TacomaÆs turbulent times (part 2)
Internal Chaos. Morale at the port authority plunged in February 2008 when Farrell reorganized the top level of the organization ' a move that current and former employees say contributed to critical missteps.
Instead of having all senior staff responsible for different functions at the port directly report every week to the executive director and his deputy, Farrell created a group of six chief officers who were in charge of everything and became his conduits for information.
The top advisers were called 'The C-Team:'
' Debbie Givens, the head of information technology, became responsible for human resources, contracting and finance. The person in charge of the port's financial strategy, capital formation, budgeting and accounting is now a mid-level director without direct access to the top executive.
' Louis Cooper, the head of maintenance, was named chief operating officer and assumed responsibility for terminal operations, labor relations and security, which instantly led to the resignation of the security chief. Before joining the port in August 2005, Cooper was director of housing operations and property management for the Tacoma Housing Authority, where he was responsible for residential services among other areas.
' Julie Collins, in charge of government affairs, became chief external affairs officer with a portfolio that includes media relations, marketing and community outreach, a situation that placed more emphasis on lobbying than promoting the port's services, critics say.
' Lou Paulsen, chief of sustainable development, also oversees the planning, engineering and environment departments.
' General Counsel Bob Goodstein and Deputy Director John Wolfe, who also handles commercial lines of business, are also part of the leadership team. Prior to joining the port in 2005, Wolfe spent two years leading the nearby Port of Olympia. His background includes 10 years of operations with APM Terminals in Tacoma.
A new Commercial Strategy Group is now one layer down the organizational chart.
Critics charge that there was little direct experience in finance or the maritime industry at the top level.
'There were a lot of real head-scratchers. The way the whole thing was done was very insulting to a lot of people and the organization never really recovered,' one former insider said. 'The end result was that there were no candid conversations, no people that pointed out problems. Problems were marginalized. The people who knew what they were doing were being ignored.'
Sources contend the lack of feedback contributed to mistakes that cost the port millions of dollars. They said that concerns during the NYK project, for example, were filtered by the C-Team even though it became clear to staff managers that the port was not going to be able to hit the 2012 deadline.
'We were told, 'Don't worry about it. There are enough outs in the contract. Keep doing what you're doing.' It was obvious we were not going to make the original schedule and that was bought up early on. By the fall of 2007 we knew already that schedule was extremely tight,' another individual said.
'I think there's been a lot of distrust within the organization ' He surrounded himself with people who are part of Tim's club' and didn't bring concerns being voiced to his attention, the ex-official said.
Under the new arrangement mid-level managers brief senior staff once a month. 'If one hour a month is all you can spare' on operational issues 'it sends a message to the organization that this is not the most important thing' and people went in different directions trying to fulfill their own goals, the port veteran said.
Farrell defended the restructuring, saying changes at the top and within business lines were intended to make the organization more responsive to customers. Having more skilled people with access to better analytical tools will enable the port to show customers how it can add value to their business, and thus maintain its competitiveness, he said.
The decision to lay off personnel last summer wasn't simply made to husband short-term resources, but was part of a broader evaluation of the organization's future needs. The calculation built up from zero rather than simply cutting from the existing workforce number, Farrell explained.
'We didn't start the process by saying we need to save money by cutting people. We started the process by saying here's the next 10 years. What do we need to be successful?' he said.
Farrell pointed to the communications division as an area that has increased staff during the past five years because of the port's desire to maintain strong relations with the community. A recent survey shows 84 percent support for the port as a public entity and the port sees that as a competitive advantage, he said.
Asked whether the internal reorganization has been a success, Petrich, the board president, would only say, 'I think the jury is still out.'
Last summer, Farrell let go 47 employees in what was termed a cost-cutting move to cope with the downturn in revenue.
Dozens of staff members in May sent a 'no-confidence' letter to the board about Farrell, which Marzano characterized as a typical reaction for disgruntled workers.
