Fueling the Future

Transforming a sleeping giant into a lean, competitive oil and gas producer.
BY WELD ROYAL

The American Institute of CPAs wants all cutting-edge CPAs to step forward. As one part of the CPA Vision Projecta grass-roots effort to help CPAs come up with a picture of where they want the profession to be in the next century and then devise a plan to actually get therethe AICPA and state CPA societies are looking for pathfinders. Whether they work in business and industry, public practice, government or education, these men and women stand out among their peers. This month, the Journal takes a look at one such pathfinder, William Henry Harmon, president and chief executive officer of Columbia Natural Resources.

Forecasters called for snow as William Henry Harmon, then controller for Charleston, West Virginia-based Columbia Natural Resources Inc., known locally as CNR, rushed to the citys airport in midwinter two years ago. He was there to meet Rick Richard, chairman, president and chief executive officer of Reston, Virginia-based Columbia Gas System Inc., CNRs $6 billion in assets parent company, who was in town to announce layoffs.

Harmon remembers the day well. Columbia Gas System had recently emerged from bankruptcy, and CNR was in the throes of reorganization. Richard had told CNR employees the company would be forced to eliminate 40% of its staff. CNR CEO John Henning had decided to retire, and everyone expected Hennings successor to be named from outside the company. Harmon arrived at the airport, hoping he wouldnt be the next casualty. Little did he know that Richard and other corporate executives viewed the native West Virginian as a home-grown leader.

At the airport, Richard surprised Harmon with a question. He said to me, We think youre the one to take the reins; are you up to it? Harmon, a CPA, certified management accountant and economist, accepted the challenge and began his new job in February 1996.

Harmon devised a five-year turnaround plan to grow CNR and boost its profitability by drilling new wells, purchasing assets and expanding joint ventures. In 1997, the company embarked on a $65 million drilling and exploration program. By late that year, CNR had spent close to $32 million to complete 140 new wellsalmost three times the amount it had spent drilling 45 in 1996. (This year, it plans to drill 180 new wells.) In addition, Harmon invested $27.5 million in pipelines from another Columbia Gas subsidiary. Last May, CNR grew by 25% when Harmon acquired Alamco, a local gas and oil producer, for $101 million. Today, he is also seeking to buy production companies abroadnew ground for CNR, traditionally a leading producer of natural gas and oil in the Appalachian Basin. He currently is on the way to doubling CNRs size in terms of net income contribution to its parent company.

When he took on the CEO position, however, Harmon knew his toughest task would be completing the last round of layoffs the company had planned for April 1996the second time in his career hed had to oversee a downsizing. Those first few months were very troubling. I thought about the layoffs a long time before actually implementing them. As painful as it was, I think CNR did the right thing, he explains. It resulted in a more focused and flexible company with a sustainable cost structure. Harmon made sure each departing employee had a generous severance package and the services of an outplacement firm. To improve the low morale in the company stemming from the layoffs, he encouraged CNRs remaining staff to become involved in mentoring programs in their communities, even allowing them to take time off from work to do so. He also established a communications department to keep employees informed about company developments and make management more responsive to their needs.

Harmons changes come none too soon. Thanks to federal deregulation of the $300 billion oil and gas industry, analysts expect the largest 300 energy providers across the country (down from 350 in 1991) to consolidate into no more than 15 in the next few years. The survivors among these once monolithic utilities will be those who have stripped away excess and learned to adapt quickly to market demands.

As a result of Harmons achievements, the AICPA has chosen him as a pathfinder in its Vision Projecta massive effort to help its members redefine the profession to better face the challenges of the future. Harmons climb to the top of CNR took 20 years, and it was fueled by foresight, persistence and some gambles that paid off.


The Language of Business
Harmon grew up in West Virginia, where tourists go to hike and hunt in the forests, to Bungee jump off the worlds longest single-arch steel span bridge and to watch the occasional liars contests. No CPA has ever won one, he jokes.

