

$7.95

THE ANTI-MARK CUBAN He’s an energy mogul and a part-owner of the Texas Rangers.

But you you’ll never see him on Shark Tank. Getting to know Ray C. Davis, DFW’s undercover billionaire.

W W W . D M A G A Z I N E . C O M

COVER_OCT12.indd C1

8/24/12 9:35 AM

)<:05,:: + 6 , : 5 » ; / ( = , ; 6 ) , : 3 6 > > / 0 ; 3 , @ 7 , 5 5 ( 7 7 9 6 ( * / , : ) < : 0 5 , : : + 0 - - , 9 , 5 ; 3@

,_LJ\[P]LZ ^OV Y\U MHZ[ NYV^[O HUK PUK\Z[Y` SLHKPUN VYNHUPaH[PVUZ ULLK HK]PJL [OH[ TV]LZ [OLPY PKLHZ MVY^HYK >OP[SL` 7LUU JSPLU[Z HYL K`UHTPJ PU[LYLZ[PUN HUK KYP]LU WLVWSL >L [OPUR L]LY` ZLYPV\Z I\ZPULZZ SLHKLY KLZLY]LZ HJJV\U[HU[Z ^OV [YH]LS H[ [OLPY ZWLLK

;OL ^HYT YLK ISVJR PU V\Y THYR YLWYLZLU[Z >OP[SL` 7LUU HUK P[Z HWWYVHJO [V I\ZPULZZ·LU[YLWYLUL\YPHS LULYNL[PJ K`UHTPJ $ KPMMLYLU[

+(33(: -69; >69;/ /6<:;65 >/0;3,@7,55 *64

WhitleyPenn.indd 1

8/13/12 12:55 PM

HallOffice_DCEO1012.indd 1

8/22/12 12:19 PM

Diagio_DCEO1012.indd 2

8/22/12 4:13 PM

Diagio_DCEO1012.indd 3

8/22/12 4:14 PM

Tower Club celebrates 30 years as the premier business club in Dallas.

Enjoy completely NEW membership and business amenities: t 5XP QPXFS CPBSE SPPNT XJUI TUBUF PG UIF BSU videoconferencing equipment, 50” flat screens and UPVDI QBOFM DPOUSPMT t 4QFDJBM OFUXPSLJOH FWFOUT BOE BDUJWJUJFT XIFSF ZPV DBO NFFU PUIFS %BMMBT QSPGFTTJPOBMT BOE HSPX ZPVS CVTJOFTT t 5PVDIEPXO SPPNT GPS XPSLJOH BXBZ GSPN UIF PðDF PS POF PO POF NFFUJOHT t A variety of venues and a private event team to help you coordinate events for up to 1,000 t "DDFTT UP $MVC$PSQ T OFUXPSL PG NPSF UIBO QSJWBUF DMVCT BOE SFTPSUT XIFSF ZPV DBO HPMG EJOF BOE NPSF

Las Colinas Country Club Irving, TX

Membership offerings provide exceptional savings and benefits for DFW executives including preferred pricing for all private meetings/events. Contact the Club today to discover the savings your company can realize by enrolling in Membership. To find out more, call

214.220.0403 or visit tower-dallas.com Connect. Work. Host. Play. Celebrate. &MN 4USFFU 5IBOLTHJWJOH 5PXFS UI 'MPPS ] %BMMBT 59 *

Some So Som ome om me restrictions estric strictions triction trictions ictions tions apply ap a ply. app y. O y.

Offe Off ffe ff er en ends ds Decem cem em e mbe ber er 3 er 31 31, 1 1, 20 20 . Call 2012 Ca C allll clu lub lub ub ffor orr deta o et ils. il 1 178 17 78 7 88 881 81 1 056 5612 5 561 6 NG G

TowerClub_DCEO0912.indd 1

8/20/12 2:36 PM

ADVERTISEMENT

Dallas Safari Club he Dallas Safari Club is a nonprofit hunting conservation organization that raises money to support its mission to conserve wildlife and wilderness lands, educate youth and the general public about wildlife conservation, and promote and protect the rights and interests of hunters worldwide. With a new office on Gamma Road, the Dallas Safari Club has more than 5,000 members worldwide—about 40 percent of its membership coming from the Dallas-Fort Worth area. It was founded in 1982 as an independent hunting conservation club with close to 200 members.

The Dallas Safari Club supports its mission with funds raised from an annual convention and expo. The 2012 convention at the Dallas Convention Center raised more than $5 million to support its mission. The convention featured 400,000 square feet of exhibits comprising almost 1,400 booths and 800 exhibitors, including the finest guides and outfitters from around the world, gun makers, jewelers, wildlife artists, furriers, clothiers, exotic furniture and room designers, photo safaris, and outdoor trip specialists. Approximately 40,000 people attended the convention. Highlights included a life member breakfast, evening banquets, and a ladies’ lun-

T

cheon. The banquets, held at the Hyatt Regency Reunion, featured live auctions Thursday through Sunday evenings. Attendees bid on one-of-akind hunts, art, firearms, fishing trips, and adventures. More 500 women attended the ladies’ luncheon, complete with entertainment by Inside Out and an auction featuring art, jewelry, and outdoor adventure trips.

During the past five years, the Dallas Safari Club has given approximately $3 million in grants to directly support its mission. The money has help fund the restoration of desert Bighorn sheep in Texas, educated future wildlife managers in Tanzania, supported Big Brothers of Dallas and Fort Worth, and assisted more than 100 North Texas schools’ Outdoor Adventure Program. This program is a semester-long course in outdoor education that teaches future generations about the outdoors and what wildlife, nature, and recreation provides for everyone.

In addition to its annual convention, Dallas Safari Club also sponsors monthly member meetings and activities including wine pairings, an annual dove hunt, and a trophy room tour, among others. Fundraising efforts also benefit the Strand, Dallas Arboretum, Cattle Baron’s Ball, and the Texas Parks and Wildlife Foundation.

6390 LBJ Freeway, # 108 | Dallas, Texas 75240 | 972.980.9800

BIGGAME.ORG

SafariClubofDallas_DCEO1012.indd 1

8/21/12 12:48 PM

KRLD_DCEO0712.indd 1

8/17/12 10:29 AM

Polsinelli_DCEO1012.indd 1

8/20/12 3:31 PM

UTA_DCEO1012 1

8/13/12 12:54 PM

EXPANDING YOUR FACILITY IS EASIER WHEN YOU HAVE A HEALTHY BANKING PARTNER. We’re ready to help your business grow. With a substantial lending capacity for the healthcare industry. Healthcare-specific services to streamline your back office. And considerable expertise in a variety of investment and other financial services. We know banking. We know healthcare. The next step is getting to know you.

Give us a call, or better yet, let us come see you.

Lending | Cash Management | International Banking Retirement Plan Services | Corporate Trust | Wealth Management 214.987.8805 | www.bankoftexas.com/healthcare

© 2012 Bank of Texas, a division of BOKF, NA. Member FDIC. Equal Housing Lender

BOT_DCEO1012.indd 1

8/23/12 1:52 PM

/V^ ,ɈLJ[P]L )VHYKZ *VTT\UPJH[L Institute for Excellence in Corporate Governance 10th Annual Conference Thursday, Oct. 4, 2012 8 a.m. to 4 p.m. UT Dallas campus Richard Leblanc, PhD

Max Hopper Lecture Series Guest Speaker What Really Happens Inside the Boardroom

Marianne Jennings, Professor Emeritus How Boards Can Set the Ethical Tone at the Top

Richard Bowen, Professor

From the Mouth of the Citigroup Whistleblower

Baruch Lev, PhD, Professor

Value Through Communications with Investors and Capital Markets

Tony Alessandra, PhD

The Platinum Rule: Relationship Strategies for Business Communications

Strategic Partners & Investors +LSVP[[L 9VHJO /V^HYK :TP[O )HY[VU >OP[SL` 7LUU

Media Sponsor + *,6 4HNHaPUL

Corporate Sponsors ,__VU4VIPS 3LUUV_ 0U[LYUH[PVUHS 1 * 7LUUL` ;L_HZ 0UZ[Y\TLU[Z PLJN \[KHSSHZ LK\

SCHOOL OF MANAGEMENT

UTD_DCEO1012.indd 1

8/13/12 12:54 PM

for Dallas’ elite CEOs

bodyguards & executive protection

(214) 614-8181 ReynoldsProtection.com admin@ReynoldsProtection.com

Reynolds Protection, LLC, 8035 E. RL Thornton Freeway, Suite 235, Dallas, Texas, 75228 TXDPS # B14777

Reynolds_DCEO0512.indd 1

8/13/12 12:52 PM

Tip of The Spear Jenny L. Martinez | R. Alan York** | Marcos G. Ronquillo Bruce W. Bowman Jr.* | Donald E. Godwin* | Robert C. Wiegand

*RGZLQ 5RQTXLOOR 3& LV D WULDO DQG DSSHOODWH ÀUP ZLWK RIÀFHV LQ 'DOODV +RXVWRQ DQG 3ODQR 6HUYLQJ )RUWXQH FRPSDQLHV JRYHUQPHQWV DQG LQGLYLGXDOV DQG WHVWHG RYHU D ORQJ WUDGLWLRQ RI ODQGPDUN FDVHV *RGZLQ 5RQTXLOOR VWDQGV UHDG\ WR GHIHQG %RDUG &HUWLÀHG LQ &LYLO 7ULDO /DZ E\ WKH 7H[DV %RDUG RI /HJDO 6SHFLDOL]DWLRQ %RDUG &HUWLÀHG LQ &LYLO $SSHOODWH /DZ E\ WKH 7H[DV %RDUG RI /HJDO 6SHFLDOL]DWLRQ

Dallas | Houston | Plano 3ODQR 2IÀFH E\ $SSRLQWPHQW 2QO\

Godwin_DCEO0912.indd 1

*RGZLQ5RQTXLOOR FRP

8/23/12 1:54 PM

Contents OCTOBER 2012 / VOLUME 7, ISSUE 4

Cover Story 48 The Undercover Billionaire Ray C. Davis made a billion dollars in the energy business. He’s also a part-owner of the Texas Rangers. But for some reason, the press-shy businessman doesn’t like to talk about these things much. By Thomas Korosec

Features 52 Reinventing The System In a freewheeling conversation with D CEO, the heads of five major hospital companies in North Texas discuss the Affordable Care Act, next month’s presidential election, the importance of workplace wellness programs, and how they’re changing healthcare delivery. By Steve Jacob 58 Vintage Success Fossil Inc., a Richardson-based company that sells accessories with a retro look, keeps on growing—and defying expectations. Here’s why.

By Mitchell Schnurman

16 Editor’s Note 18 Index 21 The Ticker

26

Jeremy Halbreich builds a newspaper empire; the Maiden brothers give back; Jack Black’s Curran Dandurand scores with men’s grooming products; JoAnn Brumit of Karlee breaks bread; inside the office of attorney Ike Vanden Eykel; Bum Bright’s sons spiff up a real estate development; straight talk from North Texas CEOs; and more.

28 JOANN BRUMIT

CURRAN DANDURAND

36 Business Lunch Place at Perry’s

38 Meet the CEO

DANDURAND: JUSTIN CLEMONS; BRUMIT: TONY HEALEY; FOSSIL: CORGAN

Stephen Clark of On The Border

41 Real Estate A Lasting Legacy The 2,700-acre business park in Plano is seeing a burst of build-to-suit and spec office development.

72 The Bottom Line Going for Broke If and when the record leveraged buyout of TXU Corp. goes bust, blame it on hubris and state leaders who shirked their duty—not just lousy prices for natural gas.

By Mitchell Schnurman

58 FOSSIL

By Christine Perez

45 Tech 2.0 Clicking Coupons A Frisco company called Koupon Media is changing how and what we pay for everything.

By Phil Harvey

ON THE COVER: ILLUSTRATION BY JIM SALVATI

CORRECTIONS In the story titled “Under Siege” in the September issue, Radha Arora should have been identified as the president, not the CEO, of Rosewood Hotels & Resorts. Also, in the Need to Know feature, Kosmos Energy was wrongly said to be a $34 million company. Its total sales for 2011 were $676.8 million.

OCTOBER 2012 D CEO

FOB_CONTENTS_OCT12.indd 13

13

8/24/12 9:37 AM

$52 BILLION I N L O C A L E C O N O M I C I M PA C T

EDITORIAL EXECUTIVE EDITOR MANAGING EDITOR

Glenn Hunter Christine Perez

ASSISTANT EDITOR Jessica Melton RESEARCH EDITOR

Lesley Mann Lynch

CONTRIBUTING EDITORS John G. Browning,

600,000

Phil Harvey, Jason Heid, Steve Jacob, David Johnson, Mitchell Schnurman EDITORIAL INTERNS Caitlin Giddens, Paige Harriman, Megan Shaw, Teo Soares, Matt Watson ART/PRODUCTION

Hamilton Hedrick Chetna Bailey Michael Hassett STAFF PHOTOGRAPHER Elizabeth Lavin PRODUCTION MANAGER Kate Mitchell DIGITAL IMAGING SPECIALIST John Gay DESIGN INTERN Jamie Smith ART DIRECTOR

ASSISTANT ART DIRECTOR

ARE A EMPLOYEES

ADVERTISING ART DIRECTOR

ADVERTISING ADVERTISING DIRECTOR

It’s a North Texas industry that demands authoritative, focused, and intensely local media coverage.

Rhett Taylor

Kym Rock Lisa McLaren ACCOUNT EXECUTIVES Lauren Cureton, Leigh Toney MANAGING EDITOR OF SPECIAL SECTIONS Jennifer Sander Hayes ADVERTISING SERVICES MANAGER Ashley Wood ADVERTISING ASSOCIATES Ashley Gibbs, Loren Means, Caroline Stenbeck ONLINE DIRECTORY SALES Anna Watkins, Adam McDonald ASSOCIATE PUBLISHER OF PROFESSIONAL SERVICES SENIOR ACCOUNT EXECUTIVE

BUSINESS

Debbie Travis Kristen Jordan STAFF ACCOUNTANT Andrew Hall FINANCIAL ANALYST Steve Bagley PAYROLL COORDINATOR Alma Ritter ACCOUNTS RECEIVABLE/PAYABLE COORDINATOR Alicia Kelly CONTROLLER

INTRODUCING

ACCOUNTING MANAGER

SALES SUPPORT AND ACCOUNTING COORDINATOR

Bernadette Ramirez NEWSSTAND CONSULTANT The Centofante Group BRAND AND COMMUNICATIONS MANAGER

Halley Homen

MARKETING MANAGER Allie Steele

Lauren Bloodgood MARKETING COORDINATOR Blair Sullivan MARKETING INTERNS Mary Kathryn Ifert, Lauren Shambeck MARKETING ASSOCIATE

OFFICE MANAGER AND ASSISTANT TO THE EDITOR IN CHIEF

Chelsey Plumlee IT MANAGER Jeff Nelson IT SUPPORT

Matthew Shelley

ADMINISTRATIVE ASSISTANT Jenna Owen

Your 24/7 source for news on the business of healthcare in Dallas-Fort Worth.

WEB ONLINE EDITORIAL DIRECTOR Jason Heid

Randy McCluer Charlotte Tobin

LEAD ONLINE DEVELOPER ONLINE DESIGNER

MAIL

Led by veteran healthcare journalist Steve Jacob and the editors of D CEO.

750 N. St. Paul St., Ste. 2100, Dallas, TX 75201 The magazine assumes no responsibility for the return of unsolicited manuscripts.

WEBSITE www.dmagazine.com/dceo MAIN OFFICE 214-939-3636 ADVERTISING 214-939-3636 x. 203 SUBSCRIPTION SERVICES For immediate assistance, call 214-939-3636 x. 383.

For other inquiries, e-mail circ@dmagazine.com.

REPRINTS 214-939-3636 x. 100 SUBSCRIPTIONS 8 issues $54 in the United States, possessions, APO and FPO; $70 per 8 issues elsewhere. Please provide old and new addresses

www.DHealthcareDaily.com

and enclose latest mailing label when inquiring about your subscription.

For custom publishing inquiries, call 214-540-0113.

D M A G A Z I N E PA RT N E R S CHAIRMAN AND EDITOR-IN-CHIEF Wick Allison PRESIDENT Christine Allison CHIEF FINANCIAL OFFICER Thomas L. Earnshaw

PARTNER ORGANIZATIONS DALLAS-FORT WORTH BUSINESS GROUP ON HEALTH :: DALLAS-FORT WORTH HOSPITAL COUNCIL DALLAS REGIONAL CHAMBER :: THE HEALTH INDUSTRY COUNCIL

CREATIVE DIRECTOR Todd Johnson MARKETING DIRECTOR Jennifer Miller PRODUCTION DIRECTOR Erin Von Villas MEDIA DEVELOPMENT DIRECTOR Quincy Preston AUDIENCE DEVELOPMENT DIRECTOR Melissa Chowning

14 D CEO OCTOBER 2012

FOB_STAFF_OCT12.indd 14

8/20/12 12:20 PM

TAB_DCEO0912.indd 1

8/13/12 12:53 PM

Editor’sNote

BY GLENN HUNTER

Targeting Healthcare Squeezed by all sides, the industry moves tentatively toward solutions.

T

alk about an industry in the Skyrocketing Costs Are Taking Us. crosshairs.

A former publisher with the Fort Worth StarThat’s healthcare.

Telegram, where his healthcare columns were Patients squabble with health distributed nationally by the McClatchy Triinsurers. Doctors aren’t crazy bune News Service, he’s currently an adjunct about the carriers, either. The gov- faculty member at the University of North Texernment has its fingers in every- as School of Public Health. thing. And providers hassle their In other words, Steve knows his stuff. “customers” to take more personal Our new site is supported in its mission by responsibility, without much success. a powerhouse Advisory Council—basically, a Says Robert Earley, president and CEO of who’s who of the local industry—and by partJPS Health Networks: “I can’t ners including the Health Industhink of another industry where The hospital execu- try Council, the Dallas Regional tives are realistic, Chamber, the Dallas-Fort Worth you’re trying to work with a consumer base that doesn’t want to dealing with situ- Hospital Council, and the Dallasdo anything that you’re trying to ations as they are, Fort Worth Business Group on tell them to do.”

Health. not as they wish With healthcare spending at Along with news and analytithey were. nearly 20 percent of GDP, the cal reports, personnel moves, enwhole mess affects every one of us, of course. lightening statistics, and informative posts by And employers more than most. industry leaders, D Healthcare Daily distribThat’s one reason we gathered the top execu- utes e-newsletters to more than 20,000 healthtives from five big hospital companies for this care execs, physicians, and corporate healthissue to talk candidly about their industry. benefits managers.

I think you’ll find the resulting discussion— This industry adds $52 billion to the Dallas“Reinventing The System,” starting on page Fort Worth economy each year, and it supports 52—to be a fascinating read. more than 600,000 local jobs.

