Railroaders without Borders: A History of the Railroad Development Corporation
256
Railroaders without Borders: A History of the Railroad Development Corporation
256Hardcover
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Overview
Product Details
| ISBN-13: | 9780253017987 |
|---|---|
| Publisher: | Indiana University Press |
| Publication date: | 10/22/2015 |
| Series: | Railroads Past and Present |
| Pages: | 256 |
| Product dimensions: | 7.10(w) x 10.10(h) x 0.90(d) |
| Age Range: | 18 Years |
About the Author
Read an Excerpt
Railroaders without Borders
A History of the Railroad Development Corporation
By H. Roger Grant
Indiana University Press
Copyright © 2015 H. Roger GrantAll rights reserved.
ISBN: 978-0-253-01798-7
CHAPTER 1
BEGINNINGS
RDC EMERGES
Throughout American history individuals have singlehandedly created a variety of railroad companies. Some have been large, like the Chicago Great Western and Great Northern where A. B. Stickney and James J. Hill launched and molded their respective roads. Other railroads have been smaller, like the Georgia & Florida and St. Joseph Valley. Here the lesser known John Skelton Williams and Herbert Bucklen fashioned operations. Such has been the case in the modern, post-Staggers regulatory era where scores of new regional and shortline carriers owe much to one person, whether Thomas Hoback for the Indiana Rail Road or Steven Hawkins for the Greenville & Western and Aiken railways. Although the same can be said for other railroad investment and management firms of the recent past, the role played by Henry Posner III in the development of the Railroad Development Corporation (RDC) has been critical.
The prime mover behind RDC is a third-generation American Posner. His paternal grandfather, Henry Posner Sr., immigrated to the United States from his native Poland at the age of seventeen, arriving in Boston early in the twentieth century. After a variety of jobs along the east coast, he moved to Pittsburgh. Here he attended the Carnegie Institute of Technology (Carnegie Tech), although he left without earning a degree. But soon this bright, hard-working émigré was on his way to achieving the American dream. In the 1920s he launched the Alpha Claude Neon Corporation and became the first licensee in the United States of the Georges Claude patents for low-pressure gas discharge lamps, inventions that made neon signs possible. By the early 1930s the Posner firm became the Pittsburgh Outdoor Advertising Company, and its founder and sole owner after 1956 continued with that business until his retirement in 1964. While the senior Posner enjoyed the challenges of outdoor advertising, he developed a passion for rare books and fine art. Ultimately he amassed a world-class collection that his heirs loaned on a semipermanent basis to the Fine and Rare Book division of Hunt Library at Carnegie Mellon University. Interestingly, his collecting strategy revealed a notable family business trait: patience. "In this book-collecting game one has to be very, very patient," Posner explained. "Eventually, they all show up. It took me twentyseven years to acquire Ptolemy's 'Almagest' [1538]," a scientific tome that became one of his prized possessions.
Henry Posner Jr. benefited from his father's rags-to-riches life. This only child of Henry and Ida Posner, who was born in 1918, received a quality private education, attending Shady Side Academy in Pittsburgh and Princeton University, where he graduated in 1941 with a degree in physical chemistry. During World War II the junior Posner helped the U.S. military formulate a solid fuel for take-off boosters used by heavy- duty bombers. He also participated in the famed Manhattan Project that developed the atomic bomb. After the war Posner returned to Pittsburgh, teaching chemistry at the University of Pittsburgh and attending its night school, where he earned a master's degree in chemistry. Academia, however, would not be his career path. Initially the junior Posner worked part-time and subsequently full-time for his father's outdoor advertising firm. Later there would be a wide range of pursuits outside the core business, including a major investment in the Pepsi-Cola Bottling Company of Madison, Wisconsin. As with his father, his goal was long-term profits and not quick or short-term gains. In 1986 an important event took place that helped to make RDC possible: the junior Posner and his partner Thomas D. Wright formed the Hawthorne Group. This firm was designed to manage various businesses and investments, including the Greentree Commons office building located in Green Tree, a Pittsburgh suburban borough. During this time Posner gained acclaim for his philanthropy, donating millions of dollars to educational institutions, health-care facilities and Jewish charities.
