Shifting into high gear: Conseco Inc.'s financial face lift isn't finished. But more than a year after beginning reinvention, the loan underwriter is on stronger ground - management

Pool & Spa News, Dec 19, 2001 by Alan Naditz

It's not easy climbing out of a hole. But once you've hit bottom, getting back on top becomes that much sweeter.

That's the viewpoint these days at Conseco Inc., the Indianapolis-based parent of pool and spa loan underwriter Conseco Finance Corp.

Conseco Inc.'s reinvention--launched shortly after Gary Wendt became chairperson and chief executive officer in June 2000--isn't finished. But it has come a long way, according to company officials.

That's good news for pool and spa professionals because Conseco is a leading provider of financing programs for the pool and spa consumer. It's also a positive sign for the industry that no matter how rough the waters may get for your company, there is always a chance to improve matters--as long as you plan your resurrection carefully.

In Conseco's case, the Home Improvement Division solidified itself as a strong performer in uncertain economic times, says Jeff Surratt, division senior vice president. While the company as a whole rebuilt itself by paring down to essential business components, the home improvement sector looked ahead and introduced or improved a handful of products designed to capture or recapture market share, Surratt says.

"Through everything that's happened, our unit has stayed very focused, very profitable," he says. "In light of all the circumstances, we may well have had one of our best years."

That's exactly the action you should take when you're trying to rebuild a troubled company, according to Dr. Daniel Keeler, a retired business professor from the University of California-Berkeley Haas School of Business in Berkeley, Calif. "When you're on the ropes, you can either hit the canvas or come out swinging," Keeler says. "If you want people to forget your past, give them something else to talk about."

Time travelling

In early 2000, Conseco Inc.'s name was all over the news, but for all the wrong reasons. As chronicled in publications such as the Wall Street Journal, Fortune and Business Week, the once-successful insurance and finance firm had become a beleaguered unit with rising debt, diminishing stock prices and nervous investors. Stephen Hilbert, company founder and then-CEO, had "spent recklessly and pushed for growth at all costs," according to Business Week. These actions ultimately led to Hilbert announcing at the end of first quarter 2000 that he wanted to sell the company's finance unit.

"The market did not respond favorably to that," Surratt recalls. "I think he thought it would solve a lot of the problems. We went through the second quarter [of 2000] with that [potential sale] hanging over our heads."

By June 2000, Hilbert resigned and Conseco shareholders lured Wendt out of retirement to revitalize the company. Wendt, who had helped turn Conseco competitor GE Capital into a $41-billion company before bowing out in 1999, told Business Week that what he saw from his initial survey of Conseco surprised him: "I just didn't believe that it could be in that bad a state."

One of Wendt's first moves, according to published reports, was to put the finance division--and investors--at ease with three words: No fire sales. "We were instantly taken off the market," Surratt says.

Investors and employees breathed a lot easier; the company's stock rose 24 percent within a week of the announcement, according to New York Stock Exchange records.

It's a classic move, says Keeler. "There's often a lot of uncertainty among employees when they're hearing about their company's problems, especially when they hear about it secondhand, such as from the media," Keeler says. "The best thing you can do is play it straight. If you're going to lay people off, tell them. If everyone's got a desk to come back to tomorrow, make sure they know."

Since assuming office, Wendt has issued monthly "Turnaround" memos that keep the company and anyone else interested in Conseco's performance apprised of changes. "The memos are very straight-forward, very candid, just like [Gary Wendt's] personality," Surratt says. "With him, what you see is what you get. There are a lot of stories about how difficult he can be when he challenges you to get it done. But he just wants performance."

Dropping weight, gaining ground

Wendt's next move was to restructure the company, dropping pieces that no longer fit in the corporate puzzle. Conseco Inc. kept four main divisions: home improvement, manufactured housing/mobile home, consumer/retail finance and a home equity channel.

"We had gotten into too many areas--so many that we had trouble maintaining our leadership position in the core businesses that had originally made us successful," Surratt says.

Conseco sold off various entities, such as truck financing and sub-prime Mastercard and Visa units, and outside investments such as a riverboat gaming casino. "Those types of things were not helping the ongoing operations of the company," Surratt explains. "Now that we're focusing on the finance company, [Conseco as a whole] is getting back into the swing again."