EMERSON ELECTRIC CO. - Company Profile, Information, Business Description, History, Background Information on EMERSON ELECTRIC CO.



8000 West Florissant Avenue
St. Louis
Missouri
63136
United States

History of EMERSON ELECTRIC CO.

Emerson Electric Co. stands today as one of America's most admired business success stories. Emerson has quietly grown from a regional maker of electric motors and fans into a highly diversified international firm. One of only a handful of U.S. companies to enjoy a Triple-A rating from both Moody's and Standard & Poor's, it has compiled a remarkable record of sustained growth dating back to the late 1950s.

The company traces its roots back to the dawn of the electrical age in America. Founded in St. Louis on September 24, 1890, the firm was named for a Missouri judge, John Wesley Emerson, a descendant of the New England family of literary fame. Emerson was impressed by the ingenuity shown by a pair of brothers, Alexander W. and Charles R. Meston, in finding applications for the newly developed alternating current electric motor. In addition to lending his name, he provided the financing and became the president of the new company. The fledgling enterprise enjoyed modest success in its first three years, primarily producing small electrical and mechanical products.

In 1892, Herbert L. Parker, a Chicago railroad man, recognized the company's potential and bought Judge Emerson's controlling interest. Parker became president and general manager of Emerson, supervising the company's steady expansion until his death in 1924. During Parker's tenure, electric products developed into household and business necessities, and Emerson became a pioneer in the industry. The company produced a steady stream of innovative products by adapting its electric motors for such items as sewing machines, dental equipment, and water pumps. As electricity became an important factor in mechanized industry, Emerson supplied electric motors for office, factory and farm equipment as well.

In 1920, Parker was elected chairman of the board and T.M. Meston, the founders' younger brother, became president. During the 1920s, electric fans represented 40% of sales. Small electric motors for appliances and general household uses, however, were the dominant business.

Emerson was hit hard by the Depression. The company paid a stock dividend in 1930, but did not do so again for ten years. In 1933, Joseph Newman took control of the company after a career as an executive at Lesser-Goldman, a St. Louis-based cotton and agricultural-products broker. Lesser-Goldman owned an interest in Emerson and was concerned about the company's financial performance during the Depression. Newman streamlined operations, focusing on lowering costs, developing new products, and broadening the company's line of fans.

While sales were uncertain, labor relations between the company and its employees were positively dismal. Convinced that the Wagner Act of 1935, which reaffirmed the right of workers to form unions, was unconstitutional, Newman refused to recognize the United Electrical, Radio and Machine Workers, C.I.O. The union called a sitdown strike in 1937 that lasted 53 days, seven days short of a record. It was 68 days before the employees went back to work, however; Newman settled only after the Supreme Court upheld the Wagner Act.

The settlement came too late for Newman. His bankers had agreed to make a new stock issue just before the strike, but the issue failed. The failure was due partly to the strike, but the company's generally poor financial picture is what ultimately led the board of directors to form a committee to seek new management.

In 1938, William Stuart Symington III was named president of Emerson Electric. A member of a prominent eastern family, Symington arrived in St. Louis facing a daunting array of problems. The company suffered a loss of $138,000 in fiscal 1938. Inventory and overhead were up, while sales had fallen substantially. Symington immediately began cleaning house, firing most of the old top management.

The new management undertook a vigorous campaign to secure new business, and landed Sears, Roebuck & Company as a promising new motor customer. Symington was willing to take risks: he bought an arc-welding business sight unseen and later took Emerson into the delicate business of manufacturing hermetically sealed motors for refrigerators.

Once Emerson was back on its feet, Symington turned his attention to solving the company's long-standing labor problems. The new president, who would later go on to a distinguished career in the United States Senate, faced a union deeply distrustful of management, believing the contract it had so bitterly won was not being honored in good faith. Symington was a realist and decided to work with the fledgling union. The ensuing agreements between Emerson Electric and the United Electrical, Radio and Machine Workers were viewed as landmark achievements for Emerson and followed the example of labor agreements in the newly unionized automobile, steel, and packing industries.

Symington also undertook a major effort to modernize Emerson's manufacturing facilities. At the time the company was housed in five separate buildings in St. Louis. Rents and taxes were high, the multi-storied structures were unsuitable for modern production methods, and none was located near a railroad siding. The company clearly had to relocate to more efficient quarters if it was to compete successfully.

The city of Evansville, Indiana made a pitch to be the company's new home, offering a plant site and $100,000 to facilitate the move. Public officials in St. Louis declined to match the offer, fearing that it would set a precedent they would have to match for other businesses. Indicative of the changed labor atmosphere, however, the union offered to raise a similar sum through a system of wage cuts. Symington declined the union's offer, arranged independent financing, and relocated the company to a suitable location in St. Louis County.



With the advent of World War II, the company joined the war effort and manufactured a variety of war-related items. Emerson's largest contract was for the development and manufacture of the gun turrets used on Air Force bombers such as the B-17, B-25, and B-26, the major weapons in the U.S. bomber force. At the height of production during the war, the company was doing $100 million worth of defense work annually.

