Can Roger Milliken Emulate William Randolph Hearst?

COVER STORY

By Alyssa A. Lappen
Forbes | May 29, 1989

Vol. 143, No. 11, pp. 52-56
2,983 words

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ROGER MILLIKEN IS ONE of the great businessmen of the modern era. Almost unsung–and preferring it that way–Milliken used innovation and intelligence to turn a family business in a sick industry into an immense fortune worth nearly $4 billion. Business people looking for lessons on success and survival in a rapidly changing world would do well to study Milliken’s record as well as his career.

But this is also a poignant story, an account of a 73-year-old fighting to preserve what he created against a clamor among some of the family’s heirs for control. If the heirs have their way, Milliken & Co. may not survive in its current form.

Where did Milliken make his money? Wall Street? Computers? Media? Nothing so glamorous. Roger Milliken is a textile man, and his Milliken & Co. stands out among its generally lackluster competitors.

In an industry littered with debt-ridden companies earning pathetic returns, Milliken & Co. is almost debt-free, and FORBES estimates that the company’s aftertax earnings average at least 8% of sales–more than two times the textile trade median and 60% higher than U.S. industry in general. Its cash flow is at least $400 million a year. That is more than Burlington Industries, Springs Industries, West Point-Pepperell and Fieldcrest Cannon combined. Almost all of Milliken’s cash flow is reinvested in the business, with annual dividends no more than 5% of aftertax income, or about $10 million a year.

Milliken & Co. is the jewel in the family crown. If the closely held company were sold today, the price tag would easily be $3 billion. Other family interests in retailing and real estate are worth at least $700 million. For years FORBES has estimated the family wealth at about $1.4 billion; but still we find we were off by as much as 60%. Any way you count it, this is one of America’s great family fortunes.

Milliken & Co. is by far the textile industry’s leader in research, technology, quality and services.

If much of this has gone unnoticed, it is because Roger Milliken wants it that way. Roger Milliken is so passionately secretive that few of the company’s 200 or so shareholders have ever seen the company’s results.

Even within the industry, few people know how big the company is, but after months of checking, FORBES estimates that the company’s revenues are roughly $ 2.5 billion, far higher than most outsiders had ever estimated. Its unfinished fabrics, apparel and chemicals division has estimated sales of $1 billion; automotive and elastic fabrics division, perhaps $600 million; industrial goods, some $550 million; and interior furnishings, about $320 million.

Interviews with more than 100 former executives, competitors, suppliers, customers and others have brought to light a detailed picture of this intensely private company.

Roger Milliken agreed to be interviewed by FORBES only on industry issues. Regarding most questions FORBES asked about his company, Milliken snapped, “You’ve crossed the line.”

Roger’s grandfather, Seth Milliken, and William Deering started the company in Portland, Me. in 1865 as an agent selling fabric. (Deering later left to start the firm that became Navistar.) Soon Seth moved the business to New York City and began collecting the accounts receivable for textile mills around New England and the South. This put Seth in an ideal position to spot mill owners who had fallen on hard times. He built his company in large part by buying up such ailing mills. Gerrish Milliken, who was Seth’s son and Roger’s father, continued that tradition right through the Depression, keeping the company debt-free and liquid, ready with cash when others lacked it.

The Millikens built their business on a simple piece of experience: Debt and leverage are wonderful when times are good, but when the crunch comes, cash is king. Most U.S. business people have forgotten this fact. It is engraved, as it were, on the Milliken family crest.

Roger Milliken can be alternately gruff and charming, and that’s how he runs his company. He refers to his style as “management by wandering around.” Milliken has an office at the back of his home, a modest colonial not far off Pine Street in Spartanburg, S.C. But most of the time he is on the road, crawling under the latest textile machinery or exhorting one of his managers on how to maintain customer loyalty. He regularly visits his 57 plants. Despite his age and his wealth, he still works 90 to 100 hours a week.

Slow down? “The world makes it [hard work] necessary. Competition gets tougher and things move faster,” he says in a rare interview aboard his private jet, bound for Boston where he will lecture to an executive training program at Harvard Business School.

Milliken has become somewhat more public in recent years–but only to a degree. Friends say he changed markedly after surviving a helicopter crash in 1984. Before the accident, he stuck almost exclusively to his own business. When he ventured elsewhere, whether lobbying in Washington or working a textile trade show, he preferred to use his influence behind the scenes (see box, p. 60). But in the past five years he has opened up, even agreeing to lead various national business campaigns. It was just after the accident, for instance, that Milliken reversed an earlier decision and took command on the textile industry’s national effort to get Americans to buy more U.S. products. Even here, he hasn’t moved far from his own industry.

Milliken is hardly a household name, but its products–usually unlabeled–are all around us. The company controls about 30% of the $1.2 billion U.S. market for the stretch fabrics that are used in swimsuits and sportswear. Another big Milliken business is selling cloth for uniforms worn by workers at Burger King, McDonald’s, Hertz and Avis. Milliken has about 40% of the more than $300 million market for acetate and acetate blends used in coats, casket linings and women’s outerwear. In the $900 million market for automotive fabrics, the company has a share of perhaps 25%.

