Jack Stack’s strategy to expose all aspects of finance and operation to every employee has paid off handsomely. Executives are learning the value of OPENING THE BOOKS

ST. LOUIS —  Fifteen years ago, Denise Bredfeldt was an undereducated malcontent at a down-and-out Missouri factory that rebuilt diesel engines. Then her boss did her the favor of eliminating her job.

He tailored a different one for her and gave her a crash course in finance to demonstrate why her new task of rebuilding transmissions made the company much more money than her old one of building hydraulic valves and pumps. Bredfeldt was sold on the power of numbers.

Today, she holds a college degree and is a manager with that same grubby company, Springfield ReManufacturing Corp. Though Bredfeldt’s case might be extraordinary, she nonetheless typifies the sort of attitude adjustment that has helped the company rebound and prosper.

What accounts for the transformation of Springfield ReManufacturing and employees such as Bredfeldt is a little-known but fast-spreading way of running a company: “open-book management.”

Perhaps the biggest proponent of this strategy is Bredfeldt’s boss, an amiable, improbable management guru named Jack Stack. Looking like a blend of Dan Quayle and a young Jack Kennedy, Stack has become a sorcerer for growing numbers of executives seeking the secret formula for success in today’s hazardous economy.

Stack long ago decided that the solution to his company’s poor morale and mounting red ink was to expose all aspects of corporate finance and operations to scrutiny by every employee--from janitor to cam-rod rebuilder to inventory manager--and enlist their ideas for enhancing the bottom line. In exchange for improving the business, the workers got bonuses and stock.

The deceptively simple approach has paid off handsomely and given Stack’s revitalized company cult status among a growing group of disciples. Once a failing division of International Harvester, the company is profitably on its own, with 14 successful related ventures and a charged-up work force given to discussing “overhead absorption,” “labor ratios” and other business arcana. Many of the veterans can boast of stock ownership of $40,000 to $70,000--all thanks to the company’s rising fortunes.

“They created the movement from nothing,” said Corey Rosen, executive director of the National Center for Employee Ownership in Oakland. “Usually, big trends have their roots in management consulting or universities and are sold to companies. This one grew from the ground up and as a result will be a lot more persistent. It’s not a fad.”

Stack’s open-book notions are anathema to the authoritarian, keep-them-in-the-dark style that, despite widespread dabbling in worker empowerment and other egalitarian approaches, continues to prevail in much of Corporate America. Most executives seem to think that too much information will give employees dangerous ideas.

At a time when corporate downsizing has become a demoralizing fact of life and managers beset by global competition are under unprecedented pressure to accomplish more with less, Stack’s methods offer hope that workers in even the most mundane jobs can be inspired to boost their companies’ wealth--and, by so doing, their own.

Although unknown to most of America, Stack has ascended to visionary status in some corners of Corporate America in a remarkably short time. He has won converts in mainstream companies such as Allstate Insurance Co. and printer R.R. Donnelley & Sons.

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For executives adrift in today’s choppy corporate seas, executive- cum- guru Stack offers that rarity far more valuable than any deep theory emanating from a consultant or academic: practical experience with a management model that has worked.

Each month, packs of executives--more than 2,400 to date--traipse to Stack’s company in the Bible Belt community of Springfield, Mo., 150 miles southeast of Kansas City. There, at $1,250 a pop, they learn about what sports fan Stack dubbed “The Great Game of Business” in his briskly selling 1992 book of that name. (About 100,000 copies have been sold so far.)

And each year in late September, the burgeoning clan of open-book practitioners journey to St. Louis for the Gathering of Games. At this two-day convention, companies soak up Stack’s homespun adages (“You gotta wanna”), get advice from the Inc. magazine co-sponsors and share tips on how to educate employees about business and make them more responsible for their--and their companies’--destinies.

The third annual Gathering, just held, drew 540 proponents from minuscule and mid-sized companies nationwide as well as from software giant Microsoft, Bumble Bee Seafoods, brewer Anheuser Busch and Zambia Consolidated Copper Mines, whose executives heard about Stack’s book in far-away Africa and enthusiastically embraced its principles. Participants led sessions about “playing the game”--Stack parlance for setting goals and using fun, motivational challenges to build teamwork and inspire a winning attitude.

This all might smack of a trend du jour that sounds too good to be true. But Springfield ReManufacturing and Stack have won a vote of confidence from heavyweights including super-investor Warren Buffett, Katharine Graham of Washington Post Co. and Walter E. Haas Jr. of Levi Strauss & Co. They are trustees of the Business Enterprise Trust, which presented the company with its 1993 Business Enterprise Award. The nonprofit trust, founded by television’s Norman Lear to ferret out examples of social vision in business, lauded the company’s humane, market-responsive approach.

