Playing the hand you’re dealt
Now the world’s second-largest home-improvement chain and the nation’s ninth-largest retailer, Lowe’s Cos. grew out of North Wilkesboro Hardware Co., which Carl Buchan’s father-in-law opened in 1921. Buchan and his brother-in-law opened a second store in 1949. Buchan, eager to expand, became sole owner of both in 1952. When Snow Hill native Leonard Herring, then 28, came to work as the company’s financial manager in December 1955, the chain had six stores, from Asheville to Durham. By the time he retired as CEO in 1996, there were 375 in 23 states. Lowe’s now operates more than 1,650, with sales of $48.2 billion last year, a commerical empire not even the ambitious Buchan would have envisioned in the autumn of 1960.
It was a typical Friday afternoon, which meant that I was making my float calculations and preparing to get checks mailed. Most of the general-office staff had trickled out, headed for the pleasures of an October evening: a last cookout, maybe a game of touch football with the kids or a drive to enjoy the autumn color on the mountainsides.
Sometime after 5, Carl Buchan came into my office. He had been out all day, and whatever he was doing had made him as nervous as a cat. He was smoking, although he had more or less given up the habit years before, and he seemed distracted as he asked about various pieces of ongoing business. I knew there were personal issues that could account for his edginess. He and his wife, Ruth, were not getting along: That was why he had been staying out at the farm in Sparta, leaving the big brick house on Finley Avenue to Ruth and their daughter, Mary Elizabeth. He had told our team to contact him at the farm if we needed to reach him after business hours, so the arrangement wasn’t exactly a secret. Still, I wouldn’t bring up the subject, even to sympathize. If he wanted to tell me what was on his mind, he would. Otherwise, it was the kind of sleeping dog that I generally let lie.
He stuck to business, and it wasn’t long before he said goodnight and left the office.
Every Saturday morning at 9, Carl Buchan’s team met with him at the general office to review the week’s sales figures and touch base on other business. That particular Saturday, the team consisted of Pete Kulynych, Joe Reinhardt, John Walker and me. Bob Strickland was on his way back from a trip to Bermuda sponsored by one of our vendors. Nine o’clock came and went, and we were waiting for Carl. It was odd, because he was never late. Early, yes: Things just couldn’t happen fast enough for Carl Buchan. But he never kept people waiting.
I don’t remember precisely when the feeling of foreboding hit me. I suppose it’s always easy, after the fact, to say, “I knew something was wrong.” Nevertheless, in my gut I did feel that something was wrong, maybe because Carl had seemed so wound-up the previous evening. After waiting more than half an hour, we phoned Carl’s farm; but there was no answer. Then we thought of calling Max Freeman, Lowe’s pilot.
In those days, the runway was literally a grass strip cut in a pasture. Two years before, Carl had decided that Lowe’s needed an airplane. A pilot named Max Freeman came to demonstrate a single-engine Cessna 182 to Pete and ended up signing on with Lowe’s full time. Max had logged a lot of hours since then, flying Carl and any of the executive staff who needed to make a quick trip into or out of North Wilkesboro. Sometimes he was the only Lowe’s employee who knew where Carl was.
But he didn’t know today. Speaking for the group, I said, “Max, take the plane and fly up to the farm. See if his car is there.” I thought something might have come up to delay him.
Within an hour, Max phoned back. He had flown over the farm and had seen Carl’s wood-grained Buick station wagon parked in front of the house. He buzzed the house, flying low for maximum noise, but nobody came out. “Max,” I said, “You’d better drive up there and see what’s going on.” Sparta was just a short flight from North Wilkesboro but a longer drive, more than 30 miles away over a mountain. There was no point in our hanging around. We all dispersed to our own offices or wherever else we needed to be.
It was an hour or so later when I answered the phone at home. Max said simply: “Carl’s dead.”
