A few short months ago I blogged an open letter to Windstream's CEO, Jeff Gardner. In it, I urged him to take a new tack in the voyage through the seas of staid, incumbent provided telecommunications and try a newly charted course. I also mentioned some ways in which he could empower everyone in the chain of command to be a part of contributing to the welfare of the company. Primarily, I focused on the power of people and interpersonal communications to bridge gaps between departments and fiefdoms within a large corporation. To value an opinion no matter the source. To take care of human resources who, in response, will take care of the company in return. To leave legacy ILEC ideas in the past and branch out to the fast moving competitive world.
I got a lot of feedback on my post, mostly from former PAETEC employees here in Rochester as well as a smattering of anonymous posters from all over the US. I could tell there was some interest in what I had to say from the number of hits I got on my site. But, hits weren't my objective. My goal was to offer unsolicited advice to a guy I never met and how I think he could make his 14,000 person organization run a little better, especially during integration of a large acquisition.
Well, time has passed and my previous blog has faded into memory. What hasn't faded into memory is the pain shareholders are feeling right now. As all who hold this company's equity are aware, the share price has dropped precipitously in the last few weeks. Following a lukewarm 1Q earnings report, the vultures have begun to circle above the wounded beast. Despite assurances from management, it appears more are betting the stock will fall farther than are willing to hold it and hope for better. As Dick Fuld, CEO at Lehman Bros., learned a few years back, confidence is hard to restore once the market bets against an equity. Some posters, analysts and pseudo-know-it-alls are predicting Windstream will follow the path of another similarly situated provider - Frontier - and cut its dividend. That would not be good as a dependably paid dividend is a mark of extreme confidence in a company's cash flow.
I can't add or detract from any of that information. Having no insight into the marketplace or the internal workings of the company, I am out of my league talking about how the equity markets view this company. I have no insider information and my opinion on public filings is as good as any other's. All I can say is that Windstream appears to have a solid strategy of migration from a dying retail rural market telecommunications business to a multi-faceted, multi-product business provider with an eye toward using advanced broadband technologies and data capacity in reaching that end. However, it'll be a tough row to hoe. Windstream's fairly steep debt and a reduced cash flow don't help. Another quarter like 1Q12 and it will be an even less happy time in Little Rock.
Today (5/31/12) comes word that Windstream is actively working to improve cash flow. Obviously, for those who've been around business for a while, the quickest way to cut expenses or the frequent outflow of cash from company coffers (aside from not paying a dividend) is to lay people off. In most large companies people are its most expensive asset. In order to please shareholders, reduction in expenses usual results in some pain to certain individuals. Taking a fairly predictable course, Windstream is reportedly letting go 350-400 fathers, mothers, sisters, brothers, friends and formerly loyal employees. This news comes on a day where the rest of America awoke to news of a slow down in nationwide hiring and hints that the good news we had expected about the economy's growth might merely be just a blip among more of the same bad news we've heard for four years. Hints the national recovery was stalling morphed into frightening reality as the BLS May labor statistics were released on Friday the 1st of June. Ugly.
I don't fault the company for doing what it had to do. Its sole purpose is to add value to the money strangers invest in it. But, let's hope this latest round isn't just a pealing bell of more bad news to come.
We up here in the north country know what bad news is like. A few short decades ago, Eastman Kodak employed 65,000 people in Rochester. One day in the 1990s, Kodak began to look at expenses closely in a rapidly changing marketplace. Too slow to respond, Kodak began to bleed money. The finely honed butcher's knife of employee layoffs became a bloody ax. Today, about 7,000 Kodak employees call Rochester home and the company is working out its finance in front of a federal bankruptcy judge. My, how things change! Well, fortunately, Rochester is a resilient place with a talented workforce. Despite Kodak's near demise, our economy remains one of the strongest of any city in New York. Further, most of the Kodak employees who were shown the door have either found other work or have gone back to more community or family oriented pursuits.
But, the organization that once turned on them has felt the pain of its own misdeeds. Shareholders of Eastman Kodak have truly suffered because of management's inability to rapidly respond to technological changes, motivate employees to get trained to adapt to those changes and turn the company towards the future. The company's answer was the one heard time and time again throughout American corporate history. No fresh ideas, no departure from Business 101. If the company doesn't meet Wall Street earnings expectations, start cutting heads.
Come on up here to the Kodak HQ on State Street and the now empty miles of formerly humming factory buildings on Lake Avenue and see how that worked out.
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