They Foresee the Future and it Works for Them

By Louis Moscatello

The Kiplingers practically invented the newsletter style of journalism, and were ahead of their time in organizing a family business, too.

The cycle of life starts every Monday morning at the publishing firm called The Kiplinger Washington Editors. It's then that Austin Kiplinger and his son Knight sit down with their 18 editors to discuss the contents of that week's Kiplinger Washington Letter and decide on assignments. All ideas are held up to the same words Austin's father used to cut to the heart of matters in 1923 when he published the first issue: "So what?"

"Or more crassly," says Austin today, "how can our readers make a buck off this?" The contents of The Letter, as it's called by its editors today, are driven by the needs of its readers mostly owners of small and medium-sized businesses. "Our purpose is to be useful, to give readers clear information, reasoned judgment, sharp perspective, and guidance that allows them to make business decisions," says Austin.

The Kiplinger family has been forecasting developments in business, government, and taxes ever since Austin's father, the autocratic W. M. Kiplinger, published that first letter. The "grand-daddy" of newsletters, it spawned an entirely new format in publishing. Many newsletters have since appeared, imitating the Kiplinger's "sweepline" style, with its short, punchy predictions seemingly based on inside sources.

"I've always envisioned their typical reader as a drugstore owner in Akron who feels he's getting inside information from Washington," says Fred Goss, executive director of the Newsletter Association, an industry group of 800 publishers. Such a subscriber profile probably suits Austin just fine.

"It gives me a handy, weekly overview of what's likely to happen on many issues important to me — import-export policies, currency trends, the construction industry outlook," says a subscriber of many years who is the general manager of a small family business that imports architectural glass from Japan. "It gives me something by which to measure everything else I hear or read on these subjects."

Kiplinger doesn't bother measuring how good the predictions are. "Our batting average doesn't concern me," says Austin. The Letter just keeps swinging. It hits homers: It foresaw the long economic expansion of the Reagan years. It swings and misses: It expected a mild recession to start last year.

Opinions will vary on the accuracy and usefulness of the Kiplingers' forecasts, but no one can argue with their success. The company now publishes six newsletters plus a magazine, Changing Times, which is devoted to personal finance. It also has a printing operation and related, businesses. From the company's 10-story Editors Building in downtown Washington, 71-year-old Austin Kiplinger oversees a steadily growing operation that had revenues of $104 million last year — a 2 percent increase over the prior year-and employs 850. On the publishing side, Austin leans heavily on one of his two sons, Knight, 42, who is associate editor of the newsletters and editor-in-chief of Changing Times. His oldest son, Todd, 44, manages the company's extensive portfolio of investments, which includes real estate in Washington and Florida.

As benefits a family whose business it is to look down the road and spot what's coming, the Kiplingers have been well ahead in adapting the latest managerial and financial techniques to their own company (see below). The founder, WMK, as he's referred to by those who knew him, structured ownership and management of the family business for long-term growth and continuity. Sixteen Kiplingers now own shares in a plan that is designed to keep the family in the business.

Just as important, the second-generation leader, Austin, has given a different spin to management from that of his father, a more collegial style that will make it easier for his heirs to resolve any conflicts that occur. 'This transition — from first generation, entrepreneurial control to a more participatory management style — is crucial if a family business is to continue growing in succeeding generations," says John Ward, professor of private enterprise at the School of Business of Loyola University in Chicago.

After their meeting with Austin and Knight on Monday mornings, the editors of the company's flagship, The Letter, begin their rounds. Their best sources are middle-level officials who are usually most attuned to shifts in the political wind at the top of their agencies. Because these officials know that The Letter will not attribute any information directly to them, they are often willing to talk freely.

Austin, in his years of covering Washington, has learned that the highest sources are not always the best. "One of my most serious mistakes in 25 years," he admits, "was accepting the word of U.S. officials about the Bay of Pigs."

The first deadline for editors' copy is Wednesday morning. Then Jack Kiesner, the editorial director who joined the staff 17 years ago and has been "on the desk" for 12 years, begins the process of winnowing down the reports given him. He puts conclusions first, followed by supporting data only if essential. This deceptively simple, declarative style can mask the sophistication of the judgments conveyed. But the so-called sweepline style, introduced by WMK in his first letter, makes virtual speed readers out of subscribers.

Jack Kiesner completes his first edit Wednesday afternoon. Judgments are then rehashed and refined at editorial meetings until late Thursday, when the four-page letter gets its final polish. On Friday morning, the editors give it one final hard look. Then Austin gives it a last read, sometimes suggesting changes or contributing a personal touch, and adds his signature. If Austin is not in town, the job of final review falls to Knight, who signs the letter himself. If both are absent, the collective signature of 'The Kiplinger Washington Editors" is affixed.

