Brown Brothers Harriman recently sat down with Campbell at Mannington’s headquarters to discuss the company’s history, his views on and approach to succession planning, the family council’s role in fostering communication and Mannington’s secret for overcoming the “third-generation curse,” among other topics.
Brown Brothers Harriman: Tell us about the early history of Mannington Mills.
Keith Campbell: My great-grandfather founded the company in 1915. He learned the floor covering trade while working in linoleum manufacturing in Scotland. He brought that skillset to America, became a consultant and eventually purchased a hard surface floor covering company. Within a year or two, he sold the company and built his own Mannington Mills plant on the other side of town.
My great-grandfather had his two sons work with him – my great-uncle and my grandfather. They were a marvelous team, but they went through some difficulties. For example, the original plant burned to the ground in the middle of the Great Depression, and my grandfather and great-uncle had to take second and third loans on their houses to rebuild it.
A few years later, they invented and patented a method of printing whereby they printed on the face of one piece of flooring, pressed it against another piece and pulled them apart to reveal mirror images. This meant we could double our production without spending capital, so they had a solid bottom line by the end of the Depression and World War II.
Another turning point was when my father decided that we needed to change the printing methodology and move away from the 9-foot-wide standard that everyone was following, because houses were getting wider. We were the first to come out with a 12-foot-wide Rotogravure material, and that put Mannington on the map – suddenly we were at the forefront of what was happening in the floor covering business.
Since then, we have continued to grow; we have expanded into different types of floor covering – both residential and commercial – and gone global.
BBH: Talk about your early days at Mannington. Did you work your way up through the ranks of the family business?
KC: I have loved it here from the day I walked in as a kid. I started working here during high school focusing on basic maintenance tasks. When I was old enough to be around mechanical equipment, I joined manufacturing. By the time I graduated from college, I had operated every piece of equipment in the main factory area. After that, I went into sales. I have always had an affinity for customers and for floor covering.
BBH: Did you get the sense that your father, the third generation, was grooming you for the fourth generation of leadership?
KC: Yes, but my dad always told me that if I didn’t like it, I could leave. There was a high expectation for me to fill in, but I never felt I was being forced into it, because I loved it. I have never regretted taking on this role. I’ve enjoyed it, and the people I work with make it the most special.
My father and other people in leadership definitely had succession planning on their minds, but it was not as refined compared with our planning efforts for our fifth generation. However, when looking at succession planning, you have to keep in mind that all family businesses are different. The family dynamics are different; the capital structure is different. I often read that most family-owned businesses fail in the third generation. Here, the third generation transformed the company and was the catalyst that led us to become a worldwide leader in the flooring industry. The fourth generation has also built on that success and taken Mannington to even greater heights.
BBH: How have you approached succession planning with the fifth generation at Mannington?
KC: One of the biggest things I stress to this next generation is that you must have the highest level of passion – that’s irreplaceable. If you’re not passionate about the family business, you don’t need to be involved, because as family members, you’re responsible for everything. People look at your level of passion, and you have to wear it on your sleeve.
We encourage all of our family members to do summer internships at the company. Most of them work in manufacturing to understand what it entails, and they also learn about the responsibilities the family has as owners.
I did not want this company to become a safe landing spot for family members getting out of college, so we put in a rule that family members must meet certain criteria to be hired. First, they have to be over 30 years old. Second, they must have a post-graduate degree that’s applicable to the business. Third, we need to have an open position for them. The last thing is that they are like any other employee – if they don’t perform well, they can be asked to leave.
We now have three fifth-generation family members working here. During their careers, we will purposely put them in areas they know nothing about. This is to turn them into what I call a Swiss Army Knife – understanding all of the different parts of the business. They’re not expected to be experts in everything, but they better know the areas.
We have communicated our succession plan internally, but the issue is that you never have all of the answers. You may have a successor, but what if something happens to him or her? As soon as you think you have it figured out, something happens.
BBH: You have a family council. When was it created, and what is its role?
KC: About a decade ago, when I first read about family councils and their growing popularity among family-owned businesses, I was skeptical. However, the more I read, the more I realized that the family council could handle something that I didn’t have the ability to oversee in a way that was necessary. The family council is not involved with the company’s direction. Instead, it aims to build patient capital within the company, which creates a need for education. When shareholders receive shares, we want to ensure they are knowledgeable about what we do and the uniqueness of our business – and that they want to pass those shares to the next generation, because continuing this family business is extremely important.
More generally, the family council is a communication mechanism. When we started it five years ago, we did a 100 question survey about concerns within the family. Some of the results indicated that there was a need for greater communication about the business, and that’s part of what we do. We have a newsletter that we put out, and about once a year we have a greater family assembly meeting where everyone comes together for both fun and educational activities. This year we will have about 70 people there, including babies. We have fifth-generation family members who have children, and we want to engage those children in the education process early on.
BBH: You mentioned how many family businesses struggle to get past the third generation. What has Mannington done that helped it avoid falling victim to this?
