A case Education every step of the Way

In October 1985, the Will Burt Company found itself on the verge of liquidation. A small, family-owned manufacturing firm based in Orrville, Ohio, Will Burt had just its insurance coverage canceled following a liability suit in which the company lost $6 million. With additional suits pending, any one of which could have finished Will-Burt, the owners gave CEO Harry Featherstone until December 31 to find a buyer. Without a new owner, the company would permanently close its doors in January.

Featherstone who had just taken charge as CEO in October, found himself at the helm of what appeared to be a doomed company. Will-Burt had $20 million in sales, but profits had not topped 5 percent in recent years. Product quality was so poor that workers were sending nearly 25,000 hours a year remaking faulty parts. Workers were earnings $2 less than the area’s average, and employee turnover had reached a staggering 30 percent. Employee morale was also exceptionally low. Because of the lawsuits, people didn’t know if we were going to stay in business or not, explained Terry Wheeler account salesman for Will-Burt. People didn’t see any future.

Featherstone, however, did see a future for Will-Burt and he was determined to make the company work at whatever cost. First, he reviewed his limited options. We could have liquidated, but I didn’t want to tell 350 people and their families that the business was closing, he recalled. We thought of merging, but who wants a company burdened with all that litigation? Featherstone’s lawyer finally arrived at a solution: a leveraged buyout by Featherstone followed by the institutions of an employee stock ownership plan (ESOP).

This plan saved the company from liquidation and served as a preemptive strike against further lawsuits. My attorney told me that if we got ourselves highly leveraged, we wouldn’t make much money, but neither would we be a deep pocket target for some liability lawyer, Featherstone commented. Lawyers love rich companies, and we wouldn’t be one. Moreover he hoped that employees would become more committed to Will-Burt’s success if they were to own a piece of the company.

With Will-Burt temporarily saved from extinction, Featherstone then set about turning the company around. His first task lay in making his employees understand that, through the ESOP, they owned the company. We all heard the word ESOP, but nobody knew what it was all about, explained Cecil martin, an assembler for Will-Burt at that time. We all said, ESOP? What’s an ESOP? They got some pamphlets out at us and said we’d all own a piece of the place. But a lot of people trouble grasping the concept. They hated it, stated Featherstone bluntly. After all, I had forced them into an equity ownership that they didn’t understand he remarked. And you don’t understand, you are often afraid of.

So Featherstone decided to help the new owners of Will-Burt understand. Although ESOP law did not require him to open the company’s books to the employees, he wanted them to have access to the numbers. In 1986, Featherstone therefore began handing out profit-and-loss statements to all employees. Unfortunately, this did not work. People told me they couldn’t read the thing, that it made no sense to them, he recalled. He therefore simplified the and outs to a few lines: this is what sales were, here is what it cost us, here is what we made. Finally the employees understood that they had a direct stake in the welfare of the company. And the workers realized, perhaps for the first time, that they held the power to determine whether or not Will-Burt would succeed.

Featherstone then turned his attention to profitability. Will-Burt had $2.5 million in debt more than the company was worth on its books. In addition, the company owed $1 million to the bank in 1986, with first payment of $250,000 due in only a few months. Will-Burt had never in its corporate history earned $1 million a year, but this year it had to do so. After months of analyzing and re-analyzing the company’s books, Featherstone found an answer: quality. Will-Burt was spending $700,000 a year reworking defective parts. By making the parts properly the first time, the company would not only save money but also attract new customers.

This coupled with a new pay system that resulted in a raise for nearly everyone in the company, caused employee morale to soar. Absenteeism fell to 2 percent and workers’ compensation costs dropped from $160,000 in 1985 to a meager $662 in 1992.

Riding on the wave of employee enthusiasm, adding more courses, including advanced blueprint reading, geometric tolerancing and statistical process control, Featherstone also initiated a “mini MBA” program to help employees, by this time referred to as “associates”, understand better the basics of owning and running a business. Education creates involvement, commented Featherstone, and involvement creates knowledge, and knowledge says I want more education so I can get more involved. A new emphasis on quality and innovation spread quickly throughout the company Camaraderie and pride replaced apathy. According to Featherstone, we have formed a team solidarity from our janitor to our sales person to our clerk when it comes to our customers.