Kiplinger editors generally get high marks from other journalists for their professionalism. All have gained extensive experience, usually eight years or more, before joining the staff. Lee Cohn who came to the company from The Washington Star, was chief economics reporter when the paper folded. He is described by one syndicated economics columnist in Washington as "probably the best deadline economics reporter in the business."

"They may have only a short paragraph on energy, but a lot of reporting goes into that paragraph," says John Jennrich, editor of a highly regarded energy newsletter Natural Gas Week. Jennrich is in constant contact with many of the same sources tapped by The Letter's energy editor, Charles Snyder.

Washington insiders and others who consider themselves highly informed about subjects covered by Kiplinger tend to knock The Letter and other Kiplinger publications for their brief, simple presentation. "If you're reasonably sophisticated about a subject, it's not that helpful — not enough detail," says William Dunk, a New York-based management consultant. "Someone needs to buy them and juice them up," he says.

"The Kiplingers interpret Washington to outsiders," says the syndicated economics columnist. "It makes no attempt to influence Washington, to play the media game inside the Beltway as so many journalists here do."

But Washington coverage is only part of the picture for a weekly letter with the self-appointed task of judging business prospects. "We keep our eye on the rest of the country more than Washington because that's where attitudes are made," says Austin. The Letter regularly invites readers to send letters or call about what their businesses are experiencing, or about issues they face in their areas of the country.

"Washington doesn't make attitudes. Washington responds; it follows. There's a great misconception about that — that Washington leads," he says.

Austin doesn't claim that The Letter offers readers inside information, even though his contacts reach to the highest levels of government: Over the years he's been friendly with every president since Eisenhower and belongs to the same club as President Bush, the Alibi Club, an exclusive luncheon meeting place. "What our readers get is what anyone could get if he had 20 people working in this town full time," he says.

If renewal rates are any measure, however, the readers are satisfied. Austin says the annual renewal averages 85 percent, considered a very healthy percentage in publishing. Recently, however, the rate has slipped. The latest figures show that The Letter had an average circulation of 358,432 in 1989, down 8.8 percent from the previous year and down 15.2 percent over two years. Austin's only explanation is that when a new president comes in, people are optimistic about the economy and feel less in need of advice.

The combined circulation of the other five letters (which cover taxes, agriculture, and the states of Florida, California, and Texas) totals 200,000 but has also slipped recently. Changing Times, however, is headed upward. What started as a staid, personal finance magazine that did not accept advertising until 1980 is now a brightly illustrated publication with a circulation of about one million, bolstered by last year's acquisition of the subscriber list for Sylvia Porter's Personal Finance magazine. But it still lags behind its major competitor, Time-Warner's Money, which has a circulation of 1.84 million.

The family publishing venture began in 1923 when WMK published the first Kiplinger Washington Letter, a one-pager, to be "issued weekly to clients" of his three year-old Washington Information Agency. Previously, the company gathered information in the capital for business clients on a customized basis.

Austin's involvement with journalism started at the age of 12, when his father took him to the London office of the Associated Press around midnight to show him just how dreary journalism could be. Instead, the romance of it captivated the boy and he never really considered any other career.

That didn't mean automatically going into his father's business. He worked there as an office boy in 1935, and as a junior reporter in 1939. He collaborated with his father in 1941 and 1942 on a best selling book, Washington Is Like That, before going off to wartime duty in the Pacific as a naval aviator.

On his return, Austin did a couple of stints in his father's company, but WMK was difficult to work for. "He was a brilliant reporter and editor, but he was not a steady administrator," recalls Austin. "He'd let things run themselves for a while, then suddenly he'd plunge in and we would have a crisis. His judgment in these things was not as good as it might have been. Of course, I was the victim of some of it."

So, like four of his father's partners over the years, Austin struck out on his own. He worked with papers in San Francisco and Chicago, before getting involved with television in its early days. His enterprising journalistic skills, smooth voice and avuncular style made him a rising star as a political commentator on Chicago television. New York was beckoning.

Instead of heeding the call, Austin returned to his father's side in 1956 to become editor of The Letter and take a growing role in the business. At that time, the prosperity of the Eisenhower years had weakened demand for The Letter, and his father's management style had created a need for Austin's presence. WMK continued to be highly active in the company and remained chairman until his death in 1967.

Whatever WMK's shortcomings in day-to-day management, he was exceptionally foresighted when it came to setting up a plan for the company's financial future. Today, the structure of ownership he developed in the early fifties is quite common among family firms, including ones that are publicly traded.