The next Henry Posner, Henry Posner III, the oldest of four sons of Henry Posner Jr. and Helen MacMurdo Posner, was born in 1955. Following in his father's footsteps, he attended Shady Side Academy and Princeton University. In college, though, he did not pursue chemistry, selecting civil engineering and graduating with the class of 1977. Like his father, Henry also received an advanced degree, earning an MBA in finance from the Wharton School of the University of Pennsylvania in 1982.
Long before Henry Posner III received his collegiate sheepskins, he developed a passion for trains. "I am an almost lifetime train fan," he admitted to a reporter from the Pittsburgh Post-Gazette. He recalls pleasant visits as a young child to the home of his maternal grandparents in Blairsville, Pennsylvania, where his grandfather James T. MacMurdo worked as a signal maintainer for the Pennsylvania Railroad. "I really enjoyed watching those Baldwin shark-nosed diesels [on the Pennsylvania main line] whiz by." Posner remembers that while on a family vacation in Great Britain when he was eight, he was fascinated by steam locomotives during a rail journey between Crewe, England, and Inverness, Scotland. Resembling so many railfans, the young Henry adored model trains, relishing his grandfather MacMurdo's 1937 tinplate layout. Then a 1969 issue of Trains that featured a woebegone shortline ignited his interest in prototype railroads. This led to numerous train rides and extensive picture-taking. He enjoyed spending time snapping shots of passing trains and trolleys from the Smithfield Street bridge in downtown Pittsburgh, using a Rolleiflex camera borrowed from his father. At Princeton his love for trains did not flag, and he did something memorable as well as entrepreneurial. "I made an arrangement with a local travel agency to write Amtrak rail tickets. The commission was 10 percent and the agency agreed to split the amount, allowing me 5 percent on each ticket transaction. I made up flyers and distributed them to all the dorm students, and I did a good business especially at holiday times." As he jokingly said, "I've never punched tickets, but I've come close." No wonder a business writer for the Los Angeles Times described him as "a hard-core rail guy."
Even the choice of attending Princeton involved Posner's love of trains. He opted for this Ivy League school not because it was his father's alma mater but rather for its transportation program. Posner read with interest a piece in the Princeton Alumni Weekly that his father gave him, describing what was a new offering. "When I saw that story, a light bulb went off and I realized I could actually work for a railroad. Otherwise it may have just stayed a hobby. The transportation program really sparked my interest in Princeton."
Princeton did not disappoint Posner. Here he found courses and faculty that excited him. And two professors left their mark. "The impact that Alain Kornhauser and Mike Lion had was direct and immediate because my objective was to use my civil engineering degree to get a job with a railroad, which I did." Posner and Kornhauser became good friends, and Kornhauser vividly recalled their first meeting in 1973. "He [Posner] comes up to me, and he has on his steel-toed shoes and a pair of khakis almost hiked up to his knees. He has a blue blazer on and introduces himself as Henry Posner III. He has a business card and on it said 'ferroequinologist,' student of the iron horse."
Before leaving Princeton, Posner had had hands-on-railroad experience. During the summer of 1975 he worked as an editorial and marketing assistant for the Official Railway Guide, and the following summer he served as an engineering staff assistant for the Chicago, Rock Island & Pacific Railroad (Rock Island). With diploma in hand, Posner joined the recently formed Consolidated Railroad Corporation (Conrail), not in the engineering sector but as a management trainee in its transportation department, working in various locations. Soon he took the demanding job of assistant trainmaster in Trenton, Michigan, and the climb up the administrative ladder began. Between 1979 and 1980 he served as trainmaster in New York City, including assignments at both the 72nd Street Yard and the Oak Point Yard. As he later told Railway Age, "The best job [that I obtained] on the Conrail system was daylight trainmaster at Oak Point Yard in the South Bronx. I am still known at Conrail as the only person ever to volunteer to go to work at Oak Point." Posner enjoyed the challenges, and he learned much in the process. It was here that he developed an appreciation of the importance of safety from Mohawk-Hudson Division superintendent Walter J. Sparks, whose mantra was "good attitude, good results."
