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Death Of A President

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To most of the 200 people crowded into the funeral chapel that hot July day in 1981, Leon Levy had been Word Systems Inc.; it was hard to imagine the company -- a Philadelphia distributor of electronic office equipment -- without him. To the suppliers who came to pay respects, Levy had been a peer, a hard-driving entrepreneur whose business had grown with their own. To the customers, he had been a dynamo, an obsessive technician who made their service his primary concern. To his 30 employees, he had been a father figure, the dominant force in the company.

Now, shortly after his 57th birthday, not quite six years after founding WSI, Levy was dead, killed in an automobile crash after a late-afternoon service call.

Grim-faced and somber, Alan Ellenbogen and Sheldon Katsoff sat near the widow and her son while the rabbi delivered the eulogy. Ellenbogen and Katsoff had been more than Levy's partners and co-founders of a company that would grow to $2.2 million in revenues by 1980; they had been best friends, as well. Together, the three had gone through the shoestring beginning, the initial success, and the growing pains. It had seemed -- up to the moment of the accident -- that at last they were coming into their own, the shouting matches behind them, with a new management strategy and a larger organization in place.

But there would be little time to mourn. Leon Levy was dead, and responsibility for the company had passed abruptly to Ellenbogen and Katsoff. They had an obligation to the crowd in the chapel; to the widow, Roslyn Levy; to her 24-year-old son, Chuck, who had come to work for WSI as a full-time salesman in 1980; to the suppliers, customers, and employees; and to Leon Levy himself.

While large corporations are insulated from the risk of collapse at the loss of the man at the top -- protected by layers of executives crisis-management training and outside directors -- for a small concern like WSI there are few wise men to turn to, and little time tolook for help.

Rather than grieve over the loss of a friend, Ellenbogen and Katsoff would have to fight to keep their business alive.

The three men who would become WSI first got together over a poker game in the spring of 1975. Although Levy, a born tinkerer with a degree in electrical engineering from Carnegie Tech, was the only trained engineer in the trio, all were aspiring entrepreneurs, and all were attracted to the business possibilities they saw in word processing.

Levy had been a manufacturer's representative for Hewlett-Packard for almost 10 years, until the company bought him out, leaving him with cash but no business. Ellenbogen, 34, was a regional manager for CPT Corp., who had promised himself and his wife that he would have his own business by his 35th birthday Katsoff, 33, was assistant to the vice-president for operations of an industrial caterer in Philadelphia, who became intrigued by the new technology of word processing. What began as casual conversation over cards had become a serious business venture by the fall.

Dubbing themselves "the gruesome threesome," they pooled $25,000 and created WSI. Katsoff, with 15% of the stock, was the salesman. Ellenbogen, with 42 5%, had marketing Levy, with the remaining 42.5%, became president, service manager, and chief technician.

Their strategy was simple -- sell service. "We knew from the beginning people were looking for the equipment," Katsoff remembers. "We just had to come up with the right kind of organization to service and supply it."

Working out of their cars, the three partners went after corporate clients, promoting WSI as capable of offering more support and better service than such giants as IBM and Wang Laboratorics Inc. "We didn't make any money that first year," Katsoff admits. "I probably could have made more if I'd been on welfare." But the company grew quickly, attracting such customers as the Philadelphia branches of Merck, Conrail, and the Federal Reserve Bank. Revenues increased 50% annually, to $2.2 million in 1980.

Levy's character was the key to the -- company's initial strategy and subsequent success. He was obsessive, strong-willed, and a workaholic; his energy and skill redeemed the company's pledge of exceptional service. "Leon had a dominant personality," Katsoff says. "He thought of himself as a father figure," involved in every operation and taking a look over every shoulder. "Before we would do anything, Leon would ask, 'What does it mean?' Afterward, he would ask, 'Why did you do it?' like a father questioning a son."

That same character that was such a driving force, however, also caused severe growing pains as the company expanded. Levy chafed at formal meetings, resisted delegating authority, and postponed paperwork. He preferred to run the company in the manner of a European paterfamilias, involved in every decision. As WSI began increasing its third-party financing for customers that wanted to lease rather than buy equipment, financial planning and controls becanie even more important. Levy largely ignored both bills and bookkeeping and argued against hiring the kind of professional who could assume those responsibilities.