These guys are case studies in the art of balSo, whether it’s in the crosshairs or out, it’s a ancing competing constituencies, you’ll see. sector that deserves intelligent, comprehensive They’re realistic, dealing with situations as attention—by all of us. they are, not as they wish they were. They’re That means by your company, too. also proactive role models for other companies, “The payer sector has to be in this and the practicing what they preach about employee government has to be in this to find a common wellness, for example. solution,” Doug Hawthorne, CEO of Texas These topics and others like them are so im- Health Resources, tells Steve in “Reinventing portant, we’re proud to say that D Magazine Part- The System.” ners has created a news site dedicated to cover“Readers need to know that the relationship ing the business of healthcare in North Texas. among the Dallas-Fort Worth healthcare orgaD Healthcare Daily (dhealthcaredaily.com) is nizations is remarkably strong,” he adds. “We led by Steve Jacob, who also led the discussion spend a lot of time together and we understand among the hospital execs in this issue. each other’s roles and missions.

An acknowledged healthcare expert who “We welcome the words and wisdom of the holds three master’s degrees—in journalism, business community to step in as we try to sobusiness administration, and health policy and lidify and stabilize an uneven situation and find management—Steve is the author of a new better solutions for better health.” book titled Healthcare in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Write to glenn.hunter@dmagazine.com

16 D CEO OCTOBER 2012

FOB_EDNOTE_OCT12.indd 16

8/22/12 2:29 PM

RESULTS FOCUSED, CLIENT DRIVEN. ®

W W W. B E L L N U N N A L LY.C O M

3 2 3 2 M C K I N N E Y AV E · S U I T E 1 4 0 0 · D A L L A S , T E X A S 7 5 2 04

BellNunnally_DCEO0712.indd 1

8/13/12 12:49 PM

INDEX OF COMPANIES AND PEOPLE

A list of the people (in bold) and companies included in this issue: 7-Eleven .................................................................... 45-46

Davis, Linda ................................................................ 51

Kasko, Marilyn .......................................................... 42

Abbott Laboratories ......................................................42

Davis, Ray C. ........................................................ 48-51

KDC .................................................................................42

Affeldt, Eric ............................................................... 34

Denbury Resources ..................................................41-42

Kimberly-Clark ............................................................... 24

AIM Media Texas LLC......................................................21

Dr Pepper Snapple Group ............................................. 41

KKR ................................................................................. 72

Allison, Joel .......................................................... 52-57

Duany, Andres ........................................................... 42

Koupon Media .......................................................... 45-46

American Airlines........................................................... 24

Early, Robert .................................................. 16, 52-57

Lomenick, Art ........................................................... 42

American Consolidated Media LP .................................21

EDS ................................................................................. 41

Luce, Tom .................................................................. 32

AT&T ...............................................................................42

Eimer, Jack ................................................................ 42

Luminant ........................................................................ 72

Avatar .............................................................................50

Encana Oil & Gas.......................................................41-42

Maiden, Terrence ...................................................... 22

Baker, James ..............................................................72

Energy Future Holdings ................................................. 72

Maiden, Tim .............................................................. 22

Bane, Sally .................................................................41

Energy Transfer Partners..........................................50-51

Mango Mobile................................................................. 45

Baylor Health Care System ......................................52-57

Ericsson .....................................................................41-42

Mansfield, Stephen ............................................. 52-57

Blankenship, Brad .................................................... 42

Esping, Bill ................................................................ 36

Mansueto, Joe............................................................ 21

Bob’s Steak & Chop House ...........................................36

Esping, Heather ........................................................ 36

Marky Kay.......................................................................26

Bonner, Cathy ........................................................... 34

Finn, Patricia ............................................................. 26

McMahon, Linda ....................................................... 42

Bright Cos....................................................................... 32

First National Bank ........................................................ 22

MedAssets.................................................................41-42

Bright, Chris ............................................................. 32

Fossil ..........................................................................58-61

Methodist Health System ........................................52-57

Bright, Clay ............................................................... 32

Freedom Communications ............................................21

Michael Stores Inc. ........................................................46

Bright, H.R................................................................. 32

Frito-Lay ....................................................................41-42

Morningstar Inc. ..............................................................21

Brinker International .....................................................38

Frost Bank ...................................................................... 22

Mozzarella Co. ................................................................36

Brownlee, John ......................................................... 42

Gables Villa Rosa ............................................................36

National Math and Science Institute ............................ 32

Brumit, Joann ........................................................... 28

GMR Marketing .............................................................. 45

Nick & Sam’s ..................................................................36

Brumit, Lee ............................................................... 28

Goldman Sachs .............................................................. 72

Niman Ranch..................................................................36

Bullock, Bruce .......................................................... 50

Greenberg, Chuck .................................................... 49

Buttons ........................................................................... 22

Halbreich, Jeremy ..................................................... 21

Canning, John ............................................................ 21

Haney, Hank .............................................................. 32

Capital One ..................................................................... 41

Hawthorne, Douglas............................................ 52-57

Castle Hills...................................................................... 32

Heady Investments ........................................................ 41

Chandler, Asa ............................................................ 46

Heady, Randy .............................................................41

Cindi’s N.Y. Delicatessen ...............................................28

Health Industry Council..................................................16

Clark, Stephen .......................................................... 38

Hislop, Mike .............................................................. 34

ClubCorp ........................................................................34

Hodges Fund ..................................................................34

Corinth Properties ......................................................... 22

Hodges, Craig ........................................................... 34

Corner Bakery Café .......................................................34

HollyFrontier Corp. ........................................................34

Cornerstone Natural Gas Inc. .......................................50

Interstate Batteries........................................................34

Crane, Jim ................................................................. 49

Intuit................................................................................42

Cuban, Mark ........................................................ 49, 72

Jack Black ......................................................................26

D Healthcare Daily ..........................................................16

Jackson, Mabrie ....................................................... 34

Dallas Cowboys .............................................................. 32

Jacob, Steve ...............................................................16

Dallas Federal Reserve .................................................. 24

J.C. Penney ................................................................41-42

Dallas-Fort Worth Business Group on Health ...............16

Jennings, James ....................................................... 36

Dallas Mavericks ............................................................49

Jennings, Mike .......................................................... 34

Dallas Morning News, The ..............................................21

Jones Lang LaSalle ........................................................42

Dallas Omni Convention Center Hotel ......................... 22

Jones, Jerry ......................................................... 32, 36

Dallas Regional Chamber ...............................................16

Jordan, Michael ........................................................ 30

Dallas-Fort Worth Hospital Council ...............................16

JPS Health Network............................................ 16, 52-57

Dalton, Emily............................................................. 26

Karahan, Fehmi ......................................................... 42

Dandurand, Curran................................................... 26

Karlee..............................................................................28

Dandurand, Jeff ........................................................ 26

Kartsotis, Kosta ........................................................ 60

Davis, Happy .............................................................. 51

Kartsotis, Tom .......................................................... 60

22 TIM AND TERRENCE MAIDEN

18 D CEO OCTOBER 2012

INDEX_OCT12.indd 18

8/22/12 4:05 PM

Nordstrom ......................................................................26 North Texas Commission ..............................................34 Oger, Alex .................................................................. 22 On The Border ................................................................38 Oncor .............................................................................. 72 Panda Express................................................................ 22 Panera Bread.................................................................. 22 Place at Perry’s ..............................................................36 PepsiCo......................................................................41-42 Perot, Ross .................................................................41 Person, T.J. .......................................................... 45-46 Podolsky, Daniel .................................................. 52-57 Post Properties ..............................................................42 Pyles, Stephan .......................................................... 24 Real Estate Council, The ................................................42 Rent-a-Center ................................................................42 RTKL ...............................................................................42 Ryan, Nolan ............................................................... 49 Saphier, Adam........................................................... 42 Sepulveda, Carlos .................................................... 34 Service King ...................................................................34 Sharp, Bob................................................................. 36 Sewell Automotive ......................................................... 22 Simpson, Bob............................................................ 49 SMU’s Cox School of Business .....................................50

responsive Corporate & Securities Solutions

St. Jude Medical .............................................................42 Stanley Korshak .............................................................26 Starbucks ....................................................................... 45 State Farm Life Insurance Co........................................42 Taco Bueno.....................................................................38 Taco Cabana ...................................................................38 Texas Christian University ............................................. 22 Texas Health Resources ...........................................52-57

Like the forces of the market, our responsive nature allows us to anticipate client needs. Munsch Hardt attorneys make it their mission to stay ahead of the curve. Take charge in responding to change with the Right Firm. Right Now.®

Texas Rangers ................................................................49 TPG ................................................................................. 72 Trammell Crow Co.....................................................41-42 Transwestern ..................................................................42 Two-Wins Foundation .................................................... 22 TXU Corp. ....................................................................... 72 Tyler Technologies ....................................................41-42 University of Texas Southwestern Medical Center...52-57 US Airways ..................................................................... 24 Venture Commercial Real Estate ..................................42 Waters, Charlie ......................................................... 50 Weitzman Group, The ....................................................42 West, Keli.................................................................... 51 Wilder, John ...............................................................72

Dallas | Houston | Austin munsch.com

Woods, Tiger ............................................................. 30 Young, Bob ................................................................ 42 Zikos, John ................................................................ 42

OCTOBER 2012 D CEO

INDEX_OCT12.indd 19

19

8/22/12 4:05 PM

We understand the challenges faced by the securities industry.

As the current service provider for more than 70 registered broker/dealers and investment advisors, we understand the regulatory challenges you face. Since 1956, the professionals at CF have been working with the SEC, FINRA and the IRS to deliver both reliable service and solutions to address these challenges. Call CF today.

Contact:

Jeffrey L. Cheshier, CPA, Securities Broker/Dealers J. King Bourland, CPA, Investment Companies/Hedge Funds

972.387.4300 www.cfllp.com CF_DCEO1012.indd 1

8/13/12 12:49 PM

NEWS NETWORKING OPINION STATS HOT SPOTS STRATEGIES

OCTOBER 2012

JEREMY HALBREICH Title Chairman & CEO, AIM Media Texas LLC

ELIZABETH LAVIN

Why You Need to Know Him: Because Dallas-based Halbreich, a former president and general manager of The Dallas Morning News, is building a budding Texas media empire with toeholds in the Permian Basin and the Rio Grande Valley.

In June his company, AIM Media Texas, snapped up seven newspapers and websites in Odessa, McAllen, Harlingen, Brownsville, Weslaco, and South Padre Island. AIM bought the properties from California-based Freedom Communications for an estimated $70 million to $80 million.

Halbreich says the Valley and Odessa markets are especially vibrant, creating new business opportunities as AIM offers its customers the likes of innovative mobile and social-media platforms.

AIM has 11 investors besides Halbreich, including three others from Dallas, two from Odessa, three from the Rio Grande Valley, one from Boston, and two from Chicago. The Illinois backers are Morningstar Inc. CEO Joe Mansueto and John Canning, chairman of Madison Dearborn Partners LLC, a private-equity firm.

The latter became acquainted with Halbreich when the savvy ex-DMN exec was helming Sun-Times Media, which owns the Chicago Sun-Times, and steering it successfully through bankruptcy toward two subsequent sales.

Halbreich enjoyed similar success after leaving the The News in the late 1990s after 24 years and launching American Consolidated Media LP. ACM, which specialized in acquiring undervalued community newspapers, was sold in 2007 to an Australian media company for $80 million.

Although Halbreich doesn’t expect AIM Media to follow a similar “rollup” strategy—ACM owned 105 papers in 10 states—he is bullish on the new venture’s prospects in a tough, fast-changing media environment. “There are 85 different things we’ll offer our audiences, across print and digital platforms, that will allow us to continue to support the journalism,” he says. “That’s the challenge. That’s the fun.”

—GLENN HUNTER

OCTOBER 2012 D CEO

T_NTK_HALBREICH_OCT12.indd 21

21

8/24/12 9:38 AM

Alex Oger, at Sewell

DRIVER’S EDUCATION

Twins on a Mission SCHOOL’S COOL: Real estate exec Terrence Maiden, left, and his twin brother, banker Tim Maiden, support education through their TwoWins Foundation.

BY JESSICA MELTON

G

rowing up, identical twins Terrence and Tim Maiden didn’t know what they wanted out of life—except for a ticket out of the inner city. For both boys, football was the answer. After graduating from Carter High School in Oak Cliff in the late 1990s, Terrence and Tim were each given full scholarships to Texas Christian University. That led to connections with influential company executives who support TCU—and to successful business careers of their own.

As managing partner of Corinth Properties, Terrence is involved with real estate projects across North Texas. He joined Corinth after corporate real estate posts at Panda Express and Panera Bread. After getting his start at Frost Bank, Tim is now vice president of lending for First National Bank. Together, the brothers also lead a real estate development company called The Nediam Co. (Nediam is their surname spelled backward), opened up a new restaurant, Buttons, in DeSoto this past May—and, what they consider to be their most important venture, founded Two-Wins Foundation, a group that helps support and encourage disadvantaged children.

Along with providing school supplies and other necessities, Two-Wins helps kids visualize different possibilities by showing them the world that exists outside their neighborhood.

The initiative has personal meaning for the brothers, Terrence says.

“When we got to TCU, it was a culture shock,” he says. “It was an education shock.

Everything was totally different. And when I was growing up, I didn’t even know there was a place like Highland Park.”

Past Two-Wins tours have taken youths to TCU, UNT’s Dallas campus, the global headquarters of Hunt Oil Co., and the Dallas Omni Convention Center Hotel, among other venues.

“Exposing [the students] to different opportunities that are available can impact their future experiences,” Tim says.

North Texas businesses are eager to get involved, too. Ed Netzhammer, managing director and regional vice president for Omni Hotels and Resorts in Dallas, says the students seemed very engaged on a recent tour. “My hope would be that we inspired some kids to join the hotel industry, and that we were able to show them it’s possible to have a good career in it with the right amount of work,” he says.

Two-Wins, which supports about 160 students each year, is funded by Nediam Co., which invests 15 percent of its annual revenue, and through private donations. The foundation will soon launch iRISE, an initiative that will develop inspirational films and “outside the box” events.

“Two-Wins is about changing lives and building communities,” Terrence says.

Alex Oger came to Dallas-based Sewell Automotive by way of Apple’s genius bar, and to Apple by way of the W Hotel. He quotes Steve Jobs but wears a suit, and smiles with an earnestness that suggests he’d like nothing more than to spend the next hour teaching you all about Lexus’ Bluetooth capabilities.

In the words of Bobby Whitney, sales manager at Sewell Lexus: Oger’s “experience in hospitality and retail, coupled with technology, is beautiful.”

Oger, 25, launched the dealership’s “technology specialist” program two years ago.

He spends most of his days with customers, on site and via email and phone.

Oger remembers a man who called to ask how to hang up on Bluetooth phone calls.

The tech specialist began: “Well, there’s a large red button on the display ... ” Dial tone.

A minute later the phone rang again. “Found it,” the customer said.

Although Oger’s not the only technology specialist in DFW—the Park Place Lexus stores in Plano and Grapevine have had multiple tech specialists since February, for example—he was the pioneer.

Lexus has taken notice of Sewell’s tack. This past March, the carmaker announced it would train technology specialists at all its dealerships around the country.

Whitney cites safety

and enjoyment as primary benefits of Sewell’s tech initiative: “If you educate someone to where they feel like their car is home, and they understand the buttons and controls ... they’re going to be safer in their car, and they’re going to feel better in their car.”

This may seem like overkill. After all, a Lexus may be safely and enjoyably driven even if its driver doesn’t know how to end Bluetooth phone calls. And, given enough time, most drivers will eventually discover the large red button on the display. But overkill is precisely the point.

As Sewell’s cars offer the ability to access Facebook, it follows that the company ought to provide technical support, not just mechanical support.

It’s crucial to Sewell, which prides itself on being “obsessed” with customer service.

More than 70 percent of its customers will buy another car at the dealership; Whitney attributes this to the company’s willingness to go beyond the customer’s needs.

“Do we have to have more than 400 loan cars when most dealerships have 80? Or do we have to spend $1 million on a carwash when most places spend $150,000?” he says. “We don’t have to do any of that, because doing what everyone else does would make us pretty good. But how do we blow that away?”

—TEO SOARES

MAIDEN: BUD FORCE; OGER: COURTESY OF SEWELL

Former TCU football standouts Terrence and Tim Maiden help innercity kids see a new vision for their futures.

Ex-Apple “genius” Alex Oger teaches new Lexus owners how to use their cars’ high-tech features.

22 D CEO OCTOBER 2012

T_MAIDEN_OCT12.indd 22

8/23/12 11:43 AM

Our name may be new to Texas, but our people aren’t. The lending experts in our BB&T Commercial Banking

Commercial Banking

group have deep roots here, and understand the needs and the nuances of the local market. We look forward to

Capital Markets

building new relationships just as we have since 1872 – by creating long-lasting partnerships that extend beyond

Treasury Management

deals and transactions. Experience the difference when one of the strongest and most respected banks in the

Asset Management

nation is now part of your community. BBT.com

Risk Management

Loans are subject to credit approval. Loans are offered through Branch Banking and Trust Company, Member FDIC and © 2012, Branch Banking and Trust Company. All rights reserved.

BB&T_DCEO0912.indd 1

Equal Housing Lender. BBT.com.

8/13/12 12:48 PM

Highs & Lows

A tongue-in-cheek look at what soared— and what skidded—in DFW business.

22%

Victory Park

KimberlyClark

Dallas Fed

American Airlines

Stephan Pyles

Victory Park said it would revamp its vacant shopping space, with an eye toward less-upscale options. Opening next month: a nail parlor and a fast-cash joint.

Net income at Kimberly-Clark rose 22 percent, partly because of “innovative” marketing trying to make its Depend adult diapers more attractive. Is it really innovative, though, for the CEO to wear the diaper over his suit?

The Dallas Fed nixed a plan to expand its facility to store excess presidential $1 coins.

They’ll just go on keeping the coins in a rented storage unit off South Lamar.

American Airlines CEO Tom Horton said it was him—not US Airways chief Doug Parker—who first proposed that the two airlines merge.

Horton also said he got five gold stars on his fourth-grade report card, while Parker only got three.

Celebrity chef Stephan Pyles said his new, Texas-style Stampede 66 restaurant will feature videos showing wild horses and 20 pairs of longhorn horns on the wall. And if you don’t tip well, you’ll be shot on the spot.

SEAN MCCABE

Gain in net income at KimberlyClark, due in part to stronger sales of its adult diapers.

24 D CEO OCTOBER 2012

T_HIGHS&LOWS_OCT12.indd 24

8/24/12 9:49 AM

Kids look at clouds and see dragons.

Adults look at clouds and see rain.

Some people are focused on what is, some on what could be.

And a genius few can see both at the same time.

They are the visionaries, the entrepreneurs, those who do more because they see more.

Ernst & Young Entrepreneur Of The Year® is the world’s most prestigious international business award for entrepreneurs, recognizing them in more than 140 cities in more than 50 countries.

© 2012 Ernst & Young LLP. All Rights Reserved. ED 0513

See More | Opportunities ey.com

For more information about the Ernst & Young Entrepreneur Of The Year program, please contact Debra von Storch, Partner, Strategic Growth Markets, at debra.vonstorch@ey.com.

EY_DCEO1012.indd 1

8/22/12 12:19 PM

LOCAL GRAD MAKES GOOD

MYRON G. MARTIN

MANPOWER: Sales are strong at Curran Dandurand’s Jack Black company in Carrollton.

She Does Know Jack Curran Dandurand and her Carrollton company pioneer a niche selling skin-care products for men. BY BRADFORD PEARSON

T

welve years ago, curran Dandurand was on a flight from Dallas to New York when she started brainstorming names for her soonto-be-launched company. The skincare concern would cater to men, she knew, virtually creating a market segment that didn’t exist at the time.