Budding railroad executives move about frequently, and Posner was no exception. After a leave of absence from Conrail to earn his MBA degree from the Wharton School, he stayed on in Philadelphia. It was here that Posner met his future wife, Anne Molloy, also a Wharton graduate, who worked in strategic planning for Conrail and then at its intermodal subsidiary Pennsylvania Truck Lines. At corporate headquarters he took several assignments in the marketing department: service planning analyst and business development analyst for auto parts; manager, boxcar deregulation; and manager, capital products for intermodal operations. Just as Posner had benefited from the wisdom of Walter Sparks, his experiences in Philadelphia during this time of industry transition from regulation to deregulation gave him further insights. Gordon Kuhn tutored him in applied railroad economics, and the senior vice president of marketing, Charles (Charlie) Marshall, educated him in matters of policy. In 1985 Posner returned to New York, where he took charge of six large national accounts. Posner remained in the Big Apple until he went to Pittsburgh to launch RDC.
Why create the Railroad Development Corporation? For some time, in conjunction with his father, Posner had thought about acquiring domestic shortlines and forming a railroad management business. After all, Conrail and other Class 1 roads were in the process of shedding their unwanted trackage. During this time Conrail either sold or abandoned about 9,000 miles of line, and Class 1s collectively disposed of approximately 33,000 miles. That phenomenon led to an environment that was conducive to creating a RDC-type organization. The opportunity that allowed "Henry to do railroad deals" came in 1986: "Dad asked me if I wanted to join the Hawthorne Group." His father's desire to have his son live in Pittsburgh helped to inspire this offer. Henry accepted. In February 1987 Railroad Development Corporation came into being, acquiring a charter from the State of Pennsylvania. The name chosen was not particularly imaginative, but it beat some others on a list that included "Railroads R Us." Moreover, the initials RDC would be easily remembered by anyone knowledgeable about railroads. After World War II the Budd Company developed its popular rail diesel car (RDC), a self-propelled, bidirectional unit that featured streamliner comfort and performance for local and branch-line operations. Soon "RDC" became a part of railroad lingo.
Although Posner had learned much about railroading from his collegiate and industry experiences, his father played a key role. It was more than access to funds from the Hawthorne Group that helped to make RDC functional; Henry Posner Jr. shaped his son's view of the business world. At the memorial service held for his father, Henry Posner III shared these thoughts:
Things I Learned from My Father
You don't know what you don't know
Work with partners; you get better ideas
Encourage disagreement; you get better decisions
Don't make too good of a deal because the other side will spend most of their
time trying to get back what they think they lost
Let people do you favors
Let the other person get the credit
Make your parents proud
Remember where you came from
Question Authority
Choose your battles
If you must fight, fight to win
In order to win, you have to be prepared to lose
Most people don't like to make decisions
A Posner is not afraid to die
Ironically, the gestating RDC benefited from what was happening within walking distance from its office on the top floor of the five-story Greentree Commons building. This involved events at L. B. Foster, a railroad products supplier and manufacturer. In the early 1980s the firm created a "Railroad Venture Team" and became involved in the emerging regional and shortline business. A recent decision by the Interstate Commerce Commission (ICC), affirmed by the courts, involved what was known as the New York Dock Railway case. The issue was labor protection, and the ruling said that start-up railroads did not have to honor existing labor contracts. This permitted these companies to employ workers more economically, and that verdict energized the movement for new roads. It did not take long before Foster took control of two sizable pieces of trackage, forming the Gulf & Mississippi (G&M) and Dakota, Minnesota & Eastern (DM&E) railroads. Its first deal took place in 1984 when it closed on more than 700 miles of cast-off Illinois Central Gulf lines in Alabama, Mississippi, and Tennessee, most of which had once belonged to the Gulf, Mobile & Ohio. Two years later it took possession of 917 miles of former Chicago & North Western (C&NW) lines in Minnesota and South Dakota. At first Foster thought that it might run its acquisitions, but the firm had only two employees with actual railroad operating experience. That limitation produced another strategy: once the property had been acquired, it would be sold to a third party. Any deal would include Foster obtaining a 10 percent "carried interest" or sweat-equity position in the new company, and it would also become the exclusive supplier of track materials. "We were really shitting in the tall grass," recalled a former Foster employee.
