IIIEI Harvard Business Scheel 9-372-263

Rev. January 16, 1997

The Adams Corporation (A)

ln January 1994,the board of directors of the Adams Corporation simultaneously announced
the highest sales in the company's history, the lowest aftertax profits (as a percentage of sales) in
executive officer,Jerome Adams.

Founded in St. Louis in 1948, the Adams Brothers Company had long been identified as a
family firm both in name and operating philosophy. Writing in a business history journal, a former
family senior manager commented:

My grandfather wanted to lead a business organization with ethical

standards. he wanted to produce a quality product and a quality working climate for
both employees and managers. He thought the Holy Bible and the concept of family
stewardship provided him with ail the guidelines needed to lead his company. A
belief in the fundamental goodness of mankind, in the power of fair play, and in the
importance of personal and corporate integrity were his trademarks. Those
traditions exist today.

ln the early 1970s,two significant corporate events occurred. First, the name of the firm was
changed to the Adams Corporation. Second, somewhat over 50% of the corporation's shares were
sold by various family groups to the wider public. ln 1990, ail branches of the family owned or
influenced less than one-fifth of the outstanding shares of Adams.

The Adams Corporation was widely known and respected as a manufacturer and distributor
of quality, brand-name consumer products for the American, Canadian, and European (export)
markets. Adams products were processed in four regional plants located near raw material sources.
(No single plant processed the fuilline of Adams products, but each plant processed the main items
in the line.) The products were stored and distributed in a series of recently constructed or renovated
distribution centers located in key cities throughout North America, and they were sold by a
company sales force in thousands of retail outlets-primarily supermarkets.

ln explaining the original, long-term financial success of the company, a former officer
commented:

Adams led the industry in the development of unique production processes

that produced a quality product at a very low cost. The company has always been
production-oriented and volume-oriented, and it paid off for a long time. During
those decades the Adams brand was ail that was needed to seil our product; we
didn't do anything but a little advertising. Competition was limited, and our
production efficiencyand raw material sources enabled us to outpace the industry in

Professor C. Rolalld Christellsell and Charles B. Weigle prepared this case as the basis for class discussioll rather thall ta
illl/strate either effective or ineffective handlillg of an admillistrative situatioll.

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372-263 The Adams Corporation (A)

sales and profit. Our strategy was to make a quality product, distribute it, and sell it
cheap.

But that has all changed in the past 20 years. Our three major competitors
have outdistanced us in net profits and market aggressiveness. One of them-a first-
cIass marketing group-has doubled sales and profits within the past five years. Our
gross sales have increased to over $2 billion, but our net profits have dropped
continuously during that same period. While a consumer action group just
designated us as "best value," we have fallen behind in marketing techniques; for
example, our packaging is just out of date.

Structurally, Adams was organized into eight major division. Seven of these were regional
sales divisions with responsibility for distribution and sales of the company's consumer products to
retail stores in their areas. Each regional sales division was further divided into organizational units
at the state, county, and/or trading-area level. Each sales division was govemed by a corporate priee
list in the selling of company products, but each had sorne leeway to meet the local competitive price
developments. Each sales division was also assigned(by the home office) a quota of salespeople it
could hire and was given the salary ranges within which these people could be employed. AlI
salespeople were on straight salary with an expense reimbursement salary plan, which resulted in
compensation under industry averages.

A small central accounting office accumulated sales and expense information for each of the
several sales divisions on a quarterly basis, and it prepared the overall company financial statements.
Each sales division received, without commentary, a quarterly statement showing the following
information for the overall division: number of cases processed and sold, sales revenue per case, and
local expenses per case.

Somewhat similar information was obtained from the manufacturing division.

Manufacturing division accounting was complicated by variations in the cost of obtaining and
processing the basic materials used in Adam's products. These variations-particularly in
procurement-were largely beyond the control of the division. The accounting office, however, did
have one rough extemal check on manufacturing division effectiveness: a crude market price existed
for case lot goods, sold by smaller firms to sorne large national chains.

Once every quarter, the seven senior sales vice presidents met with general management in
St. Louis. Typically, management discussion focused on divisional sales results and expense control.
The company's objective of being number one-the largest selling line in its field-directed group
attention to sales as compared to budget. All knew that last year's sales targets had to be exceeded,
no matter what. The manufacturing division vice president sat in on these meetings to explain the
product availability situation. Because of his St. Louis office location, he frequently talked with
Jerome Adams about overall manufacturing operations and specifically about large procurement
decisions.

