Must Black firms stay in Black hands?

"The future is purchased by the present." Daisy Lee Bates (1914-present), Journalist and Civil Rights Activist

1977--HENRY G. PARKS' PARKS SAUSAGE CO. SOLD to Norin Corp. for $5 million. 1988--Berry Gordy's Motown Industries sold to Boston Ventures and MCA Records for $61 million. 1993--Johnson Products Co., founded by George E. Johnson, sold to IVAX Corp. for $67 million.

All of these prominent African American-owned businesses, founded by pioneering black entrepreneurs, were sold to white-owned companies, to the consternation of many African Americans.

Now, Soft Sheen Products, the Chicago-based marketer of hair care products and the nation's 11th largest black-owned business, is up for grabs. In June, a company spokesperson confirmed reports that Soft Sheen had hired investment bank CS First Boston to explore a possible sale of the company. As with the 1993 merger of Johnson Products with IVAX Corp., a white-owned pharmaceutical conglomerate, the question again arises: Should prominent black-owned businesses--particularly those that serve a predominately black consumer base or market black-oriented products--be sold to whites?

BLACK ENTERPPISE's November 1993 cover story, prompted by the controversial Johnson Products/IVAX deal, explored this question with black economists, community leaders and company CEOs. Our conclusions:

First, such sales become controversial only when they involve black companies that have achieved a kind of institutional stature in the minds of African Americans. When the sale involves a business to which the black community has no strong emotional ties, such sales provoke little reaction. Last year's sales of Brooks Sausages Co., Network Solutions Inc. and Barden Communications, all BE 100s companies, went largely unnoticed by African Americans. (See "Evolution, Not Revolution," BE 100s Overview, June 1995.

Second, while the merits of each deal can be debated on a case-by-case basis, the growth of black business, and of the revenues and jobs that go with it, has been driven largely by the ability of black entrepreneurs to build the value of their companies, and then sell them. In turn, they have often used the proceeds to buy larger businesses in more profitable industries. An example of this is the late Reginald F. Lewis' 1987 sale of McCall Pattern Co., the proceeds of which were used to help leverage the landmark $985 million buyout of Beatrice International Foods later that year.

The buying and selling of businesses on the BE INDUSTRIAL/SERVICE 100 over the past decade has routinely resulted in increases in jobs and sales generated by these businesses.

In any case, the sale of a black-owned company is not necessarily the end of the business as a black-owned company. Three years after Parks Sausage became white-owned, it came back to African American ownership. A black investment group led by current Parks CEO Raymond V. Haysbert completed the first leveraged buyout of the historically black-owned company. Today, Parks Sausage is firmly entrenched among the BE 100s.

As African Americans become more acquisition oriented, other symbols of the black entrepreneurial legacy may be similarly reclaimed. Also, African Americans can still have a say in the fate of formerly black-owned companies such as Motown, now owned by Polygram Records--as shareholders. "Blacks interested in what's happening to Motown," advises Motown President Jheryl Busby, "should buy stock in Polygram.

WHAT BLACK CEOS THINK

Nevertheless, tempers flared on the sweltering August day in 1993, when Johnson Products "sold out." Chicago's black community leaders were outraged as this black entrepreneurial icon fell into white hands. The phones rang off the hook at the New York offices of BLACK ENTERPRISE. Readers were appalled that black entrepreneurs would profess "it's just business, nothing personal."

However, of the many comments about the sale, precious few came from the business owners themselves. As part of our 25th Anniversary Issue, BE surveyed the CEOs of the BE INDUSTRIAL/SERVICE 100 to find out if they saw selling their businesses to whites as a viable business option or as a betrayal of black business progress.

Although this survey does not make up a comprehensive study of all black-owned businesses, it may serve to question the argument that the sale of black businesses inevitably results in lost black jobs and an eroded economic voice.

About one third of the CEOs responded to the survey. Of these, 58% claimed they would sell their ventures to the highest bidder, without regard to race; 42% said that they would not sell their company to a white buyer. Of the non-respondents, several admitted by phone that they would sell without regard to race, but would not go on record. Obviously, the question of whites acquiring black-owned businesses rcmains emotionally charged.

"Success is when your cup runneth over and your saucer too."

Nathaniel Bronner Sr. (1914-1994), founder of Bronner Brothers, a BE 100s hair care products company

To Valerie Daniels-Carter, CEO of V&J Foods Inc. in Milwaukee, selling her 32 Burger King franchises would not be a blow to the black community. Daniels-Carter, head of a company that boasted $30 million in revenues last year, says, "We should try to maintain a black base. That would be my first option. But basically, we have to respect all entrepreneurs' business decisions. And we have to accept the fact that money's green."

La-Van Hawkins, president of La-Van Hawkins Inner City Foods, says, "Today in the black community, white people are not our problem." Hawkins is an Atlanta-based operator of 36 Checkers Drive-In restaurants.

