Modern by nature

In 2000 Modern Group was declared one of the best employers to work for by the Pennsylvania Chamber of Business and Industry. John OÔÇÖ Hanlon gets a taste of how Modern continues to grow in tough times from president and CEO Dave Griffith. Just occasionally, ethical employment and service principles come together with an acute market awareness to form a great business. If you have the former without the latter, youÔÇÖll never create value; the other way around and the model lacks sustainability.    Dave Griffith has been at the helm of Modern Group since 1992, and in those 16 years he has seen it continue to grow into the fourth-largest materials handling provider in the US. That didnÔÇÖt happen by accident. One reason is that Modern Group supplies a service that businesses rely on. There is a market out there for capital equipment like forklifts, backhoes, front-end loaders, generators and the like. For some companies it makes sense to own it, for others rental with full service is a better option, and Modern Group serves both types of customer with every kind of industrial and construction equipment. But this is a competitive market in which many players either get bought up or stay small, niche players. Having a strong, diversified business has been important since it was founded in 1946; today it sells, leases and services a portfolio of more than 400 products from 22 locations in Pennsylvania, Maryland, Delaware and New Jersey, as well as providing professional training for the operators of this equipment.The value of Modern GroupÔÇÖs shares has grown by an average of 10.4 percent over its entire 60-year history. In 2003 the company became wholly owned by its employees through its employee stock ownership plan (ESOP), first established in 1981. That move encapsulates the corporate philosophy of maintaining strict ethical standards in all aspects of the business and sharing the fruits of success. However, employee ownership is also a good way to meet financial goals, which include not dropping the 10 percent stock growth average and growing the business faster than inflation. ÔÇ£Because our people own the company, they have a real interest in making it better, satisfying the customers and growing the profits. More than half of our profit is shared under ESOP,ÔÇØ Griffith explains.Modern GroupÔÇÖs financial strength is one of the reasons it is doing so well, even in the somewhat adverse trading conditions prevailing today. Aside from the growth targets already mentioned, it maintains a lower debt-to-equity rating than is common in the industry and a strong cash flow position. ÔÇ£Low gearing and a strong financial management philosophy mean that we can move quickly when the opportunity arises,ÔÇØ says Dave Griffith. ÔÇ£At any given time we have three or four acquisitions under consideration; by the end of this year weÔÇÖll probably have brought another two companies into the group.ÔÇØ After they have worked 1,000 hours (about six months), the employees of these companies will be able to join ModernÔÇÖs ESOP. The money they accrueÔÇöbetween 8 and 14 percent of their salaryÔÇöwill be used by appointed trustees to buy Modern Group shares, if available, or related high-performing stock if not.Even a company with a strong balance sheet finds it difficult to make a profit these days. Griffith is pragmatic. ÔÇ£Construction is down between 25 and 35 percent. ItÔÇÖs an ugly market right now, and IÔÇÖm not expecting it to get better for some time. Housing is at a standstill, and commercial and industrial projects are slowing down. And margins are always tight in this business, particularly on the sales side. WeÔÇÖve increased our share of the materials handling market at the expense of margin.ÔÇØBut ModernÔÇÖs financial strength will see it through, and when housing picks up again and those stalled industrial contracts are revived, it will be a leaner and better place to service them. Meanwhile, there are revenue streams that have been less affected. Stevedoring is an example. Modern has a lot of long-term contracts with the ports of New York, Wilmington, Philadelphia and New Jersey, where it supplies anything from Hyster forklifts to heavy equipment for handling 50-ton containers.Communications and technology matter to ModernÔÇÖs customer-focused strategy. Not many CEOs make their cell phone numbers public, but accessibility is something Griffith believes in as part of an open-door, open-book policy. Among other things, this means that any employee can speak to any manager if he or she has something to say, and that manager has to listen. Financial results are shared monthly via email. On top of all that, Griffith and his CFO make a point of meeting everyone at least once a yearÔÇöand itÔÇÖs the employees who set the agenda for these roundtable encounters.Communication is a way of life, but technology helps it work. Before he joined Modern, Griffith spent 13 years in various assignments at IBM, and Big Blue no doubt has something to do with the level of IT sophistication: itÔÇÖs far ahead of any competitors. For example, Modern uses MS Dynamics for its customer relations, MS SharePoint for its document handling, and the company is a beta-test site for both Microsoft and Cisco Systems. ÔÇ£We have a unique, world-class IT network,ÔÇØ he says with pride. ÔÇ£We can do a lot of things other companies simply canÔÇÖt. I can reach any one of our employees in minutes, and our customers can reach any of us, anytime. Everyone has either a laptop or a wireless and uses it to access internal data or to give customers the information they need.ÔÇØTechnology helps deliver the projected 10 percent annual productivity improvement needed to hit financial targets. It also saves costs. An early adopter of VoIP, Griffith estimates that this and least-cost routing have saved $2 million on traditional long-distance calls.Modern has been a Hyster agent since 1955. Its reputation for quality of service and its financial strength secured it a distributorship for Generac Power Systems, the manufacturer of standby generators, as recently as 2004. In between, it has partnered over the years with some of the greatest plant and equipment names. But though Pareto prevails, in that 80 percent of its revenue comes from 20 percent of its brands, Modern prudently doesnÔÇÖt allow any single vendor to account for more than 20 percent of its business. ThatÔÇÖs in all the stakeholdersÔÇÖ interests and helps cushion the business from the fortunes of any one supplier.As Modern enters into its 64th year, its focus has not changed, and its tag line says it all: ÔÇ£Modern keeps you rolling.ÔÇØ┬á