Truly Human Leadership at Barry-Wehmiller

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Visiting Professor Dylan Minor and Professor Jan W. Rivkin prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

D Y L A N M I N O R

J A N W . R I V K I N

Truly Human Leadership at Barry-Wehmiller

Ryan Gable had not slept soundly for months. The company that Gable led, Machine Solutions Inc. (MSI), made equipment that medical device makers used to produce heart catheters. From its founding in 1999 until 2013, the company had grown to employ 85 people and book annual revenue of $21 million. But in January 2013, MSI lost customers that accounted for a third of its business. By that September, Gable feared that he would soon have to lay off 20-25% of his employees. The layoff decision, difficult under any circumstances, was made even harder by the fact that MSI was a member of the Barry-Wehmiller family of companies.

To most outside observers in 2013, the Barry-Wehmiller Group appeared to be a maker of industrial equipment, a provider of engineering consulting services, and an acquirer of manufacturers, with total revenue of $1.6 billion. But chief executive Bob Chapman defined the company not in terms of its products, services, and acquisitions but in terms of its “team members,” a phrase Chapman always used instead of “employees.” “We’re in business so that all our team members can have meaningful and fulfilling lives.... We do that through the building of capital

equipment and offering engineering consulting.”1 Separately, he explained: “I won’t go to my grave proud of the machines I’ve built. I’ll be proud of the people we built—who we allowed to find their

gifts, develop their gifts and be appreciated for their gifts.”2

With an undergraduate degree in accounting and an MBA, Chapman took a fairly typical approach to management for the first 30 years of his career. Around 1997, however, he and his corporation started a journey toward what he termed “Truly Human Leadership,” in which success was measured “by the way we touch the lives of people.” During that journey, from 1997 to 2013, Barry-Wehmiller grew revenue at a 14% compounded annual rate and sustained a 16% compounded annual return to its investors, a level of financial performance few companies achieved over the same period.

In line with Truly Human Leadership, Barry-Wehmiller had gone to great lengths to avoid layoffs during the recession of 2007-09. Now, in 2013, Ryan Gable had to decide whether to downsize at MSI, even though it was part of Barry-Wehmiller. The possibility made it hard to sleep.

The Barry-Wehmiller Journey

Origins. Barry-Wehmiller traced its roots to a machine shop that Thomas Barry opened in Saint Louis, Missouri, in 1885. Joined by his innovative brother-in-law Alfred Wehmiller, Barry was soon selling machines to local breweries like Anheuser-Busch – equipment to wash refillable bottles and

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pasteurize beer. Wehmiller’s death in 1917 and the onset of Prohibition in 1919 brought the company the first of what would be many crises. Barry-Wehmiller struggled through Prohibition, surviving by selling its equipment overseas where alcohol continued to be sold legally.

In 1953, the family-held company hired Bill Chapman. Chapman succeeded Fred Wehmiller as president in 1957 and invested $30,000 in the Wehmiller-family-controlled business. With breweries shifting from returnable bottles to cans and with German competitors on the rise, Barry-Wehmiller often found itself operating on the edge of the risk its banks would tolerate. Ownership of the struggling firm passed to Bill Chapman in 1963 when the Wehmiller family was bought out with debt and Bill Chapman’s $30,000 investment came to represent 57% of the company's equity. Six years later, Chapman asked his son Bob to join the business from Price Waterhouse as “someone he could trust.” Equipped with a CPA degree and a Michigan MBA, Bob moved rapidly through various functional roles in what he called “my own leadership development program.” This would turn out to be a significant factor in his development, he reflected, as he learned firsthand the challenges and interaction of the key business functions. The younger Chapman was running much of the company as Executive Vice President by 1975, when his father died suddenly of a heart attack.

A young leader’s rollercoaster education. At age 30, Bob Chapman suddenly found himself atop a family firm with nearly 400 employees, $18 million in annual revenue, an operating loss of $477,000, and $2-3 million of secured bank debt. Barry-Wehmiller depended heavily on credit, but the company’s bankers responded to Bill Chapman’s death by calling in their loans. Bob Chapman recalled:

The combination of my father’s sudden death and the loss of the bank line of credit motivated me to do whatever it took to cut costs and achieve our budget. For example, I went to the production supervisor in the plant and asked him, “How many expeditors do you have?” He said, “Eight.” I said, “We can only have four.” He said, “No. You don’t understand. We need eight.” I responded, “You don’t understand. I can only afford four. So we can only have four.” The human cost of this was something I just didn’t think much about.3

After nine months of what Chapman called “a single-mindedness and intensity that the company had never experienced before,” Barry-Wehmiller reported a profit of $2.2 million on sales of $22

million, the company’s best year ever.4 Five years of rapid growth followed, as Philip Morris, the consumer products marketing powerhouse, entered the beer market by acquiring Miller Brewing Company. An ensuing marketing and market share battle with Anheuser-Busch transformed the brewing industry. As Anheuser-Busch and Miller expanded quickly, they needed equipment that Barry-Wehmiller uniquely provided. An ecology movement that favored returnable bottles added to the company’s organic growth. Barry-Wehmiller’s strong market positon led it to explore new ideas: solar heating of pasteurizers, new products for bottle inspection, and beverage fillers made under an Italian license agreement. By 1981, Barry-Wehmiller’s revenue soared to $71 million. “Everything I touched seemed to turn to gold,” Chapman recalled.5

