CHAPTER 2

The Personal Development of a Democratic Capitalist

 I am a self-taught democratic capitalist. Starting at age 28, I had the opportunity to change a company environment from mercantilist to democratic capitalist, that is, from hierarchical and fearful to participatory and cooperative. I was plant manager for five years, and then president for seven years, of the Electro Dynamic Division of General Dynamics. Later, for eighteen years, I was CEO of ADT, Inc.,  the world’s largest electronic protection company.

My personal development in democratic capitalism was a trial-and-error process, but I was fortunate in these companies to have opportunities to make mistakes, and time sufficient to correct them; twelve years in one company and eighteen in the other, enough time for my thorough empirical education.  To benefit from the experience, however, required that I bring the right instincts and an open mind.

When I retired in 1989 and became a student of the philosophy and history of democratic capitalism, I was confident that I understood a highly productive arrangement for the industrial environment.  I did not realize then how thoroughly this ideology could be extrapolated to society in general.  It was exciting to find that this arrangement, for which I had been searching during forty years of trial and error, had already been defined, tested, and refined by Adam Smith, Robert Owen, John Stuart Mill, Karl Marx, and others. Along with the excitement came a sad recognition that the educational establishment had failed society by not presenting this best coupling of democracy and capitalism for student inspection.

A generation after Adam Smith, Robert Owen proved in his spinning mill near Glasgow that an investment in human values produces profits and sales growth superior to the results of the mercantilists who depended on cost containment and, frequently, exploitation.  I developed this conviction on my own, for it was not part of the curriculum at Harvard Business School , where I took my MBA.  Once learned, however, these principles became clear, and my view confident.  I have learned through my experience what Robert Owen learned through his, namely, that investing in human capital produces results superior to those competitors who suppress initiative and oppress the human spirit.  

Gardner , Massachusetts    

Gardner was a perfect place to grow up.  A city of 20,000, Gardner offered good education, good people, and a pervasive work ethic—pervasive in the sense that even while playing three varsity sports, I always had part-time jobs.  Pervasive in the sense that the early morning, around 6:45 , was punctuated by whistles, audible throughout the city, identifying the several companies as they summoned their workers to the 7 a.m. shift.  The whistles blew again at noon when many workers walked considerable distances home for lunch, while the rest opened their lunch boxes at their work.  Eating out for any meal was a rare event in celebration of something special.

The legacy from my mother, dad, and sister completes the list of family values.  Included was a sense of being part of a whole; being the same as, not different from.  Being a part of a whole brought with it a feeling of personal responsibility to contribute to the benefit of the whole.  Life in Gardner was New England egalitarian, with its emphasis on equal opportunity, not equal condition.

Football was a large part of my young life.  I could not have articulated this conclusion while I was a high school co-captain, but I was already aware that good performance comes best by developing individual talent and harmonizing individual effort with teamwork.  As president of my junior and senior classes, I also had some early leadership experience.  Leadership to me always meant contributing to the environment to encourage everyone to do their best.

Another legacy from my dad, a life-long enemy of untruth and hypocrisy, was his rigorous truth-searching, enhanced for each of us by the benefits of education at a Jesuit college, Holy Cross.  My dad was devoted to sports, but he was also the salutatorian of the class of 1920.  Whether in sports, studies, or matters of public interest, my dad disciplined me to move past the superficialities and perceptions to search for the truth.  He did this in the time-honored way of constant, probing questions.

Gardner is home to a mixture of ethnic groups.  Many of my football buddies spoke English with a French accent.  French was the language they spoke at home and at the “ French School .”  Besides the French Canadians, Yankees, and Irish, the other ethnic groups were mainly Baltics:  Finns, Poles, Swedes, and Lithuanians.  Catholics worshiped at the French, Polish, or Irish churches; the French and Polish churches conducted services in their native tongues.  Despite ethnic differences and ethnic pride, most had a feeling of being part of a whole, a feeling that each of us was pretty much the same as everyone else.  The only ones whose cultural conditioning proved to them that they were different from everyone else were the Yankees who lived “uptown.”  Typical of New England , they were the ruling class; their companies wore family names, and they were run on nepotism.  Only Yankees belonged to the Gardner Boat Club, which gained its superiority by exclusion: No Jews, no Catholics, and no boats.

The worth of each individual, personal responsibility, and being part of a whole, were deeply embedded values from my childhood.  Years later, I recognized them not only as first principles of democratic capitalism but also as the core values of a free society.  Global capitalism will not reach its full potential if economic leaders, such as the United States , lose this common ideology, the best coupling of democracy and capitalism.  We shall decline as a result of undisciplined individualism on the one hand and excessive concentration on ethnicity and religion on the other.  I certainly did not realize any of this in Gardner in the early 1940s, but I was conditioned to the social duality of individual effort in a harmonized whole.

Like most young people in Gardner , I worked.  From age 10, I mowed lawns, delivered the Saturday Evening Post and Colliers, and delivered groceries.  My first factory job, at age 15, was at Andersen Wood Turning Company.  As the youngest and newest worker, my jobs varied from unloading the wood from the freight cars to going for coffee and jelly doughnuts for the whole work crew.

Andersen made bowling pins, and the demand must have been strong, for we were working nine hours a day, six days a week, that summer. I was so proud of my new work status that I was the only worker who did not shake off the heavy layers of sawdust before leaving the plant: I wore it like a badge of honor walking home.  By the end of my first summer of work, I was running the simplest machine, a drum sander—a useful device for getting rid of fingerprints.

In August, another part of my perfect childhood kicked in when my family moved to a rented cottage on Cape Cod .  August on Cape Cod became a cherished part of every year, provided by my extraordinarily hard-working father who commuted on the weekends until he could join us for his two-week vacation.  One of my greatest regrets now is that my dad did not have the opportunity for the fun and satisfaction that I have enjoyed throughout my whole business career.

My dad and my wonderful mother fulfilled the eternal contract among the generations by providing their son and daughter with opportunities greater than those they had known.  The first in his family to have earned a college education, my dad then spent a stressful existence as an Irish-Catholic middle manager in a WASP environment.  “Irish need not apply” signs were still seen in Boston when my dad was job-hunting.  My mother’s father had been a factory worker with eight kids.  Somehow, my grandparents had saved enough to educate my mother, who became a piano teacher and church organist.

On Saturdays and vacations during my junior and senior years in high school, I worked with several football friends moving stoves around in a warehouse.  To us, it was a choice job, for we were being paid to do a job that doubled for us as weight training.  Class distinction in this environment was performance based, depending on whether one could pull a heavy stove onto the hand truck from the high-torque long end of the stove or from the easier middle.  Like weightlifting, loading from the long end required a combination of strength and technique, and this exercise diversion also made the time go faster.

My education as a democratic capitalist continued when, at age 16, I drove a two-ton dump truck for the Gardner Parks Department.  This work also was good physical conditioning; we mowed parks with big gang-mowers, and we dug graves.  Most of the workers were middle-aged men, including my Uncle Ed, but I was pleased with the additional responsibility as driver, and I assumed that it justified my wages of 45 cents an hour.

