The families who own Leupold & Stevens have spent more than a decade creating a governance structure that gives them the best of both worlds—a company with non-family management that more than holds its own in a competitive marketplace while reflecting and preserving the values of its family shareholders.
Leupold & Stevens, based in Beaverton, Ore., manufactures market-leading optics, particularly riflescopes used by hunters, competitive shooters and U.S. military and law enforcement personnel. The 107-year-old company also makes binoculars, spotting scopes, rangefinders and other precision optical instruments for outdoor recreation markets. It’s grown to 700 employees working in manufacturing and distribution centers with more than four acres under roof. Although the company doesn’t release sales figures, company CFO Howard Werth was quoted in the Portland Business Journal last year as saying sales are “north of $200 million.”
While fifth-generation descendants of the company founder Frederick Leupold are becoming active, the company is run by non-family management and governed by a board in which family members are in the minority. It’s been that way for quite some time, too. Norbert Leupold Jr., grandson of the founder, was the last family member to hold a senior management position—and he retired as vice president of marketing more than 15 years ago. The company is currently searching for a new CEO, its fourth non-family leader since 1983. On the nine-member board of directors (including the CEO), only four seats are occupied by family members.
How do the 42 family shareholders—members of the Leupold and Stevens families—maintain influence? Largely through an active, outspoken family council that vigorously interacts with the board of directors.
A governance transformation
The creation of the family council in 2001 was a turning point. “We came to a point where there was a need to get the fourth generation more involved,” explains Greg Waggoner, 52, senior manufacturing manager and great-grandson of founder Leupold. “We were having some communications problems with the third generation, which was running the company and held the board seats,” Waggoner recalls. “Communication was kind of on a need-to-know basis.” He says there weren’t many in the fourth generation who were deemed worthy of being told what was going on. “There was a bit of a disconnect about what was appropriate to discuss and what wasn’t.”
That was when the families turned to family business consultant Steve McClure. They already had established a family assembly—a gathering open to the entire family. Working with McClure, they decided to form a family council, as well. “We put members of the fourth generation on the board then, too, to get them engaged,” says Waggoner, who served as the family council chair for three years.
Waggoner’s cousin Linda Neale, now 63, didn’t work at Leupold & Stevens but was highly involved in the transformation. Changing the composition of the board wasn’t easy, but the improvements in communication were well worth the effort, Neale says.
“When I first joined the board, it was much more of a rubber stamp, and there was conflict between the board and the family in terms of roles,” Neale explains. “Board members were chosen through the old-boy network, so I started a committee to investigate best board practices. We made some changes in the way board members are elected and we instituted term limits, but it was really hard. It was the first time the stockholders had exercised their authority over choosing board members, so there was a lot of normal resistance to change. It took two years. Now, the communication between the board and the family stockholders is much better.” Neale, a former school psychologist and marriage and family therapist, serves on the board with three other non-employee family members.
Moving beyond family management
In the beginning and throughout much of the company’s history, there weren’t that many shareholders and management was pretty much the bailiwick of the founders and their sons. Fred Leupold set up shop with his brother-in-law Adam Voelpel in Portland, Ore., in 1907 under the name Leupold & Voelpel. (Adam later changed the spelling of the family name to Volpel.) Their business was building and repairing survey instruments, a skill Leupold had acquired in his native Germany and then honed at the Boston firm of C.L. Bergen & Sons when he immigrated to America. In 1914, J.C. Stevens joined the company as a partner, bringing with him water-monitoring instruments he had invented. The company name was changed to Leupold, Volpel & Co. to reflect the addition of Stevens. When Volpel died in 1940, the other two partners bought his shares and changed the company’s name to Leupold & Stevens. Fred Leupold’s oldest son, Marcus, was made a partner, as was Stevens’s only son, Robert.
Fred Leupold died in 1944, transferring his shares to Marcus and his younger son, Norbert, who had joined the company in 1943. Marcus took over as general manager. In 1953, J.C. Stevens suffered a stroke and withdrew from management. He died in 1970 and his shares went to his son, Robert. Today the two branches of the Leupold family control about 60% of the shares; the Stevens family owns the rest. Toni Stevens, wife of Robert Stevens’s son, John, serves on the board.
