What started as a storefront pharmacy in Queens, New York, during the Great Depression is now a Fortune 300 provider of healthcare products and services with sales edging up on $13 billion this year. Henry Schein went public in November 1995 at a split-adjusted price of $8 per share; the stock recently hit $183. By any measure, the company has done well by its shareholders, yet it is not run solely for their benefit. At meetings with shareholders, CEO Stanley M. Bergman is explicit: “We say we do not exist for the investor. Instead, we say we are committed to making sure the business does just a little bit better each year. The consistency of our performance is reflected in our stock price.”
Born and educated in South Africa, Bergman immigrated to the U.S. in 1976 with his wife, Marion, and joined Henry Schein in 1980 after working as a consultant for BDO. At the time, Henry Schein was a closely held catalog business, yet it had a tightly knit patriarchal culture based on employee and customer loyalty. “Henry [Schein] would go on vacation to Florida,” recalls Bergman. “While there, he would see Smucker’s jelly and come back with a case for everyone in the company. For Thanksgiving, everyone got a turkey; at year-end everyone got a case of wine.”
In November 1989, Jay Schein, the founder’s son and at the time the chairman and CEO, died, and Bergman was tapped to run the company. Bergman had promised both Jay Schein and the Schein family he would continue to provide a great place to work and grow the business. Yet the company had two key challenges: The distribution business was not doing well, and there was virtually no management of expenses. Driven by a culture that cared about people, Henry Schein’s infrastructure was far too expensive. For every dollar it gave in salary, it paid out another $1.20 in benefits. Bergman and his team needed to transform the company into a profitable venture while simultaneously guarding the culture it prized.
“We gave birth to a culture today where the values are constant, but the culture adapts.”
A few years earlier, President Reagan had signed legislation that allowed the generic drug market to take off. As a result, Henry Schein’s generic drug business had skyrocketed, as had its dental supply business, including items such as masks and gloves, the use of which became mandatory in response to infection risks then said to be prevalent. Ultimately, the pharmaceutical business was sold to provide the Schein family with liquidity. However, the distribution business—then at break-even—had reached an inflection point. The company needed a cost structure that would support a profitable business.
The response from Bergman and his team was twofold. They decided to transform the company’s catalog business into a leading platform for dental technology and, later, veterinary products. Dentists and vets know their work, but not all are proficient in the business of running their practices. For example, at that time, dentists didn’t know what to do with computers, so Henry Schein educated them, creating the largest installed base of computing systems for the profession in the process. Over time, the company became the trusted partner in practice management solutions for dental and animal health practices.
Bergman also moved to “industrialize the culture,” his characterization of the shift to rationalize Henry Schein’s culture into one that cared about people but provided benefits in a way that the company could sustain with scale.
“We gave birth to a culture today where the values are constant, but the culture adapts,” he says. “We err on the side of higher benefits and probably a little bit less in compensation. People looking for long-term employment are generally comfortable with the benefits at Henry Schein. Those looking for something more short-term probably will
not last because our salaries are not the highest.”
The combination of early digitization and refining the company’s values-based corporate culture gave Henry Schein a secure platform for consistent growth. Its 10-year total annual average return to shareholders as of the end of 2016 was 14.83%. Its EPS CAGR over the same period is almost 12.5%.