Arrow Electronics: Surviving and Thriving After Tragedy

Case Study: Lessons in Leadership, Strategy, and Human Capital Management

2015 Volume 18 Issue 1

John C. Waddell shepherded Arrow Electronics through a major crisis after the tragic loss of the company’s top executives. This case study offers enduring lessons in leadership, strategy, and human capital management. Geared primarily toward practitioners, the case relies on original, secondary sources, and interviews.

The Problem

Case Study 200x150On December 4, 1980, a flash fire swept through the Stouffer’s Conference Center in Harrison, N.Y., killing two of Arrow Electronics’ three top executives, one the CEO, along with 11 other members of the management team. The catastrophe marked the tipping point in Arrow’s history, ushering in a two-year period of doubt and uncertainty as the company struggled to overcome the loss of so many talented executives. It fell to the survivor, John Waddell, battling the odds in the midst of a severe recession to hold the grieving company together, stick to the agreed upon strategy, and find a new CEO with the right vision, values, and leadership style.

PART I – Arrow Electronics’ Development

The Executives

It was the evening of December 3, 1980, and the senior management team of Arrow Electronics had been deep into budget planning for the next year at the upscale Stouffer’s Inn and Conference Center in Harrison, N.Y. Tonight the executives were celebrating with cocktails followed by a sumptuous dinner. Arrow had been growing at an astounding rate of 35 percent per year since the venture capital partnership, Glenn, Green & Waddell, acquired controlling interest in 1968. Now, with $263.7 million in annual sales, the company had rocketed past all but one competitor and was closing in on the industry leader Avnet, Inc. It was on track to nearly double sales. Net profits at $5.58 million, were 14 percent above the prior year.

To a person, the executives at the dinner credited Arrow’s success to the strategic vision of the three partners, B. (Benjamin) Duke Glenn, Roger E. Green, and John C. Waddell. They had been together since 1965 when Glenn, head of the corporate finance department for the New York-based investment banking firm, R. W. Pressprich & Co., recruited fellow Harvard MBAs Waddell and Green. After a short time there, aspiring to own a “billion dollar” company, the men had formed their partnership and gone out on their own.

Glenn, the president/CEO and the oldest at 44, lived in Greenwich, CT, with his wife, Lynn, and three children. A graduate of Yale (1958) and Harvard Business School (1962), he was an Army veteran, having served as a first lieutenant. Everyone called him Duke, not a nickname, but the surname of the prominent North Carolina tobacco dynasty from which he was descended. With his rumpled appearance, scuffed shoes and quirky ties, he was the antithesis of the typical CEO. A visionary and strategic thinker, he was the natural leader of the three.[1]

Green, 41, an executive vice president, was a Brooklyn, N.Y. native. He had an undergraduate degree from Bucknell University, Lewisburg, PA, an MBA from Harvard, and had been a lieutenant in the Army Office of the Chief Signal Officer stationed at the Pentagon. He was the driving force in deal-making, locking up sensitive purchase agreements with major suppliers like Texas Instruments and Intel. Tall and energetic, he was married with three children, living in Great Neck, N.Y.[2]

Waddell, 42, also an executive vice president, attended Yale on scholarship before moving on to Harvard Business School. During the Cuban missile crisis he had been a foreign intelligence briefer in the Office of Naval Intelligence.[3] Elegant and introspective, a fastidious dresser and lover of the arts, he made his home in New York City where he co-chaired the Joffrey Ballet. He was the public relations guru, handling the press and Wall Street, drafting company communications.

Glenn and Green were outgoing and gregarious. Quick to step in when someone needed assistance, stories of their loans and gifts to workers, sometimes made anonymously, echoed through the company. They were frequent visitors to the Farmingdale, Long Island, offices, where they burnished their good guy images. Glenn, for example, would stop by in casual clothes and share fish he had caught off his yacht. Waddell, more introverted, preferred the background.[4] Known within Arrow as remote and unapproachable, he was the one the others would blame for tough decisions, the heavy who would send back work when it failed to meet standards.[5]

Selecting the Sector

The partners scoured the business environment looking for opportunities that big investors would pass on, but that matched the limited cash investment they were willing to risk or able to raise. Their strategy was to find a sector with growth potential and target a promising company within it. Committing as little of their own funds as necessary, they would buy controlling interest in the target, borrow as much as possible to grow it, and reap profits when their equity interests increased. After some failed efforts, they decided to focus on the electronics distribution sector.

