On 1965 successful Cleveland entrepreneur Tinkham Veale II created Alco Standard Corporation by combining privately held V&V Companies, Inc. of Cleveland, Ohio, with Alco Chemical Corporation, a publicly traded company based in Philadelphia, Pennsylvania.

His concept was simple. Create a structure where the entrepreneurial spirit could soar and the corporation could relieve “partner” companies from administrative and regulatory burdens so that they could concentrate on growing their businesses. Veale was wildly successful.

The son-in-law of A.C. Ernst, a founding partner of accounting giant Ernst & Young, Veale admired that firm’s partnership structure. Now in his mid 70s, Veale had always scorned corporate bureaucracy. Calling headquarters staffers “shiny pants,” he formed the holding company Alco Standard with the simple concept of acquiring up-and-coming companies, usually in exchange for Alco stock. Each company’s successful entrepreneur remained at the helm of his business under its own name, while Alco relieved him of administrative chores like bookkeeping and accounting.

Since Veale first masterminded the Alco concept, revenues, profits, dividends and value per share have all shown constant growth. In 1985 when Ray Mundt was named chairman of the board, president and CEO of Alco Standard, the company had experienced uninterrupted growth for 20 years. Under Mundt’s leadership Alco Standard has followed a course of divestiture and consolidation. It now comprises two groups, the paper and industrial products group and the office products group. And uninterrupted growth has continued.

The View From The Top

“We have no big-shots here,” Mundt told Personal Selling Power. “The key to motivation at Alco Standard is the partnership concept.”

“Our staff people don’t run things, they don’t manage things, and they don’t make decisions for the operating people. We don’t have a ‘sales manager’ or ‘marketing manager’ on our corporate staff. It isn’t a push-down system. It’s a management of team effort. We believe our overall goal is to build shareholder value and then ask: ‘How do we grow this company profitably in the future?'”

Motivation starts with 1) the corporate mission, to build shareholder value, 2) the partnership concept, meaning that headquarters staff is there to assist as professionals with expertise individual successful entrepreneurs might not possess, and 3) individual companies make their own decisions about how to run and grow their businesses.

“We have a high participation in individual ownership in our company,” says Mundt, “and a management team that works together, respects one another, and uses their management talent to help build shareholder value and grow the company. In addition, we have an employee group that is very, very interested in building shareholder value and their own value. We have a corporate culture and structure that fosters positive results.”

You can’t just slap an incentive program on a culture that’s not working or on a company that’s not successful. Says Mundt, “If you don’t feel good about the way the company is organized, or where it’s going, or how it’s performing, it just won’t work.”

There are no special programs for the CEO, the COO or group presidents. They are partners like everyone else. The company’s fortunes and their own are one. You won’t find the executive suite taking bonuses in a bad year or taking credit in a good one. At Alco Standard the heat is on every day of every year for everyone.

Entrepreneurs are drawn to a company like Alco because they like to feel that they’re empowered, and that feeling of empowerment is motivating. “You also have to have some kind of reward system that ties together with this feeling of accomplishment,” says Mundt. “We do it two ways — through recognition and compensation.”

What motivates Ray Mundt? “My ability to achieve my principal responsibility, to build shareholder value, and to not only reward the shareholders but to permeate through the organization and reward our employees. We’ve actually increased our shareholder value by over 19 percent a year for the past twenty-some years, and that has accrued to all of our employees and all of our management team. It’s not only personal success; it’s also financial success. And the other thing is having a great group of partners who really respect each other and have a heck of a lot of fun working together.”

For Mundt motivation means building value and working with people who also want to build value.

Running The Whole Show

So how do they build value at Alco Standard? “Well, you have to start with John Stuart who is responsible for the performance of Alco Office Products,” explains COO Dick Gozon. “John and I take the business plan for the year, and John sets forth an expectation level for AOP. Each of his operating companies builds their individual plans around their individual marketplaces. They review this plan with John. John and I talk about those performance levels. I then take that, in conjunction with our other group, Paper Corporations of America, and put it together and review it with Ray, and then review it with our board of directors. So it’s basically our commitment to the corporation for our performance in the coming year. Within that plan are pathways for achieving the goals as well as rewarding people for getting there.

“If each individual company lives up to their commitment of performance,” he says, “then we’re going to create a significant amount of value for our shareholders.

“Successful people are attracted to environments where they have an opportunity to express themselves, to take risks, to enjoy a little bit of failure — which you have to do — and also to enjoy the rewards of their success. And that’s why Alco is such a wonderful place for the entrepreneur — we are adding to the capabilities of the entrepreneur and helping and supporting him in the marketplace to service his customers and grow his business.”

Underlying the tangible Alco system is a set of values that, although all companies might say they have in place, the Alco system demands. “At the top of that list,” says Gozon, “is trust. Within our environment, you have to have a lot of trust that individuals will deliver what they say they are going to deliver. Second is teamwork. That’s the ability to work together for the common good. Next comes leadership. At Alco Office Products, John Stuart sets the tone, the standard of excellence and the example for other people to follow. We expect those running our individual operating companies to set the tone for excellence.