When he had arrived at the farm, Max stopped to pick up the caretaker, Bob Farmer, and they went to the house together. They rang the bell and pounded on the door, but nobody answered, so they walked around the outside of the house, looking in windows. When they got to the master bedroom, the curtains were closed except for one small gap. Max peered in and saw Carl lying awkwardly on top of his bed, which had not been turned down.
They jimmied the backdoor lock and went through to the bedroom. Carl had apparently died while getting ready for bed the previous evening. By now, rigor mortis had set in. Max called Carl’s local doctor anyway, and the doc came right over. There wasn’t anything he could do for Carl, but he began to fill out forms and make arrangements. He sent Max to tell Northwestern Bank President Ed Duncan, whose farm was nearby. Max found Ed on the road and gave him the news.
Carl Buchan was dead. I was shocked but not surprised. He had been a high-pressure achiever, intense and driven. He was a sometime smoker who never exercised, and he liked to have a steak for breakfast every morning. His youngest brother, Billy, had died of a heart attack at the tender age of 27. In view of all that, we were lucky to have had Carl as long as we did.
But now he was gone, and everything was up in the air. I would think about it later. Right now, someone had to break the news to Carl’s wife.
I picked up Pete, and we went to get the Presbyterian minister, Rev. Watt Cooper. We explained the situation and took him with us to see Ruth Buchan. Even if you’re not getting along with your spouse, his sudden death at age 44 can only be a devastating shock. There was nothing much that Pete and I could say to comfort Ruth at that moment, so after a little while we excused ourselves and left her with Rev. Cooper.
Pete came home with me, and we made calls to key Lowe’s people who hadn’t been reached earlier. Bob and Betty Strickland were just arriving home from Bermuda when they heard the phone ring; they were naturally appalled by the news. General counsel Bill McElwee and his wife, Doug, were on their way out west to Warm Springs, Ark., or maybe somewhere in Colorado, but we left word with Bill’s office. When he called and got the news on Monday, he came right home. Pete himself was badly shaken, thinking not only of Carl’s death but of the implications for Lowe’s. I told him “Stay calm; the company won’t fall apart overnight.” Business routines would prevail, I said; Lowe’s stores would open as usual on Monday morning. The thought seemed to help him relax a little. The funeral was held two days later. The men that Carl had so recently called “my team” were now his pallbearers, along with Ed Duncan, outside auditor Ed Beach and Bill McElwee. As I recall, the whole community turned out for the burial service in Mount Lawn Memorial Park. In addition, messages of condolence were arriving from all over, including a telegram from Gov. Luther Hodges and a telephone call from the Democratic Party’s presidential nominee, John F. Kennedy, to whose campaign Carl had contributed. Less than three weeks later, JFK would be elected the 35th president of the United States. He and Carl Buchan were nearly the same age.
I can’t remember if I even voted that year. I probably did, because I always do, but God knows how I found the time. Carl Buchan’s death marked the start of the most hectic 12 months of my life.
The moment I heard that he was dead, I went into survival mode. My main response to his loss was professional rather than personal. I had liked the man, yes, and admired him greatly; but he was my boss more than my buddy. We trusted each other and would have worked well together for decades, probably, if he had lived. But after his death, my overwhelming feeling was not so much grief at the loss of a friend as an urge to do everything necessary to keep his business from running off the rails. After all, Lowe’s was my business too, and the rest of the team’s, providing a livelihood for hundreds of families. Carl would not have wanted me to feel any different.
For the five of us on Carl’s team, the first week or so after his death was largely occupied with what we would now call “spin control.” In the public mind, Lowe’s was identified with Carl Buchan: He had been its creator, its guiding genius and its front man. Lowe’s without Carl Buchan was unthinkable. Everyone assumed that his estate would sell the chain to a larger company somewhere or that individual stores would be sold off piecemeal.
We had other plans for Lowe’s. I don’t think that Pete, Joe, Bob, Johnny or I ever doubted that we had the ability to keep Lowe’s going, moving in the direction that Carl had charted for it. Every one of us knew his job and was damned good at it. We just had to convince the rest of the world.