Emerson fell upon hard times again after the war, as defense contracts fell drastically, slipping to a low of $1.5 million in 1947. The company had been a leader in its field for most of its life, but in the postwar years large competitors like General Electric and Westinghouse saw potential in Emerson's markets. They moved quickly, building plants in low-wage areas and squeezing the company in its traditional strongholds. In 1945 Symington left the company to pursue a career in politics, boosted in no small part by the reputation he had gained as head of Emerson during the war. When his successor, a long-time company executive, died suddenly, Emerson was once again in the midst of a leadership crisis.

In December 1953, Wallace R. "Buck" Persons was named president. At the time Emerson had sales of only $45 million and a host of problems that had been building for years. But Persons, who came to Emerson from Lincoln Electric, a company known for its cost-effective management, was equal to the task. He instituted an extensive reorganization of the company's commercial product line to exploit Emerson's old-line electric motor business and bring in new customers outside the household appliance market. Products were redesigned using standardized parts to allow for mass production, rather than the company's traditional job-shop lots, producing immediate and dramatic results.

Persons placed heavy emphasis on upgrading Emerson's engineering capabilities. In his first couple of years at the helm he doubled the size of the engineering staff, making a major effort to recruit top-notch engineers and develop the new Electronics-Avionics Division, which worked on fire control systems for jet bombers. He also got tough with labor. Emerson's labor costs were higher than its major competitors, who had relocated to low-wage areas. The company suffered several strikes but eventually succeeded in restructuring its labor agreements to conform with industry standards. However, Persons also emphasized planning, budgetary discipline, and a policy of open communication with employees inncluding annual employee opinion surveys.

Emerson also redoubled its efforts to secure defense contracts, concentrating on the engineering and development of electronics and avionics rather than on armaments production. The modernization of the Air Force's bomber fleet provided a windfall for the company's rebuilding program. By 1956 military sales accounted for 30% of Emerson's total sales.

While Persons' short range plans called for rebuilding Emerson's existing product lines, his long range goal was to expand into new products. To assist with this effort, Persons called in a host of management consultants. One of the first firms hired, Lester B. Knight & Associates, eventually produced Persons's successor, Charles F. Knight.

Beginning in 1958, Emerson embarked on an acquisition program, aiming for quality producers with strong marketing skills. Through merger or acquisition, more than ten companies were added to Emerson during the 1960s, including Day Brite Lighting, U.S. Electrical Motors, Ridge Tool Company, Therm-o-Disc, White-Rodgers, Browning Manufacturing, and In-Sink-Erator. Emerson's industrial and consumer markets expanded significantly, lessening the company's dependence on uncertain defense contracts. When production of B-52 and B-58 air force bombers, for which Emerson was manufacturing tail turrets and fire control systems, was abruptly canceled in 1962, the move away from defense contracting was accelerated. The financial impact of the cancellation was minimized, since Emerson had already heeded the advice of its military consulting experts and concentrated its defense business in helicopters and other "limited war" hardware, but it convinced Persons that defense would not be a consistent growth market and gave added impetus to the company's efforts to expand in commercial markets.

The wisdom of this move was underscored in 1969 when, with almost no warning, the defense department canceled Lockheed Aircraft's huge Cheyenne helicopter program, for which Emerson was the largest subcontractor. The company's defense sales skidded from $70 million to between $35 and $40 million in one day. Following the company's stringent budgetary procedures, and as a result of continued growth through acquisition, Emerson was able to avoid a loss for the year by drastically cutting expenses, but the message was clear. Emerson remained in the military market, but Persons set a cap on military business at 15% of total sales.

By the time the Cheyenne contract was canceled, Emerson had acquired more than a dozen companies manufacturing a wide range of commercial and industrial products. The firm's household products included lighting fixtures, kitchen waste disposers, door chimes, intercom units, power tools, heating and air conditioning, controls, and high fidelity equipment. On the industrial side, Emerson was producing power transfer equipment, industrial test equipment, and industrial tools.

By the early 1970s, Buck Persons had turned Emerson, a troubled maker of small electric motors and fans, into a company capable of competing with the industry giants. But he had no clear successor inside the company, and the time was coming for him to move on. Persons undertook an exhaustive two-year search for the right man, reviewing 150 potential candidates. The final choice was Charles F. (Chuck) Knight, Lester Knight's 37-year-old son and the lead consultant involved in helping find Person's successor. He was named Emerson's vice chairman and CEO in 1973, and chairman the following year.

Knight proved an excellent choice for the job. He knew the company intimately at the highest level, since he had been an Emerson consultant for ten years and a board member of Emerson Motor Division, the company's largest division, for four years. Persons had wanted someone who would accept the company's organization and provide a sense of continuity. Knight had helped set up Emerson's management structure, and shared Persons's commitment to continued strong sales and earnings growth. Knight also had international experience, having overseen his father's European operations before becoming an Emerson consultant. Emerson had been late getting into overseas markets and now faced entrenched competition. One of Knight's main goals was to expand the company's international sales, spearheaded by specialties like its Ridgid tool line.