Every morning we shaped up at the back of one of the cemeteries.  As we drove out, the work gang, riding and chatting in the back of the truck, would remind me to stop at the front gate where they would recover their lunches in brown paper bags stashed behind the big stones marking the entrance.  I assumed that the bags contained lunches, but why leave them there?  Only after a while did I make the connection between my having been designated as driver and the contents of those brown paper bags.  

Holy Cross, 1944-48  

            In July of 1944, a few weeks after graduation from high school, at age 17, my Navy career began in the V-12 Naval Officer Training program at Holy Cross College in Worcester , Mass.   In the fall of that first year, I played in Fenway Park on the Holy Cross football team against Boston College .  Other less clear memories of the next five semesters were of tough Engineering courses, military discipline, and running up and down hills at 6:00 a.m.  

In early 1946, I was on a ship in San Diego harbor and the war was over. As I had no interest in a career as a peacetime Naval officer, I had left officer training to go into regular Navy service.  In June of that year, I was transported across the country in one of those “cattle car” trains and, having accrued enough points, was discharged in Boston .

Back at Holy Cross in the fall, I majored in Business Administration and received my degree two years later.  Most of the courses were in Philosophy, Ontology, Epistemology, Cosmology and other ambitious subjects that Jesuits love to teach.  All of the hard questions were examined, and since it was a Catholic school, all the answers were also given.  Morning mass was compulsory, and although half of the students were asleep, the Jesuits promised us “sanctification by osmosis.”  In a sports environment, I quarterbacked the team that won the fiercely competitive intramural football league two years in a row; my teammates and I are still proud of that record.  In my senior year, I was elected to Alpha Sigma Nu, the scholastic honor society—I was good at cramming.  My classroom work did stimulate any number of bull sessions over a few beers that provoked some genuine truth-seeking.  They were a tough group, and syllogistic imperfections were loudly criticized, though not so loudly as any evidence of hypocrisy.  Time spent at Holy Cross reinforced the conditioning of my youth by my dad:  Both experiences contributed to that elusive capacity to “think straight.”

Very little of what I learned at Holy Cross as a Business major, however, had anything to do with real-world business, as I would soon find out, and none of it had anything to do with democratic capitalism.  Holy Cross, at that time, was sorting itself out after the war, so I am not inclined to be critical of the curriculum or the quality of the teaching during a period when students and professors alike were returning from military service. Since then, nevertheless, Holy Cross has been a disappointment to me. They, like every other Liberal Arts college that I know about, are failing in their stated mission of preparing students for citizenship and leadership, if we agree that an understanding of political-economic fundamentals is needed for intelligent citizenship and effectual leadership in America and the world today.   

Carey Scholars  

 I now provide modest financial assistance to my “Carey Scholars,” a group of over four dozen students who help me understand what they are—and are not—learning at college.  Most of them are Black and Hispanic graduates of Cardinal Hayes High School and Aquinas High School in the Bronx, New York. Two have gone to Holy Cross; the others elsewhere. Iram graduated from Holy Cross and Fordham Law School; Marleny is at the ‘Cross in the class of 2006. Julissa, a practicing attorney, was one of the 1993 class of Carey Scholars who now has a degree from Harvard, a graduate degree from Cambridge, and a Law degree from Columbia. Tony, also of the class of 1993, graduated from Skidmore, worked for a few years for a bank, and in 2003 was working on his MBA at the Tuck School at Dartmouth.  

Cape Cod

During college summer vacations, I worked on Cape Cod, usually drawing on my Irish heritage as a good digger.  I claim the record for digging a seven-foot-deep, seven-foot-wide new cesspool in the shortest time, but after getting through the tree roots, it was easy digging.  I enjoyed the physical labor because among the good jobs is one that totally engages the body with no mental effort.

My democratic capitalist education took on new dimensions the summer of 1948 when I decided to become an entrepreneur and a conglomerate.  I borrowed $400 from my dad and bought a 1936 pick-up truck in order to start a landscaping business, a landscaper then being someone who mow lawns but has a truck.  As a new entrepreneur, I recall the cash-flow terrors that first week as I sat by the side of a back road worrying about how I was going to get my first job with all of this debt hanging over me.  The jobs came, however, and I soon learned how to be a capitalist, “extracting maximum surplus value” from my workers by paying them $1 an hour while I was charging the customers $1.25.

My business plan was typical of conglomerates: One business had nothing to do with the other business, and was just another effort to make money.  The only synergy was use of the truck for transportation to my evening efforts to sell Wearever cooking utensils.  I would drive by my friend’s house at about 6:30 and call out, “Where to, tonight, Abigail?”  Abigail would point me in the right direction, and shortly I’d be working my flip charts for a half-dozen bored, mid-week work widows, whose husbands were away in either Boston or somewhere else at work.  After lecturing the women about the evils of cooking with water and then pouring the nourishing vitamins down the drain with the hot water, the real excitement came when I baked a cake on top of the stove to prove the extraordinary thermal capabilities of these aluminum pans.

Many years later, when I was honored to be invited to join the Board of the Kroger Company, I kidded everyone that it was due to my former business relationship with Mrs. Pettingill, the daughter of the founder, Barney Kroger.  Mrs. Pettingill had been not only my landscaping client on Cape Cod but also my first sale as a peddler of pots and pans.  I did not reveal to my Kroger friends that I had almost blown the sale.  I was trained to sell “the whole package,” and when Mrs. Pettingill kept asking for prices on two individual pieces, I attempted to direct her attention back to the $125 package.  Finally, in exasperation, she exclaimed:  “Of course I want the whole package, but I also want extras of these!”  Mrs. Pettingill made me relatively wealthy at a young age; I earned a $45 commission that first night.

As the summer wore on, I learned about the fourth element in the template of democratic capitalism, competence.  Without realizing it, I was adopting the template that I talk about in this book.  The first three elements were already in place:  Thanks to family, church, and school, I was firmly locked in on integrity; my operation already had maximum freedom and minimum structure, for I could have carried my whole administration in my hat-band, if I had had a hat.  My freedom was total, for I was completely on my own, but I quickly found out that the flip side of freedom is discipline, learning never to party so late as to miss the 8:00 a.m. start next morning.

My competence gap opened up before me one evening in August, when I proved to be better at lawn work than at baking cakes, and my conglomerate began to come unglued.  The evening started badly: One woman was so bored that she was attending her second Wearever session of that summer, and she kept interrupting me to ask why the price of four pans was now less than the price for the three that she had bought earlier in the summer.

Later, I might have pointed out that free markets are inherently deflationary and that, while the effects of this phenomenon worried both Adam Smith and Karl Marx, it constantly drove prices down and benefited the consumer.  On the other hand, I might have commented that if Alan Greenspan, future head of the Federal Reserve Board, would take a few years to understand this, why shouldn’t she?  I mumbled something about needing to check on that question, and I fled to the kitchen to bake my cake, where competence failed me and disaster struck.

Instead of the beautiful one-piece cake I usually baked, this cake came out of the pan in several hundred small pieces.  I went back into the living room, almost inclined to fold my flip-charts and steal off into the night, when I heard the hostess’s daughter shrieking in the kitchen.  The disaster she had discovered was not the cake in pieces but that it had been consumed by their Great Dane.  I left that night with a substantial sympathy sale but with little soul-satisfaction.

