For every legendary pugilist, there’s a string of would-be challengers who never reach boxing greatness. In many cases, these palookas lack the strategem or killer instinct that separates mediocrity from greatness. Then there are the proud warriors who lose their edge. But, through grit, talent, and fortitude, some are able to lift themselves off the canvas to regain their former glory.
The same holds true for BE 100S CEOs. Competitive pressure from mainstream companies, improper planning, and external events socked them with a flurry of blows that knocked their firms down the rankings and, in some cases, out cold.
Such is the case for black insurers. Competition from general-market insurers have weakened these beleaguered insurance companies. There are only four major black insurers; as recently as 2003, there were 10. One of the heavyweights to fall from grace, Booker T. Washington Insurance Co., went into voluntary receivership in February after the Alabama Department of Insurance found the company could not pay $4.3 million of its obligations.
“Black-owned financial services companies will continue to face competitive pressures from mainline firms who are increasingly going after their customers to boost market share in that area,” says Buddy Howard, banking analyst and president of Equity Research Services Inc. in Raleigh, North Carolina.
One of the events that delivered a knockout punch to black businesses across the country was Hurricane Katrina. The storm wrought hundreds of billions in damage and forever changed the face of New Orleans, one of America’s predominantly black cities. Perhaps no BE 100S firm was more devastated by Katrina than New Orleans-based Liberty Bank & Trust Co. (No. 7 on the BE BANKS list with $293.2 million in assets). The storm flooded its headquarters and damaged tens of thousands of dollars worth of equipment, forcing the bank to move its headquarters to Baton Rouge.
CEO Alden McDonald Jr. says Katrina-related expenses and losses increased the bank’s overall expenditures in 2005 by about $6 million. The bank had a loss last year of $3.2 million versus profits of $2.8 million in 2004. Assets fell to $308 million from $350 million. The bank put aside $2.5 million to cover future loans related to Katrina. Of Liberty’s eight New Orleans branches, McDonald says five remain closed. If the disaster had not occurred, McDonald maintains, Liberty would have repeated its $2.8 million earnings performance in 2005. “The amazing part of the story is the bank was able to take the $6 million hit, remain profitable throughout this entire ordeal, and is very solvent,” says McDonald, who plans to move its headquarters back to The Big Easy by the end of the year and rebuild the five branches as the city repopulates.
Not all blows to black business came by way of natural disaster. Caught between weight classes is perhaps the best way to describe Horace F. Jones’ plight. His Advanced Resource Technologies Inc. was hammered, losing 40% of revenues when a contract with various government agencies ended. The company, which ranked 75 on the 2005 BE INDUSTRIAL/SERVICE 100 list, has fallen off as a result. But Jones isn’t ready to throw in the towel. He’s adjusted the company’s infrastructure to offset the revenue loss by laying off eight out of 30 employees from the corporate headquarters. Jones also increased ART’s alliances with smaller companies to regain eligibility to work on small business contracts. Says Jones: “We’re continuing to reinvent ourselves because this is a very competitive industry.”
The National Do Not Call Registry was a haymaker to ChaseCom L.P., the Houston-based telemarketing services firm. (The federal government created the registry to allow for consumers to block telemarketing calls.) Ranked No. 86 on the 2005 BE INDUSTRIAL/SERVICE 100 list with $35 million in sales, the company’s staggering 48.5% revenue drop knocked it out of BE 100S contention. Now, CEO Anthony R. Chase plans to mount a comeback and work his way back up the ranks through outsourcing. This effort will be assisted by significant new corporate relationships that will expand ChaseCom’s revenues and visibility in the technology sector. While much of the last year’s revenues were derived from outbound calls, ChaseCom has made the transformation from consumer outbound service to inbound technical support and Business-to-business customer relationship management and staffing service center.
Meanwhile, foreign heavy hitters are beating American auto manufacturers like second-rate sparring partners. Last year, domestic auto manufacturers gave away much of their own and dealers’ profits with customer-luring incentives. Bruised and bleeding, many African American auto dealers within the domestic market succumbed to foreign automakers:
DaimlerChrysler Minority
Dealers Association is at risk of losing 10% to 15% of its 50 African American dealers, says Jesse Greathouse, the organization’s vice chairman and president and CEO of Cross Road Chrysler Jeep Inc. (No. 92 on the BE AUTO DEALER 100 list with $25 million in sales).Ford lost five African American dealers last year. Its dealers’ cash reserves were guzzled by the “floor plan expense” of paying interest on cars sitting unsold on their lots. A. V. Fleming, executive director of the Ford Motors Minority Dealers Association, says African American Ford dealers typically had about $250,000 less cash reserves in 2005 than 2004.
General Motors terminated about 20 African American dealers in 2005 after cutting 20 in 2004. Among them: Classic Chevrolet (No. 34 on the 2005 BE AUTO DEALER 100 list), Powell Chevrolet (No. 45 in 2005), Westminster Buick Pontiac GMC (No. 43 in 2005), and Chandler Lee Buick Pontiac GMC Inc. (No. 73 in 2004). “There were quite a number of dealers who were taken out, particularly African American dealers-more than any other ethnic minority group,” says General Motors Minority Dealers Association President Desmond Roberts.
