Deck: How the Ingrams built one of America's top private fortunes
Deciding whether to take a family business public is tough even in the best of times. But as Martha R. Ingram and her three grown sons sat in Ingram Industries Inc.'s boardroom two years back pondering such a decision, they were reeling from the death of E. Bronson Ingram--husband, father, and corporate chief--who had been buried the day before. Ingram was an old-style patriarch, at once beloved and imposing. But in minutes, his heirs junked his master plan. Instead of taking the entire company public, they decided to spin off a part to investors and keep the rest private.
Such gutsy decisions are supposed to be the forte of self-made entrepreneurs, not heirs to old money. Currently worth some $3 billion, the Ingram family has been rich for five generations, a span encompassing the entire 20th century. Until its recent restructuring, the last piece of which was completed in June, Ingram Industries was among the top 10 private U.S. companies, with sales of $15 billion in 1996.
BEHIND THE SCENES. In performing radical surgery on Ingram Industries, Bronson's heirs acted against his wishes--yet were perfectly in sync with family tradition. Unlike other rich families of comparable vintage, the Ingrams of Nashville did not build one giant corporation and live off it for generations. Instead, family members have founded, acquired, and sold scores of enterprises over the decades. Displaying an uncanny instinct for locating opportunities along the frontiers of the economy, the family migrated from lumbering to textiles to oil refining and marine transport to its current specialty: the unglamorous but dynamic field of wholesale distribution.
Although the Ingram name is little known to the public, the family wields pervasive influence behind the scenes. A huge chunk of the most popular products of the Information Age--desktop computers, software, CD-ROMs, videos, video games, and that old standby, books--pass through an Ingram warehouse on their journey to market.
Distribution has become far more competitive and innovative in recent years with the rise of superretailers and new shopping venues such as the Internet. No one has mastered the nuances better than the Ingrams, whose relentless perfectionism has allowed them to dominate almost every niche they occupy. Ingram Micro Inc. is the largest distributor of microcomputer products, with a 28% share of the U.S. market; Ingram Book Group handles about two-thirds of the books that wend their way through wholesalers to bookstores. In the emerging online book business, Ingram commands an even greater share; Ingram Entertainment Inc. ships one-third of all home videos.
Now, a new generation is stepping to the fore. So far, its most important feat--and one not to be underestimated--may lie in simply getting along with one another. The sagas of the Koch brothers, scions of the founder of oil giant Koch Industries, and of Harold Simmons and his daughters are but two horror stories of internecine warfare among the superrich. By contrast, the Ingrams laid such stress on preserving peace after Bronson died of cancer in mid-1995 that they carved Ingram Entertainment out of Ingram Industries and sold it to David, the third-born brother, who yearned for independence.
The Ingram brothers are distinctive for their work ethic as well as for their cohesion. David B. Ingram, 34, doesn't just own Ingram Entertainment, he's also CEO. David's older brothers, Orrin H., 37, and John R., 36, now are co-presidents of Ingram Industries. Robin, 31, the fourth Ingram sibling, doesn't work for a family company, but her husband, Richard B. Patton, 36, is a vice-president at Ingram Industries and president of its new investment arm.
The day after Bronson's funeral, which drew about 1,000 mourners, Ingram Industries' board held its regularly scheduled meeting in Nashville. In accordance with Bronson's wishes, the directors unanimously named Martha Ingram chairman and Linwood A. "Chip" Lacy Jr. CEO. A talented but high-strung executive whose manic energy had earned him the nickname "the Tasmanian Devil," Lacy was the longtime CEO of Ingram Micro, which was Industries' largest and fastest-growing unit. It would rack up a record $8.6 billion in revenue in 1995 on its way to $12 billion the following year.
Martha Ingram, now 62, was by her own description "still numb from the preceding six months" but not unprepared for her new duties. A Vassar College graduate who had worked for her father's broadcasting business in Charleston, S.C., she had joined Ingram Industries in 1979 as vice-president for public affairs and two years later was named an Ingram director. "Bronson involved me in all his decisions," she says.
After the directors recessed for lunch, the brothers and their mother remained in the boardroom to discuss a thorny question a director had posed: Did the family want to move ahead with Bronson's plan to take Industries public?
BOLD MOVE. It was David who suggested an alternate strategy: Let's float Ingram Micro, the business most in need of capital, on the stock market but keep the rest private. In 20 minutes, agreement had been reached--to the shock of the returning board. "We called it Operation U-Turn," says Philip M. Pfeffer, a longtime Ingram Industries executive and board member. "My first reaction was that if Bronson were alive, he would have gone ballistic."