As the company grew, tension between the partners grew as well, largely over questions of priorities. "Our system for billing receivables was to wake up and think, Gec, that machine has been there for 120 days. Have we invoiced it?" Katsoff remembers "And at tax time we'd try to go back and reconstruct the entire year." Arguments in the office became so loud frequent, and rancorous that Levy finally agreed to import a consultant, Stephen Veiner assistant director of the Wharton Entrepreneurial Center at nearby University of Pennsylvania.

As with everyone who knew Levy, Veiner marveled at his dedication to his work. "A lot of people in the business take equipment from vendors and ship it right out the door," Veiner says. "Not Leon. He checked every piece of hardware first, and it wasn't just a cursory check -- he checked it out thoroughly.

"It was also typical for service problems to take a while to be solved, due to a lack of spare parts. Leon would take parts from other machines to fix a customer's unit. Nobody else would do that. Try asking your automobile dealer to take a part from a car in the showroom."

But Veiner also recognized that management was as weak as service was strong and suggested a larger, more structured organization. Hire a training manager and a comptroller to ease the burden on the CEO, he suggested. Institute regular and formal meetings of the partners to ease tensions. Add regular planning and forecasting throughout the company to encourage controlled growth.

Levy and his partners agreed. A comptroller was hired and put to work at the two-week task of balancing the company's checkbook. A service technician was promoted to service manager, although Levy refused to give him any responsibility. And Levy eventually agreed to participate in a planning session with the Wharton consultant as well.

With the changes, tensions dropped a notch. The company seemed to be on a smoother course, and Levy, Ellenbogen remembers, became "more jovial and happy with himself." Then, abruptly, came tragedy. Leon Levy's death was the one crisis for which none of them had planned

Alan Ellenbogen, working at the office, first heard of the accident when Roslyn Levy called him. He sent for Levy's son Chuck, picked up his wife and Mrs. Levy, and rushed to the cmergency room. At the hospital that afternoon, he broke the news of the death to Levy's wife and son, and that evening he assisted in making the funeral arrangements for his closest friend. But from the first he rccognised that unless he acted quickly and forcefully on behalf of WSI, ignoring his own loss, personal grief could quickly turn into a company catastrophe.

Late that night the two remaining partners and their wives sat in the Ellenbogen living room, planning tactics. WSI had $500,000 in debts -- a $100,000 bank loan and $400,000 worth of leasing inventory liability. Beyond that, Katsoff admits, "we didn't know how much money we had or didn't have." Billing was in total disarray, with the new comptroller drowning in a sea of paper. Customers had come to WSI for the service Leon Levy provided. Unless Ellenbogen and Katsoff could convince them that that kind of service would continue, the business would collapse. A cool facade and a manner that projected confidence and competence were, they decided, the prime imperatives.

Suppliers were the immediate problem. WSI's distribution agreement gave its vendors the right to cancel if there were any major change of ownership. Ellenbogen was worried that companies might revoke their agreements and open direct sales offices in the region, reaping the harvest WSI had sown.

He began working the phone the morning after the accident. "We had to say in a very firm way that we would protect our interest," Ellenbogen remembers. "We said that we were still viable and invited them to come see the operation "

Two suppliers' reps came to the funeral, and many phoned and visited the office, all asking pointed questions: Who will do your service? How many people do you have? How can the company survive without Levy?.

WSI had planned to argue that the transfer of stock from father to wife or son was not a major change of ownership according to the intent of their distribution agreement, but, as it turned out, the issue never came up. "I'm sure the people at the suppliers realized that WSI would defend itself," Ellenbogen theorizes. "They knew we were not above protecting ourselves in court. For a moment they may have thought there was an opportunity to take advantage, in all human interfaces greed is always there. But we had bared our teeth in the past, and they knew it would be a tough fight. So I put on a strong veneer, and they waited to see if it was for real." What had worked with the suppliers worked as well with the top 50 customer accounts Ellenbogen and Katsoff called next. Reassured by promises of continued excellence, all agreed to stay with WSI for the time being, although some hedged their bets by withholding new orders until it was clear the company could indeed handle their existing base of installed equipment. Creditors were equally supportive.