Competition will continue to force many BE 100S firms to change their fight strategy. A number have restructured operations to meet increased customer demand, while others have expanded into new businesses. Those that adjust to changing times will get back in the ring to mount a comeback and claim their place among the black business elite. Those that refuse to adapt will most certainly continue to kiss the canvas.
Identifying BE 100s Companies
For the past three years, BE has made public those companies that have failed to prove that they belong among the ranks of the nation’s largest black-owned companies. As we compiled this year’s listings, a number of firms refused to return our surveys, provide financial information, and/or confirm percentage of black ownership. Those that did not abide by our compliance process have not been included on our 2006 rankings. Below, we have included a list of businesses that have proven to not be financially viable or failed to meet our 51% black ownership requirement.
In producing the various rankings, B.E. Research, the fact-gathering unit that collects data on the BE 100S, and our editorial team have
beefed up the data-verification process. We require all BE INDUSTRIAL/SERVICE 100, BE AUTO DEALER 100, financial services companies, and BE ADVERTISING AGENCIES to complete a survey. Each has to include the following information: a detailed description of business activities; historical data on when the company came under majority black ownership; confirmation that the entity is at least 51% black-owned or that African Americans own at least 51% of the controlling shares of a publicly traded company; and total revenues (for industrial/service companies and auto dealers), billings (for advertising agencies), assets (for banks), assets under management (for asset managers), total managed issues (for investment banks), and capital under management (for private equity firms) for the calendar year 2005.< BR> We require that the CEO, CFO, or current corporate officer sign and date the survey as verification of all information. We continue our due diligence by making calls to each company and, in many cases, requiring audited financials and other corroborating financial material as well as contacting the Securities and Exchange Commission, Thomson Financial Securities Data, and Dun & Bradstreet. The lists are reviewed by CPA firm Edwards & Co. and verification of asset managers and investment banks is conducted by Barge Consulting.
The following companies failed to meet our standards for inclusion on this year’s list: Rush Communications of NYC Inc., run by hip-hop guru Russell Simmons, who sold his urban apparel empire, Phat Fashions L.L.C., to Kellwood Co. for $140 million in 2004; Magic Johnson Enterprises, a holding company with operations that include movie theaters and food and coffee franchises; Midwest Stamping Inc., formerly one of the nation’s largest automotive suppliers; United Energy Inc., a Portland, Oregon-based energy company; The Romar Group Inc., a Los Angeles-based clothing design and product development firm; McNeil Technologies Inc., a defense contractor that specializes in information technology; Trio Trucking, a transportation services firm; Vanguard Holdings, a Savannah, Georgia-based safety equipment distributor; Terry Manufacturing, the clothing manufacturer that failed after the owners, Roy and Rudolph Terry, were convicted of corporate malfeasance; and Lundy Enterprises L.L.C., a New Orleans-based Pizza Hut franchisee hit hard by Hurricane Katrina.
The sector that took the greatest beating is the insurance industry. The four black firms left standing are seeking new strategies so they can stay off the canvas. Here’s their performance for 2005:
North Carolina Mutual Life
Insurance Co.
Durham, NC
Assets: $151.708*
Golden State Mutual Life
Los Angeles, CA
Assets: $116.300*
Atlanta Life Insurance Co.
Atlanta, GA
Assets: $90.300*
Williams-Progressive Life & Accident
Insurance Co. Opelousas, LA
Assets: $10.405*
*IN MILLIONS, TO THE NEAREST THOUSAND. AS OF DEC. 31, 2005.
June 2005
Former BE 100S CEO Roy Terry pleads guilty to felony bank, mail, and wire fraud charges, and mishandling pension funds. His actions placed Terry Manufacturing Co. in bankruptcy after a loss of more than $20 million to various banks, investors, lenders, and employee benefit plan participants.
August 2005
La-Van Hawkins, former CEO of Detroit-based La-Van Hawkins Food & Entertainment Group, is fined $50,000 and sentenced to 33 months in prison for perjury for his role in a Philadelphia corruption case. The company peaked on the BE 100S in 2004, ranking No. 13 on the BE INDUSTRIAL/SERVICE 100 list with $293 million in sales.
August 2005
Hurricane Katrina strikes, affecting 19 BE 100S firms, including Alden McDonald’s Liberty Bank and Trust Co. (No. 7 on the BE BANKS list with $293.2 million in assets) and Dryades Savings Bank FSB (No. 17 on the BE BANKS list with $108.7 million in assets), both of which were based in New Orleans and had branches directly affected by the storm.
February 2006
Booker T. Washington Insurance Co. voluntarily submits to being placed in receivership in Alabama’s Jefferson County Circuit Court after a state examination revealed the company would be unable to meet $4.3 million in obligations.
March 2006
Engineered Plastic Products, which ranked No. 71 on the 2005 BE INDUSTRIAL/SERVICE 100 list with $51 million in sales, files for Chapter 11 bankruptcy protection in March. The company listed more than $8.9 million in outstanding debts.
January 2006
Lester W. Johnson, chief executive officer of Douglass National Bank (No. 18 on the BE BANKS
list with $102.75 million in assets), resigns abruptly as a $2.5 million line of credit the bank extended to the Housing and Economic Development Financial Corp. came under investigation by the U.S. Department of Housing and Urban Development.
-Additional reporting by Wendy Harris, Cliff Hocker, Tykisha N. Lundy, Jeffrey McKinney, Nicole Marie Richardson & Tennille M. Robinson