Fueling the future: transforming a "sleeping giant" into a lean, competitive oil and gas producer.

The American Institute of CPAs wants all cutting-edge CPAs to step forward. As one part of the CPA Vision Project--a grass-roots effort to help CPAs come up with a picture of where they want the profession to be in the next century and then devise a plan to actually get there--the AICPA and state CPA societies are looking for "pathfinders." Whether they work in business and industry, public practice, government or education, these men and women stand out among their peers. This month, the Journal takes a look at one such pathfinder, William Henry Harmon, president and chief executive officer of Columbia Natural Resources.

Forecasters called for snow as William Henry Harmon, then controller for Charleston, West Virginia-based Columbia Natural Resources Inc., known locally as CNR, rushed to the city's airport in midwinter two years ago. He was there to meet Rick Richard, chairman, president and chief executive officer of Reston, Virginia-based Columbia Gas System Inc., CNR's $6 billion 'in assets parent company, who was in town to announce layoffs.

Harmon remembers the day well. Columbia Gas System had recently emerged from bankruptcy, and CNR was in the throes of reorganization. Richard had told CNR employees the company would be forced to eliminate 40% of its staff. CNR CEO John Henning had decided to retire, and everyone expected Henning's successor to be named from outside the company. Harmon arrived at the airport, hoping he wouldn't be the next casualty. Little did he know that Richard and other corporate executives viewed the native West Virginian as a "home-grown" leader.

At the airport, Richard surprised Harmon with a question. "He said to me, `We think you're the one to take the reins; are you up to it?'" Harmon, a CPA, certified management accountant and economist, accepted the challenge and began his new job in February 1996.

Harmon devised a five-year turnaround plan to grow CNR and boost its profitability by drilling new wells, purchasing assets and expanding joint ventures. In 1997, the company embarked on a $65 million drilling and exploration program. By late that year, CNR had spent close to $32 million to complete 140 new wells--almost three times the amount it had spent drilling 45 in 1996. (This year, it plans to drill 180 new wells.) In addition, Harmon invested $27.5 million in pipelines from another Columbia Gas subsidiary. Last May, CNR grew by 25% when Harmon acquired Alamco, a local gas and oil producer, for $101 million. Today, he is also seeking to buy production companies abroad--new ground for CNR, traditionally a leading producer of natural gas and oil in the Appalachian Basin. He currently is on the way to doubling CNR's size in terms of net income contribution to its parent company.

When he took on the CEO position, however, Harmon knew his toughest task would be completing the last round of layoffs the company had planned for April 1996--the second time in his career he'd had to oversee a downsizing. "Those first few months were very troubling. I thought about the layoffs a long time before actually implementing them. As painful as it was, I think CNR did the right thing," he explains. "It resulted in a more focused and flexible company with a sustainable cost structure." Harmon made sure each departing employee had a generous severance package and the services of an outplacement firm. To improve the low morale in the company stemming from the layoffs, he encouraged CNR's remaining staff to become involved in mentoring programs in their communities, even allowing them to take time off from work to do so. He also established a communications; department to keep employees informed about company developments and make management more responsive to their needs.

Harmon's changes come none too soon. Thanks to federal deregulation of the $300 billion oil and gas industry, analysts expect the largest 300 energy providers across the country (down from 350 in 1991) to consolidate into no more than 15 in the next few years. The survivors among these once monolithic utilities will be those who have stripped away excess and learned to adapt quickly to market demands.

As a result of Harmon's achievements, the AICPA has chosen him as a pathfinder in its Vision Project--a massive effort to help its members redefine the profession to better face the challenges of the future. Harmon's climb to the top of CNR took 20 years, and it was fueled by foresight, persistence and some gambles that paid off.

THE LANGUAGE OF BUSINESS

Harmon grew up in West Virginia, where tourists go to hike and hunt in the forests, to Bungee jump off the world's longest single-arch steel span bridge and to watch the occasional liar's contests. "No CPA has ever won one," he jokes.