"Blacks go to white companies and white banking institutions for cash because black capital companies don't fund black ventures," asserts Hawkins, whose business is No. 45 on the BE INDUSTRIAL/SERVICE 100 and has sales of $39.1 million. He says he would definitely

put Inner City on the auction block, "if the price was right, but only if the new owners would continue bringing jobs to our community."

In cautious agreement with Hawkins is Dick Griffey, president of Dick Griffey Productions and the African Development Public Investment Corp. Griffey says he would part with the Hollywood, Calif.-based entertainment and commodities and oil trading companies for the fair market value of the firms, which last year had revenues of $26.8 million and $4.8 million, respectively.

"Merging is something the big boys are doing and now the little boys have to do it," asserts Samuel Metters, president of Metters Industries Inc., a systems engineering company in McLean, Va. Metters is concentrating on growing his $49 million firm by acquisition. Since he's not restricting his search to black-owned Firms, he doesn't see limiting himself to black buyers either.

Resource Computer System One's President, Stampp W. Corbin, shares Metters' acquisitive attitude. "Of course we don't want to lose thriving businesses," he asserts, "but I want to acquire other businesses and I would not want to be rejected by a white or an Asian firm."

"A large percentage of us are dependent on minority set-asides," adds Corbin, who says that 15% of his computer hardware and software firm's $21 million in sales are through contract set-aside programs.

A PUBLIC POSITION

Of course, publicly traded black-owned companies have already answered the question of whether they'd allow nonblacks to buy into ownership of their business, since their stock can be purchased by people of all races. In fact, one of the ironies of the Johnson Products acquisition is that the hair care products company was one of the first black firms to be publicly traded; its stock has been traded on the American Stock Exchange since 1971. African Americans intent on keeping Johnson Products under black ownership had plenty of time to buy stock, often at bargain basement prices, during the years before the IVAX merger.

Not surprisingly, the CEOs of two of the three publicly traded BE 100s companies had no problem with selling businesses to whites.

W. Don Cornwell, founder and CEO of New York-based Granite Broadcasting, would definitely sell to a white firm. Last year, the $76 million (gross revenues) operator of network television broadcasting affiliates, traded on the NASDAQ exchange, was the country's top performing media stock.

Likewise, CEO Robert Johnson, of BET Holdings in Washington, (the first and only black company on the New York Stock Exchange), says that he would sell the firm to nonblack buyers. The $74 million company owns cable programming operations as well as Emerge and YSB magazines.

And clearly, if there was no stock market support, Johnson would feel comfortable shopping for buyers outside of the black community. Johnson says, "Unless black businesses can get public equity capital, they can't grow."

"The kind of ancestors we have is not as important as the kind of descendents our ancestors have."

Phyllis Wallace (1924-1993), charter member of the BE Board of economists

For most of the BE 100s CEOs who gave a thumbs-down to selling their businesses to whites, the issues were clear: They wanted to maintain black business institutions in black communities; and leave an entrepreneurial legacy for the future.

"The Johnson Products sale was not good for the black community," says Sandra Dixon Jiles, president of UBM Inc., a construction firm in Chicago. She says she wouldn't sell her 20-year-old, $18 million construction company "out of the community." Rejecting nonblack buyers "may not be a good business decision, she admits, "but the only way to maintain ourselves, from an economic standpoint, is to keep the businesses in the community."

Gene Hale, president of G&C Equipment in Gardena, Calif., believes pure capitalists who go into business to leverage the money should sell to white firms if they offer the most cash. Nonetheless, he says he wouldn't part with his $20 million, heavy construction equipment sales and rental firm. He feels that black business owners concerned about the economy of the black community should try to find qualified black buyers for their firms.

The importance of black business ownership is not lost on younger BE 100s CEOs. Karl Kani, the 26-year-old head of Karl Kani Infinity, asserts that black ownership is critical to his relationship with his customers. "Blacks support us because the product is good and the owners are black," the BE 100s wunderkind says of his $43 million, Los Angeles-based urban sportswear company.

For James Roath, the question is what selling black businesses will mean to the next generation. "To gain economic parity we need to build a legacy for our children," says Roath, owner and CEO of Perfection Industrial, a $28 million firm.

"Clearly, our companies are valuable, but we need to own, not give away or sell, our futures," says the Kansas City, Mo.-based distributor of medical and industrial supplies. "I've had offers to sell my company, but I won't. I need to look at myself in like mirror every morning."

At least one pioneering black business, Chicago-based Johnson Publishing Co., won't be taken over by white conglomerates--or black ones for that matter. The 53-year-old magazine publishing firm and cosmetics and hair care products manufacturer, No. 2 on the BE INDUSTRIAL/SERVICE 100, remains the nation's most prominent example of traditional black entrepreneurship: a closely held, family-owned commercial institution, marketing black products, produced by a mostly black labor force, to a predominately black consumer market. Johnson Publishing CEO John H. Johnson boldly says, "Our company is not for sale, and we can think of no circumstances under which we would sell it."