Lopping off Micro was a bold, even daring act, but it was less an assertion of willfulness by the new generation than an admission of its limitations. None of the Ingrams wanted the scrutiny that comes with public ownership, and not even John, who had spent nearly four years working at Micro, felt capable of riding herd on such a fast-growing, complex business. For his part, Lacy not only favored taking Micro public but also asked to relinquish his new post and spin off with Micro as its CEO. The family assented and, with Martha taking the lead, began negotiating with Lacy the terms of Micro's divestiture.
Three months into the process, they reached an impasse. Neither Lacy nor Ingram will discuss the details, but other participants in the talks say Lacy insisted on more control over Micro than the Ingrams were willing to surrender. "Martha accommodated him to a certain point, but Chip just pushed it too far," says one family adviser. In May, 1996, she demanded Lacy's resignation. Lacy complied but remains a director of Ingram Industries.
Removing Lacy was a gamble the Ingrams seem to have won, at least for now. In August, the family hired Jerre L. Stead, ex-CEO of AT&T Global Information Systems, to head Micro. The initial public offering took place last November, raising $360 million. The family kept 76%, but some members have sold shares lately. Under Stead, the stock has risen to about $29, up from $18 at the IPO.
With Lacy's departure, Martha became CEO as well as chairman, and Orrin and John moved up to co-presidents. Although such power sharing is rare in Corporate America, it came naturally to the Ingram brothers, who live on adjoining farms on the outskirts of Nashville, jointly buy most of their agricultural gear, and employ a single farm manager. "The thing is," Orrin says, "John and I talked about living just like this ever since we were 5 or 6."
"MORE FUN." The odd brother out since childhood, David gingerly broached the idea of his acquiring Ingram Entertainment a few weeks after his father's funeral. "We all get along well," explains David, referring to his mother, brothers, and brother-in-law. "But my thinking was that any five people will have trouble running anything."
Actually, David's motives were not nearly so dispassionate. He had long suppressed an entrepreneurial urge out of deference to his father's wish that he join the family company. When Entertainment's president resigned in 1994, Bronson placated his restless son by promoting him to fill the spot. But as president of Entertainment, David would have ranked a rung below his brothers in the post-Bronson hierarchy. "David is very strong-willed," Orrin says. "He thought, as the third son, he'd have more fun running his own show."
So strong was David's wish for independence that he probably would have bid on any business he had been running. But Entertainment, as the least valuable of Industries' three main subsidiaries, also was affordable. The bad news was that its affordability reflected video's dimming prospects. In 1994, annual video-rental receipts declined for the first time, inspiring a wave of doomsday predictions. "A lot of people thought I was crazy," David says, "but I was sure the industry would bounce back. I also felt that by the time that video did start to fade, this company can be just as good at other businesses."
In other words, David was prepared to stake his entire share of the family fortune on his ability to reinvent Entertainment over 5 to 10 years. Voicing neither approval nor objection, Martha deferred to Orrin and John on this potentially explosive issue.
There was risk aplenty for them, too. Divorcing Entertainment from Book weakened both. The two units could not hope to operate as cost-effectively apart as they did together--nor would they have the clout in dealing with giant suppliers such as Time Warner Inc. and Walt Disney Co. or such mega-retailers as Barnes & Noble Inc. and Wal-Mart Stores Inc. And in a high-volume, low-margin industry like distribution, every little bit counts. Even so, Orrin and John quickly blessed David's proposal. Says John: "We wanted to make sure we all could still come to Sunday dinner at Mother's house and get along."
TIMBER BARON. In his entrepreneurial daring, David is a throwback to the founder of the Ingram dynasty, Orrin Henry Ingram (1854-1918), who was one of the great timber barons of his day. Working from Eau Claire, Wis., Ingram built a major company in his own right. But the largest share of his fortune derived from his investment in what is now Weyerhaeuser Co. Bronson's father, O.H. "Hank" Ingram, was the founder's grandson and namesake. Instead of making a career at Weyerhaeuser, Hank Ingram took a more entrepreneurial path. In one of his earliest ventures, he acquired a moribund textile manufacturing concern in Tennessee in 1928 and promptly moved to Nashville to run it.