On its face, the distribution business did not seem exciting or sexy, not the type of enterprise that would appeal to sophisticated MBAs. Distributors did not make anything or create anything. They were intermediaries, go-betweens who helped others get their products to market. Moreover, it was a rough and tumble sales-oriented environment, dominated by hard-drinking, men, mostly in their thirties. The margins, however, were attractive and the potential for growth promising.

Scanning the sector, the partners concluded a shakeout was in the offing. When it came, smaller companies would be in jeopardy. The future, they thought, would belong to ten or so national companies. These frontrunners would have the financial resources, professional managements, and modern control systems necessary to offer suppliers stability, and the efficiency of no longer needing to contract with separate distributors for each geographic region. The race for market dominance was just starting as they began their quest for a company that could navigate the obstacles and finish in the winner’s circle.[6]

The Target

Maurice (Murray) Goldberg founded Arrow Electronics in 1935 as a retail store, Arrow Radio, on Cortland Street in New York City. By the 1940s, Goldberg was selling new radios manufactured by RCA, GE, and Philco, and other home entertainment products as well as surplus radio parts. He also began seeking distribution franchises to sell new parts. RCA and Cornell Dubilier were the first manufacturers to enter franchising deals with Arrow. Goldberg incorporated the business as Arrow Electronics, Inc. in 1946.[7]

In the early 1950s, the company added wholesaling to its sales strategy, selling electronics parts to industrial customers. By 1961, when the company completed its initial public offering and listed its shares on the American Stock Exchange, total sales were $4 million. Over half came from industrial sales. By the mid-1960s, Arrow was running both retail and wholesale tracks, selling a variety of home entertainment products with increasing emphasis on electronics parts distribution. The owners relocated from New York City to Farmingdale, Long Island, maintaining branches in Norwalk, CT, and Totowa, NJ.[8]

The Buy

In 1968, Glenn, Green & Waddell pounced on Arrow, leveraging $1 million in borrowed capital, enough to gain a controlling interest. At the outset, the partners also acquired Schuylkill Metals Corp. Schuylkill refined old car battery lead into pure lead ingots. A classic cash cow, it offered a stable source of funds that Arrow would need if it were to capture a larger segment of the distribution business. Glenn assumed the role of CEO/president. Green and Waddell became executive vice presidents. They kept Arrow headquarters in Greenwich, leaving the operations hub and management team in Farmingdale, a semi-rural Long Island suburb about 50 miles away.[9]

Calculating it would take 25 cents of working capital to support each dollar of sales, the trio implemented a ten-year plan based on debt and on growth through acquisitions. They aimed to cut profit margins, leading to increased sales volume that would help generate enough cash to service the debt. If the strategy worked, competitors with limited access to cash would falter. Arrow would buy them out, avoiding the disrupting impact of bankruptcies and the fire-sale prices that tend to flood the marketplace in such instances.

Sweet Dreams – December 3, 1980

On the evening of December 3, 1980, as the Arrow executives retreated to their hotel rooms, it appeared that Arrow’s ship was about to come in. The stock closed that day at $48.50 on the New York Stock Exchange. It was set to split two for one the next day, rewarding shareholders, including many of Arrow’s 1,700 employees, for their hard work and faith in the company not only with more shares, but as analysts were predicting, with greater equity as the stock price rose.

The next day promised to be hectic. Waddell was headed back to headquarters in Greenwich to man the phones, anticipating inquiries from Wall Street operatives. Glenn and Green hunkered down in the hotel, planning for the morning budget meeting with executives from the southeast region of the Electronics Division. At that time, Arrow was organized into three divisions.

  • The Electronics Division, which distributed more than 80,000 electronic parts and components, semi-conductors and computer products in the east, mid-west and abroad. In 1979, it produced two-thirds (67 percent) of the sales and 75.4 percent of operating income.
  • The Electrical Division, which distributed electrical equipment and supplies, wire and cable, boxes, fittings, switches, panels, conduits and lighting fixtures, made by about 100 suppliers, to manufacturers, utilities and contractors primarily in New York, New Jersey, Vermont, and New Hampshire. It accounted for 10 percent of sales and 3.7 percent of operating income in 1979.
  • The Schuylkill Metals Corporation, which with 23 percent of sales and 20.7 percent of operating income, sold recycled lead.[10]

Catastrophe

On the morning of December 4, at 10:20 AM, activities at the modern, $20 million Stouffer’s Inn, built only three years earlier, were in full swing. B. J. Scheihing Hess, 33, director of operations, was setting up for an afternoon workshop in a room on the second floor of the conference center. Glenn, Green, and eleven other executives were at their budget meeting in a windowless room on a nearby corridor.

