Company president and CEO Jim Anderson gives a tour on the manufacturing floor of Schebler Co. during the company's 120th anniversary celebration in 2015.
Anthony Henderson operates a seam welder at Schebler Co. in Bettendorf.
Joe Christiansen welds a product at Schebler Co. in Bettendorf.
Third-shift worker Zack Cox cuts metal with a shear at Schebler Co. in Bettendorf.
Third-shift worker Tony DePardo operates a spot welder at Schebler Co. in Bettendorf.
Schebler employees Matt Logsdon, center, and Bryan Speth, second from right, show stainless steel fabrication products to visitors during 120th anniversary celebration at the Bettendorf manufacturer.
A photograph from Schebler Co.'s early days as a tin shop.
Schebler Co. makes specialty fabrication products for more than 600 customers.
A worker at Schebler Co. inspects one of the chimneys built at the Bettendorf company.
A welder works at Schebler Co., which produces 2 million square feet of steel a year.
Receptionist Carol Anderson at Schebler Co. is among the many long-term employees at the Bettendorf company.
At 127 years, Schebler Co. is one of the oldest businesses in the Quad-Cities. Started in 1895 by two German immigrant brothers, the company has grown from a simple metals shop into one of North America’s leading industrial chimney manufacturers and metal fabricators, headquartered in 175,000 square feet of space on an 18-acre campus along the Bettendorf riverfront. It has four divisions today: industrial chimney systems, specialty fabrication services, residential and commercial heating/cooling solutions, and food manufacturing equipment. Schebler employs close to 200 people.
Earlier this year, the ownership group turned the company over to employees in an employee stock ownership program, or ESOP. It allowed the investors to step away while retaining the company’s presence in the Quad-Cities. Had the company been sold, it likely would have been broken up into pieces. An ESOP ensured Schebler will remain a hometown company for years to come.
ESOPs are often used in succession planning to allow owners to sell shares and transition flexibly out of the business. ESOPs are typically set up as trust funds where employees can acquire shares as part of a compensation package.
That’s exactly what happened at Schebler. A family-owned company in Davenport until 1979, since 2000, Schebler has been owned by primary shareholders from the Quad-Cities, Minnesota, Cedar Rapids and Chicago. As some investors left and others came on board, some began to think about a transition strategy.
I recently visited with President and CEO Jim Anderson about the transition plan and what other companies might take away from Schebler’s experience.
MC: Before we chat ESOPs tell me a little bit about how the company is structured.
JA: Sure. Chimneys represent about 50% of the business, and then specialty fabs about 30% and HVAC about 20%. For instance, we make a lot of products for Hardi, Deere, and for a lot of other manufacturers in town. We do infrastructure work for them if they need dust collectors and things like that. And we do a fair amount of process work for Nestle.
MC: The company has been around forever but really took off in the past 20 years or so. What’s the reason?
JA: The big switch for us was in the 1990s when we entered chimneys. That was a major shift in the business, and then in 2000 and 2008 with a lot more emphasis. To give you a feel, since 2000 our chimney business has more than tripled. Since 2007, it’s more than doubled in size. Now, I’d say we’re top three in size.
MC: How’d you grow that fast?
JA: Well, we were really focusing on one segment of the boiler market. As we really looked at the chimney market there was very much a commodity mentality. In other words, a chimney is a chimney and whoever has the lowest price wins. And so we started looking at segments like grease ducts and especially generators and asking, How can we design a product that actually adds value to the customer and provides something that somebody else doesn’t? So we shifted the discussion from price to value and performance. And we had rocket growth as a result of that. Bottom line: We took a commodity market and offered a value-added product and service.
MC: Schebler’s latest big news is the employee ownership structure. How did that develop?
JA: We created an independent trust who then borrowed the money from the bank and the existing shareholders and which they then bought in all the stock, so one trust holds all the stock. Over time, that trust, with a very regimented formula approved by the IRS, will distribute shares at no cost to the employees. So the employees have no cash input at all. The business is buying itself, if you will, and giving it to the employees.