Bronson and his older brother, Frederic, better known as Fritz, were tutored in the same Establishment bastions--Phillips Exeter Academy, Vanderbilt University, and Princeton University. In the mid-1950s, the brothers joined their father's principal company, Ingram Oil & Refining, based in New Orleans, which operated a chain of 240 gas stations. Theirs was a foreshortened apprenticeship: Hank Ingram sold his company to Murphy Oil Corp. in 1961 and died in 1963. "My boys have had to grow up fast, just like Bronson did," says Martha.
In addition to a sizable stock portfolio, the brothers inherited Ingram Barge Co., a money-losing operation trafficking in petroleum products on the Mississippi. Through shrewd acquisitions, the brothers built it into one of the largest in the country and used its cash flow to invest in other fields, mainly the booming oil industry. Among other buys was a sleepy textbook-depository company that Bronson slowly built into a thriving wholesaler. By the mid-1970s, their holding company, Ingram Corp., was generating $1 billion a year in revenues.
Then came crisis. In mid-1976, a grand jury in Illinois indicted Fritz, then 47, and Bronson, 45, and six others on charges that Ingram Barge had paid $1.3 million in bribes to win a sludge-hauling contract in Chicago. Martha accompanied her husband to court every day while their four children, 17 to 11, endured their own trial of doubt and worry at home in Nashville.
Bronson was acquitted on all charges, but Fritz was convicted on 29 counts and sentenced to four years in prison. Incensed that his own reputation was besmirched by Fritz's wrongdoing, Bronson severed all business ties with his brother. In 1978, Ingram Corp. was split in half; Fritz ended up with most of the energy assets, while Bronson took Ingram Barge, Ingram Book, and some lesser units.
TAX EXILE. Fritz served 16 months in a federal prison camp before Jimmy Carter, in one of his last acts as President, commuted his sentence in 1981. To minimize his tax liability, Ingram promptly swapped his U.S. passport for an Irish one, established legal residence in Monaco, and transferred all his assets--worth as much as $150 million--to a trust in Liechtenstein. Reduced to insolvency in 1984 by large oil trading losses, Ingram Corp. was liquidated by its creditors. Today, Fritz lives off the income from his trust.
Meanwhile, Bronson was using cash generated by the barge company to build a new kind of company in an old industry: book publishing. Investing in new order-processing technology even as he was acquiring small wholesalers by the dozen, Ingram brought Ingram Book to scale with a speed that precluded the emergence of a strong rival.
Bronson used the same basic approach to guide Entertainment and Micro to dominance in their niches of the vast wholesale distribution industry. Both were founded within the book company and spun off as full-fledged divisions of Ingram Industries when specialized video and software retailers began proliferating in the early 1980s.
The fondest hope of Bronson's middle age was that all three of his sons would follow him into the family business. If the Ingram boys were inspired to hard work by their parents' example, they also were driven to it by meager weekly allowances. A love of boa constrictors, pythons, and other exotic snakes left David especially cash-needy. Beginning at age 13 or 14, the brothers spent a month each summer packing books, digging weeds, scraping paint, and cleaning boat toilets. "That was the best thing Bronson ever did," Martha says. "They not only worked hard but the experience persuaded them to get a good education, like their father."
Quite literally like Dad, in the case of Orrin and John, both of whom went to Princeton, Bronson's alma mater; John even chose the same major as his father--English. Already working off his own script, David enrolled at Duke University, attracted mainly by its golf team. (In a sense, David also followed in Bronson's footsteps, since his father was an accomplished golfer.)
GOLF PRO? Neither Orrin nor John seriously considered making a career anywhere besides the family company. Both joined the business right out of school, with John detouring just long enough to earn an MBA from Vanderbilt. Orrin joined the barge company in 1982, while John started as assistant treasurer at Ingram Industries in 1986.
David fell even further behind when he chose to remain in Durham, N.C., after graduating in 1985. He took a part-time job as a fund-raiser in Duke's development office and played enough tournaments around the country to convince himself that he couldn't make the cut as a pro golfer. David returned to Nashville in 1988 to attend business school at Vanderbilt and, MBA in hand, joined Industries as assistant treasurer the next year. (John had moved on to the book company.)
In 1991, David transferred to Entertainment, which appealed to him mainly because neither Orrin nor John was ensconced there. John, meanwhile, left Ingram Book and moved to Santa Ana, Calif., to fill a senior purchasing slot at Ingram Micro, the only family company of global scope. In 1993, he ventured even farther afield, transferring to Brussels and a top job in Micro's European headquarters.