As a youth, Harmon looked for inspiration to his aunt, who had reached the eighth grade before leaving school to work. However, she rose to become controller of a local department store chain. "What she did was similar to what good accountants do today, only much simpler--interpreting data to project the needs of the business to keep vendors and financiers satisfied," explains Harmon.

Harmon had aspired to become a basketball star at West Virginia Institute of Technology, but when a broken ankle leveled him in his freshman year, he decided to focus on his second love: accounting. He declared it as his major early and never swayed. "I knew from watching my aunt that it was the language of business and if business was to be my career I would first have to learn that language," he says.

In 1975, Harmon--the son of a supervisor at the state's largest hammer and ax factory--became the first in his family to graduate from college. With his degree in accounting (he became a CPA four years later), he quickly found a job in the corporate accounting group of another Columbia Gas System subsidiary, Columbia Gas Transmission Corp., where he worked on compliance issues. In his first few years, Harmon distinguished himself by exploring aspects of the business beyond accounting, he networked with colleagues in Columbia Transmission's field operations and in production to learn more overall about the company.

When given a project, Harmon not only completed his part of it but also offered suggestions on what further steps to take. As a result, he often was assigned special projects. By 1983, Harmon had earned the responsibility of monitoring Columbia Transmission's accounting system. "He wanted to be a part of the decision-making process, and when he didn't understand something he would ask our consultants at Arthur Andersen or managers in other departments," recalls Ed Lincoln, who worked with Harmon then and now serves as CNRA controller.

By 1986, Harmon, then 31, was chosen as controller of newly formed Columbia Natural Resources. "Those of us who joined CNR, were seen as rebels for daring to take part in what was basically a start-up enterprise:' he remembers. Harmon was responsible for pulling together a financial department of 50 employees in accounting, treasury, tax and information services for the new subsidiary, He supervised the overhaul of CNR's computer processes--involving the migration of systems from a mainframe environment to a Unix-based platform. "Henry realized the industry had to implement such changes to allow departments to function more efficiently, faster and at lower costs, but he saw it 10 years before our competitors," says Mark Chandler, CNR's current chief financial officer who then served as tax director.

FROM CONTROLLER TO CHANGE AGENT

In a company--and industry--dominated by engineers, finance was regarded as a backroom function, "a problem to be dealt with," recalls Chandler. Harmon, seeking to raise the profile of finance to a key component in operations, exercised what colleagues call his greatest strength--this ability to look at numbers and project the company's future position. For example, CNR was operating more than 60 gas well properties at that time, "largely blindly," Harmon recalls. He applied basic finance tools to show declines or improvements in each property's performance. Harmon also introduced more complex financial strategies--such as cost controls in the field, benchmarking to industry standards and price hedging--to protect the company from fluctuations in natural gas prices.

Despite Harmon's success, CNR's parent company floundered as it struggled with federal deregulation of the industry. Columbia Gas Systems declared bankruptcy, and in 1991, as CNR's controller, Harmon had to oversee the first round of layoffs of his career: a 20% reduction in the staff he had recently hired. "I thought to myself, `It's time to explore other opportunities. I'll move out of the state, do something to move my career forward.'"

But Harmon realized a move would prove difficult for his family and hated to abandon his home state. Instead, he decided to pursue a parttime PhD in political economy from the Union Institute in Cincinnati, Ohio. "I saw this as a vehicle to propel me into the community, to give me an excuse to talk with business leaders." By 1992, Harmon had defended his dissertation on economic development in Appalachia and had earned his doctorate.

In 1993, the West Virginia Society of CPAs recognized Harmon as its Outstanding CPA in Business and Industry. "He was chosen because of his leadership at CNR--even during a time of retrenchment--and for the forward vision we wanted others to emulate," remarks Patricia Moyers, executive director of the state society. "He also had contributed to the community by giving seminars for small business owners on topics such as employment practices and recordkeeping and even had helped get small businesses going." On top of that, Harmon won the Accounting Advocate of the Year award from the Small Business Administration for helping entrepreneurs financially structure their enterprises.