The company has two different types of shareholders who share equally in the modest dividends: The A stock is a voting stock while the B stock is not. Austin has control of virtually all the voting stock through a trust of which he is trustee, although he doesn't actually own all the voting shares. Austin's control is complete, though his equity stake, primarily through ownership of nonvoting B shares, is only about 12 percent, rather low for a chairman and president of a family company.

Overall, 16 Kiplinger family members from four generations hold 67 percent of the nonvoting shares. These include WMK's widow (his third wife), Austin and his sister (both by WMK's first wife), their children (including Austin's sons, Todd and Knight), some of their cousins descended from the now- deceased children of their grandfather's second and third marriages, and descendants of WMK's brother, C. Gale Kiplinger.

To insure continuity of family control and ownership, the company makes a market in its own shares. It will buy them back from any family member at any time at a price based on the average of two appraisals made each year. (The company won't reveal its currently appraised value.) The appraisal methods follow the long-accepted norm for valuing closely-held companies with multiple classes of stock that distinguish between equity and control. The lack of markets for the stock and the lack of a vote in company policy produce lower values than for a similar company with one class of publicly traded stock. The IRS has consistently challenged these techniques but the courts have consistently upheld them.

After WMKs death in 1967, the Kiplinger family withstood an IRS challenge similar to that recently faced by the Newhouses, whose use of these methods for valuing their family's publishing empire was once again upheld in Federal Tax Court.

The family is determined to keep the company independent and in the family. "All my personal financial decisions are focused on one basic purpose: to keep this company independent," says Austin, who has refused all acquisition offers.

To be prepared for estate eventualities, the company maintains high reserves of cash and cash equivalents. This conservative fiscal policy is a key part of the ownership and management philosophy. "Ideally, about one-quarter to one-third of annual earnings are paid out in dividends on the stock. In an off year, we'll protect the dividend and pay out as much as one half of earnings," says Knight. "Families that want their businesses to stay in the family should do this — have low dividend payouts and high retention of earnings as a matter of course. It builds the liquidity needed for estate taxes."

These retained earnings plus deferred subscription income — a source of cash peculiar to periodicals publishing — allow the company to maintain a large pool of liquid investments in stocks and bonds plus real estate. Income from these investments is sizable. "It can represent up to 40 percent of the bottom line in an off year for publishing," says Todd, vice-president for investments.

The largest single shareholding in the company- — 33 percent of the nonvoting shares — is in the hands of the Employee Profits Sharing Trust. WMK set this up back in 1952.

Employees have ownership in the trust in proportion to their salaries; they don't own individual shares of company stock. Dividends on the company stock accumulates in the trust, as does an employee's annual deferred profit sharing, up to 15 percent of annual salary. When a vested employee leaves the company or retires, he receives the accumulated dividends and profit sharing plus any investment returns on the funds. He also gets his proportional share of the appreciation in company stock in the trust since he joined the company. This is another reason for the regular appraisals.

Employee ownership is a highly visible ingredient in every aspect of the company, from the editorial process that shapes the newsletters to the board of directors meetings. Eight nonfamily employees serve on the board with four family members: Austin, Todd, Knight and Austin's cousin W. Bogert Kiplinger, 60-year-old son of WMK's brother. Bogert, who has his own family business in St. Louis, says that he "contributes the small-businessman's viewpoint" to board meetings. He is a wholesale distributor of decorative fabric for the home furnishings industry.

A prime example of the important role played by a nonfamily member is Jim Mayo, a former admiral in the U.S. Navy, who is vice-chairman of the company. Besides serving on the company board of directors and overseeing the employees profit sharing trust, he serves as a communications clearinghouse for the family. Austin, Knight and Todd often exchange messages through him when they are traveling, and he keeps Kiplinger family members who don't work in the business informed on routine matters.

Before joining the company 13 years ago as its editor for military and foreign affairs, Jim had been a military attache to the U.S. embassy in Moscow. As an economist and naval officer for 30 years, he had served in many overseas posts and written extensive reports on his observations. It was in the navy, during World War Il, that he first met and became friends with Austin.

Through all the administrative duties, Jim continued as an editor until last July. He still meets over coffee most mornings with his hand-picked successor on the foreign affairs beat, Gary Matthews, a former career diplomat who served as ambassador to Malta and on the embassy staff in Moscow when Jim was there.

For all their expertise in projecting the future, the editors are having difficulty making one call: Who will get the controlling shares of the company when Austin departs?

He hasn't named a successor. One might suspect that the energetic Austin, still fully involved with the company, doesn't yet have a clear notion of a succession plan himself, though he does know more than he's been willing to share up to now, it seems. Even in a company as progressive as The Kiplinger Washington Editors, personal communication isn't always the greatest.

"That's really the $64,000 question," Todd says about the succession. "Dad, Knight and I talk so much, but this is one area that still needs to be addressed."