We started with Lowe’s own people — the general office staff and the store employees. They had to be reassured that their jobs were safe, that Lowe’s wasn’t going to shut down. In the fall of 1960 there were 15 stores in the chain: North Wilkesboro, Sparta, Asheville, Asheboro, Charlotte, Durham, Winston-Salem, Greensboro, Raleigh, Roanoke and Richmond, Va., Chester, S.C., Knoxville and Bristol, Tenn., and Oak Hill, W.Va. Even now, I can reel off that list, as I visited the stores routinely. At the time, all of us on Carl’s team could tell you each store’s number, its street address, the date it opened and anything else about it that mattered. When I was asked, “How do you do that?” I used to say, “These stores are like my kids. If they were your kids, you’d remember the important things about them.”
Because of the way Carl had delegated authority, all Lowe’s store and general-office employees knew at least one person on the executive team pretty well. All the office personnel in the stores knew me. Johnny Walker was responsible for the sales people. Warehouse employees knew Joe Reinhardt. Anyone involved in marketing knew Bob; the purchasing staff knew Pete. And I’m just talking about direct-reporting relationships. Flow charts aside, Lowe’s was still a small-enough company that just about everyone was acquainted with the executive team well enough to have a casual conversation with any of us.
What I’m getting at is that there was a comfort factor making it easy for us to reassure people inside the company. But we also had to deal with Lowe’s vendors. Naturally they wondered if they should continue shipping products to us. Would we keep Lowe’s doors open, honor our obligations and continue to deal with them the way Carl Buchan had? The customers were worried, too. Most of them were professional contractors. Would they have to look elsewhere for their essential supplies?
I was Lowe’s financial officer, so in some ways my function was at the epicenter of the earthquake that was Carl Buchan’s death. Here was the central problem I had to deal with, the problem from which other shock waves radiated: Lowe’s had essentially belonged to Carl. It was a private company, and he owned 90% of its stock. Just a few weeks earlier, he told us that he was drafting an agreement for the profit-sharing plan to buy a portion of his stock from him incrementally during his lifetime and the balance at his death. We had all shaken hands on it. But the draft agreement was sitting on Bill McElwee’s desk when Carl died. It was never signed.
The plan had included a provision for Lowe’s to buy life insurance on Carl, and we had gone ahead with that. A half-dozen policies had been taken out, with a total death benefit of about $2 million. The thinking was that when (in the fullness of time) Carl died, the life insurance payout would give the company some cash with which to buy the portion of Carl’s stock that had not been sold to the profit-sharing plan during his lifetime.
As it turned out, Carl died too soon, before the profit-sharing plan could buy any of his stock at all. Whatever we did next, we were going to need cash, but getting the insurance companies to pay wasn’t going to be easy. The situation looked suspect because the policies had been written so recently. In fact, the first premium checks hadn’t even cleared our bank — Northwestern Bank — when the insurance companies found out that Carl had died. They instructed their banks to call our bank and say “When you receive this check, just send it back to us.” Meanwhile, I had visited Ed Duncan to tell him, “When these checks come in, clear them right through!”
The executor of Carl’s estate was Wachovia Bank and Trust, largely because of Carl’s longtime friendship with Robert Hanes of Winston-Salem, who had built Wachovia into a statewide financial powerhouse and served as its president for 25 years. Hanes had retired from the bank in 1956, the year before Carl invited him to become Lowe’s first outside shareholder. Robert Hanes financed Lowe’s Winston-Salem store, which had opened in 1957. He died in 1959. Now Wachovia had to settle Carl’s estate. It was important that they understand our position, so on Bill McElwee’s advice I called Leon Rice, a partner in the Winston-Salem firm of Womble Carlyle Sandridge & Rice. Leon Rice had often represented Wachovia’s trust department. He invited me to his office to explain our situation.