Dandurand kicked around some Millennium-themed names and other ideas, but none stuck. She wanted it to be easy to remember and not embarrassing for a man to say out loud. “ ‘Jack’ is American,” she remembers thinking.

From there she added the rhyming last name “Black,” and a market phenomenon was born.

Since its founding in 2000, Carrollton-based Jack Black has skyrocketed into the public con-

sciousness, anchoring a men’s cosmetics industry that some estimates place at $2.6 billion. Close to 30 percent growth in 2012 has spiked the company, which had low-double-digit growth even through the Great Recession.

Jack Black began by supplying its cleansers and lotions to golf and country clubs, focusing on a target market of active, affluent men. The first retailer to stock Jack Black products was Stanley Korshak; after that came a single Nordstrom location.

Dandurand previously worked at Mary Kay Cosmetics for 17 years, climbing to the position of executive vice president for global marketing before leaving in 1998. “We knew there was an opportunity,” she says from Jack Black’s industrial-park headquarters. “There weren’t many quality products for men, so for us the most important thing was to make him feel masculine without a lot of hype or fluff.”

“Approachable, comfortable masculinity,” suggests Patricia Finn, vice president of marketing, describing the brand.

Jack Black now has nearly 50 products, and the walls of the company’s hallways are lined with testaments to its reach. TV satirist Stephen Colbert tells Jack Black to “Stay Brave,” while Ashton Kutcher breaks the timespace continuum by claiming the company has kept him beautiful since his birth in 1978.

Along with co-owners Emily Dalton and Jeff Dandurand, her husband, Curran oversees 35 full-time employees, plus nearly 50 part-timers. With success have come the inevitable overtures from other brands. One rival recently ordered five dozen Jack Black products, in what Finn calls an attempt to identify their ingredients.

Then there are the sales pitches from suitors. But, “we like being independent and focusing on the things we find important,” Curran insists. “I didn’t start this company to sell out and be a billionaire.”

When Myron G. Martin was in the fourth grade, his elementary school in Houston took a field trip to see a musical production at Jones Hall. As Martin settled into his seat in the center of the eighth row, and the curtains and the lights went up, he knew he wanted to have a career in the arts someday. And that’s exactly what he’s done.

Today, Martin is president and CEO of The Smith Center, Las Vegas’ first major performing arts venue.

Knowing he needed a mix of business and music education, he chose to attend the University of North Texas (then called North Texas State University).

“I can’t say enough about the extraordinary experience I had at North Texas,” Martin says. “It was a holistic experience that truly helped shape me as a leader.”

After graduating with a degree in music, Martin joined the Baldwin Piano Co., where his clients included the Kennedy Center, the Boston Symphony, and more than 300 other artists and arts organizations. While working for Baldwin in San Francisco, he earned his MBA from Golden Gate University.

After moving to Las Vegas in 1995, Martin was less than enthused to be in a place that lacked a serious performing arts community. He couldn’t imagine himself staying there for long, but he soon realized that there was an opportunity to fill a void.

As executive director of the Liberace Foundation for the Performing and Creative Arts, he cultivated an interest in philanthropy. Next came a four-year stint running the performing arts center at the University of Nevada, Las Vegas, where he created a new concert series and more than doubled ticket sales.

In 2000, Martin and a partner drafted a business plan for a Las Vegas performing arts center; 12 years later, The Smith Center became a reality. Since opening to critical acclaim in March 2012, ticket sales have exceeded projections.

The project’s $470 million building fund was raised before opening night; a $50 million endowment supports future operations.

All this is especially surprising, Martin says, when you consider that Las Vegas doesn’t have a history of philanthropy or generational giving, and it’s not home to any large corporate headquarters.

“We took the business of the arts very seriously,” he says, “and we had a compelling plan that people simply couldn’t say ‘No’ to.”

There’s one audience that Martin is especially proud to serve.

“Thanks to The Smith Center, kids in Vegas are just now starting to get the opportunities that I had in the fourth grade in Texas,” he says.

“It makes me proud to walk out and see school buses surrounding the building.”

—MICHELLE SAUNDERS

DURRAND:JUSTIN CLEMONS; MARTIN: AARON SACCO

Graduated: University of North Texas, B.A. Now: President and CEO, The Smith Center

26 D CEO OCTOBER 2012

T_BLACK_OCT12.indd 26

8/21/12 2:55 PM

PlainsCapital_DCEO0912.indd 1

8/17/12 2:25 PM

BREAKFAST WITH D CEO

JOANN BRUMIT CEO, Karlee

BY JASON HEID

N

o sooner have we settled into our booth in the noisy, crowded dining room of Cindi’s N.Y. Delicatessen off Central Expressway than JoAnn Brumit is handing me a book that she’s recently written and published via Amazon. It’s titled, Letting Go: Surviving & Thriving Through Life’s Greatest Trials, and before we’ve had a chance to order, the CEO of Garland-based contract manufacturer Karlee is opening up about all she’s been through during the last 10 years—difficulties that would severely test the strength of any business owner or parent.

When the national economy took a downturn right after the turn of the millennium, Karlee was hit hard. About 95 percent of its business at the time came from clients in the telecom industry, a sector that was shred-

ded when the tech bubble burst. Karlee saw its annual revenue plummet from $120 million to just $18 million. The company, which had never had a layoff in its nearly 30 years, was forced to let 180 of its 500 employees go.

Equipment had to be sold for pennies on the dollar. The possibility of bankruptcy loomed.

If that weren’t awful enough, in December 2002 a personal tragedy struck: Brumit’s 31-year-old daughter committed suicide. The lessons she learned in surviving this devastation were what spurred the CEO to write her book.

That’s some heavy subject matter to dive into at 7:30 a.m. on a Thursday. I feel almost silly turning my mind to the menu, weighing whether I should indulge in the Pigs in Blankets. Brumit loves to come to Cindi’s with her husband, so she already knows what she wants: the corned beef hash and two softpoached eggs, with a lightly toasted cinnamon raisin bagel and a side of grits. To drink, she opts for a cup of hot tea.

Karlee has rebuilt since its darkest days.

Today it manufactures (among other things) enclosures for telecom equipment, medical instrument components, guidance systems for bombs, and night-vision scopes. Annual revenue is back up to about $50 million, and the client roster has been diversified so that telecom now accounts for only 60 to 70 percent of the business. But, getting there hasn’t been easy.

“I attribute it to the Lord. He took care of us, he walked us through, and really it was my faith. And, really, I don’t know how to quit,” Brumit says. “A lot of people would have thrown in the towel, a lot of people would have declared bankruptcy. I just stayed the course.”

Not that the course was necessarily smooth, or without mistakes. When, after Karlee posted its first-ever quarterly loss and its bank called its bonds, Brumit decided to find all the cash she could to pay them off.

“What I should have done is ran up my $5 million, $7 million line of credit, drew it all off,

Cindi’s N.Y. Delicatessen 11111 N. Central Expressway, Dallas

Hot tea

$2.25

Corned beef hash with 2 eggs, bagel, and grits

$9.00

Pigs in Blankets

$7.25

TOTAL (including tax and tip)

$23.53

put it in the bank,” she says. “Then I’d have had them with some skin in the game, and they would have supported me. But of course they didn’t have any skin in the game, so they took one look at me and thought, ‘Oh, let’s minimize our risk and get them out of the bank.’ ” Brumit’s husband, Lee Brumit, founded Karlee in 1974, before they were married, and the business was still only a 13-person operation when she came aboard in 1981. They wed a year later, and she believes it’s their differing talents in the partnership that have helped the company endure.

“Many entrepreneurs are good on one side of the business, but not good on the other,” she says. She handles strategy, team-building, and finance, while Lee deals with equipment, facilities, and manufacturing processes, covering all the bases.

The Brumits’ children have grown up in the business as well. JoAnn and Lee have tried to instill in their sons, whom they expect to eventually run the business, the need to take care of their employees as well as the bottom line.

“I used to say the company is the chicken that lays the golden eggs,” she says. “If you take care of the chicken first, you’ll always have golden eggs, and the family gets to do what they want to do. But if you don’t take care of the chicken, the chicken gets sick, and if it dies, there go the golden eggs.”

As we wrap up our meal, Brumit gets to talking about the next book she’d like to write. She’s long been a woman in a field— manufacturing—that’s dominated by men.

She says she’s learned to turn her gender into a competitive advantage, getting a call back or securing an appointment where a man might fail. She wants to advise other women on how to do the same.

For example? “When you walk into a room, you want to turn a head,” she says. “You want to dress to be remembered. Don’t dress like a man.”

We exit the restaurant’s front door, and she remarks again on how often she attends industry meetings or trade shows and finds herself the only female there.

“That must make you the most popular person in the room,” I say.

“I get lots of attention,” she replies with a smile. “They’re all curious. They all want to know, ‘How did you get here?’”

TONY HEALEY

“When you walk into a room, you want to turn a head,” Brumit says. “You want to dress to be remembered. Don’t dress like a man.”

28 D CEO OCTOBER 2012

T_BW_BRUMIT_OCT12.indd 28

8/21/12 2:55 PM

CityAddison_DCEO0911.indd 1

8/13/12 12:50 PM

MY OFFICE

Ike Vanden Eykel

I enj enjoy oy ev everything abou outt this this vie I can see view. e ev every erythi ery th ng tha thi th t t is Dalllas fr from om m the hese he se win window dows.

This Th Thi s is the e office th that the TV serie ser ies s Dal Da las s chose to feature as Bob o by ob

by Ewing’s office. The view is s ju just incredible.

CEO, KoonsFuller PC AS TOLD TO MEGAN SHAW

I’ve I’v ’ve had d th thi his dict h ic ion onary on a y fo forr ye yea earrs. s. It It’s s kin k nd of ki o a fa famil mily hei h e rlo ei oom om, m bu ut it also lso s si signi igni gnifi gn fie e es s tha th tha h t wha hat hat h a I do is is all a ab bout ou lan angua gua uage ag ge e an and n co ommunic mmu mm m mu unic catattting ng g. IIt’s t s sym t’s sym sy mb bolic bo liic.

I usua usually ually y ha have ve two tw w or tth wo hree ree re boo ooks oo ks on o my des des sk. k. One On ne e is sa bo oo o ok that h I wr wro rote, t an ano other oth er is a nattiona tiona nall dire na ecto ct ry y of of pro romiminentt atto ttor torney rneys, ys, wh which ich c I’ I’m m proud pro ud to to be be in n; an and d anot an notth her er is a dire i c cto ory off law wye yers, whi hiich h I use se con const stantl sta n y, because nt ntl I m alway I’m a s on the phone and loo ookin k g for peo pe ple.

This is a ph Th hoto o of tw wo ath thl hllete h lete tes te I’ve always s adm admire ired—M d— —Miic —M chael ch ae el Jordan and d Tige T er Wo Wood ood ds. s They’re co ompeti mpetitor ors s. The hey’re he hey’r the best in n the their ir field ld— d the d— the th e very best that hav have e ever e p yed botth gam pla games. Both h have had their he pro proble ble ems, bu butt t y’ve fou the ught thr th oug gh them them..

ELIZABETH LAVIN

It’ It t s emptty now, now, bu butt usua usua su lly y thi th h s bow hi owl wll is fi fille lle ed with M& &Ms Ms. M s I’ve I’v ’ e alwa wa ays y had ha ad th hem. m My y client cli e s can an get an ge re reall alll y nerv al a r ous ous w n they whe ey’re ey ’re re in n, and and d we e go o t ough the thr h M&M &Ms s. I buy them by the h hug ge bags gs s.

30 D CEO OCTOBER 2012

T_MYOFFICE_EYKEL_OCT12.indd 30

8/17/12 3:01 PM

THE WHEELS

OF PROGRESS

ARE TURNING AGAIN.

GET YOUR BUSINESS MOVING WITH THE RIGHT LOAN FROM REGIONS.

Thanks to the hard work and commitment of business people like you, things are turning around. Soon enough, you’ll be looking to grow. And a loan from Regions can help. Our business loans, lines of credit or leasing options can get your business moving in the right direction while making your banking easier. So partner with Regions, and let’s keep moving forward together. Visit a branch, call 1.800.REGIONS or, to see how Regions has helped businesses like yours, visit regions.com/success.

Loans Checking Leasing* Treasury Management © 2012 Regions Bank. Accounts subject to the terms and conditions of the Regions Deposit Agreement. All loans, lines and leases are subject to credit approval. *Leasing solutions are provided through Regions Equipment Finance Corporation and De Lage Landen Financial Services, Inc.

Regions_DCEO1012.indd 1

8/17/12 2:24 PM

FIVE QUESTIONS FOR

TOM LUCE

Chairman, National Math and Science Initiative Tom Luce brings an impressive pedigree to his role as chairman of the National Math and Science Initiative, an organization he joined as CEO in 2007. Before that, Luce served as U.S. Assistant Secretary of Education for Planning, Evaluation, and Policy Development, and was a founding partner of Hughes & Luce LLP. Luce has noble ambitions with NMSI, aiming to maintain America’s competitive edge by improving K-12 education in STEM fields (science, technology, engineering, and math).

Chris Bright and Clay Bright have bet big on their multimillion-dollar, Hank Haney-led renovation of Castle Hills’ golf course. BY ART STRICKLIN

T

he two sons of legendary north Texas businessman H.R. “Bum” Bright are taking a gamble, much like their famous father often did.

This time, the brothers are betting on an overlooked economic generator—an upscale golf course—to enhance their signature real estate development.

Castle Hills, a 2,500-acre masterplanned community in Lewisville, is owned by Chris Bright, 59, and Clay Bright, 57. Together they run Bright Cos., which, along with real estate, has oil and gas, homebuilding, marketing, and banking interests.

Their father, who passed away in 2004, had varied interests, too—including the Dallas Cowboys, which he sold to Jerry Jones in 1989.

With about 2,300 homes and amenity retail space, Castle Hills is the brothers’ highestprofile real estate development. But its golf component had gone noticeably downhill over the last several years. Its recent renovation, the brothers believe, will lead to more revenue for Castle Hills, originally the Bright family farm.

When Castle Hills opened in 1998, it featured an upscale public-access golf course designed by famous local architect Jay Morrish. Over the years the quality of the course, overseen by a series of management companies, deteriorated.

GOING FOR THE GREEN: Chris Bright, left, and Clay Bright say golf-course renovations have boosted home sales at Castle Hills.

The brothers regained control of the course in the fall of 2010, and a broker friend of Clay’s helped set up a meeting with Hank Haney, the well-respected North Texas-based golf instructor.

Haney, the famous former teacher to Tiger Woods, had toured the world playing golf, and gave the Bright brothers a vision of what could occur at Castle Hills.

The course, which was renamed the Lakes at Castle Hills to spotlight its abundance of water, was shut down during the summer of 2011 while Morrish, the Brights, and Haney worked to enhance the original par 72-layout.

Haney also agreed to move his world teaching golf school headquarters to Castle Hills.

The course reopened in the fall of 2011 as a semi-private facility with greatly enhanced playing conditions and customer service. “I think our dad would like the improvements here—he liked first-class things,” Clay says.

The brothers spent about $2 million on course renovations and have budgeted another $7 million to $8 million for ongoing enhancements, plus a new resort-style pool and larger, multi-story clubhouse, both of which are slated to open next year.

The investment seems to be paying off.

Home sales are up 20 percent since the golf course reopened. What’s more, Castle Hills was named 2012 Community of the Year by the National Association of Home Builders.

What has Texas done right on education?

Texas has done a good job of measuring how our students are doing.

We’re putting the spotlight on the fact that we want every child to learn, not just some children. The result is that we’re closing the gap between the achievement of AfricanAmerican and Hispanic students with the Anglo population.

How will the state’s cuts to education funding affect businesses?

Every study shows that funding is not the defining criteria in academic success.

More important than the amount of money you spend is how you spend the money you have. It’s like any other business. What really matters is how we hire, retain, and train our teachers. If you have a great teacher, you can have a classroom under a tree. If you don’t have a good teacher, it doesn’t matter what kind of school building you have.

What are the implications for America, if it lags in math and vscience education?

Our economic power relative to the rest of

How long will it take the U.S. to bridge the competitiveness gap?

Based upon our success at NMSI, we could do it within 10 years if we’d make the commitment, as a nation, to do it. [NMSI has] expanded to 25 states—we could go to 50 states. We’ve proven the model works in every kind of school and every kind of state.

Do you think education has become too politicized?

Well, I have an opposite fear right now, and that is that most politicians don’t really talk about improving education.

They all say they’re for improving education, but they don’t talk about how. I’d rather we have an intense dialogue about what we’re really going to do to fix the problem.

I believe that in a democracy, you get what you deserve. And right now, we’re not deserving very much in public education, because we’re not committed to improving it.

—MATT WATSON

BRIGHTS: SCOTT WOMACK; LUCE: COURTESY NMSI

Bright Idea

the world will decline.

It’s really simple. We’ve lived off the post-World War II technology boom that we had, and we’ve lived off a generation that was incentivized to go into STEM because of Sputnik. But you can only live off past deeds for so long.

32 D CEO OCTOBER 2012

T_BRIGHT_OCT12.indd 32

8/21/12 12:47 PM

CUT OUT ALL THE

FLUFF AT C O R E N E T G L O B A L , W E M E A N

BUSINESS so u t hwest .co re n e t g l o b a l .o rg To get inv nvol olve ved d lo loca call lly, y, ple leas ase e co cont ntac actt yo your ur Sou outh thwe west st Cha hapt pter er Rep epre rese sent ntat ativ ive e Rich Ri ch Joh ohns nson on at so sout uthw hwes est@ t@co core rene netg tglo loba ball.or org g

C A L E N DA R O F E V E N TS CONNECT

10.16.12 Sponsor Appreciation Happy Hour 10.25.12 AT&T Tour & Happy Hour 11.15.12 Young Leaders Perspective: Trinity Update 11.29.12 Executive Exchange Dinner

LEARN 9.20.12 Economic Forecast Lunch at Royal Oaks 9.27.12 Young Leaders: Speed Mentoring 12.13.12 CoreNet 2020 Report Lunch at Royal Oaks

Join CoreNet Global today to interact with corporate real estate and workplace leaders in the DFW Metroplex and the world.

Expand your networks and affiliate with the foremost association in the real estate industry.

GROW 10.7.12

CoreNet Global Summit - Orlando, FL

BELONG 9.15.12

CornetGloball_DCEO1012.indd 1

Celebration Station Volunteer Event

8/22/12 12:20 PM

FEATURING INTERVIEWS BY BUSINESS ANALYST DAVID JOHNSON

Verbatim

Memorable comments culle culled from CEO Spotlight, a weekday program on KRLD-AM KRLD (1080), at 6:20 p.m.

“Nobody’s giving any really bullish forecasts [for the stock market], but a lot of the management teams we’re talking to are pretty encouraged. There’s a big disconnect between investor sentiment and how well corporations are doing.”

sible, because the motor fuels that we supply are getting more expensive, due to the cost of the crude oil we buy.

What we don’t like to see is a reduction in miles driven, because often that’s driven by a slower economy and dips in employment.”

CRAIG HODGES, portfolio

MIKE JENNINGS,

manager, Hodges Small Cap Fund & Hodges Fund

president and CEO, HollyFrontier Corp.

