The leaders who lost Pillowtex: An outsider pushed for big changes

This story was originally published July 19, 2004.

In his third week as Pillowtex's president, Tony Williams stood before his top managers to announce that the textile giant had filed for bankruptcy protection.

About three years earlier, managers had gathered in that same Kannapolis auditorium the day Pillowtex completed its purchase of Fieldcrest Cannon, in 1997. That textile marriage was supposed to catapult the company toward greatness.

Instead, it stumbled toward ruin.

Its debt had ballooned to $1.1 billion - an amount the company found impossible to pay down. Its profits had turned to losses. Its once high-flying stock now traded for less than $1.

Williams, 54, a friendly and self-deprecating Englishman, was expected to fix it.

Chuck Hansen, the Pillowtex CEO who orchestrated the merger, had hired him as chief financial officer six months before Pillowtex filed for bankruptcy protection. Williams had no experience as a top leader, or in textiles. After the board forced Hansen to resign, it elevated Williams to president.

Once in charge, Williams quickly came to believe Pillowtex, now based in Kannapolis, needed radical change. But on that November day in 2000, he faced more immediate concerns as workers confronted him with questions:

Would there be job cuts? How would the company change? Were pensions safe?

Williams gave no guarantees, but preached the possibility of a turnaround.

He recalls saying: This is something you'll be able to tell your grandchildren, that you were there, and you fixed it.

As Pillowtex foundered, politicians and textile leaders blamed global trade. But competition from low-cost imports paints an incomplete picture.

In its final three years, Pillowtex had four top leaders and a rapidly changing board of directors. Some made critical miscalculations. Others squandered opportunities to address the growing problem of imports, some former executives and managers say.

Williams, second in that line of leaders, would push for change. But with scant support from his board and stymied by resistance from those he managed, few of his proposals were put in place.

Shouting match

Conflict erupted quickly between Williams and the directors.

He recalls one meeting early in his tenure when director Joseph McHugh, a retired executive of a Dallas hardwood-flooring distributor, upbraided him for making decisions too slowly.

McHugh and others on the board wanted action, figuring the company needed to close plants quickly to save money.

To Williams, who would have to explain the actions to workers, the media and creditors, it wasn't clear which plants to close. He favored hiring a consultant.

If solving the problems was so bloody obvious, Williams recalls asking McHugh, why hadn't the board done it already?

A shouting match ensued.

The board sided with Williams, who spent $800,000 on a consulting firm to review Pillowtex's operations, bankruptcy records show.

But the meeting convinced some board members that Williams was out of his league, reliant on others to make decisions, says Scott Shimizu, a Williams supporter who served on the board from 1994 to 2002.

"The board kind of shut down on Tony," Shimizu says. "They didn't think he was serious."

McHugh did not respond to requests for comment.

An odd fit

Unlike many textile executives, Williams did not grow up around the clatter of looms. He was raised in London and began training as an accountant at age 16.

He eventually moved to Canada, and later Detroit, where he was finance vice president for an automobile brake manufacturer.

He found America refreshingly entrepreneurial; it offered chances to rise or fall on merit.

As Pillowtex's president, he quickly emerged as a softer, diplomatic foil to the hard-charging Hansen. Williams says he felt excited and flattered when the board chose him to lead an executive team with far more textile experience.

Under Williams, there would be more communication, including Friday breakfast chats with managers and executives.

Some subordinates found him an odd fit.

Williams says he heard executives had questioned why the board chose him.

In employee-attitude surveys, some said they grew tired of his anecdotes about the auto industry. Others said they couldn't understand his British accent.

Some considered him indecisive, a leader who favored endless discussion over the bold action they'd become accustomed to under Hansen.

Hansen had a reputation of dominating his board. He pushed directors to approve acquisitions and gave them as little information as he deemed necessary, a board member who served during Hansen's tenure recalls.

With Williams, the board saw a chance to reclaim its authority. He says he found some board members "a bit frisky."

The board had chosen Williams because Pillowtex needed a numbers guy as it headed into bankruptcy court, former board members say. But directors withheld the titles that would have given him true authority: chairman and chief executive officer.

To board members, Williams was simply too untested to assume the top posts. They thought their search for better candidates would be quick.

