The Man Who Guided Fluor Through Tough Times Stepping Down : Engineering: Five years ago, many thought the overextended Irvine company would go under. Then Chairman David Tappan launched a restructuring that led it back to profitability.


In his wood-paneled office, David S. Tappan Jr. keeps a small gold Buddha, a gift from the deputy minister of Thailand. He has placed it on a special altar because Thai custom requires, out of respect, that Buddha be viewed at or above eye level.

Attending to such detail in order not to offend a foreign customer and dignitary is a mark of the silver-haired chairman of Irvine-based Fluor Corp. Tappan’s adaptability, shrewdness and hard work are credited for his 38-year rise through the ranks at Fluor.

Those same traits also are responsible for his crowning achievement: Rescuing the troubled international engineering and construction giant with a gut-wrenching restructuring and returning it to profitability and leadership in its industry.

“There is no doubt in my mind that he (Tappan) is going out a winner,” said Mark Altman, an analyst with Paine Webber.


Indeed, Tappan will retire from Fluor at the end of this month as a hero in the eyes of many employees and stockholders. That mantle did not come easy. He endured a lengthy period of difficulty and criticism that he admits he would not want to relive.

“I’m ready to retire,” he said in a recent interview. “There is no question about that. I don’t want to repeat the last 10 years. We came through the Valley of the Shadow of Death here.”

Tappan is confident that he is leaving the now-robust company in good hands. He said the team of executives--headed by Chief Executive Officer Leslie G. McGraw--that saw the company through its harshest trial is battle-hardened and prepared for anything.

“They know it is not all beer and skittles, and not all sunshine and sweetness and light,” he said. “It is tough and unpredictable.”


That was the case in September, 1984. J. Robert Fluor, who had headed the company founded by his grandfather for 22 years, died of lung cancer. Tappan was handed the helm as Fluor’s chairman and chief executive officer.

But he was given a sick company. The problems stemmed from management’s decision in 1981 to go on a natural resources buying binge. The company, renowned as a builder and designer of oil refineries and petrochemical plants worldwide, decided that the time was right to invest in minerals--lead, coal, gold and others.

Wrong. Just as the company was making its move, the economy went into a recession. The hydrocarbon and minerals industries went into a tailspin. And Fluor, which had survived many boom and bust cycles in the oil business, was hobbled for the first time with a large long-term debt--a result of its $2.2-billion acquisition of St. Joe Minerals Corp., a big gold and base metals producer.

Fluor earned $159 million in 1981. But earnings deteriorated during the next three years and disappeared in 1985, when the company lost $633 million. In 1986, it lost another $60 million.

Tappan said he recognized the seriousness of the situation. “When you have more than $1 billion of long-term debt hanging around your neck and the business stops, that’s bad,” he said. “That is the stuff of which companies don’t recover from.”

Competitors were predicting Fluor’s demise to their customers and even among themselves. “I had feedback that they were (saying) Fluor was not to be considered any longer in planning, that we were gone,” Tappan said.

But he never lost faith. McCraw, who will become chairman on Jan. 1, said Tappan “saw the light when probably many people in the company saw only darkness. He was the steadying force. He had the vision of what we could achieve.”

Tappan, who jokingly says optimism is in his genes, said that at first he thought Fluor could simply retrench as it had in past down cycles, surviving by making layoffs and waiting 18 to 24 months for a rebound. Soon it became clear that fancier footwork was required.


“You learn that the old things do change and the same old repetitive instinctive reactions could be wrong,” he said. “You have to be innovative.”

So after many late-night and weekend brainstorming sessions with his staff, Tappan used his skills as a consummate salesman and charted a new course. Fluor restructured by selling off its minerals, oil and gas operations and refocusing on its core engineering and construction business. It also merged Fluor Engineers, its traditional hydrocarbon engineering unit, with Daniel International, a non-union contracting subsidiary based in Greenville, S.C., that Fluor had acquired in 1977.

“He inherited the biggest mess anyone could have got hold of,” said Bill McKay, who retired as a group vice president of Fluor in 1985. “He was very cool about it and analyzed the situation. He pulled the company back from the brink of disaster and made an even better company out of the wreckage.”

Unlike Fluor Engineers, which was accustomed to designing large hydrocarbon mega-projects overseas, Daniel had domestic construction experience in a wide variety of industries. That helped Fluor in a major push into new markets.