Scheihing Hess remembers smelling smoke. “At first I was irritated. I thought someone was cooking something and went to close the door so the smoke would stay in the hallway. When I looked to my left, I saw the lobby area on fire. I recall asking myself, ‘what’s happening here?’ Then I heard someone yell, ‘Come on, get out,’ and I realized I had to move quickly. I looked back into the room, thinking about grabbing my equipment, and realized there wasn’t time.”[11]

Within minutes towering flames melted walls, ceiling, furniture and engulfed hallways, the ballroom, and meeting rooms. Twenty-six people died. Another 40 were injured, many from injuries sustained from jumping from second and third story windows. Thirteen of the dead were the Arrow executives caught in their meeting room. Eleven died sitting at the conference table, apparently oblivious to the fire or any alarm that might have sounded. Two perished in an adjoining closet.[12]

Thursday Aftermath

When the news reached Greenwich, Waddell, the surviving partner, was in shock. Of the three, he had been the most distant and least dedicated to the business. Now he weighed his commitment to his fallen comrades and to the company. Someone had to handle the media, Wall Street analysts, and oversee a steady flow of internal communications. Someone had to neutralize the rumor mill, restore confidence in shaken employees and nervous suppliers and customers. Was he prepared to make the sacrifices? Was he up to the challenges? Waddell’s actions that day and the steps he took during the next two years offer lessons in leadership and human resources management for others who may be caught up in a disaster that threatens the future of their businesses.

Part II – Stepping Up

False Start

On the surface, at least, Waddell seemed to undergo a metamorphosis, compartmentalizing his grieving and personal reservations so he could focus on the crisis. Within hours, he emerged as a composed, articulate leader. He began by issuing a letter to Arrow personnel telling them of the fire and the likelihood that a number of key Arrow people had perished. The letter left no doubt about who was in control.

I am coordinating all activities from our Greenwich office. We have assigned appropriate personnel from our various regions to perform the functions of all of those lost in the fire. Therefore, the company will not have any interruption of work, and all of our customers and suppliers will continue to receive uninterrupted service.

The letter made clear that Waddell would be the conduit for all communications with the outside world.

It is essential that all inquiries concerning this matter (whether from customers, suppliers, news media or others) should be referred to the Greenwich office. Under no circumstances is any information to be provided from any Arrow office other than Greenwich.[13]

Succession on the Run

The remaining directors besides Waddell, Bertram Cohn, chairman of Schuylkill Lead Corporation and Lawrence Coolidge, a Boston-based investment banker, raced to Greenwich to discuss how to fill the leadership vacuum. Glenn had been both chairman and CEO/president and Waddell was the natural choice to fill the dual roles. A majority of the board members, however, harbored reservations about his reserved personality and extensive outside interests. Meeting on the morning of December 5, they decided it was preferable to name Waddell chairman and acting president/CEO, then fill the latter role permanently in a few months.[14] Though Waddell disagreed with the assessment, he accepted the decision, placing the company’s immediate needs ahead of his sentiments. He prepared a press release announcing his new status.[15]

Shoring up the Board

Waddell then moved quickly to fill the vacancies on the board. Seeking continuity, he asked Duke Glenn’s widow, Lynn, to sign on. The day after the fire, she had traveled to Farmingdale to address grieving staff. She reminded them of her husband’s devotion to them and the business and urged them to carry on for him. The event was highly emotional and had a lasting impact on many.[16]

To defend against possible hostile takeover challenges, Waddell also tapped Robert Greenhill, managing director of Morgan Stanley & Co., a seasoned warrior in confronting such attempts. The company bylaws, drafted at an earlier date, made Greenhill’s job easier. A majority of directors would have to approve a buyout of the company, something highly unlikely considering the composition of the board.[17]

Assembling a Brain Trust

The partners had made important decisions collaboratively, and only after extensive give and take. Robert Klatell, the General Counsel, was a trusted associate. But Waddell needed other advisers with both expertise in specific aspects of the business and big picture perspectives. They needed to be objective, removed from the emotional maelstrom swirling within the company. Previously, the partners had retained two consultants from McKinsey and one from Arthur Anderson. He invited them to join his cabinet and also added two executives from within the organization, the director of Arrow’s computer-based management information systems and the executive vice president of sales and marketing.[18] Then he turned to the most urgent concerns which included the following:

Tending to the Arrow family

Waddell knew some turnover was inevitable, but he had to take steps to encourage employees, especially top performers, to stay on board. Returning to an uncertain environment haunted with memories of their colleagues, they might have difficulty coping or find it too painful to continue. In addition, some managers and key sales staff were likely to receive enticing overtures from competitors.