As a youth, Harmon looked for inspiration to his aunt, who had reached the eighth grade before leaving school to work. However, she rose to become controller of a local department store chain. What she did was similar to what good accountants do today, only much simplerinterpreting data to project the needs of the business to keep vendors and financiers satisfied, explains Harmon.

Characteristics of a Pathfinder:
  • Develops and champions a successful new service for a firm, employer or profession.
  • Plays a key role in making a new service successful.
  • Has the ability to grow a practice or expand services to meet employer needs.
  • Makes extensive use of technology and has plans to increase use as new innovations become available.
  • Exhibits creativity and entrepreneurial attributes.
  • Sensitive to othersshows understanding and empathy.
  • Has personal plan or vision for the future.
  • Willing to take reasonable risks in order to grow professionally.

    Source: CPA Vision Project Web site ( http://www.cpavision.org ).

  • Harmon had aspired to become a basketball star at West Virginia Institute of Technology, but when a broken ankle leveled him in his freshman year, he decided to focus on his second love: accounting. He declared it as his major early and never swayed. I knew from watching my aunt that it was the language of business and if business was to be my career I would first have to learn that language, he says.

    In 1975, Harmonthe son of a supervisor at the states largest hammer and ax factorybecame the first in his family to graduate from college. With his degree in accounting (he became a CPA four years later), he quickly found a job in the corporate accounting group of another Columbia Gas System subsidiary, Columbia Gas Transmission Corp., where he worked on compliance issues. In his first few years, Harmon distinguished himself by exploring aspects of the business beyond accounting; he networked with colleagues in Columbia Transmissions field operations and in production to learn more overall about the company.

    When given a project, Harmon not only completed his part of it but also offered suggestions on what further steps to take. As a result, he often was assigned special projects. By 1983, Harmon had earned the responsibility of monitoring Columbia Transmissions accounting system. He wanted to be a part of the decision-making process, and when he didnt understand something he would ask our consultants at Arthur Andersen or managers in other departments, recalls Ed Lincoln, who worked with Harmon then and now serves as CNRs controller.

    By 1986, Harmon, then 31, was chosen as controller of newly formed Columbia Natural Resources. Those of us who joined CNR were seen as rebels for daring to take part in what was basically a start-up enterprise, he remembers. Harmon was responsible for pulling together a financial department of 50 employees in accounting, treasury, tax and information services for the new subsidiary. He supervised the overhaul of CNRs computer processesinvolving the migration of systems from a mainframe environment to a Unix-based platform. Henry realized the industry had to implement such changes to allow departments to function more efficiently, faster and at lower costs, but he saw it 10 years before our competitors, says Mark Chandler, CNRs current chief financial officer who then served as tax director.


    From Controller To Change Agent
    In a companyand industrydominated by engineers, finance was regarded as a backroom function, a problem to be dealt with, recalls Chandler. Harmon, seeking to raise the profile of finance to a key component in operations, exercised what colleagues call his greatest strengthhis ability to look at numbers and project the companys future position. For example, CNR was operating more than 60 gas well properties at that time, largely blindly, Harmon recalls. He applied basic finance tools to show declines or improvements in each propertys performance. Harmon also introduced more complex financial strategiessuch as cost controls in the field, benchmarking to industry standards and price hedgingto protect the company from fluctuations in natural gas prices.

    Despite Harmons success, CNRs parent company floundered as it struggled with federal deregulation of the industry. Columbia Gas Systems declared bankruptcy, and in 1991, as CNRs controller, Harmon had to oversee the first round of layoffs of his career: a 20% reduction in the staff he had recently hired. I thought to myself, Its time to explore other opportunities. Ill move out of the state, do something to move my career forward.

    But Harmon realized a move would prove difficult for his family and hated to abandon his home state. Instead, he decided to pursue a part-time PhD in political economy from the Union Institute in Cincinnati, Ohio. I saw this as a vehicle to propel me into the community, to give me an excuse to talk with business leaders. By 1992, Harmon had defended his dissertation on economic development in Appalachia and had earned his doctorate.

