Joseph Berenato
Title:
Chief executive
Company:
Ducommun Inc.
Born:
1946; Atlantic City, New Jersey
Education:
B.S., engineering, United States Military Academy at West Point; M.A., English, University of Virginia; M.B.A., finance, New York University
Career Turning Point:
Moving from New York to Los Angeles in 1986
Most Influential Person:
His uncle, Frank Berenato, and his mentor, Ed Farley, former vice chairman of Manufacturers Hanover Trust Co.
Personal:
Lives in Rolling Hills with his wife
Hobbies:
Reading, especially historical fiction and current events; playing basketball
Founded more than 150 years ago as a mining outfitter, Ducommun Inc. is the oldest company in California. But just 10 years ago, hardly anyone knew it existed. Some of its own clients didn’t even recognize the Ducommun name. So when Joseph Berenato joined the Carson-based aerospace manufacturer as its chief financial officer in 1991, the company was faced with the peculiar challenge of making itself visible not only to potential new customers, but also to existing ones. When Berenato became chief executive of the company in 1997, he was afforded the opportunity to turn Ducommun from what was essentially a holding company with disparate subsidiaries into one cohesive business. In doing so, the aerospace company has grown five times in a decade. With its hands in numerous high-profile projects, like supplying parts to Boeing’s C-17 and 737 programs, Ducommun has run its annual revenue up to $335 million. Berenato, a military man with a financial background, is quick to share credit with his management team. He led the company through a series of acquisitions to position itself as a rapidly emerging player in the aerospace industry. And Berenato has made tough decisions to benefit the company, from outsourcing to shaking up high-level management.
Question: A chief executive often has to make difficult decisions. What qualities do you think make someone good at this job?
Answer:
There’s always the tension between the strategic thinker and the person of action. Some people are great at developing strategies but have difficulty in executing them. Some people are excellent at executing on any task given to them but can’t decide what to do next or where to go. So the challenge for the CEO of a company is to meld those two impulses to be able to set a strategic direction and then actually execute it. I don’t think there is a single path to success, but you’ve got to lay out that path clearly to its conclusion and then relentlessly execute that plan to make forward progress. It’s that combination of things. People tend to favor one activity over the other. Here you’ve got to blend the two.
Q: Unlike the heads of many mid- and large-sized companies, you seem to be very accessible. Is this a conscious choice?
A:
We’re not big enough to where there needs to be layers of people to protect the CEO, so my thought is that anybody ought to be able to reach me as long as it makes sense. So I’m very accessible to shareholders, I’m very accessible to money managers, analysts, reporters, government officials, educators, other business leaders. What I’m not very accessible to are folks who are looking to sell us something. And I’m absolutely not accessible to folks who want to invest my money for me mainly because I tell them I don’t have any. I have debt to pay down. Everyone’s got a hot stock tip. Not interested.
Q: After working at Manufacturers Hanover Trust Co., a New York bank, for about a decade, you ended up at an aerospace company that builds parts for a variety of military aircraft. Having graduated from West Point and serving 11 years in the Army, do you think your military background played a role in your ending up at Ducommun?
A:
I think it was just fortuitous. When I was in banking I was involved in lending to a broad range of companies, including aerospace companies, but that wasn’t the predominant area of involvement. Certainly with respect to working on military contracts and understanding how the Defense Department and the military works, I’ve got some familiarity with that from the user side of the equipment. So there’s probably some residual benefit there.
Q: How would you describe Ducommun of the early 1990s?
A:
We’re a very different company than we were then. Back in 1991 we were $70 million in sales. We had three small subsidiaries that were all aerospace-oriented. The company had a market cap of about $13 million and a lot of debt. In 1997-98 we were a holding company that owned six separate subsidiaries, each one with its own name, its own marketing staff. They truly operated autonomously.
Q: What was the larger effect of this on the company?
A:
Our customers didn’t know who we were because all these businesses had their own names. I went up to Boeing in 1999 to talk to them about an issue and I made reference to the fact that Ducommun did over $100 million a year in sales with them and the response was, “Who’s Ducommun?”
Q: It’s pretty incredible that Boeing Co., one of your largest customers, didn’t even know who you were.
A:
I think it really was an epiphany for me because each of our businesses had very strong relations with the aspects of Boeing that they did business with. But Boeing as an entity had no clue as to who we were at a higher level. At the purchasing level, a given purchasing officer might know (former Ducommun subsidiary) AHF, but he knew nothing about Aerochem or Brice or any of the other businesses. So while it was a very personal, very intense relationship, it didn’t translate higher up in the organization.
Q: What did you do to try to resolve this problem?