Among the complaints was that Farrell wanted terminated workers who received severance packages to sign one-year non-compete agreements. Marzano said the board and the port director amended the terms to a six-month period and that only senior staff were restricted from working for other port districts. Sources said non-compete provisions are common for termination deals, but that the port's list of restricted organizations was unusually long and included the Washington Department of Transportation, the U.S. Army, the U.S. Postal Service and Sam's Club.
Several former employees told American Shipper they thought the layoffs were driven by personalities rather than finances. Terminations appeared to fall on those who asked questions about major decisions and were outside of the executive director's inner circle, they claimed.
'There was also a feeling, if you raised doubts, that was interpreted that you were not fully behind this program,' one said.
As evidence, a source pointed to the elimination of Chief Financial Officer Jeff Smith's position. On Aug. 11, one month later, the port posted on its Web site an opening for a CFO.
'I think there was pressure from the commission that the finance person had to be on the C-team,' another former manager said of the about-face. Farrell's performance review last year included a negative note that the executive team did not include a financial expert.
Meyer, head of the Foss Waterway Development Authority and a former deputy executive director at the Port of Tacoma, faulted Farrell in a telephone interview prior to the election for trying to bury the CFO position in a lower part of the organization.
'I find it unacceptable to not have a CFO that is reporting to the executive director. I have a real problem with that. I think the organization chart is bizarre. I want to make certain there is appropriate recognition of the importance of financial analysis,' he said.
Farrell said the CFO position was created earlier this year in response to staff feedback.
Others said it was a mistake to get rid of the port's chief engineer and engineering personnel, even if no major expansion projects are anticipated for several years, because the port still needs someone to put together a strong preventive maintenance program and address bottlenecks such as rail grade separations.
One former manager speculated that the capital improvement program budget would go from $150 million to $180 million per year to about $25 million per year. The port was scheduled to release its preliminary 2010 budget in early November.
Former personnel also said the port's finances were not as grim as portrayed. One source said figures at the end of June showed the port's year-to-date profit had dipped slightly but was still about $6 million.
'The books have been in the black before and after the layoffs,' another ex-staff member said.
In 2008, the ports operating income fell $2.8 million to $16 million, primarily due to higher environmental costs. Add in interest expenses and the port barely broke even at $340,000. The primary reason the port has not lost money, they said, is that fixed, long-term leases from the port's real estate holdings have more than covered the cost of operations, even as variable revenue from carriers' guaranteed container minimums and fees from fewer intermodal lifts dropped. Property rentals accounted for 75 percent of the port's $98.2 million in operating revenues last year, according to its annual report. The port's diverse business activities, such as breakbulk, roll-on/roll-off and warehousing, also provide a cushion.
A second former official also said the port was on target to meet its budget when the layoffs occurred, but acknowledged that leadership may have been preparing for a run on cash to meet burgeoning environmental and planning costs associated with the NYK project. With the project idled, executives could be forced to expense costs that no longer can be capitalized because there is no long-term value to the project.
'They lost a lot of expertise and spent a lot of money with the buyouts. That experience will never be gained back. Whether they needed to make those cuts to meet their cash flow projections, I don't know,' the source said.
An executive for one marine terminal said he was concerned there might be a learning curve for some personnel taking on new responsibilities, but had not experienced any problems so far.
Adding to the indignation, according to one source, was that Farrell did not accept employee overtures to share the pain through furloughs or pay cuts to help save jobs.
As for 2009 financial projections to be released in November, Farrell said cash flow from core business is still solid but that the port will probably show a loss because it has to write down a number of assets.
Customer Frustration. Port insiders and users say that Farrell's focus on striking big, splashy deals to build new terminals came at the expense of customer service, although officials contacted at two ocean terminals seemed satisfied with their
situation.