The combined entity, Fluor Daniel Inc., began offering its engineering and construction services to 25 industries, ranging from food processing to chemical and automotive manufacturing, both in the United States and abroad.

Fluor downsized dramatically. Numerous assets were sold, including Fluor’s landmark headquarters in Irvine, to raise funds to pay down debt. The company slashed its payroll from 44,000 in 1981 to 14,000 in 1987. Tappan was derisively dubbed the “ice man.”

Tappan said it was difficult to lay off workers, some of whom he considered best friends. He said he insisted on notifying managers and higher executives himself. “They appreciated that I did it personally, but that didn’t help a lot,” he admitted.

Today, industry analysts say Tappan’s tough decisions saved Fluor. The turnaround is complete, as is clear from the company’s earnings. Last week, Fluor posted a profit of $146.9 million for fiscal 1990, up 35% from the $108.5 million earned last year.


Because of its industrial and geographic diversification, analysts say, the company is well positioned to withstand the current weakening of the economy. Also, with a resurgence in the hydrocarbon industry, Fluor once again is winning large contracts to design and build oil production and processing facilities overseas.

And once again, Fluor is growing. Tappan said he is especially proud that many of the 9,000 positions Fluor has added since 1987 have been filled with former Fluor employees.

Fluor Daniel last May was named the top engineering and construction company in the country for the third consecutive year by ENR, a leading trade publication. The designation was based on the value of contracts Fluor was awarded in 1989.

And the company’s praises are heard frequently on Wall Street. Fluor’s stock has held up throughout 1990, as much of the rest of the market has receded. It closed Friday at $38.50, down 75 cents, in trading on the New York Stock Exchange.

Alan Dorsey, an analyst with Dillon, Read & Co. in New York, is a fan of Fluor and Tappan, whom he praises for responding forcefully to changing economic conditions. “Tappan could have had his head in the clouds and the company would be in bankruptcy now,” he said. “He had common sense to change when the time came.”

“Fluor is in great shape for the 1990s,” agreed Altman of Paine Webber.

Born in Hainan, China, on May 27, 1922, Tappan was the son of a Presbyterian missionary. He recalls that it wasn’t easy to be “the new kid in school every year” as his family traveled around China.

Graduating from the American High School in Shanghai as valedictorian and student body president, Tappan won a scholarship to Swarthmore College in Pennsylvania, an institution he chose in part because he could join its soccer team. Eventually he became team captain.

During a summer job at Lake Tahoe, Tappan, then 18, met 15-year-old Jeanne Boone, and three years later they married. Forty-six years, five children and 13 grandchildren later, Tappan’s eyes glow when he talks about his wife.

Tappan said Jeanne joined him on his frequent business trips and did more than help entertain customers. “She works on those road trips, finding out what is really going on,” he said. “I give her specific assignments. I brief her on what I think the situation is, and then she finds out what is really happening.”

Tappan said his first career choice was to be a banker. That changed after Pearl Harbor was attacked and he joined the Naval Reserves, which insisted that he study engineering and accelerate his studies so he could graduate in three years.

He never did get enough credits for an engineering degree, he said, graduating instead with a degree in economics. Nonetheless, the Navy sent him to the South Pacific as a civil engineer with the Seabees.

Returning to California in 1946, Tappan took a job as a door-to-door salesman, peddling heaters and air conditioners to homes and restaurants in Pasadena. He learned that he had a knack for selling. “I was getting 90% of the orders, " he said.

He then went to Standford to study marketing, graduating with a masters degree in business administration. He went to work in sales at U.S. Steel, then moved to the engineering department, where he analyzed the company’s capital expenditures.

“By dumb luck it turned out to be pretty relevant to Fluor because Fluor lives on the capital expenditures of major corporations,” he said.

Fluor hired him as administrative assistant to the vice president of sales in 1952. The company then was a small firm in Los Angeles that built mostly cooling towers for refineries.

In his early career, Tappan had a game plan. When he was transferred to the New York sales office, he said, “the first thing I did was I bought 10 shares of each of my clients’ stock.” That way he got to read the clients’ official mailings to shareholders, explaining how their business was doing.

Tappan said by studying trade journals and stockholder information he was able to talk intelligently to his customers. Owning stock, he said, gave him yet another edge. “When you are selling something and say, ‘Now I just want you to know I am also a shareholder,’ that is very effective.”

Tappan quickly impressed his boss, Melvin A. Ellsworth, who later rose to become Fluor’s president. After seven years Tappan was promoted from what he described as “the youngest, greenest, lowest-ranking salesman” to vice president of domestic sales.