“We’re really trying to involve more people—more members of the family—in the club experience. The days of golf being the primary driver of business, quite frankly, are gone.”

“Here in North Texas, we’re fortunate to have shorter battery lives, just because the heat is so extreme. I say fortunate for all of our dealers providing consumers with the batteries when they need them.”

ERIC AFFELDT, president

and CEO, ClubCorp

CARLOS SEPULVEDA,

CATHY BONNER, CEO,

Service King

“We have such a great diversity of industries in North Texas. If we get soft in one particular area, we have all the other industry sectors to bring us up. We’re not going to fall if energy prices go down.”

MABRIE JACKSON, president and CEO, North Texas Commission, comparing DFW to Houston.

“We’re big fans of fuel efficiency. Ultimately, engines and vehicles should be as efficient as pos-

president and CEO, Interstate Batteries

“What we’re trying to do is feed the day, all day long. ... Retail developers love the fact that, if they’re building out a center, our brand can take care of customers in the morning, at lunch, and at dinner—plus we can cater all around the community.”

MIKE HISLOP, CEO, Corner Bakery Cafe JON REINFURT

“There’s no ‘McDonald’s’ of collision right now.

That’s our intent—to expand nationwide, become the national brand, and to continue to improve the image of collision repair facilities.”

34 D CEO OCTOBER 2012

V_JACKSON_OCT12.indd 34

8/17/12 10:27 AM

AABP_DCEO1012.indd 1

8/22/12 12:17 PM

THE DRIVER’S SEAT

FORD F-150 KING RANCH STICKER PRICE: $52,030 ENGINE: ECOBOOST 3.5L, V6 MPG: 15 CITY/21 HIGHWAY

BEEFED UP: Place at Perry’s chicken-fried ribeye and new interior.

BUSINESS LUNCH BY TODD JOHNSON

Modern Love With its new contemporary digs and varied menu, the reimagined Place at Perry’s shuns steakhouse cliches for good taste. the bargain lunch menu included the Magnum salad (mixed greens tossed with diced hearts of palm, radishes, cucumbers, and candied pecans dressed in housemade champagne vinaigrette), blackened tuna medallions served over soba noodles, and one of the best chicken-fried steaks I’ve had in Dallas. This one was a thin, tender ribeye, coated in a peppery crust that held up well to the thick cream gravy. If you’re really hungry, “The Place” burger is topped with cheese sauce, smoked bacon, and roasted jalapenos. It’s a challenging gutbuster.

Some of Perry’s appetizers could double as light meals in themselves. The crab tower featured layer after layer of mango, diced tomatoes, chunky avocado, and lump meat crab salad. Fried chicken livers were a welcome find. Cornbread topped with jalapeno jelly made for a homey sidekick. I was surprised to see fried cheese on the menu, that party platter relic from the ’80s. But if you’re going to indulge, Perry’s was a delicous take: lightly breaded discs of gooey Oaxaca cheese from Dallas’ Mozzarella Co. Happily, one of my favorite memories remains from the old Perry’s: the brown-bag-baked apple pie for two. It’s flaky, fragrant, and even a bit tart, thanks to some cranberries. It’s a sweet reminder that even though the new Place at Perry’s appears more modern, old-school warmth is still at its soul.

Place at Perry’s 2680 Cedar Springs Rd. 214-871-9991.

Steakhouse THE COST: Average lunch entrée price is $16.

WI-FI: Yes FULL BAR: Yes WHO’S THERE: James Jennings, Jerry Jones, Bob Sharp THE POWER TABLE: Table R3 is an elevated circular booth that sits under a rotunda and looks out over the restaurant.

First Impressions: Tooling around for a week earlier this year in Ford’s F-150 4x4 Supercrew was one of the few times in my life that I’ve felt like a real badass. Behind the wheel of the powerful vehicle, looking down at the other drivers on the highway in their little cars, I began to understand the passion Texans have for their trucks. For its size, the F-150 was surprisingly comfortable and easy to maneuver—even when parking in a cramped downtown garage (a process greatly aided by the rearview camera).

Bottom Line: The vast truck bed came in particularly handy that week, as my mother, a master gardener from Michigan, was visiting, and convinced me that we should re-landscape my yard. We piled tens of bags of soil and mulch into the back of the truck, as well as plants and bushes of all varieties, and still had plenty of room left

over. (Don’t tell Mom, but a plant out front is the only thing that has survived; the backyard has become a graveyard for toys and bones buried by the German Shepherd puppy we’ve since adopted; he even destroyed a large rose bush.)

To Buy or Not To Buy: One of the most surprising things about the F-150—which had a 365-horsepower, 3.5-liter EcoBoost V6— was its fuel economy: 15 mpg in the city and 21 mpg on the highway.

The 36-gallon tank seemed to last forever.

I also loved the King Ranch trim and the luxurious interiors. I did take the truck off-road (as much as you can, in the suburbs), and it mowed over everything in its path with ease.

(That made me feel like a badass, too.) After a week with Ford’s F-150, I understood why it has been the best-selling vehicle in America for nearly 25 years, and the best-selling truck for more than 30.

—CHRISTINE PEREZ

LUNCH: KEVIN MARPLE; TRUCK: COURTESY FORD

S

teakhouses can be a bit of a cliché: dark wood and leatherclad decor dripping in Cabernetsoaked machismo. Some places, such as Nick & Sam’s, pull it off with sexy swagger. Others lay the y-chromosone virility on a bit thick. (Hi, Bob’s.) But they all have the same thing in common: beef. Delicious, juicy, beef.

But not so much at the revamped Place at Perry’s. You may remember it as the restaurant formerly known as Perry’s. Owners Bill and Heather Esping had to change the name of their 13-year-old restaurant when the similarly named Houston-based Perry’s Steakhouse came to town in 2009. The Espings also vacated their cozy, traditional digs at the corner of Routh and Cedar Springs late last year for a more spacious and upscale space at the Gables Villa Rosa development two blocks away.

It’s a radical change. Gone are the traditional steakhouse trappings. In their place, sky-high ceilings and a light-strewn, red and ivory interior greet guests in the new Perry’s. It’s all a bit cavernous. Even though the service is as warm and inviting as always, I miss the intimacy of the original space. Likewise, the lunch menu is light on traditional beef entrées yet heavy on everything else.

An expertly cooked and well-seasoned, five-ounce Niman Ranch filet was the lone steakhouse mainstay. Served with satiny, buttersoaked whipped potatoes, it was a lovely cut of beef and a deal as part of Perry’s “Lunch Done Right” menu: your choice of entrée, soup or salad, and non-alcoholic beverage for only $20, tax and gratuity included. Other highlights from

36 D CEO OCTOBER 2012

T_LUNCH_OCT12.indd 36

8/23/12 11:41 AM

6200 LBJ Freeway | Suite 200 Dallas, Texas 75240 | 888.819.7850 TOLL FREE | 972.458.8700 PHONE | 972.458.8755 FAX

Do you feel confident about your financial plan?

For 25 years, Quest Capital Management has honed a well-defined “Plan for Life” process.

Our process provides clarity and confidence for families and individuals in the midst of increasingly complex decisions around their personal financial affairs.

Quest Capital Management, Inc. is an Independent Registered Investment Advisor.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC

_StackedAds_DCEO0712.indd 37

questadvisor.com | 8117 Preston Road, Suite 700 | Dallas, TX 75225 | 1-800-668-1283

8/23/12 1:57 PM

“I get so much stimulus at work that I just like to chill out when I can.”

Age: 58 First job: The day I turned 16, I got a job at McDonald’s. I worked the counter and the grill full-time throughout high school.

Worst job: It’s a tie between a weekend paper route (I had to get up at 4 a.m.) or when I worked in the California strawberry fields for 50 cents an hour.

Best part of your job: Putting a team together and watching them grow.

Life in the office: We have an opendoor mentality. Our management team is very approachable.

Management style: When I go into

meet the ceo BY CLAIRE ST. AMANT

Stephen Clark On The Border’s chief executive officer has set out to give the restaurant chain a new image.

O

n the border ceo stephen clark has a lot on his plate. his company is two years into independence from Brinker International, which acquired the “Mexican grill and cantina” chain in 1994. Although there are plenty of changes afoot, Clark has made the company’s image his No. 1 priority. “I have a personal war on lime green and purple,” he says, leaning forward in a cowhide chair.

A veteran of Taco Cabana and Taco Bueno, Clark is looking to give On The Border a “rustic, West Texas feel.” The original On The Border opened in 1982 on Knox Street with made-from-scratch dishes and salsa cooked up right in the kitchen.

But the chain gradually slipped into generic recipes and salsa made with—gasp—a pre-packaged spice mixture.

This cookie-cutter approach couldn’t be more at odds with Clark’s non-conformist nature. The executive rose in the restaurant ranks from a fry cook to CEO, and doesn’t have a college degree.

“I tried going to junior college several times,” he says. “But I just kept getting promoted.”

One of seven children, Clark learned early how to blaze his own trail. “I don’t need to be the smartest on in the room,” he says. “I’ve got a couple of sisters with doctorates and somehow I still end up lending them money.”

Running a company with 8,000 people, Clark seems to be making the grade just fine.

restaurants, I make sure to shake everyone’s hand. I want to create an atmosphere where people know we have their back and will do the right thing by them.

Biggest pet peeve: People that say everything like it’s so absolute that there can’t be any wiggle room. Seldom are things so black-andwhite.

Strengths: Interpersonal skills and relationships. I also have a steel-trap memory and can pull out facts and figures from a long time ago.

Weaknesses: I’ve got a very big heart. I’m very unusual for a CEO. I recently took a MyersBriggs [personality test]. I fall into the 5 percent of people like me who are CEOs. According to the test, I’m supposed to be a social worker.

Family: I have three children; they’re 32, 31, and 21. My oldest has followed me in to the restaurant business.

My youngest is a senior at OU, and my middle child is still figuring things out. They are three good kids.

Weekends: I get so much stimulus at work that I just like to chill out when I can. I’m an avid sports fan, and I have the weirdest variety of teams that I follow, including the Red Sox, the New Orleans Saints, and the USC Trojans.

Reading Material: I love things that offer escape, like thrillers

by Nelson Demille and John Grisham. Right now, I’m reading The Girl with the Dragon Tattoo series.

TV: Dexter, Justified, and SportsCenter.

Something people don’t know about you: I have a brother who was born with Down Syndrome. It has shaped a lot about me and given me a tremendous amount of respect for my mom, as well as great empathy for people with challenges.

What’s next for On The Border?

The first year was about transition away from Brinker. We were joined at the hip. Now it’s the fun part. We can start growing our brand again. We’d like to add 25 to 30 restaurants.

Best advice: Always treat people how you’d like to be treated. It sounds cliché and simple, but to me, the most egregious thing anyone can do is strip someone of his or her dignity.

ELIZABETH LAVIN

Title: CEO

38 D CEO OCTOBER 2012

T_CEO_CLARK_OCT12.indd 38

8/24/12 9:42 AM

What drives us?

Results for our clients.

A Dallas boutique trial firm with a national trial practice.

We provide experience, innovation and cost-effective litigation strategies.

214.855.5188 Business Litigation

Bankruptcy Litigation

Energy Litigation

IP Litigation

Trials

www.elrodtrial.com

Appeals

Accounting and Financial Reporting Update ` $Q LQQRYDWLYH XQSDUDOOHOHG GD\ SURJUDP WKDW KLJKOLJKWV NH\ LQGXVWU\ LVVXHV ` 7RS QRWFK VSHDNHUV ULFK FRQWHQW DQG QR WUDYHO FRVWV IRU ORFDO SDUWLFLSDQWV ` ,GHDO IRU ERDUG PHPEHUV ¿QDQFLDO H[HFV DFFRXQWDQWV EXVLQHVV RZQHUV PDQDJHUV &3$V ¿QDQFLDO DQDO\VWV DWWRUQH\V DQG RWKHU DGYDQFLQJ SURIHVVLRQDOV

November 7, 2012 • Irving Convention Center Up to 8 CPE Hours Available Scheduled Speakers:

Enroll Early For $295

-DPHV - /HLVHQULQJ 6HQLRU $GYLVRU )$6% DQG )RUPHU %RDUG 0HPEHU )$6% ,$6% .DWULQD .LPSHO ( < 3DUWQHU $VVXUDQFH 6HUYLFHV %LOO 6FKQHLGHU 6U %RDUG RI 'LUHFWRUV $,&3$ DQG 'LUHFWRU RI $FFRXQWLQJ $7 7 /LQGD 6WLII 0DQDJLQJ 'LUHFWRU 3Z& DQG )RUPHU $FWLQJ ,56 &RPPLVVLRQHU $XGLW &RPPLWWHH &KDLUV 7HUU\ 6WUDQJH 5HQHH +RUQEDNHU DQG -HUU\ 3LQNHUWRQ

800.433.5676 • conferences.pdi.org

_StackedAds_DCEO0712.indd 39

8/20/12 3:31 PM

P L AT I N U M T H E I N T E L L I G E N T D ATA S O L U T I O N

Contr ol your legal dat a cos t s Collaborate across the globe wi th your legal t eam S EC, D O J, EPA c o m p l i a n c e To p T i e r S e c u r i t y Wo r l d - C l a s s In f r a s t r u c t u r e Te a m o f E x p e r t s

Platinum.indd 1

P U T T I N G T H E P R E D I C TA B I L I T Y B A C K I N T O Y O U R L E G A L D ATA C O S T S Pla t inumIDS.com 8 5 5 - P L AT- I D S | i n f o @ p l a t i n u m i d s . c o m

8/16/12 12:53 PM

RealEstate

BY CHRISTINE PEREZ

A Lasting Legacy Build-to-suit and spec office activity is heating up at Plano’s Legacy business park.

ELIZABETH LAVIN

W

hen it comes to commercial real estate, there’s no such thing as a sure thing—with the possible exception, North Texas developers say, of Legacy business park. The sprawling corporate campus in Plano is suddenly seeing a burst of buildto-suit and speculative projects—and demand isn’t letting up.

Encana Oil & Gas just took occupancy of its new 13-story office tower, MedAssets has a $28 million campus under construction, Ericsson is adding a 280,000-square-foot office building, Tyler Technologies has a 142,000-square-foot adaptive reuse in the works, Capital One is adding 400,000 square feet, and Denbury Resources, PRIZED PARK: Plano’s economic after a series of expansions, has increased its Legacy footprint development director Sally Bane, to more than 500,000 square feet. On the speculative front, in front of Encana’s Heady Investments and Trammell Crow Co., which now new corporate office in Legacy. owns most of the developable land in Legacy, are both moving forward with projects—preleasing be damned.

The legend of Legacy is well known. In the early 1980s, EDS founder sion, Bane says. “We have not experienced a lot of softness in demand; Ross Perot bought nearly 2,700 acres off what’s now the Dallas North part of that is because of our strong corporate roster” she says.

Tollway, with the goal of creating a corporate park for his company If you look across North Texas, you won’t see speculative office develand others. Frito-Lay joined the party in 1985 with a 556,000-square- opment of much scale—except in Legacy. Randy Heady is among those foot facility on 300 acres; two years later, J.C. Penney snapped up 429 betting on the park. It’s an educated guess. His Heady Investments has acres and announced it would relocate its headquarters to Legacy been active on the outskirts of Legacy since 1996, developing five office from New York. The national retailer opened its 1.9 million-square- buildings totaling 1 million square feet—all achieving full occupancy. foot office in 1992. Through the years, big-name brands like Dr Pepper He’s now working on a six-story, 164,000-square-foot project Snapple Group, PepsiCo, and Pizza Hut followed suit. on the southeast corner of the tollway and Headquarters Drive. A Sally Bane, executive director of economic development for the City 185,000-square-foot second phase is planned for the northeast corner of Plano, has been involved with Legacy since the mid-1990s. of the intersection.

“The vision that Ross Perot had for that parcel of land, and what “There have been no cranes in the air for five years—the first time this he has since put into place, has made this portion of North Texas the has happened in the 41 years I’ve been in the business,” he says. “As a reenormous corporate muscle that it is,” she says. sult of the vastly expanding tenant base in the Tollway/West Plano area, More than 50,000 people now live or work in Legacy. It’s home to 15 we see rents moving up substantially next year in Class A buildings, where million square feet of office space and more than 827,000 square feet of there has been the most demand and least volume of new construction.” retail space. Bane cites three primary lures: access to major roadways Although the corporate headquarters base in Legacy is impressive, and Dallas/Fort Worth International Airport via both State Highway Heady says, “it’s the Town Center and its synergy that sets it apart 190 and the recently expanded State Highway 121; robust, concrete- from other Class A office parks in the southern part of the United encased infrastructure; and proximity to an educated work force.

States. The mantra of Fortune 500 companies today is live-work-play.

The park has consistently performed well, even during the reces- Legacy Town Center fulfills that; it’s a major company’s CEO’s dream.”

OCTOBER 2012 D CEO

C_REALESTATE_OCT12.indd 41

41

8/23/12 11:46 AM

RealEstate D’s commercial real estate website features breaking news stories by Christine Perez and on-the-ground reports from more than 80 industry experts, including: A Silver Tsunami Over the next two decades, a wave of us will choose to retire from the workforce and seek to secure long-term living and care arrangements for our golden years. Many predict that U.S. developers are already behind in planning for the demand from retirees.

Brad Blankenship Managing director of project and development services, Jones Lang LaSalle (Aug. 2)

Lone-Wolf Brokers: An Endangered Species?

For years, brokers were known as an independent, self-reliant, gritty group of professionals whose mantra was, “Eat what you kill,” and who always referred to themselves as hunters—certainly not skinners. But in today’s brokerage model, it’s all about teaming.

Jack Eimer Central Region president, Transwestern (July 31)

The “Life Improvement” Business As we all run our businesses, we should keep these concepts in mind. How are we improving the lives of others? How can we have a purpose in life and work that has meaning?

Linda McMahon President, The Real Estate Council (July 27)

The Incredible Shrinking Big Box Due to the economic downturn and sales pressure from the internet, many big-box retailers have found the need to reduce occupancy costs and, thus, the need to reduce their respective footprints. This is a complete reversal from the birth of the category-killer, big-box format in the early ’90s.

Bob Young Managing director, The Weitzman Group (July 23)

Persistence is Losing Steam Somewhere along the way, we as a society seem to be losing the persistence that went hand-in-hand with the American dream. It was this get-the-job-donewhatever-the-cost mentality that helped make our country great.

John Zikos Partner, Venture Commercial Real Estate (July 5)

Go to: www.realpoints.dmagazine.com

@DRealPoints

That may be, but it was never Perot’s vision. Trammell Crow owns most of the remaining He always saw Legacy as having a singular developable property within the park. It had use—a corporate headquarters park. It was initially acquired about 400 acres from EDS Marilyn Kasko who saw things differently. five years ago. After developing One Legacy EDS’ former director of asset management Circle and corporate projects for Pizza Hut used to drive around the park and envision its and Capital One, it has about 90 acres left.

Legacy Towers consists of a 13-story, future. One thing she found missing: amenities.

“I’d go have lunch at Park and Preston, and 341,000-square-foot first phase, and a sevenall of EDS was down there,” she says. “You’d story, 192,000-square-foot second phase, at see the company stickers on their cars. It was the Dallas North Tollway and Legacy Drive— the “front door” to Legacy, Saphier says. crazy.”