"Look at his resume. He has no experience running a business," says board member Paul Gillease, a former DuPont Textiles executive from Pennsylvania.

'Sunshine' fades

To address the company's problems, Williams developed several plans. He named one "Project Sunshine."

It called for closing a Phenix City, Ala., plant and moving some of that work to Kannapolis. Other production would move overseas.

A later phase was to be far more sweeping.

To compete against imports, Williams needed to produce the company's lower-end sheets and towels more cheaply. Those products, accounting for at least half of Pillowtex's sales, were mass-made and sold to discount retailers. If Pillowtex made money at all on their sale, its profit margins were typically single-digit.

Williams proposed sending much of that abroad, where labor and other costs were lower.

American workers, probably in Kannapolis, would continue making Pillowtex's name-brand sheets and towels, which typically fetched 30 percent to 50 percent margins.

Williams offered no estimates for U.S. job cuts.

He never unveiled his plan publicly. Almost immediately, Project Sunshine hit fierce opposition.

Gillease and others on the Pillowtex board objected to closing the Alabama plant, which had opened just five years earlier at an estimated cost of $90 million.

The union opposed potential job losses.

Some Pillowtex executives even despised the project's name, deeming it too cheery for a plan advocating mass layoffs.

The banks, led by Charlotte-based Bank of America Corp., balked at the $28 million price tag for phase one.

The banks also thought the timing was premature. They wanted the company to make major changes only after leaving bankruptcy court, several former Pillowtex executives say.

The company was spending nearly $1 million per week on bankruptcy costs, such as fees for attorneys and financial advisers, securities filings show. The sooner Pillowtex left bankruptcy, the sooner the banks could get their money.

Unable to win support, Williams gutted Project Sunshine. He eventually closed a Georgia plant and switched some Alabama work to Kannapolis. He renamed his scaled-down plan "Project X," and the company estimated it would cost $13 million.

Williams devised other plans, as well. One would boost marketing of Pillowtex's popular brands and improve customer service. He also sought to identify and close unprofitable operations.

But with Project Sunshine dead, Williams had lost perhaps his best opportunity to remake the company.

Lame duck

By summer, Williams began pressing the board to name a CEO. The man who directors worried had never run a company had been running Pillowtex for nearly a year.

He offered himself as a candidate.

He believed his caretaker status hurt his ability to lead. Some executives who worked under Williams say they thought they could disregard his pronouncements.

"I was a bit like a lame-duck president," Williams says.

He says he pressed the issue in a phone call with Ralph LaRovere, a retired J.C. Penney executive who chaired Pillowtex's board. LaRovere "hit the roof" when Williams asked to be promoted, according to Williams.

Williams recalls LaRovere telling him: We don't want you! The banks don't want you!

Williams says those comments were out of character for LaRovere, who was under pressure to find a CEO.

LaRovere did not respond to requests for comment.

Gillease says the board might have moved faster to name a CEO were it not for some of Pillowtex's creditors. The banks preferred to name the next CEO, but had to wait until the company left bankruptcy. That's when the banks and investors who held Pillowtex's debt would receive enough new stock to control the board.

In hindsight, Gillease says, the absence of a CEO's leadership held Pillowtex back.

"We should've moved more quickly," he says. "If the decision was solely the board's, we would've moved more quickly."

Even as Project Sunshine was scaled back, Williams continued other projects, including improving the Cannon, Charisma and Royal Velvet product lines, improving customer deliveries and remodeling the New York showroom.

He proposed changing Pillowtex's name to "FC Home" or "FC Group." A new name, he told the board, would improve the company's image.

Again, the board said wait.

Williams also tried to ride NASCAR's popularity. He launched a two-year sponsorship in 2002 to place the Cannon name and logo near the rear window of Bobby Labonte's car. In conjunction, Pillowtex produced a few NASCAR-themed towels, sheets and other items.

"The idea was to give Cannon more opportunity to expose the product," says Dean Noble, vice president of business for Joe Gibbs Racing, Labonte's team owner. "Unfortunately, it never got fully developed."

