Paradise Lost

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.)

Reell hasn't been the same since. Employee turnover has doubled. Some believe that the board bears the responsibility for the ugly turn of events and the ongoing malaise. Others are angry at Donaldson. "Eric brought in top-down management," says Joe Arnold, an engineer who worked at Reell for 23 years before resigning last fall. "Two years ago, I felt like I owned Reell. By the time I left, it was just a job. Eric is smart, but he's not as smart as everyone using their brains. He doesn't know what he's lost."

Donaldson, for his part, argues that certain things have to change--that Reell's very survival depends on it. "We're halfway through a five-year turnaround," he says. "We will only endure by becoming explicit about who's responsible for what. In a small company, you can let people find their own way, but we're not so small anymore. The big issue now is accountability, which we didn't have enough of before."

And then there is Wahlstedt. Though he withdrew from day-to-day operations in 1998, he served as the principal link between senior management and the board, which he chaired, for the next seven years. During that time, his fellow board members grew increasingly worried about Reell's dependence on the laptop hinge business, prone as it was to extreme volatility and intense price competition. "We needed to have a constructive dialogue about this, and I should have forced it to happen," he says. "I deeply regret not being absolutely candid and insistent that we engage these concerns."

And yet Wahlstedt also knows that such failings on his or anybody else's part do not tell the whole story. Reell's troubles, he has come to understand, have roots going back many years. Looking back, he sees things he and his partners did, and things they left undone, whose unintended consequences have only recently become visible. Above all, he cannot keep himself from thinking about a single critical choice the company faced 10 years ago, when Reell was less than half its present size.

At the time, laptop manufacturing was moving to Asia. The question was, Should Reell start selling aggressively to overseas manufacturers, competing on price with local suppliers? If the company didn't go after the business and instead held the line on its traditionally high margins, there was a danger that business would suffer and people would have to be laid off--a step the company had managed to avoid since its founding. Rather than take that chance, Wahlstedt and his colleagues decided--for the first time in Reell's history--to go for market share.

It was, they all realized, an important decision. What they couldn't foresee was the chain of events it would set in motion--events that would end up destroying the very culture they were trying to preserve.

If there was one factor that trumped all others in Reell's decision-making, it was the employees' welfare. The bias toward people dated back to the company's origins and the experiences that the three founders--Wahlstedt, Merrick, and Johnson--had had at 3M, where they met in the late 1950s. Although they left 3M at different times and for different reasons, none of them much cared for life at a big company. They wanted to create something more meaningful for themselves.

Merrick, the oldest of the three, was the first to leave. A World War II veteran and, like the others, an engineer, he quit 3M in 1960 and started his own manufacturers' rep firm, which Wahlstedt joined in 1963. Among their customers was a manufacturer of something called wrap spring clutches--mechanical devices used to control motion in various types of machinery. Although the customer's clutches were used in capital equipment, such as machine tools, Merrick and Wahlstedt realized that the basic technology could be adapted for copy machines and tried unsuccessfully to persuade their client to go after that market.

Then, in early 1970, they brought in Johnson as a partner--just as the economy was slowing down. With too many people and not enough business, they spent the summer talking about the opportunity in wrap spring clutches for copy machines. By the fall, they had settled on a plan and a name: Reell Precision Manufacturing, or RPM for short. (Reell is a German word meaning "honest, dependable, or having integrity.")

Over the next few years, the partners developed a successful line of products--as well as a highly unusual way of working together. The three men agreed, among other things, that any major decision they made had to be unanimous. In practice, that meant it often took days to reach a decision, simply because of the time required to discuss issues thoroughly and digest one another's opinions. When they still couldn't agree after such deliberation, they would reshape the question and keep talking. Because each of them had veto power, they were all effectively CEOs.

 PREV  1 | 2 | 3 | 4 | 5  NEXT