At their father's urging, all three brothers began attending board meetings in the early 1990s, allowing the directors a closer look at Bronson's boys. "If anything, Bronson was too cautious about the pace of his sons' advancement," says Pfeffer, who helped groom all three. "I always used to say that they would have been better off if their name had been Jones or Smith. But certainly they were well prepared to run the business."
Orrin is the son who looks most like his darkly handsome father, though he is at once even more physically imposing and far more affable. After Bronson took ill, Orrin took charge of his father's care. "Orrin was the one who would lift Bronson and talk straight with him," says Edward G. Nelson, a prominent Nashvillian who was a lifelong friend of Bronson's. Orrin is the least intellectually accomplished of the brothers, however, and in his career-long attachment to the barge company, some see a lack of executive-suite ambition.
John is a different type altogether--fair-haired, slight, and enthusiastic, much like his mother. While the career path John blazed for himself dispelled any doubts about his intellect and drive, only recently has he shown inklings of his father's decisiveness. "John still looks young," says one board member, "but he has become much more assertive."
Although David bears a strong physical resemblance to his Uncle Fritz, he is his father's son: measured, matter-of-fact, decisive. "It's eerie how close David is to the way his father operated," says Thomas H. Lunn, longtime treasurer of Ingram Industries who now is vice-chairman of Entertainment. Like his father, David can seem aloof. While Orrin and John used to sit at the table with the directors during the board meetings they attended, David sat off by himself.
EARLY DAYS. Although Orrin, John, and David have acquitted themselves well so far, the family is still in the early stages of what likely will be a protracted period of heightened risk and uncertainty. By their own admission, all three brothers have a long way to go to prove themselves their father's equal. David is under the most immediate pressure to do what his dad did: pull the rabbit of a new growth business out of the hat of a mature enterprise verging on decline.
David has begun moving beyond wholesaling with modest investments in such other marketing-driven industries as advertising and public relations, Internet fulfillment, and music publishing. "If you plant a few seeds, you might get a redwood to grow," David explains, conceding that nothing resembling a redwood has yet to sprout. "I've been cautious," he says. "I'd rather be a little bit older before I make a fatal mistake."
As holding company co-presidents, Orrin and John are still one level removed from the sort of operating decisions that David makes daily. Lee Synnott, CEO of Ingram Book, and Roy E. Claverie, CEO of Ingram Marine, are both highly regarded industry pros who are as much instructors to the Ingram brothers as subordinates. "We still want them to be mentors," John says.
Orrin and John's challenge is to manage incremental change in mature businesses that are more profitable than Entertainment and more securely established. But like David, the brothers also are looking to diversify, with the help of brother-in-law Patton, who functions as a kind of in-house strategic adviser and investment banker. Industries could easily afford to make a major acquisition, but the trio are leery of overpaying. Patton says that over the past two years, he has reviewed 150 prospective deals large and small and made eight bids--none of which was accepted.
Although the existing product lines of the Ingram distribution companies do not overlap much, the three companies have hundreds, if not thousands, of retail customers in common, presenting an ever present temptation to diversify into one another's business. Then, too, emerging infotainment technologies such as CD-ROMs and digital videodisks tend to straddle existing distribution channels, inviting crossover competition. Finally, all three companies are pushing hard into Internet commerce, where everything is up for grabs.
Ingram Entertainment, with its reinvention imperative, will likely push hardest. "There are some strategies David is looking at that could put him into competition with our existing customer base," says John, who resigned from the board of Entertainment in July. A few weeks after John stepped down, Ingram Entertainment launched a new Web site through which it sells books as well as videos and video games. Ingram Book has agreed to supply books to David's company.
"NO HURRY." The family's extraordinary solidarity is sure to be tested further as the need to name a successor to Martha grows. While Orrin and John are obvious candidates, David cannot be ruled out. Although Martha is a reluctant CEO, she says she is in no hurry to anoint an heir. "My greatest pride as a mother is that my sons have dealt with each other so nicely through the many difficult circumstances of the last two years," she says. "In time, I think it will become obvious how we should carry on."
In the meantime, yet another generation of Ingrams is emerging. Among them, Orrin, John, David, and Robin already have 11 children. The Sunday gathering of the clan at Martha's has become a crowded, rambunctious ritual. But history suggests it will not be too long before some of those little Ingrams and Pattons who are now wreaking havoc at their grandmother's Sunday dinner table start spending their summers working at their fathers' companies, doing their bit to perpetuate one of America's longest-running business dynasties well into the 21st century.