The rest of Carl’s team had agreed that I was the natural point man on the financial/legal front. Whatever thoughts any one of us might have been harboring about his own superior qualifications for eventual leadership of Lowe’s, we all knew that we had to stick together in the present crisis. That had become apparent on the evening after Carl’s funeral, when I drove Bill McElwee to Sparta to see Carl Buchan’s doctor, the one who responded when Carl was found dead. Bill suggested that we invite Jim Lowe — Carl’s brother-in-law and former partner — along, so he wouldn’t feel that we were trying to exclude him.
In the years since Carl bought out his interest in Lowe’s, Jim had been involved in several enterprises including Lowe’s Foods (which he started and sold), a motel and a stock car that raced on the fledgling NASCAR circuit. In the next few years, he would own part or all of a bowling alley, a skating rink and, I believe, a barbershop. But in October of 1960, in the wake of Carl’s death, Jim was flirting with the idea of giving the hardware chain a second chance.
On the drive to Sparta that evening, we decided that Bill McElwee would interview the doctor by himself. He wanted to hear exactly what the doctor thought about Carl’s death, so that he would know how to proceed with the life insurance companies, who would certainly be investigating the claims that Lowe’s would file. So when we got to the doctor’s house, Bill went in alone. Jim and I waited in the car.
It wasn’t long before Jim started talking about Lowe’s — what he thought needed to happen in the company, what things should be cut from the budget, what he would do if he took over. I didn’t say much, because I didn’t have to; Jim wanted to do the talking. But it’s a good thing that it was dark by this time, so he couldn’t see my face. Pete had once told me, “Jim Lowe could sell a refrigerator to a penguin.” But Jim was strictly a small-town entrepreneur. He hadn’t even wanted Lowe’s to expand to Asheville. In my opinion, putting him in the driver’s seat would have been like parking Lowe’s and throwing away the keys.
When I told the rest of the team about Jim’s apparent interest, their eyes rolled just like mine had. None of us wanted to work for him. In fact, if we couldn’t work for Carl Buchan, we didn’t want a boss at all. But our only hope for autonomy lay in presenting a solid front on every issue like this that arose. If Jim Lowe or anyone else succeeded in driving a wedge into our group, we would deserve what we got.
Behind closed doors, however, we all had doubts about the future. Joe Reinhardt brought his concern to my office shortly after Carl’s funeral. Like me, Joe was building a house, but his was in an earlier stage of construction. Building a house meant making a long-term commitment to staying with Lowe’s, staying in North Wilkesboro. Joe was wondering if he should put the construction on hold, but I told him that he should go full-speed ahead. I knew that it would take time to work through everything we had before us, no matter what the eventual outcome might be.
What our team needed was structure and a sense of order so we could be confident that our right hands knew what our left hands were doing. Of us five, I guess I was the one best able to organize procedures in a way that the others would accept. I proposed regular weekly meetings, sent out an agenda for each meeting beforehand and wrote up minutes afterward.
As a result of one of those meetings, I called Bob Schwartz at Met Life and offered to put the proceeds from the $1 million loan it had just made to Lowe’s into escrow until Carl Buchan’s estate was settled. I knew that the loan had been a big deal for Schwartz and thought he might justifiably be nervous about it now. But he wasn’t nervous; or if he was, our offer somehow calmed his nerves. He said there was no need to do that, so we didn’t. It was like a vote of confidence in us, and we were glad to have it.
Because the operation of Lowe’s had a direct bearing on the value of Carl’s estate (which consisted mainly of Lowe’s stock), part of Wachovia’s job as executor was to run the company. The first thing they did was put our expansion plans on hold. Then they set up a liaison committee, and I was made chairman because I was Lowe’s secretary and treasurer. Every week or two, Wachovia would send someone up to meet with us and get reports on how Lowe’s was doing. Sometimes it would be Dick Page, who was head of the trust department. Other times it would be Edgar Roberts, another trust department executive who was incidentally the husband of Della Roberts, the noted botanical painter.
Wachovia wanted us all to have contracts, so at the beginning of December I signed the first written employment contract that I ever had with Lowe’s, a one-year contract for a salary of $20,000. The rest of the team got the same deal — very good money at the time. Wachovia would have liked to make it a multiyear contract so that they wouldn’t have to worry about our walking away from the company no matter what they did; but no way was that going to happen.
