From private to public ... and back again
The Vernon Co., founded 111 years ago, was publicly traded for 28 years. Though their business is once again privately owned, the Vernon family has retained many of the practices required of a public company.
The tiny stickers on each apple in the supermarket bin are an advertising opportunity. So are the giant graphics that cover the side of semi trucks. For companies to advertise in these places, someone must create the promotional products. One of the leaders in this business is The Vernon Co., a 111-year-old family-owned enterprise based in Newton, Iowa.
“We’re in the business of helping other companies market themselves and build brand awareness,” says Chris Vernon, the fourth-generation president and chief operating officer. “It’s a fun place to work.”
“To be a good advertising company you have to have a lot of new ideas,” says Ed Hansell, an attorney in private practice who sits on the company’s board. “They’re a pretty innovative family.”
The Vernon family’s company sells about 1 million different products, all adorned with an advertiser’s message. About three-quarters of the business consists of selling promotional products; graphics services accounts for the rest.
In addition to seeking out innovative products, the family leaders of the company have sought out new business strategies over the years. The company was publicly traded on a precursor to the Nasdaq stock exchange (though it remained under family control) from 1958 until 1986, when the family took it private again. Today the company is almost entirely owned by third-generation chairman and CEO Bill Vernon, 81, and his four children. Annual revenues are in the $70 million to $75 million range. About 130 of the 700 employees work at the headquarters in Newton; the company has been one of the town’s largest employers for 100 years.
Today, The Vernon Co. is privately held but retains some management practices from being public. According to Chris Vernon, maintaining the level of professionalism and fiscal discipline required of a publicly traded company has served the business well.
F.L.Vernon founded the company in 1902. The family believes he came to Newton in the late 1890s to be an executive assistant to Frederick Maytag, the founder of the Maytag appliance company. Maytag is believed to have provided the original seed money for the company; the family found correspondence that showed monthly loan payment checks to Maytag’s secretary for 20 years. F.L. Vernon granted Maytag 2,000 shares in the business as collateral until the loan was paid in full in the early 1920s.
The company was started as a side business. Chris Vernon, 53, says his great-grandfather sold leather ledger books to farmers for keeping their accounts. He got the idea that instead of selling them to individual farmers, he could sell them in larger batches to local businesses for use as gifts for their customers. He imprinted the name of the local business on the front cover.
Chris Vernon’s grandfather, William (Bill) Vernon Sr., joined the company during the Depression. From the company’s roots in agriculture and financial firms, it branched out into other types of promotional products.
During World War II, The Vernon Co. stopped making consumer goods and became a supplier of ammunition boxes to the U.S. Army. After the war, the company got back into making plastic products that could be customized. By the 1960s, Vernon had more than 30 U.S. patents approved for unique promotional products.
Bill Vernon started working in the business as a teenager in the summer, unloading railroad cars full of raw sheets of glass for making advertising mirrors. He joined full-time in 1956, after graduating from college and a two-year tour of duty with the U.S. Army in France. He started in the printing department, cleaning lines of metal type and getting to know the employees. He later moved to the sales department and became executive vice president. He became chairman and CEO when his father died unexpectedly in 1974.
Good governance habits
The Vernon Co., led at the time by Bill Vernon and Bill Sr., went public in 1958, in hopes of raising the money to expand.
“We got the money we wanted,” says Bill. The move also helped the company formalize its governance. And it allowed the company to give shares of stock to employees, a nice way to engage them.
But even though the public offering produced the desired influx of cash, over time it wasn’t clear that the advantages outweighed the costs.
The family still controlled about 70% of the stock, which meant outside shareholders knew their power would be limited. “There’s always some discount because the family is going to control what’s going to happen with the company,” says Dan Stevenson, executive vice president. Stevenson, a non-family member, has been with the company since 1982.
Complying with SEC requirements was costly. “We just kept seeing these costs go up,” Bill Vernon says.
Being a public company also changed the way the company made plans. “You become much more short-term focused than long-term focused,” Bill says.
In 1986, company leaders decided to go private again. There was some disagreement within the family about whether the management buyout was the best plan, but Bill Vernon’s viewpoint prevailed, and the company bought back the remaining shares.
“I know it was very stressful,” Chris Vernon says. “He knew he was making the right decision, but it was very tough.”
Today two management team members are the only people outside the family who continue to own a small percentage of shares. The company still maintains many of the good habits it developed as a public company: outside directors on the board, a full audit every year overseen by independent directors, sound GAAP financial controls and a compensation committee.
The business continues to share financial information with its employees. “One of the most attractive features of The Vernon Co. for many people is our transparency,” says Stephanie Critchfield, 44, Bill Vernon’s youngest child and the company’s Western region sales manager. “They really are drawn to that,” says Critchfield, whose duties include recruiting.
Vernon’s time on the public market “made us a better company,” Chris Vernon asserts. “We adopted a lot of the public company best practices, and these helped us survive and prosper. The change in our corporate status forced our executive managers to be more accountable and transparent in their decisions. However, it also came with a trade-off of more outside scrutiny as well as required SEC reporting costs.”