KC: We have strong professional outside management running the company, which is something my father instituted. I call this blend of family ownership and professional management the “Mannington secret sauce.” It requires me, as the chairman, to operate collaboratively with the CEO in shaping the company’s direction, and we have been effective at that. I still give the management team my slant on things, and I’m the first one there when there is trouble, but I have too much to do to get engaged in the day to day. The delineation between outside management and family ownership has helped us succeed and is also one of the ways that we have been able to attract top-flight talent.
BBH: How do you approach hiring non-family executives?
KC: You always want to try to promote from within. As you look at open positions, you typically revise and redefine the scope of the job. If you have someone internally who can meet the position’s criteria 85% of the time, you should go with that employee. If not, look outside – and if you’re the best people to do business with in the industry, have an extremely good reputation and pay a competitive wage, you are going to attract top-flight talent. The only difficulty in the private world when it comes to attracting that talent is compensation due to all of the packages that are put together with stock options and similar alternative forms of compensation. It can get out of balance, and you have to be careful and inventive.
BBH: You have a board of directors. How do you think about corporate governance, and when did it come about?
KC: The board only has a couple family members and is primarily made up of outside directors from different backgrounds who have brought a great deal to Mannington. It is run in the same fashion that a publicly held corporation would be, with the exception of reporting requirements. My dad started this, and it has grown. I have read a great deal about corporate governance for family-owned businesses, and we are far ahead. For example, people say that Sarbanes-Oxley is not applicable to a family-owned business, but with the exception of the public reporting requirements, it is – and it is good practice to follow it. We have a robust governance system, as a company of our size should.
BBH: It seems like you have adopted many of the practices of a publicly held business – such as hiring outside executives and installing a board comprising mostly outsiders. What are the main differences between family-owned and publicly held businesses?
KC: There are not many differences, but there are a couple key ones. The first is cash flow. In a family-owned business, cash is your life. Family members who run their own business must be cash flow experts because they have to – they live by it.
The second is your signature. The signature of the principal of a family-owned business is worth everything because it’s everywhere – checks, forms, invoices and so forth.
Your employees are the third; they matter more than anything else. Family-owned businesses represent over 60% of employment in the United States. Those employees are dedicated to the family businesses they work for, and you have a family relationship with them.
The last one comes back to reputation. Reputation means more to a family-owned business than anything else, and you will do everything to make sure it is clean.
BBH: Mannington’s mission and values are important at the company. Tell us about them and their origin.
KC: I’ll talk about the values first. A week after my dad passed away, our CEO, our executive vice president and I each took a few minutes to write down what my dad had taught us. When we compared our answers, they were very similar, and these shaped our four tenets.
The first one is to do the right thing – no matter what. Even though it costs more, do the right thing – it’s ultimately going to cost you far less if you do that.
The second is caring, which is more complex than you may think. You have a responsibility to care for the people who work for you, and you also need to care for your customers. Additionally, you need to care for the communities in which you are located and for the environment.
The third is controlling our own destiny. We must ensure that what we are doing strategically as a company controls our destiny for the long term. Don’t necessarily get hung up on the quarterly or annual numbers; you have to look decades down the road.
The last thing is what we call work hard, play hard – or work-life balance. Many young professionals today work for companies where they are expected to work 80 hours a week, and that’s a challenge to your personal life. I would much rather have an employee who leaves early for a child’s soccer game, because he or she is going to focus on getting things done efficiently. We expect that balance.
The mission statement is simple: to be the best people to do business with in the floor covering industry. I could lay out floor covering samples without brands on them, and you would choose the one that was most attractive to you. However, if you knew that our product is made in the United States by a multigenerational family-owned company that is of the highest character, that information may influence your buying decision. We are in a relationship business, and at the end of the day, our character is just as important as the quality and the styling of the product.
BBH: Do you have a favorite story about a challenge that you faced over the years that eventually had a positive result?
KC: One story that comes to mind is a rollout we did of a gorgeous product called Mannington Gold. We spent a lot on television advertising to promote it, and when it hit the airwaves, our competition was caught flatfooted. It was the most successful floor covering introduction ever. Unfortunately, not enough money was spent on the research and development and testing, so within 36 months we had a huge amount of failures. We had problems with our bankers and breached every covenant that you could think of. We had to do a write-off of about half of the net worth of the company, and it was devastating to tell my dad. When I told him and he got up to leave, he turned around, said to fix it and slammed the door.
We turned the entire organization upside down in order to recover, and four years later we had fixed our debt, reinvented our floor covering line and put new management in place. About two weeks after we closed our books that fourth year, the CEO told me that I could tell my dad safely that we made back all the lost money. I went to my dad’s house and told him. He told me how proud he was, and he passed away two days later. That was a huge moment.
If you talk to customers today about what took place then, they will say the reason they remained loyal to us was because of the way we handled Mannington Gold. We stood up for every claim and behind our mistake. Ironically, it was the platform of our revamp.
BBH: Keith, thank you so much for your time and insight.
Interview conducted by Jake Turner, and article written by Kaitlin Barbour.