Shakeup at Virginia Economic Development Partnership

While it is still searching for a new CEO, the state’s primary business recruitment organization, the Virginia Economic Development Partnership, has implemented a major reorganization plan.

VEDP’s restructuring includes reassignments of some key staffers and the departure of two longtime vice presidents, Liz Povar and Mike Lehmkuhler. Their jobs were eliminated when the restructuring integrated the divisions they headed into a new Business Investment Division that will be led by a yet-to-be-hired new vice president.

The shakeup of the VEDP’s internal operations has been in the making for “a good 18 months to two years,” said interim President and CEO Dan Gundersen, and is designed to keep Virginia competitive with other states.

Nonetheless, the restructuring and loss of two senior staffers caught at least one board member off guard. David Hudgins, a director on the 24-member VEDP board, questions why the change is taking place before a new CEO is hired.

In September, the VEDP expects to begin reviewing resumes from an executive search firm, with hopes of naming a permanent CEO by the end of the year. Asked if he was applying for the job, Gundersen said, “That’s a professional and personnel decision that is between me and the search committee.“ 

The reorganization, which took effect on Aug. 15, also comes three months before the state’s oversight agency, the Joint Legislative Audit and Review Commission (JLARC), is expected to deliver a report on the VEDP’s operations and performance.

Gundersen emailed a memo to about 800 VEDP officials and partners throughout the state on Aug. 18 and Aug. 23, detailing the reorganization and noting that the first phase of changes includes “new faces and names in some key leadership roles …”

The later email also said that “after many years of service,” Povar, the former vice president for business expansion, and Lehmkuhler, the former vice president for business attraction “are moving on from VEDP.”

Lehmkuhler and Povar declined to comment for this story, but Povar confirmed her last day was Aug. 26. Povar, 63, had worked for the VEDP for 21 years. Lehmkuhler had worked there for 19 years, according to his LinkedIn profile.

Hudgins said he was not shown a copy of the full restructuring plan until the day it was sent out.  “As a business guy, it violates every management principle I was taught in school. Why would they proceed with a reorganization with an acting CEO is beyond me. I asked the same questions of the leadership …. earlier this year.”

Hudgins said he had gotten calls from other board members asking, ‘Why is this being done?’” 

Hudgins, director of member and external relations for the Old Dominion Electric Cooperative in Henrico County, said he also was surprised by the departures of Povar and Lehmkuhler. “That’s [40 years] of experience that left the building.  Everyone has a different management style, but at the end of the day you need a transition so that knowledge remains in the organization.”

Gundersen said he could not comment on personnel issues other than to say “one of the key challenges and expectations was that we dismantled the separate Business Attraction and Business Expansion divisions.”  Asked if any staffers were demoted, he said, “Some staff were reassigned so that we took advantage of their skill sets in the new organization. I believe, in most cases, it was a lateral move. In one case, a promotion.” 

Gundersen and recently elected VEDP Board Chairman Dan Clemente described the reorganization as well planned, forward thinking and responsive to concerns voiced earlier this year during a listening tour with more than 100 local economic development officials and others around the state.  

“There was a view that VEDP needed to be more proactive and aggressive in its approach to economic development, and that the very structure needed to change to keep up with the times,” said Gundersen, who has been the agency’s chief operating officer since 2014.

VEDP had stuck to “its tried and true approach,” he added.  “Other states are cleaning our clock in terms of being nimble and finding new ways to fund their operations so they can take the revenue and funnel it into marketing approaches and get in front of the business clientele from around the world.”  

What has emerged, he said — with the full engagement of the board —  is a more collaborative, streamlined approach that brings Virginia up to date with approaches being taken by other states.  “We integrated services. By doing that we were able to develop teams of professionals around industry sectors critical to our economy. Before you had individual project managers in different divisions that were trying to work on projects,” he said.

Gundersen said the restructuring plan was discussed with the board at its June meeting, which Hudgins did not attend. Also, he said he sent board members a memo on July 14 with a plan of the reorganization that provided the conceptual changes of how the organization would be put in place.  All of the information was there, he continued, “but names were not in boxes at that time.” The staff reassignments were included in the organizational chart that Gundersen sent out with his memos in August. 

The changes did not require a formal board vote. According to Suzanne Clark, VEDP’s communications manager, the agency’s organizational management is the responsibility of the CEO.

The board is expected to amend its fiscal 2017 operating plan to reflect the structural changes at its September board meeting.

Gundersen said the reorganization — the first of the VEDP since 2012 — was the result of 30-, 60- and 90-day action plans resulting from the listening tour. 

