The Turnaround Value of Values

In the ten years since I left business school, I’ve played a critical role in achieving higher sales, lower costs, and bigger profits at three companies. Indeed, if you take it at face value, my resume looks brilliant. As marketing director at the Aspen Skiing Company from 1980 to 1983, I managed to increase skier days, which had been declining for several years. I also created the Aspen Foundation to raise money for local causes, and I helped to found the Aspen Winternational, a combination of ski racing and winter carnival that put Aspen on the World Cup circuit and attracted worldwide television coverage every March. As head of marketing from 1983 to 1987 at Timberland, a small boot company in New Hampshire, I fought and won a battle between my strategy of selling higher quality boots and shoes at higher prices and an opposing view, championed by the sales department, that we should sell less expensive footwear in army-navy stores and discount outlets. I also waged and won an uphill fight to sponsor the Iditarod sled dog race and identify Timberland with Alaska’s frontier ruggedness and endurance. All in all, my marketing strategy helped carry the company from $ 37 million in annual sales to $ 110 million. As chief executive officer from 1987 until early last year at G.H. Bass & Company, a shoe manufacturer in Maine, I took a company with declining sales, factory closures, big losses, and plummeting morale and turned it around quickly and dramatically, once again by focusing on quality, customers, and the top end of the market. Now I’m the CEO and an owner of the Geo. E. Keith Company, which dates back to 1758 and is not only the oldest shoe manufacturer in the United States but probably also the finest. Like Bass, Geo. E. Keith had fallen on hard times after a period of real greatness early in this century. I’ve owned it only since March 1990, but I have already begun carrying out a plan to bring it back to the top of an upscale market. Yet the truth is, behind this string of successes featuring quality focus, innovative marketing, and record profits, I could also put together quite a different kind of personal history, and privately I often do. In Aspen, for example, a lot of townspeople opposed my marketing schemes, hated the company, and were suspicious of me. Aspen is a pretty combative place, but the Skiing Company, well handled, could have played a unifying role. Establishing the Aspen Foundation was an excellent beginning—today it grants nearly $ 2 million a year to local nonprofit groups. But despite a few good ideas, what I did best was to isolate myself from people in the company and in the community. At Timberland, what I’ve called a battle with sales was actually more like a war. The brothers who owned the company were at odds (one of them compared a typical management meeting to a day in Beirut), and I entered the brawl with such a will that I eventually got fired. By the time I arrived at Bass, I had learned that confrontational innovation isn’t the best way, or even a good way, to manage. Mind you, I’d had pretty good results with it, but my ex-employers had a way of describing me as “controversial” even before they mentioned my wonderful numbers. I approached that new job in a much more sensitive and cooperative spirit. Yet there is still one broad sense in which Bass too was more failure than success for me, despite the company turnaround. For all my success in grasping the company’s values and competence and using them to rebuild, I was only beginning to discover a larger point—the coherence between values and competence, the spirit that makes organizational values and competence meaningful beyond their mere application to a product or paycheck. Over the past ten years and three jobs, I’ve learned that healthy organizations are coherent communities whose personalities, capabilities, and attitudes are consistent with their acts, while unhealthy organizations either lack this coherence or, as in Bass’s case, aspire to it against overwhelming opposition, sometimes from the market or some other source but all too often from management. There is no more powerful service a CEO can perform than to communicate coherence and give a company permission to express its latent or suppressed aspirations. The corollary to this lesson is that you cannot impose an individual’s will on an organization without endangering its health. This doesn’t mean there’s no place for leadership; it means only that leadership can’t be independent of the community, that leaders have to understand their organizations and lead them places they are capable of going. Losing Sight of the Forest for the Shoes When I stepped in as CEO in 1987, G. H. Bass & Company was 111 years old. It had begun as a boot and moccasin maker to loggers in the Maine woods, and the founder’s mission statement—“We will make the best shoe for the purpose for which it’s intended”—was simple, clear, and had a kind of awkward charm. In that backwoods spirit, Bass continued to make a number of best shoes for rugged purposes. It made the boots Charles Lindbergh wore crossing the Atlantic. It made footwear for Admiral Byrd’s expedition to the South Pole and boots for the U.S. Army’s Tenth Mountain Division in World War II. Since the 1930s, it also made the world’s most famous loafer, the Bass Weejun (short for “Norwegian slipper,” the import from Norway that inspired it). But when I took over, that history had been largely forgotten, and the company had lost its way. During the previous four years, Bass had lost $ 72 million— $ 46 million in 1986 alone. It had also closed six of eight domestic factories, though it was still making, by my count, 620 different models of 17 different categories of shoes, a good indication of how far it had wandered from its original mission statement. Far from making the best shoe for a few specific uses, Bass now seemed determined to make