Not that our relationship with Wachovia was adversarial, because it wasn’t. When I went down to Winston-Salem to see Leon Rice at his law office, he listened with interest to my explanation of what Carl Buchan had wanted for Lowe’s — which was that the employees would own the company when he was gone. I explained how the profit-sharing plan, of which I was the sole trustee, would have bought Carl’s stock in increments over several years. I explained about the life insurance policies and how the payout was supposed to finance the purchase of the rest of Carl’s stock at his death, enabling his estate to pay the estate taxes. I told him about the meeting Carl had with the five of us, where he informed us of his plan and we all shook hands with him and thanked him. I also told him that the written agreement providing for all this had been drafted but never signed and was on Bill McElwee’s desk when Carl died. Leon Rice asked one of his partners to join us. Pen Sandridge came in and sat on the floor, leaning against the wall with his knees up. I thought it was oddly casual for a lawyer, but that’s just the way he was. The three of us talked for some time, and before I left they agreed that Womble Carlyle Sandridge & Rice would represent us.
Leon Rice advised us to make a pitch to Wachovia on behalf of the profit-sharing plan, so Bob Strickland drove to Winston-Salem with a flip chart and laid out our position. I can’t remember how Bob was chosen for the job, but he was the right choice. Neither Pete nor Joe could have done it, and Johnny would have overdone it. I could have gotten through it, but Bob was naturally better at that kind of thing. After all, it was like marketing: He was pitching us to Wachovia as the rightful successors to Carl Buchan’s business.
I never worked more closely with Bill McElwee than during this period. He would come to my office just about every morning so we could update each other about various legal and financial developments. It was Bill who carried the load on Carl Buchan’s life insurance claims: Beginning with the day of Carl’s funeral, when we went to Sparta to find the doctor, Bill orchestrated the filing of claims and the negotiations with the insurance companies. One of the first things he did was to hire the pre-eminent insurance lawyer in our region, who was based in Greensboro. Bill said he wanted to hire him before the other side did! Bill also advised us to file the claim forms just before Christmas, on the theory that the holidays would throw everyone off schedule and perhaps put a little more perceptual distance between the issuance of the policies and Carl’s sudden death. Rose and I missed the company Christmas party that year because Bill and I were filing insurance claims.
We knew that the insurance companies would investigate the case and look for reasons not to honor the policies. Although I acknowledged the reason for the investigations, they weren’t pleasant.
It was sometime in the spring of 1961 that a private investigator hired by one of the companies interviewed me in my office. After a while, you get used to the obvious suspicion that these people feel toward you, and you don’t let their leading questions rile you. This particular fellow, however, was unusually obnoxious. He questioned me about the day of Carl’s funeral, implying that we had gone to see the doctor to “clean up” the story about how Carl died. I didn’t give him any satisfaction, but as he was leaving my office at the end of the interview, the investigator paused in my doorway and said, “I’ll bet you boys threw all his drugs out of the car on the way back down the mountain that day.” I stood up and said, “Get the hell out of here.” He did.
According to the stock pricing formula that Carl Buchan and his estate planner had devised (10 times the average of Lowe’s earnings per share for the preceding three years), the Lowe’s stock that Carl owned at his death was worth about $5.3 million. The profit-sharing plan had about half a million dollars, less than a 10th of what we needed to buy the company. Obviously, we were going to have to find a source of funding.
We were assuming that the estate would recognize our unsigned agreement with Carl Buchan and honor his plan for the stock. But that recognition did not come right away. Wachovia felt that it had to investigate other options, and there were some complications.
One complication was Ruth Buchan herself. Sometime early in 1961, she came to see me on her brother’s behalf, wanting to know if Pete, Joe, Bob, Johnny and I would consider working for Jim Lowe. It was pretty obvious that Jim put her up to it: Ruth hadn’t been involved with the running of Lowe’s since back in World War II, and she didn’t pretend to have any understanding of the business. She was just trying to do her brother a favor: If she held onto Carl’s stock, maybe Jim could run Lowe’s and keep the company in the family. It was a romantic idea that had no prospect of validation in reality.