Although WSI held a key-person insurance policy of $100,000 payable in the event of the death of any of the principals, enough to cover the company's bank debts, Ellenbogen was afraid that the remaining creditors might well demand immediate payment on the company's leasing liabilities. Therefore, besides assurances, creditors were given a detailed, if optimistic, look at WSI's ledger book and business plans.

It was one task to project confidence, and another to deliver excellence While Ellenbogen and Katsoff were absorbed in outside problems, morale inside the company plummeted, and sales came to a halt. Employees, Veiner noted, "just went through the motions of working " They were in mourning, shocked and apprehensive. Before Levy's death their futures with WSI seemed secure, as demand soared for equipment. But few could imagine WSI without the dynamism of the boss. Rather than selling or servicing equipment, they simply sat in their offices, listless.

Although Ellenbogen initially considered closing WSI for a formal mourning period, he rejected the idea He says: "Would General Motors close for a week? As brutal as it may sound, the business had to continue."

Instead the partners organized a meeting that included field engineers and marketing support staff a month after the funeral followed by a company cookout in Ellenbogen's backyard. The cookout was desigied to signal the transition and to raise staff spirits. "Our people had forgotten how good they really were," says Katsoff. They were rallied with a pep talk, a rcminder that, even without Levy, they were "still the bestin Philly "

With Levy's death, internal reorganization had become even more critical -- and considerably more risky, given uncertain morale Department heads were asked to project performance for the next year and to prepare budgets; all employees were encouraged to take on a larger share of responsibility for their dcpartments

Not everyone could adjust to the change. Some employees were addicted to having somebody watch over them at all times. Without Levy's constant presence, they felt lost. Others felt that nothing in the company should change, that WSI should remain a Levy memorial. "The best memorial for Leon is to make the changes so the company can succeed," Ellenbogen told his staff, and he forged ahead.

The service department, Levy's fiefdom, was most changed. "You have the power, now use it," Ellenbogcn told the field service manager Levy had hired that spring. "Stop looking for Poppa. Poppa is dead." The manager was gettiiig bogged down in paperwork, so an administrator was hired to take care of paperwork and also Oversee the dispatching Katsoff took over thc management responsibility for service. Aware that his former role as a salesman gave him little sense of what his staff members did in their day-to-day jobs, he put on a white lab coat and started working with the equipment. "I had to learn what it was all about," he remembers "Some of them were amazed to see me with a broom in my hand, but I wanted to set an example of pitching in to do what had to be done."

A few employees took too much initiative. Groups came to Katsoff claiming that Levy had promised them a raise or a promotion. Athough there were, predictably, no records of any such promises, each eiuployee in the group vouched for the other's claim. "For some people we said, 'Okay, if Leon said so,' " Katsoff recalls. "Others appeared to be leading us down the garden path, so I said no." Several employees quit angrily, including an employee who sought some of Levy's stock following the accident. "He wanted a piece of the pie," Katsoff says, "not realizing that the family inherited all the shares."

Inheritance of the shares, in fact, was to create the most tangled knot of problems to arise from Levy's death. Life insurance gave his widow short-term security but not long-term support. Under Pennsylvania law, a corporation can pay only as much as $3,500 in "emergency death benefits" to an heir, without formal probate. Therefore, any major assistance the men would give to their friend's wife would have to come out of their own pockets. While the three partners had agreed when they purchased the company's key-person life insurance policy that benefits would be used to buy out the stock of any heirs, that agreement had never been put on paper. So WSI received a cash windfall intended for Roslyn.

Ellenbogen and Katsoff felt morally obligated to offer to buy the Levy stock, but the offer raised further problems. A week before he died, Leon Levy had announced his intent to start transferring his stock to his son Chuck. If Roslyn sold the stock to Ellenbogen and Katsoff, she would be ignoring her husband's wishes. If she took the tax-free money, she might be depriving two close friends of the cash they needed to keep the company afloat. If she kept the stock, she might end up holding worthless paper if Ellenbogen and Katsoff were unable to fill her late husband's shoes. And since Ellenbogen, Katsoff, the Levy family, and WSI all shared the same attorney, there was no one she could turn to for unbiased professional advice.