“We’re moving forward,” he says. “Our phiKasko discussed the challenge with Art Lomenick, a former exec with Post Properties. losophy is to buy the very best sites in the very He told her about an emerging “live-work- best submarkets and, when the real estate funplay” concept called “New Urbanism,” and damentals justify it, go spec.”

KDC has been a big player in Legacy as put her in touch with one of its pioneers, Andres Duany. After several years of research well. The Dallas-based company has built or and a Duany-led charrette in Plano, plans for redeveloped nearly 3 million square feet in Legacy Town Center were born in the late the park, starting with Countrywide in 1994 and followed by projects for 1990s. RTKL did the masterplan, PepsiCo, Intuit, AT&T, St. Jude Lincoln Property Co. handled Legacy - By The Numbers Medical, Denbury Resources, office development, and Fehmi and Rent-a-Center. It recently Karahan was selected to oversee Residents wrapped up work on Encana, The Shops at Legacy.

6,300 and is under way with Tyler “It was the exact opposite of Technologies’ redevelopment of what had been intended for LegEmployees a former YMCA facility. acy,” Kasko says of the town cen44,000 Perhaps its biggest success in ter. “Legacy was built with large the park, though, is The Camsetbacks—big expanses of landOffice Space pus at Legacy. KDC acquired scaped grounds, no sidewalks, 15 Million Square Feet the three-building, 1.1 millionvery car-friendly. We were talksquare-foot complex from EDS in ing about people-friendly, walkRetail Space 2005, as part of a larger portfolio ing spaces, and things right up 827,000 Square Feet buy. Other than some short-term close to the curbs. It broke all of leases in effect, the buildings Legacy’s rules.”

Source: Plano Economic were essentially vacant. KDC Today, the dense mixture of Development transformed the complex—and hotels, residences, restaurants, filled it up. The largest tenant is and shops is one of the most successful examples of New Urbanism in the Denbury Resources, which occupies 510,000 square feet. country.

In August, KDC sold one of the three Kasko left EDS for an executive post with Abbott Laboratories in Chicago in 2003, but buildings to a partnership between Trantoday, nearly 10 years later, she remains fierce- swestern and State Farm Life Insurance Co. “Legacy right now continues to be on fire,” ly protective of Legacy Town Center—and adamant that credit for its success be shared says John Brownlee, senior vice president of KDC. “Access to the airport and The Shops with the many people who worked on it.

“It takes a village to build a town center,” at Legacy and other amenities there gives it an edge. Companies are choosing to be in that she says. location; they feel employee density is there.”

The fact that Legacy is no longer in the Big Development Projects Ask Adam Saphier about Legacy business hands of a single overseer presents some park, and the regional president of Tram- challenges, as the park continues to mature mell Crow breaks into a wide grin. And why and evolve, Kasko says.

“I think it’s time to look at Legacy and say, shouldn’t he smile? Trammell Crow has three major projects under way in Legacy— ‘What’s next? How do we get to the next levthe Ericsson expansion, MedAssets’ build- el, without losing its charm and warmth, to-suit, and Legacy Towers, its spec project. and how do you manage that change?’ You What’s more, with the exception of ex- can’t just let it happen,” she says. “You have cess land held by Frito-Lay and J.C. Penney, to have a plan.”

42 D CEO OCTOBER 2012

C_REALESTATE_OCT12.indd 42

8/23/12 11:46 AM

RICH IN HERITAGE The Beretta Gallery in Dallas, Texas exemplifies traditional Italian quality in every detail. Located in the exclusive Highland Park area, Beretta Gallery Dallas is the perfect destination for those wishing to indulge in the rich sporting heritage of Beretta.

A unique assortment of clothing and accessories for the classic outdoors-man, from leather guncases and luggage, to sports clothing for all types of hunting, shooting and country living. A distinct feature is our fascinating library of hunting books, collections of beautiful one-of-a kind gift items and hand crafted works of art.

The beautiful, well-stocked gunroom in Dallas showcases Beretta’s full line of pistols, field and competition shotguns, as well as Sako rifles. The history of Beretta’s nearly 500 years of quality gun making is best exemplified by are large selection of Beretta Premium Grade shotguns and express rifles. Our professional staff is ready to answer all your requests and they look forward to welcome you to Beretta Gallery Dallas.

_StackedAds_DCEO0712.indd 43

8/20/12 3:31 PM

Dallas-Fort Worth Hospital Council

A Healthy

Debate The 64th Annual Awards Luncheon October 18, 2012 Arlington Convention Center

Distinguished Health Service Award T. BOONE PICKENS Keynote Speakers JAMES CARVILLE AND MARY MATALIN

debating the presidential race one month before the elections

Sponsorships and Tickets now available 11:00 a.m. reception 12:00-2:00 p.m. luncheon

HospitalCouncil_DCEO1012.indd 1

www.dfwhc.org/annual-awards-luncheon 972-719-4900

8/16/12 12:54 PM

BY PHIL HARVEY

Clicking Coupons A North Texas company is changing how and what we pay for everything.

PHIL FOSTER

Y

ou don’t still clip coupons, do you? Most of us do, actually.

Consumer surveys suggest about 80 percent of Americans use coupons. But wouldn’t it be great if you didn’t have to look for coupons that mattered to you? What if the products you want and the stores you shop at sent offers based on your past purchases and current location?

We aren’t far away from that reality, according to Frisco-based Koupon Media CEO T.J. Person.

Person’s company is taking an interesting approach to creating, offering, and redeeming digital coupons. The company is nudging us along the slow march toward a society where the smartphone becomes our wallet, payment mechanism, passport, and hotel room key.

Koupon claims to connect retailers, brands,

and consumers more efficiently, using smartphones and a specialized software platform it sells as a service. And that’s the big deal here.

Local media stations have covered Person before, each time missing that software-asa-service piece. But it really is a major reason Koupon is breaking through where so many companies have failed.

When I visited Person’s office, I took note of the 20-ounce Starbucks coffee sitting on his desk. And guess how he paid for it? With the Starbucks card app on his smart phone. “I go every day, and I think the card [application] is more convenient than cash,” he explains.

Person’s background is what you’d expect for someone who pays for coffee with a phone and spells coupon with a “K.” Formerly with Samsung Telecommunications, Person helped start a mobile marketing and content

Tech2.0

management agency called Mango Mobile in 2005. The company was bought by Radiate, a subsidiary of The Omnicom Group, in 2007.

In 2009, Mango was merged with GMR Marketing, another Radiate-owned concern.

While leading GMR, Person worked with Dallas-based 7-Eleven Inc. to run promotional campaigns that encouraged consumers to send text messages to the convenience store chain in exchange for a free drink coupon.

One promotion involving a 200 7-Elevens in the San Diego area proved consumers will ask for offers via their mobile phones and then redeem those offers in stores.

That brings us to March 2011, when Person and Scott Hutchinson founded Koupon Media. Formerly called mComm360, the company was part of the spring 2011 class at TechWildcatters, a startup accelerator in Dallas. Later that year, Koupon raised $2 million in funding from investors DFJ Mercury and the Matthew Pritzker Co. In April 2012, Koupon raised another $4 million from a group of venture capitalists led by Dallas-based Trailblazer Capital.

Person says it is time for couponing to join the Internet age. “We looked at couponOCTOBER 2012 D CEO

C_TECH_OCT12.indd 45

45

8/17/12 10:26 AM

Tech2.0 ing and nothing’s really changed since the 1800s,” he says. “You still have to physically go in [to stores] and use a piece of paper. And I started looking at the data and there is like ...

99 percent waste. It’s crazy.”

He’s right. Crazy. In the 1890s, Atlanta businessman Asa Chandler, the man who built The Coca-Cola Co., is credited with first distributing paper coupons as a way of getting folks to try his sugary-sweet new drink.

And the waste? Consumer products makers distributed 305 billion coupons in the U.S. last year. Those coupons offered $470 billion in discounts. But even with all those offers coming in the mail, at the point-of-sale, and tucked into newspapers, shoppers only redeemed about $4.6 billion in coupons—less than 1 percent.

Software at Your Service Person describes Koupon’s business as “the first software-as-a-service mobile coupon management platform.” It’s an Internet-based business that sits between brands, retailers, and consumers. Since the platform is just a base of code for hire that can be delivered anywhere, one retailer can pay a licensing fee and do everything itself. Another might benefit from a more full-service approach.

For example, Koupon could help a brand like Pepsi create, send, and track an offer on Facebook for its products, redeemable at 7-Eleven stores. It could just as easily help 7-Eleven send a special discount to all of its iPhone app customers who buy more than three fountain drinks per week. It’s all digitally tracked and delivered. So whether it happens via mobile app or on a social networking site is irrelevant. In both examples, there’s no perceived middleman and no thirdparty website to visit.

That transparency is a big deal, Person says, because past mobile coupon attempts haven’t been as attractive to retailers and brands as they were to consumers. “It takes a lot of infrastructure on the retailers’ side to make an offer,” Person says. “[Coupons are] like cash, but without all the monetary controls that the federal government puts on paper money.”

Koupon, he says, assumes all the risk of distributing, verifying, and redeeming mobile coupons, and it requires no complicated update to a retailer’s point-of-sale systems. In exchange for building smartphone applications for retailers and convenience stores and for taking the financial risk of redeeming coupons, Koupon gets paid by taking a per-transaction cut each time a coupon is used; it also charges placement and redemption fees to retailers and

brands, depending on the campaign.

The software-as-a-service business model means the underlying architecture for Koupon’s systems stays the same, and every added feature becomes immediately available to all other brands and retailers on the Koupon platform. The ability to enable, distribute, and track coupons and promotions without getting in the way makes it possible for just a few employees to serve dozens of large companies. Koupon has about 30 employees now and is hiring to support its growth.

Michaels Stores Inc., the Irving-based crafts and hobby store, pays Koupon a monthly fee to use its platform to set up its own offers, promote its own products, and create coupon games—like a scratch-off savings game for its iPhone app.

Michaels can generate offers without needing to mail a printed coupon to a fulfillment center. It can check an online portal to see daily performance reports. If an offer is working— or only working in certain locations—Michaels can update and target the offers on the fly.

One Michaels iPhone promotion ties into TLC’s “Craft Wars.” After a short video, viewers are offered a coupon for 40 percent off a single-item purchase at Michaels. Koupon’s software serves up the barcode, which is good for—get this—a single use on a single day in a single location. Michaels wastes no paper or postage here, and it could come away with real data it can use to make me a better offer next time—or to get customers to return to a specific store.

Besides simple discounts, Koupon’s system allows a chain like Michaels to create singleuse coupons that are specific to each of the store’s stock-keeping units (SKUs), the codes used to identify its products. Michaels Stores average 35,000 SKUs from about 600 vendors, so the ability to analyze what kinds of customers are buying certain items is critical.

With 7-Eleven and other convenience stores, Person says, one of the goals is to target consumer behavior so stores can make timingand location-based offers, arriving at the right combination of convenience and relevance.

7-Eleven should be a great case study in how far we can push smartphone technology in our busy lives. About 25 percent of the U.S. population lives within 1 mile of a 7-Eleven store. Nearly 2 million people each day purchase immediately consumable food at 7-Eleven in the United States. More than half of 7-Eleven’s daily customers buy a nonalcoholic beverage.

Indeed, a lot can be learned from 7-Eleven’s point-of-sale systems. But who are these

COUPON TRENDS A rough economy is driving the need for brands and marketers to waste less money and time when distributing coupons. According to NCH Marketing Services, Inc., consumers redeemed 11.4 percent fewer coupons in the first half of 2012 than they did during the same period a year ago, largely because they saw fewer attractive offers and had less time to take advantage of them.

SMARTPHONE NATION Whether the subject is mobile coupons or Angry Birds, it’s hard to overstate how quickly smartphones are taking over. Sales of wireless handsets are expected to be around $32.4 billion in the United States next year. By then, smartphones will comprise more than 60 percent of handset sales, according to the Telecommunications Industry Association.

customers? With a mobile app and coupons, 7-Eleven can fill in the gaps and provide brands and consumers a better experience.

“What if we knew that you redeem [mobile] offers 80 percent of the time on Saturday morning,” Person asks. “So if 80 percent of the time you come in before noon, at 11 a.m. you could get a message that says, ‘Hey, here are some new offers.’”

Each store and brand can decide how granular it wants to get. Person says Koupon’s management system gives convenience stores more than 20 attributes—things like age, gender, and ethnicity—that can factor in.

It could seem intrusive but, c’mon: This is 2012. Do we have to tell vegetarians about a two-for-$2 hot dog sale?

Alhough Person calls the mobile wallet the “holy grail” of what’s possible with smartphones and the mobile Internet, he’s keeping things laser-focused at Koupon. “When we first got into this, we thought that we had to do many different things to be successful,” he says. “But we found that there’s so much scale, you can focus on one or two areas and it can be a very big business.”

Phil Harvey is the editor of Light Reading, a UBM TechWeb publication covering telecommunications. He’s @futurephil on Twitter.

46 D CEO OCTOBER 2012

C_TECH_OCT12.indd 46

8/17/12 10:26 AM

KERA_DCEO1012.indd 1

8/15/12 12:05 PM

Cover Story

The Undercover

BILLIONAIRE HE’S MADE A FORTUNE IN THE ENERGY BUSINESS AND CO-OWNS THE TEXAS RANGERS BASEBALL CLUB. BUT RAY C. DAVIS FLIES NOTORIOUSLY UNDER THE RADAR. WE SET OUT TO TRACK DOWN THE MYSTERIOUS MOGUL AND TRY TO LEARN WHY.

48 D CEO OCTOBER 2012

FEAT_DAVIS_OCT12.indd 48

8/21/12 2:53 PM

The second-floor courtroom in Fort Worth’s Depression-era Eldon B. Mahon U.S. Courthouse made a suitable backdrop for the high-dollar auction sale of the Texas Rangers.

Marble floors, rich oak paneling, and Art Deco-detailing gave the place a sumptuous feel. And the 21-foot ceiling was just tall enough to contain the egos of all the pricy lawyers in attendance, not to mention the men who were prepared to write the half-a-billion-dollar-ormore check it would take to buy the MLB team.

Mark Cuban, owner of the NBA’s Dallas Mavericks, swapped greetings with reporters as he and Houston businessman Jim Crane, his bidding partner, took their seats at one of the courtroom tables. “Going over some last-minute figures?” one reporter asked Cuban, who was a bit tardy. Cuban shot a look as if the guy were crazy, waving off the idea that he might be worried about something so trifling.

The August 4, 2010, auction turned out to be a grinding affair, punctuated by long pauses in the bidSTORY BY ding. As a reporter covering the story for a national Thomas Korosec business news outlet, I used the intermissions to pad around and try to get some of the key players to comILLUSTRATION BY ment on behind-the-scenes developments.

Jim Salvati During one break, I approached a man who had stayed completely in the background, but who nonetheless was a central participant in the Rangers sale saga. Dressed nattily in a blue-gray pinstripe suit, white shirt, and violet tie, Ray C. Davis stood several inches taller than the Rangers’ six-feet-two-inch Nolan Ryan, with whom he had arrived.

I introduced myself to the rangy Davis, who retired as a billionaire from Dallas-based Energy Transfer Partners, a publicly traded pipeline company where he’d served as co-CEO. He gave my hand a firm grip, said hello in a deep voice and then, before I could get my first question out, nodded and walked away.

The non-interview was not only disappointing from a professional standpoint; it was so brief I hadn’t formed the slightest impression of Davis. Was he shy, or someone who loathes the media, or nothing of either?

My interest in Davis hardly abated when, 10 hours after the auction began, the group led by Ryan and attorney Chuck Greenberg won the American League club with a bid worth $593 million. Davis and another billionaire, Bob Simpson, co-founder and former CEO of XTO Energy Inc., reportedly provided the bulk of the purchase price and, once the sale closed, became co-chairmen of the team’s board of directors.

News reports over the next few hours, including

mine, ran with quotes from Cuban and Ryan and a memorable one from Greenberg, who conceded that while the auction price was “a little expensive … it’s all part of the color and pageantry of the affair.”

Nowhere, though, was there a quote from Davis, who’d picked up a big part of the sale tab and then slipped out of the courthouse without a word.

Owners of professional sports teams in most cities, but especially in Dallas, play a unique role in the fans’ views of their beloved teams. Here, Cuban and Jerry Jones of the Dallas Cowboy get endlessly analyzed.

For every “Top Ten Shortstops of All Time” list, there are five titled “Ten Worst Owners of All Time.”

Fans need someone to blame when teams sink in the standings, and ownership is a favorite place to start.

So, it’s fair to ask, who is this billionaire pipeline businessman and co-owner of the Texas Rangers?

And, why does he maintain such a low profile?

Active Investor In the two years since the auction sale, the 70-yearold Davis has rarely broken his silence, though it’s clear that he is far from a passive investor in the club.

Refusing all interview requests, including three I’ve made myself over that span, Davis has positioned himself as the anti-Mark Cuban. He’s not only invisible in terms of the team, but he declines to say much about his business dealings either. He is, simply put, the last investor on the planet you’re going to see showing off his business savvy on TV’s Shark Tank— where Cuban stars—or anywhere else.

What we do know, though, is that Davis is still active at his investment company, Avatar Investments LP, which has offices on Sherry Lane in Dallas. So it was with great interest that I learned that he was to speak this spring to the Dallas-Fort Worth chapters of the Association of Certified Fraud Examiners at the group’s annual conference.

It was like hearing someone had spotted a woodpecker that was thought to have gone extinct.

The fraud examiners group, which was good enough to let me attend the private presentation, said Davis would be talking about “his experience on avoiding and finding investment swindles.” That sounded promising, I thought as I drove to the meeting at Dallas’s Cityplace Conference and Event Center.

But first, it turned out, Davis wanted to talk about baseball. “Anybody who feels tired after a nice lunch can go to sleep. That’s just fine,” the businessman deadpanned, warming up as the luncheon speaker at the late-May event. He was dressed in standard business attire: tie, gray suit, white shirt. “My wife said she falls asleep after 15 minutes of me talking. Here’s a little about the business of baseball . . .”

Baseball is like a lot of other businesses, Davis told the group. “We’re no better than the players on the field, and no better than the scouting and development and people in the office.

“There are no shortcuts in this business,” he said.

“People have tried to buy championships before without success. You win with people, you build from OCTOBER 2012 D CEO

FEAT_DAVIS_OCT12.indd 49

49

8/21/12 2:53 PM

A Lifesaver “That’s just Ray,” Charlie Waters, the former Dallas Cowboys star safety, said when I asked him to explain Davis’ low profile.

Waters, who was hired at Energy Transfer Partners in 1996 by Davis and the company’s current chairman, Kelcy Warren, said, “He put some fire back into me, he and Kelcy, when they gave me that job. They saved my life.” Waters had been despondent over the death of his teenage son, he explained.

Waters joined Energy Transfer when it employed about a dozen people; today there are more than 5,000 employees. He said that Davis is extremely sharp with details, while Warren is

more of a gambler. “Ray will make the tough decision if that’s right for the business long-term,” Waters said.

“He has a sensitive side to him, but in business he can tune that out in a second.”