The incident provoked a conglomerate strategic review.  Had I been spending so much time rooting around in the dirt tending lawns under the hot sun that I had lost the delicate touch needed to bake on top of the stove?  Did I need an even deeper analysis?  Was lawn-care the core business or were the pots and pans?  I tried to apply the value test of the long-term-shareholder (me), but I was distracted by the social-benefit question: What is best for the worker? (also me).

Clearly it was not a short-term earnings question, for I usually made about $20/hour selling pots and pans, compared to $1.25/hour on lawn care.  Nevertheless, I decided to concentrate on what I enjoyed, the lawn business, so I modified my mission statement to say something about doing more of what I was good at while avoiding non-strategic acquisitions.  

Harvard Business School, 1948-50  

            The hardest thing about HBS was getting in. In 1948, thousands of veterans, all of us on the GI bill, were trying to get into HBS.  Luck was with me during the all-important interview. The gentleman conducting the interview asked the profound question: “Why do you want to go to Harvard Business School,” and then he just sat there saying nothing. After I had run out of brilliant explanations, I looked to him for help; receiving nothing but silence, I poured forth an even less coherent torrent of information.  Perhaps the interviewer found this technique made a boring day shorter, maybe it helped determine the candidate’s capacity to arrange thoughts under stress.  By accident during this torture, I discovered the truth of what the books tell you is the key to selling:  Find the self-interest of the customer, no matter what it may be.  I was muttering something about starting a garbage collection business on Cape Cod that summer when “Steely Eye” became quite animated and proceeded to pour out his woes about getting his garbage collected on Cape Cod.  By the end of the interview, we were practically slapping each other’s backs. Later, I exchanged the garbage career for landscaping, but by then I had already been admitted to HBS.

            The shining light at Harvard Business School in those days was General Georges Doriot. During class time, the General probed deeply, and he also arranged for students to do a protracted study of a selected company on site.  Doriot was an excellent professor, but his near canonization was helped by the lack of stimulation in many of the other courses.  In the General’s spare time, he organized American Research and Development, an early venture capital firm that helped launch companies such as Data General.  Several years after I graduated, we chanced to be on the same airplane, and he told me that he had seen Frank Pace, CEO of General Dynamics (see below, my work at General Dynamics).  The General had asked Frank how his brilliant Manufacturing student, Ray Carey, was doing at GD.  I found his memory amazing because I had had been one in a class of 50 students and had neither become individually acquainted with the General nor conceived of myself as particularly “brilliant” in his class. 

            One of the deans joked that our group was trying to go through HBS on athletic scholarships. We did spend a lot of time in intramural sports.  I quarterbacked the team that lost in the playoff finals to a team quarterbacked by “Spook” Matthews, a football star from Georgia Tech.  Other than General Doriot, I don’t remember the names of many professors, but I can still recall the names of players on my team—and even key plays—in that unimportant game over 50 years ago.  Some might regard this as evidence of a personality defect, but I believe that playing football taught me more about individual development in a harmonious whole than did most of my course work.  Most of the educational process was then—and, I believe, continues to be—tilted toward individual development. 

Aristotle taught that “excellence” is attained in all matters, including association among people, in the same way one learns to play the flute:  practice, practice, practice.  Football was my flute lessons.  Over 12 years of high-school, college, and grad-school football, usually as team captain, I practiced fostering an environment of harmony—the giving and borrowing of strengths, the teaching and learning from the team process—in which each player could achieve his best.  Football taught me that 2 + 2 in a team environment adds up to much more than 4.  More important than what I learned in my course work, “Football Philosophy 101” taught me how dramatically performance is improved when each has the opportunity for self-development enhanced by an environment of trust and cooperation.

In the various classes, I assimilated knowledge about the protocols of business from control systems to balance sheets and P&L statements.  Beyond that, I remember little of what my professors may have been trying to teach me.  In those days, relating the study of Business to the needs of American society and the world for peace and plenty, was rarely a part of the curriculum.  Through the years, I have been disappointed in the slowness of the Business School to respond to the challenges of capitalism that I detail in this book.

During the spring of 1950, the recruiting effort at Harvard Business School was heavy. I knew that I wanted to work with people, preferably in manufacturing, but I was selected to fly to New York, my first plane trip, to be interviewed by an advertising agency. At a long lunch, the candidates were graded on their capacity to smoke cigars and tell dirty stories. I flunked on both counts. 

About the time I retired from my active business career, I wrote my first letter to Harvard Business School in a campaign to get my alma mater to examine democratic capitalism.  In that letter to the dean, I described HBS as “a soulless institution with opportunities lost,” and on that score, I have not yet changed my mind.  After the turn of the millennium, the reputation of capitalism is sinking, the reputation of Business Schools in general is sinking, the standing of proud HBS is declining in the all-important ratings of top Business Schools, and the performance of some HBS graduates in corporate scandals such as Enron is an embarrassment.

In response to all these circumstances, Dean Kim Clark conducted a study that, according to a letter to all graduates, will “delve deeply, understand root causes, and identify actionable long-term solutions.”  If my premises about democratic capitalism are correct, this deep delving will eventually lead to the conflict between the bankers and the builders, and to the dominance by ultra-capitalism. Success of Dean Clark’s program will require great courage and extraordinary statesmanship because HBS is an institution where most of the buildings are named for bankers and most of the money in the recently announced $500 million capital campaign will come from finance capitalists and ultra-capitalists. 

Dean Clark states in the letter that all first-year students take a course in Business Ethics.  With due respect to the Dean, this is tactics without a strategy. When the moral philosophy of the capitalism in practice is Social Darwinism; the form of capitalism being taught celebrates “the American model” of ultra-capitalism and its “creative destruction,” “downsizing,” and “wage arbitrage”; and as long as the prime goal of most new graduates is to make a million dollars by age thirty, then a first-year course on Business Ethics is tokenism.

I will continue to promote the presentation of democratic capitalism in both Business Schools and Liberal Arts courses because democratic capitalism maximizes the profits, presumably the mission of the Business Schools, and democratic capitalism  improves the human condition, presumably the mission of a Liberal Arts education.  

Dewey-Almy  

After graduation from Harvard Business School in June of 1950, I got a relatively high-paying job, $325/month, as an assistant to the sales manager at Dewey-Almy Chemical Company in Cambridge, Massachusetts.  My first job was to promote a new product called Cryorap, a shrink-fit plastic to wrap chicken and other meats. A few months after starting this job, I was asked to go to the new factory operation in Lockport, New York, to help with the recruitment and hiring of factory workers. 

When I arrived in Lockport, the factory manager, Jim Giles, greeted me by saying:  “Congratulations!  You’re the foreman of the Press Department.”  After explaining to Giles that I was there to help with the hiring of new people, Giles repeated, “No, you’re the foreman of the Press Department.”  Convinced, I asked, “What’s a Press Department?”