But then, in the early 1980s, the market turned suddenly against the company: growth in beer consumption faded; Anheuser-Busch and Miller shifted from building new breweries to buying old ones; technical challenges arose in the innovative businesses; and warranty and inventory issues surged. Sales fell to $55 million in 1983, and the company lost $5 million. Chapman recalled, “Bankers who had fully supported the growth initiatives and provided ample credit to support it suddenly changed their view of the risk and froze Barry-Wehmiller’s credit.” Chapman met

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frequently with the firm’s attorney to discuss declaring bankruptcy. In a Harvard Business School case written on the company in 1989, Chapman explained:

I had to fire a lot of people during that period. I remember one of the analogies one of directors shared with me.... “When an airplane starts losing altitude and is headed for the mountains, it is clear that you have to get rid of excess weight to clear the mountains....” Some individuals couldn’t adjust to this environment and others proved to be luxuries we couldn’t afford.6

After nine months of day-to-day cash management, the company gained a fragile lease on life in 1983 with a new asset-based loan. Seeking to escape financial troubles, Chapman turned to an unusual course of action inspired by his study of Emerson Electric’s successful acquisition strategy in mature markets:

I went to our finance department and said, “We need to start making acquisitions so we can access markets and technology that can give us a better future.” They looked at me very professionally and said, “Bob, that is a great idea. We have only one problem.” I said, “What’s that?” They said, “We have no money. Do you understand that? We have no money.” I looked at them – this was a defining moment – and said, “Don’t tell me what we can’t do. I didn’t tell you we needed money. I said we need to do acquisitions.”7

Lacking money, Barry-Wehmiller focused on the only companies that it could consider -- ones that “nobody else wanted.” Chapman recalled:

Given our fragile financial situation, I knew every deal was critical. Fortunately, that brought about a “must do, can’t fail” attitude and created exceptional learning opportunities because I was fully engaged in every deal. In 1986, given the continuing challenges of the core business, the U.K. team surfaced a remote idea of spinning off the U.K.-led part of Barry-Wehmiller on the London Stock Exchange. If successful, this would allow us to pay off our asset-based debt, have $2 million in the bank, retain our legacy business of equipment for the brewing industry, and own 30% of a publicly traded U.K. company. While the idea seemed extremely remote, our team shifted its focus to meeting the criteria for a successful flotation.

To Chapman’s surprise, the spinoff’s initial public offering was thirty-five times oversubscribed. The flotation left Barry-Wehmiller with $28 million in cash, a 30% stake in a U.K. public company, and, at last, some liquidity.

An acquisition strategy emerges. Chapman reflected:

My learning from this sequence of experiences was that you can create value in mature markets by seeing value where others don’t and being open to developing and implementing unique strategies for value creation. We didn’t get to this outcome by traditional thinking; the precariousness of our financial situation created the motivation for unconventional thinking and led to an outcome beyond anyone’s imagination.8

In 1988, with the opportunity to “suit up one more time,” our team stepped back and reflected on the dramatic growth, traumatic decline, and unexpected outcome of a wildly successful IPO. We considered our mistakes and learnings and articulated a “Strategy for Growth, Value and Liquidity.” The strategy called on Barry-Wehmiller to grow by selectively acquiring equipment makers that fit our competencies and created a


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balance among the markets we served, to reduce the risk from being overly dependent on a single market or technology. Pausing to capture our learnings and integrate these unique experiences into the design of a business model created the foundation for us to grow from $20 million to $1.6 billion.

Tim Sullivan, director for corporate development in 1989 and group president by 2000, explained:

Many of our companies have large aftermarket product lines that typically don’t get the attention of traditional business leaders. When searching for companies to buy, we looked for businesses with large bases of installed equipment as our experience was that these income streams were more resilient and predictable in the capital equipment investment cycles and would reduce the cyclical nature of capital spending. In every company we considered buying, senior management said, “Oh yes, our aftermarket products are a very important aspect of the business.” But some of them couldn’t even remember the names of the team members who handled these products. Whenever we sensed this lack of leadership attention, we knew we had a promising acquisition

target.9

Epiphanies. Execution of this strategy resulted in significant growth (Exhibit 1). At the beginning of this growth period, the company took a conventional approach to its team members. Starting around 1997, however, Chapman had three epiphanies that led toward “Truly Human Leadership.” Chapman described the first:

I’d bought a company in South Carolina and flew down there to be there on the first day that I owned it. It was March of 1997, and you know what happens in every office around this country in March: March Madness. I walked in a little before the office opened and everybody was talking about their basketball team. They were having fun. But the closer it got to 8 o’clock when the office opened, you could see the joy go out of their body.10

Asking himself “Why can’t work be fun?” Chapman proposed a game: whoever sold the most parts in a week would win a small cash prize, and if the team made its goal for the week, everybody would get a monetary team award. Within the first quarter, sales were up more than 20%. “When people started having fun in their roles, we saw transformation in their customer service skills,”

Chapman observed.11

A second awakening came in church:

My mentor, Ed [Salmon], was the rector of our church, and I was always in awe that he could stand up each week in church and inspire us. I realized on Sunday that Ed only had us for an hour a week, and we have people in our care for 40 hours a week. I realized the significant impact we could have on people’s lives. I understood that day that business could be the most powerful force for good if it could only accept the profound responsibility it has for impacting the lives of people who work in organizations.12