While many a textile baron has milked his mills dry, Milliken reinvests as if he were running a startup software company. In an industry that has been around since the dawn of time, he still pours his money into technology–the fastest looms, the highest-quality knitting machines, the most efficient yarn spinners. Even the company headquarters in Spartanburg look more like a research institute than a textile outfit. As if to underscore Milliken’s outlook, the sign at the entrance reads “Milliken Research Corporation.” Mere window dressing? No. Milliken & Co. has more than 1,200 patents–on everything from color-enhancing chemicals to computerized carpet dyers.

Milliken’s most celebrated invention is Visa, an easy-care fabric finish used in products ranging from clothing to tablecloths. Brought to market in the late Sixties, Visa put Milliken in the forefront of developing patented finishes for fabric. Building Visa as a name brand helped Milliken reap fat margins, making the product well worth the $100 million he has spent to advertise it.
The history of Visa says a lot about this man’s commitment to change. Visa was first made with an irradiation process, which altered its molecules to resist stains. That technique has since been abandoned for a chemical process. Today Milliken engineers are still tinkering in the labs, trying to improve on Visa.

Milliken sometimes gets his hands on new products because of his company’s sheer size. He is such a large buyer of fibers from companies like Du Pont and Hoechst Celanese that he sometimes negotiates exclusive rights to buy certain types of new fibers. These rights, usually lasting six months or a year, allow Milliken to offer his own customers hot products that competitors cannot.

When new spinning or knitting machines come out, he’s been known to buy all the manufacturer can make, giving Milliken & Co. an edge. A few years back Milliken sent 235 managers to Paris for a machinery show, filling an entire hotel for a week. Since 1985 he has bought 1,500 of the latest Japanese looms. Recently he bought 500 more Belgian looms, which will go in this year. While making cloth for products like nylon jacket shells or coat linings, the looms can stop automatically to pick out defects and then restart themselves.

Automation helps keep labor costs down. Milliken plants with as many as 400 high-speed looms can run with only three or four weavers per shift. On top of that, Milliken’s factories run around the clock, seven days a week, because of a unique system of rotating shifts. Overall, Milliken employs only about 14,000 people. Compare this with competitor Springs Industries, whose sales are 30% lower but employs 9,000 more people.

Roger Milliken is not beloved of labor unions. He returns the compliment. His most famous stand against labor came in 1956. One day after workers in Darlington, S.C. voted to unionize, he announced the closing of their plant. The resulting legal tangle landed in the Supreme Court and took 24 years to unravel. Milliken lost and eventually settled out of court, paying $5 million to the workers. But he won the war. Since Darlington, the unions have made token leafleting efforts at Milliken & Co. mills, but they know Roger Milliken is a tough–some say impossible–nut to crack. He pays wages that are competitive with those in unionized mills, but because he can set his own work rules, his plants are more efficient than unionized plants. This is the real gist of his dislike of unions: They help neither business nor the workers themselves.

Milliken expects his managers to work every bit as hard as he does. He rarely hires them from other textile companies, preferring to cultivate his own army of graduates from colleges such as Georgia Tech, Clemson, Tulane and MIT. The recruits start on the factory floor, and if Milliken judges them good enough, they get a chance to move up. Milliken doesn’t hold back on salary: His average plant manager can earn 30% more than other firms pay. Apparently content, many executives have been at the company for 20 or 30 years. But work-weeks run 60 hours, and Milliken often calls meetings on weekends. Says one departed Milliken executive, “He’s very nice, but he’s a tough task-master, not your pal.”

Milliken is a management pioneer. The recently popular management technique of looking at each aspect of a business as a profit center is old hat to him. Milliken & Co. has about 50 strategic business units, which make everything from Lycra fabric for bathing suits to auto upholstery to industrial rags. Each separate unit reports profit and loss results–and not by quarter but by four-week “periods,” 13 per year.

Milliken hates to take back goods once he has sold them. One way he avoids returns is by having such high quality that customers can’t find any defects. In fact, a “zero defects” program has cut flaws so sharply that many customers no longer inspect Milliken & Co. shipments. Company insiders say that by cutting waste the quality program has sharply increased Milliken’s already fat profits. Quality control has helped the company get jobs, too. Its industrial division, for example, is the only U.S. firm approved to supply braided polyester tire cord to Michelin.

In these days of international competition, no business can ignore costs, and Milliken knows how to play into this cost awareness. Years ago Milliken set up his own truck delivery system, for instance, and began mailing customers fake monthly “freight save” checks to remind them of how much cheaper his transport service was than commercial truckers. Milliken also sends cost reduction teams to customers’ plants to give advice on process engineering. Napery customers who make a business of renting tablecloths and linens to restaurants are schooled by Milliken specialists in the most efficient washing techniques. Milliken’s current penny-pinching crusade is for Quick Response, a computerized just-in-time ordering service to which Milliken & Co. has wired all its major customers, who together account for more than 50% of sales.