For the rest of the year, I was a swing-shift foreman, that is, I worked from 4 p.m. to 12 midnight one week, from12 midnight to 8 a.m. the next week, and 8 a.m. to 4 p.m. the next, except that the actual hours on every shift were usually three hours longer.

The presses were four-color printing presses to print the producer’s name and insignia on the roll of plastic material as it flew by on the printing press.  I still cringe at the thought of mixing up the greens and yellows on one run I approved at 3 a.m.  Things get to be confusing on the graveyard shift.

Lockport was a UAW union town, so I had my first experience with a strong union.  The people, including the union officials, however, were familiar to me: They were the same kind of people I had grown up with in Gardner, Mass.

Lockport memories include having dinner at the union chief-steward’s house.  The invitation pleased me for several reasons, including my first chance to view a home television.  It was a very small and very snowy screen.  Another time, I learned that in an environment of trust, people become involved and accountable, and they welcome an opportunity to compete.  Without fanfare, I began to put up the production numbers for each shift.  My friend, the union steward, asked what I thought “this BS” would accomplish.  Most of the workers, however, would sneak a glance, and productivity in total began to inch up.  I had taken an early lesson in people’s desire to get involved and make a contribution.  

Electric Boat  

In the spring of 1951, I walked into Electric Boat Co., in Groton, Connecticut, and got a new job.  My fiancée, Dennice, was teaching at Connecticut College, a few miles up river, and we were planning to be married later in the summer.

Electric Boat was not sure what to do with someone with an MBA.  They had been building submarines almost from the first, and most managers had been promoted from the trades or were engineers.  By request, I spent the first six months working in various trades “in the yard.”  Subsequently, I was placed in a dead-end job.

Lacking any opportunity for self-development, I went to the head of personnel and said that if I could not learn and grow, I would have to leave.  The manager said that he had nothing for me but that I could interview for the position of “assistant to the nuclear projects coordinator,” even though I met few of the profile qualifications such as a degree in Nuclear Engineering. Despite this, I convinced Bill Jones, the recently appointed coordinator, that I could help him in his new position.

This was the very beginning of the atomic sub program, and Jones had been recently appointed to this position with its grand title.  The sub-heading to the title should have been: “Keep Admiral Rickover happy, and you’re doing a good job.”  Hyman Rickover later came to be known as the father of the nuclear navy.

During the next few years, I coordinated the weekly “Critical Items Report” with information gathered from the engineers to be sent to Rickover’s department.  I recruited, organized, and managed a department of a half-dozen manufacturing engineers who supervised the delivery of critical components.  I worked in Arco, Idaho, where the first prototype of the nuclear reactor and the steam turbine for the Nautilus was built and tested.  I also represented Electric Boat at the weekly progress meeting, at Westinghouse Atomic Power Division, located outside of Pittsburgh.

At these meetings, the genius of Rickover became clear to me.  The Admiral knew that this first application of atomic energy, beyond the bombing of Hiroshima and Nagasaki, had so many state-of-the-art challenges for the engineers that either extreme schedule pressure had to be applied or else the program would drag on for years.

I was fascinated to watch the Westinghouse manager drive the program under Rickover’s pressure.  Each section manager reported progress against a tight schedule.  In most cases, the manager really wanted to say, “Give me five years and five times the money, and I’ll deliver a breadboard model.”  Instead, they had to explain any weekly slippage and their efforts to recover.

The whole program was described as piling one rickety card table after another on top of each other, and it worked!  I had taken some Engineering in my Naval officer training, but I learned a lot more by listening.  One fascinating aspect was that the design of the engine room, as well as the reactor room, had new challenges. Driving a submarine with nuclear energy was, of course, brand new, but the idea of putting into a submarine a steam turbine system that expanded with heat, required creativity on the part of the mechanical engineers.  Simply to run a straight pipe from the compressor to the turbine generator would be impossible; the pipe needed enough bends to accommodate the expansion while the submarine’s hull was contracting from sea pressure.

One of my many jobs was coordinating Admiral Rickover’s visits to the mock-up of the Nautilus.  This full-scale wooden model was in a part of the yard called “Siberia” and was used to run wire or pipe before actual installation.  Siberia was also where engineers demonstrated to visitors how an atomic submarine would work, using a small-scale lucite model.  Attending a few dozen of these dog-and-pony shows gave me a growing understanding of how the Nautilus really worked.

Setting up these meetings was typical of my grab-bag job description.  One of my more unusual assignments was:  “Don’t lose Dr. Teller.”  Edward Teller had the dubious distinction of being known as the “Father of the H-Bomb.”  At that time, Teller was a member of the Reactor Safeguards Committee, a group of top experts from many disciplines.  Their responsibility was community safety, recognizing that the Nautilus was the first use of nuclear energy since the bombing of the Japanese cities. The test site in Arco, Idaho, had been selected not for local talent but on the basis of low population density.

Electric Boat officials were of the opinion that Teller, a brilliant theoretician, could be a bit vague about his surroundings, possibly confusing New London, Connecticut, with London, England.  Whether this was true or not, my job was to track Dr. Teller’s every move while he was in the area. 

Admiral Rickover was a regular visitor to Electric Boat.  He was constantly and effectively selling his whole nuclear sub program to Congress.  The groups he would bring from Washington to Electric Boat, and to demonstrations in Siberia, included important Congressmen such as the head of the Military Appropriations Committee.

Rickover was a crusty, unpleasant genius who deserves credit for the success of the Nautilus and the whole atomic sub program.  He was also talented in developing relationships with Senators and Representatives. If he had not possessed this talent, he would not have survived the Naval establishment’s reluctance to promote a Jewish captain to admiral.  In effect, Rickover had been promoted by Congress, not by the Navy.

These were very exciting years.  I was aboard the Nautilus during construction several times a week.  Work that produces growing tangible results is especially satisfying.  At the same time, my democratic capitalist instincts were offended by the working environment, a fundamental alienation between the “Yard” and the “Hill.”  The head of Electric Boat, O. P. Robinson, thought he was viewing the real world when he made surprise visits with his entourage to the Yard.  The Yard, however, had a signaling system, primitive in its tools but sophisticated in its results.  O. P. was being tracked and announced as if he were on radar.

Every few years, expensive strikes only made the alienation worse.  A conversion to democratic capitalism would have been easy in the sense that cooperative efforts could have produced tremendous improvements with results to be shared.  The organizational culture change, however, would have had to be radical and would have been difficult because the work was in a constant state of change.  The Navy was not good at knowing when and how to freeze a design.  Naval engineers seemed to believe that the Cold War would be won only by the latest design changes.

After a few years of work on the atomic sub program, I hit my self-development ceiling.  Those had been good years, and the work had included my reorganizing a large department.  I was stimulated by the creative reorganization but bored by the day-to-day running of it.  Some who had been in the same department for thirty-five years were surprised that such a young manager wanted to leave.

I was able to arrange an interview with Carl Shugg, Electric Boat’s new president, but he seemed unimpressed with my proposals about all the good things I could do for him.  Luck was with me, however, as O. P. Robinson, Shugg’s predecessor, had been requesting that Shugg find him an assistant.  Shugg thought that he had a win/win opportunity—he could get rid of me and Robinson in one move.  Shugg recommended me to O. P.