The company’s first emphasis was electricity trading in newly deregulated markets, Waters said. Davis and Warren had sold Cornerstone Natural Gas Inc., consisting of about 700 miles of pipelines and processing facilities in East Texas and Louisiana, to El Paso Energy Corp. for $115 million in 1996. A noncompete clause kept them out of the pipeline business for a time. But by the early 2000s they were back expanding in a world they knew well.

In August 2002, industry publication Gas Daily reported that “Davis and Warren are well on their way to repeating the formula they used in the 1990s to build a regional midstream powerhouse.” The next year the company announced it was building its own large pipeline to handle natural gas from Texas’ burgeoning Bossier Sand and Barnett Shale fields, according to Natural Gas Week.

Bruce Bullock, director at the Maguire Energy Institute at SMU’s Cox School of Business, said that pipelines are one of the few industries permitted by the federal tax code to be organized into master limited partnerships like Energy Transfer Partners. MLPs, he said, avoid corporate taxation and distribute profits directly to their so-called unit holders.

The steady income pipelines generate, combined with investor demand in a low-yield era, have made MLPs very attractive investments. Energy Transfer units have returned more than 19 percent per year to their investors over the last decade, according to Morningstar data.

In 2007, when Davis announced he was retiring from the company at age 65, Energy Transfer had a whopping enterprise value of $20 billion. Within a year and a half, Davis made his first appearance on the Forbes 400 list of the richest Americans, debuting at No. 367 with an even $1 billion. Forbes appears to have had no more luck than any other news outlet in charming Davis with their attentions. His name appeared for several years without a photo and, on this year’s list—where he’s ranked No. 312, with $1.5 billion—the publication describes him as “reclusive.”

Davis said he’s still busy at the company as a director. But much of his time is spent with Avatar, his personal investment company. “We were Avatar before there was Avatar,” he said, referring to the movie during my brief encounter. Among the companies he discussed acquiring were “a metal roofing company in California” and “a pipeline company in Ohio.”

During his talk to the fraud conference, Davis did nothing to fulfill the promise that he’d discuss the swindles or near-swindles he’s experienced. He plays his cards too close to the vest for that. He did, however, pass along in general how he goes about his due diligence as a frequent purchaser of companies and assets.

“I think it’s great that we have Sarbanes-Oxley and all the other controls we put on companies,” he told the May gathering. “But I would suggest to you [that]

FORT WORTH STAR-TELEGRAM

RARE APPEARANCE: Ray Davis, left, showed up at a 2011 news conference with Nolan Ryan to talk about the resignation of Texas Rangers CEO Chuck Greenberg.

within, and you try to keep as much payroll flexibility as you possibly can.”

Then, referring to issues facing the team in the current season, he declared, “This year is going to be extremely difficult. . . . We have some real challenges coming up, trying to make the decisions we’re going to have to make on all our free agents, seeing who we can sign, and what young players we have coming up who can fill the need.”

Once Davis had finished his talk—later, he would also address non-Rangers business issues—I intercepted the normally reticent billionaire on his way off the stage, only to have my request for an interview rebuffed again. “I don’t do interviews,” he said tersely.

Persevering, I said it appeared that he had quite a lot to do with the team.

“It’s a business. It’s not an ego thing. It’s a business,” Davis allowed. He agreed with Bob Simpson’s view, given at a news conference last year, that Ryan and General Manager Jon Daniels were running the team dayto-day, and that the co-chairmen were acting more as “wise counselors” with experience to offer.

Only twice has Davis been seen in the public eye on Rangers business. He accompanied then-team CEO Chuck Greenberg to Little Rock, Ark., on a trip to woo free agent Cliff Lee in late 2010—a trip that failed to land the pitching ace. Four months later he appeared with Ryan and Simpson at a news conference announcing that Greenberg had resigned—a move widely reported as an ouster.

Davis, who shed no light at the news conference on the reasons for Greenberg’s leaving, told the assembled sportswriters, “Neither Bob [Simpson] or I expect ever to do another press conference.”

So far, he’s lived up to his pledge.

50 D CEO OCTOBER 2012

FEAT_DAVIS_OCT12.indd 50

8/24/12 9:42 AM

FORT WORTH STAR-TELEGRAM

all the controls in the world are not going to prevent fraud in the short term. In the long term they’re all going to get caught, but in the short term you have to go back to the integrity of the people who are putting the numbers together.”

In studying companies, Davis went on, acquirers “don’t spend enough time in my view on the people, two levels of management.”

Of course it’s important to analyze the numbers, he said. “But, how much time do you spend on the people you are about turn the keys over to? I’m not saying you should challenge their integrity. It’s more like Ronald Reagan said: `Trust and verify.’ Verify their résumés and their academic records, what their competitors say about their management and their reputation, credit checks, criminal background, litigation. The point is, who are the difference-makers who set the policies in this company and who dictate its culture?”

Smiling, Davis added, “I have been burned more than once, and my checklist is many pages. I don’t share it because I want my competitors to get burned and not me.”

After he finished speaking, Davis joined Waters in handing out several scholarships for college students on behalf of Community Trust Bank. Waters is on the board of Louisiana-based Community Trust, a private bank in which Davis is a stockholder and which does a lot of business with Davis and the Rangers. The scholarships were given in honor of “Happy Davis,” whom Waters described to the group as Davis’ father.

It turns out the name Happy Davis has been connected with a lot of philanthropic giving over the last four years, though no one seems to have connected it to Ray Davis’ fortune. Federal tax records show Davis formed the Happy Davis Foundation in 2008 with an initial $1.5 million contribution, then added $7 million over the next two years, the latest for which records are available.

He’s given $1 million to the George W. Bush Presidential Library and Museum in Dallas, for example; $1 million to the Buckner Foundation, a Christian charity based in Dallas; and $1 million to International Justice Mission, a Christian-oriented, human-rights agency in Washington, D.C., that aims to rescue victims of slavery and other forms of violent oppression.

Public records—such as those Davis uses to vet the management of his acquisition targets—also show that Davis and his wife, Linda, bought the White Pine/Double Heart Ranch near Gunnison, Colo., for $18 million in 2007, the year he retired from Energy Transfer Partners. The spread comprises 8,500 acres, plus 45,000 acres of leased public land, with a 10,000-square-foot lodge, according to a former listing with Ranch Marketing Associates.

After owning a succession of increasingly stately homes in Dallas, Davis moved after his retirement to a ranch in Denison, a placid rolling property with an unmarked gate and a newly built, 5,686-square-foot main house valued on the Grayson County tax rolls at $2.2 million. That doesn’t include more than a half-

WINNERS: From left, Rangers manager Ron Washington, co-chairman Bob Simpson, GM Jon Daniels, Davis, and Ryan celebrate the team’s win over Detroit in the 2011 American League Championship Series.

dozen separate parcels of ranchland on the tax rolls in the Denison area.

About 10 miles away, meanwhile, at the North Texas Regional Airport, Davis keeps two corporate jets— a Dassault-Breguet Mystere Falcon 900 and a smaller Cessna 560—aircraft registration and property tax records show.

But what of his personal history, his educational credentials? News stories about Davis are almost non-existent. And those who know him well are instinctively defensive and protective. “In school I think he might have played football as an offensive lineman. When we talk about football, he likes to talk about offensive line play,” said Waters, who could not name Davis’ schools. “I think he grew up in East Texas, maybe Longview. You’d better ask his assistant.”

Good suggestion. So I called Keli West, whose cellphone number someone at Avatar Investments offered up freely. I told West I had a few simple questions about Davis’ hometown, his schools, and his family history. She said she would put my request to her boss.

A day later she emailed to say, in effect, “No dice.”

“If he talked to you, he’d have to talk to everybody,” West said. “That’s something he doesn’t want to do.”

And if he doesn’t want to do it, he won’t do it. So, should the Rangers sink from the top of their division, or let go of your favorite star, you’ll have to find someone else to explain what happened. Almost certainly, Ray C. Davis will not be taking your calls.

“If he talked to you, he’d have to talk to everybody,” West said.

“That’s something he doesn’t want to do.”

OCTOBER 2012 D CEO

FEAT_DAVIS_OCT12.indd 51

51

8/24/12 9:43 AM

STEPHEN MANSFIELD METHODIST HEALTH SYSTEM

DOUGLAS HAWTHORNE TEXAS HEALTH RESOURCES

DANIEL PODOLSKY UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL CENTER

JOEL ALLISON BAYLOR HEALTH CARE SYSTEM

ROBERT EARLEY JPS HEALTH NETWORK

52 D CEO OCTOBER 2012

FEAT_ROUNDTABLE_OCT12.indd 52

8/22/12 2:24 PM

HEALTHCARE ROUNDTABLE

REINVENTING THE

SYSTEM THE HEADS OF FIVE BIG NORTH TEXAS HOSPITAL COMPANIES TELL HOW THEY’RE WORKING TO DELIVER A NEW MODEL OF HIGH-QUALITY HEALTHCARE—AT A LOWER COST.

BY STEVE JACOB PHOTOGRAPHY BY ELIZABETH LAVIN

OCTOBER 2012 D CEO

FEAT_ROUNDTABLE_OCT12.indd 53

53

8/22/12 2:24 PM

A

ccording to the late management guru Peter Drucker, being the chief executive officer of a hospital is one of the most difficult jobs in America.

And with the unprecedented changes brought on by healthcare reform, the growing demand for service, a continuing squeeze on payments, and evolving technology, the job isn’t getting any easier.

D CEO recently gathered together the heads of five major Dallas-Fort Worth hospital systems to discuss the challenges they face—in an economic sector that comprises about 17 percent of the local economy. Combined, these top executives oversee nearly 70,000 North Texas employees.

Participating in the discussion were Joel Allison, president and CEO, Baylor Health Care System; Robert Earley, president and CEO, JPS Health Network; Douglas Hawthorne, CEO, Texas Health Resources; Stephen Mansfield, Ph.D., president and CEO, Methodist Health System; and Daniel Podolsky, M.D., president, University of Texas Southwestern Medical Center.

In the following discussion they address the impact of the Affordable Care Act, the importance of workplace wellness programs, emerging changes in healthcare delivery, and next month’s presidential election.

“I CAN’T THINK OF ANOTHER INDUSTRY WHERE YOU’RE TRYING TO WORK WITH A CONSUMER BASE THAT DOESN’T WANT TO DO ANYTHING THAT YOU’RE TRYING TO TELL THEM TO DO.” ROBERT EARLEY, PRESIDENT AND CEO, JPS HEALTH NETWORK

Although the five of you seem to be bucking the trend, the average tenure for a hospital CEO is about four years. What makes this job so challenging?

DOUGLAS HAWTHORNE: It’s the diversity of the role. It’s really all about the variety of relationships we deal with every day.

DANIEL PODOLSKY: Part of it is the inherent complexity of healthcare, and how you are going to manage that complexity with an unprecedented dimension of uncertainty about the future.

ROBERT EARLEY: Healthcare touches everyone. You have many constituents who are concerned and, like Doug said, you have to respond to your different constituents, because healthcare is so personal and it has a huge impact on everyday life. Some view it as a right. Others view it as privilege. That’s what makes it so complex.

STEPHEN MANSFIELD: It’s really a lifestyle, not a job. You don’t have an off-on switch. You’re pretty much “on” all the time.

If you aren’t careful, it can consume you. It’s also a great joy.

EARLEY: To Doug’s comment, there’s such a diversity of issues. I’ll have a 9 a.m. meeting where I’m debating about the thread count of bed sheets. Then I’ll go into the next meeting about how we advance neurosurgery. Along with the diversity, we deal with life-and-death issues that are compounded by money.

In what ways is healthcare changing, and how much impact do you think the Affordable Care Act has on that?

JOEL ALLISON: The Affordable Care Act

is more about insurance reform than about healthcare delivery. We will create delivery models that give the right kind of care. It’s not going to be because the Affordable Care Act was passed.

PODOLSKY: When the future of the act was in limbo pending the Supreme Court ruling, we really took the view that much of what the future would look like was irrespective of what happened with that decision. We need to deliver value at a lower cost, one way or another. We’re trying to reinvent our systems so that you reward the most effective use of resources at a time when the model hasn’t yet changed and we still get paid on a piece-meal basis.

EARLEY: The [Affordable Care Act] and other initiatives are trying to get to a preventative healthcare model. Our challenge is we don’t live in a preventive care world.

We’re trying to figure out how take on chronic diseases and obesity. But people are being bombarded by advertisements to eat unhealthy food. So I’m competing against that. I can’t think of another industry where you’re trying to work with a consumer base that doesn’t want to do anything that you’re trying to tell them to do.

HAWTHORNE: The real question with the Affordable Care Act is what that health insurance will really mean. Will it mean health insurance, or will it be a continuation of sickness insurance? Real reform happens in our communities, not Washington or Austin. That’s where employers, payers, physicians, and healthcare systems work collaboratively to find solutions on how we deliver health services.

MANSFIELD: I agree with Doug. It’s a local

54 D CEO OCTOBER 2012

FEAT_ROUNDTABLE_OCT12.indd 54

8/21/12 1:14 PM

proposition. It’s local employers, insurers, and providers working together to reform healthcare. But I do think we’ve got more to work with under the Affordable Care Act than we had in the past. For example, being able to align with our physicians in ways we could not [before]. It gives us a chance to change healthcare in a way that will be better for consumers and better value.

ALLISON: There are two important things missing in the Affordable Care Act. First, it didn’t address access. It talked about getting more people covered, but it didn’t talk about access. We have a shortage of physicians.

We have people on Medicaid and Medicare who can’t get a physician. Second, as Robert mentioned, it does not address patient engagement. How do you get the individual accountable and responsible for his or her own healthcare? The opportunity is to do prevention and wellness.

To follow up on that point, hospitals and healthcare companies often have the most sophisticated and aggressive employee wellness programs, because they understand their value and they want to be seen as health-promoting companies. For example, Methodist is giving up to $1,700 on premium discounts based on health risk assessments. Baylor no longer hires smokers. Do you recommend these kinds of aggressive measures to other CEOs trying to control healthcare costs?

MANSFIELD: Absolutely. In the employer setting, you have the tools to provide employees incentives to take an interest in their health and disincentives if they fail to.

Methodist is using both of those and having phenomenal results with our medical home project that we offer to about 20 percent of our employees who we felt would benefit from that the most. If employers will really engage with their employees in a meaningful way, we can make a difference. This battle will be won by making small steps forward with small groups, and employers can play a huge rule in that.

PODOLSKY: We’ve had a real gratifying impact of wellness programs at UT Southwestern. We have a worksite weight control program that includes healthier eating, how to jump-start physical activity and motivational reinforcement. One of the greatest drivers of healthcare costs worldwide, and especially in Texas, is the growing obesity epidemic.

HAWTHORNE: We need to be an example

GET WELL SOON: Daniel Podolsky, left, and Douglas Hawthorne say their hospital wellness programs have shown positive results. DFW employers lose about $17 billion annually because of worker health problems, Hawthorne says.

of good health. “Be Healthy THR” is 10 years old and we’ve seen remarkable results. Normally, healthcare workers are not the best at taking care of themselves despite where they work. Dallas-Fort Worth employers lose about $17 billion in productivity costs annually because of health issues.

ALLISON: For Baylor, we believe that we are role models. We have a very robust wellness program called “Thrive.” We’ve eliminated trans fats in the cafeteria and offer many healthy food items. We’ve taken sugared drinks out of the vending machines. And most aggressively, we no longer hire nicotine users. There are four basic things for good health: Don’t smoke. Eat a moderate, healthy diet. Exercise moderately, and manage your stress. That’s what we’ve built our program around. And we have 16,000 employees and

20,000 dependents participating in that. As incentives, they receive cash and premium reduction. Since we’ve had this program, we’ve lost 24 tons through our weight control program, which is important, because of Type 2 diabetes and chronic diseases. And we’ve seen more employers offering this as well. I still believe the key is to lowering healthcare cost is prevention and wellness.

According to Thrive’s director, people in that program have annual healthcare cost increases of 1.1 percent, compared 9.9 percent for those who do not participate.

Is everyone seeing a similar ROI from your wellness programs?

HAWTHORNE: Absolutely. It’s a more productive work force. Well-being is more than just personal health. It’s the ability to deal OCTOBER 2012 D CEO

FEAT_ROUNDTABLE_OCT12.indd 55

55

8/22/12 2:23 PM

to the organization doing well by doing good.

HAWTHORNE: Healthier people are happier people.

ALLISON: We would like to get the Congressional Budget Office to score wellness and prevention as a savings. Right now, they still score it as a cost. That makes no sense because I truly believe it will be a savings

CONCERNED ABOUT UNCERTAINTY: From left, Stephen Mansfield, Joel Allison, and Robert Earley are concerned about volatility and uncertainty in the healthcare arena, regardless of who’s in the White House. Mansfield also fears that reform could be underfunded, leaving hospitals holding the bag.

with stress and to take on added responsibility. So absolutely, when we look at our cost of providing health insurance for our employees, it continues to stabilize costs. That’s a good sign of what these programs can do.

EARLEY: At JPS, we’re going to open up an employee clinic. There’s another aspect of managing chronic disease and becoming healthier. I really want the employees to use the system they work for so they understand what that patient faces when they come in the front door. Maybe I have a 30-year smoker telling a patient that they have to quit smoking. What’s it like to kick that nicotine habit? I want the caregiver to understand what we’re asking our patients to do. I think that empathy and, in some cases, sympathy, results in far better healthcare delivery if

we know exactly what that feels like to hear those words or get on that program or lose that weight.

ALLISON: In fiscal year 2012 that ended June 30, every dollar we invested in our wellness program had a $3.40 return. We expect that to continue to go up. We spend $152 million a year on our employees’ healthcare.

That’s $10,330 per person. Helping them manage their health and lowering costs has been a very, very positive for us.

PODOLSKY: Many of these wellness programs build cohesiveness among the employees and enhances their connection to the organization. They see that the organization is concerned about their welfare and extending itself to provide benefits. That translates into reduced staff turnover. That’s another benefit

An accountable care organization is a network of healthcare providers that accepts the responsibility of the cost of coordination and accepts patients. The goal is to improve quality and access while reducing cost. ACOs have been created to treat Medicare patients. However, it seems like a promising model for commercial insurance plans and large self-insured employers as well. Can this model help companies control their healthcare costs?

MANSFIELD: Absolutely. You’re managing the patient expediently, but also less costly.

I think you will see an increasing number of commercial insurers interested in ACO models, and I agree that large self-insured employers can benefit from that as well.

ALLISON: We created our vision for 2015 before the Affordable Care Act was passed and in that was to create a model for managing care. We created Baylor Quality Alliance.

That’s our response to the ACO. That’s a network of physicians and hospitals clinically integrated to manage care. We’re selfinsured like everyone else around the table, and we’re putting our employees into that model Jan. 1, 2013. We believe that’s the future, and what better way to start than with our own employees and their dependents.

HAWTHORNE: Collaboration will be the key here. There’s no one system that’s going to be able to do it all. There are a couple in this room that are working with THR to look at the community’s well-being and the full continuum of health. THR is one of the 32 Pioneer ACO projects to treat a segment of the Medicare population to see if the model makes a difference. We believe we will have an opportunity to take to that model to commercial payers to improve their outcomes.