He reached out to anxious workers assuring them that he would honor oral promises their supervisors had made to them regarding bonuses. He vowed to become more approachable, even have a drink with salesmen in venues he would usually not patronize.[19] When he met with staff at the Farmingdale office, the audience was skeptical, but he won them over. “He mixed with people, talked about the business,” Scheihing Hess says. “He showed that he was the CEO we needed.”[20]

There were no specific counseling or therapy services to help workers handle the trauma or mental stress they were experiencing. The day after the fire people were back on the job, coping as best they could. They discovered an inner reserve, a resiliency that kept them going. “You give most people a choice, throw in the towel and run away, or stick in there,” Scheihing Hess says. “Most people hung in. It’s just human nature. We were not heroes.”

Klatell assumed responsibility for helping the bereft families. He studied the tax code and found that the company could disburse up to $5,000 tax-free for funeral costs. All but one of the deceased was married and each widow was eligible for up to $5,000 for therapy. Other funds were available from insurance, workers’ compensation benefits, and stock plans.[21] In the end, the widows received from both Arrow and the insurers around five times their husbands’ annual salaries.[22] Overall, Arrow spent $5.5 million to settle with the families.[23]

Reassuring Customers

Arrow’s growth-through-borrowing strategy left it so highly leveraged that if it lost too many sales, it would be unable to pay its creditors. The business was built around franchise and wholesaler relationships with component manufacturers like Texas Instruments. These customers relied on Arrow to distribute their goods to thousands of small manufacturers throughout the country. To shore up the customer base and keep the cash flowing, Waddell took to the road, aiming to instill confidence and establish rapport that Glenn and Green had developed. Suppliers gave him mixed reviews. He was too formal in his three-piece suits and seemed, at least to some, to be outside his comfort zone. Also, his “acting” designation raised a red flag. Customers wondered about Arrow’s long-term leadership prospects and questioned Waddell’s authority to make long-term commitments.[24]

Buying Time for Study and Reflection

Waddell resisted the urge to retain the current management structure or to quickly replace the deceased executives. This was a time to take a closer look, he reasoned, a chance perhaps to reorganize, upgrade talent, or move in new directions. While he weighed the options, he installed a committee-based operating structure for 90 days. “The idea is to foster decision-making by consensus at each organizational level, to build renewed commitment and a sense of joint responsibility,” he told The Wall Street Journal.[25]

Re-designing the Organization

With the interim structure functioning, Waddell turned to the long-term. Arrow’s entrepreneurial approach, extending well down in the ranks, deserved a lot of credit for the company’s success. But there were signs the company had outgrown this laissez faire framework. He decided to migrate away from the loosely-structured, flat organization, where people enjoyed wide discretion, into a more centrally controlled, top-down configuration. He consolidated responsibilities under three executive vice presidents: one each for marketing, sales, and administration. Every decision within Arrow would flow between Waddell, the acting president, and these three executives.

Waddell also realized that he needed to look critically at the capabilities of Arrow’s human capital. Sales staff would need more training and education if they were to sell sophisticated computer-related products that were flooding the market. Workers involved in fulfillment would need different skills and expertise as technological advances revolutionized the back end of the business. As sales volume and geographic reach continued to expand rapidly, managers who thrived when Arrow was a relatively small, regional operation, might not be the best fit. No doubt, some were capable of mastering new skills and competencies that would be required. Others, who had performed so ably in Arrow’s run to prominence, might not measure up.[26] The void created by the fire would lessen the battles over turf that would occur if he decided to reshuffle and cull.

Waddell opted to reassess all key positions and, for the first time, develop detailed job descriptions keyed to the new organization chart. Since Arrow did not have a professional HR manager, he handled the project himself. Before the fire, the partners had spoken extensively but informally about the professional and personal qualities that were desirable for each of the positions. “Now, I’m obliged to put that thinking on paper,” he told The New York Times.[27]

Meanwhile, Arrow was attracting job seekers galore in part because of all the publicity. Early in 1981, even before Waddell completed his work and positions were posted, resumes poured in. By May and June, 1981, the new hires began to appear. Most jobs were filled by the end of the year.