A third epiphany came at a wedding, as Chapman watched a close friend escort his daughter down the aisle. “It occurred to me, ‘Everybody that works for us is somebody’s precious child, and we have a chance to profoundly impact their lives.’”13

Guiding Principles of Leadership. These moments came to a head in 2002. Chapman was producing a video for internal distribution, and the marketing team leader asked him to talk about


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the company's success in traditional financial terms. Chapman ignored the financial metrics and replied, “We are going to measure success by the way we touch the lives of people.” A few weeks later, the company convened a cross-section of 20 leaders in Florida. Chapman and Chief People Officer Rhonda Spencer challenged the group to construct a statement of Barry-Wehmiller’s approach to leadership. The result, the Guiding Principles of Leadership (GPL), started with and elaborated on Chapman’s definition of success (Exhibit 2).

Soon afterward, a division president sent Spencer the values statement of Enron, the scandal-ridden and discredited energy-trading company (Exhibit 3). In some ways, Enron’s statement resembled Barry-Wehmiller’s Guiding Principles. Spencer challenged Chapman about the GPL:

“How is this not just going to be something that’s on the walls?”14

Chapman’s reply was that they were going to place these values in their team members heads and hearts, and he subsequently started a series of in-person dialogues with “team members” (no longer called “employees”) across the organization – showing them the GPL and asking, “This is what we believe. What does this mean to you? What are we doing that doesn’t match up to what we say

here?”15 Mismatches were addressed rapidly: for instance, time clocks and inventory cages that signified mistrust were removed quickly, often over the objections of middle management. Chapman estimated that he devoted 25% of his time to such dialogues. In subsequent years, recognition programs were established to honor team members who acted in the spirit of the GPL, and Barry-Wehmiller University was set up, in part to convey the GPL. (See more below.)

The Great Recession. The staggering economic downturn of 2007-09 put Barry-Wehmiller’s GPL to the test. In 2009, the company saw a 35% downturn in new equipment orders, and the company’s backlog declined rapidly as customers canceled orders. Chapman was visiting a subsidiary in Italy when word arrived that a major order was being put on hold. Layoffs seemed inevitable. He recalled:

Beyond the impact on our culture, if we let people go in that brutal economic environment, it would devastate them and their families and even some communities. There were simply no other jobs to be had. Many people would lose their homes, some their marriages. Children would have to drop out of college. The human toll was almost too painful to contemplate....

I asked myself, “What would a caring family do when faced with such a crisis?” The answer soon came to me: All the family members would absorb some pain so that no member of the family had to experience dramatic loss.16

Ten days later, Barry-Wehmiller’s leadership team rolled out a program of shared sacrifice. There would be no layoffs. Instead, each team member was instructed to take an unpaid furlough for four weeks at a time of his or her choosing. All team members were given a furlough, even those in divisions that were faring relatively well. The company suspended executive bonuses, stopped its program of matching personal contributions to 401(k) retirement accounts, offered generous payments to team members who agreed to retire early, and ordered reductions in travel expenses. Chapman cut his salary from $875,000 to $10,500, the amount he earned decades earlier as a first-year CPA. Education and recognition programs continued, albeit with some cost-cutting.

Management heard only positive reactions to the furlough program. Some team members stepped up to take extra time off on behalf of colleagues who couldn’t afford unpaid furloughs. Unions agreed quickly to the program.


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The company rallied from the Great Recession faster than expected and reported record financial results in 2010. Barry-Wehmiller marked the strong results by paying team members extra to cover any 401(k) matching contributions that were lost during the downturn. Chapman reflected:

The 2008-2009 global financial crisis was a traumatic experience for most companies. It started out that way for us as well. But because we had our deeply rooted Guiding Principles of Leadership in place, and because we indeed do measure success by the way we touch the lives of people, our way forward became quite clear to us early on. Because of the way we chose to respond, the financial crisis actually ended up being a blessing in disguise for us.17

Barry-Wehmiller in 2013

Having weathered the Great Recession, Barry-Wehmiller continued to grow: revenue rose from $1.2 billion in 2008 to $1.6 billion in 2013. The company’s stock, which was privately held (see below), appreciated at an annual rate of 16% over the same period. Total employment had grown to 8,000 by 2013. See Exhibit 1 for a summary of financial and other results.

Organization and ownership. Barry-Wehmiller operated the ten divisions shown in Exhibit 4. The divisions, in turn, were organized around four sectors, or “platforms”: packaging automation equipment, converting equipment, paper systems equipment, and engineering & IT consulting. Divisions had considerable autonomy, and the corporate staff in St. Louis was small.

The descendants of Bill Chapman, Bob Chapman’s father, owned 64% of Barry-Wehmiller. Remaining equity was held by current employees (10%), active directors (6%), retired and former employees (4%), and a select set of outside investors (16%). The company made a private market in its stock. Twice a year, the corporate finance team calculated a stock price for the company using Stern, Stewart’s Economic Value Added methodology: future cash flows were projected based on estimates from operating managers; the cash flows were discounted back to the present using a weighted average cost of capital and summed up; the value of debt was deducted in order to estimate the value of all equity; and that value was divided by the number of shares outstanding. Exhibit 1 includes Barry Wehmiller’s stock price over time.