Following the tour, Clemente says the group came up with a list of changes it wanted to see in the organization and presented them to Martin Briley, VEDP’s CEO. Briley stepped down on March 10 following a closed session of the board to discuss personnel issues. Gundersen took over as interim CEO the next day.

Clemente, a commercial real estate developer from McLean, conducted the tour earlier this year, while he was vice chairman with then-Chairman Chris Lumsden and Gundersen. Clemente said he chartered a plane at his own expense, meeting with local officials from the economic development community over three days in seven regions around the state.  

Armed with feedback on how best to fine-tune the agency, the board wanted to move forward, he said. As for the timing of the reorganization without a new CEO in place,  “If we had waited to hire somebody [as CEO], we would have had uncertainty as to how long it would take to make these changes,” Clemente said.

“Then that person would have to spend a considerable amount of time getting a feel for the entity,” he said. “So we’re talking a year and a half going with no changes after we had just been out on this tour. We felt we better have something going on that’s constructive.”

Gundersen said, “It would have been incredibly irresponsible for an organization  … after having a listening tour in January to sit on its hands and let one part of the moving process dictate the whole.  The board did not do that.”

Clemente said much of the feedback on the tour came from officials in rural or lower-income regions who felt they weren’t getting enough attention.  Clemente said rural regions often got left behind as VEDP tried to meet job and investment targets. “If you are focused just on metrics, then there are other parts of the state that go hurting. For example, the coal country, the Valley.”

Barry Matherly, president and CEO of the Greater Richmond Partnership, said the changes taking place at VEDP reflect concerns expressed by Central Virginia economic development officials during the listening tour.

“Some of the major comments were that they needed to get more back to a cluster-focused business attraction approach, which the new structure does reset, and that’s how VEDP used to be until about three years ago,” said Matherly.

Economic development officials often target specific industries where they have had success in attracting new businesses. For example, he said, the Richmond area does well in the food and beverage category, having recently announced major investments and job creation commitments by Stone Brewing and Niagara Bottling.

“It’s a very smart way to target your resources and try to ensure a higher success in recruiting businesses by using a targeting structure,” said Matherly.

The new structure reflects these sentiments, creating industry-based teams and putting more emphasis on business recruitment efforts in distressed areas.

The reorganization creates three new divisions. The Business Investment Division will include three broad industry teams: products, services and technologies. Vince Barnett, vice president of communication and promotions, is serving as the interim vice president.

The new structure also creates a Competitive Initiatives Division. It will focus on providing help to all of Virginia’s regions, especially rural communities and  distressed economic areas. The vice president of this division has not yet been named.

A new Workforce Development Division will build on the VEDP’s Virginia Jobs Investment Program. Tim Stuller, formerly a managing director in the Business Expansion unit, will be vice president of the division.

VEDP’s international trade division will be spun off next April as the Virginia International Trade Corp.  As a separate state agency, it will house the state’s export-assistance programs. A CEO for that organization, which will be a  gubernatorial appointment, is scheduled to be named in December. Paul Grossman, the longtime vice president of international trade for VEDP before the restructuring, is expected to be in the running for the new top job. 

Described as phase one of a reorganized structure, Gundersen said in his memo that changes were the results of “hundreds of hours of review and analysis by and with our board, staff, key stakeholders, independent management consultants and public officials over the better part of this calendar year.” 

General Assembly members including Del. Chris Jones, R-Suffolk, and Del. Kathy Bryon, a Republican representing the Lynchburg area, called for a review last fall of state economic development incentives and the way they are administered. 

VEDP came under scrutiny after Virginia paid $1.4 million in incentives to a Chinese company, Lindenburg Industry. The company failed to keep its pledge to invest $113 million in opening a factory in Appomattox and creating more than 300 jobs.  A series of stories first reported by The Roanoke Times raised questions about VEDP’s vetting process for the project.

In a January Roanoke Times article on the failed deal, Briley defended the organization's track record. Since 1992, 25 of the 629 companies that received money from the Commonwealth’s Opportunity Fund have been asked to repay incentives and did not, Briley told the newspaper. That equated to a loss of $5.87 million out of total grants that were nearly $230 million. And in all but four of those cases, Briley said, the money had been spent on assets such as worker training or infrastructure.

VEDP has made JLARC aware of its operational changes under the restructuring, said Drew Dickinson, principal legislative analyst for JLARC. The purpose of JLARC’s report, scheduled to be ready in mid-November, is to evaluate VEDP’s operations, the effectiveness of its initiatives, its accountability structure, coordination with local and state economic development entities, and structures and approaches used by other states.

A second phase of VEDP’s reorganization is expected to be announced this fall. Phase II will focus on improving operational units of the organization, such as human resources and legal functions.