Being private again has freed the company to make decisions differently. “We’re not as concerned with something affecting earnings for 30 cents a share if it’s a wise decision going forward,” Stevenson says.
“We were publicly held for about 25 years, and we learned a lot,” says Bill Vernon. “But it’s a lot better being privately held.” Still, he asks rhetorically, “Would we do it again? We probably would.”
Growing up in the business
For Bill Vernon’s four children—Rick, Chris, Cameron and Stephanie—the company permeated every aspect of their childhood.
Bill and Marilyn Vernon were very social with suppliers and employees. “My mother loved to have parties for our salespeople,” says Cameron Vernon, 51, a senior account executive based in California.
“Growing up in a small town and belonging to a family with a large company felt a little like living in a fishbowl,” says Critchfield, who recalls encountering employees every day as a child.
The family home was full of samples of the company’s products, including a box to be handed out to Halloween trick-or-treaters. “The merchandise that we manufactured and distributed was always kind of around,” says Cameron Vernon.
Cameron went to college in Texas, graduating in 1985 in the middle of a recession. “The idea came up that I could go to California, which was appealing,” he says. “My father said if you want to learn the business, the best way to learn it is to be in the field, and he was right. If you’re really going to know the client and what makes the business tick, you need to be out there dealing with the customer face to face.”
Today, Cameron Vernon and his brother Rick, 57, are two of the company’s most successful salespeople.
For her part, Critchfield says, “I never envisioned working for the company when I was younger. My interests focused more on the arts.” After college, she worked with her brother Cameron in field sales in California for a year and a half before deciding to explore other careers. She had a good career in the newspaper business in South Florida, and then returned to the family firm.
Critchfield says she has enjoyed watching the family make the leadership transition from her father to her brother. “We’ve worked hard as a family to determine what we think the next best steps are as a company,” she says. “I’ve enjoyed that immensely.”
Having all four siblings working in the business can get complicated. The company has adopted best practices for family businesses, including making sure that no sibling reports to another and having the compensation committee (with outside members) determine family members’ compensation.
“My father has set it up very well,” says Rick Vernon, a vice president and senior account executive. “He’s the reason it has all worked as a family business.”
Looking to the future
Bill Vernon grew up expecting to work at the company and likely lead it someday. But for his children, succession wasn’t so simple.
“Bill has great pride in the business, and one of his life goals is to make sure that the company continues,” says board member Ed Hansell. “It’s been in existence for 111 years at this point, and I’m sure he’d like to see it go another 111 years.”
About 15 years ago, Chris says, his father told him and his siblings that family members would have to prove themselves if they wanted to be considered as future leaders.
“I knew how my father had directed me into the business,” Bill Vernon says. For his own children, though, “I felt strongly that they had to spend some time either out in the field for us or working for another company.”
Chris impressed his father, first with his education and then with his work once he joined the company. He earned his MBA at Northwestern University’s Kellogg School of Management, in addition to working outside the company right after college with two Fortune 500 technology firms. He then returned to the company headquarters, working his way up through four managerial positions before becoming executive vice president in 1994. He became president when a non-family president who had served for about ten years retired in 1999.
At about that time, the company shrank its board of directors to include only two family members, Chris and Bill Vernon, and it created a family council that includes all the family members.
“The challenges still exist within a family business, and we’re working on it constantly,” Critchfield says. The Vernons have two family meetings each year, which are opportunities to renew their family bonds as well as talk about the business. “We’re able to air a lot of our feelings and talk about next steps and succession planning. If there are disagreements, that’s where we air it out.”
They also sometimes bring in outside speakers to address the more technical aspects of running a family business, such as what will happen once Bill Vernon is no longer there. “Dad’s been here since 1956,” Chris Vernon says. “When he’s gone, people are concerned about what [will change]. We really want this to be as seamless a transition as possible.”
“One thing that came out of the family meeting this year was that we’ve typically done these meetings always with my father, and we will continue to do so, but we are going to start meeting just as siblings maybe once or twice a year, really to start to perpetuate this without him being present,” Critchfield says.
Chris Vernon says the family council, which was set up with help from advisers from the business center at CPA firm McGladrey & Pullen, helped the company weather leadership transitions and the severe recession of 2000-2002.
“This served as a foundation for transparent leadership and family unity during my first three or four years as president/COO,” Chris says.
The family also works to maintain the company’s friendly, open culture. The company contributes at least 5% of its earnings to charity each year, usually distributed among about 25 different groups. It also has a college scholarship fund for employee children, which has supported more than 300 young people since its inception in 1975.
All four Vernon siblings have children, ranging in age from four to almost 30. None works for the company at the moment.
“You don’t see very many companies that go 111 years in the same family and same line of business that we’ve started,” Chris Vernon says. “I think we’re all hopeful that at some point the fifth generation will be interested.”
Margaret Steen is a freelance writer based in Los Altos, Calif.
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