several shoes of varying quality for every purpose anyone could possibly name. The company had a massive inventory. It took a lot of guts to make me CEO. At Timberland, I had played a part in one of the few marketing success stories in recent U.S. shoe business history, but I was only 35 years old, had never been a CEO, had only four years of industry experience, and had never in my life had more than six people reporting to me. But Phillips-Van Heusen had just acquired Bass from Chesebrough-Pond’s, which had been trying to unload it for two years, and CEO Larry Phillips and COO Bruce Klatsky wanted to take a chance on me. For one thing, Klatsky was only 39 himself, so in principle he liked young executives. For another, Klatsky and Larry Phillips believed that what Bass needed was marketing, not sales or manufacturing, and I was certainly all marketing. I believed marketing direction was all a business really needed. Conversely, all three of us knew from the start that we disagreed on strategy. Over the previous 10 to 20 years, large clothing retailers had been dropping brand names and moving more and more toward private labels, which they usually bought directly from manufacturers in Asia. With no confidence that even a well-established trademark insured them against this private-label threat, Larry Phillips and Phillips-Van Heusen concluded that the traditional business of selling brand-name apparel through department stores had little future. Their counterstrategy was to set up their own direct links to customers through factory outlets. Phillips and Klatsky thought these same general ground rules applied to footwear and wanted to expand Bass’s factory-outlet business aggressively. They also figured that with Bass’s reputation for quality, direct discount retailing would be a quick way to recover their purchase price. My opposing view was that brands dominated the shoe market and always would. Shoes were not a commodity. I thought we should revive Bass’s reputation for quality and reestablish our relationships with major retail stores. In spite of our differences, the three of us got along well. I believed they would come around to my point of view in time, that I could convince them with results. They believed I could set a new direction, boost morale, revise the product line, and reposition the brand, and they were perfectly happy to let me pursue a high-quality, full-price wholesale strategy while they continued to push factory-outlet sales. My first day on the job, a Monday morning in November 1987, I called together the senior executives in the main office in Falmouth, Maine. “We’ve got to make some changes,” I told them. “Let’s try to make them together.” It was a brief, guarded meeting. Afterward, the senior vice president for manufacturing took me aside and suggested I pay a visit to the factory in Wilton, Maine, where the company had started. No CEO had been there for four years, he told me. He and I made the one-hour drive the next day, and I received another guarded welcome from the workers and supervisors there. They had good reason. None of them had received a raise for four years, and they knew management had already closed all but two of the Bass factories in the United States. But one of the few good things about companies in trouble is that they’re nervous about the status quo and primed for change. We began with a long list of conventionally drastic steps. We cut $ 9.3 million in costs, some of it by closing down a design office in Italy and a warehouse and distributorship in Canada. We liquidated $ 21 million in inventory. I changed a lot of senior management and switched the sales representatives from straight commission to salary and bonus, which led 20 of 30 of them to quit. From conventional changes, I moved quickly to changes that were more fundamental. I cut 620 design patterns to 200 and 17 footwear categories to 6. I asked the people on our product-development team to make a superior product in three of those categories, and I told them not to worry about price. We needed to make a statement about Bass quality to retailers and consumers even if the shoes didn’t sell. We also needed to make a statement about manufacturing quality to our own employees, who for years had continued to make good shoes as a matter of pride, perhaps, but not as a matter of company policy. I sensed that people were ready to rise to the occasion, and it was an invigorating feeling. I moved up the introduction date of the new line by six months, and we planned Bass’s first advertising campaign in four years—12-page inserts in Vogue and GQ. We were offering 11 new models at prices over $ 100, about twice what Bass had ever charged for a pair of shoes. We launched the new line in the spring of 1988, delivered shoes in the fall, and all that time I held my breath. Little Victories Company vision and philosophy are pretty lofty terms. I had no grand vision when I started. Later I thought I could see that most of the changes I made were the right ones for Bass, but at the time it was largely an accident. I had come in with the idea that I was going to impose direction and, by the force of my personality, by sheer authority and the demands of the market, I was going to transform the company. I wasn’t interested in philosophy, I just wanted to sell some shoes and prove a point to Phillips-Van Heusen. It took me a year to realize that the issue of vision was perhaps transcendent. At the outset, I was just a marketing guy with no experience in manufacturing. I had never been in charge of finance, personnel, or data processing, and it was clear to me that I was never going to know more about those areas than the people already in place. The question for me, I realized, was how to bring all these people together. On one of my first days on the job, I asked for a copy of every report used in management. The next day, 23 of them appeared on my desk. I didn’t understand