Several current and former employees said Farrell isolated himself from regular staff and managers, preferring instead to get all his information from a handful of top executives. He also spent a lot of time traveling and participating in speaking engagements. The lack of contact with employees and customers, they said, meant he wasn't tuned into day-to-day operations and needs.
Farrell's departure is 'the best thing that could have happened' for the port, said Gina Lyons, past president of Puget Sound International, a third-party logistics provider with a 150,000-square foot warehouse facility on port property and a fleet of 120 dry and refrigerated trucks. Lyons, who recently sold the company, also owns Total Freight Logistics, a freight forwarder, and truck maintenance firm called Port City Services, both of which are located at the port.
In the 1990s, the port's trade development office was instrumental in matching her up with overseas customers.
That customer attention began to wane under Farrell's predecessor, Andrea Riniker, and worsened under the current regime, she claimed.
'We're at the point where I know very few people at the Port of Tacoma. Before they were a facilitator. If they knew a customer was coming to town that might do business with the port, they'd call me and my competitors to see how we can get more business. They gave me contacts.
'They knew my business. I knew their business,' Lyons said.
'The people at the port know I'm very frustrated. Frankly, Tim Farrell never introduced himself to me. He doesn't know me or any of my staff,' she complained.
Farrell said, 'If that concern is out there we definitely want to hear it from our customers directly and address it.'
Officials contacted at two ocean terminals seemed more satisfied.
'We have a good working relationship with the port. They've always responded very well on crane repairs' and other day-to-day issues, said Steve Bassett, general manager of the Husky Terminal.
The Future. The elected port commissioners have also come under scrutiny in the local press and elsewhere for their lax oversight of the administration.
'The culture at the port is to very carefully message and control contact with the commissioners. They are starting to realize that the information they receive is not always complete' and that they need to ask more specific questions, a former manager familiar with the situation said.
'A lot of executive sessions were massaging what was going on so that when there was a public meeting it almost always ended in a 5-0 vote. Some of that is starting to change' in the wake of missteps as commissioners realize they need to take a more active role, the source said.
Meyer said that someone with his background redeveloping areas impacted by industrial contamination is needed on the board.
'It's important that the port have someone familiar with consent decrees' and dealing with the EPA and Washington Department of Ecology on how to excavate, treat and remove toxic material, he said.
The NYK project turned into a problem, he said, because 'somebody didn't do their homework on the port commission and didn't ask enough questions about the risk or range of risk.'
Meyer said that if he's elected he'll also question the value of the port's five overseas offices, saying it's not clear that the business value they bring justifies the cost.
'My perspective is that it isn't business as usual (in today's economic environment). So I want to make sure the sales force is deployed in the right way. So, I'll challenge port staff to show' that, he said.
As for Farrell's departure, Meyer said, 'I'm happy to see what I call a rather embarrassing chapter in the port's history come to a close.'
Farrell will leave his post Dec. 31, and remain on paid leave through the end of May, according to terms of his separation agreement. His severance package ' counting salary, benefits and separation incentive ' totals $246,357. Farrell's annual salary is $220,000. Under the terms, Farrell agreed not to compete with the port within the region or specific business areas for six months. The arrangement is similar to one he eventually required for top staff when he cut employees last summer.
Deputy Director Wolfe will serve as interim port director beginning Jan. 1 while the port commission launches a search for a permanent replacement.
The port commission plans to hire a search firm and hopes to have a new executive director in place by the spring, Petrich said.
Farrell and Petrich where scheduled to visit shipping line headquarters during a swing through Asia in November to reassure them of a smooth transition.
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The port intends to develop a new strategic plan that takes into account the new economic landscape, Petrich said. Part of the planning will cover interim uses for the properties acquired along the Blair Waterway that were intended for the NYK terminal. Several manufacturers still on that land have become port tenants because they no longer need to be moved out to make way for the marine facility.
But Petrich made clear that the port has the ability and desire to redevelop that land for other ocean carriers when trade volumes turn around.
'Tim's put us in a great position for the future,' she said.