At times, as dozens of people rose to sing Stack’s praises at St. Louis’ Hyatt Regency, the event resembled a revival meeting--minus the tent and amens.

As a sign of Stack’s Midas touch, he is raking in $5,000 speech dates at the rate of three a week, plus “coaching” other companies--all while continuing to run Springfield ReManufacturing. The book, seminar and convention business--complete with merchandise catalogue featuring mugs, T-shirts and videos--is turning a profit, too.

To Stack, the Great Game of Business constitutes nothing less than a revolution, and he approaches it with the zeal of a Trotskyite. The fact that his proselytizing also makes money is a source of pride mixed with embarrassment.

True, he noted, his freckled face blushing, “we’re looking at ways to get cash flow.” But spreading the word is the important thing, he added, if U.S. companies and workers are to compete in the bruising global marketplace.

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“We’ve created this society where I don’t think Joe Six-Pack has a chance,” he said between sessions at the Gathering. “It’s ridiculous. The crime is we’ve brought all these people into a cricket game and told them to sit and watch. It’s hot and humid, and the sun is beating, and they ask: ‘What is this game all about?’ There’s a huge market out there for people to learn the rules of cricket.”

Stack’s followers point out that it is tough to argue with success. Mountain Travel Sobek, an adventure travel company in El Cerrito, Calif., introduced Stack’s methods less than a year ago. Sales representatives have scored impressive gains and now learn more about their customers so that they know which marketing dollars are paying off.

At Commercial Casework Inc., a family-owned company in Fremont, Calif., that builds custom office interiors, a 2-year-old program of revealing details of project budgets--and thus setting easy-to-grasp goals for employees--gets credit for maintaining profitability during the recession, even as rivals were going bankrupt or suffering steep losses.

Open-book management might not work for every company--and definitely is not a quick fix. “It’s not as simple as it appears,” said Thomas A. Boyce, a principal with SRI International, a Menlo Park, Calif., consulting firm. “But for companies willing to stay the course, it can be as good as touted.”

Stack’s own employees took some winning over when he first shared numbers with them in a desperate effort to save Springfield ReManufacturing.

“We figured they probably had another set of books,” said Phil Allen, a manager at Sequel Corp., one of the spinoff ventures. “We kept drilling them, ‘Is this on the up and up?’ ”

Bredfeldt, the former transmission rebuilder who is now general manager of Newstream Enterprises, another spinoff, acknowledged that not enough attention has been paid to the occasional misfires at Springfield ReManufacturing. But, she said, “the one underlying thing is that it works.”

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John Patrick (Jack) Stack, 46 and a father of five, loves to relate to audiences tales of growing up in Chicago, where his devilish ways often had him in hot water with the nuns in Catholic school. He was expelled from college and a seminary for disciplinary reasons and then was fired by General Motors for playing poker on the job.

At age 18, in 1968, he took a job as a mail room clerk in a factory owned by giant International Harvester, a truck and farm equipment maker that was one of the most powerful companies around. He was struck by the plant’s aura of bureaucracy and secrecy. Communication gaps divided managers from the work force and disgruntled workers from one another.

As he moved up to supervisory posts, he began thinking up contests to spur his work crews on. Rewards for reaching production goals started small--free coffee one week, then coffee and rolls, then pizza and beer at his home. Productivity soared. The more he leveled with factory-floor employees, the more willing they seemed to buck up production.

And they seemed to thrive under his maverick style. As Stack related to David Bollier, a writer for the Business Enterprise Trust, he once asked some of his workers to dress in nuns’ habits and ferry key parts from out of state on school buses, so that he could keep an engine line operating during a violent Teamsters strike.

His unorthodox ways definitely got him noticed by higher-ups. In the late 1970s, International Harvester was posting huge losses at a small engine plant in Springfield, Mo. Demoralized workers were on the verge of joining a union. Stack was deployed to turn things around--or close the factory.

Known as the Springfield ReNew Center, the plant had been started by Harvester a decade earlier to provide service and maintenance for Harvester engines and equipment--and gain the company a foothold in the robust market for used engines.

The theory was better than the execution. The small plant accounted for just a seventieth of overall corporate revenue and had a payroll of 170. When Stack arrived, he found people standing around on the shop floor because they lacked parts and tools. No one had a sense of the big picture. Veteran employees are fond of joking that workers, like mushrooms, were kept in the dark.