Professionalizing HR

As Waddell become more immersed in HR issues, he discovered serious gaps in HR administration. Activities surrounding payroll and benefits were humming, and an administrator was handling government compliance mandates. But talent management, affirmative action, and training and development were low priorities or not happening at all. He decided to upgrade HR functions and began by establishing a new position, vice president of HR, reporting to the executive vice president for administration.

After a headhunter-led search, Thomas Hallam, 37, a flight-test (systems) engineer by training emerged as the leading candidate. Attracted to HR as an MBA student at Pepperdine University, Hallam was fast-tracking at TRW, Inc. working on executive recruitment. When he arrived in August, he noted that people seemed to have put the fire behind them. “They were not focused on recovering from the disaster,” he says. “They had a full plate. The business and industry was in a state of flux and everyone was intent on survival.”[28]

As the first HR executive in company history, Hallam had to blaze the trail. “There was no employee handbook and where written policies existed, they were obsolete or dysfunctional.” he recalls. “It was like a start-up. When I contacted the managers and told them I was the new HR guy, no one knew what an HR guy did.”[29]

Finding the Right CEO

By the end of March 1981, Arrow was losing steam under the interim management by committee structure. With sales numbers declining, staff grumbled about lack of direction, of being on a rudderless ship. Though much of the key executive talent was in place or on the way, the most important hire, a permanent president/CEO to take over from Waddell, was still pending. Waddell was immersed in all aspects of the search including interviewing nearly 100 candidates.[30] Finally, on July 1, 1981, almost seven months after the fire, the board named Alfred J. Stein, 47, a vice president at Motorola, Inc. as the new president and CEO.

Stein was a seasoned executive with hands-on experience in a manufacturing environment that produced products and components like those Arrow distributed. He had spent the previous five years at Motorola with responsibility globally for approximately $1.2 billion in sales and 35,000 employees. Before that, he was at Texas Instruments, Inc., for 18 years, eventually rising to president of the Electronic Devices Division.

Waddell was confident Stein’s experience would help dispel doubts that manufacturer-suppliers might have about Arrow’s sensitivity to their wants and needs. “I think we got probably the leading light among operating managers in the electronics industry,” he said. “His gutsy and action-oriented management style is well suited to our business.” Waddell also believed Stein would continue the personal, open door leadership that Glenn and Green had fostered. He noted that Stein’s “extreme sensitivity to people has enabled him to motivate and command the loyalty of persons at all levels of the organizations he has led.”[31] But some industry observers noted Stein’s lack of experience in sales and marketing. They predicted he might have difficulty fitting in.[32]

Correcting Errors with Dispatch

In the end, Stein’s expertise did help cement relations with manufacturers. But his connection with the sales and marketing arm of the business never developed. “The heads of marketing and sales were confident with what they did and pretty much ignored input from him,” Hallam observes.[33] Equally important, Stein’s leadership style did not gel with the Arrow culture. The open door, where you could drop in on the boss or call him up, was barred from day one. “Al insisted that when people phoned, his secretary type out a three by five card telling him what the call was about before deciding whether to talk to the person,” Scheihing Hess says.[34]

Adding to the tensions, staff found Stein’s idiosyncrasies jarring. For example, Glenn and Green always drank their coffee from Styrofoam cups. Stein required a china cup. Under Glenn and Green, meetings were free-wheeling and expressive. Stein deplored vulgarity or cursing. He imposed a $1 fine for anyone who cursed during a meeting. One day, a VP with a lot to say, began by throwing a $20 bill on the table then let loose with an expletive-filled diatribe. Inevitably, Stein became the butt of inside humor. Staff referred to his orange car as “the pumpkin mobile.”[35]

Abrupt Departure

Suddenly, on February 22, 1982, after just eight months, Stein resigned, indicating he would become chairman and CEO of VLSI Technology, a fledgling microcircuit manufacturer in Santa Clara, CA.[36] Company representatives explained that Stein was a manufacturing person at heart and outside his comfort zone. But it was obvious that Waddell and the board had shelved him. The week before his departure, the company reported a 1981 fourth quarter loss of $202,000.

