President of Prein&Newhof (Grand Rapids, MI), a 100 percent employee-owned firm that is dedicated to thinking ahead, building lasting relationships, and crafting long-term solutions.
By Liisa Andreassen Correspondent
At the onset of the financial crisis in 2008, Newhof decided it was time to leave his 20-year commercial real estate lending career behind and pursue a different career path – one that would lead him back to the family business.
“We have gone against our financial interests to recommend against clients taking on projects that would generate significant fees for us because it was not the best thing for them to do,” Newhof says. “We have a number of clients who have been with us for 40 to 50 years, which speaks to the trust that has been built and maintained.”
A conversation with Tom Newhof.
The Zweig Letter: The firm was co-founded by your father. Please tell me a little about the overall career transition.
Tom Newhof: During summers in high school and college, I worked on survey crews for Prein&Newhof. I went to college leaning toward an engineering degree, but not really sure if that’s what I wanted to do. Sharing a name with the co-founder of Prein&Newhof brought with it the expectation by many that this would be my career path. Eventually, I decided I would rather go in a different direction, one in which I wouldn’t be compared to my successful father.
After two years of pre-engineering courses, I switched to the accounting program and graduated with a bachelor’s degree in accounting. I then obtained an MBA in finance and pursued the commercial banking industry. I spent 20 years as a commercial real estate lender, a career which blended my background in civil engineering and my interest in financial analysis.
I enjoyed commercial real estate lending, however, the economic challenges in Michigan in the mid-2000s made the job much less fun and more stressful than it had once been. In early 2008, management at Prein&Newhof decided that it was time to hire someone to manage the business functions of the firm. A job opening was posted; I applied for it and was eventually hired as the company’s first business manager, managing the overhead functions – accounting, facilities, human resources, IT, etc.
I came to Prein&Newhof looking forward to taking on a new career challenge. At the same time that I was hired, the company was beginning a five-year management transition plan in anticipation of the retirement of five key principals. I had the opportunity to work closely with Jim Cook, the president at the time, as well as the other principals. I also worked with the next generation of leaders who were being groomed to take over team and company leadership.
In 2010, I was selected to serve as corporate treasurer and in 2018, president. Having a non-engineer as president of an engineering firm is not typical, but because of our officer team, we’ve been able to make it work well. We work closely together and share responsibilities. As a non-engineer, I can handle many of the non-technical aspects of running the company, freeing time for the billable professionals on our officer team to do what they do best.
TZL: How has COVID-19 impacted your firm’s policy on telecommuting/working remotely?
TN: One of our top CAD designers has worked for us remotely from South Dakota for more than 15 years. However, before COVID-19, remote work was not something we encouraged or supported to any degree. We believed that daily in-person interaction was the best way to build and maintain culture. However, the necessity of working remotely when our state government shut down office work made us quickly adapt. The technology we had in place and which we added since the shutdown has been invaluable in helping us to stay connected and accomplish our work from home.
We have found that while we can accomplish a lot away from the office, we need to be together in person, even if only for short periods of time, to be able to effectively mentor, manage projects, and maintain our culture. Having seen how remote work is feasible, we are certainly more open to accommodating future employee requests for remote work.
TZL: How far into the future are you able to reliably predict your workload and cashflow?
TN: We can reliably predict workload about six to nine months into the future. COVID-19 has created more uncertainty among our clients regarding the timing and/or viability of projects, which has made workload forecasting more challenging.
TZL: What role does your family play in your career? Are work and family separate, or is there overlap?
TN: Family is important. We emphasize the importance of family to our colleagues by paying them time and a half for all overtime worked, which we view as additional time away from their families. We encourage them to take time to be present for their kids’ activities. We don’t seek work outside of our geographical footprint which would take employees away from home; we want them to be at home every night.
Technology makes it such that it is difficult to separate work and family time. We want to be responsive to our clients and colleagues, so we will do work from home that previous generations would not have been able to do. That often intrudes upon or interrupts family or personal time. I think a certain amount of separation is necessary to be successful at work and family – which is something we want for all of our colleagues.
TZL: What type of leader do you consider yourself to be?
TN: I prefer to lead by example and by reaching consensus. Being a non-engineer in an engineering firm which is blessed with many capable leaders makes the latter characteristic important. Every employee in our company is there for a particular reason, is important and necessary to our success, and should be treated that way. In my previous career, I worked for companies that were hierarchical and political. I strongly dislike that and attempt to treat my co-workers as peers. That is an important part of our culture and is a contributing factor to our long-term employee retention.
TZL: What do you believe makes you one of the “most-trusted” engineering firms in Michigan?
TN: Our company motto is “Seeing Farther.” By this, we mean stepping back and taking a big-picture view of things, looking beyond what is directly in front of us. We want to build long-term relationships with our clients in which we are a trusted advisor, we understand their infrastructure system better than they do and can bring more value to a relationship than simply designing a project. We have gone against our financial interests to recommend against clients taking on projects that would generate significant fees for us because it was not the best thing for them to do. We have a number of clients who have been with us for 40 to 50 years, which speaks to the trust that has been built and maintained.
TZL: How often do you valuate your firm and what key metrics do you use in the process? Do you valuate using in-house staff or is it outsourced?
TN: As an ESOP company, we have an external valuation performed annually. The valuation takes into consideration industry transactions, industry revenue and earnings multiples and earnings capitalization. Our valuation firm looks at long-term trends and doesn’t swing valuations sharply based on unusually high or low performance.
TZL: Since being president, what’s one of the things you are most proud of that you’ve accomplished and why?
TN: Being transparent with our financial reporting. We’ve been an ESOP company since 1995 and have very broad employee ownership outside of the ESOP. Enabling all employees to better understand our financial position and how their individual efforts impact our financial performance has been a focus. We do this with quarterly reporting and an in-depth annual performance update. In addition, our team leaders and board of directors receive detailed monthly financial reporting.
This financial transparency has led many of our employees to purchase stock outside of their ESOP stock ownership. About half of Prein&Newhof employees have used personal funds to purchase stock outside of the ESOP, including about two-thirds of eligible employees.
TZL: Ownership transition can be tricky, to say the least. What’s the key to ensuring a smooth passing of the baton? What’s the biggest pitfall to avoid?
TN: Prein&Newhof formed an ESOP in 1995 to transition the ownership of one of its co-founders, representing about 40 percent of total shares at that time. Since then, the ESOP has been an integral tool in managing through subsequent transitions, including a significant transition in the early 2010s. Our ESOP owns about half of our stock, with our employees individually owning the other half. Over time, share ownership which was concentrated in a few individuals has become very diverse. This reduces the financial burden associated with subsequent ownership transition.
Failing to plan for transition is a big pitfall often seen in our industry. Our founders and next generation of leaders had the foresight to establish our ESOP and fund it adequately to transition smoothly through subsequent ownership changes. Forecasting future needs is an ongoing process which we take seriously. We consistently contribute money into our ESOP to maintain liquidity needed to meet our anticipated future ownership transition needs.
TZL: A firm’s longevity is valuable. What are you doing to encourage your staff to stick around?
TN: We have historically had very low turnover, which I believe speaks to the way we treat our co-workers and the rewarding work they do. We have a strong ownership culture, which we encourage through significant contributions to our ESOP, as well as making stock available for all employees to purchase, subject to some restrictions. Having a financial ownership stake encourages employees to think and act as owners. The work they do does not just benefit a small group of shareholders or some publicly traded entity, but it directly benefits each one of them. That is meaningful to our colleagues.Click here to read this week's issue of The Zweig Letter!