them. The manufacturing reports were written in manufacturing language, the finance reports in finance language, and the sales reports in sales language. Manufacturing talked about hand-sewn shoes from Wilton and cemented shoes from Brazil. Sales information was organized by individual salesperson and dollars rather than by product or geography. Financial information was accounting-driven not customer-driven. Each area’s reports were Greek to the other areas, and all of them were Greek to me. Since we had to start cutting costs and products, we were going to have to do a lot of talking, but until we had a single market-driven language, we weren’t going to have any common management information to talk about. We spent the next year throwing out the old separate languages and translating the databases into market terms. We had reduced our production to six categories of shoes—for example, all loafers were now part of the Weejun collection and all boat shoes belonged to the Outdoor collection—so we built our language around those categories. I also put together a Monday-morning management meeting where we just talked about the business, informally and frankly. I knew right from the start I was going to have a hard time finding things to get excited about in those meetings, so I focused hard on little victories. A little victory might be a report from sales that a particular account had accepted the $ 100 shoes, even if they’d taken only a hundred pairs. One important little victory was being named “Western Maine Business of the Year” in 1988. All right, Western Maine is only Franklin and Oxford counties, but it mattered a lot to people who’d been afraid of closure. Another important little victory was making a special pair of Weejuns for President Bush and having him send us a thank-you note and a picture of himself examining our new upgraded shoes. That meant a lot. Maybe my favorite was a wildly successful United Way campaign in the company. We went from less than 50 % participation the year before to 73 % , and contributions quadrupled. We made quite a big deal out of that—it showed that we were a company that could set goals and then exceed them. The psychology behind the little victories was to lower expectations but create believers. I told everyone the new line was not going to save the company and that I didn’t want us focused on one big sales result. I wanted us all to concentrate on things that were more immediate and continuous—little week-to-week victories rather than a single, great triumph. I needed believers. I hired some, I created some, and I found a lot more already on the payroll, most of them in Wilton. Very gradually I became a believer myself, but to my own surprise, a believer not so much in marketing as in vision and community. I started to believe in G. H. Bass & Company as a cohesive organization with consistent strengths and purposes. Tracking Down History Bass’s owners did not share that belief, and that difference came to epitomize our strategic disagreement. The owners had seen tastes change and cost pressures rise as the shoe business moved steadily toward lower cost and higher fashion. They’d seen athletic shoes steal the casual market from loafers, and they’d watched offshore production run away with 90 % of domestic shoe consumption. Not surprisingly, they had come to take a dim view of Bass’s traditional, expensive product. As far as they could make out, the “Made in Maine” label was a cost albatross. For Chesebrough-Pond’s and now for Phillips-Van Heusen, the old strengths were weaknesses. But I now thought we could resell those old strengths to customers, to the owners, and, for that matter, to the company itself. Since I’m not much interested in businesses that have to be reinvented every year, I wanted to reassociate the name with quality and build a product line more enduring than season-to-season fashion. In order to capture that sense of continuity, however, we had to recapture the company’s past. We began resurrecting stories about George Henry Bass, who founded the company in 1876, and about the shoes we made for Admiral Byrd and Charles Lindbergh. We advertised as “The look that never wears out,” and we put that line about “The best shoe for the purpose” right on every box. Of course, corporate history is tricky. As an external, cosmetic reference, history is just hype. History can also be a form of escape, a way of turning your back on the present by invoking a comfortable past and clinging to it. But as a statement of company values, of a company’s inherent way of doing things, history can be powerful. People want to be associated with something larger and more enduring than themselves. For most of this century, however, our view of progress has been a resolute march away from the old toward the modern, usually defined in terms of high volume and low cost. Yet organizations that turn their backs on their history and traditions are often turning their backs on their values, on their need for vision and purpose, and on their own particular competence. I wanted to know more about Bass’s personality, values, and history because I wanted to match them with new business opportunities. Quantitative measures drove U.S. business for most of this century, but we’re no longer a mass-market society, and an exclusive reliance on market share is an anachronism. What drives successful businesses today is market responsiveness, and yet it wasn’t as simple as saying that market values would determine the right direction for Bass to take. To motivate Bass toward a new future, we had to understand its past, honor its strengths, and build on them. To make Bass into the kind of company I wanted it to be, we had to know who we were. In March of 1988, I hired a new director of marketing to manage the process of making history relevant. As I saw it, our job was not so much to recapture Weejun popularity as to tie Bass quality to contemporary