In filling the vacancy this time, Arrow’s board did not vacillate about Waddell, his abilities or commitment. Back he went, again handling both chairman and CEO/president responsibilities. The “acting” designation that dogged him the first time around was history.[37] Announcing his return, Waddell signaled the return of the company’s open door, family-oriented culture. “It’s a matter of maintaining a very high esprit de corps and the perception of the company as family,” he told The New York Times.[38]

Part III – Moving Forward

Bucking the Tide

Since January 1980, the U.S. had been mired in a recession, till then the most significant since the Great Depression.[39] With competitors hunkering down, Waddell plowed ahead even as Arrow’s stock was dropping. “We went into this recession with a point of view,” he told Electronic Business, an industry trade magazine. “A company that plays its cards intelligently could, perhaps, gain more of a competitive advantage in a recessionary period than in a bubbling period. We made a commitment to losing money temporarily, understanding what those losses were buying. We were buying futures and doing it at a time when most of our competitors basically were protecting the bottom line on a quarter-to-quarter basis.”[40]

The investments included outlays for technology to upgrade customer service and fulfillment. Arrow was spending $7 million to operate and upgrade its 650-terminal computerized inventory management system. The investment was a financial drain in the short-term, but the system, reported to be the best in the industry, allowed instant access to Arrow’s $75 million inventory of 125,000 items. Moreover, the company continued to acquire competitors and exploit opportunities to expand its product lines in the burgeoning computer products segment.[41]

Learning from Mistakes

Waddell still needed to replace Stein. This time, however, he was not willing to step aside and surrender his authority to an untested CEO. Instead, he began a search for president of Arrow’s Electronics Division, the company’s primary revenue producer. The president would have essentially the same responsibilities as Stein, but would report to Waddell, who would continue as both chairman and CEO. Eventually, Waddell planned to relinquish the CEO title, but only after the new hire established his bona fides.

Stephen P. Kaufman, 42, group vice president of the Thermal Systems Equipment Group at Midland-Ross, was looking for a change of scenery when the executive search firm called. Kaufman had an undergraduate degree from MIT in engineering and economics and an MBA from Harvard. Notably, he had no background in electronics distribution. “During my interviews, I kept asking John Waddell and the board if they were sure I was the right guy,” he recalls. “I was not in the industry, and all of their previous hires, including Al Stein, had electronics backgrounds.” But Waddell was looking to break the mold. “Been there, done that,” he told Kaufman. “We really don’t want to go in that direction again.”[42]

On August 1, 1982, Kaufman assumed the presidency of the Electronics Division. Twenty months had passed since the fire. Confirming Hallam’s observations from a year earlier, Kaufman concluded that the company had put the trauma of the fire behind it. “I did not see a company that was in pain or staggering around,” he says. “It appeared to be a normal company that was going through a transition from being small to larger. I found very little evidence of the fire.”[43]

Kaufman had been laying groundwork for his leadership opportunity for years, watching bosses he admired, making mental notes, developing a checklist. Fundamental, he knew, was the need for him to be genuine. “I had to be authentic, be myself, come from my core,” he says.[44] Waddell helped pave the way, issuing a memo describing Kaufman’s credentials and experiences. During the first week, the editor of the company newspaper stopped by for an in-depth interview. Kaufman outlined his goals and explained his philosophy of management in an article that reached all 1,600 employees. He spoke of his plans to visit each of the company facilities. Delineating his open door policy, he emphasized that he was reachable by phone and in person. “My style was very hands on,” he says. “I wandered around, sitting on the edges of people’s desks, asking how they were doing and what problems they had. I held a lot of town meetings.”[45]

Two-Year Retrospective

In December 1982, as Arrow employees gathered for the annual Christmas party two years after the fire, it was a time to commemorate lost colleagues, to reminisce and offer prayers. It was also time to celebrate the company’s perseverance. Arrow would end 1982 with $348 million in electronics-distribution sales, up $62 million, or 22 percent, for an industry-leading 1.1 percent growth in market share.[46]

The company was exuding confidence—giving itself five years to reach the billion dollar revenue goal targeted by Glenn, Green and Waddell when they took control of Arrow in 1968. It was projecting 20 percent growth a year on average. Some of the increased revenue would be acquired by out-hustling the competition through better service and superior technology. A larger share would come through acquisitions.