People practices. Chief People Officer Rhonda Spencer summed up the company’s human

resources approach: “The Barry-Wehmiller way is profit and people in harmony.”18 Recognition programs highlighted the contributions of outstanding team members. For instance, the Guiding Principles of Leadership SSR Award, available to workers at corporate headquarters and in most business units, recognized those who furthered Barry-Wehmiller’s vision of measuring success by how they “touch the lives of others.” Team members could nominate a colleague for the SSR award, and a committee interviewed nominees before selecting a winner. Originally, the winner received a bright yellow Chevrolet SSR, a flashy retro convertible pickup truck, to drive for a week. The program grew to include a broader set of cars and a formal celebration of the winner. In addition, the company sent the winner’s family a letter telling them of the person’s “goodness” at work.

Barry-Wehmiller supported health among its team members through its Vision of Wellbeing program (Exhibit 5). The company gave team members financial incentives to complete an array of free wellbeing and health screenings and offered “behavior-change tools” to help team members respond to any risks identified in the screenings. When initially implemented, the program inspired team members to take better care of themselves and identify health issues earlier – thereby contributing to a 5% reduction in health care costs. In response, Barry-Wehmiller gave team


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members a month off from paying their health care premiums. In addition – reported Laurie Ferrendelli, Director of Organizational Development – the new screenings allowed at least seven team members to identify and address life-threatening conditions.

The industrial context of Barry-Wehmiller made safety a particularly important issue. The company encouraged team members to “make sure our friends stay out of harm’s way” and embrace the Safety Covenant (Exhibit 5). Locations that demonstrated 12 continuous months without an incident were awarded the Corporate Safety Covenant Award.

Barry-Wehmiller University (BWU), founded in 2008, gave team members an opportunity to become steeped in the Barry-Wehmiller way. This internal program provided a variety of courses on leadership, which were made available to all team members, not just managers. Its flagship offering, Communications Skills Training, was largely a course on becoming a good listener; Bob Chapman

contended that “listening is fundamental to Truly Human Leadership skills.”19 Faculty for the University were always team members from within Barry-Wehmiller. Overall, the BWU courses were designed to help team members grow in what the organization identified as the 12 key attributes of leadership. Participation in any University course was voluntary but required an application. The University received about three applications for every available seat.

Underlying BWU was a vision Bob Chapman described as “building a better world through business” – a phrase that was added to the company name as a tagline. Consistent with improving the world at large, Barry-Wehmiller began in 2011 to offer its flagship course on communication to external companies and continued to expand its course offerings for outsiders. Courses offered to outside companies were taught by the same Barry-Wehmiller faculty who taught internally.

More broadly, Barry-Wehmiller placed high priority on cross-training team members so that workers could shift among projects and tasks if the needs of the organization changed.

Another initiative that Barry-Wehmiller managers considered essential was L3. The L3 approach was inspired by Toyota’s famous Lean methodology, which sought to eliminate waste from an organization in order to maximize its productivity and efficiency. One team member, Jake Huskey, explained how L3 differed from the Lean approach adopted at most other companies:

Traditionally, the Lean methodology seeks to eliminate all waste, where waste is often people. However, with L3, waste elimination is frustration elimination. We ask people what is frustrating them in their work. And then we try to help them remove the frustration so that they are freed to accomplish more.

Compensation at Barry-Wehmiller was typically at market rates. As the Guiding Principles of Leadership put it, the company’s policy was to “treat people superbly and pay them fairly.” The company did not collect systematic data on employee satisfaction. Instead, senior managers arranged “listening sessions” where groups of team members met with facilitators who asked how things were going, what the company did well, what it could do better, and so on. People Team leaders reviewed notes from the listening sessions and made adjustments to programs, teams, and environments. Overall, leaders felt morale was high, and they could relate the stories of individual team members whose lives the company had improved.

Acquisitions. By late 2013, Barry-Wehmiller had completed a total of 60 acquisitions in its history. Barry-Wehmiller usually bought companies that were challenged in terms of finances and people practices, in markets complementary to its existing portfolio but still offering some diversification benefit. A typical firm had 25-100 employees, and most sold equipment to industrial


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customers – they “made things that made things” – and consequently saw large swings in demand over the business cycle. The typical acquiree’s competitors were mostly in North America and Europe, though rivals from Asia were becoming more common as Asian product quality improved. Ideally, an acquiree had a large installed base of buyers who required regular interaction with customer service—for instance, to acquire aftermarket services.

Over time, Barry-Wehmiller institutionalized its processes for seeking and vetting companies: Group president Tim Sullivan created a formal model that grew to become an important part of the acquisition selection process. Bob Chapman and Tim Sullivan made the final decision on new acquisitions. A board of directors also provided nonbinding advice on acquisitions and on strategic decisions more broadly.

Many acquired companies had been family owned, and some sought to be acquired by Barry-Wehmiller rather than another buyer. Barry-Wehmiller generally avoided bidding wars and declined to pursue firms also being targeted by private equity firms. For about one-third of its acquisitions, Barry-Wehmiller was the only bidder.

Once an acquisition was consummated, Barry-Wehmiller strove to have a “span of care rather than a span of control.” Every new acquisition was introduced to the people practices of Barry-Wehmiller: L3 and Barry-Wehmiller University were integral parts of a successful acquisition process, Sullivan reported. Rather than replacing the management of the purchased company, Barry-Wehmiller attempted to convert those individuals to the Barry-Wehmiller way.

