It isn’t unusual for former employees to grouse, of course. But in this case, the complaints seem to be tied to the competitive challenges Value Line is facing. The venerable investment-advisory company is being forced to play catch-up to introduce new electronic products that will flourish in the Information Age (following story). Under siege from competitors and punished by a bad market, its earnings plummeted by 60 percent in its first fiscal quarter. Its stock price has fallen by 19 percent during the last year. Now, unexpectedly, the company may be rocked by repercussions from a family feud. Value Line’s CEO, Jean Buttner, is being sued by her twin brother, Van Bernhard, who is seeking to remove his sister from two family trusts. Given the mounting troubles, some critics question Buttner’s ability to lead the company into new markets. “Slowly and surely, every year, their franchise is losing value,” says one expert in the financial-services industry. “It will just slowly bleed itself to death.”
That’s a scenario that would have been hard to picture during Arnold Bernhard’s heyday. Bernhard founded Value Line in 1931 after being fired from Moody’s Investors Service. His proprietary stock survey, a series of information-packed one-page company reports, has been the first place professionals turn for data and research analysis. And its ranking methods have outperformed most other stock-picking systems.
Value Line went public in 1983, but the family retained ownership of 80 percent of its stock through Arnold Bernhard & Co., its parent company. Bernhard’s son, Van, who had worked in the company for several years, seemed the likely successor, but he didn’t want the job. So his sister, Jean, was elected to carry on the family business after Arnold’s death in 1987. Under Buttner’s stewardship, earnings have more than doubled since 1990. The 59-year-old CEO attributes last quarter’s earnings drop to a one-time write-off, and says Value Line is as strong as ever: “We’re not the flashiest, but we give as much quality for the price as anybody.”
But critics assert that Buttner has failed to leverage the company’s strengths, particularly in money management. Cash has streamed into mutual funds during the last six years at an average annual rate of nearly 20 percent. But Value Line’s funds grew slightly, and then declined. The company manages only about $4.5 billion, a pittance compared with other veteran competitors like Fidelity Investments, which controls more than $390 billion in pensions and mutual-fund money. “For someone who’s been managing money for that length of time and has a good investment record, it’s rather sad,” says Charles Kulp, an analyst at Feeley & Willcox, a Wall Street investment firm. Moreover, of the nine Value Linefunds tracked by Lipper Analytical Services, eight had average or below-average returns over the past 39 weeks compared with similar funds.
Value Line’s big problem is that its vaunted research publication is losing its competitive edge in the electronic age. Even its customers say as much. Stephen Sanborn, head of its flagship stock survey, cites one example in a letter from a member of a women’s investing group. “She wants to know how she can access Value Line research on CD-ROM,” he says. The answer–for now, at least–is that she can’t. Value Line does offer software that helps investors pick stocks. But, says Jim Branscome of Standard & Poor’s, a competitor: “Value Line’s electronic products are highly elementary. News and current stock quotes are not an integrated part of its service, and they only cover 1,600 stocks.”
Critics blame a lot of the company’s woes on its high turnover. A key example: Value Line fired three heads of electronic products–the department where the company’s best growth prospects lie–in the past rive years. Companywide, the turnover rate was 27 percent in 1993. That’s in contrast to between 10 and 15 percent for professional services firms, says George Wilbanks, a managing director at Russell Reynolds Associates, an executive-search firm. (Buttner says turnover is no higher than that of most Wall Street firms.)
Former employees say that rigid work rules eventually take a toll. Workers must clock in when they come and go, and wear name tags at all times; managers must certify that their employees’ desks are clean when they leave at the end of the workday. No one may eat or drink at his desk. “It starts with an orange and pretty soon, people are bringing in half a watermelon,” says Kevin Madden, Value Line’s director of editorial production, explaining how bad employee habits can get out of hand.
Life at Value Line is tightly controlled. The company’s paging system extends from the CEO’s desk to both the bathrooms and the lunchroom, and Buttner can summon workers at any time. “You’re sitting there on the can, and all of a sudden, you hear the voice of God,” says one former employee. Employees can’t always escape Buttner’s influence even after they’ve left. Some ex-staffers say that in order to collect severance pay, they were required to sign agreements promising not to sue the company or speak of it disparagingly. Violation would result in a million-dollar penalty. “They wanted to buy my First Amendment rights for a couple of grand,” according to Thompson, who says he was asked to sign such a document. “I said never mind. They were more expensive than that.”
Buttner dismisses the criticisms as the fabrications of disgruntled former employees. She takes umbrage at the barbs about her clean-desk policy. “When Watson at IBM wanted a clean desk, they called him brilliant. When a woman says the same thing, she’s only interested in being a maid.” She also has an answer for those who find fault with her slowness in introducing new products. She points to the company’s new mutual-fund survey, and says she is waiting for the results of market research before developing other new products. “Having been in this business for 50 years, we have learned the way to run a profitable company is not to make a move without thorough research,” she says. “So we don’t jump on the bandwagon every time a new fad comes out.”
Buttner may have more to contend with in the coming months. According to court papers filed in connection with her brother’s lawsuit, Van is accusing her of turning over management of her parent’s multimillion-dollar trust funds to Value Line and its holding company, Arnold Bernhard & Co., without consulting him. Other charges: she invested imprudently, causing a loss in the trust, and wrongly borrowed money from Arnold Bernhard & Co. to pay trust expenses. Buttner has declined to comment on the suit. What impact, if any, it will have on Value Line is still unclear. But the claims will likely add intrigue to a Value Line board meeting scheduled for this week. With nimble competitors in pursuit, Buttner may need to rethink one of the concepts that guided her father. “We depend only on facts and only on the past,” he once said. Now may be the lime to depend more upon imagination–and to focus on the future.