None of this success would have been possible without John Waddell’s leadership. He had stepped forward, displaying remarkable courage and poise under pressure, proving to be grounded, savvy, and capable of making tough decisions. He grabbed the reins in a chaotic environment, outwardly altered his personality, artfully controlled communications, and managed the optics in the critical days after the crisis. He acted quickly to strengthen and inoculate the board against hostile takeovers. He assembled a seasoned team of advisers—including outsiders who could offer dispassionate advice—to help him identify and address pressing issues.

He turned disaster into opportunity by creating an interim organizational structure, buying time to study and decide what long-term changes needed to be made. He re-organized and established better controls, professionalized human capital management, and laid the groundwork for future success on the global stage. His decision to stick with Arrow’s leveraged debt strategy in a tenuous economic environment was paying dividends helping Arrow outperform more cautious competitors. Though he faltered in his selection of a president/CEO in his first attempt, he moved swiftly to find a well-qualified replacement. Stephen Kaufman, reporting directly to him, was off to a promising start, moving decisively to implement reforms destined to change the modus operandi of the electronics distribution industry and make Arrow bigger and better than before.

Epilogue

On September 21, 1987, Waddell proudly told The New York Times that Arrow was buying the distribution business of competitor Ducommun, Inc., based in Cypress, CA. With the acquisition, Arrow’s sales would jump from $530 million in 1986 to $1 billion in 1987.[47] By then Kaufman had advanced to president and chief operating officer (COO) with Waddell continuing as CEO and board chairman. The following year, 1988, Waddell relinquished the CEO title to Kaufman.

During their tenure, both men kept alive the narrative of the terrible events of December 4, 1980, and the company’s valiant battle back. “I constantly used the fire as a rallying point when things got tough and I wanted to pull people together,” Kaufman says. “On the anniversary of the fire, we would have a meeting and I would make reference to it. I’d say, ‘Roger and Duke would be proud. We’ve lived their dream.’”[48]

Arrow Today

Michael J. Long is Arrow’s current CEO and chairman. Headquartered in Englewood, CO, Arrow has 16,500 employees in 460 locations in 58 countries, and over 100,000 customers. In 2013, sales were $ 21.4 billion. Fortune has designated Arrow as one of the “World’s Most Admired Companies” for each of the last 15 years, awarding high marks for “key attributes of reputation like quality of management, financial soundness, global competitiveness, people management, and social responsibility.” In 2013, the company ranked 138th on the Fortune 500 List.[49]

PART IV – Key Takeaways

  • Don’t obsess about formal succession planning. Arrow did not have a formal succession strategy. The “last man standing” strategy was implicit and sufficient. No need to pour resources and time into a plan that is basically just common sense.
  • A leader who lacks an unconditional mandate will be limited. The Board’s initial decision to offer Waddell the acting title handicapped him. Though the members had legitimate doubts about his ability to do the job, they made it more difficult for him to succeed by putting what was perceived as a question mark before his titles.
  • A ship without a captain will falter no matter how well-intentioned the crew. Waddell’s decision to buy time by delegating authority to committees instead of vesting it in a strong executive was wise as an interim step but only for a brief period. It became old quickly as sales fell and morale plummeted.
  • Knowing the intricacies of a business at the outset is less important than hiring the right talent. Initially, Arrow’s three partners had limited knowledge of electronics distribution, but they hired wisely.
  • A distinctive corporate culture can be decisive when competing for talent. Arrow built loyalty and pride by distinguishing itself in the market by creating an aura of élan and creating a sense of family.
  • Don’t underestimate people’s inner reserves, competencies or ability to stretch themselves in a crisis. Waddell, and many of his co-workers and fellow board members had legitimate doubts about his suitability for the top job. But he rose to the occasion finding inner strengths and abilities that surprised many.
  • Perceptions probably shouldn’t count so much, but they do. Waddell’s skill in communication and insistence on controlling access to the media messages, enabled him to shield the investment community and competitors from the extent of the internal chaos Arrow was experiencing.
  • Perspectives broaden from outside the cockpit. Independent viewpoints enrich the mix. By reaching out to consultants and other experts, Waddell gained access to advisers removed from the emotional maelstrom swirling within the company.
  • Crises may present opportunities that normally would be unthinkable. Waddell seized on the void created by the fire to reassess Arrow’s standing in the market. He decided to reorganize, cull some staff and hire others with different credentials and levels of experience.
  • If you choose the wrong leader, cut your losses quickly. When Waddell realized Stein was the wrong man, he acted with dispatch in sending him on his way.