Improving the customer service of a recent acquisition was a big focus. Sullivan explained that

“an engaged and motivated associate will respond to and engage customers at a whole new level.”20 Motivational games inspired better relationships, greater attention to customer needs, and an overall improvement in the level of service. A critical component of this enriched customer service was decreasing the turnaround time from when a customer requested a quote on an after-market part to when the quote was delivered. After-market parts had margins of about 50% versus 10-15% for new equipment.

Barry-Wehmiller aimed to retain and grow acquired companies indefinitely. None of the company’s acquisitions had been divested since the U.K. spinoff in 1986.

The PCMC acquisition. Management pointed to the 2006 acquisition of Paper Converting Machinery Company (PCMC) as a successful example of Barry-Wehmiller's approach. Founded in 1919 in Green Bay, Wisconsin, and long family-owned, PCMC made and sold equipment that converted paper from one form to another. One of its products, for instance, took giant spools of tissue paper and produced individual toilet paper rolls. By 2006, PCMC was reeling under competitive pressure: revenue had fallen from $250 million to $169 million in five years. Despite restructuring attempts, the company had lost money in five of the prior six years, including an earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $20 million in 2005.

When acquiring PCMC, Barry-Wehmiller decided to offer employment to 1,012 of PCMC’s 1,150 employees. Among the individuals not offered a job were a handful of highly compensated past leaders. Instead, Barry-Wehmiller promoted a few PCMC veterans with a “passion for success” to lead the new division. The new leader of the customer service function was given more authority and responsibility, while engineering and manufacturing – two functions that had been “warring factions” – were combined into a single team. In the short run, the division focused on improving delivery times, reflecting a belief that improvements on that dimension would send a powerful positive signal to customers.


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In the medium term, the new PCMC leadership team diversified the division away from three big customers and focused sales efforts on parts, service, and equipment upgrades. A small division in Brazil, where prior management had sought low-cost labor, was moved back to Green Bay in order to increase capacity utilization there. The resulting message that “we can pay people fairly and compete globally” from Wisconsin helped management build a new, more productive relationship with union leaders in Green Bay. A modest Italian subsidiary of PCMC, which under old ownership had begun to compete for PCMC’s U.S. customers, was steered to focus exclusively on European customers. New investments broadened the division’s product range.

Barry-Wehmiller’s leaders acknowledged that luck played a factor in the PCMC success: right after the acquisition closed, a customer signed a two-year, $61 million contract. Even beyond that contract, however, PCMC enjoyed financial success (Exhibit 6). The company’s $45 million investment paid back in two years, and improved labor relations bore fruit in 2009 when the union readily agreed to Barry-Wehmiller’s furlough plan.

Exhibit 7 breaks down how PCMC moved from negative $20 million EBITDA in 2005 to positive $30 million EBITDA in 2006. As shown there, Barry-Wehmiller finance executives estimated that of the $50 million turnaround, $6 million was due to idiosyncratic and nonrecurring expenses that PCMC had incurred in 2005; $23 million was attributable to actions that any good management team could undertake; and $21 million could be ascribed to Barry-Wehmiller and its unique operating model. Of particular importance were increased revenues from a more motivated salesforce, value pricing for equipment and services, and the fact that Barry-Wehmiller operated PCMC with fewer team members.

Forsyth Capital Investors. Based on his external board experience, Chapman believed that:

The Barry-Wehmiller value drivers – for instance, our sales incentive programs, our market pricing, our intense focus on cash management, our recognition and celebration programs, and inspirational leadership – could be applied to companies outside of the platforms in our current portfolio. Expanding beyond the current equipment markets would also enhance the “balance” of markets served.

To test this belief, Barry-Wehmiller formed and funded Forsyth Capital Investors (FCI) in January 2009. As Chapman put it, FCI took a “hybrid equity” approach, combining “some of the creative structures and alignment of ownership that you find in the private equity market” with “the value of the strategic buyer that brings operational skills sets” and “a long-term commitment with ‘no flip’ in the equation.” The Barry-Wehmiller platforms were “largely centered on equipment and engineering

solutions for industries such as packaging, paper/film converting, and corrugating.”21 In contrast, Forsyth was set up to create new business platforms, starting in printing equipment, insurance services, and medical device equipment. By late 2013, FCI had put together a portfolio of five companies worth $150 million.

The Downturn at Machine Solutions Inc.

Within the portfolio of Forsyth Capital Investors was Machine Solutions Inc. (MSI), and leading MSI was Ryan Gable. Gable had graduated from college in 1999 and had spent ten years in the investment banking and private equity divisions of Bank of America. “I loved the buy-side of private equity,” Gable said, “but I always wanted more of an operational experience and less of a

transactional experience.”22 Gable joined Barry-Wehmiller to help set up FCI in 2009, just as the Great Recession was in full swing. One of his first assignments was to build a financial model to


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analyze the downturn and Barry-Wehmiller’s possible responses. The model helped the senior team choose company-wide furloughs over layoffs during the 2009 crisis.

