November 22, 1992|By Thomas Easton | Thomas Easton,Securities and Exchange Commission company reports

During the most bitter hours of the Depression, even th lowest-level Maryland Baking Co. employee could stop by the Baltimore home of Chief Executive Joseph Shapiro, who would happily ladle out a bucket of homemade crab soup.

"Uncle Joe" treated workers like family, and he, along with his three brothers, created a nationwide empire out of good feelings. Expanding from its first product, ice cream cones, the clan sold straws, cups and other picnic-blanket products.

Few people got rich working at the company, renamed Maryland Cup, but employees measured their tenure in decades. And why not? Layoffs and firings were discouraged. Executives led seasonal celebrations, handing out candy canes to factory workers at Christmas or packing freezers with free Popsicles on summer days. Uncle Joe, who could barely write his name, offered employees' children Shapiro Scholarships, with the largest grants going to the poorest families.

The result: a benevolent, innovative -- and profitable -- industrial giant. A company whose loyal customers willingly paid a premium for products with the quaint brand name Sweetheart.

And then everything changed.

The old Maryland Cup died in 1983, when heirs of the four Shapiro brothers approved its sale to Wisconsin-based Fort Howard Co., the pre-eminent, highly profitable maker of toilet tissue and other low-priced paper products. Within months, Maryland Cup was transformed amid a brutal restructuring.

Soon the turkeys, the scholarships, the Popsicles -- and thousands of employees -- were gone. Other benefits have since been scavenged: A multimillion-dollar surplus in the employee pension plan was liquidated, replaced by a new plan that has a multimillion-dollar deficit. And today, in the Baltimore courts, about 300 retirees are battling over a health care plan whose maximum benefit has been slashed from $1.5 million to $60,000.

Quality and service declined, meanwhile, and customers took their business elsewhere. Sales stagnated, profits disappeared and the company's balance sheet was ravaged. According to financial statements in Securities and Exchange Commission filings, from 1983 to 1991 the company's net worth plummeted from $256 million to negative $95 million.

What went wrong? Service-oriented Maryland Cup and rigid, cost-conscious Fort Howard were fundamentally incompatible. "It wasn't that the business deal wasn't any good; it was that the marriage didn't work," says former Maryland Cup General Manager Morton Gilden.

That painful union has been dissolved -- Fort Howard spun off the cup business as Sweetheart Holdings Inc. in 1988. But Maryland Cup's story illustrates the fragile nature of a corporate identity, and the dangers in the most well-intentioned takeover. And it provides a close look at the broad sweep of victims: customers, investors, workers and entire communities.

Creating a bakery network

Any tale about Maryland Cup must begin with Uncle Joe. A turn-of-the-century Russian immigrant, he quit working in a Boston bakery when it would not adopt his ideas on a new system. In 1911, he and his three brothers set up their own ice cream cone bakery outside Boston -- and from the beginning stressed family, innovation and extraordinary customer service.

By 1920, that meant finding a warmer climate where people ate more ice cream. Joseph and another brother boarded a train in Boston and hopped off at the first stop beyond the Mason-Dixon line: Baltimore. It became headquarters.

Joseph stayed in his newly adopted home as the rest of the family, and their children, branched out across the country, establishing bakeries in major cities. Cones had to be freshly baked, and they were extremely fragile to ship. Good customer service meant being close to the tobacco and candy stores that peddled ice cream.

To take advantage of the company's burgeoning distribution system, Joseph created separate Baltimore factories to produce matches, straws and other products. And after World War II, he sought to add paper cups to the product list. Cups, he believed, were like the company's other products: cheap, non-reusable and open to imaginative marketing.

Family members convened, and company legend holds that they voted 14-to-1 against the plan. "Good, we've got a majority of one," Uncle Joe is reputed to have said. Maryland Cup was born, and its first product, a 7-ounce waxed paper cup produced at a High Street factory, rode several trends to success.

Americans were on the move. And they were changing their eating and drinking habits fast. Cup-hungry vending machines were popping up in offices, at gas stations, at ballparks and in schools. An expanding network of highways helped create the fast-food industry. Paper cups and plates even invaded the home.

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