Local Ownership vs Distant Corporate Control

June 5, 2002
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If ever there were a situation that argued for increased encouragement of local ownership of businesses, the recent sad history of Michigan Bulb is it.

The Walker-based firm was established here in 1943 and operated under local ownership and management for decades. But then it was acquired by outside investors who set out to “grow it.” And grow it they did. But one set of corporate owners allegedly “milked” the company, leaving it in sad condition. It underwent a transfusion of marketing talent from Finger Hut and supposedly was rescued in the last decade by Foster & Gallagher, of Peoria, Ill.

Foster & Gallagher, like Michigan Bulb, was a direct marketing mail-order firm of horticultural products. Michigan Bulb for a time became the star in the Foster & Gallagher galaxy of horticultural mail-order firms. Briefly, in fact, The Bulb became Foster & Gallagher’s corporate headquarters. The Bulb’s corporate offices on Waldorf Avenue also underwent significant expansion.

But then two weeks ago Friday, after 58 years of operation, The Bulb closed its doors.

It basically seems to have had three problems:

  •  Its prices were low and it sold first-year rather than hardier and bigger second or third-year product, causing its consumer reputation to deteriorate.
  •  It used sweepstakes promotions as its main marketing vehicle and thus became the target of consumer criticism and legal cautions and actions by numerous state attorneys general.
  • It was burdened, through no fault of its own managers, with substantial debt that is the subject of an employee lawsuit recently filed against its corporate parent in Peoria.

The suit alleges that in 1996 the Foster & Gallagher ESOP was forced to borrow $70 million to buy 3.6 million shares of stock from certain F&G officers. The suit further alleges that the debt was too great to be defrayed through normal operating revenue, that further borrowing took place and the value of the ESOP stock lost more than half its value.

Apparently, Michigan Bulb and all other Foster & Gallagher firms closed simultaneously. Locally about 200 employees lost their jobs. Overall, 3,000 Foster & Gallagher workers were affected. And it’s highly questionable whether any of them will receive meaningful ESOP benefits since, a week ago Monday, Foster & Gallagher itself filed in Delaware for Chapter 11 bankruptcy protection. It reports having more than $100 million in assets and more than $100 million in debt.

Now this is not to say that Michigan Bulb would be a healthy company today if it still were owned and managed by local managers. No special wisdom is inherent in Grand Rapids business people.

But if local people establish and operate a firm and are fortunate enough and skillful enough to keep it successful and keep it in the family, a certain dynamic comes into play. The family has a tendency to identify with its hometown and to manage its firm so as to be a credit to the community. If you grew up in Grand Rapids and hang your hat here, you want to be able to hold your head up when you meet neighbors, play golf, attend reunions and go to church.

If the Johnson family still owned what now is SPX Corp., it’s very likely that Muskegon would remain SPX’s home for years to come.  Had the founders of Michigan Bulb been able to grow their firm their own way, they probably never would have tried to use a $100,000 giveaway to gull people into buying inferior product. “No purchase necessary to win the grand prize, but your order will include you in the grand prize selection process . . .”

Granted, under local ownership Michigan Bulb probably never would have become a national direct-marketing giant.

But it likely would have been larger and healthier than Peoria-owned Michigan Bulb is this week. And its workers might have some retirement investments they could call their own.  

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