Follett looks toward the future

By Deanne Stone

As its ownership group grows and its industry changes, the Follett Corporation is taking a proactive approach to governance.

Over its 142-year history, the Follett Corporation has metamorphosed from a humble used-textbook operation into a large, complex and far-reaching education provider. Meanwhile, the extended Follett family, which has owned the company since 1924, has grown to 268 members, requiring new thinking on how to keep the family connected to the business.

Today, the company has two core businesses. Follett School Solutions Inc. delivers print and digital content, technology solutions and support services to libraries, classrooms, learning centers and school districts in North America and internationally, serving grades Pre-K through 12. The Follett Higher Education Group includes college campus retail stores and virtual campus stores, course materials sales and rentals, and a national e-commerce site. In 2014 Follett, headquartered in Westchester, Ill., generated $2.6 billion in sales.

Bob Follett is a third-generation family member and former board chair. At 88, he is the oldest Follett. His memories go back to his first job in the company at age 10, when his grandfather C.W. Follett paid him 10 cents an hour to sort books in the company's basement.

How does Bob account for the company's longevity? "We're in a business that's needed," he says, "and we've been able to adjust to changing circumstances—the shift to digital content being the biggest. But our real strength is our family culture of hard work. We put in the hours. That started with C.W. and was passed down to the younger generations."

The early years

In 1873 Charles M. Barnes opened a used bookstore in his home in Wheaton, Ill. Three years later the business, which had been dubbed C.M. Barnes & Co., moved to Chicago. John Wilcox, father-in-law of Barnes' son, William, invested in the company, helping it recover from losses incurred in the recession of 1893. In 1908, the company reorganized as C.M. Barnes-Wilcox Company.

Charles Barnes had hired C.W. Follett as a stock clerk in 1901; the income from the job enabled C.W. to marry his fiancée, Edythe Benepe. C.W. was a hard worker, and by 1912, he was made vice president and a shareholder.

In 1917, William Barnes decided to move to New York and sold his interest to John Wilcox. (In New York, William Barnes and a friend started Barnes & Noble.) In 1918, C.W. assumed management of the company, which was renamed J.W. Wilcox & Follett Company. John Wilcox died in 1923; the next year, C.W. and Edythe purchased the company and became its sole owners. The transaction was completed in 1926.

By 1930, all four of C.W. Follett's sons—Dwight, Garth, Robert and Charles (known as "Laddie")—had joined him in the enterprise. Like their father, they were strong-willed and competitive. Each of the four second-generation members independently operated a unit of the business. Dwight founded Follett Publishing Company. Robert started the Follett College Book Company. Garth established the Follett Library Book Company, while Laddie ran the original business, Wilcox & Follett, which sold used textbooks for elementary and high school students.

Stories of the brothers' arguments are legendary in the family. "They would yell and scream and carry on," says Bob, "but they always came together in the end." The family describes them as full of ideas that helped the company to evolve and grow.

The Follett family enterprise sailed through the Depression. After World War II, it was well positioned to benefit from the boom in education ignited by the G.I. Bill. The four business units burgeoned as returning veterans entered college and their baby boomer children started grade school. The company got another boost in sales after the U.S. government, stunned by the Soviet Union's success in sending Sputnik into orbit, began pouring money into education.

C.W. Follett died in 1952. Bob says he was a hardheaded, hard-driving businessman, but notes that when an employee needed a loan for an emergency, C.W. was ready to help out. One of the family's favorite stories about C.W. involves him accepting bushels of pecans in exchange for used textbooks during the Depression from a Georgia school district too poor to pay.

With C.W.'s death, leadership passed to the sons. Dwight, the eldest, was named president and chairman. The brothers continued to run their businesses independently.

Follett Corporation was incorporated in 1957; in 1958, it was set up as a holding company for the individual businesses, which were subsidiaries of Follett Corporation. Under the leadership of the second generation, the subsidiaries flourished.

Laddie, who had anticipated a change in the used textbook market back in the 1930s, gained an edge on his competitors by shifting sales from individuals to school districts. He ran Wilcox & Follett from 1952 until his retirement in 1986. Follett Publishing Company became the leading publisher of elementary school social studies textbooks. Follett Library Book Company, which sold children's books to schools, became a cash cow for the company, funding expansion in other operations; it later was renamed Follett Library Resources. The Follett College Book Company, which started by selling textbooks wholesale to professors, established the company's first retail bookstore on a college campus. Campus retail stores would become one of the company's most successful ventures.

Follett Software Company, originally part of Follett Library Book Company, became its own division in 1985. Over the years, the Follett businesses underwent several further reorganizations and name changes.

Tough decisions

After Dwight retired in the late 1970s, the board instituted a new policy requiring family employees to retire at 65. Dick Litzsinger, Robert's son-in-law and husband of Dona Follett, was named president and CEO in 1977. Two years later, Bob Follett, Dwight's son, was named board chair. The two formed a strong management team and liked to tease each other about what carried more weight in the family: a birth certificate or a marriage license.

Their immediate task was to sell two money-losing businesses in the early 1980s.

In the 1960s, Follett had acquired tennis clubs and recreational campgrounds aimed at the boomer generation. "We thought because we knew how to run the book business, we could run any business," says Dick Litzsinger, now 84. After divesting the recreation business, Dick says, "we stuck with what we knew."