Harmon's work with entrepreneurs also helped him begin to visualize the best niche in the marketplace for CNR in the next decade. As early as 1994, Harmon, while still controller, began to develop a strategy to turn CNR from a traditional utility into a lean provider of low-cost energy. The company he envisioned would rely no longer on federal regulations to tell it how to operate but, rather, on customer demand.

Today, although Harmon continues to volunteer to assist small businesses, he spends most of his time implementing his strategy to transform CNR. "Henry took a rather stodgy, inactive company and made the best of a bad situation," points out Jack Watson, CNR's operations vice-president. "Look at the Alamco acquisition. Our competitors didn't see any value in the company, but Henry saw it as a way to gain volume, expand our development potential and add skilled technical employees to allow us to become the number-one producer on the East Coast. He has a way of looking at things and seeing what they can become."

EMBRACING TECHNOLOGY

Harmon also used innovative technology to grow CNR. Because the company was formed from a combination of successor companies dating back 100 years, it holds wells and seismic data almost that old. Putting 50-year-old information on microcomputers allows CNR's geoscientists to reinterpret it to develop new three-dimensional images of the earth's subsurface and forecast gas deposits in unexpected places.

Normally, wells are drilled to a depth of up to 4,000 feet. Reinterpreting old data showed CNR natural gas might exist at 7,500 feet below the surface. "Our vice-president of geology and geophysics, Dick Beardsley, can talk to me for 15 minutes about rock formations and I won't understand a word of it," remarks Harmon. But Harmon did grasp one Beardsley assertion: If the company dug deeper, it would find gas. When CNR drilled five wells in the Finger Lakes region of New York at a depth of 7,500 feet, Beardsley's predictions came true. The company found 8 billion cubic feet of natural gas, one of the largest discoveries in its history:

MANAGEMENT TRAINING PAYS OFF

Harmon also took a progressive approach to managing the company's greatest resource--its 325 employees. In 1996, in the wake of several widely publicized harassment cases at major corporations, CNR executives asked Harmon for training on diversity issues. He turned to a sociologist at West Virginia State College to launch an executive institute. So far, CNR's management team has participated in 6 of 22 sessions on topics ranging from minority recruitment to women's issues. Another strategy Harmon launched is an open-book management system, which has boosted the amount of financial data employees now receive. Today, CNR tries to keep its staff apprised of major developments, even explaining complicated financial concepts in its employee newsletter, Explorer. Employees also can check the current price of gas and the corporate stock price and glean CNR's financial cost targets on the company's intranet.

Awards cover the walls in Harmon's office. Last April, he was among a group chosen to join General Colin Powell and the former U.S. presidents in Philadelphia to launch a program to reach children at risk. He returned to Charleston and helped establish a computer lab in a local school. Some 23 CNR employees go to the school once a week to help children with math and computer assignments. "It's a real morale booster for them," says Harmon.

It's this blend of goals Harmon strives to achieve as he leads CNR--pushing technological innovation forward while searching for new business areas and growing revenues and all the while demonstrating a sensitivity to the more human aspects of business--that mark Harmon as a business leader ready to face the challenges of the future. "Henry has a vision of where he wants the company to be and long-range plans to get us there," comments CFO Chandler. "And he helps us move forward as a unit to achieve the common good."

RELATED ARTICLE: Characteristics of a Pathfinder.

* Develops and champions a successful new service for a firm, employer or profession.

* Plays a key role in making a new service successful.

* Has the ability to grow a practice or expand services to meet employer needs.

* Makes extensive use of technology and has plans to increase use as new innovations become available.

* Exhibits creativity and entrepreneurial attributes.

* Sensitive to others--shows understanding and empathy.

* Has personal plan or vision for the future.

* Willing to take reasonable risks in order to grow professionally.

Source: CPA Vision Project Web site (http://www.cpavision.org).

WELD ROYAL is a freelance writer based in New York City. Her articles have appeared in the New York Times, Europe magazine and on Christian Science Monitor Radio.