The 'Winning Way'

As Pillowtex prepared to exit bankruptcy in spring 2002, Williams required managers and white-collar staffers to attend weeklong team-building sessions at Pity's Sake Lodge on Lake Kannapolis.

They spoke of creating a company built on honesty and trust. Managers took turns leading one another blindfolded around the lodge. They built Lego helicopters.

"We were told, 'You're here because you need to change, and if you don't, this company will go under,' " recalls Suzanne Bonne, a bedding designer who attended sessions.

To Williams, the seminars represented a crucial attempt to change Pillowtex's culture, which some managers say was marked by backbiting and mistrust. Because Pillowtex grew through mergers, white-collar workers often felt allegiance to their old companies and little motivation to work together.

Strife also formed between departments. Designers, for instance, thought the marketing department was reluctant to embrace new ideas and take risks.

"The real trick, the real success, will be whether we have been able to change the company, the culture - that's really the hard part," Williams told a trade publication. "And without that, nothing else happens."

Some executives felt the Winning Way program could help. Others thought problems were too deeply ingrained.

"You were dealing with a company that was 100 years old," Bonne said. "By that time, people were very set in their ways. They had already decided what things were going to work and not work."

Greatest achievement?

In spring 2002, Williams walked into the boardroom at Pillowtex's New York showroom to update bankers on his plan to exit bankruptcy.

Pillowtex would pay the banks and other creditors nearly half of what it owed them in the form of new Pillowtex stock, giving banks and investors control of the board. The deal would erase all but $200 million of the $1.1 billion in debt.

The company projected it would be profitable by the second half of 2002 and generate about $50 million in cash from operations that year.

At the meeting's end, the bankers broke into applause, Williams recalls.

"Everyone thought it was a viable plan, " says Jack McLaughlin, a Delaware lawyer who represented some Pillowtex creditors.

Sue Robinson, chief judge for the U.S. Bankruptcy Court District of Delaware, wrote on May 1, 2002: "Confirmation of the plan is not likely to be followed by the liquidation of, or the need for further financial reorganization."

Successfully guiding Pillowtex through bankruptcy seemed like Williams' greatest accomplishment.

Around the same time, he made his case to be named CEO.

The interview was in New York with board Chairman LaRovere; a bank representative; and an executive from Oaktree Capital Management, a Los Angeles investment company that owned about 20 percent of Pillowtex's stock.

Williams prepared by jotting notes of his accomplishments, but he held out little hope, he recalls.

As he entered the room, the Oaktree executive confirmed his fears by speaking of Williams' tenure in the past tense.

I'd like to thank you, Williams recalls the executive saying, for all the effort you put in.

Soon after, the board hired Reebok executive David Perdue as chairman and CEO. Directors praised Perdue's marketing and outsourcing experience as the perfect tonic for Pillowtex.

Three months later Perdue summoned Williams to his office. Williams recalls Perdue's words: I know this is terribly unfair, but ...

Williams cleaned out his desk, then made arrangements for a night of drinking with friends at Hops brewery in Huntersville. He had been at the company less than two-and-a-half years, including 20 months as its president.

He collected $1.5 million in severance.

Perdue declined to comment on Williams' departure.

A new CEO

With Williams gone, Pillowtex seemed to have precisely the type of leader it needed. Perdue had wide-ranging business contacts, experience in helping turn around a company and loads of knowledge about overseas production.

He assumed leadership with little debt and strong brands.

Finally, the success that had eluded Pillowtex appeared within reach.Epilogue

Williams, 57, lives in Cornelius and has been intermittently looking for work since leaving the company nearly two years ago.

Though turbulent, his time at Pillowtex was a positive experience, he says. He might have been a bit overmatched for the job, he says, but he was thrust into a tough position and gave it his best effort.

"Pillowtex was a lot better off the day I left than the day I joined," he says.

He believes his ideas - shifting some production overseas, changing the culture, improving the brands - were on target. But he says he should have been more demanding on pushing them through when he encountered resistance.

"I don't think anybody could ever accuse me of saying I don't want to try," he says. "Perhaps I was an accountant, and I might have procrastinated, and I might not have known the things I should have known, and I didn't come from the textile industry, and I sure as hell didn't have mindset of the South. But I did the best I could."