The Education of Harry Featherstone

How one CEO turned around a troubled company by setting up an ESOP, and by focusing on training and quality.

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How one CEO set out to turn around a troubled company by setting up an ESOP -- only to find that employees didn't want to be owners

It's no fun being up against the wall, which is where Harry Featherstone found himself in the autumn of 1985. He had recently taken command of The Will-Burt Co., a troubled manufacturing outfit in Orrville, Ohio. The company's troubles began with a product liability lawsuit.

The lawsuit centered on a scaffold that collapsed in Miami in 1980, killing one person and crippling another. The scaffold maker declared bankruptcy. But Will-Burt, which had produced one of the parts, was sued under the principle of joint and several liability. Its insurer settled out of court in 1984, paying $6.2 million. A year later it canceled the company's coverage.

Amid the legal proceedings, Will-Burt's chief executive dropped dead of a heart attack. And with other lawsuits pending, the family that owned the company, fearful of losing everything, decided to sell or liquidate Will-Burt. And why not? It was a Rustbelt job shop that had been in business since 1917. It had literally billions of parts out there -- its liability exposure was immense.

Harry Featherstone, however, had always yearned to run a company. He had spent most of his career with Ford Motor Co., finally landing at Will-Burt as vice-president in 1978. He'd grown fond of Orrville, its people, its rural lifestyle. And his community involvement ran deep. For three years he'd been president of Boys Village, an Orrville school for inner-city teenagers in trouble with the law. He served on the local board of Goodwill Industries. As he settled into the top slot at age 55, he scanned his options.

"We could have liquidated, but I didn't want to tell 350 people and their families that the business was closing," he recalls. "We thought of merging, but who wants a com-pany burdened with all that litigation?" The only thing Featherstone knew for sure was that he'd do practically anything to rescue the place. "Ford had moved me 17 times in 16 years, and I was going to fight to stay. I really liked it here. And my job and pension were wrapped up in it like everybody else's."

Finally Featherstone's lawyer proposed that he do a leveraged buyout and place Will-Burt into an employee stock ownership plan. This made sense in a rather elegant way. "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 says. "Lawyers love rich companies, and we wouldn't be one." And so on December 30, 1985 -- the deadline set by the owners to avoid liquidation -- Featherstone completed a frantic two-month negotiation with an Ohio bank. He borrowed $3.2 million to buy 97% of Will-Burt stock, all he could get hold of. As collateral, the bank took title to everything the company had -- all its real estate, inventory, and every piece of machinery.

The company was in dismal shape. It had $20 million in sales, but profitability ranged from 1% to 5% over the past few years. Product quality was such that workers spent nearly 25,000 hours a year redoing faulty parts. Its wage rate was $2 below the area's average, and turnover often topped 30%. The pension plan was so bad that a 35-year veteran could expect to retire with $80 to $120 a month.

Most of the workers labored in dark, grim brick factories built before World War II, horrendously outmoded and crammed with inventory. They machined and fashioned metal parts for the likes of Caterpillar, Parker-Hannifin, and AMC. But Caterpillar, which accounted for a third of Will-Burt's sales, was itself on the ropes, being battered by Japanese competition.

Dissension in the ranks ran high. "The company had been family owned, and a lot of guys felt that they'd been taken advantage of," recalls Cecil Martin, who was then an assembler. "Every year we would hear that we were fighting for our lives, but we also saw that the family lived pretty well. We thought, well, we're fighting for our lives, but we seem to be the only ones doing the fighting."

Moreover, the company faced two other product liability suits, one from a scaffold accident in Texas and another in San Diego. Either could have wiped it out, now that Will-Burt had no insurance at all. The workers knew the company was in trouble, and they were edgy. "The lawsuits were a big worry," says Bill Varney, an assembler at the time. "We were very aware of what could happen. We all feared for our jobs."

And now, on top of everything else, Will-Burt had the ESOP loan to repay -- at a first-year cost of a cool $1 million and a second year tab of almost $900,000. That weighed heavily on Featherstone. "This company had never even made $1 million a year," he says. "So I had quite a task."

A task? Any CEO likes a challenge, but this looked more like a kamikaze mission. Featherstone wasn't a miracle worker -- he was just an accountant and an engineer who didn't want to move. Calling in a Mayflower van would have been much easier than what lay ahead, as he'd soon learn. For his real troubles were only beginning.

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