Bitterness Lingering in Battle to Control Rowe Furniture

Within the industry, Rowe Furniture Corp., based in this southwest Virginia city outside Roanoke, is a major manufacturer but not a "Fortune 500" giant.In recent weeks, however, stockholders of Rowe have been treated like pawns in a major battle for control of the company.A plain-spoken federal judge has engineered a temporary truce to keep Rowe Furniture from being "torn apart," as he described it recently. But a stormy confrontation is expected to surface at the firm's annual meeting on May 24.Insiders say it could take years to erase the bitterness created by charges and countercharges with which stockholders have been deluged by the family factions struggling over the reins of power.One branch of the divided family accused Rowe's current management of receiving "excessive" compensation when profits and dividends were on a downward trend.In response, Rowe's management told stockholders that the chief challenger had "misstated his educational background," and had participated in several North Carolina business ventures that failed to pay required taxes.The dust has settled now and both sides are seeking stockholders' support for terms of the truce, which include a seat on the baord of directors for the insurgents' leader, Robert V. Mathison Sr., of Hilton Head, S.C.Gerald M. Birnbach, the Rowe chairman and president who was accused by Mathison of taking too high a salary while company profits plummeted, conceded that the fight has been disruptive and costly."A proxy contest is by its nature an adversary relationship. Both sides tend to make comments which sometimes carry unfortunate implications. I am convinced that all the parties involved . . . regret any woulds that were inflicted," Birnbach said recently.He noted that Rowe's board had accepted the terms of a truce engineered at the insistence of U.S. District Court Judge James C. Turk, who feared Rowe Furniture would be left a corporate shambles if either side "won" the fight.The Mathisons had complained that Birnbach's annual salary of $160,000 was "exorbitant" and that his employment contract was drawn up less than two weeks after the death of the company's former chairman. It provided for eight years' salary to Birnbach if he were terminated for reasons other than dishonesty or permanent disability. It also included an $18,000 Mercedes Benz sports car, provided by the firm.They also were irritated that Mathison chose to live in Bethesda and operate the company from an office in Arlington, while other officers were here.Management said Birnbach's salary and car had been approved earlier and that Birnbach's experience and stature in the industry and the need for him as a continuing figure in management were reasons enough for the employment contract.Roots of the Rowe battle can be traced to the founding of Rowe Furniture in Roanoke in 1946. It began with the manufacture of a single recliner in a small shop on a back street. Last year, Rowe's record sales exceeded $46 million from the production of medium-priced, upholstered living room furniture, wood and metal tables, bookcases and other pieces from factories here and in Missouri and California.In 1975, Rowe saw its sales increase to almost $9 million while many other furniture manufacturers suffered. Some companies' sales dropped as much as $80 million. But the increase in sales was accompanied by a dramatic decline in profits for Rowe - from $2.2 million in 1974 to $774,000 in 1975.The firm repeated this performance in fiscal 1976, with sales up by $2 million over 1975 but profits down to $524,000, the lowest point in almost 20 years.The downward trend has continued into the current fiscal year. For the first quarter ended Feb. 28, profits fell to $219,000 (9 cents a share) from $530,000 (23 cents) for the same period last year. TOtal shipment volume declined to $11.6 million from $12.8 million.Birnbach attributed the setbacks to severe winter weather - which he said hampered both deliveries and retailers' ability to sell furniture.Declining profits were the seeds that sprouted in the internal power struggle, which lasted more than six months, cost stockholders an estimated $350,000 to $400,000 for the resulting proxy fight and was ended only when Turk, a young southwest Virginia federal judge, told the battling family factions to "settle this case!"The family factions are descendants of Donald E. Rowe Sr., who was a vice president of Kroehler Furniture until he moved here to go into business for himself with a longtime fried and associate, Ralph Bentz.Donald L. Jordan, who is semi-retired but then was president of Johnson-Carper Furniture Co., said he had known Rowe for some time.When Rowe called Jordan to say he had left Kroehler, he "asked how things were in Roanoke" and "I told him to come on down," Jordan related. "I helped him with the location and financing," and Jordan-Rowe Furniture Co. was born.Rowe and Bentz were folloed in early 1946 by Rowe's son, D. E. Rowe Jr., and son-in-law, R. V. Mathison Sr.By 1950, Rowe and Jordan had net sales of more than $3.25 million and earnings of $191,500. But Jordan, a southerner, had become disenchanted with his patner, a native New Englander."His policies were as different from mine as day and night," Jordan recalled. "All business, a brilliant businessman, but very selfish. When I found it impossible to go on, I told him I would buy or sell and he bought." In 1951, the firm became Rowe Furniture Corp.Rowe Sr. drew to his young company a dedicated and fiercely loyal group with whom he dealt in almost patriarchal fashion. Rowe tolerated few mistakes but through careful cultivation generated in his employees and associates a strong devotion."The king is dead," was T.V. Anderton's reaction recently to the mention of his former mentor's name. Anderton, who