The market and the company. In November 2011, Forsyth acquired 80% of MSI. Founded in 1999, MSI sold equipment that medical device giants such as Boston Scientific, Medtronic, and Bard used in their heart-catheter production lines. Catheters were long, flexible tubes. To open up a narrowed blood vessel in a patient’s heart, cardiac surgeons would thread a catheter from an artery in a patient’s groin into his or her heart, then inflate a balloon and insert a stent. The process of attaching balloons, stents, and other items to catheters had been mostly a manual process until MSI invented machines to fold balloons, crimp stents, and swage (or shape) the associated metal parts. By 2013, MSI made machines that automated seven or eight of the 10-12 steps in a catheter production line. Each machine was tabletop-sized and sold for $50,000 to $250,000.

Before an MSI customer such as Medtronic could open a new production line for catheters, the line had to be validated by a regulator, the Federal Drug Administration. Once the line was validated, it was difficult for the catheter maker to switch among equipment vendors; if a machine broke down, it was much easier to go back to the same machine maker rather than to switch vendors and revalidate the line. If a catheter maker wanted to increase production capacity, the easiest way to get validation for a new production lines was to make it identical to old lines.

After pioneering the market for catheter production equipment around 1999, MSI faced no competition for its first several years. In 2013, MSI was still the largest in its business – with $21 million in revenue within a global market of about $100 million. The rest of the industry was served by a large array of competitors, each with $2-10 million in sales and most founded in the last decade.

Located in Flagstaff, Arizona – far from other Barry-Wehmiller operations – MSI employed 85 people in 2013. The team manufactured half of its parts, including all proprietary parts, in an extensive machine shop, then completed mechanical and electrical assembly of its machines. New equipment sales and aftermarket sales and service accounted for 75% and 25% of revenue, respectively. Gable described the MSI team as young, driven, and energetic. Though part of Barry-Wehmiller for less than two years, members of the team had attended BWU classes and adopted much of the Barry-Wehmiller culture, including wide use of recognition programs. The company was run with an “open book”: management shared financial results every month.

Tough times. The financial results for MSI’s first 14 months with Barry-Wehmiller – through the end of 2012 – were promising. Annual revenue rose by $1 million as the company added sales and service staff.

But then in the first quarter of 2013, MSI’s new equipment demand dropped by 33%. About half of the decline was due to the company’s largest customer: a catheter maker that had purchased $4-5 million of equipment each year was now on a pace to buy only $1 million. The reduction, Gable believed, was “not because we had ticked them off” but simply because the customer itself was growing less rapidly. Demand from other customers was also down sharply, even though the economy as a whole was gaining strength. Some observers blamed the decline on a new U.S. excise tax on medical devices, but the 2.3% tax seemed too small to cause a marked fall in device production.

Because each Forsyth Capital company was capitalized separately, MSI had its own cash reserves and loans. In March 2013, MSI’s senior team projected its financials: on the current trajectory, MSI would lose $1 million in the second quarter, resort to a revolving line of credit in April, and break loan covenants in June. MSI’s management team considered short-term emergency measures: by


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moving to a four-day work week, cutting leaders’ pay by 20%, suspending the 401(k) match, and trimming travel and marketing expenses, the company could reduce its quarterly loss to $600,000. The moves, management felt, might devastate morale.

Gable and his team met with Bob Chapman and senior Barry-Wehmiller executives. Together, they decided to “tighten their belts” on travel and marketing but not to implement the full emergency measures. Barry-Wehmiller loaned MSI $500,000 to make it through the next six months.

Orders improved a bit in May and June, then sank again. By September, sales were low, and the pipeline of future sales was not promising. It was time, Gable knew, to acknowledge that the “new normal” might be annual sales of about $14 million, not the historical $21 million. Gable and his team considered two options. Option A involved no layoffs but emergency measures like the ones considered in March – though even deeper now. Option B involved laying off 19 of MSI’s 85 team members, enough for the company to break even with $14 million of revenue. Exhibit 8 shows estimates of MSI’s income statement under three scenarios: with annual revenue of $21 million and 85 team members (the situation before the drop in demand); with $14 million of revenue, 85 team members, and efforts to cut non-personnel costs (Option A after the drop); and with $14 million of revenue, 66 team members, and similar non-personnel efforts (Option B after the drop).

Gable reflected on the decision before him:

The experience I went through at Barry-Wehmiller during the Great Recession and the decision Bob and the team made to support people then made the 2013 decision at MSI that much harder. Back when I was in the big-bank financial world, all we thought about was numbers. We didn’t ask, “How are our decisions affecting people?” We asked, “How are our decisions affecting our bottom line?” The Barry-Wehmiller culture may seem a little hokey, a little hard to believe at first. But within six months of joining the company, I had a completely new view, not just on business but on life in general and the impact that my decisions have on people…a completely new view on what a huge responsibility leadership is.

717-420 -12-

Exhibit 1 Barry-Wehmiller’s Performance, 1998-2013 (in millions of dollars unless otherwise indicated)

Note: Fiscal year ended on July 31 until 1995 and on September 30 since 1996.

Source: Company documents.