 

 

[1] Lydon, James, and Bambrick, Richard, “Duke Glenn – A Remembrance,” Distribution & Purchasing, December 1980.

[2] Chace, Susan, “Arrow Electronics Inc. Grieves over Tragedy but Plans for Future,” Wall Street Journal, Eastern edition, December 12, 1980.

[3] Kleinfield, N. R, “When a Business Is Beheaded.” New York Times, June 20, 1982. Business.

http://www.nytimes.com/1982/06/20/business/when-a-business-is-beheaded.html.

[4] Scheihing Hess, B.J., telephone interview with author, September 13, 2013.

[5] Chace, 1980.

[6] “About Arrow Electronics: Arrow’s History,” 2013. Accessed July 11. 2013http://www.arrow.com/about_arrow/innovations.html.

[7] Ibid.

[8] Ibid.

[9] Kaufman, Stephen P, telephone interview with author, October 8, 2013.

[10] Waddell, John C.,”To our Shareholders,” letter, Arrow Electronics, Inc. Annual Report 1980, p. 1, March 25, 1981.

[11] Scheihing Hess, 2013.

[12] New York Times, “25 Who Died at Stouffer’s Named,” December 6, 1980: sec. 2, p. 26.

[13] Waddell, John C., Letter: “To All Arrow Personnel,” memorandum, December 4, 1980a.

[14] Magnet, Myron, “Arrow Electronics Struggles Back,” Fortune, April 30, 1984, p. 77-93.

[15] Waddell, John,” Arrow Co. press release, December 5, 1980b.

[16] Scheihing Hess, 2013.

[17] Klatell, Robert E., telephone interview with author, November 6, 2013.

[18] Hayes, Thomas C., “Coping with Disaster at Arrow,” New York Times, December 31, 1980: sec. D, p. l.

[19] Kleinfield, 1982.

[20] Scheihing Hess, 2013.

[21] Kleinfield, 1982.

[22] Magnet, 1984.

[23] Waddell, 1981.

[24] Magnet, 1984.

[25] Chace, 1980.

[26] Magnet 1984.

[27] Hayes, 1980.

[28] Hallam, Thomas, F., telephone interview with author, October 23, 2013.

[29] Ibid.

[30] Magnet, 1984.

[31] Klatell, Robert, “Arrow Electronics Names New President,” June 4, 1981.

[32] Bambrick, Richard, “Stein Leaves Arrow; Waddell Absorbs Titles.” Electronic News, February 22, 1982.

[33] Hallam, 2013.

[34] Scheihing Hess, 2013.

[35] Hallam, 2013. Scheihing Hess, 2013.

[36] Bambrick, 1982.

[37] Board of Directors, “Management Change,” Arrow Co. press release, February 19, 1982.

[38] Sloane, Leonard, 1982, “Arrow President Resigns Position,” New York Times, February 22, sec. D, p. 2.

[39] The Economist, “Who Beat Inflation?” March 31, 2010. http://www.economist.com/blogs/freeexchange/2010/03/volcker_recession.

[40] Mead, Tim, “Spending in a Recession: Will it pay off for Arrow?” Electronic Business, July 1983, p. 108-112.

[41] Ibid.

[42] Kaufman, 2013.

[43] Ibid.

[44] Ibid.

[45] Ibid.

[46] Waddell, John, C. Letter: “To our Shareholders,” letter, Arrow Electronics, Inc. Annual Report 1981, p. 1-2, March 15, 1982.

[47] Glaberson, William, “Arrow’s Leader Moves Toward $1 Billion Goal.” New York Times, September 23 1987: sec. D, p.2.

[48] Kaufman, 2013.

[49] “Company Profile,” 2014. http://www.arrow.com/media_center/arrow_fact_sheet.pdf.

 

About the Author(s)

Robert J. Grossman, JD, LLM, is a professor in the School of Management at Marist College in Poughkeepsie, N.Y. In addition to his teaching and counseling, he also works as a state-certified arbitrator, mediator and consultant. He holds a masters degree in law (LLM) from NYU Law School, a JD from the University of Buffalo, and a bachelor's degree in history from Hobart College in Geneva, N.Y. Grossman's freelance work has appeared in a variety of respected publications, including Entrepreneur, WSJ.Com, The Christian Science Monitor, The Miami Herald, The Oregonian, Health Forum Journal and The Buffalo News. He has written for HR Magazine since 1996.

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