A:
In 2000, we took all of our structural business fuselage skins for aircraft, leading edges for wings, other build-to-print structural components we put them together, forming one company called Ducommun Aerostructures. In 2002, we created Ducommun Technologies. Again, we took several of these small, independent businesses and merged them. By putting the businesses together, externally we got much more visibility with our customers; they understood us to be a more important supplier. Internally, it gave us some critical mass so that we could afford, if you will, the resources in each of these businesses to take on some important projects. So today, we’re about $350 million in sales and have a market cap of around $280 million.
Q: That’s impressive. What’s been your role in driving that growth?
A:
It’s very much a team effort. I’m not a fan of the notion of the man on horseback being the change engine. What’s important is to build teams of people who have a common goal. That’s how you create lasting change and instill a new and different culture in an organization. Obviously somebody has to set the direction, and that’s me. But the direction and the actions that flow from that ought not to be a shock and a surprise to the people who are working with you.
Q: As the company went through these changes over the past few years, has there been any internal unrest?
A:
Over the last three years, we have turned over better than 50 percent of our senior management team. We’ve had to make some of those difficult decisions because the skill sets required to operate a larger company are different from the skill sets required to operate small, independent mom-and-pop shops. It’s not that they’re better, it’s that they’re different. As we were making this conversion we had to make some very tough choices about who could help us continue to grow in that direction and who could not.
Q: The country currently has a significant military presence in the Middle East. From a business perspective, how directly is your company impacted by U.S. military activities in a time of war?
A:
Our biggest program today is the Apache helicopter blades. Virtually all the blades we build are spares. So the tempo of activity in Iraq and the use of Apache helicopters to support our troops in Iraq mean that there is high usage of those blades. After a certain number of hours, they need to be replaced, so we’ve seen the volume of blades that we build go up over the last several years and it will probably continue for several more years. At some point, when the Iraqi environment becomes more peaceful, we’ll probably see the level fall. In terms of the Apache helicopter blades, it has a very direct correlation to the activities in Iraq.
Q: Another military program your company is involved in is work for the C-17. Boeing recently announced plans to continue production on the aircraft with the expectation that Congress will approve a defense budget that allows the purchase of more planes. How does dealing with a volatile program like that impact your company?
A:
It’s our second-largest program, or it may be our third-largest program behind the 737. But it’s significant program for us and of course we’d love to see it continue. The good news is there’s a real need for it. It isn’t some kind of boondoggle or pork. The country really needs these airplanes, so hopefully it’ll get them.
Q: But it seems like it’s always in jeopardy of losing funding. What about that?
A:
This will go on every year until one year there won’t be any money and then the line will shut down. My personal opinion is that is somewhere between 2010 and 2012, that’s the most vulnerable period where the line could shut down. It’s also equally likely that they’ll develop a revised model of the aircraft and buy more of them for a long, long time. But I think the period of high risk is this period from 2010 to 2012 when the Iraq budget will really be squeezing a whole variety of priorities there’s the joint strike fighter, there’s the F-22, there’s the possibility of a new bomber, there’s the tanker program. So you’ve got all these competing aircraft programs that are looking for money. The issue is which constituencies will prevail.
Q: Ducommun recently announced it is building a manufacturing facility in Mexico. This comes after the company opened a similar facility in Thailand a year ago. Outsourcing is a dirty word to some, but your company seems to have embraced the concept.
A:
Some people might argue that you’re sending jobs overseas, but in fact what we’re doing is creating a business model that allows us to be competitive and to win new work. And in winning new work, yes some of it will be done in Mexico and Thailand, but a lot of it will be done in the United States, creating new jobs. So, it’s the fact that we can provide a global solution that allows us to continue to grow and create more jobs in the United States.
Q: So by outsourcing you are actually increasing the number of American jobs within the company?
A:
If we were to say we would only do the work in the United States and be noncompetitive on price and not get the contract, we would actually have to shrink. So, we’re in an environment where we’re creating jobs both in the U.S. and overseas by winning the contract. By losing that contract we would lose jobs.
Q: Do you plan to continue expanding your offshore operations?
A:
We will move more work overseas, but our hope and belief is that it will be primarily new work that is won, where we’ll stage some of the work overseas and some in the U.S. What we’re not looking to do is to pick up a factory in the U.S., shut it down and move it all overseas.
Q: Does your job afford you much free time? What do you do outside the office?
A:
I’m coaching my son’s basketball team. I’ve coached for a long time. A classmate of mine from college is Mike Krzyzewski, the Duke University men’s basketball coach. So when I started coaching my oldest boy when he was 7, I wrote Mike a letter and I said to send us Duke stuff so I can give them to the kids, which he did. I said if you have any advice, give me that, too. He said, “I do have one piece of advice for you. Whatever you do, don’t teach them how to shoot. You have the worst form I’ve ever seen.”
