"It was a euphoric time," recalls Rocco, "when many companies concluded that, what they had to sell, the client had to buy. . . . The government was a major forcing factor." The oil embargo of 1973 interrupted the euphoria briefly -- there were layoffs, mergers, and bankruptcies -- but by 1975 the industry was back on track, with revenues increasing about 8% a year.
Like many companies of the time, TRC had distinct strengths and weaknesses. It boasted an impressive core of experts -- an important fact, since the renown of its top people is a consulting firm's most persuasive selling point. It also had the necessary capital by virtue of the stock swap. But it suffered from an academic, ivory-tower atmosphere, and was short on management ability.
To make matters worse, TRC was soon orphaned. The firm's parent company, VAST, had been testing sonobuoys (submarine-detecting buoys) for the U.S. Navy for more than 10 years. The program represented nearly 90% of the company's roughly $10 million in annual revenues. When the contract came up for bid in 1974, VAST lost. Overnight, the company ceased to exist. "That," says Rocco, "left TRC in the position of having to fish or cut bait." TRC made a tender offer to Pratt-Read, and, in a $2-million-plus deal that involved selling off VAST's assets, became a stand-alone public company, TRC Companies Inc.
As TRC scrambled for business, government work was getting harder and harder to avoid. For one thing, the line between working for government and working for industry was beginning to blur. In this world, Washington was the source of the whole market, setting standards for industry and imposing timetables for compliance. Then, too, the competition was fierce, and despite VAST's experience, the government seemed like a good customer. "The government contract, which is generally large and may run for two years, looks like a security blanket," says Duffee.
By 1979, TRC's golden ratio was little more than a rusty memory: State and federal governments accounted for 75% of the firm's business. TRC had major contracts with the EPA. It assumed responsibility, along with NUS Corp. of Gaithersburg, Md., for setting up national air and water pollution monitoring and registry systems. On the industrial side, it began a major air-quality monitoring program for New York State Electric & Gas Corp.
Ironically, it was this commercial contract that led indirectly to the firm's first major crisis, precipitating its 1980 losses. The E&G contract required TRC to hire additional people and spend a hefty sum on capital equipment. TRC justified the expenditures by lining up similar work with General Public Utilities Corp. of New Jersey. Then, in March of 1979, came the accident at the Three Mile Island nuclear power plant. GPUC, the plant's owner, decided that it had more pressing matters to pursue.
Vincent Rocco arrived on the scene three months later. What he found was a company with an uncertain future. "The real challenge in coming [to TRC]," he said later "was to create a sense of confidence, a belief that we could survive."
Rocco, with his map of the Western Front and an Apollo II plaque autographed by Neil Armstrong, was an easygoing, avuncular man. He had spent the previous five years selling the services of a consulting firm, called Environmental Research and Technology Inc., to midwestern utilities, mining companies, and rubber manufacturers. His arrival at TRC represented a major shift in the firm's philosophy: The board of directors had decided that TRC should get out of direct government work and explore opportunities in the private sector.
"My mandate," says Rocco, "was to turn the company around by bringing in commercial business and by broadening the client base." Although it had grown significantly -- from the $600,000 in public-utility contracts deeded to it by Travelers in 1969 to annual revenues of $6.5 million 10 years later -- TRC retained its ivory-tower atmosphere and remained somewhat provincial, generally working close to home. "It was a comfortable little company," Rocco explains, that had grown increasingly introspective with each bruise imposed by the market. "Many of the staff no longer knew what was going on outside the building."
Rocco's first job was to solve some of TRC's organizational problems, many of them issues that crop up regularly when a company does most of its work for the government. "When I arrived," he recalls, "we were heavily overstaffed, and our costs were astronomical." Despite the toll on morale, Rocco made the necessary cuts, eventually paring the work force from 170 down to 140. Reminding the firm of its origins in the commercial marketplace, he also cultivated its aggressiveness: One analyst, noting the change, referred to "TRC's new killer instinct."
The firm had been loosely structured on a matrix system, with professionals from different departments coming together on specific projects. "We had 32 groups of people, each of them doing things they liked to do," Rocco remembers. He reassembled the staff, mounting 14 "business elements" that pooled expertise into what amounted to product lines: air pollution control technology, energy and environmental planning, waste-water services, and so on. He also imposed cost-of-sales and cost-accounting procedures that had been either nonexistent or neglected during TRC's do-business-with-the-government period. "We weren't accounting for costs the way we should have been," says Rocco. "In fact, in some cases, we were underbilling the government."
Rocco's biggest problems, though, stemmed from the nature of his new firm's marketplace. Like many industries that depend on the government, environmental consulting expands and contracts as issues heat up and cool off. "The market is very cyclic," observes Rocco, "and it's a constant challenge to gear oneself to ride with it, or to try to dampen the cycle." Each issue, moreover, has a given life span: It is studied, solutions are engineered, and eventually government standards are met. Firms in the business thus face an inevitable sequence of new challenges. "When you're on the low side, you barely survive," continues Rocco. "Then there's the trauma of coming back and the future shock involved in contemplating your next fall."
In trying to ride out the cycles, TRC was partly a victim of its own impeccable but obdurate reputation. Viewed as a high-class consultant to government, the firm was considered virtually preeminent in the field of air pollution. And that image persisted even as TRC lost some of its white-haired experts in the area and made a major effort in waste water and hazardous wastes. Even now, when an observer like David Bartlett of the investment firm of Ladenburg, Thalmann & Co. describes TRC, he speaks of "a class company . . . best known for its work in air pollution."