tastes. I also hired a corporate identity consultant to redo our packaging and our image, but we needed facts to work with. The company was like grandma’s attic. We knew there were a lot of interesting stories up there, but we had to dig them out. I decided to hire an archivist as well. Over the summer of 1988, he put together a company history, a kind of family album, partly from interviews, partly from company documents and clippings that one of the secretaries in Wilton had spent years collecting and cataloging in her spare time. The idea was not to produce advertising copy but to identify the company’s personality, values, and idiosyncrasies and then try to match them with the new market realities. The archivist helped to uncover four specific qualities I knew we could use in turning the company around. First, amazingly enough, the values of the company were still closely connected to the Bass family, who had sold the company in the 1970s. The culture and ethos of the organization were still those of a proud family shoe company that was centered in a small town. The work force had simply never acknowledged that the real owner was now a distant corporate giant. A second important company quality was loyalty, expressed at that time in a willingness to accept adversity. Our employees were loyal even in hard times, which relates back to the small-town values. Cynics will say they had no choice, that there simply weren’t any other jobs, but that’s not quite true. There were paper mills within 25 miles that paid more—double and triple what we were paying at the Wilton factory—so there must have been something about Bass that kept people there. Third was a persistent belief that Bass was the best, even though, in fact, many competitors had passed us by. For the people in Wilton, Bass still stood for superior quality—or at least the potential for superior quality. Either way, quality was still a Bass hallmark in their minds. Finally, Bass had a number of key employees who had been with the company for decades. They were informal leaders of a kind, enjoyed great respect in the organization, and helped bring stability to an unstable situation. They were also the people who carried the company’s oral history. Back in the 1950s and 1960s, for example, Weejuns were sold by allocation—each retailer got only so many pairs. Demand always exceeded supply. The older work force still basked in that glory, like a baseball team that had won a pennant 30 years before. So the redirection of the company toward higher quality and a traditional, classic product line rang true for them. There was, in short, a set of historical organizational values that we could use to make a coherent whole out of manufacturing, marketing, sales, and accounting. What I found at Bass was a company whose management focused almost entirely on costs, placed no value in work, and ignored the company’s history. What we managed to create or, rather, rejuvenate, was a company that knew its strengths and how to use them. And all we had to do was give it permission to be itself. Bass wasn’t just a name on shoes. It was a community. Success and Failure In the spring of 1988, we presented the new product line to 20 department stores all over the country. We had projected initial orders of 30,000 pairs, but they ran twice that, and our first-season sales were 150,000 pairs. From a loss of $ 46 million on sales of $ 150 million in 1986, we took the company to a $ 16 million profit on sales of $ 180 million in 1988. And we did it on the basis of premium quality, which meant we had taken the company back to something approximating its original condition. The basic Bass competence had been a handicap, and we’d turned it back into an asset. This should be the happy ending. But I tell this story as if I’d been the owner, and of course I was not. In reality, I represented a corporation in New York whose strategy and values matched Bass’s in some ways and differed hugely in others. Phillips-Van Heusen was as eager as Bass to save brand names in shoes and clothing, for example, and Larry Phillips and Bruce Klatsky approved of most of my initiatives. They were skeptical about magazine advertising, and they thought I was moving too fast in changing sales compensation, but they never said no to anything I did. And they never mentioned company history one way or the other. Where we parted ways completely was on the question of factory outlets. Their plan was to trade on the grand old Bass name and its reputation for quality, greatly expand our discount outlets, and make a ton of money. One of the reasons I moved so quickly on the new line of $ 100 shoes was to produce results that would show them we could make as much or more on genuine quality, a strategy with two additional advantages: it wouldn’t wear thin when customers woke up to the fact that cheap Bass shoes were cheaply made, and it would give our own work force a shot in the arm. For a while, Phillips and Klatsky were willing to tolerate both strategies—wholesale quality and retail discounts—but in the long run that dual strategy sent incompatible messages both to customers and to employees. Since they refused to believe we could be wholesale-driven, and since they couldn’t cajole me into spending more time and energy on retail, Larry Phillips decided to have the retail stores report directly to the retailing division of Phillips-Van Heusen. He let me keep wholesaling for myself, but I became the CEO of less than a whole company. Our differences of opinion grew so serious that Phillips-Van Heusen hired a strategy consultant to come in and review the principal issue: were shoes commodity-oriented like apparel, or was a brand-name, wholesale strategy viable? The consultant did a six-month study, and in my opinion he validated the strategy I favored, but it made no difference. As far as Bass was concerned, Phillips-Van Heusen simply ignored the implications of his