Paradise Lost
How had it come to this? Reell Precision Manufacturing was supposed to be a different kind of company. For years, it thrived, leading its industry, generating profits, and surviving tough times without a single layoff. But now, losing money, torn by accusations and lawsuits, the company is fighting for its life.
How had it come to this? It was a question Bob L. Wahlstedt had asked himself again and again over the past three years. Almost four decades had gone by since he and his partners founded Reell Precision Manufacturing, in St. Paul. There had been good times and bad times. But Wahlstedt had never been through anything like this.
Business problems were part of it, but they paled alongside the fragmented relationships. So many people had left the company--so many friends, colleagues whom Wahlstedt had known and worked closely with for 10, 20, 25 years. Some of them had been kids in their 20s when they started. He'd seen them marry, watched their children grow up, celebrated their milestones, and mourned the losses in their lives. Reell had been that kind of company. "We want you to bring your whole self to work," he used to tell employees, meaning not just your hands and your brain but "your deepest sense of yourself--wherever you go for inspiration." That was one of the company's four guiding principles: Seek inspirational wisdom. "I don't care whether you get it through prayer, meditation, or nature," Wahlstedt would say. "I just want you to bring it with you when you come here."
Indeed, Wahlstedt sometimes felt he was part of a grand experiment to see whether such a company was even possible. Toward that end, he and his partners had adopted an unusually democratic approach to management, complete with multiple CEOs, employee ownership, a strong aversion to layoffs, and a commitment to letting decisions be made as low in the organization as possible. For years the system had worked spectacularly well. Reell had received numerous honors and awards for its people-centered culture and had been cited repeatedly in books, magazines, and newspaper articles for the way it managed its affairs.
So how had it come to this? How had Reell wound up with the highest turnover rate and lowest employee morale in its history? How had the internal debate about policy turned so bitter and personal? And how had the three founders ended up in a courtroom defending themselves and Reell against breach-of-contract charges being leveled by a man to whom Wahlstedt felt an enormous debt of gratitude and for whom he wished only the best?
During the 1980s and 1990s, Steve Wikstrom had been Wahlstedt's trusted deputy, a critical part of the leadership team, eventually Reell's co-CEO. "My success, my health, and my well-being during those years I attribute to Steve Wikstrom," Wahlstedt says. It was not anger or betrayal that he felt as he sat there watching Wikstrom on the witness stand in the Ramsey County Courthouse last April, trying desperately--and in vain--to make the case that the company and its founders had broken various promises to him. It was sadness--deep, deep sadness. As Wikstrom concluded his testimony, Bob Carlson, who had been co-CEO with him and now served on Reell's board, looked over and saw tears welling up in Wahlstedt's eyes.
"It's like watching a friend die," Carlson recalls his colleague saying to him.
How had it come to this?
You may have never heard of Reell Precision Manufacturing, but if you've ever sat in front of an Apple (NASDAQ:AAPL), IBM, Toshiba, or Dell notebook computer, you've probably used its products. Reell (pronounced ray-ell) is the world's leading designer and manufacturer of hinges that allow the cover of a laptop to hold steady when you put it up, as well as other motion-control products. The company has been around since 1970, when it was founded by three refugees from 3M (NYSE:MMM) --Wahlstedt, Dale Merrick, and Lee Johnson. Today it occupies a nondescript brick-and-glass building on a back road in the woodsy community of Vadnais Heights, just north of St. Paul. There's a parking lot in front, a pond on the side, and a sign on the main door that says: "Please be advised that Reell bans guns on premises. We apologize for any inconvenience. Thank you."
The company's production area is a hive of activity, filled with the hissing, clanking, clickity-clack of machinery turning out hinges and clutches of various types and sizes. Upstairs is a maze of corridors punctuated by offices, alcoves, and meeting rooms. Wander the hallways and Reell's history unfolds before you. Along one wall are plaques memorializing the many patents awarded to the company's engineers over the years, each inscribed with an engineer's name. Along another wall are individual photos of the "co-workers" (Reell-speak for its 210 employees). Then there's the company's "Direction Statement," posted in various locations around the building. "People are the heart of Reell," it says. "We are committed to provide a secure opportunity to earn a livelihood and pursue personal growth."
At one time, no one would have doubted that statement. But today the commitment feels a little shaky. The recent troubles date back to the disastrous year of 2004, when the bottom suddenly dropped out of Reell's laptop hinge sales. Those sales had fueled the company's growth over the previous decade and in 2003 accounted for almost half of its $28.9 million in revenue. Then its largest customer, Toshiba, switched suppliers, and--nearly overnight--hinge sales dropped more than 40 percent, from $13.2 million in 2003 to $7.6 million in 2004. The company managed to break even, but only by cutting the salaries and benefits of all but the lowest-paid employees.
It was the second time in four years that Reell had been forced to institute a temporary pay cut. The previous one, in 2001, had lasted eight months before the company regained its footing. The board, which had merely expressed concern the first time, now decided that drastic action was needed. Wahlstedt and the two other founders had retired by then, leaving things in the hands of the board, which consisted of three outside directors and former co-CEO Carlson. In June 2005, they voted three to one, with Carlson dissenting, to scrap the shared leadership structure that had been Reell's hallmark for 35 years. Henceforth, there would be just one CEO--Eric Donaldson, a former Kodak executive who had joined the company barely six months before. As for Wikstrom, he was given the choice of remaining as president, reporting to the new CEO, or leaving with a severance package of $200,000 plus benefits. Instead, he decided to sue, charging breach of promises and discrimination on various grounds. (Wikstrom declined to be interviewed for this article.)