O. P. had lost in the struggle with John Jay Hopkins to run the corporation later to be known as General Dynamics.  O. P. was then kicked upstairs from head of the boat yard to become corporate senior vice president in charge of minor matters, one of which was Electro Dynamic, small and unprofitable, but an original component of the corporation.  O. P. assigned me to visit and analyze Electro Dynamic.

Electro Dynamic  

Electro Dynamic built electric motors in a plant in Bayonne, New Jersey.  Older than either G.E. or Westinghouse in the motor business, Electro Dynamic was, nevertheless, still small, losing money, and dismal.  Some of the buildings were circa 1905.  The machine shops were dark, the wood soaked with machine-cutting oil, and full of mostly sullen people.  The picture was not exactly that of the 1850 London factory workers whose misery energized Marx, but it was not entirely different, either. 

John Thurston, a wartime friend of the top officers of General Dynamics, was brought in to be the new general manager of Electro Dynamic in 1956.  New management was overdue, and although I was the internal consultant who had been studying this sad operation for a couple of years, it would not be I, for no one in the corporate office had the courage to put a 28-year old in that position.

Thurston’s first action was to terminate my involvement with Electro Dynamic.  Who needed a corporate consultant hanging around?  This action was rescinded a few weeks later.  After Thurston had talked to the people who had developed a respect for me, and recognized the enormity of the challenge, he called me in and offered the job of plant manager.  I quickly moved my family from Stonington, Connecticut, to Rumson, New Jersey, to take this opportunity to make a difference. Five years later, Thurston left to run a larger part of General Dynamics, and I became president of Electro Dynamic.

In any company needing restructure, the first priority is a great deal of listening.  Listening simultaneously trains the manager, starts the process of involving the people, and raises their self-esteem.  At Electro Dynamic, most of the people had high potential and were eager to improve their situation, but they were at the same time suspicious of management.  Quickly, we painted the buildings, painted the machines, put in adequate lighting, and dressed the place up so much that we decided to have an open-house for all the employees’ families.  The pride, dignity, energy, and innovation that previously had been dormant now began to blossom.

During the next several years, Electro Dynamic revolutionized a part of the motor industry by building hi-tech motors for use in low-noise submarines.  In addition to the typical horsepower and speed requirements, the U. S. Navy added specifications for airborne and structural noise levels throughout the frequency spectrum.

These motors were designed by a genius named Harris Shapiro, the son of a rabbi, from New York’s Lower East Side.  Sophisticated motors were manufactured and tested by a self-taught manufacturing engineer, Neil Bonner, a Bayonne high-school graduate, who combined his twenty years of shop experience with Shapiro’s design theories.  The marketing was done by another talent in his own field, Al Reposi, a high-school graduate from nearby Staten Island and a 20-year employee of Electro Dynamic.

Shapiro, 25 years old when I met him, must have been the world’s most brilliant motor designer; Electro Dynamic’s proud future was based on his brilliance.  My opinion of Shapiro’s brilliance was supported during a visit, in the early 1960s, to a large British motor manufacturing company, English Electric, in Bradford, England.  The general manager seemed intrigued with Harris’s knowledge of all types of motors, so he brought in team after team of his specialists to interrogate Shapiro.  Small AC motors, large AC motors, small DC motors, large DC motors, motor generators, frequency converters—the whole thing sounded like the Olympics of motor design, and clearly the Bayonne Kid was winning every event.

Shapiro’s brilliance would have been wasted, however, except that I was the right person, a self-taught democratic capitalist, who could provide the environment in which these people could use their enormous latent powers.  The other prerequisite for Electro Dynamic’s metamorphosis from a century of failure to become the leading hi-tech motor company was that Shapiro’s brilliance was not ego-centered.  His mission was to design an elegant product, and in this mood he sought and respected the contributions of Neil Bonner; Neil’s brother, Jimmy; Al Reposi, and others.

At that time, many engineers took a superior attitude towards manufacturing types, many of whom, like the Bonner brothers, had no education beyond high school.  The Bonners, however, collaborated with Shapiro at every step in the development of our company, and together with him they revolutionized the motor design and manufacturing process.

Radical changes were needed because of the Navy’s requirements to make motors noise and vibration free.  The Navy had discovered that the new nuclear submarines could be tracked by sophisticated sonar from Portsmouth, New Hampshire, to Bermuda.  Worse, each sub could be identified by its unique noise signature.  Admiral Rickover would not tolerate this, so he challenged the industry to eliminate this broadcasting of location and identity of his subs.  In the middle of the Cold War, these nuclear subs were a critical component of U.S. military posture.

With the usual amount of trial and error, the Bonner brothers converted manufacturing to a precision process.  Our operators learned how to machine to tenths of thousands tolerance and a 63-micro-inch finish, working with twenty-year-old turret lathes!  In the late-1950s, the motor industry’s first certified, pressurized clean-room was built at Electro Dynamic, with the assemblers decked out in smocks, gloves, booties, and hair covers.  The old greasy-looking manufacturing plant now looked like an early version of the semiconductor industry.

When the first generation of motors was tested, they could not pass the frequency spectrum test. This was all new art: Navy engineers had imposed a new specification, and no one knew whether it could be met or not.  Shapiro and the Bonner brothers determined that the offending frequency was caused by the bearings.  Neil Bonner then went on a pilgrimage to find the perfect bearing.  He could find it at none of the U.S. manufacturers, even with their premium-priced, Navy source-inspected bearings.  He found it, instead, in a commercial warehouse in Hoboken, New Jersey; it was a low-priced commercial Japanese bearing.  These bearings solved the technical problem, but they presented an administrative problem at the same time: Only premium-priced, Navy source-inspected bearings were allowed.  By then, however, Electro Dynamic had its own andrometer and other bearing-testing equipment, so the Navy was able to ignore the paternity of the bearings by making Electro Dynamic an approved bearing-test site.  The motors passed all tests with these bearings.

These superior bearings were an early indication of the emerging Japanese economic miracle that was no miracle at all but merely the application of many of the principles of democratic capitalism.  Specifically, the Japanese had a cooperative environment; good training; a strong work ethic; a well educated work force; job security; plenty of low-cost, patient money dedicated to long-term growth; and a sense of common purpose natural to their national recovery effort.  With help from the United States, they also had the opportunity to do their manufacturing with the latest in equipment and processes.  For example, the Japanese were the first to forge, rather than machine, the bearing races.

Al Reposi, another resident talent critical to this success story, did much more than direct the typical marketing activities.  He and his sales engineers did all of that, but they also had to be intimately involved in design concepts.  To solve the submarine noise problems, some Navy engineers developed a poorly informed preference for sleeve bearings as superior to ball bearings.  Reposi had the subtle job of deflecting this alternative while much of the convincing evidence was still in Shapiro’s head.  Similarly, Reposi had to sell motors to the pump manufacturers who, in many cases, were blaming their inability to meet specs on the motor.  In a team effort with Shapiro and Bonner, Reposi learned how to instruct his customers in this new technology without offending them.