“Fourth is integrity. It is a big part of our value system. We don’t take shortcuts for results, because integrity is something that you can really sell, and people respect people who have integrity and practice it every day.

“Fifth is performance. We expect people to perform, and we support them in every way that we can. The last is excellence — continuing to push the envelope a little bit more, setting the bar a little bit higher. Once you take people beyond where they thought they could go, they want to go further.”

At the 51 companies that comprise Alco Office Products the smallest company is in the range of $8 million a year in sales and the largest is in excess of $100 million a year in sales, with the largest sales force over 400. Staff at Alco headquarters — including corporate and group staffs — numbers under 200, unheard of for a $6 billion company. A lean, mean, productive machine.

Running With The AOP Crowd

“The 51 companies of Alco Office Products all devise their own incentive and motivation programs,” explains John Stuart, president of AOP. Once a year, however, Stuart initiates an incentive to reward the division for going beyond the plan. “At the beginning of the year,” he explains, “We say if all 51 companies collectively achieve the following results, all of us will go someplace.” The program is self-funded from the previous year’s earnings and Stuart tries each year to outdo the previous year’s experience with something they either wouldn’t or couldn’t do on their own.

The process for setting the goal is straightforward. “Let’s just take 100 as the base number,” Stuart explains. “If 100 is the goal, 110 means we had a pretty good year and we really have to produce 115, after we have paid for the trip. The motivational part of it is everyone knows that, first of all, we’ve been doing it now for five years and the trips have become a lot of fun. And even though these presidents, theoretically, can afford to do this on their own, they really enjoy it. Also you don’t want to be the one company that causes the group to miss their plan, and hence there is no January trip.”

Does every partner company always make goal? “In years past,” says Stuart, “We have had people on the trip who did not achieve their business plan. The group consensus has been that as long as the group met its commitment, indeed overachieved it, everyone should go, because it encourages the sense that we’re all in it together.”

Cooperative competition within a group creates its own motivation. “We share the financial results of all 51 companies with all of the company presidents on a monthly basis,” says Stuart. “Since our accounting is the same, everyone knows how everyone else is doing. Each company is a complete self-contained P&L. Each company has its individual chief financial officer, resident in the company. They are compiling their own financial statistics and through a process of micro-control, a PC-based system, they transmit their figures to headquarters where we are essentially a receptor and perform a consolidating function.

“We get all this information from all 51 companies monthly, consolidate it for the corporation, give that to Dick (Gozon) and Ray (Mundt). Then we take all that information, compile it in a book, and turn around and send it back out to the companies. We insist that the companies share this financial information, to the extent practical, with all the employees of the company. That’s a very unique concept for entrepreneurs. They say, ‘You want me to tell the people what we’re making? Gee, I never did that when our company was privately owned.'” If I was not making a lot of money, I thought everybody would leave, and if I was, they’d all say, “Why don’t you give me a raise?” It really doesn’t work that way. People need to know, and they’re very happy that you’re sharing the information with them.”

The corporation also shares market information among partners. “There is very strong peer pressure and reasonably healthy competition,” says Stuart. “But if somebody is having difficulty, there is also a very strong desire to help that person. Because of the way we disseminate information, if somebody is having problems in a particular area, he can look within this financial data, discover who’s doing particularly well, call that person and get some insight into what he’s doing and why it is working so well and even ask him to make a personal visit. That all takes place with no involvement required from headquarters.

“A lot of people thought that once a company had been bought by Alco, the presidents would have all this money and would leave,” says Stuart. “We have just celebrated the ten-year anniversary of AOP and we’ve not had one entrepreneur leave voluntarily.”

Why would Alco ask a president to leave? “Anything to do with ethics or integrity,” Stuart says. He also explained that the board of directors is none other than the presidents of Alco Office Products. In essence, the company plan is their plan. If one president is thinking of running an incentive or motivation contest or trip of some kind, he may call the vice president of sales in a sister company and say, “I think you did this two years ago. How did it work? Send me the program.”

The unique Alco system seems to work for the most unlikely of management reasons. “Because of this unique system, we have built in a high tolerance for ambiguity,” explains Stuart. “Take advertising as an example. If I had media placement handled by one agency nationally, I’d save $2, $3, $4 million. I don’t know what the number is and I don’t want to know. Because by taking it out of the hands of the people it most affects and the businesses they have to run, we would lose the specificity of the markets and the demands that those individual companies are facing.”

Stuart, who claims no company specifically sets out to create a bureaucracy, admits that they are nonetheless, in his words, “all over the place.” “You listen to all the buzz words today,” he says, “and they talk about ‘power to the people’ and ‘close to the customer’ and all these things. But the big companies talking about that, the majority of them, say, ‘We’re going to empower you and we’re going to trust you as long as it doesn’t involve money or assets.’ Well, at Alco we trust them and their commitment. They trust us and our commitment and we really do live that trust.”