The Torch Is Passed : Founder of Jacobs Engineering Tries Retiring One More Time

Joe Jacobs, 76, is retiring again. And this time he hopes to make it stick.

The founder of Jacobs Engineering Group Inc., one of California’s largest engineering construction companies, today formally turns over daily management duties to his hand-picked successor, company President Noel G. Watson, 56.

Jacobs’ departure marks the end of an era for one of the U.S. engineering industry’s most respected and best-known executives. Jacobs is known for his expertise in technology and marketing--as well as his tenacity. Beginning as a one-man shop in 1947, Jacobs has overseen the Pasadena firm’s growth into a $1-billion company and its push into the lucrative environmental services business.

Indeed, his retirement comes at a time when the company is embarking on the most significant environmental contract in its history. It is the primary subcontractor in a $2.2-billion cleanup of the Fernald, Ohio, nuclear weapons plant, the largest federal environmental cleanup contract of its kind. The company is also well positioned to benefit from any increased business generated by the environmental policies of President-elect Bill Clinton.

“He has been one of the distinguished leaders in his field,” said Bill Leonhard, a former chairman and chief executive of Parsons Corp., a competitor of Jacobs Engineering.

Robert Sheh, president and chief executive of rival International Technology Corp. in Torrance, also has praise for Jacobs. “He really has an insight into our business,” Sheh said.

Joseph J. Jacobs last stepped away from the firm a decade ago. But a crisis in the engineering industry--and an $8.9-million loss for the company in 1984--brought him roaring back. A self-described “tough guy in a fight,” Jacobs fired 14 vice presidents and cut a third of 1,800 jobs through layoffs or retirement.

In the eight years since then, Jacobs Engineering’s sales have quadrupled, topping $1.1 billion in 1991. This time, however, the company’s growth has not brought the fat of former years.

“We still don’t have that layer of management that we had in 1984,” Jacobs said from an easy chair in his office, which resembles a living room. There is no desk, but he has a fake fireplace and bookshelves crammed with volumes on management, policy and economics.

Jacobs recalled that his company embarked on its “painful” restructuring before most other engineering companies began trimming expenses. Lower costs made Jacobs Engineering more competitive.

The current wave of cost-cutting and restructuring among other U.S. industries will pay dividends later, Jacobs said. “It’s the greatest thing that ever happened to America,” he said. “With this round of restructuring, we are going to be globally competitive.”

The son of immigrant Lebanese parents, Jacobs founded the first version of his company as a one-man consulting firm. Much of his early work consisted of one- or two-day assignments for larger engineering firms. Jacobs credits much of his success to an ego that, as he has conceded, is “large, inflated, overwhelming--choose your own adjective.”

A turning point came when he and his small staff designed a revolutionary way to make potassium nitrate, used in fertilizer. Jacobs built a manufacturing plant in Vicksburg, Miss., in 1961. But the plant’s operator had trouble getting it up and running. Jacobs moved to Vicksburg, took over management of the plant and spent a year in a frustrating but successful struggle that he likes to call the “Second Battle of Vicksburg.”

“Technical risks, we do that all the time, as opposed to business risks,” Jacobs said.

Business peril came two decades later when predictions of $60-a-barrel oil prices inspired visions of synthetic gasoline and other technological solutions to the energy crisis. Engineering companies such as Jacobs expanded their staffs by 50% or more, hoping for fat government contracts. But oil prices peaked at $36 a barrel. When the synfuel boom collapsed, Jacobs Engineering had a lot of employees and little work.

“I made a classic mistake in business--to set up the organization to handle increased sales rather than the other way around,” Jacobs said. “If you over-sell (and have to hire more employees), it’s a much easier problem to solve.”

Jacobs took charge of the company again in 1984 and began layoffs. Recently, Jacobs Engineering has found a more reliable--and fast-growing--market in environmental services. The federal Clean Air Act and other regulations are driving a national environmental cleanup effort that is estimated to cost more than $750 billion. In 1992, Jacobs’ contracts for direct environmental cleanup work total $460 million, double last year’s.

The company has also found lucrative work in the design and construction of manufacturing facilities required by new environmental standards. In 1991, Jacobs designed all or part of 14 plants to produce methyl tertiary butyl ether, or MTBE, an additive to increase the oxygen content of gasoline, making it burn cleaner.

Watson, the company’s new chief executive, said he does not plan to change that mix of clients. Not surprising, considering that the company has averaged net income growth of more than 50% for the last five years. The changes he sees are in scope.

“We will become more international in character in the next three or four years,” Watson said. Jacobs now has 23 offices in the United States and in Ireland.

Jacobs plans to remain active in political, charity and educational projects as well as speaking out for the engineering industry. But can he now count on permanent retirement from daily management concerns?

“I’m not going to screw up success,” Watson vowed.

Growth at Jacobs

During the early ‘80s, Jacobs, like many in the engineering construction business, found itself with lots of overhead and not enough work. But since its restructuring in 1984, the company has come back dramatically.