Really the why? Some of the ownership had been involved for 22 years, and so we really started a strategic discussion, because we really needed a transition plan. Some people were aging, some had been in the length of time they wanted to be. So we stepped back and looked at our options. One, selling to a strategic buyer; for example, another chimney supplier. Or we could sell to a financial buyer like some kind of fund might come and buy it. Or we could consider an ESOP.
As we considered the first two, the investors could have likely made more money with one of those. But we really felt it was not good for the remaining stakeholders. There’d likely be a chance some of the business would be broken up and leave the Quad-Cities, which we know wasn’t good for the employees, wasn’t good for the community, and it wasn’t good for our supplier partners. We also know a strategic buyer likely wouldn’t have taken a solutions-approach like we do – the value added – so we didn’t feel it was good for our customers. So really, the ESOP became the only realistic option. In that case, you know the investors obviously win because they create their transition plan, but they also stay involved in the board for three to eight years. The employees clearly win because they get a great retirement plan, job security, and now they have skin in the game. The customers win because they have continuity of product and continuity of service, and they’re receiving it now from the same employees who always did but who are even more motivated now because they’re owners. And then supplier partners and the community win because we’re still here. It’s proven fact that ESOPs grow faster than traditional businesses.
MC: Describe the process of converting to an ESOP. How much did you spend on lawyers?
JA: (Laughs) It was fairly complicated. Between Christmas and New Year’s I was communicating with six lawyers to get it done by the end of the year. We hired an ESOP consultant who helped us develop a plan and hire a trustee. We also had to change banks.
MC: How long from the time you decided this was the path forward to when the company pulled the trigger?
JA: I would say we worked on it nine months but talked about it a couple of years. We greatly benefited from one of our shareholders, who’s a nationally recognized ESOP attorney. If he wasn’t there we’d probably still be working on it.
MC: How has the ESOP been received by employees?
JA: So far very well. I would say there’s still the unknown. We’ve introduced it as “this is what’s occurring,” and providing information. We plan to hold small employee meetings with the trustee (this spring). It’s been well received with the idea that I need to understand more, but I think everyone recognizes this is a pretty exciting thing.
MC: You talked earlier about the investors’ wish to keep the business in the Quad-Cities. How much was that a factor in determining the company’s structure going forward?
JA: We have always managed our business with five stakeholders in mind, and one of those stakeholders is the community. I can show you that Schebler has strategic advantages because we employ eastern Iowa and western Illinois people. Their work ethic is second to none. The community was a major decision. If you watch the evolution of the Quad-Cities, we’ve had a lot of loss of privately held companies, and we didn’t want that to happen with Schebler. After being here 127 years, we weren’t going to walk away.
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Company president and CEO Jim Anderson gives a tour on the manufacturing floor of Schebler Co. during the company's 120th anniversary celebration in 2015.
Anthony Henderson operates a seam welder at Schebler Co. in Bettendorf.
Joe Christiansen welds a product at Schebler Co. in Bettendorf.
Third-shift worker Zack Cox cuts metal with a shear at Schebler Co. in Bettendorf.
Third-shift worker Tony DePardo operates a spot welder at Schebler Co. in Bettendorf.
Schebler employees Matt Logsdon, center, and Bryan Speth, second from right, show stainless steel fabrication products to visitors during 120th anniversary celebration at the Bettendorf manufacturer.
A photograph from Schebler Co.'s early days as a tin shop.
Schebler Co. makes specialty fabrication products for more than 600 customers.
A worker at Schebler Co. inspects one of the chimneys built at the Bettendorf company.
A welder works at Schebler Co., which produces 2 million square feet of steel a year.
Receptionist Carol Anderson at Schebler Co. is among the many long-term employees at the Bettendorf company.
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