EBSCO: Building a Family Conglomerate on Values and Capital
EBSCO, a family business conglomerate headquartered in Birmingham, Alabama, but with offices also located in Canada, Brazil, Australia, Germany, the Czech Republic, South Africa, Taiwan and England, to name a few places, constantly changes and grows due to the basic philosophies and principles passed down from generation to generation by the company's owners, the Stephens family. EBSCO has built a financial empire based on the vision of one young door-to-door salesman with a strong work ethic.
HISTORY OF EBSCO
In 1930 during the Great Depression, Elton B. Stephens of tiny Clio, Alabama, used his summer break from college to sell magazine subscriptions door-to-door in the upper peninsula of Michigan. At the end of the summer, he returned to Birmingham-Southern College in Birmingham, Alabama, with enough money to pay his full year's expenses for college. Stephens came back not only with more money than he'd ever had in his life but with a burning desire to sell. And sell he did. After attaining a law degree, Stephens created a worldwide sales company that he started in 1943 that's known today as EBSCO Industries, (Elton B. Stephens Company) Inc.
With annual sales that surpassed $1.3 billion in 2001, EBSCO owns 22 businesses around the world. The businessâ€™s include the world's largest manufacturer of fishing lures; the publisher of journal article databases; the subscriptions provider for more than 250,000 journals serving more than 50,000 libraries worldwide; a steel joist and metal roof deck manufacturer; and a real-estate developer. The company employs 4,500 people including 2,400 employees in manufacturing, 1,300 in information services, 500 in general services and others.
EBSCO has navigated from the dark days of the Great Depression to the dynamic days of the Internet. What driving force has kept the family and the company strong through two generations, with a third generation waiting in the wings? Will this third generation of the Stephens family steer EBSCO in the future?
ONE SECRET OF EBSCO'S SUCCESS
According to current EBSCO president, 62-year-old Jim T. Stephens, son of the founder, "The long-term test of any business -- whether family, private or public -- is if the pool of capital, which represents the net worth of the company, has grown in that business over time. Wise reinvestment of the company's profits is the only way to sustain any business.
"If the family's pool of capital is used to make horse-drawn wagons while the world moves to automobiles, the family will either keep the business together until the pool of capital reaches bankruptcy, or they'll stop building horse-drawn wagons, change the family business technologically and produce automobiles or automobile parts.
"Unfortunately, one of the problems for family businesses occurs if the family becomes too sentimental about the products they produce and forgets about their constituency -- their customers, employees, suppliers and shareholders. To be successful in business, families must remember that when technology changes, the business also must change. At EBSCO, we try to stay growth-determined, operate within an environment of civility and high standards and bring security and work fulfillment to EBSCO employees."
The active involvement of the Stephens' family has contributed to the growth of EBSCO.
"The business is as much a part of the family as the family is part of the business," explains founder, 90-year-old Elton B. Stephens. "My children learned from an early age that if they wanted to eat, they had to work. And I realized that as the company expanded, I had to acquire more help to grow the business."
Stephens naturally turned to his family, and his children brought the strong work ethic to EBSCO that they had learned all their lives from their dad. Jim, the eldest son in the business, took over the reins of the company in 1970 while only 31. By then he had graduated from Yale, served as a lieutenant in the U.S. Army infantry and earned a Harvard MBA.
"I knew from the time Jim was a child that he had a strong work ethic," Elton B. Stephens explains. "I also realized that Jim was smarter than I was, had more energy than I had and would work when other people wouldn't. In him, I saw a person who would grow with our family business. When I stepped back and saw how Jim handled the company, I knew I'd made the right decision."
The elder Stephens' intuitiveness, visionary ideas and wisdom he's demonstrated in the decisions he's made have helped both his business and his family grow successfully. By example he has shown, his family and his company that doing the right thing at the right time will produce the right results.
In a large, family-owned company as diversified as EBSCO, family members interested in working in the business can take on responsibilities in different areas or various companies where they have an interest and can prove their ability to lead. EBSCO's vice president is F. Dixon Brooke, Jr., Elton B. Stephens' son-in-law. Other family members serve in various leadership roles throughout the many segments of this huge organization.
However, EBSCO doesn't reward positions of leadership to family members simply because the family owns the company. To work for EBSCO, family members must exhibit their desire for involvement in the family business, prepare themselves educationally and prove they have leadership abilities.
"A big challenge for the family business is not to put a family member in a position of leadership just because that family member wants to be there," Elton B. Stephens emphasizes. "The family business must function like any other business. The most-competent person in the business -- whether a family member or not -- needs to be given the role of leadership."
With multiple children and grandchildren, passing on a family business from one generation to the next can become a problem. Jim T. Stephens recommends a family ask itself two questions: should the business provide a job for all the members of the family, whether they're competent or not? Or, should the company grow the business and provide the best leadership possible for that business?