The Affordable Care Act cut funding significantly for what they call disproportionate share hospitals. In other words, those that treat a significant portion of indigent patients get this funding. Most of that funding goes to large hospitals in urban areas and teaching hospitals, which includes

56 D CEO OCTOBER 2012

FEAT_ROUNDTABLE_OCT12.indd 56

8/21/12 1:15 PM

pretty much everybody at this table. Those cuts assumed Medicaid expansion and health insurance exchanges would insure nearly everyone. However, Gov. Rick Perry has chosen not to allow Texas to expand Medicaid. Does this increase your financial burden, because you must treat these uninsured patients without receiving this supplemental funding?

MANSFIELD: Yes. ALLISON: We have the largest uninsured population here in Texas. That group is growing faster than our regular population.

The poverty rate is rising. Just because we don’t give them insurance coverage doesn’t mean they don’t show up. We’re going to take care of them. That’s part of our mission for everyone around this table: seeing those patients whether they are covered or not.

With the Affordable Care Act, U.S. hospitals gave up $500 billion in reimbursement to get the people covered; that was the intent. The disproportionate share cut is significant in Texas, and particularly in Dallas, because we have such a large uninsured population.

HAWTHORNE: There are implications for North Texas employers. The fact is that those who are paying for coverage are paying for those who don’t, and that number keeps getting bigger. The implications are significant for small, middle, and large employers who, in many ways, are footing the bill. This is an issue that we have to find a solution for.

We will not turn people away, but there will be many longer lines and the impact will be significant economically.

How much effect will the upcoming election have on the future of healthcare?

PODOLSKY: If the election result were a Republican president, maintaining Republican control of the House and a filibuster-proof majority in the Senate, then you would have the possibility of major revision or revoking the Affordable Care Act. If President Obama remains in the White House or a minority of Democratic senators can prevent a filibuster, I don’t see significant legislative action that it would take to massively change.

ALLISON: I don’t think it matters. We have to change how we’re delivering care. It’s not sustainable. Whoever is president, we still have to address the issue of how do we deliver higher-quality care at a lower cost. I’m concerned about the funding that they put in place. That’s one thing to pass a law, but then to appropriate the funds and we’ve already

“IF THERE’S A SERIOUS DEFICIT REDUCTION IN THE NEXT ADMINISTRATION, IT’S HARD TO IMAGINE THAT DOESN’T COME WITH GREATER PRESSURE ON HEALTHCARE.” DANIEL PODOLSKY, MD, PRESIDENT, UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL CENTER

seen some of those funds be taken away from certain programs. It’s up to us as providers to create solutions. We can’t wait on Washington to do that.

EARLEY: The thing that hurts the healthcare industry the most is uncertainty. You’re trying to make financial decisions. You’re trying to figure out the number of doctors you need bring in, the amount of nursing staffing you need. I think all of us around this table hope there’s not a lot of volatility no matter who’s elected.

HAWTHORNE: It gets back to the critical nature of collaboration among not just those of us in this room and those who work with us, but certainly the business sector has to be in this as well. The payer sector has to be in this and the government has to be in this to find a common solution. Readers need to know that the relationship among the Dallas-Fort Worth healthcare organizations is remarkably strong. We spend a lot of time together and we understand each other’s roles and missions. We welcome the words and wisdom of the business community to step in as we try to solidify and stabilize an uneven situation and find better solutions for better health.

ALLISON: To underscore what Doug said, we’ve been blessed. We’ve got a wonderful business community here to work with. To Doug’s point, we are working together in the best interest of the communities we serve and the patients of Dallas, and we have to keep the employers and business community in this discussion.

PODOLSKY: I think they are all on target in thinking about the more direct focus on healthcare. I think we would be remiss in not acknowledging the context in which we are going to solve these problems. It’s against

the macroeconomic environment of the country. What Washington does about deficit reduction and what happens to the economy may depend on who’s in the White House. Those could massively compound or facilitate our ability to solve this problem.

If there’s a serious deficit reduction in the next administration, it’s hard to imagine that doesn’t come with greater pressure on healthcare, given how significant a part of the federal budget it is.

MANSFIELD: We have an obligation to continue to reform healthcare regardless of what happens in Washington and in Austin. What happens there can make it more difficult.

Because Texas leads the nation in the rate of uninsured, I’m more concerned about the decisions being made at a state level over these next couple of years and then at a federal level for the reasons that Dan mentioned. I think it’s going to be very hard to roll back healthcare reform. I do think it’s possible to underfund it and design it in such a way that it makes it very difficult for us to accomplish what we would like to accomplish.

ALLISON: We spend $2.8 trillion on healthcare today. That’s 18 percent of the gross domestic product. And we still don’t have the outcomes that we see in other countries. We’ve got enough money being spent in healthcare. We’re just not spending it the right way. I think if we providers, with the business community’s help, can create those new models and find a way to pay for the healthcare, and do it in the right way, I think we can be successful.

For an extended version of this discussion, please visit D CEO’s healthcare business news site, www.dhealthcaredaily.com.

OCTOBER 2012 D CEO

FEAT_ROUNDTABLE_OCT12.indd 57

57

8/22/12 2:23 PM

vintage

success

FOSSIL, THE RICHARDSON-BASED ACCESSORIES COMPANY, KEEPS ON GROWING—AND DEFYING EXPECTATIONS.

Fossil Inc.

likes to say, “Long Live Vintage.” The tagline is a loving nod to the feel-good designs that Fossil keeps re-imagining and re-invigorating. But it’s also a subtle reminder that some simple, classic ideas are built to last. The company might as well wink and whisper, “Long live Fossil.”

If you don’t know Fossil products, take a closer look next time you’re shopping or get one of its 18 million catalogs in the mailbox.

Fossil sold $1.8 billion worth of watches last year and $700 million in clothing, shoes, jewelry, and other accessories.

Watches range from no-name private labels for Wal-Mart and Target to $2,000-plus Swiss pieces at Neiman’s and Nordstrom.

The sweet spot, the territory that Fossil wants to own, are watches that sell for $85 to $600.

Fossil often commands a long sweep of counter space in the center of department stores—prime real estate reserved for small items that turn over fast and deliver big returns.

At its own stores in North Ameri-

ca, Fossil generates $715 in sales per square foot, and its European outlet stores deliver $1,221. That’s roughly twice the performance of a typical U.S. specialty store.

More than half of Fossil sales are its own brands, but it also makes and markets watches and accessories that carry the names of Michael Kors, Armani, DKNY, Diesel and, starting next year, Karl Lagerfeld.

The Fossil story is already enshrined in the bootstrapper’s hall of fame.

A 24-year-old college dropout, Tom Kartsotis tired of scalping tickets outside Texas Stadium and bet it all on making cheap fashion watches in Hong Kong.

Older brother Kosta, then a Sanger Harris exec, helped get the line into department stores. Chief designer Lynne Stafford helped establish the retro Americana look and later married the founder. And lots of people got rich when the Richardson company went public in 1993.

But that was just the beginning.

Fossil has roared on, swamping the competition and surviving the severe

WATCH: COURTESY OF FOSSIL; INTERIOR: COURTESY OF CORGAN ASSOCIATES

by Mitchell Schnurman

58 D CEO OCTOBER 2012

FEAT_FOSSIL_OCT12.indd 58

8/24/12 9:50 AM

cycles of the global economy, fashion world, and retailing itself.

In 20 years, Fossil revenues grew from $57 million to $2.5 billion—an annual growth rate of almost 21 percent. That’s worth repeating: Fossil has sustained that huge growth for two decades. It never reported an annual loss, and operating income soared 40-fold.

This was a scalable business before the Internet popularized the concept. Built product by product, store by store, country by country—around the idea that great design, low prices, and broad distribution would carry the day.

Along the way, Fossil was transformed from a small watch company into what it calls an international lifestyle brand. That’s a fancy way of saying that people want its clothing, too, and handbags, wallets, shoes, jewelry, and sunglasses. Even Fossil’s free downloadable wallpapers are cool.

And pick your point of diversification: by product, by geography, wholesale vs. retail, licensed brands vs. Fossil.

It even has 104 outlet stores, and more on the way, because there’s a big return in liquidating your own merchandise. Same-store sales at Fossil outlets rose 26 percent last year, which makes for a winning hedge against a slowing economy.

None of this was a gimme. Watches accounted for 72 percent of Fossil revenue last year— and who knew this would be a hot sector with such staying power? Every (rare) time that sales slip, analysts complain that cellphones are finally making watches obsolete, only to have Fossil prove them wrong a little later.

Speed Bump

RETRO COOL: (Opposite page) Fossil’s Heather Leather Watch. (This page) The reception area at the company’s Richardson headquarters.

Fossil has helped turn watches into musthave, can-have fashion accessories. It tries to get a design edge with new materials for dials, crystals, and straps. In the early days, it created tin boxes to hold watches, a mid-century throwback that became a Fossil signature— and remains beloved today. And if watches are about the look, rather than the utility, one is never enough.

During a five-year span, Fossil sales doubled, including a $500 million increase in 2011. In two years, net income doubled. The stock also was on fire, rising 246 percent from January 2007 to January 2012, a time when the Dow and S&P 500 both lost ground.

At the end of last year, Fossil had 13,100 employees, with more than half outside the

OCTOBER 2012 D CEO

FEAT_FOSSIL_OCT12.indd 59

59

8/21/12 2:43 PM

country. About 1,100 work in the headquarters in Richardson, and more than 500 at a Dallas distribution center.

For a while, it seemed that Fossil had no limit.

Then it hit a speed bump, and investors went over the edge. On May 8, the stock price dropped 38 percent on 16 times the usual volume.

Fossil disappointed investors, because firstquarter sales rose just 9.8 percent, and it also trimmed full-year forecasts. The big problem was in Europe, where sales rose just 4.7 percent. For 2012, Fossil still projected a 16 percent increase in sales, with stronger profits.

Those are hearty numbers, but Fossil is graded on a curve. One analyst wrote that the punishment didn’t fit the crime, and she reduced her projections for Fossil’s five-year growth rate to 15 percent. If that’s the fallback position, you get an idea of the strength of the business.

Sure enough, in the second quarter, Fossil reverted to form, with sales and net income growing by double digits again. Even Europe, still mired in economic crises, bought 14 percent more Fossil stuff.

So Wall Street whipsawed the company again: Its stock price soared 31.5 percent, easily leading the S&P 500 members that day.

Still, it’s fair to wonder how long Fossil can produce like this, gobbling up market share at home and growing abroad. In the 2000s, when sales fell at U.S. department stores and discounters, the annual growth rate at clothing and accessories stores was 2.5 percent. But Fossil grew six times faster over the same period.

Was the first-quarter slip a sign that Fossil may finally start topping out? Or was the company just catching its breath so that, three

NO INK, NO SALARY, NO WORRIES This would be a good place for a photo of the happy founding family. No such luck.

Founder Tom Kartsotis, who retired as chairman in 2010, and brother Kosta Kartsotis, who’s CEO, don’t give media interviews about Fossil. At least they haven’t since 1993.

That’s when Forbes put Fossil at No. 3 on its list of 200 Best Small Companies in America. It’s also

months later, it could resume its relentless march forward?

“Huge Demand” One analyst urged executives to look ahead over the next five years and consider whether Fossil should choose between licensed watches and its lifestyle brands. The former has grown much faster, but the latter is a great way to leverage the Fossil name.

It was a kind way of asking whether management could handle it all. “We still think there’s a bunch of runway ahead for Fossil,” CEO Kosta Kartsotis said in the conference

the year that Fossil went public, so there was extra incentive to talk up the company.

Almost 20 years later, that remains the definitive first-person account of Fossil’s roots. Even the Gale International Directory of Company Histories depends heavily on the Forbes piece. And the founder’s explanation for his garage start-up is still the killer quote: “I didn’t want to be a 30-year-old ticket scalper,” he said.

Kosta, 59, talks to analysts every quarter, and is a strong advocate at industry conferences, so it’s not about being reclusive.

call in May. In August, he was even more bullish: “We have a lot of opportunity to get better at what we do,” Kartsotis told analysts.

By sharing distribution, marketing, retailing, and its all-important design staff, the company can expand at a discount. It can ride the Fossil brand into multiple categories for far less than operating a separate company, an efficient way to penetrate fast-growing markets in China and Korea. Asia’s middle class is about to have an epic growth spurt and, by 2020, the Pacific will have more potential Fossil customers than North America and Europe combined.

Fossil wants to be there with everything,

But he and his brother always wanted the Fossil brand to reflect a team, not a single visionary.

That humility is refreshing in an era of celebrity CEOs, and there’s no arguing with the success.

Here’s another oddity: Kosta Kartsotis refuses to take a salary, bonus, or stock options, and that’s been the case for many years. Because he doesn’t grant interviews, we’ll use the explanation from the proxy statement: “Mr. Kartsotis is one of the initial investors in the company and expressed his belief that his primary compensation is

met by continuing to drive stock price growth.”

With 6.4 million shares, his stake was worth more than $400 million this summer.

Reportedly, the CEO is accessible to employees, and his small glass-walled workspace sits in the middle of the new headquarters. The Dallas Morning News ran several photos of the place, but Kartsotis wasn’t sitting in his office chair. A mannequin was the stand-in for the photo shoot, striped tie and all.

— M.S.

60 D CEO OCTOBER 2012

FEAT_FOSSIL_OCT12.indd 60

8/24/12 2:03 PM

INVIGORATING WORK SPACE: (Left) The headquarters reception area features a “watch case” wall. (Right and below) Different views of a headquarters huddle room and the company staircase.

FOSSIL’S “ALL-IN” MODEL

PRODUCTS: COURTESY OF FOSSIL; INTERIORS: COURTESY OF CORGAN ASSOCIATES

CONTROLLING DESIGN, MANUFACTURING, MARKETING ARE KEY.

not just fashion faves like Michael Kors. “To us it’s a very compelling business model,” Kartsotis said.

In other words, Fossil is all in, with the CEO saying it’s the early innings of a large multi-year opportunity. Rather than retreat, the company plans to open 75 stores this year.

It wants to add 65 to 70 concession areas in Asia, so it will have 280 in place by year-end.

Fossil manages those retail counters and pays a commission to department stores.

Changes are under way, but they’re more like an eyebrow tweeze than a makeover. The company has about 30 percent fewer items in its catalog, so it can “tell fewer stories and tell them much better,” Kartsotis said. And the emphasis is on iconic styling, rather than fashion.

I wouldn’t know the difference between an icon and a fashion item, but I know that Fossil’s look always seems to work. Vintage style, mid20th century inspiration, roots in authenticity—those are phrases that inform the designers’ thinking and seep into every corner of the company. Even its new headquarters in Richardson was recycled in modern vintage.

As Fossil becomes larger, it’s harder to move the needle on sales. In April, Fossil completed the purchase of Skagen Designs, a Danish watchmaker and jewelry company.

It plans to “turbo-charge” the business by funneling it into the Fossil machine,

which is one more way to counter a slowdown.

In the second quarter, Skagen accounted for much of the sales gain in Europe.

In 2009, after the Great Recession, Fossil sales slipped 2 percent. The company stormed back the next two years, with gains of 31 percent and 26 percent. In 2001, during another recession, sales growth fell into single digits; then Fossil strung together three years of gains averaging more than 20 percent.

So Fossil has been knocked back before, but not down. In 1995, two University of Baltimore professors wrote a case study on Fossil, detailing how Tom Kartsotis came out of nowhere to build a fashion watch company. The report included the strategies laid out in the initial public offering, and the priorities then are the same today.

One more common thread: doubts about how long Fossil could maintain the pace. The company’s success, the professors wrote, had attracted attention, so it was sure to face tougher competition and plenty of imitators.

“Future growth was likely to be even more challenging than past accomplishments,” they concluded.

In 1995, they couldn’t have been more wrong. For a short time last spring, Wall Street didn’t know much better.

IN THE BAG: (Left) Fossil’s Estate Varsity Duffle. (Above right) Fossil’s Vintage Revival Box Satchel.

Design is Fossil’s heart and soul. Get the design right, as Fossil has for two decades, and everything else follows. The company has more than 150 designers, and most are in Richardson. Others work from Germany, Hong Kong, and Switzerland.

Controlling manufacturing. Fossil owns the Asian factories that assembled more than 60 percent of its watches last year, and more than half its jewelry. This is crucial because it allows the company to keep designs secret, control production runs, and manage the supply chain.

Capitalizing on big names. Since 1997, Fossil has teamed with famous designers and paid licensing fees for the opportunity.

They collaborate on product design, and Fossil handles production, distribution, and marketing. Last year, Michael Kors generated more than $300 million in revenue for Fossil and Armani topped $200 million.

The finest vintage is Fossil. The Fossil brand may not have the cache of Armani, but it generates a lot more revenue. It accounted for more than $1 billion in sales last year and was the big driver in Fossil stores, catalogs, and online. It also translates easily from watches to handbags, clothing, and other accessories.

Wholesale, retail? It’s all covered. As a wholesaler, Fossil sells to Neiman’s, Macy’s, Dillard’s, Penney’s, Kohl’s, Target, and many more. The European roster includes Karstadt, Galeries Lafayette, House of Fraser, and El Corte Ingles. As its own retailer, Fossil has several entry points. At the end of 2011, it had 245 accessory stores, 32 clothing stores, and 104 outlets. It sells online and, last year, mailed 18.6 million catalogs.

Selling without borders. Fossil sells products in 120 countries on every continent, so it’s in a good spot to capture growth wherever it happens. Last year, sales rose at least 22 percent in North America, Europe, and Asia, but the big potential is in China.

—M.S.

OCTOBER 2012 D CEO

FEAT_FOSSIL_OCT12.indd 61

61

8/24/12 9:59 AM

Get to know the Dallas-Fort Worth Chapter of The Risk and Insurance Management Society, Inc.

The Dallas-Fort Worth Chapter of the Risk and Insurance Management Society, Inc. (DFWRIMS), exists to serve and support North Texas risk professionals and their organization’s risk management goals. The DFWRIMS Chapter provides access to a variety of resources and opportunities, including but not limited to: Over 400 professional members Risk Management Continuing Education Networking Opportunities Community Service Projects Speakers Bureau Job Listings Access information about membership, upcoming activities and services at

dallasftworth.rims.org

RIMS is the global leader in all aspects of risk management.

RIMS is a not-for-profit entity dedicated to advancing the practice of risk management for your organization’s success.

RIMS global membership consists of more than 3,500 industrial, service, nonprofit, charitable and government entities. RIMS provides networking, professional development and education opportunities to its membership of more than 10,000 risk management professionals who operate in more than 120 countries.

RIMS_DCEO1012.indd 1

8/22/12 4:41 PM

SPECIAL ADVERTISING SECTION

TOP RISK MANAGERS

THE FOLLOWING DALLAS-FORT WORTH risk management professionals have been recognized for enhancing and elevating the practice of risk management within their organization and industries served. As risk managers they possess knowledge, skills, and other qualities that are mission critical to their respective organization’s current and future success. Additionally, they influence and inspire others by way of sharing their time, talent, and wisdom for the betterment of the risk management profession. Advertising had no bearing on how these risk management professionals were selected. The risk managers have provided the information contained in their profiles. DCEO has not verified the information.