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Sales 43 82 90 123 199 249 326 434 520 941 959 1,219 1,550

COGS 33 55 67 90 143 176 229 312 384 698 683 860 1,072

Gross Profit 10 27 23 33 57 72 97 122 136 243 276 359 478

% of sales 23.4% 32.5% 25.7% 26.8% 28.4% 29.0% 29.8% 28.0% 26.1% 25.8% 28.7% 29.4% 30.8%

SG&A 7 18 22 27 44 56 73 93 111 186 221 276 375

Operating Income 3 9 1 6 12 16 24 29 31 59 54 89 108

% of sales 6.9% 10.5% 1.2% 5.0% 6.1% 6.5% 7.5% 6.6% 5.9% 6.3% 5.6% 7.3% 6.9%

Net Income 5 6 (1) 2 5 7 9 16 17 38 32 58 67

% of sales 12.4% 6.7% -1.0% 1.5% 2.7% 2.7% 2.7% 3.7% 3.2% 4.0% 3.4% 4.8% 4.3%

Total Assets 48 88 100 128 190 189 233 300 363 624 636 947 1,087

Net income/assets (%) 11.3% 6.2% -0.9% 1.5% 2.8% 3.6% 3.8% 5.4% 4.6% 6.0% 5.1% 6.1% 6.1%

Total Equity 34 45 46 51 56 59 59 98 125 191 166 232 306

Net income/equity (%) 16.1% 12.1% -2.0% 3.7% 9.5% 11.5% 15.2% 16.6% 13.4% 19.7% 19.4% 25.1% 21.8%

Internal share price ($/share) $4.94 $8.36 $10.68 $16.70 $23.38 $31.00 $40.10 $56.00


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Exhibit 2 Barry-Wehmiller’s Guiding Principles of Leadership

We measure success by the way we touch the lives of people.

A clear and compelling vision, embodied within a sustainable business model, which fosters personal growth

Leadership creates a dynamic environment that:

• Is based on trust • Brings out and celebrates the best in each individual • Allows for teams and individuals to have a meaningful role • Inspires a sense of pride • Challenges individuals and teams • Liberates everyone to realize “true success”

Positive, insightful communication empowers individuals and teams along the journey.

Measurables allow individuals and teams to relate their contribution to the realization of the vision.

Treat people superbly and compensate them fairly.

Leaders are called to be visionaries, coaches, mentors, teachers, and students.

As your sphere of influence grows, so grows your responsibility for stewardship of the Guiding Principles.

We are committed to our employees’ personal growth.

Source: Company website, http://www.barrywehmiller.com/docs/default-source/barrywehmiller-vision-documents/ guiding-principles-of-leadership.pdf.


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Exhibit 3 Enron’s Value Statement

Our Values

Communication We have an obligation to communicate. Here, we take the time to talk with one another… and to listen. We believe that information is meant to move and that information moves people.

Respect We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment.

Integrity We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it.

Excellence We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

Source: Enron 2000 annual report.


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Exhibit 4 Barry-Wehmiller’s Platforms and Divisions

Platform: Packaging Automation Equipment Accraply Label converting, automatic labelling, & finishing systems manufacturer (203

employees; headquarters in Plymouth, MN) BW Container Systems

Conveyance & robotic technology, palletizers, depalletizers, as well as can end, product handling, and process equipment supplier and manufacturer (486 employees; Romeoville, IL)

Hayssen Flexible Systems

Provides form/fill/seal technologies and services (370 employees; Duncan, SC)

Pneumatic Scale Angelus

Supplier of can seaming, capping, filling, labeling, centrifugation, orienter, and wet case detector machinery (604 employees; Stowe, OH)

Synerlink Designs and produces form/fill/seal machinery and packaging lines for hygienic, single-portion dairy and dessert products (400 employees; Paris, France)

Platform: Packaging Automation and Converting Equipment Thiele Technologies Case packing, palletizing, placing, feeding, bagging, and cartoning equipment

producer (604 employees; Minneapolis, MN) Platform: Paper Converting Equipment Paper Converting Machine Company

Worldwide supplier of paper converting machinery for package printing, envelope, tissue, and nonwoven manufacturing industries (986 employees; Green Bay, WI)

Platform: Paper Systems Equipment BW Papersystems Sheeting, corrugating, and carton-folding equipment manufacturer (1,064

employees; Phillips, WI) Platform: Engineering and IT Consulting Design Group Provides engineering consulting services, including facility design, process

engineering, regulatory compliance, and manufacture automation and control systems (693 employees; St. Louis, MO)

Barry-Wehmiller International

Enables Smart Manufacturing globally by providing scalable enterprise, engineering, and technology solutions (345 employees; St. Louis, MO)



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Exhibit 5 Barry-Wehmiller’s Vision of Wellbeing and Safety Covenant

Vision of Wellbeing

Living Well, Thriving Together

• Making healthy choices throughout each day using responsible freedom

• Acknowledging every small choice as an opportunity to positively influence others

• Developing resilience to embrace life’s daily challenges

• Fostering empathy and respect for everyone’s place on life’s journey

• Building supportive relationships as the cornerstone of short-term goals and long-term success

• Creating a foundation for life-long health through continuous learning

• Inspiring a spirit of camaraderie and fun

• Seeking balance in all aspects of life: physical, social, financial, career and community

We commit to care for ourselves, our families and each other.

Safety Covenant

We have a sincere, consistent commitment to provide a culture where safety is more than a priority, it is a company value. Safety is integral to everything we do and as such, we are all responsible to:

• Support, trust, and openly communicate our knowledge and best practices throughout the organization; which allows our culture to flourish.

• Commit to a safe experience for those who build, test, operate, and maintain our products. Products will only be shipped or commissioned when we are confident of their safe operation.

• Educate and empower individuals, through training and awareness, to proactively identify unsafe situations, and act to resolve them with a sense of urgency.