The Stephens family always has chosen the latter. Today the Stephens family faces the question of who will lead EBSCO when Jim T. Stephens steps down. One day, Jim and the board will have to make that decision.
"Our objective as a business is to keep the business closely held as a private ownership," Jim T. Stephens explains. "For our business to grow and to be successful, we must ensure that our pool of capital continues to make a good return for the shareholders.
"The key to growing that pool of capital is effective management. If we can find a capable manager within the family, we'll maintain a strong connection between ownership and management. However, I believe that the shareholders of EBSCO will put hiring the best manager we can find ahead of preserving family ties and tradition. For this reason, the next manager of EBSCO will be an individual who wants to work hard and grow the company -- family member or not."
PASSING THE REINS
When asked the secret to passing down a family business the size of EBSCO, Jim T. Stephens explains, "Someone once said that the key ingredients to a successful business are maintaining middle-class values and not drifting toward self-gratification and a leisurely lifestyle."
Stephens went on to define middle-class values as the:
habit of work,
obligation of work,
duty to have a career,
desire to be educated,
development of good personal principles and values,
duty to have good health and
responsibility to give back to the community not only in dollars but also in time and energy.
The way in which the children view their father, the head of the business, also influences how successfully the family business makes the transition from one generation to the next. At EBSCO two generations of business leaders have worked hard to educate their family, teaching and re-teaching children and grandchildren solid business principles and challenging them to maintaining the high moral code that helps build successful lives.
The Stephens family's philanthropy stands as a tribute to a well-managed corporation and a family that's learned the value of giving back to the people in a community who have helped make that business strong and successful. Each year EBSCO contributes 5 percent of the company's profit before profit sharing and taxes to worthwhile causes. The Stephens family's philanthropy not only includes the monies they give to various charities and civic organizations, but also the time various family members spend in roles of leadership within their community.
Asked what he saw and learned from his father to prepare him to become president of EBSCO, Jim Stephens pointed out seven attributes of his father. He stated that his father always had ...
made family important,
wanted to learn,
grown the company and himself in all aspects,
known how to delegate opportunity and responsibility to other people,
surrounded himself with the best people he could hire,
fostered a relationship of confidence and mutual trust with everyone in the family and the company and
communicated effectively with people in his company and listened carefully to others.
Stephens has emulated these characteristics of leadership as president. "For a family business to be passed down successfully, standards must be set, and leadership must be taught," Jim explains. "The two most-important principles my father taught me were to take care of what you're fortunate enough to inherit and to make positive changes happen. Today, these requirements are the same for every employee in our company -- from the CEO to the maintenance crew."
"In a public business, the shareholders provide the push to keep the business profitable and growing,â€ the young Stephens explains. â€œHowever, in a family business, that push must come from the family. If that push isn't there, and the family becomes more interested in self-satisfaction than in growing the business, the business won't succeed. This reason is the main one why many family businesses don't survive from one generation to the next. The family doesn't exert enough pressure to keep the business growing and changing. At EBSCO, we're comfortable with our growth. We're not afraid to fail, and we're not afraid to take risks."
Undoubtedly, the risks the Stephens' family have taken over the last 59 years have helped grow EBSCO into an international powerhouse. When Jim T. Stephens hands over EBSCOâ€™s reins to the next generation, the family expects the same principles; work ethic and values that have enabled Elton B. Stephens to build and develop a business will continue.
EBSCO'S SEVEN VALUES
The Customer Comes First -- EBSCO employees are asked to believe that their employer and the source of their paychecks is EBSCO's customer group. We are serious about being customer servants.
Sales -- We are sales fanatics.
Profits -- Return on equity is our essential measure.
Growth -- EBSCO wants to grow internally and by acquisition.
Engineering ... Seek Positive Change -- We believe there's always a better way to do what we're doing, and EBSCO is uncomfortable if the company isn't in the midst of change.
Thrift -- is an eternal verity (a fundamental value).
The Right People Are the Difference -- Anyone who works, anyone who manages, understands that people are the organization, and people make the difference.
HOW TO PASS ON THE WORK ETHIC TO FUTURE GENERATIONS Parents must set certain firm standards to pass their work ethic on to their children. For example, Jim T. Stephens started selling magazine subscriptions in his neighborhood when only 6-years old and traveled the Southeast selling magazine subscriptions in the summers of his high-school years. The Stephens family has learned that they need to:
give their children responsibility with consequences when they don't meet those responsibilities well,
require their children to work summer jobs,
give their children chores and allowances that reflect the successful completion of those chores,
teach their children how to manage their allowances and then allow them to do that,
set a good example for their children and
stress the importance of education to help the children get into the best school(s) they possibly can.