The Adams Corporation had a trade reputation for being very conservative with its
compensation program. AU officers were on a straight salary program. An officer might expect a
modest salary increase every two or three years; these increases tended to be in the thousand-doUar
range, regardless of divisional performance or company profit position. Salaries among the seven
sales divisional vice presidents ranged from $150,000to $220,000,with the higher amounts going to
more senior officers. Jerome Adams's salary of $250,000was the highest in the company. There was
no corporate bonus plan. A very limited stock option program was in operation, but the depressed
price of Adams stock meant that few officers exercised their options.

The corporate climate at Adams had been of considerable pride to Jerome Adams. "We take
care of our family" was his oft-repeated phrase at company banquets honoring long-service
employees. "We are a team, and it is a team spirit that has built Adams into its leading position in

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this industry." No member of first-line, middle, or senior management could be discharged (except
in cases of moral crime or dishonesty) without a personal review of his case by ML Adams; as a
matter of fact, executive turnover at Adams was very low. Executives at alIlevels viewed their jobs
as lifetime careers. There was no compulsory retirement plan, and sorne managers were still active in
their mid-70s.

The operational extension of this organizational philosophy was quite evident to employees
and managers. For over 75 years, a private family trust provided emergency assistance to all
members of the Adams organization. Adams led its industry in the granting of educational
scholarships, in medical insurance for employees and managers, and in his encouragement of its
members to give corporate and personal time and effort to community problems and organizations.

Jerome noted two positive aspects of this organizational philosophy:

We have a high percentage of long-term employees-Joe Gidy, a guard at

East St. Louis, completes 55 years with us this year, and every one of his brothers and
sisters has worked here. And it is not uncommon for a vice president to retire with a
blue pin-that means 40 years of service. We have led this industry in
manufacturing process innovation, quality control, and value for low price for
decades. l am proud of our accomplishments, and this pride is shown by every from
janitors to directors.

lndustry sources noted that there was no question that Adams was number one in terms of
manufacturing and logis tic efficiency.

ln December 1993, the annual Adams management conference gathered over 80 members of
Adams's senior management in St. Louis. Most expected the usual formaI routines-the
announcement of 1993 results and 1994 budgets, the award of the "Gold Flag" to the top processing
plant and sales division for exceeding targets, and the award of service pins to executives. AlI
expected the usual social good times. It was an opportunity to meet and drink with "old buddies."

After a series of task force meetings, the managers gathered in a banquet room-good-
naturedly referred to as the "Rib Room" since a local singer, Eve, was to provide entertainment. ln
the usual fashion, a dais with a long, elaborately decorated head table was at the front of the room.
Sitting at the center of that table was Jerome Adams. Following tradition, Adams's vice presidents, in
order of seniority with the company, sat on his right. On his left sat major family shareholders,
corporate staff, and a newcomer soon to be introduced.

After awarding service pins and the Gold Flags of achieve~nt, Adams formally announced
what had been corporate secrets for several months. First, a new investing group had assumed a
control position on the board of Adams. Second, Price Millman would take over as president and
CEO of Adams.

Introducing Millman, Adams pointed out the outstanding record of the firm's new president:
"Priee got his MBA in 1985, spent four years in control and marketing, and then was named as the
youngest divisional president in the history of the Tenny Corporation. ln the past years, he has made
his division the most profitable in Tenny and the industry leader in its field. We are fortunate to have
him with us. Please give him your complete support."

ln a later informaI meeting with the divisional vice presidents, Millman spoke about his
respect for Adams's past accomplishments and the pressing need to infuse Adams with "fighting
spirit" and "competitiveness." He said: "My personal and organizational philosophy are the same--
the na me of the game is to fight and win. l almost drowned, but l won my first swimming race at Il
years of age! That philosophy of always winning is what enabled me to build the Ajax Division into
Tenny's most profitable operation. We are going to do this at Adams,"

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372·263 The Adams Corporation (A)

ln conclusion, Millman commented:

The new owner group wants results. They have advised me to take sorne
time to think through a new format for Adams's operations-to get a corporate
design that will improve our effectiveness. Once we get that new format, gentlemen,
1have but one goal-each month must be better than the past.