Over the months following the death, a bare outline of a solution appeared. Chuck Levy, Ellenbogen, Katsoff, and outside attorneys are working on a plan to keep the stock in the Levy family, honoring Leon Levy's request, while providing for Roslyn Levy's long-term security. Chuck took his father's seat on the WSI board, and is trying to borrow money to buy the stock.

Although Ellenbogen and Katsoff had been wary that Chuck might seek to disrupt day-to-day operations once he was in control of the family stock, young Levy was anxious to cooperate with his new partners. "I could kick and scream and file lawsuits," he explains today, "but the onlv way things could work out was if I got along with Alan and Sheldon." With encouragement from Ellenbogen, has taken several courses at the Wha School and is taking on more response ities in the company. Eventually, Levy admits, he would like to take over his father's position as president of WSI.

At first it seemed as if the financial toll from Leon Levy's death would be crippling. Inventory costs rose 30% in the months following the funeral. And sales, softened by economic uncertainty and Pending changes in equipment-leasing tax policy, dropped 60% below projections for the summer quarter, the worst in company history. But by the end of 1981, WSI was back on an even keel. Employee morale returned, and the crisis had forced long-overdue management reforms. Invoices were being recorded, and bills were collected on time, service and support became a profit center rather than a loss leader.

By increasing the number of customers WSI could support, increased parts inventory eventually produced a savings as well. Billable hours for repairmen nearly doubled, largely because they no longer had to drive back to the main office each time they needed a part. "Our repeat calls dropped from 17% to 20%," Katsoff says.

"And inventory costs actually declined because we weren't cannibalizing equipment anymore. "Revenues rebounded to a record $3.8 million -- $600,000 more than had been projected.

Today, more than a year after the funeral, WSI is thriving. Two new branch offices have been opened this year, and by the end of the year there will be a total of five. The product line has been broadened to include electronic typewriters and data processing equipment as part of the company's push to $12 million in gross revenues by 1985. Headquarters in a comfortable Bala Cynwyd office building are newly renovated. Ellenbogen sits in the corner office, as CEO. Katsoff, as executive vice-president, runs the service and training division, and Chuck Levy runs the fledgling data processing operation. An oil painting of Leon Levy hangs in the lobby.

On reflection, Ellenbogen and Katsoff agree that they should have been better prepared for the crisis that came with Levy's death. "One of the things this experience points out is how foolish it is for people never to think of their own mortality," Katsoff says. "In running a company you can't let one person get dominant. Bankers, suppliers, and key customers should know that the company is not just the creation of one man."

Had other members of WSI been more visible, the partners realize, and had more authority been delegated, many of the initial traumas could have been avoided. Similarly, had there been more formal communication within the company -- and more decisions committed to paper -- the problems involving the sale of Levy's stock and employee raises and promotions could have been avoided.

Today the company has weekly management meetingsAt quarterly meetings of the board of directors all key decisions -- including a buy/sell agreement for stock if one of the partners dies -- are recorded.

Levy himself, of course, cannot be replaced. His dedication to work, concern for the customer, and continual questioning of policy fueled WSI's first six years of growth -- and "that interplay is something WSI will continue to miss," Chuck Levy predicts. But Leon Levy's legacy has been preserved. And while Alan Ellenbogen still grieves privately over the loss of his friend, he takes justifiable pride in how he overcame the company crisis.

"This whole year I've had to try very hard to have a professional profile," Ellenbogen says. "While other people were emotional I was calm and businesslike. And now it's beginning to come out that my attitude was the greatest support the family could have had.

My real anguish was over the man. He was at peace with his partners, happy with himself, and things were looking good. Then it was all lost to him.

"My obligation is being met by arranging a career path for his son and by the other things I've done for the family. But that has nothing to do with the business," Ellenbogen insists. "The business is an entity, a living thing."

Last updated: Oct 1, 1982




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