What Business Are You Really In? Lamco Communications Inc.
Andy Stabler is the first to admit that he didn't know how serious the problems facing him were when, in 1974, he was unexpectedly made CEO of what is now called Lamco Communications Inc. For 90 years, as Grit Publishing Co., the business had operated profitably under the paternal management of the founding Lamade family. The newspaper it published, Grit, had become an institution in the lives of hundreds of thousands of Americans. To save the company, Stabler had to end the paternalism and sell the paper. It is still hard for him to believe he did either, and the agony of the experience is seen in a face that shows age beyond its years.
Grit, a national weekly newspaper, celebrated the lifestyle of America in the small town. Its contents, "good" news and inspirational features, were as uplifting as a Sunday school session and as wholesome as oatmeal. Every issue of Grit, its German immigrant founder Dietrick Lamade insist What Grit preached, it practiced in its plant in Williamsport population 33,000, which sits, placid and prosperous, at the foot of Bald Eagle Mountain on the left bank of the West Branch of the Susquehanna River in north central Pennsylvania. Dietrick Lamade and the sons who succeeded him, George and Howard' didn't believe in layoffs or even firings. "If a person couldn't do his job, we kept him on and we found something else for him to do," says a former Grit executive.
Business was good too. Dietrick Lamade had borrowed $100 here and $100 there to acquire the fledgling paper in 1884, but its circulation and profitability grew steadily. By 1969, circulation reached 1.5 million and accounted for 75% of Grit's $12 million gross revenues that year. Advertising contributed the other 25%. Profits were more than adequate to pay healthy dividends to the approximately 70 shareholders, most of them family, and to build a cash-reserve kitty that by 1976 had mounted to $8 million.
Andy Stabler, as quiet and self-effacing a man as you are likely to meet, started work in Grit's circulation department in 1951, just out of college. He grew up in Montoursville, down the road from Williamsport, and built his own house there.
Stabler no more expected to become president of Grit Publishing than he expected to edit The New York Times. Most insiders and people who knew the company assumed that Grit Publishing's CEO, Ralph Cranmer, was only filling in between the second and third Lamade generations. Dietrick's offspring still owned most of the stock in the company, and all voting rights were assigned to a self-perpetuating trust, which, besides Cranmer, included two of the founder's grandsons, Pete and Jim Lamade. Those two and another grandson, Bob, were vice-presidents. Jim expected to be named to the top job when Cranmer retired.
Why Stabler got the job instead is, not surprisingly, a touchy question, since the decision obviously involved intrafamily rivalries and alliances. Although Cranmer needed help to push it through the voting trust, the choice of who would succeed him was his own. And it seems reasonable to assume that he made his choice with at least some inkling that his successor would confront issues best handled by someone who was not a member of the family.
The main issue, as it only later became clear, was that Grit was ineluctably headed toward economic oblivion.
After the 1960s, circulation, which provided most of the paper's revenues, began to decline, falling to 900,000 by 1979. Small towns lost population or became bedroom suburbs for city workers. Advertisers, who support most publications, were little interested in reaching Grit's aging, working-class readers. "They may have been fine, God-fearing people," says former advertising director Bob Cunnion, "but they didn't have money to buy anything."
On the cost side, substantial increases in postal rates made distribution more expensive and raised the cost of finding new subscribers and of hiring new youngsters to make local deliveries. Additionally, Grit's once-hired, never-fired employment policy drove production and overhead costs in Williamsport ever higher.
A secondary issue was that Grit Publishing, a 90-year-old institution, didn't know how to deal with change. A closely held company with a tradition of community paternalism does not easily lay off its work force, develop innovative new products, sell off unproductive assets, and transform itself into a different kind of business, even with the strongest leadership.