He concentrated on developing a marketing team. “I had to bust my tail proving I could help make them more successful,” he said. “I worked as hard as I knew how with each individual salesman, and over time, with a few exceptions, I won the respect of the organization.”

Charles (Chick) Cannon, retired vice chairman of Fluor, said Tappan’s winning sales technique was candor. “He was sincere and would look them straight in the eye,” Cannon said.

Another of Tappan’s methods, Cannon said, was to price a new contract so the basic fee was nominal and then build in incentives for good performance. “Then it was up to Fluor to produce,” he said.

Cannon said that even when Tappan was chairman he was willing to help close a sale. “If we had a client Dave knew or a difficult client, we would call Dave up and ask for help, and he would respond. He never took his salesman’s hat off.”

McKay, who retired as group vice president and director of Fluor in 1985, said Tappan is “about the hardest-working guy I ever saw. When I traveled with him, he brought along three briefcases, one with work he had to get done on the flight, another of things he would like to get done, and a third so in case he got the other two finished, he would have something to work on.”

While Tappan contends that he never travels with more than two briefcases, he agreed that he routinely spent many hours doing homework.

He made other sacrifices to advance his career. He learned golf to hobnob with customers. “I spent very painful hours, nights, weeks, taking lessons and practicing, until I finally got it up to an acceptable level. I didn’t suddenly fall in love with a golf ball,” said Tappan, who now golfs for relaxation at his desert home in Indian Wells.

Tappan said he has been spending about a third of his time in Indian Wells, a third at his condominium in Newport Beach, where he commutes weekdays to the office, and a third on the road. While in various senior positions at Fluor, he says, he has traveled 400,000 miles a year for nearly 30 years.

To keep in shape, he said he follows an exercise routine in the mornings and evenings--often in a hotel room.

While some Fluor observers say Tappan never was as “lovable” as his predecessor and sometimes seemed preoccupied with his work, they also say he was more willing to make personal sacrifices when things got tough. For instance, during the lean years he put a halt to executive bonuses, including his own, with the result that his annual pay was reduced from $773,000 to $450,000. Only when good times returned three years later did he reinstate bonuses and start taking raises. This year he made $1.3 million.

One analyst, who asked not to be identified, said that under Tappan the corporation became “much more of a professionally run public company instead of a pseudo-family organization.” He observed that J. Robert Fluor would regularly use a company helicopter to attend football games at the University of Southern California. Tappan sold the helicopters in 1985.

Tappan also brought to Fluor a keen appreciation of international business opportunities, partly because of his experiences as a youth in China. Former Secretary of State Henry A. Kissinger, who has done consulting work for Fluor, said Tappan “has a very constructive attitude toward operating in foreign countries.”

Of major significance, Kissinger said, was Tappan’s decision to keep Fluor’s overseas offices open when business soured in order to maintain continuity of service there. Now international work constitutes 31% of Fluor’s business and is on the rise.

“One of the dumbest things we could have done was to shrink back to a domestic operation,” Tappan said. “We paid a price (to keep the foreign offices open) when we could really ill afford to spend money for a future position. But I am damn glad we did it.”

Tappan concedes that if he had it to do over, he would know how to revive Fluor more swiftly. But he isn’t surprised that Fluor is now leading the pack in its industry.

“I stuck my neck out and predicted it,” he said. “And I was able to convince enough people to help make it happen. I didn’t make it happen alone.”

Fluor Corp.'s Robust Recovery

David S. Tappan Jr. was thrust into the hot seat at Fluor by the death of longtime chairman J. Robert Fluor in 1984. The company was in the midst of a financial crisis that saw its 1985 losses mount to more than half a billion dollars. Tappan weathered harsh criticism and a $60-million loss in 1986 to restructure and return the company to profitability. Tappan’s strategy involved selling off Fluor’s unprofitable minerals and oil and gas operations and refocusing on its core engineering and construction business. It also merged Fluor Engineers with Daniel International, a nonunion contracting subsidiary based in Greenville, S.C., diversifying from a reliance primarily on hydrocarbon refineries to embrace new markets, ranging from food processing to chemical and automotive manufacturing.

Revenue (in billions of dollars)

1990: $7.45 Net Earnings (in millions of dollars)

1990: $146.9

1985: -$633.3 Permanent employees (In thousands)

1990: 23,000 Source: Fluor Corp.