Employee Ownership May Be Carter Hawley Hale’s New Suit of Armor
Carter Hawley Hale Stores, parent of the Broadway and a battle-weary veteran of takeover wars, may outfit itself this summer with the ultimate coat of armor: employee ownership.
As part of a sweeping restructuring at the old-line Los Angeles retailer, employees and managers could end up owning as much as 55% of the firm’s stock. Shareholders are to vote in late August on the plan, which would also split the firm’s stores and employees into two companies.
The employee-ownership aspect could prove to be a stabilizing change for this Southern California institution. It could provide shelter from the takeover skirmishes that have swept retailing of late and forced similar draconian measures at other companies. And it would mean that employees who own stock through the company’s profit-sharing plan would have a bigger stake in the new company’s success.
Top managers are gung-ho about the prospect. “We are now safe from external influences, and this is going to give us the opportunity to really concentrate on our business,” said H. Michael Hecht, chairman of the company’s huge Broadway division.
Under the restructuring, the Broadway and four other department store chains would remain with Carter Hawley, while the company’s highly regarded specialty stores--Neiman-Marcus, Contempo Casuals and Bergdorf Goodman--would become a separate company to be called Neiman-Marcus Group.
For Carter Hawley’s 35,000 department store employees, this represents another in a series of revolutionary events that have affected their corporate culture as well as their paychecks.
Carter Hawley has fended off two takeover bids since 1983 and has instituted a wide-ranging program designed to improve customer service and cut costs. Some employees have had trouble adapting--particularly to a recent switch to commission-based selling.
As Warren Bennis, a USC professor of business administration, sees it, majority ownership would encourage employees to demand more say in their futures.
“Once employees buy a fair amount (of stock), they have a great deal to do with running a corporation,” said Bennis, who expects employee ownership to be a major trend of the 1990s. “It can’t be taken lightly.”
Corey Rosen, executive director of the National Center for Employee Ownership, said that, while employee ownership offers companies a chance to vastly improve their performance by encouraging workers to participate in decision making, that advantage “depends on the attitudes and practices that management brings toward the idea.”
“The companies that create a very employee-centered culture, one that’s highly participative, one that operates on the philosophy that employees deserve to be owners . . . do extraordinarily better,” said Rosen, whose research group is based in Oakland. However, he noted, many companies simply use the employee ownership as a “convenient financial mechanism to remove (themselves) from public control.”
So far, employees have heard little about many aspects of the restructuring, including the enhanced stake possible for employees and management. Carter Hawley executives have steered clear of any efforts that would be construed as drumming up employee support, abiding by a “quiet period” imposed by securities laws. Two subdued letters were mailed last month to employees, advising them that details would be released soon.
“It has been real low-key from corporate to us,” one employee said. “It’s been real quiet, not something people are talking about.”
Hecht of the Broadway acknowledges, however, that “there has been some nervousness” and that some employees--although not a “significant number”--have opted for early retirement.
But once the wraps come off the company’s long-awaited proxy--at the end of this month--Chairman Philip M. Hawley and President Waldo H. Burnside plan to go on the stump to talk up the proposal and, in particular, the employee-ownership angle.
Current plans call for the two executives to meet with management groups at the various divisions. Then it will be up to designated “trainers” to educate employees about the 500-page proxy.
One aspect that the company is certain to stress is that members of management will forgo cash payments in lieu of stock in the “new” Carter Hawley. The hope is that, if executives show their willingness to put substantial stakes on the line, employees also will be encouraged to do so.
Hawley, for example, has 168,282 shares, including options, which he plans to fully invest in the department store company.
Employees and management are already assured of substantial ownership in the company. Under the initial restructuring plan, management would control about 21% of the company after conversion of all executives’ stock options, and the employee stock plan, in which an estimated 14,000 employees participate, would own about 22%.
But new alternatives pave the way for employees to hold an even bigger stake.
As originally laid out, the plan called for stockholders to receive one share in the new specialty store company plus $17 in cash for each Carter Hawley share, which they would also retain. Under a revision disclosed last month, Carter Hawley employees could choose to hold more stock in lieu of cash.
Wall Street analysts say it’s too soon to recommend what alternatives employees or other stockholders should choose if the restructuring is approved.
But many analysts have embraced the overall plan, even though the company will saddle itself with debt to cover an estimated $1.1 billion in costs associated with the split-up. They especially like the idea of employee ownership, noting that the underperforming department stores could benefit from a sense of entrepreneurial spirit.
To Vivianne S. Filmer, an analyst who has followed the company for 11 years for the Standard & Poor’s credit-rating agency in New York, “the point of employee ownership is added incentive. It’s another way of getting improved profitability--if it works.”
“If senior management owns a lot of stock, instead of just being on an ego trip they start to look at profits,” said Peter J. Siris, executive vice president of Buckingham Research Group, an institutional brokerage in New York. “If employees own stock down the line, they care more about the company (and are) more loyal.”
Hecht, for one, expects big things. “When you combine the different incentive programs . . . with the fact that each individual has a chance to be a long-term winner with stock appreciation, you’re going to have a tremendous feeling of pride in ownership,” he said.
SPLITTING UP CARTER HAWLEY HALE
Two major retailing companies would be created as part of the major restructuring at Los Angeles-based Carter Hawley Hale. One will specialize in department stores and the other in specialty stores. The plan must be approved by stockholders later this summer.
The department store company, with the Broadway as its flagship chain, will keep the name Carter Hawley Hale and remain in Los Angeles. The specialty store company will be called Neiman-Marcus and have the Dallas-based chain as its flagship.
CARTER HAWLEY HALE
(department store company)
Broadway
43 stores in Southern California; 12,869 employees. Broadway-Southwest
13 stores in Ariz., Colo., Nev. and N.M.; 2,936 employees. Emporium Capwell
32 stores in the San Francisco area; 8,816 employees. Thalhimers
24 stores in Va., N.C., S.C. and Tenn.; 6,896 employees. Weinstock’s
12 stores in Calif., Utah and Nev.; 3,093 employees.
NEIMAN-MARCUS GROUP
(specialty store company) Neiman-Marcus
22 stores in 9 states and District of Columbia; 7,956 employees Bergdorf Goodman
1 store in New York City; 925 employees. Contempo Casuals
173 stores in 28 states; 2,454 employees.