More difficult was deciding what to do about the 55-year-old Follett Publishing Company. The textbook industry was consolidating, and Follett would have had to acquire other publishers to stay in business. "We had quality books," says Dick, "but we didn't have the resources to compete with the biggest textbook publishers." Follett Publishing Company was sold for $10 million, and the company invested the proceeds in bookstores, a move that Bob Follett calls "a wise decision."

"We realized that colleges didn't know how to run bookstores," Bob explains. Today, Follett operates more than 1,200 campus stores and 1,500 "virtual stores."

By the early 1980s, it was evident that computers would transform the delivery of educational products and services to schools. Chuck Follett, grandson of Garth, started the Follett Software Company, which developed PC-based software for school libraries. The company is now the leading developer of software for the operation of libraries in school districts.

Bob retired in 1994, and Dick Traut, his son-in-law, was elected chairman. Dick Litzsinger retired as president and CEO in 1997. That year, Ken Hull became the company's first non-family CEO, serving as a bridge from the third to the fourth generation. Fourth-generation member Christopher Traut became CEO in 2000.

A succession of company leaders over the next decade and a half began rethinking the relationships among Follett's various business units. Following several reconfigurations, in 2014 the subsidiaries were reorganized into two core businesses. Follett Educational Services, Follett Library Resources and Follett Software Company were merged into Follett School Solutions Inc., handling all content, technology and services for grades Pre-K to 12. Follett College Book Company became the Higher Education Group, encompassing an e-commerce platform, campus retail solutions and campus technology solutions.

Recognizing that its future would be online, Follett had begun its transition to e-commerce and digital content in 1999. It set up the eFollett.com e-commerce platform and entered into the production of digital content for school libraries. Between 1998 and 2005, Follett's revenue doubled from $1 billion to $2 billion.

Evolving governance

As the family grew, so did the size of the board. Following the example set by the second generation, the family valued having diverse views represented on the board. In 1979, the first women family members got representation on the board. By 1995, the all-family board had grown to 19 members. At the same time, the businesses had become more complex and technologically sophisticated. The family leadership advocated reducing the number of family directors and adding outside directors whose objectivity and expertise could help the company respond more quickly and effectively to changing markets. The first outside directors were appointed in 1995. The number of board seats was reduced to 11 in 1997.

"At first we looked for directors with family business backgrounds," says Dick Litzsinger, "but we discovered that having a solid business background was more important." Company leaders also realized they needed board members who recognized the difference between public companies and privately owned family businesses, Dick adds. "Our first outside directors were too focused on quarterly reports," he says. "Now we have directors who understand we're interested in the long term."

Today the board has 15 seats: nine family members, one outside family representative, four independent directors and the CEO. "As ownership expanded, we developed a model that matches where the business and family are now," says Todd Litzsinger, 49, who became chairman in 2014. Todd, a fourth-generation family member, is the grandson of Bob Follett, the son of Dick Litzsinger and the younger brother of Mark Litzsinger, who had served as chairman from 2001 to 2011. "We're always in transition and we'll adjust again, depending on how things change," Todd says.

A family council, formed in 1992 to reach Follett's younger generation, was disbanded in 2009. "It's hard to get such a big, dispersed family together," Bob reflects. "Families change. That's the way it is. The family council didn't have enough 'oomph' to keep it going."

Todd, on the other hand, says the family council was perfect for its time. "When it started, we were transitioning to the fourth generation," he says. "The council was a great way to transfer knowledge about the business and provide a forum for the younger generation to share ideas. But now we can keep the family better informed with technology than we could in meetings."

The Family Ownership Group, formed in 2009, is a base of major shareholders the board can call on when it needs direction and feedback on high-level decisions. Similar to a family council, the group is "a liaison between the board and family that represents family interests," says Todd. "But this ad hoc model allows the board and management to engage the ownership more quickly, which is essential in a rapidly changing business like ours."

Currently, there are 136 members of the fifth generation (G5), and Todd is taking a forward-thinking approach to sparking their interest in the business. The board holds an educational workshop for G5s at annual shareholder meetings, and Todd sits in on G5 committee meetings to learn what they're thinking. Plans are under way to start sending G5s to family business conferences and to arrange internships for them in other family businesses.

Britten Follett, 34, is one of 15 G5s working in the business. Britten, daughter of Chuck and Dale Follett and a former television reporter, is now vice president of integrated marketing. Britten is collaborating with Todd and with other G5s in developing webinars, prerecorded videos and podcasts to inform the fifth generation about the business. "They know it has something to do with books," she says, "but they don't know all of the different job opportunities. If they did, more would be interested in working here."

Seeking 'profitable growth'

With the core businesses maturing, online competition intensifying and digital technology transforming its core businesses, Follett named non-family member Ray A. Griffith as its president and CEO in May 2015. Griffith, a member of Follett's board since 2013, had been president and CEO of Ace Hardware until April 2013.

"Our mission is to help students," Griffith says. "This a great and noble business to be in, but there has to be a return. I'm a capitalist, which means to me profitable growth. Follett is the No. 1 leader in college campus bookstores and in the K-12 library space. I want to help us keep those leads and to continue expanding our other businesses."

In 2023, the Follett Corporation will celebrate its 150th anniversary. It's a point of pride for the family and a reminder of the challenges of keeping a very large, increasingly far-flung and diverse family engaged in the business.

"A successful family business needs good leadership, and leadership needs the support of the owners," says Bob Follett. "We had a valuable legacy handed down to us from C.W. Now it's the task of family shareholders and managers to see that it's passed on to future Follett generations."

Deanne Stone is a business writer based in Berkeley, Calif.

Copyright 2016 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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March/April 2016

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