While the Gulf & Mississippi and the Dakota, Minnesota & Eastern were exciting and profitable pursuits, L. B. Foster suffered from internal turmoil. Financial concerns about its fate after the last son of the company's founder had died led to a leveraged buyout that eventually took the company public. In order to bolster cash flow, Foster sold off track materials and issued junk bonds to acquire several somewhat related companies, including a fire extinguisher manufacturer. Yet the value of Foster shares continued to fall, and by the mid-1980s employees were leaving since "this was not a good time at Foster." Ed Hurley, Roy Gordon, Robert (Bob) Pietrandrea, and Thomas Upchurch decided to depart, hoping to become involved in one or more start-up railroad projects.
These L. B. Foster veterans soon joined forces with Posner. It would be John DePodesta, member of the Philadelphia law firm of Pepper, Hamilton & Scheetz, who brought them together. Since Foster had used the firm, these men knew DePodesta. And DePodesta knew Posner, having incorrectly told him that Foster wanted to dispose of its railroad holdings. Triggered by the DePodesta connection, discussions followed, and RDC was the result.
In time, for various reasons, all but one of the Foster contingent had left RDC. Bob Pietrandrea remained and would play a pivotal role in making RDC a vibrant organization. Pietrandrea proved to be the right person to work with Posner. "Henry is the throttle, and I'm the brakes." Posner confirmed this mutually beneficial relationship. A key to understanding why RDC became successful is that a company often functions best when its two leading personalities complement one another.
Pietrandrea had a personal background and vocational path that differed sharply from that of his future business partner and close friend. He came not from wealth but from a working-class Italian American family who lived outside Pittsburgh in Koppel, Pennsylvania. His mother's family found employment in local steel mills while his paternal grandfather, father, and two uncles worked in the track department of the Pittsburgh & Lake Erie Railroad (P&LE). Following high school Pietrandrea took a job with a P&LE track gang, and it was tough work for a 5-foot 7-inch, 135-pound young man. "I would have quit, but I didn't want to shame the family." Although he intermittently attended the Community College of Beaver County and the University of Pittsburgh, he never completed a degree. "I got married and we started a family and they had to be supported."
(Continues...)
Excerpted from Railroaders without Borders by H. Roger Grant. Copyright © 2015 H. Roger Grant. Excerpted by permission of Indiana University Press.
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Table of Contents
PrefaceAcknowledgments1. Beginnings 2. Iowa Interstate: An RDC Triumph 3. Latin America: Philosophy of Foreign Investments4. Africa and Europe: Malawi and Mozambique5. New InvolvementsNotesIndexWhat People are Saying About This
Railroaders without Borders covers the recent appearance of a revolutionary railway holding company, whose purpose has been to acquire and rejuvenate properties that have suffered financial failure. While its 1987 beginning concerned a Pennsylvania company, its later ventures have spanned the globe. Grant's detailed narratives follow RDC's growth through both successes and failures.
H. Roger Grant has brought his considerable research and writing skills to the story of a unique and exotic present-day railroad enterprise that spans an area from the American Great Plains, to the Andes, to the Zambezi River, and the Baltic Sea—with postscripts in Colombia, Germany, and France. Keeping up with the Railroad Development Company's multiple management and rail acquisition ventures—including all their inevitable political, cultural, and operational challenges—is not easy, but Grant handles them deftly and clearly. Some of those ventures were successful, some not, but each invariably makes for fascinating reading.
Railroaders without Borders covers the recent appearance of a revolutionary railway holding company, whose purpose has been to acquire and rejuvenate properties that have suffered financial failure. While its 1987 beginning concerned a Pennsylvania company, its later ventures have spanned the globe. Grant's detailed narratives follow RDC's growth through both successes and failures.