With the increasing support of 800 employees and the good will of union officials in a positive atmosphere, our group built a profitable and rapidly growing business.  An early disappointment at Electro Dynamic, however, was the failure to put a profit-sharing program in place.  The UAW’s New Jersey business agent, Manny Mann; the union president, Tony Marino; and the chief steward, Al Annunciata, had all been sufficiently interested in the idea to join me on a trip to Cambridge, Massachusetts, to learn about an MIT professor’s program called the “Scanlon Plan,” a plan to involve workers, increase productivity, and share in the financial improvement.

We did not implement the Scanlon Plan, however, for two reasons: The methodology of the plan was flawed (this was later confirmed by companies that tried it unsuccessfully), and UAW leaders were not yet ready to approve a cooperative effort with management.  The UAW headquarters, at that time, regarded a labor/management partnership with suspicion because they thought that it would be a battle over the loyalty of the workers.  This is generally not the case today.  Union statesmen now recognize that to grow and prosper, unions must support the workers’ involvement in generating good quality and high productivity.

All of these talented people had been at Electro Dynamic when I arrived and were just waiting for the opportunity to make their full contribution.  But after working hard to build a proud company, many of us at Electro Dynamic stood on a nearby hill well into a Saturday night, April 20, 1963, watching the whole effort literally go up in smoke.  By that time, Electro Dynamic’s growth had required the repurchase of several adjacent buildings formerly owned by Elco, a part of the parent company.  One of these buildings had been used to build PT boats, including PT-109, President Kennedy’s famous boat.  All was consumed in a raging fire that started at a near-by plastics factory and spread before 50-knot winds blowing from the west across Newark Bay.

The following morning, about 15 managers and foremen met at my home in Rumson to face a tough question: How do you rebuild a complicated business that has been completely destroyed?  The destruction was total: fourteen buildings; all machines, except a few turret lathes; all jigs, dies, fixtures; and finally, all our drawings.  We had carefully microfilmed the drawings, but we had not been smart enough to move the films off-site.  When the three-story buildings caved in, the microfilm back-ups melted in their vaults.          

The Electro Dynamic team re-enacted the mythology of the Phoenix’s rising from its own ashes and accomplished a seemingly impossible task.  Some people were assigned parts of the problem to be acted upon, and others volunteered.  All were then, by necessity, completely free to work on their part of the reconstruction.  Each was motivated to the fullest as part of a whole, and all performed beyond belief. Previously marginal performers responded to the challenge of common purpose and turned out to be some of the greatest heroes. Ever since, I have imagined the potential progress for society as a whole, if these seemingly simple factors could only be brought into play: A common mission for the common good, with sufficient freedom for people to make their respective contributions.      

In space provided by our good neighbor, Englander Mattress, we were back in business on Monday morning after the Saturday fire.  With good service from the phone company, our phones were being answered bravely, “Electro Dynamic!” as though it were simply the beginning of another ordinary work week.  That morning, employees were informed that all benefits would be continued.  Within five months, new motors were being shipped from a new facility.  Virtually every employee had stayed with Electro Dynamic.

During this time, I had the stressful responsibility of convincing the Board of General Dynamics to rebuild E.D.  For this purpose, I was invited to make my presentation to the Board in the latter part of 1963 at the company headquarters in Rockefeller Center.  I was, of course, nervous; the livelihood of 800 people and their families hung on the decision.

During my presentation, Colonel Henry Crown, the largest shareholder, asked a legitimate business question: Why should the corporation not simply pick up the insurance pay-off and get rid of this small division?  I like to think that it was my eloquence that resulted in the Board’s decision to rebuild Electro; actually, it was Shapiro, the Bonners, Reposi, and 800 others who had built up the premier position in low-noise submarine motors.  No way could large General Dynamics offend the Defense Department by pulling the plug on small Electro Dynamic!

The metamorphosis of Electro Dynamic from a century of failure to industrial preeminence is, to me, empirical confirmation of the democratic capitalist principle about the enormous potential of people.  The way in which we overcame the total destruction of the fire was living proof of both the human potential and harmonizing principles.

I was 37 years old at the time, and I saw that during the eight years before—five as plant manager, three as president—these principles had been demonstrated in the remarkable conversion of Electro Dynamic from persistent failure to outstanding success, but that was nothing compared to the performance of hundreds of people functioning under extreme pressure. Many at General Dynamics’s corporate office had thought the task impossible.  The ordinary people at Electro Dynamic, however, accomplished the impossible through the kind of noble effort that, tragically, we usually see only in wartime. This has to be the ultimate self-criticism of the human effort at governance: Our most noble efforts often emerge only as part of the obscenity of war.  Nations’ leaders have historically stimulated a sense of common purpose while sending young people to kill and be killed in war, but few have succeeded in developing an equivalent sense of common purpose in peacetime.

The greatest compliment to this team’s extraordinary performance was paid by Admiral Rickover himself when his organization ordered the Navy to use GE motors on an interim basis until Electro Dynamic could get back in business.  The re-creation of this business from total destruction was an agonizing experience, but it also taught many useful lessons.  Since this experience, I have never had any doubts about the enormous potential of people when they are united in a common purpose.          

The parent company, General Dynamics, was an unmanageable conglomerate that had been put together by an ego-driven deal-maker.  He was succeeded by CEOs and a corporate staff who had neither training nor instinct for democratic capitalism.  Most of the division presidents were capable, but the corporate group failed to recognize that success of their illogical assortment of operations depended on sufficient freedom for the division managers and their people.  Large repetitive errors were an inevitability in this environment, such as the ill-fated 880-990 commercial jet program.  This was a corporate office plan to diversify the company away from dependence exclusively on defense work. General Dynamics had jumped on the commercial jet program late in the game. The only available customer was TWA, then dominated by the erratic Howard Hughes, who insisted on designing the plane’s interior layout in a way that had no appeal to other potential customers.  General Dynamics ended up with the largest corporate loss at that time in American history.

As the youngest member of the internal General Dynamics Board of Management representing by far the smallest division, I was still required to meet with other division presidents and corporate officers once a month.  Stepping from the survival efforts at Electro Dynamic, in Bayonne, into the California world of jets and missiles, was a surreal experience. 

I left Electro Dynamic in 1966; within a couple of years, Shapiro, the Bonners, and Reposi left to start Hansome Energy Systems, which became a successful company.  I was pleased when they asked me to become a Director.

The parent company, General Dynamics, regarded Electro Dynamic as a nuisance because of its relatively small size.  After I left, they brought in unqualified managers who proved that whereas it takes time and a unique combination of skills to build a good company, it takes but little time and no skill to destroy it.

In 2000, General Dynamics shut down Electro Dynamic and sold the property.  Hansome Energy, who had already absorbed most of Electro Dynamic’s motor business, then purchased the rest. Harris Shapiro and the Bonner brothers had died, but their legacy of democratic capitalism continued under Al Reposi as chairman, and Harris Shapiro’s sister-in-law, Selma Rossen, as president.  

Howe Richardson Scale Company and the Robert Morse Corp.  