Company legend has it that inspiration for its first riflescope came when Marcus Leupold, on a hunting trip with his wife, Ruth, missed a shot at a big buck because his rifle’s scope fogged up. He swore to create a better version, and the first Leupold riflescope, which was filled with nitrogen to eliminate fogging, was introduced in 1947. By 1979, Leupold scopes were generating twice as much revenue as the water-monitoring instruments were. The water-monitoring portion of the business was spun off in 1998.
Marcus turned over the CEO title to his brother Norbert in 1968. Marcus served on the board until his death in 1975. When it came time for Norbert to step down in 1983, Norbert Jr. was one of several candidates considered for the CEO’s job. “There were others better suited,” Norbert Jr. says. That’s when the first non-family member, Werner Wildauer, was named CEO and chairman. Those two positions were separated in 1998, when Tom Fruechtel was hired as CEO; Wildauer remained chairman. In late February 2014, the company named Bruce Pettet, formerly CEO of Collective International LLC, as its new CEO.
In 2000, the Leupold and Stevens families had their first family assembly. Don Waggoner—Greg Waggoner’s father and Linda Neale’s uncle, who was a vice president and board member—had attended a family business conference and “got the picture that we needed to have some mechanism for the family to be engaged in the company if it was going to continue,” Neale says. Don Waggoner recruited Steve McClure to lead a two-day meeting, during which McClure encouraged the family to adopt a family charter. “We developed a family governance document that described the owners’ vision and values using [McClure’s] templates,” Neale says.
A balanced board of directors
Among other things, it was determined that the board would no longer include any employees except the CEO. Currently, four family members serve: Linda Neale, Toni Stevens, Chris Leupold and Rick Tenneson. “We’re in the process of figuring out a succession plan for family board members,” Neale says.
The company’s outside directors are Jake Nichol, CEO of Leatherman Tools; Don Kania, CEO of electron microscope company FEI; Dennis Spindler, who recently retired as senior vice president of Big Rock Sports; and Jim Clark, an outdoor industries consultant who was named to the board in 2009 and became its chairman in 2012.
“The family directors aren’t trying to retain a majority on the board,” Clark observes. “They want a balance between family and outside directors, but they don’t require a majority. That tells me they’re interested in doing the right thing by the company for the long term and not just trying to protect their interests.”
Careful selection of outside directors enhances company performance, according to Clark. “Outside directors bring objectivity and experience in best practice on making key decisions,” he says. “That’s the single biggest advantage.”
At the same time, independent board members must be super-sensitive to family desires. As fourth-generation Leupold marketing executive Mike Slack, 57, points out, “It’s critical they understand some of the dynamics of leading a family business. We’ve always thought of ourselves as pretty ‘easy’ shareholders. We don’t play a heavy hand in dictating. We try to hire highly qualified people who have a lot of respect for what we have here. They are put in a position to nourish that.”
Clark defines the board’s role as the fulcrum of a seesaw: “On the one side are the needs, interests and desires of the family shareholders; on the other are the needs, interests and concerns of management. In order for the board to perform that role effectively, we need to be clear on everyone’s feelings.”
The family council’s policy-making role
That’s where the family council comes into play. “With a growing number of shareholders,” Clark explains, “you have an increasing diversity of views. The family council is the mechanism that gives them one voice. Without that, it would kind of be like the Wild West. Shareholders would be picking up the phone to call board members, the CEO and management to advocate for what they want based on their political views or economic needs. That can send very confusing messages to the board and management.”
Mason Slack, 27, Mike’s son, is the family council chair. “The family council acts as a communication outlet for the rest of the family shareholders,” explains Mason, who works in sales for Gerber Blades, an outdoor gear company in Portland. “A big part of the chairman’s position is to keep everyone informed of what’s going on with the company and help resolve any issues that might crop up between family members. It’s a great way to make sure everybody is on the same page.”
The council has seven voting positions, but participation is open to any family member. In recent years, the meetings have grown to include both shareholders and non-shareholding family members. It meets four times a year, including at the annual shareholders’ meeting. At family council meetings, news and events are discussed. Guest speakers, particularly outside directors, are invited. “As the family has gotten larger,” Mason says, “some people have become rather disconnected from the company. The family council helps bring them back into the fold.”
