New CEO faces rebuilding job at lagging Ryland

December 13, 1993|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

It's not a dream moment for a new CEO. He is sitting in his corner office, being confronted with an analyst's report that dissects the company's biggest unit and concludes that "everything is going in the wrong direction." It's the chief executive's eighth day on the job.

R. Chad Dreier's response to the analyst is quick and simple: "She's right."

The 46-year-old president and chief executive of Ryland Group Inc., the nation's third-biggest homebuilder, cheerfully concedes that he was sitting "fat, dumb and happy at [his old job], making a lot of money, having a nice life" only a couple of months ago, before Ryland's headhunter called. But the choice indicates that times will change at a company Wall Street has seen as a bit too fat, dumb and happy the last two years.

Mr. Dreier is Ryland's first chief executive in 11 years to come from the building business. Plucking him from the chief financial officer's chair at the Los Angeles building company Kaufman & Broad Home Corp. marks Ryland's tacit admission that it has lost ground to other big builders because it has lost touch with its real estate industry roots.

"We stumbled a bit," said Andre W. Brewster, Ryland's chairman. "We felt we needed to get it back in the shape it was in the late 1980s, and we felt we needed a homebuilder to do it."

Mr. Dreier is the man. Wall Street, where analysts said Mr. Dreier is "a straight shooter" and "better than I thought they could get," loves the choice. He helped run the biggest builder in California, had operated a mortgage subsidiary similar to Ryland's mortgage unit and was "young enough to have a career here," Mr. Brewster said.

And he was only two years younger than Kaufman & Broad chief Bruce Karatz, meaning he had to move to get a CEO job before age 60.

"If Chad was going to get a shot at CEO, it was somewhere else," said Nancy L. Smith, a former Ryland executive who is now a spokeswoman for Kaufman & Broad. "He's a great leader and a real competitor."

Ryland's employees will find a boss whose wit belies his look -- with graying hair, gray suit with Ryland pin and even gray eyes, the former accountant jokes about the question of whether he liked accounting by asking, "can I take the Fifth Amendment?" Jokes aside, he is closer in experience to company founder Jim Ryan than to either of the other two men who succeeded Mr. Ryan at the helm. "He has the keys to the areas they want to strengthen," Ms. Smith said.

Ryland's last two chief executives have come from manufacturing backgrounds, as Ryland searched for a formula that would help the $1.4 billion company break through the plateau of selling about 8,000 to 9,000 homes a year. The company hoped applying the management methods of very large companies would help Ryland grow explosively, a strategy that worked during the 1980s.

Former chief executive Roger W. Schipke, a one-time appliance executive at General Electric Co. who left Ryland to run Sunbeam-Oster Co. in August, streamlined Ryland's home-office management after arriving in 1990. But basic blocking and tackling in the 40 geographic markets in 18 states Ryland serves were going awry, and analysts blamed the lack of real estate-oriented executives at the top.

"They need someone to pull it all together," said Lisa Sarajian, an analyst who follows Ryland for Standard & Poor's Corp. "GE has a different corporate culture than a typical builder. . . . I don't know that you want to get too far from the builder culture."

Builder culture means entrepreneurial and risk-taking, words not usually associated with Ryland. Competitors such as Centex Corp. of Dallas and Michigan-based Pulte Home Corp., the nation's top two builders, spotted the economic rebound faster than Ryland did. They and others beat Ryland to buying prime land positions in recovering markets.

"The thing is to move into a market before it gains strength," said Barbara Allen, an analyst at Donaldson, Lufkin & Jenrette, a New York investment bank.

Ryland's building operations lost money for the first nine months of 1993 -- a period when Centex and Pulte topped 1980s peaks, Ms. Allen said. Only a mortgage unit buoyed by the refinancing boom kept Ryland Group in the black.

Worst of all, perhaps, Ryland failed to capitalize on the problems of smaller competitors to gain market share during the recession, and got hammered in California.

Ms. Smith said Kaufman & Broad's California market share has gone to more than 8.5 percent from 4 percent since 1991. Meanwhile, Ryland had to take a third-quarter write-off of $40 million on California land and houses it couldn't sell. The reason: Ryland's California operation has been aimed at the high end of the market, which has done much worse than the entry-level sector.

"We need to focus on market niches and understand exactly what markets we need to be in," Mr. Dreier said. "I don't know that Ryland has done that."

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