Bob Morse was third generation of the Fairbanks Morse family.  The U. S. company was fought over in a well-known takeover battle in the 1950s.  Bob then “bought” the Canadian Fairbanks Morse Company from his grandfather and proceeded to acquire pump and scale companies in the United States.  His consultant recommended that he bring in a chief operating officer.  I was selected.

My job was simultaneously to be president of the Howe Richardson Scale Company and Group V. P. of the corporation, which was headquartered in Montréal.  The Howe Richardson part was easy—good people, good products, good markets.  With the help of Walter Young, we cut staff by attrition and selectively raised prices for a quick and dramatic improvement.  I passed on the president’s title to Walter, and he proceeded to grow the business.

Morse talked me into moving my family to Montréal; a year later, concerned about a potential new capital gains tax in Canada, he decided to sell the business.  All of the many divisions were doing substantially better under my leadership, so Bob started the sale by using me as the prize in the top of the Crackerjack box.  Subsequently, Bob recognized that he might have to sell the company in pieces, so I left.

My kids know that I think self-development is everything in career building, and that every setback is an opportunity to develop one’s abilities. Everyone gets dumped on by external events; some learn to whine and they become victims, some learn to control their own destiny by regarding these events as opportunities.  Looking for a job can be a demeaning experience, however, and I had my share of interviews with arrogant CEOs, after having traveled considerable distances for the “opportunity.”  This was a period of considerable “self-development.”  

ADT, Inc.  

When I joined ADT in 1970, the company was distracted by a recent anti-trust settlement, loss of market share, and limited technological momentum.  ADT was over 100 years old, and it occupied the largest position in the central-station alarm business.   ADT central stations monitored fire and burglar alarm signals 24-hours-a-day, 7-days-a-week, transmitting from commercial premises, especially jewelers, banks, and manufacturers.  ADT had recently become an independent public company as a result of an antitrust action.  The new Board, led by John Whitehead, co-head of Goldman Sachs, and later Deputy Secretary of State, recruited me to manage the company in its new circumstances.

Inside the dismal headquarters, a departmental organization concerned itself more with turf wars than with cooperation. I made no criticism of this situation, whether inside or outside the company.  I had been through this before; so, I started off by listening and by treating the situation for what it was, an opportunity for all.  I knew before I began that many good and talented people were yearning for a chance to get involved and make their contributions.

Motivating the organization was essential.  Equally fundamental to ADT’s future was building technological momentum.  Many of ADT’s hundreds of thousands of electro-mechanical systems on customer premises were old but well maintained, and they produced a stable, recurring revenue on a lease-contract basis.  The whole industry, however, was ready for a step-change of technology to solid-state electronics with systems that could perform important new functions for less money.  The new availability of microprocessors in 1970 was changing everything.

Kinetic management challenges require a redirection from existing momentum; static management challenges are more difficult.  At ADT, I had to put various new forces in motion.  ADT, at that time, was like a large ship dead in the water, as sailors say.  Recognizing this, I embarked on a long-term plan to motivate the organization and grow the business. 

When I joined ADT at age 44, I put most of my net worth into the purchase of ADT stock.  Although the amount was modest, I instantly became the largest stockholder on the Board by a considerable amount.  Buying stock in the company with one’s own money gives the professional manager an ownership-feeling usually not accomplished through stock options.  Options engender an ownership feeling for some, but for many, they foster a short-term attitude and a susceptibility to deal-making. During my eighteen years with ADT, I took every dollar of bonus in ADT stock. Many times, that left us “cash poor,” but that is how an owner is supposed to feel!

At ADT, I spent my first two years traveling and listening.  My first changes were the decentralization in two selected regions, and the appointment of a scientific advisory committee.  High-tech professors on this committee stimulated ADT engineers, under the direction of Engineering V.P. Tony Grosso, to recognize the wonderful things they could do with the new electronic technology.

The decentralization was not complicated. Los Angeles and New York became the test districts in which the district managers there were made responsible for all disciplines.  Sales, service, and operations had previously reported up the hierarchy to senior positions in headquarters for each discipline.   An MBA from Harvard was not required to make this change, but it did take a democratic capitalist who recognized the right people, promoted them from within the company, motivated them, and left them free to make their business work locally.

Once sufficient operating momentum had been generated, ADT moved to new headquarters on the 91st and 92nd floors of the World Trade Center in New York City, where it remained until 1985.  The tragedy of September 11, 2001, is especially shocking to me because the first plane hit near where my office and adjacent Boardroom had been located. 

By 1977, the ADT working culture was sufficiently changed to be ready for a profit-sharing, stock-purchase plan.  Care and Share was then implemented.  With the help of previously under-utilized talent at ADT, we had redesigned ADT’s product line and reorganized the company according to the principles of democratic capitalism; good growth and increased profits followed.  ADT expected all employees to contribute up to their potential, and I knew that to sustain their efforts, everyone had to share in the improvements.  A contest to name the new plan was held, and a woman in the Detroit office won, proposing that the more workers cared, the more they would share; hence, Care and Share.  With the assistance of Bob Donnelly, V.P. and General Counsel, we designed and launched the plan with immediate success.

In most branches, 60% employee participation was typical, whether in union or non-union cities.  This level of participation is notable because the employees had to make deductions from their wages to participate in Care and Share.  There was no waiting period for participation; all workers were encouraged to become Care and Share associates from the first day of their employment, and to start thinking like owners.

From 1970, when I had joined ADT, until 1983, profits improved every year.  Wall Street was always looking for either bigger gains or, preferably, a takeover of the company, for ADT was under constant attack by predators.  We managers felt that we had to play defense every morning in order to play offense in the afternoon.

The Wall Street analysts’ instincts were accurate:  ADT could have produced much higher short-term earnings but at the sacrifice of long-term growth.  Our strategy was to produce sufficient improvement to keep Wall Street reasonably quiet, if a bit sullen, and then invest incrementally above these modest profit improvements in new products and new markets.  From 1970 to 1983, ADT followed this strategy, adding to stockholders’ profits each year while pumping what could have been stronger profit improvement into new-growth programs.  This was not exactly a unique strategy, for most democratic capitalist companies follow a similar pattern, dividing improvements between increased profits and sales growth.  This, however, was before short-term earnings pressure became excessive in the 1980s.

ADT had a profitable customer base that paid a fee once a month for central-station services and the maintenance of their systems, but by 1983, ADT had to face a new challenge, for we had shot ourselves in the foot.  By integrating the new technology into such effective, customer-friendly systems, we inevitably stimulated old customers using old systems to ask, “When can we get this new system called Focus?”

How could we not offer advanced technology to our existing customers?  But if we did, we would destroy this precious recurring stream of revenue.  The archaic systems with their point-to-point wiring and simple controls needed to be replaced with multiplex systems that supervised and monitored all points of protection.  Later, the technology allowed two-way communication of vital information, not just back to the on-premise control but all the way to the newly automated remote central stations.  ADT had the same dilemma that AT&T and IBM faced on a much larger scale.  The long-term answer was an expensive plan to upgrade the old systems and provide the new features.