While this native New Yorker knows how to play to the hilt the southern courtesy and hospitality role, he is, when it comes to the bottom line, all business. Says Joseph Haggar, president of Haggar Apparel Co. in Dallas, “There’s never a visit with Roger when he doesn’t talk about money and orders.”

And don’t be late in paying your bills to Roger Milliken. In the unfinished gray-goods division, for example, Milliken insists that customers pay their bills in 30 days, as against the 60-day payment period that is standard in this part of the textile trade. If customers don’t pay on time, Milliken has been known to hold up further shipments–and bill the “deadbeats” for storage. Milliken has lost some customers because of his strict payment policy, but he knows all too well what happens to mills that are too lenient with customers; his family company was built on the remains of some of them.

He can be stubborn, too. He shunned cotton in the early 1980s because synthetics require less labor and he didn’t want to meet government cotton dust rules–which he fought for years in another long legal battle. He ignored the American trend toward wearing all natural fibers, and now he’s scrambling to catch up.

Acquisitions? Milliken considered buying West Point-Pepperell’s Alamac knitting division last year, but backed out probably because the price was too rich. instead he may be moving toward diversification. In 1988 the company opened a new chemical plant in Blacksburg, S.C. to make Millad, a clarifying agent for polypropylene bottles, housewares and medical supplies. The market is still small–perhaps $10 million–but it is growing fast. With prices at $10 to $20 per pound, the Blacksburg plant is tripling capacity.
Milliken has spent most of his life fighting imports and, in fact, gets overseas sales where he can. He has eight plants abroad, in places like Britain, France and Belgium. Right now he is in a joint venture making nonwoven fabrics with a French partner. Milliken also is selling to Japanese automakers from a new Tokyo office.

And Roger Millken’s reach extends well beyond textiles. His family owns a 41% stake in Mercantile Stores (1988 sales, $2.3 billion). Today that stake is worth some $700 million. As a director of Mercantile, Milliken has again shown his golden touch: The chain’s aftertax margin, at 6%, is double the industry average. Besides Mercantile, the Milliken clan also holds some 100,000 acres of timberland in Maine worth some $20 million.

But this driven, brilliant man may be the last in the family dynasty, and his empire may not last as long as he hopes. He decided long ago to keep the heirs out of the company. In 1955 he fired his brother-in-law, W. B. Dixon Stroud. In 1984 Milliken officially broke the chain of family command by naming Thomas Malone, age 49, president and heir apparent. his brother, Gerrish, and cousin Minot Milliken, both board members, evidently went along. He also revised the company charter to expand the board to include as many as 13 directors, with only a few of those seats available to shareholders, who are almost all family.

Milliken has never explained why he excluded his family from management. He has five children, Roger Milliken Jr., Justine, Nancy, David and Weston, but he has also left out 16 nieces and nephews, none of whom has ever worked for the company.

Roger Milliken’s chosen successor, Tom Malone, is credited with instituting Milliken & Co.’s successful quality program. But Malone will have problems filling Milliken’s shoes. For one thing, Malone’s subordinates seem to almost universally dislike him. What’s more, even among those who fear him, Malone doesn’t automatically elicit the respect that Milliken does.

What has Milliken got in mind for the empire he created? Perhaps he hopes to rule from beyond the grave. Through individual holdings and more than 50 family trusts, Milliken, his brother, Gerrish, and his cousin Minot control more than 50% of the company’s common stock and 30% of its preferred. The recently amended certificate of incorporation extends that control by creating a self-perpetuating board dominated by outside directors and managers handpicked by Roger Milliken. The new rules also dictate that Milliken & Co. cannot be sold unless 75% of the voting power approves. In this, Milliken may be copying the example of William Randolph Hearst, who bypassed his heirs and ceded control of Hearst corp. to a handpicked, self-perpetuating board (FORBES, Dec. 14, 1987). For Hearst it worked; the board has run the company with great success, so much so that it remains private and growing 38 years after the founder’s death.

But this plan for preserving the empire may founder on legal rocks. In a family as old as this one, there are inevitably heirs who, while frozen out of management, own substantial blocks of stock. Four of the seven children of milliken’s late sister, Joan Milliken Stroud, whose family owns a stake of about 15% are disgruntled with a situation that prevents them from having any control over how the company is run. They have sued Milliken and his board at least three times to get information and to prevent what they consider an illegal trampling of their rights. From all indications, this family argument could soon break into open corporate warfare, an embarrassment for a family that for generations has closely guarded its privacy.

It’s a poignant dilemma for Roger Millken: He wants his creation to live beyond his own life span, and well into the next century.

But the legal fact is that the company does not entirely belong to him. He wants a monument; many of his heirs want more control.

But whatever happens, Roger Millken’s reputation as one of the era’s greatest businessmen is secure.

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