Fearful that the presence of a union would exacerbate the ill feelings between workers and management, Stack literally begged employees to give him time to clear up problems. They agreed, and sure enough things perked up.

Unfortunately, Harvester itself was beginning an inexorable slide. Managers had tried to force changes in work rules that the company felt were making it lose ground to competitors. The resulting United Auto Workers strike unexpectedly dragged on for months, and the company had to take on massive amounts of debt. Then the recession of the early 1980s hit.

Before it was over, Harvester had shed its farm equipment business and 90,000 of its 100,000 workers and had revamped most of its operations. (In 1986, it was reincarnated as Navistar International Corp., a maker of heavy-duty trucks.)

Stack, meanwhile, was fielding questions from his fretful employees: Should I buy a car? Should I buy a house? Should I have a baby? Aware that he might at any moment be forced to close the plant and lay off the entire staff, he and other managers concocted a crazy scheme to buy the operation. Their proposal received a lukewarm reaction at headquarters.

A couple of years later, Stack got the news that the company would be sold to another manufacturer of trucks and earth-moving equipment. But just before Christmas, 1982, the deal fell through. A Harvester negotiator suggested that Stack could have the company--if he came up with $9 million.

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Despite having been turned down by 50 banks over the previous two years, Stack spent the holidays scrambling to find a lender. He first passed around a legal pad on which he asked managers and employees to scribble the amount they’d be willing to contribute. On the initial round, the total came to about $67,000. He gave them the weekend to think about it and then passed the hat again. This time the amount was $65,000--one employee’s wife had thought better of the deal and snatched back $2,000.

The loan officer scoffed and insisted that funding be backed by the assets of the top 13 managers. That total came to just $96,000, but Stack urged him to round it up to $100,000. In early February, 1983, the team closed on the deal. It was the most highly leveraged buyout in corporate history, with 89 parts debt ($8.9 million) to one part equity ($100,000), and an interest rate of three percentage points over prime (then 15%). (The loan officer got fired for making the loan.)

Getting the money proved to be the easy part. Making a go of the gritty plant, renamed Springfield ReManufacturing, posed a more monumental challenge--one that cried out for the sort of nontraditional approach that was Stack’s trademark.

He decided to teach everyone at the company the fundamentals of business, demonstrating how each person and department contributed. Balance sheets and income and cash flow statements became an everyday part of life. At a weekly meeting, called the “Great Huddle,” information about orders, inventory, overhead expenses and other details was reviewed by managers and then discussed by smaller teams of employees.

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Soon, workers began setting--and reaching--productivity goals. Chief Executive Stack devised contests and score cards. A key motivating factor was that employees would share in the wealth they created, with quarterly bonuses and an employee stock ownership plan.

Twelve years after the buyout, here is how Springfield ReManufacturing stacks up (as it were):

* The original equity of $100,000 has soared to $27 million, according to Stack, of which $7.3 million is in the ESOP.

* The 800-employee company is adding to its payroll at the rate of about 100 workers a year.

* Sales have grown from $83 million in 1993 to a projected 1995 level of $104 million to $108 million.

* Profit, meanwhile, rose from $1.8 million in 1993 to $2.02 million in 1994 (when the company paid out $1.5 million in bonuses). For 1995, Stack projects net income of $2.5 million.

Looking to boost revenue, Springfield employees have spun off 14 separate ventures, many of which make components for Springfield ReManufacturing, Navistar and other customers. Open-book management is flourishing at these divisions, where employees take disclosure for granted.

“If you don’t show the numbers, you’ve got people on your doorstep,” said Mike Branstetter, vice president of sales with Sequel Corp., which remanufactures automotive engines. “There’s something about the empowerment of the numbers--it gives you a sense of worth.”

Does it trivialize this weighty business of business to call it a game? No way, said Stack: “Bill Gates [of Microsoft], [media mogul] Ted Turner, Warren Buffett--they all look at it as a game. They’re having a ball. They love the competition.”

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OPENING THE BOOKS

Open-book management is an approach to running a company that gets everyone thinking like an owner instead of a hired hand. Employees often can share in the improvements through bonus and employee stock ownership programs.

Here’s how it works:

* Every employee sees--and learns to understand--the company’s financial aspects, along with all other numbers that are critical to tracking performance. These are numbers that most companies show only to top management.

* Employees realize that part of their job is to move those numbers in the right direction. Employees are answerable to one another for their performance.

* Employees have a direct stake in the company’s success. If the business makes money, its employees get a cut of the action.

Source: “Open-Book Management,” by John Case (Harper Business)