ADT bit the bullet and embarked on this plan, after telling stockholders that profits would be sacrificed for a couple of years.  In the face of already declining profits, the boldest part of the plan was the addition of about 300 people to the sales force.  We believed in the new products, both for existing customers and for new customers, and we had to honor that belief with a commitment to cover the market.  By 1987, our investments were paying off in strong sales growth and profit momentum.  The consolidation from a worldwide total of 166 central stations down to about 20 highly automated stations was well underway, as was the less glamorous but equally important effort to integrate the entire data system.    

On May 12, 1987, I reviewed the financial prospects and the Care and Share plan in my remarks at the annual stockholders’ meeting on the 106^th floor of the World Trade Center:  

The final unique strength of ADT is a program and an environment intended to release the tremendous power of turned-on people.  This is the tenth anniversary of the introduction of the Care and Share program, which encourages everyone to participate and contribute to the success of the company and share in the improved results.  It is based on several very fundamental concepts which, happily, seem to be getting emphasis and attention in many areas of industry recently.  These concepts include giving proper dignity and respect to all, and recognizing that the best way to improve an operation is with the ideas and involvement of the people doing the work.

 

It recognizes that although improvement can be made in a fear environment, the potential is severely limited when compared to a participatory environment.  While the potential is much greater, the participatory environment is much harder to attain.  It becomes possible only when a philosophical base combines integrity with management skills. 

 

A critic of the plan, based simply on earnings-per-share improvement, could recognize simple congruence with all shareholders, but might view the plan as too amorphous, too removed from individual action, to have any real motivational benefit.  This is basically true and was recognized.  The answer is that a Care-and-Share type plan takes longer, and depends on great communication and leadership skills at all levels.

 

For all of these reasons, we feel that the Plan is still in its early stages, even though it has been in place for ten years, and most regard it as very successful.  Let me remind you of a few specifics of the Plan.  We now have over 4,500 participants in the U.S. and Canada.  Participants can put up to 8% of their income into the Plan.  Under the U.S. 401(k), part of this is put in as pre-tax dollars.  This is a good federal benefit that helps improve the abnormally low rate of savings in the U.S.

 

Investment options include equities, bonds, a money-market fund, and, of course, ADT stock.  For every dollar an associate puts in, the Company contributes a minimum of 20 cents.  When earnings per share improve 12% or more, then the more substantial sharing begins.  At 15%, ADT’s investment is 50 cents per dollar; at 20%, 75 cents, and at the tough target of 25%, the Company would match dollar-for-dollar.  All of ADT’s money goes to the Plan trustee, Bankers Trust, and is put into ADT stock.

 

During the ten years of the Plan, the Company has contributed over $13.5 million.  Mostly as a result of Care and Share, associates now own about 11.5% of the Company.  In addition to the earnings sharing, over $1 million in dividends is now flowing into the Plan annually.

 

A recent issue of Business Week had a cover piece on the dichotomy between management and shareholders. I’m sure you can recognize the common interest at ADT, among management-shareholders, associate-shareholders, and outside shareholders, that this Plan provides.

 

An additional reason that the Plan is important to ADT is the unsupervised nature of our business.  We send thousands of sales people, installers, maintenance people, and inspectors out in the morning with a “Do good, avoid evil, and give ADT a good day’s work!” and are regularly reminded of how dependent we are on the attitude of associates.

 

All of these ambitious goals for improving the quality of life for all associates are realizable, in the broadest context, in democratic capitalism.  With the 200th anniversary of the drafting of the Constitution this summer, it is an appropriate time to recognize the incredible system in which we have the good fortune to operate.  The powerful combination of economic and political freedom has produced the greatest gains in standard of living for the greatest number of people in history.

At the beginning of this stockholders’ meeting, I made a financial commitment to improve earnings a consistent 15% a year, and then I made the even bolder prediction that ADT could do this irrespective of the state of the economy.  I felt that the stockholders had been patient for several years of weak earnings while we restructured the company to take best advantage of new technology.  Fairness to our stockholders required us to tell them that their acceptance of this long-term effort by management would now pay off.        

Contrary to management’s agenda, ADT was taken over in 1987 by the Hawley Group, who later changed their own name to the better known ADT.  The new owners had the good sense to keep the management of ADT under Les Brualdi who had been a key part of management for the preceding 12 years.  Under Les’s direction, ADT grew rapidly and set new records with the introduction of affordable security systems for homeowners.  In 1970, residential systems had been regarded as a distraction by most people in ADT; by the end of Les Brualdi’s term in 1997, ADT was selling over 200,000 home systems a year.  Among Les’s many achievements, he kept Care and Share in place.

When ADT was sold in 1987 for $815 million, the employees received about $115 million of this total.  ADT associates took home large checks, many over $100,000, to spouses who had never seen amounts that large before.   In 1997, ADT was merged into Tyco, a U.S. company in many related businesses.  ADT’s value at that time, with help from the bull market and many acquisitions, was placed at $2.8 billion.  When I had joined ADT in 1970, its market value as well as sales had been about $90 million.  These comparisons validate the financial premise of democratic capitalism: The investment in human values at ADT produced profits and growth superior to any of its major competitors.   

When Workers Become Owners  

The following is the message to all ADT employees that introduced Care and Share in 1977:  

TO ALL ADT EMPLOYEES:

 

The new ADT Profit Sharing and Savings Plan may be one of the most important programs in ADT’s history, for you and for the Company.  I’m convinced that all of us at ADT have a tremendous potential to do better.  This plan is intended to encourage us to improve ADT and to reward us as these improvements are made.

 

Most people like to feel they are playing on a winning team. Most people like to be associated with things that are “First Class.”  Most people like to feel they are pursuing excellence in their lives.  All of these feelings relating to personal satisfaction are available in our work if we learn to CARE, if we learn to COOPERATE, if we learn to COMMUNICATE.

 

ADT is a fine company now.  It can be a great Company.  I’m convinced that we at ADT have a unique opportunity to make a Plan such as this work successfully.  We have the potential for improvement, we have opportunities to expand, and I believe we have the type of employees that will make it work!

 

My enthusiasm for the Plan is quite clear.  But it is important for me to emphasize to each of you that this is a savings and investment decision which each of you has to make.  Any investment decision includes an element of risk. I would urge you to study the Plan carefully, be sure all of your questions are adequately answered and then make a well informed decision.

 

July 1, 1977

Raymond B. Carey, Jr.

President

Because of the record bankruptcy of Enron in 2001, political attention has been paid to employees’ concentrating too much of their net worth in their company’s stock.  I pointed out the risk factor in this introduction to Care and Share, although the plan was in addition to, not a substitute for, the company’s pension plan.  Every manager was also responsible annually to review each Care and Share account with the employee. Associates who would retire in five years were encouraged to convert their account to guaranteed income bonds.  Associates were reminded that, while ADT ought to continue to prosper, the stock market could fall and pull ADT down with it.

Thousands of plans like Care and Share are operating successfully today, but as democratic capitalism has little visibility either among the intellectual community or in the educational process, the importance of these plans for worldwide wealth-creation is little understood.  These are not “nice to have, feel-good programs”; they are an indispensable part of wealth-creation and distribution.  Properly applied, they contain the answers to economic dilemmas both in mature and in developing countries.  

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