Knight's management philosophy keeps as much decision-making responsibility as possible at the operational level; each division operates like a separate company in many respects. Managers negotiate wages and benefits according to community standards and are responsible for determining what steps must be taken at the divisional level to respond to market conditions. Emerson avoids the huge manufacturing facilities favored by some of its competitors, keeping a plant size of no more than 800 workers at most locations, and most of its plants are non-union. All these are components of what Emerson calls its "best cost producer" strategy, through which it strives to manufacture the highest-quality products at their lowest relevant global cost.

Emerson frequently enters new markets by the acquisition of an existing market leader or high-quality producer. The company entered the electric-utility supply business for the first time in 1975 with the purchase of A.B. Chance Company. Similarly, Emerson made a strong entry into industrial measurement and process control business in 1976 by buying Rosemount, Inc.

Emerson's strategy of diversification and acquisition continued in the 1980s. Emerson acquired Copeland Corporation, the world's largest manufacturer of compressors for air conditioners and commercial refrigeration applications, in October, 1986. In December 1986, the company purchased Hazeltine, Inc., a leader in state-of-the-art defense electronics components and systems. (In 1988, two officials at the newly acquired Hazeltine unit were indicted on charges of fraud. Emerson and Hazeltine cooperated with authorities, and in early 1989 Hazeltine pleaded guilty to the felony charge.) In March 1987 Emerson acquired Liebert Corporation, a maker of computer support products.

Emerson seeks companies that provide not only immediate sales and profits gains, but growth potential for years to come, and prefers to buy private firms to avoid paying the large premiums over book value that public companies demand.

Emerson Electric today is a highly diversified company able to withstand setbacks in any of its markets. In 1988, the company posted its 31st consecutive year of earnings growth, a record that makes the company a perennial Wall Street favorite. Emerson's quiet, steady growth throughout the 1980s shows no signs of faltering. Its biggest customers are now commercial and industrial buyers of a broad array of factory automation and process control equipment, but no one segment of the business dominates to the point of vulnerability.

In September, 1988, James F. Hardymon was named president of Emerson. C.F. Knight remained chairman and CEO. The company continues to expand in both domestic and international markets as it becomes a global manufacturer. Emerson's challenge will be to continue the impressive record of growth the company has compiled since the late 1950s. Many of Emerson's core businesses are in mature industries, where high growth rates are difficult to achieve. But Emerson has in the past relied on acquisitions to spur growth, and indications are that this philosophy will continue to guide the company in the future.

Principal Subsidiaries: Appleton Electric Co.; Automatic Switch Co.; Beckman Industrial Corporation; Beckman Components GmbH; Beckman Composants S.a.r.l.; Bicomp S.A. de C.V.; Branson International Plasma Corporation; Branson Sonic Power S.A.; Branson Ultrasonics Corporation; Camco Corporation; Chromalox, S.A.; Compania do Motores Domesticos; Computer Power Systems Corporation; Copeland Corp.; Electronic Speed Control Development Corp.; Emerex S.A. de C.V.; Emerson Contract Division, Inc.; Emerson Electric (Asia) Ltd.; Emerson Electric C.A.; Emerson Electric Foreign Sales Corp. FSC; Emerson Electric (France) S.A.; Emerson Electric Industrial Controls, S.A. (France); Emerson Electric Nederland B.V.; Emerson Electric Overseas Finance Corp.; Emerson Electric Puerto Rico, Inc.; Emerson Electric, S.A. (Belgium); Emerson Electric Systems Corp.; Emerson Electric (U.S.) Holding Corp.; Emerson Finance Co.; Emerson Pacific Pte. Ltd.; Emerson Power Transmission Corporation; Eitrex S.A.; Fusite Corp.; Harris Calorific France, S.a.r.l.; Harris Europa, S.p.A.; Emerson Italia S.P.A.; Hazeltine Corporation; Inno Ven 111 Corporation; Kiowa Corporation; Krautkramer Branson Incorporated; Krautkramer GmbH; Liebert Corporation; Liebert Ireland; Load Management Development Corporation; Metaloy, Inc.; Micro Motion, Inc.; Midwest Components, Inc.; Ridge Tool Co.; Ridge Tool GmbH; Ridge Tool Europe, S.A.; Ridgid Ferramentas E Maquinas, Ltda.; Rosemount Inc.; Rosemount Instruments (Belgium); Skil Corporation; Southwest Mobile Systems Corp.; SWECO, Inc.; Thermo-Disc, Inc.; Vacco Industries; Western Forge Corporation; Xomox Corporation.

Additional Details

Further Reference

Dyer, Davis and Cruikshank, Jeffrey. Emerson Electric Co.: 100 Years of Manufacturing, St. Louis, Emerson Electric Co., 1990.

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