P&Q Hall of Fame Profile: Stephen P. Zelnak Jr.

Steve Zelnak had a vision, one that would reshape the distribution dynamics of construction materials at Martin Marietta Materials Inc.

Unfortunately for Zelnak, few others, if any, initially shared his vision.

“I was the only person in our company and in the industry at the time who appeared to have a global view of distribution,” says Zelnak, a former president, CEO and chairman of the board at Martin Marietta. “I had to spend a lot of time educating people in our company about the opportunities, because the opportunities weren’t intuitively obvious.”

Executing a vision

Zelnak, who joined the Martin Marietta Corp. in 1981 as vice president of planning and development, saw numerous opportunities for growth. Specifically, Zelnak saw viable markets along U.S. coastlines and 30 miles inland where populations were increasing and construction materials were lacking.

“If you consider the coastline from North Carolina all the way around to the Mexican border and look at a geology map, there’s very little aggregate and, in most cases, no aggregate in those areas,” Zelnak says. “You had growing populations as far as I could see.”

In his vision, Zelnak sought to increase Martin Marietta’s reserves in every market from North Carolina to the Mexican border, and to serve the company’s markets by rail and sea. Still, Zelnak’s view of distribution was largely unheard of in the 1990s. Zelnak had to sell others on his strategy, and he faced opposition in doing so.

“There were definitely arrows flung, particularly about expanding in coastal areas,” says Anne Lloyd, who currently serves Martin Marietta as executive vice president and CFO. “But Steve was very steadfast in understanding one of the key drivers of aggregate consumption. He understood that we are a cyclical business and you can’t change the cycle. It’s the nature of the beast.”

Even some of Martin Marietta’s top investors doubted the strategy, according to Zelnak.

“We hit a recessionary period in 2001 and 2002, and at the time we were spending heavily on the strategy,” he says. “[These investors] really began to question it. I responded to them and didn’t change the strategy but was certainly willing to talk it through.

“Then, we came back in 2003 and 2004, and we started knocking the socks off it.”

Martin Marietta executed the long-haul distribution strategy by zoning and permitting new quarries and, in Zelnak’s words, “putting a lot of them on the shelf.” In all, Zelnak was responsible for more than 70 acquisitions that broadened the company’s geographic footprint.

“Decisions and investments were rarely, if ever, made on what the next 90 days looked like,” Lloyd says. “This is a business in which you needed to look 20 years ahead to consider where you want to be located.”

Zelnak agrees the approach implementing Martin Marietta’s long-haul distribution strategy required patience.

“It’s an instant-yield world,” Zelnak says. “In the aggregates business, you better have a long-term view, broad enough shoulders and enough tenacity.”

Martin Marietta continues to build on the model Zelnak put in place.

“When you look at an industry in which 90-plus percent is sold by truck, to suddenly have a business that’s moving 20-plus percent of [aggregates] by rail is not something that would just occur,” Nye says. Achieving new efficiencies in rail distribution was part of Zelnak’s goal, as well.

“The things with rail you care about more than anything else are efficiency and velocity,” Nye says. “You want to take a unit train non-stop to a yard. You want to go into that yard and into that quarry with a 100-unit train because that amps up your efficiencies. That’s what our enterprise is built to handle.”

Zelnak’s vision for long-haul distribution was ahead of its time from a regulatory standpoint, as well. He anticipated the current regulatory environment developing, particularly regarding water use and land permits.

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Going public

Zelnak shaped Martin Marietta in other ways, too. He led the initial public offering (IPO) of Martin Marietta stock in 1994, and in 1996 he led the offering of the remaining stock held by Lockheed Martin as Martin Marietta became an independent New York Stock Exchange-listed company.

According to The Baltimore Sun, Martin Marietta initially offered 7.65 million shares at $23 each. Yet, within the first hour shares were trading at nearly $26. Shares stretched as high as $168 on Zelnak’s watch, he says. But the stage to go public was set several years before 1994.

When Zelnak started with the Martin Marietta Corp. in 1981, Martin Marietta was a large aerospace defense contracting company that had aggregates operations. Zelnak took over Martin Marietta’s newly constituted aggregates division based in Raleigh, N.C., in 1982, at a time when that division was struggling, he says.

“Martin Marietta had questioned whether they wanted to stay in it,” Zelnak says. “I made a presentation and the case for staying in it, saying the business was going to begin to expand in 1982 and for another 15 or 20 years. In fact, it expanded for 25.”

By the late-1980s, the aggregates division represented 7 percent of Martin Marietta’s revenue and 21 percent of the company’s profit, Zelnak says.

“We were cash flowing beautifully,” he says. “[Corporate] didn’t have to spend time with us because the deal was if you like what we’re doing, leave us alone. If you don’t like what we’re doing, you know who’s in charge. So they left us alone and supported us incredibly.”

By 1988, Zelnak started talks of making the aggregates division a separate company. Plans were made to separate the division in 1991, he says, but the economy tanked at that time and put a separation on hold.

Yet, Zelnak pressed the talks, incorporated Martin Marietta Materials as part of the Martin Marietta Corp. in 1993 and listed the company on the New York Stock Exchange a year later.

“Based on my projections of the long term, I expected the [IPO] to do exceptionally well,” says Zelnak, who grew Martin Marietta revenues from $450 million to more than $2.2 billion during his tenure as the company’s CEO.

Other legacies

Zelnak’s Martin Marietta peers also credit him with setting the tone for the company’s culture today.

“Steve has a great legacy here,” Lloyd says. “He left a foundation of highly ethical behavior. You always know what to do here because you do the right thing, whether that’s the right thing for your employee base, your customer or regulators.”

Wait, regulators?

“[Regulation] was our best friend because those requirements were expensive,” Zelnak says. “It chased a lot of operators out of the business and really limited competition because of the amount of investment you had to make to compete. That’s what regulation does.

“I spent a lot of time telling our people this. They get upset and aggravated by new regulation and the difficulties of meeting it. I say, ‘Look, a regulator is your best friend.’ They’d look at me like this man’s lost his mind. I’d say why and they’d get it. It limits competition.”

Zelnak left his mark on Martin Marietta’s culture in other ways, including his work ethic.

“The thing that always struck me with Steve is Steve works,” Nye says. “When you got to the office in the morning, Steve’s going to be there. When you leave in the evening, Steve’s going to be there. Steve was in on weekends. This is a man who recognized and appreciated that we had people in our quarries early in the morning, when it’s raining and in our quarries underground.”

Nye also describes Zelnak as professional, disciplined and substantive. Lloyd takes notice of the opportunities Zelnak provided within Martin Marietta for women.

“There aren’t many women in the aggregates business,” she says. “But here at Martin Marietta three of our six officers are women. That reflects Steve’s point of view, while our current CEO (Nye) continues that. Steve always looked at who was most talented. To me, that makes him very different in the industry.”

Customers also benefited from Zelnak’s ethical approach.

“One thing I wanted to do when I took over Martin Marietta was to eliminate antitrust violations,” Zelnak says. “I didn’t mince any words, making it very clear to people that we were going to abide by the letter and intent of the antitrust laws. If you chose not to do that willfully, then you were betting your job.

“The reality is that in the 27 years I ran the company, we had zero antitrust problems,” he adds.

Photos courtesy of Steve Zelnak.