hauled Rowe's first products and went on to build his own trucking firm, said of Rowe Sr.: "He never made a mistake and could quote you next year what he said today. He was the smartest businessman I ever knew. Cold. But fair, always fair."Few outside Rowe's shadow had any real knowledge of his character or personality. An apparent effort was made to keep the Rowe profile low and the name rarely appeared in print in connection with any activity other than business.Among his employees, however, Rowe Sr.'s generosity was famous.The president's report for 1950 lists Rowe Jr. as a vice president and Mathison as assistant secretary. By 1952, both were vice presidents and remained thus until 1956 when matison left to found Crest Furniture Corp."D. E. and I had talked about it for several months," matison explained. "He knew I wanted to go out on my own and his only stipulation was that I not become a competitor of his."Mrs. Mathison stressed in a recent interview that her husband did not compete, that he went into a higher type of furniture manufacturing. Opinions vary as much on that as they do on the depth of the ensuing rift between Rowe Sr. and Mathison.Associates and former associates said that "Rowe was terribly, terribly hurt when the Mathisons left."Rowe Sr. was unhappy enough to refuse to buy from suppliers who sold to Mathison, one friend said.Crest, a pioneer in urethane construction, survived for seven years and then went into receivership six months after Mathison stopped being an officer or director of the firm, he said.Mrs. Mathison described her husband's activities since then as a "consultant-inventor (who) has been awarded 30 U.S. patents and approximately an equal number of foreign patents . . . as a consultant to . . . Kimberly-Clark, Procter & Gamble and Burlington Industries."About the time of Mathison's departure, Rowe hired a new salesman for the New England area - Gerald Marshall Birnbach, a 1952 graduate of Boston University. Birnbach's first cousin was already a highly successful salesman for Rowe in the New York area. Over an eight-year period, Birnbach said he built sales to more than $1 million in Connecticut, Massachusetts and Rhode Island.The death of Rowe Sr. in February 1964 heralded an era of change and growth for the corporation in which development of a management team played a critical role.In 1971, Rowe Jr. was chairman and president, Birnbach vice chairman and executive vice president, and Lloyd Rowe vice president for plant operations. In rapid succession, a new upholstery plant went into operation in Missouri and the Salem plant expanded once again. On Oct. 24, 1972, Birnbach was elected president of Rowe. On Dec. 14, Lloyd Rowe resigned and set up his own firm."Over a period of about two years, situations had occurred which had caused me to lose confidence in my superiors," Lloyd Rowe stated. "I had been thinking about it for some time and, when the situation became unbearable, I left."With the departure of Lloyd Rowe, the responsibility for operating Rowe Furniture rested increasingly on Birnbach. The company president attributed the recent two-year tailspin in profits to one facet of an expansion in California, where Rowe acquired a manufacturer of tables, metal products and case goods.Two deaths in quick succession fueled the most recent developments. Last Aug. 1, Gladys B. Rowe, widow of D. E. Rowe Sr., died after a lengthy illness. Less than a month later, her son, the Rowe chairman, died of heart ailment.The Mathisons believed that with Mrs. Mathison the only surviving member of the original Rowe family, the time had come to reenter the company picture. Why had the Mathisons not sought a more active role sooner?They cite Mrs. Mathison's illness and Mrs. Rowe's illness. "ANd it was not until the multiple deaths that we really had any stock," Mathison stated.Now, about 19 per cent of the company's stock was in trusts controlled by trustees and set up for the three Mathison grandchildren by the company's founder. A meeting was held last Sept. 17 in the Salem home of Rowe Jr.'s widow for family members as well as company officers.In a reportedly stormy session, the Mathisons requested a list of company stockholders and a look at company records. It took a court order early in March to accomplish these goals. Birnbach said management's refusal to provide this information was not a matter of hiding anything. "They were calling our competitors and God knows how any information they gained from us might be used," he said.From what they saw, the Mathisons decided to launch a proxy fight to gain control of the company and to oust Birnbach, who by then was chairman and president.Suits were filed by the Mathisons as well as the Rowes. Evidence was heard in Roanoke Circuit Court by Judge Jack Coulter, who found the testimony so odious that he openly chastised both sides for their behavior. He termed the proceedings a "bloodbath." His decision was not a clearcut victory for either side.Both sides barraged stockholders with mailings."I hardly looked at the material until I got a call from Arlington," said one young stockholder. "I'd bought 100 shares about five years ago for just under $20 a share and a year ago I bought another 100 shares for a little over $6 . . .. I thought when I got that phone call if someone voting only 200 shares was that important I'd better start paying attention."Birnbach, Rowe management and the Mathisons have expressed satisfaction with the recent settlement, which will add two persons to the board of directors - Mathison Sr. and Charles T. Rosen of Racho Santa Fe, Calif., president of CTR Funding, Inc., a private finance and investment firm.Within the industry, some persons said they believe Rowe must overcome some discounting policies started three years ago to stimulate sales in a bad season.