OCTOBER 2012 D CEO

Risk.indd 63

63

8/23/12 2:48 PM

TOP

Special Advertising Section

RISK MANAGERS

2012

JILL BUFFINGTON BROOKS,

CPCU, ARM-E, MLIS, CRIS

VICE PRESIDENT OF RISK MANAGEMENT, BEHRINGER HARVARD ILL BROOKS HAS WORKED in risk management at Behringer Harvard for more than six years where she manages a multi-million dollar consolidated insurance program for multiple, publicly traded, non-listed REITs and limited partnerships for this rapidly growing international company. After receiving her degree in risk management and insurance from the University of Georgia, she worked on the broker side of the business before entering risk management. She later earned her MBA in finance and strategy from SMU which enabled her to help the company manage $1.5 billion in total insured values when she arrived at Behringer Harvard, which has grown to the $8.5 billion the company manages today. “The company continues to evolve its business with new and interesting ventures, and it has been exciting to be a part of that evolution into new property classes, higher risk areas, and internationally.” Brooks leverages a continually evolving portfolio for program enhancements and rate reductions on all lines of insurance, including a 27 percent reduction in property insurance rates and a 17 percent reduction in general liability premium through a broker change and program cancel/re-write. She credits much of her success to her team and the good rapport she has with brokers and underwriters.

J

15601 Dallas Parkway, Suite 600 Addison, Texas 75001 BehringerHarvard.com

NORMA CARABAJAL ESSARY,

CPCU, ARM

VICE PRESIDENT OF RISK MANAGEMENT, DFW INTERNATIONAL AIRPORT ORMA CARABAJAL ESSARY is the vice president of risk management at DFW In-

N

ternational Airport, the third-busiest airport in the world. She is also one of the highest-ranking Latinas in the aviation risk management industry worldwide. She is responsible for the enterprise’s risk management, occupational health and safety, property/ casualty, workers compensation, family and medical leave, short/long-term disability, absence management, return-to-work programs, ADA and reasonable accommodation, employee assistance program, drug testing, ergonomic/fitness for duty compliance, DFW LiveWell (wellness) program, and HIPAA privacy and security compliance. She also oversees a construction-specific, $2.1 billion rolling owner controlled insurance program which will support the airport’s capital development projects. The comprehensive controlled insurance program is designed to include administration, contractor enrollment, background screening, site badging, claims and medical service management, safety training, capital assistance and surety bonding, and drug testing programs. She also serves as the chief risk officer of the risk council for the airport’s enterprise risk management program. Essary, the recipient of numerous industry awards, earned her B.B.A. from Texas State University and a master of business administration from Texas Woman’s University.

3200 East Airfield Drive DFW Airport, Texas 75261 dfwairport.com

64 D CEO OCTOBER 2012

Risk.indd 64

8/24/12 2:00 PM

Straight up the hill and firm, Z. Yep. Got it.

Team McGladrey Golfer Zach Johnson and his caddie, Damon Green.

Power comes from being understood.SM When you trust the advice you’re getting, you know your next move is the right move.

That’s what you can expect from McGladrey – a strategic partner that adds value to operating and compliance processes, anticipates and meets evolving risk and regulatory compliance requirements, provides advice that supports your strategic goals, and maintains the security of your most valuable assets.

We combine in-depth industry experience, a collaborative, risk-based approach and flexible options – all designed to minimize risk without stifling legitimate growth opportunities. That’s the power of being understood.

Experience the power. Call 800.274.3978 or visit www.mcgladrey.com

© 2012 McGladrey LLP. All Rights Reserved.

McGladrey_DCEO1012.indd 1

8/22/12 12:21 PM

TOP

Special Advertising Section

RISK MANAGERS

2012

JO HARRIS,

CPA, CRM, ARM, CIC, RIMS FELLOW

VICE PRESIDENT OF RISK MANAGEMENT, DEAN FOODS O HARRIS HAS WORKED in risk management for more than 20 years, including the last 10 years leading the risk management function at Dean Foods Company, the nation’s largest dairy processing company and one of the leading food and beverage companies in the U.S. After receiving her degree in accounting and business administration, she became a certified public accountant, a designation she still holds today, and earned her MBA. Harris utilized her strong financial acumen and risk management skills when she arrived at Dean Foods Company in 2002 to set up a formal risk management department. In addition to completing the integration of multiple insurance programs, vendors, and systems, Harris has utilized her skills to set up a risk management department, complete with insurance broker, claim adjusting, actuarial, risk control, and risk management information system RFP processes and implementations. In 2011, she became responsible for Dean’s enterprise risk management program. She credits her success not only to the people in her life who provided her an opportunity to take chances, but to her dedicated staff, vendor partners, and fellow employees. Harris believes in “paying it forward” and has sponsored a summer risk management intern for the last three years to engage the next generation of professionals in entering risk management.

J

2711 North Haskell Avenue, Suite 3400 Dallas, Texas 75204 DeanFoods.com

ANITA C. INGRAM,

ARM, MBA, MTS

ASSOCIATE VICE PRESIDENT AND CHIEF RISK OFFICER, SOUTHERN METHODIST UNIVERSITY NITA INGRAM HAS MORE than 25 years of insurance, risk management, and loss control experience. She has been working in risk management at Southern Methodist University since 1996 and now serves as the lead executive for police, emergency management, and risk management services and has full responsibility of the campus police department and building and maintaining relationships with other law enforcement agencies at the community, state, and federal level in support of the campus and community. Ingram is also responsible for leading the university’s emergency management and business continuity efforts. Her position plays a vital role in the implementation and operation of security efforts supporting the George W. Bush Presidential Center and further extends into executive oversight and responsibility for all dignitary protection activities on the SMU campus. She is also responsible for the university’s ERM, property and casualty, environmental health and safety, fire safety, work comp, and claims adjudication process. “Risk management is a very rewarding career,” Ingram says. “I consider it an honor to not only protect the assets of the organization, but also its reputation, which in many ways is much more valuable. It’s a true team effort for a great university.”

A

P.O. Box 750231 Dallas, Texas 75275 smu.edu/riskmgmt

66 D CEO OCTOBER 2012

Risk.indd 66

8/24/12 9:49 AM

A calculated risk can put you on top

Smart executives know that by taking considered, calculated risks, their company jumps ahead of the competition. The trick is knowing which risks to mitigate and which risks to exploit. At Towers Watson, we help clients measure, manage and make the most of all types of risk — from hazard risk, to people risk, to financial risk. Because we know that while some risks are to be avoided, others are waiting to be taken.

Towers Watson. A global company with a singular focus on our clients.

Benefits Risk and Financial Services Talent and Rewards Exchange Solutions

towerswatson.com

TowersWatson_DCEO1012.indd 1

8/20/12 4:48 PM

TOP

Special Advertising Section

RISK MANAGERS

2012

SUSAN MACGREGOR,

CPA, MBA

VICE PRESIDENT, RISK MANAGEMENT, ACCOR-NORTH AMERICA UE MACGREGOR PROVIDES strategic direction and leadership for the design and

S

development of ACCOR-North America’s overall risk profile. Accor North America owns, operates, and franchises 1,100 hotels representing four brands, Motel 6, Studio 6, Sofitel, and Novotel, in the U.S. and Canada. She serves as a strategic partner with operations and as a key contact with senior management. This includes designing property and casualty insurance programs, development and implementation of the Enterprise Risk Management program, as well as leading the crisis team and coordinating crisis communications during events that may significantly impact the business operations of ACCORNorth America, including the coordination of communication with ACCOR’s world headquarters in Paris, France. “This position requires me to create, implement, and manage company programs that provide control over risk financing, claims management, and safety/loss prevention,” she says. “Detailed financial analysis and claims management are critical in this position to effectively manage the loss reserves to avoid unexpected loss adjustments. The overall goal is to anticipate, mitigate, and provide solutions to issues or potential issues.” MacGregor leads a team of seven, several of whom have earned promotions and honors under her leadership. MacGregor, a certified public accountant, received her B.S. from Indiana University and her MBA from the University of North Texas.

4001 International Parkway Carrollton, Texas 75007 Accor-NA.com

BATES RICHMOND DIRECTOR OF RISK MANAGEMENT, TEXAS INSTRUMENTS N HIS WAY BACK to his ranch just outside of Houston in 2006, Bates Richmond was asked to stop by Dallas to chat with Texas Instruments where a long-term friend of his had just retired as TI’s risk manager. He sold his ranch, moved to Dallas, and is now responsible for guiding TI’s global risk management strategy, managing relationships with insurers and collaborating across all of TI businesses and support areas to manage risks.

Richmond came to TI with more than 20 years of experience in leading risk management programs for global corporations. He created the risk management department at Compaq Computer in 1987 and managed the effort as Compaq grew from $500 million to more than $30 billion in revenues. He established the first centralized risk management function at Clear Channel, a $9 billion media and entertainment company at that time, and just prior to joining TI he helped restructure the risk management function at Cummins, a $10 billion global manufacturer of diesel engines and related products. Richmond started his career in internal audit and treasury roles before shifting to risk management. During his career, he has managed programs that have spanned more than 100 countries and in multiple industries.

O

12500 TI Boulevard Dallas, Texas 75243 ti.com

68 D CEO OCTOBER 2012

Risk.indd 68

8/23/12 2:50 PM

Guiding you through every step of the way.

Thompson Coe attorneys guide clients through the maze of high-stake litigation, business disputes, and regulatory matters to assist them in achieving their business goals.

We offer innovative strategies, creative thinking, and alternative fee arrangements to secure the best results for our clients.

Our highly-skilled attorneys provide a full range of top-tier legal services to business clients throughout Texas and the United Stated.

Trust Thompson Coe.

Thompson Coe congratulates the Risk Manager Award Recipients for 2012.

Dallas Austin Houston Saint Paul www.thompsoncoe.com

ThompsonCoe_DCEO1012.indd 1

8/23/12 11:06 AM

TOP

Special Advertising Section

RISK MANAGERS

2012

MARK J. RYAN,

ARM, MBA

DIRECTOR OF CASUALTY INSURANCE, OCCIDENTAL PETROLEUM CORPORATION ARK RYAN IS THE DIRECTOR of casualty insurance for Occidental Petroleum Corporation (Oxy), the No. 1 oil producer in Texas. With headquarters in Los Angeles, CA, Oxy is a leading international oil and natural gas exploration and production company, and its OxyChem subsidiary is a major North American chemical manufacturer.

Ryan has worked for Oxy’s risk management department in its operating units and its corporate risk management department for more than 30 years. He is primarily responsible for the placement of Oxy’s casualty insurance programs which include primary and excess liability and statutory workers compensation and the claims arising out of such coverages.

Ryan has been involved with the Risk and Insurance Management Society, Inc. for more than 25 years and served as past president. He has facilitated associate in risk management courses and has been a guest speaker at several colleges. He received the Ron Judd Heart of RIMS Award at the 2010 National RIMS Conference in recognition of serving as past president of the Dallas-Fort Worth chapter of RIMS. Ryan received his undergraduate degree from Niagara University in Niagara Falls, NY and his master’s degree in business administration from Canisius College in Buffalo, NY. He has an associate in risk management degree from the Insurance Institute of America.

M

5005 LBJ Freeway Dallas, Texas 75244 oxy.com

DARYL WIGINGTON,

CPCU, CSP, ARM, ALCM

VICE PRESIDENT OF RISK MANAGEMENT, BEN E. KEITH COMPANY INCE 2003, DARYL WIGINGTON has served in risk management for the Ben E. Keith Company, the second-largest private company in Tarrant County and in business for 106 years. Today, Wigington, a licensed risk manager in Texas, serves as vice president of risk management for Ben E. Keith, ranked by Forbes as the 144th-largest private company in the U.S. Wigington and his department manage regulatory compliance with federal and state agencies. He manages the corporate property and casualty insurance program as well as the nonsubscriber employee benefit plan for the Texas division of Ben E. Keith, which includes managing background investigations on applicants and new hires and the corporation’s drug and alcohol testing program. A native of Atlanta, Georgia and graduate of Georgia Southern University, Wigington has worked in insurance and risk management in Georgia, Virginia, and Wisconsin in various industries prior to continuing his career in the Dallas area. He is the vice president of the Fort Worth chapter of the Chartered Property Casualty Underwriters Society (CPCU) and past president of the Dallas-Fort Worth chapter of the Risk and Insurance Management Society (RIMS). He is a member of the American Society of Safety Engineers (ASSE) and past president of its Fort Worth chapter.

S

601 East 7th Fort Worth, Texas 76102 benekeith.com

70 D CEO OCTOBER 2012

Risk.indd 70

8/24/12 2:01 PM

digita

lthatw

orks.

com

To engage customers, you need us.

Does your digital marketing make an impact? This year over 100 million people in the U.S. will own smartphones, buy tablets, and use social networks. D Custom’s digital solutions connect you with these millions of potential customers, telling your brand story across devices and channels. To learn more about the digital possibilities for your brand, visit digitalthatworks.com.

DCustom.indd 1

8/13/12 12:51 PM

THE BOTTOM LINE BY MITCHELL SCHNURMAN

Going For Broke f they’re the smartest guys in the room, why are they paying 15 percent interest on almost $2 billion of debt? And 10.3 percent on another $15.5 billion?

Homebuyers today can get mortgages near 3 percent, and 10-year Treasury notes pay half that. But the private equity firms that bought the state’s largest power company in 2007 are practically financing it on a credit card. And when billion-dollar bills come due, they roll ’em over at double-digit interest rates.

They have little choice, because they’re not making enough money to cover the note.

The $45 billion leveraged buyout of Dallasbased TXU Corp. was the largest ever, so when it goes bust, as most expect to happen in the next year or two, the post-mortem will be summed up as a bad bet on natural gas prices.

True enough, but that doesn’t do justice to the hubris of the famous lead investors—KKR, TPG and Goldman Sachs. And it gives a pass to many state leaders, whose responsibility included protecting the public, not just getting out of the way of freewheeling enterprise.

In business, they call this risk-taking, and it was a go-for-broke gamble that broke—and never should have happened. Loading up debt on real estate, casinos and technology companies is fair game for private equity; it shouldn’t be for the largest utilities, even in a deregulated market like Texas.

That’s not just hindsight. In 2007, lawmakers, regulators, analysts, and consumer advocates were screaming about the giant debt load and potential effect on electric rates and power generation.

But a powerful lobby rolled over the opposition. Together, TXU and private equity hired 86 lobbyists and spent $17 million on the cause. When lawmakers proposed that the Public Utility Commission review the buyout, elder statesman James Baker (former secretary of state, U.S. Treasury secretary and White House chief of staff) threw down the hammer: Hired as chief adviser for they buyers, he said they’d walk away if they had to satisfy the PUC. So the Legislature passed a bill requiring PUC oversight of future buyouts only, not TXU. Not to worry: After TXU, there may

I

never be a utility LBO of this scale again.

When the buyout closed, the company was renamed Energy Future Holdings. It’s the umbrella over a power generator (Luminant), retail electric provider (TXU Energy), and regulated transmission business (Oncor).

The big debt hit is easy to illustrate today: EFH spent nearly $4.3 billion on interest last year. In 2006, before the buyout, TXU paid $830 million for the same expense.

Not coincidentally, EFH reported a net loss of $1.9 billion last year, following a $2.8 billion loss in 2010. In the two years pre-merger, TXU net profits totaled $4.3 billion.

This is more than a debt story. Private equity was banking on strong natural gas prices, which set electric rates in Texas. If prices

stayed near $8 per thousand cubic feet and everything went as planned, all would be fine.

In mid-2008, natural gas prices topped $13, and the deal looked sweet. That turned out to be the high-water mark. Prices soon began a long, steady decline—fi rst because of the recession, and then because of sharp growth in shale gas production.

By 2009, prices were down to about $3.50; this year, they’ve been lower than $2. Falling electric rates have been a windfall for customers and a blow to EFH. Last year, revenue was $4.4 billion lower than in 2008.

So EFH has the worst of all worlds: plung-

ing revenue and soaring interest costs.

With almost $57 billion in future principal and interest payments, most believe a restructuring is inevitable, and probably a bankruptcy. KKR wrote off 90 percent of its investment. And Warren Buffett’s Berkshire Hathaway, which bought $2 billion of EFH bonds, slashed the value by almost $1.4 billion on the “big mistake.”

At the time of the deal, no one imagined natural gas prices falling so steeply. But there was reason to wonder about the rosy projections from the buyers. The TXU board urged shareholders to approve the offer for two major reasons: First, the bid was 25 percent higher than the company’s recent market cap; second, natural gas prices embedded in the implied value “were higher than the future TXU Corp. management thought were likely.”

TXU execs were right. So while investors lost billions, stockholders celebrated and TXU CEO John Wilder walked away with a $277 million payout. Well played!

Today, EFH officials point out that they completed three coal plants, added 1,900 jobs, improved customer service, and operated plants safely. They insist the balance sheet trouble hasn’t contaminated the utility, and the lights will stay on.

Others believe some effects are inevitable.

It’s hard to imagine EFH investing in new generation for years, for instance. But we’ve seen major institutions survive terrible ownership.

The Texas Rangers suffered a lost decade and went bankrupt, yet the team is stronger than ever under new leaders.

Another sports owner, Mark Cuban, could explain what happened with TXU. He’s had many failures—starting a bar, selling powdered milk, getting fired—and they shaped his philosophy.

“It doesn’t matter how many times you strike out,” Cuban once wrote on his blog. “In business, to be a success, you only have to be right once. One single solitary time and you are set for life.”

That’s the way to make, and sometimes lose, a fortune. But is it any way to run a utility?

Mitchell Schnurman is an award-winning business columnist.

IKER AYESTARAN

In the biggest leveraged buyout ever, only the sellers made out.

72 D CEO OCTOBER 2012

BL_ENERGY_OCT12.indd 72

8/17/12 3:00 PM

DALLAS COWBOYS 2012 HOME GAMES Preseason St. Louis Rams Miami Dolphins Regular Season Tampa Bay Buccanneers Chicago Bears New York Giants Cleveland Browns Washington Redskins Philadelphia Eagles Pittsburgh Steelers New Orleans Saints

Saturday, August 25 Wednesday, August 29

7:00 p.m.

7:30 p.m.

Sunday, September 23 Monday, October 1 Sunday, October 28 Sunday, November 18 Thursday, November 22 Sunday, December 2 Sunday, December 16 Sunday, December 23

Noon 7:30 p.m.

3:15 p.m.

Noon* 3:15 p.m.

7:20 p.m.* 3:15 p.m.* Noon*

*Kickoff time subject to change. All times are Central Standard Time.

For information or to rent a luxury suite, contact us today!

817.892.4470 suites@dallascowboys.net Availability subject to change without prior notice.

DallasCowboys_DCEO0912.indd 1

8/13/12 12:52 PM

“They understand my business, which helps me make better banking decisions.

Through thick and thin, Texas Capital Bank has been a true partner.”

L.C. Tubb Jr., President and CEO | MICA Corporation

A road warrior stays put. In 1998, MICA President and CEO L.C. Tubb was one of our first clients — and a founding stockholder. Since then, we’ve met MICA’s growing needs, providing this Texas highway infrastructure company with financing for facilities, real estate and equipment, as well as depository and treasury management services. For valuable insights from banking professionals who are committed to seeing your business succeed, contact The Best Business Bank in Texas®.

214.932.6600

www.texascapitalbank.com Member FDIC

TexasCapitalBank_DCEO1012.indd 1

NASDAQ ® : TCBI

8/13/12 12:53 PM