After my session in the car with Jim Lowe on the day of Carl’s funeral, our team had foreseen that this visit would come and had forearmed me with their unanimous response, which was basically: “Sorry, Ruth. If Jim comes in, we go out.” Fortunately, she accepted that answer and didn’t press Jim’s candidacy any further. Apart from this one episode, she didn’t work either for us or against us in the settlement of Carl’s estate.
Our team’s decision to stand united served us well, and the response “if X comes, we go” also worked when Wachovia was beating the bushes for potential buyers for Lowe’s. Wickes Lumber was one interested party. Like Lowe’s, Wickes had its roots in a family operation that grew like crazy during the postwar housing boom. It was based in Michigan but had been expanding around the Midwest and into the South and Northeast as well. In addition to basic lumber, Wickes sold roof trusses, prehung doors and window assemblies to builders and remodeling contractors. It was easy to see how Lowe’s 15 stores might fit into Wickes’ expansion plans.
If Wickes would pay more than the profit-sharing plan could, Wachovia would sell Carl’s stock to them. But the only way Carl’s stock was worth more than $5.3 million was if all Lowe’s assets were intact. The executive management team was a significant asset, but Wachovia couldn’t promise Wickes that we would stay on and work for them. In fact, when asked, we stated flatly that we wouldn’t. After the autonomy and vision for Lowe’s future that Carl Buchan had given us, why would we want to work for a chain of lumberyards based in Michigan? Then Wachovia considered putting Lowe’s up for auction, but we told them that if they didn’t honor the oral agreement that we had with Carl Buchan, we would sue the estate for breach of contract. That would add yet another layer of complication and would delay settlement of the estate.
Wachovia concluded that their best course was to negotiate with us. They maintained that $5.3 million was not enough to pay for Carl’s stock — that it was a sweetheart deal, in effect, struck between Carl and his own company’s profit-sharing plan. We understood their position, and through negotiation we agreed on a price of $4.3 million in cash plus $1 million in notes payable over time, plus half of whatever the life insurance companies paid us. We settled with the insurance companies for something like $1.4 million, so we paid Wachovia half of that.
Accountant Ed Beach and I went looking for $4.3 million. The financing world did not beat a path to our door. I don’t know what would have been considered a sexy investment for venture capital in 1961, but a motley chain of 15 hardware stores based in North Wilkesboro was definitely not it. We visited Rush Dixon, the founder of a brokerage firm based in Charlotte. He said he would want about 30% of the company in exchange for financing. That was out of the question. We kept looking, but again and again we ran into the same kind of response. In exchange for funding, financiers wanted a big chunk of Lowe’s.
The best proposal I got was from Alex. Brown & Sons — the oldest investment bank in America and an interesting company. It was founded in 1800 by an auctioneer named Alexander Brown who came to the U.S. from Ireland. Like the patriarch of the Rothschild banking dynasty, Brown had several sons who followed him into the business and fanned out to establish a sort of family banking network. The sons went to Philadelphia, New York and England, but the original office was in Baltimore, and that’s where I made contact. Alex. Brown agreed to finance the purchase of Carl’s stock in exchange for 10% or 15% ownership of Lowe’s. We weren’t thrilled, but we didn’t reject the proposal out of hand because we thought it might be the best we could get.
Ed Duncan made some calls on our behalf, but nothing came of them. He did help me keep things in perspective, though. One day I was feeling disheartened, and I told him, “These sure are trying times.” Ed corrected me: “No, these aren’t even close. Trying times were after the Civil War, when you could get hung from a tree for just minding your own business.” He was right, of course, and not just about Reconstruction. My forebears had survived wars, isolation, epidemics and the Great Depression. I would survive the financing of Lowe’s.
(Continued next month: Lowe’s goes public.)