• Foster care and safe practices within our families and communities.

• Openly share knowledge and best practices with all the lives we touch.

• Take pride in ownership of our safety culture and nurture it for sustained growth and success.

• Celebrate our successes.

Our objective is to ensure that every life we touch arrives home healthy, safe and fulfilled.

Source: Company website.


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Exhibit 6 PCMC Financial Performance after Barry-Wehmiller Acquisition

Note: 2006-07 results were affected by a unique $61 million-dollar customer project.


13.9%14.8%

4.1%

5.7%6.6%

4.6%

7.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

$0

$50

$100

$150

$200

$250

$300

2006 2007 2008 2009 2010 2011 2012

Rev

enu

es in

$ M

illio

ns

Revenue % Op. Inc.


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Exhibit 7 PCMC Financial Recovery, 2005-06

PCMC EBITDA in 2005 (19,880) Idiosyncratic expenses in 2005 On a one-time basis in 2005…

Consultants 1,600 …consultants were retained to help sell the business. Legal issues 4,500 ….a lawsuit related to an injured employee was settled. Subtotal 6,100

Expenses that any strong management team could avoid Under prior management…

Wasteful SG&A 2,186 …unnecessary discretionary SG&A was spent. Warranty payments 982 …dissatisfied customers demanded warranty payments. Extra employees 9,857 ...1,150 people were employed while only 1,012 were needed. Accounting errors 10,168 …certain losses in prior years were not reported fully, so a

charge was recorded in 2005. Subtotal 23,193

Improvements specific to Barry-Wehmiller

Once PCMC was part of Barry-Wehmiller…

Change in employee benefits

4,968 …employees were transferred to Barry-Wehmiller's less expensive benefits package.

Purchasing savings 1,090 ...PCMC could buy inputs at lower prices due to Barry-Wehmiller's purchasing scale.

Manufacturing productivity improvements

4,300 …implementation of lean processes improved manufacturing costs.

Gross margins on extra revenue

8,433 …with better customer relations and a motivated salesforce, more new equipment was sold, and prices rose on spare parts.

Improvements in process know-how

1,010 …best practices from other Barry-Wehmiller divisions were deployed in PCMC.

Workforce enhancements 840 …ideas that reduced costs were solicited from the workforce and implemented.

Subtotal 20,641 PCMC EBITDA in 2006 30,054


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Exhibit 8 Machine Solutions Inc. Cost Savings Analysis

Source: Company documents, casewriter estimates.

All figures in

thousands of dollars

Status quo with

high revenue

Option A

with low revenue

Option B

with low revenue

$21 mm revenue, $14 mm revenue, $14 mm revenue,

85 team members, 85 team members, 66 team members,

no non-personnel cuts non-personnel cuts non-personnel cuts

Revenue $21,000 $14,000 $14,000

Cost of Goods

Parts & Materials $6,720 $4,480 $4,760

Direct Labor $2,809 $2,809 $2,276

Overhead (exc. D&A) $882 $882 $882

Total COGS $10,412 $8,172 $7,918

Gross Profit $10,588 $5,828 $6,082

% of revenue 50.4% 41.6% 43.4%

Operating Expenses

Salaries & Benefits $5,325 $5,325 $4,313

Travel, Ent & Training $876 $565 $565

Marketing $615 $331 $331

Other Opex (exc. D&A) $885 $885 $885

Total Opex $7,700 $7,106 $6,094

% of revenue 36.7% 50.8% 43.5%

EBITDA $2,888 ($1,277) ($12)

Assumptions:

Parts and materials are 32% of revenue with 85 team members, rising to 34% with 66 team members due to outsourcing.

Reducing headcount from 85 to 66 (22%) will reduce direct labor, salary, and benefits by 19%.

Travel, entertainment, training, and marketing can be reduced through prudent, selective actions.

Overhead and other opex are fixed.


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Endnotes

1 Bob Chapman and Raj Sisodia, Everybody Matters: The Extraordinary Power of Caring for Your People Like Family, New York: Portfolio / Penguin, 2015, p. 69.

2 Matt Alderton, “Foundation of Leadership, Reinvented,” Insigniam Quarterly, http://quarterly.insigniam.com/corporate-culture/foundation-of-leadership-reinvented/.

3 Bob Chapman and Raj Sisodia, Everybody Matters: The Extraordinary Power of Caring for Your People Like Family, New York: Portfolio / Penguin, 2015, p. 27. The quotation was subsequently edited by Bob Chapman.



6 Michael J. Roberts, “Barry-Wehmiller (A),” HBS Case 390-008, 1989, p. 10.



9 Casewriter interview, February 19, 2016.



12 Matt Alderton, “Foundation of Leadership, Reinvented,” Insigniam Quarterly, http://quarterly.insigniam.com/corporate-culture/foundation-of-leadership-reinvented/. The quotation was subsequently edited by Bob Chapman.




16 Bob Chapman and Raj Sisodia, Everybody Matters: The Extraordinary Power of Caring for Your People Like Family, New York: Portfolio / Penguin, 2015, pp. 100-101.



19 Conversation with casewriters, February 18, 2016.




http://quarterly.insigniam.com/corporate-culture/foundation-of-leadership-reinvented/

http://quarterly.insigniam.com/corporate-culture/foundation-of-leadership-reinvented/

Truly Human Leadership at Barry-Wehmiller

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