Family council members are nominated at a meeting held after the annual shareholders’ meeting. They serve three-year terms, which are staggered for the sake of continuity. “We have to have a representative from each of the three families: the Marcus Leupold family, the Norbert Leupold family and the Stevens family,” explains Mason.
The family council members are currently revising the family council bylaws, which haven’t been reviewed since 2001. “We are also discussing changes in the election process,” Slack says. “Part of that has to do with having someone withdraw from the council in mid-term. Filling that spot was awkward, so we might change the way that’s done.” They are considering adding a formal application process for prospective family council members. “That would bring in people who are really interested in the position, show up at every meeting and [are] more active,” Mason says. “We’re looking for people who have a passion.”
How does the family council interact with company management? “The chairman attends board meetings and gives a family council update,” Slack explains. “It’s also a place for the board members to ask questions about the family’s feelings on certain issues.” The goal is to make sure both the shareholders and the company executives are getting the same information.
The family doesn’t hesitate to express its feelings about major issues. “We talk about the family values,” Greg Waggoner says. “We want the lifetime warranty on our products. We want employees treated right, and we also discuss deal-breakers going forward. For instance, manufacturing in the U.S. might be an issue. From the pure board perspective, it might make more sense to outsource the product. From the family perspective, we feel very strongly we want to keep manufacturing and jobs here. It’s kind of non-negotiable. The challenge is that, to keep it in the States, you have to continually drive your costs down. It looks easy to outsource, but that’s a core piece of our company that would be gone.”
Leupold & Stevens does outsource some products, particularly binoculars and lower-end riflescopes marketed under the Redfield brand, but the family insists on manufacturing its trademark “Golden Ring” riflescopes in Oregon. (However, optical lenses are imported, since American manufacturers can’t meet the company’s quality standards.) The company employs 140 people in product assembly alone.
Clark reports on another major issue that took several years of discussion with the family to resolve—getting back into the military tactical business, which the company had de-emphasized a decade earlier as the hunting business boomed. “The company’s heritage is in shooting sports, but management identified an opportunity with the military for riflescopes and spotting scopes,” Clark says. “But that involves shooting people, not game or targets, so not all of the shareholders were initially supportive of that. Management proposed, the board deliberated, the family council had a role in working through the issues, discussions were held at shareholder meetings over time and ultimately the decision was made to pursue it. It wasn’t without challenging conversations—some consternation, hand-wringing and teeth-gnashing—but it never got out of control.”
Mike Slack says the decision-making process took several years. The resulting five-year contract with the U.S. Navy to supply riflescopes for small arms is worth nearly $43 million.
Engaging the fifth generation
Another major issue the family council is addressing is intensifying family involvement in the company. Currently, Mike Slack and Greg Waggoner are the only fourth-generation family members employed at Leupold & Stevens. There are also two members of the fifth generation on the staff: John Slack, Mike’s other son, who handles marketing of golf range finders and some other products; and John’s second cousin, Alex Burton, who works in sales part-time while she finishes school.
“We have an internship program for people who are qualified and potentially interested in working for the company,” Mason Slack says. “We’ve been trying to get as many people interested as we can so we can move forward with the fifth generation.” Sons and daughters of non-family employees also have participated in the internship program, which was launched in 2013.
Mason Slack himself, while heavily invested in the family council, doesn’t expect to work at Leupold & Stevens for a while. “It would have been great to work for Leupold right out of college,” he reflects, “but I had to ask myself how much I had to offer the company in terms of experiences and skills if this was my first job. I figured it would be better for both the company and me if I got experience somewhere else first.”
In an effort to widen involvement with the company, the family assembly convenes every two years. As many as 80 family members attend the social/business affair, where they try out the company’s latest products on a shooting range, enjoy other entertainment and activities, and hear presentations from company executives.
While family members may not manage Leupold & Stevens, they have no intention of sliding into the background as purely passive shareholders. As Mason Slack says, “It’s been really encouraging the last few years because we’ve seen more members of my generation getting involved. That will be key to the company’s survival for another fifty or hundred years.”
Dave Donelson is a business writer in West Harrison, N.Y., and the author of the Dynamic Manager Guides and Handbooks.
Copyright 2014 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.