Sitting in his large, modern, corner office on the second floor — "the bowels of the company," he calls it — Todd is calm, even philosophical, as he discusses the succession possibilities and what it means for the business: "I think in a business like this you have to have somebody who's going to carry the flag and be the front man, whether it's Knight or me. I don't think you can manage this company by committee. But it would be interesting to see if it could work."

The two brothers are close in age and seem to share a genuine affection. Both waited until their thirties to marry; each has three preteen children; the two families frequently socialize. "We kind of get a kick out of each other," says Todd.

"My brother and I get along very well," Knight agrees. 'We are personally close," he says, sitting in a wing chair in his ninth-floor wood-paneled office that adjoins his father's. It's a journalist's office, with its piles of publications and files on the floor.

Knight returned to the company seven years ago, after 13 years in daily news reporting, including six with a chain of papers owned by Dow Jones. He rose to Washington bureau chief of the chain and eventually news bureau chief. Knight is a journalist in the Kiplinger tradition: to the point, like his grandfather. But he is also an experienced public speaker who possesses some of his father's eloquence. With his father, he has written two books, including their latest, America in the Global '90s, which explores business opportunities in the U.S. and overseas in the decade ahead.

Knight seems unconcerned about succession: 'There's only anxiety about succession if things are not running well," he says. "That's not the case here." Perhaps he also sees himself as the most logical choice to be the next head of The Kiplinger Washington Editors.

"Here, it's the same as in a public company. The board of directors would convene and elect new officers to fill the void left by the death of any key executive. There might be a sense of disappointment for the one who does not get elected, but I think the two of us working here would have the maturity to recognize that the board saw particular skills and aptitudes more pronounced in one than the other. If there was a power struggle or a lot of rivalry and resentment, then the board would have a dilemma. But my brother and I are both vital to the company's success in different areas. It works well."

One editor who is also on the board of directors says, "I think from the editorial side, the choice would be Knight."

Todd, whose 18-year working career with the company has spanned its various operations including editorial before becoming vice-president for investments, sees the wisdom of that: "My strength isn't in the publications themselves and that's obviously the hallmark of our business. So that would argue for Knight. He's already more in the public eye. I would just as soon not be involved. I would feed the system in my own area of expertise," he says. "But we're not there yet."

Austin seems perfectly willing to share his innermost thoughts on the subject, with an outsider. "I've decided that 'the hand out of the grave' should not try to run things. My will now provides that the voting shares be divided equally between them," he says, taking a different route than another second- generation publisher, Malcolm Forbes, who followed the tradition of primogeniture and left a clear-cut 51 percent majority of the Forbes' publishing venture to his eldest son. "So they'll have to decide how to manage. Maybe they don't have to sluice the majority to one side or the other. Maybe they can continue to collaborate."

Maybe. Maybe not. Having two family members share control is a complex undertaking usually requiring a lot of solid preparation. Austin's silence up to now may have precluded some of that preparation.

Though a lifelong professional forecaster, Austin won't venture to predict the outcome of his decision. "What they'll do with it, I don't know."

Austin doesn't know when he'll be handing over the reins. An avid horseman, he is still in the saddle after a bad fall last year. Thrown from his horse, he "got knocked out, stomped on and all that sort of thing. Cheek crushed, jaw broken." But Kiplinger is still riding high and he can't foresee easing up. "I don't know how to do that. I never learned."

How Kiplinger keeps it all together

Over the years, the Kiplinger family has put together a strategy to insure continuity. Here are the steps that have worked for them:


  • Create two classes of stock equal in all respects, except that one class has voting power and the other does not. Put the voting shares in a trust that keeps voting control in a limited number of family hands.



  • Pay modest dividends on all shares and retain the bulk of earnings within the company.



  • Have the company make a market in its own shares, at prices based on an outside appraisal, to accommodate any family member who wants to sell.



  • Build liquidity in the company to provide flexibility for estate purposes. This will allow the company to repurchase shares in the event of death rather than having the shares sold to outsiders to pay estate taxes.



  • Establish living trusts for major family shareholders to avoid costly probate procedures and public disclosure of family business information.



  • Encourage long-term employee commitment and involvement. Establish a minority nonfamily employee ownership position through an employee profit sharing trust or employee stock ownership plan.



  • Include key employees on your board.



The Business
The Kiplinger Washington Editors, Inc.
Washington, D.C.
Business Publishing
Annual Sales $105 million
Founded 1923
Family members employed
Family generations employed
Family-held posts
(Chairman/CEO, exec. v.p., v.p.)
Family board members

4 (of 12)

Number of family owners
(3 active; 13 inactive)
Family ownership
Closely held


Succession Plan Partial
Print / Download
May 1990


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