report. Eventually I resigned. It’s very tempting for me to say that Phillips-Van Heusen was wrong and leave it at that. The company had a chance to fill a lucrative, upscale market niche by reinvigorating a long-standing Bass heritage, and it chose not to. The problem with this seductive line of reasoning, of course, is that the strategy decision was ultimately theirs to make. For all my talk about coherence, I had failed to include the owners in my picture of the Bass community. And because I was trying to take the company someplace its owners simply wouldn’t let it go, my lasting gift to Bass was frustration. There is a big gap between the picture I painted for the work force and the actual strategy it now pursues. Building Shoes to a Standard, Not a Price In my present job as CEO of Geo. E. Keith, I’ve pared down the community and eliminated the opportunity for strategy conflict by owning the company. My experience at Bass had convinced me that my strategy could work. It had also convinced my friends F. Warren Hellman and John Pasquesi of the investment firm of Hellman & Friedman in San Francisco, who calculated that even my aborted efforts at Bass had created more than $ 150 million in value. Together we looked for a midsize company to buy, something with annual sales on the order of $ 50 million. We couldn’t find one, but we did eventually find Geo. E. Keith Company, the tiny, declining remnant of the 200-year-old and once world-famous Keith shoe dynasty. In the first half of this century, it sold premium-quality shoes under its own Walk-Over brand name in 102 countries. At its peak, some 6,000 employees in 9 factories made 1,200 different models and a total of 20,000 pairs of shoes a day. By the time we found it, production had dropped by more than 95 % and annual sales stood at $ 12 million, but the company had never cheapened its product or gone offshore. Every shoe still spent five days on the last (the shoe form), and welt construction was still standard even for women’s shoes (most manufacturers cement them). The company kept its inventory records in big, old-fashioned ledgers and submitted its quarterly financials to the bank in longhand. Two hundred workers still made Walk-Overs for 200 to 300 of the 6,000 retail stores that once carried them (including, still, Barneys in New York and J. Simon in London), but the company’s principal business was now top quality private-label shoes for a handful of retailers and brands, among them Brooks Brothers, Cole-Haan, Marshall Field, and L.L. Bean. I never looked at Geo. E. Keith as a broken-down company. I looked at the industry as a whole and wondered how Keith had survived at all when scores of others had gone under. The answer lay in its history and its values, which we could resurrect as a key to reinterpreting the brand and the company itself. No one had ever heard of Geo. E. Keith, but this Rip van Winkle company was still making the finest footwear in America. I met the workers my first day and told them it was their workmanship that drew me. I told them they could be proud of their quality and promised them an ambitious, quality-driven strategy. I felt good about that meeting. The place had a good feel to it. When I came in the next morning, a Wednesday, I poured myself a cup of coffee and went back into the factory. No one was there. The factory manager had sent everyone home until Monday because there were not enough orders in production. So my work was cut out for me, but at least I had a company whose history I could honor and build on. I am not a sentimentalist by any means. I don’t want to go back in time and recreate a once-great company in its former glory. But I do believe in character, and formerly great companies often have all the character needed for building a great future on the foundation of their past. The George E. Keith for whom the company was named was a fifth generation descendent of the first Keith shoemaker. An enormously innovative man, he introduced the first brand-name shoes in the United States, was the first shoe manufacturer to bypass jobbers and do his own wholesaling, became the first U.S. shoemaker to open his own stores in Europe, established one of the first employee health programs in the world, and was one of the first businessmen anywhere to make use of multimedia advertising (in 1906, when movies were still a novelty, the company made a promotional film about its factories and distributed it nationwide). But most important, George E. Keith and his company made an early commitment to quality, and they reaffirmed that commitment every time the market seemed to demand lower prices and a lesser product. When other companies did whatever they could to cut costs during the Depression, the Geo. E. Keith Company decided to build its shoes just a little bit better than before. “Quality only will count” and “The victory of quality” were typical company war cries. So was the idea of building shoes “to a standard not a price.” Shortly after George E. Keith died, his son Harold told his assembled retailers, “I want you to always remember that this is not an ordinary business, but an institution with a heart, with broad principles and high ideals. It is a monument, the foundation of which George E. Keith laid, and he laid it square and straight and true.” Grand words about a mere businessman, but then he was talking about the man who once said, “There is an honor in business that is the fine gold of it; that reckons with every man justly; that loves life; that regards kindness and fairness more highly than goods or prices or profits. It becomes a man more than his furnishings or his house; it speaks for him in the hearts of everyone.” If we can’t rebuild a profitable, thriving company with values like those as our raw material, then I haven’t learned as much about coherence as I think I have.

The Turnaround Value of Values

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