Stabler to his credit, recognized this reality and one other: If he was going to change Grit Publishing, he needed help. He hired it in the form of two management consultants, Stewart Ward and Marshall Noecker, of Arthur D. Little Inc., the Cambridge, Mass., consulting firm. Of course they gave Stabler advice and counsel, but just as important, they acted as his agents. As outside experts, Noecker and Ward had the credibility with Grit's board and the informal power structure at the company that Stabler, as an insider, lacked. When distasteful choices had to be made or bad news had to be delivered, Noecker or Ward could do the job.
Under Stabler, Grit Publishing transformed itself from a doomed, single-product publishing business into a growing, diversified communications holding company. Stabler modestly says, "I was only a catalyst." The two ADL consultants insist, however, that he powered the transformation. He did it through craft, tact, persistence, and a selflessness unusual in any individual, especially a chief executive officer. "The first thing Andy told me," says Ward, "was that if I looked at the company and found out that he was the problem, I should tell him and he would quit." He wasn't the problem.
With the $8 million in cash accumulated, ostensibly, to replace Grit's press, the company could easily afford the first acquisition, a television station, that Noecker and Ward recommended. Aside from specifying minimum financial performance standards for the acquisition, the consultants had urged Stabler and his board not to consider any acquisition that didn't already have strong management in place. "The last thing we wanted to do," says Noecker, "was to get them into [managing] some business they didn't understand."
The TV station, Stabler and other managers believed, would carry the paper until costs and revenues could be realigned. "We saw diversification as the salvation of Grit," says Pete Lamade.
Ward and Noecker didn't. They knew the paper would have to go, but they hadn't told anyone at Grit yet. So, when an AM/FM radio station in Williamsport came on the market, Ward and Noecker urged Stabler to think about acquiring it, too. The Lamade family had been part of the town's establishment for three generations, Ward reasoned, and giving them another property there would ease the pain of selling the paper.
"When he dropped that on me -- selling the paper -- I almost threw Ward out the door," says Stabler.
"I couldn't believe it," says Pete Lamade. "I thought Grit would go on forever."
"Selling Grit was the furthest thing from our minds," says Jim Lamade, "even after ADL told us we would be in serious trouble five or six years down the line."
Stabler says he will never forget the meeting. "Ward shocked me. He said, 'Have you ever heard of Life, Look, and The Saturday Evening Post? Well they had more petty cash than you have assets. What makes you think you can do what they couldn't do?' When he got through beating me up that day I began to get some objectivity about what we were doing."
Searching for a buyer who would promise not to destroy either the paper or the work force prolonged the agony of divestiture. They never got the promise, but they did find a company that seemed capable of preserving what three generations of Lamades had built. When the deal was closed, Stabler and most of the old Grit managers stayed on at the paper with two-year contracts. But within weeks they found themselves isolated and ignored by the executives dispatched to Williamsport from the buyer's Connecticut corporate headquarters. "Nobody ever told me they wanted me to go," says Bob Lamade, "They just went around me. I didn't have to be beat over the head to see what the story was."
One by one the former Grit Publishing executives left the handsome brick Victorian newspaper plant where they had spent all their working lives. Across town, on the third floor of a featureless office building, they put three desks and some privacy panels in one large room. The Lamades -- Pete, Jim, and Bob -- sit there. Stabler has his own office. From here they run Lamco Communications, the holding company they created to oversee the management of the television and radio stations and a recently acquired cable television system. Lamco, though, doesn't demand much management, not the every day, hands-on kind. The Lamades tend to drift away from the office after lunch. Bob, the oldest of the three at 61, will take early retirement next year. Open-heart surgery slowed Stabler down this spring. No fourth-generation Lamade has shown any interest in the business.
Lamco does well. Its pretax profit margin approaches 10%. The company is essentially debt-free and is looking for additional acquisitions, probably in television, that it can fund out of retained earnings.
Grit has been sold again. Its printing plant employees have formed a union. Ward says the paper is doomed.
Stabler is still pained by the consequences of the decisions he made. "But," he says, "my responsibility was to make the transition from family control to professional management -- to prepare the company for the future."
That he did.