    In 1993, the West Virginia Society of CPAs recognized Harmon as its Outstanding CPA in Business and Industry. He was chosen because of his leadership at CNReven during a time of retrenchmentand for the forward vision we wanted others to emulate, remarks Patricia Moyers, executive director of the state society. He also had contributed to the community by giving seminars for small business owners on topics such as employment practices and recordkeeping and even had helped get small businesses going. On top of that, Harmon won the Accounting Advocate of the Year award from the Small Business Administration for helping entrepreneurs financially structure their enterprises.

    Harmons work with entrepreneurs also helped him begin to visualize the best niche in the marketplace for CNR in the next decade. As early as 1994, Harmon, while still controller, began to develop a strategy to turn CNR from a traditional utility into a lean provider of low-cost energy. The company he envisioned would rely no longer on federal regulations to tell it how to operate but, rather, on customer demand.

    Today, although Harmon continues to volunteer to assist small businesses, he spends most of his time implementing his strategy to transform CNR. Henry took a rather stodgy, inactive company and made the best of a bad situation, points out Jack Watson, CNRs operations vice-president. Look at the Alamco acquisition. Our competitors didnt see any value in the company, but Henry saw it as a way to gain volume, expand our development potential and add skilled technical employees to allow us to become the number-one producer on the East Coast. He has a way of looking at things and seeing what they can become.


    Embracing Technology
    Harmon also used innovative technology to grow CNR. Because the company was formed from a combination of successor companies dating back 100 years, it holds wells and seismic data almost that old. Putting 50-year-old information on microcomputers allows CNRs geoscientists to reinterpret it to develop new three-dimensional images of the earths subsurface and forecast gas deposits in unexpected places.

    Normally, wells are drilled to a depth of up to 4,000 feet. Reinterpreting old data showed CNR natural gas might exist at 7,500 feet below the surface. Our vice-president of geology and geophysics, Dick Beardsley, can talk to me for 15 minutes about rock formations and I wont understand a word of it, remarks Harmon. But Harmon did grasp one Beardsley assertion: If the company dug deeper, it would find gas. When CNR drilled five wells in the Finger Lakes region of New York at a depth of 7,500 feet, Beardsleys predictions came true. The company found 8 billion cubic feet of natural gas, one of the largest discoveries in its history.


    Management Training Pays Off
    Harmon also took a progressive approach to managing the companys greatest resourceits 325 employees. In 1996, in the wake of several widely publicized harassment cases at major corporations, CNR executives asked Harmon for training on diversity issues. He turned to a sociologist at West Virginia State College to launch an executive institute. So far, CNRs management team has participated in 6 of 22 sessions on topics ranging from minority recruitment to womens issues. Another strategy Harmon launched is an open-book management system, which has boosted the amount of financial data employees now receive. Today, CNR tries to keep its staff apprised of major developments, even explaining complicated financial concepts in its employee newsletter, Explorer . Employees also can check the current price of gas and the corporate stock price and glean CNRs financial cost targets on the companys intranet.

    Awards cover the walls in Harmons office. Last April, he was among a group chosen to join General Colin Powell and the former U.S. presidents in Philadelphia to launch a program to reach children at risk. He returned to Charleston and helped establish a computer lab in a local school. Some 23 CNR employees go to the school once a week to help children with math and computer assignments. Its a real morale booster for them, says Harmon.

    Its this blend of goals Harmon strives to achieve as he leads CNRpushing technological innovation forward while searching for new business areas and growing revenues and all the while demonstrating a sensitivity to the more human aspects of businessthat mark Harmon as a business leader ready to face the challenges of the future. Henry has a vision of where he wants the company to be and long-range plans to get us there, comments CFO Chandler. And he helps us move forward as a unit to achieve the common good.


    WELD ROYAL is a freelance writer based in New York City. Her articles have appeared in the New York Times, Europe magazine and on Christian Science Monitor Radio.

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