What went wrong at the new MBTA boss’s old job?
His 2012 appointment to run a Dallas-area energy company was Luis Ramirez’s chance to show the executive chops he learned over two decades climbing the ladder at two of the world’s biggest industrial conglomerates, General Electric Co. and Siemens.
His new employer, Global Power Equipment Group, had come out of bankruptcy several years earlier and had high expectations for Ramirez, describing him as “ideally suited” with “a track record of managing and growing large businesses.”
It was that long track record that also attracted Ramirez’s newest employer, the Massachusetts Bay Transportation Authority, which earlier this month tapped him to be the new general manager despite having no experience in public transit.
Ramirez describes himself as both a “growth leader” and “turnaround” veteran, but he does not appear to have been successful at either for Global Power. The company suffered a widespread accounting failure, revealing it just weeks after Ramirez abruptly resigned in 2015. The company disclosed that the Securities and Exchange Commission is investigating its bookkeeping practices, and shareholders have sued Global Power for fraud and named Ramirez as a defendant.
On Tuesday, after days of repeated questions, Governor Charlie Baker defended Ramirez’s hiring, saying he was “quite confident” in the new GM’s ability to succeed. “I have no doubt that when we have this discussion a year from now, most other people will agree with me,” Baker said.
Ramirez declined to comment, referring questions to the MBTA. Lawyers from Global Power said in court documents there was no evidence of wrongdoing by Ramirez and no proof of deliberate fraud by the company.
Baker and members of his administration cited Ramirez’s experience at GE and Siemens, where he rose to head offices and divisions, rather than his tenure at Global Power, as qualifications for the GM job.
“We talked to a lot of folks at General Electric and Siemens who all said the same thing, which is that Luis is one of those guys who knows how to get down on the ground with the folks who are doing the work, figure out what’s important with respect to the organization’s ability to succeed, and then leading the transformation that’s required to get from here to there,” the governor said.
One of Global Power’s longtime shareholders, Nelson Obus of Wynnefield Capital, remembered meeting with Ramirez after he was named chief executive in June 2012, and said he wasn’t impressed. Fresh off a dozen years at GE, Ramirez used too many buzzwords for Obus’s liking.
“We met Luis in our conference room and my impression of him was that he was very promotional and superficial,” Obus said in an interview Tuesday. After meeting Ramirez, Obus said he sold his company’s remaining shares in Global Power “on the basis that I didn’t have confidence in him.”
The T has said it was aware of Global Power’s financial problems before hiring Ramirez. Also, both the agency and Global Power say that the accounting problems pre-dated his tenure and that he did not leave the company because of the issues.
Before going to Global Power, Ramirez headed an energy division at GE operating in 60 countries, with 17,000 employees. He boasted of leading a “transformation” that produced high growth and strong profits on revenues that reached $3.7 billion.
That was a considerably bigger enterprise than Global Power, which had about 900 employees and less than a half-billion in revenues when he took over. By the time he left in March 2015, Global Power’s revenues had increased somewhat, but its operating profits had fallen, in some years sharply.
Bigger problems emerged just a few weeks after Ramirez left the company and became a business consultant. Global Power disclosed problems with accounting practices that would force it to redo its books, eventually as far back as 2011 — before Ramirez had come aboard.
His successor as CEO, Terence Cryan, would later tell investors the company was in “need of an operating turnaround” when he took over.
In March 2017, auditors for Global Power revealed an extensive list of problems, concluding the company did not maintain “effective internal control over financial reporting,” according to a report from its accountants included in the company’s financial filing. Global Power had too few accountants with the right expertise to do its books and failed to provide the kind of security rules, supervision, or oversight necessary to ensure the integrity of its accounting process.
The company said in its financial statements that it sometimes booked revenues before projects were complete, while failing to tally up offsetting costs in a timely way. Global Power also failed to properly account for reduced assets after selling a subsidiary.
“This was an egregious, pervasive problem,” said Judy Beckman, a University of Rhode Island accounting professor who recently completed a fellowship at the SEC. “It raises questions about, ‘how does this happen?’ It’s one of two things: The guy made big errors and will not let it happen again; or was it a problem of not being willing to watch? . . . It’s absolutely the CEO’s responsibility with a publicly traded company.”
In March, Global Power also changed its financial statements for the years Ramirez was chief executive. Company profits for 2013 and 2014 had been overstated by millions of dollars, and for 2015 it ended up with a hefty net loss of $78.7 million.
Another longtime shareholder in Global Power, John Walthausen of Walthausen & Co., said he believes Ramirez was overly focused on big-picture issues and corporate acquisitions, while not fixing the more fundamental accounting problems.
“Clearly the fact that he left without correcting the issues shows that it was not a successful turnaround,” Walthausen said in an interview.
Obus, who has since resumed investing in Global Power and is now the company’s largest shareholder as well as a member of its board of directors, said the accounting issues were a matter of “competence” rather than fraud.
Global Power is still facing challenges, although importantly it recently obtained new financing. It has yet to file an annual financial report for 2016 and quarterly reports for 2017.
Ramirez has been named in a class-action lawsuit by shareholders, who assert that he was well-informed of the specific accounting problems. The lawsuit said that the accounting department had an exodus in 2013 under him and that Ramirez eliminated the department’s training budget.
Lawyers from Global Power have rejected this characterization. Moreover, in its response to the lawsuits, Global Power argued that his cutting back on administrative expenses showed Ramirez was a “competent CEO.”