Mike McDonald

As president and chief executive officer of A.Y. McDonald Mfg. Co., he presides when the firm founded by his great-great-grandfather marks its 150th anniversary.

Already one of Dubuque's oldest businesses - it operates a brass foundry and turns out water and natural-gas service lines, valves, pumps and fittings - A.Y. McDonald has the distinction of remaining in the same family throughout its history.

Michael B. McDonald Age: 51. Occupation: President and chief executive officer, A.Y. McDonald Mfg. Co., Dubuque. Family: Husband of Celia Jane McDonald. Father of Andrew James and Zachary Michael. Son of the late J. Bruce and the late Katherine D. McDonald. Hometown: Dubuque. Born in Salina, Kan. Education: Bachelor of arts in business administration and accounting, College of St. Thomas, St. Paul, Minn. Wahlert High School, Dubuque, Class of 1973. Community leadership: Board member of Boy Scouts of America, American Trust & Savings Bank, Dubuque Golf and Country Club and Iowa College Foundation. Hobbies and interests: Raising and showing quarter horses, golfing, hunting and fishing.

During the run-up to next month's anniversary events - including an invitation-only show by comedian Jay Leno and renaming of a city park - Mike McDonald visited with the Telegraph Herald. Here are highlights of that conversation.

TH: I noticed from your resume that you did not start in the family business. You didn't finish college and immediately report for work at A.Y. McDonald, but you started at Honeywell. Was that all part of a plan?
MM: That's correct. We, as a family, have literally an unwritten policy, that if you really would like to be a part of the management team or have a job in this company, we require that family members go someplace else for a minimum of five years to bring back something outside of the day-to-day family business. Most of us that are working here had an opportunity to work during the summers, to go down and work on the plant floor. I used to drive truck for the branches and deliver products for many years, while I was going to college. But the grand plan was when I got out of school was to find a job. I did that. I worked for Honeywell in Minneapolis for six years.

TH: What do you believe you brought back from your Honeywell experience?
MM: I think the opportunity to see how a Fortune 500 company is run and operated. I was an accounting graduate, so I spent the first two years of my work career at Honeywell negotiating contracts with the government and working as a staff accountant on an F-15 and a B-1 project before it was canceled. It gave me some keen insight into how that business is run and how they look at things in the big picture.

TH: When a company gets to the fifth generation, as A.Y. McDonald is now, that family tree can be spread pretty wide. Can anyone who comes from the family get a job here?
MM: That hasn't been the case historically. We've been very selective because we will not create a position for anyone. We're not going to create jobs for anyone, but if someone, whether they're a family member or not, approaches us with an interest in working for A.Y. McDonald, we look at it as an opportunity to try and figure out if they're going to contribute in a manner that's commensurate with everyone else that works for us. As I said, we do not make career positions for anyone in our family. We've been able to control the family involvement, and I think that's one of the reasons this company has succeeded for 150 years. When you take a look at the five people that are working at this company today that being John McDonald, III, he's chairman of the board of our holding company and a fourth-generation member; then the four members of the fifth generation that are working here: Rob McDonald, my cousin, who is vice president of sales; Sarah Hasken, my sister, who's corporate secretary and manager of risk management; Scott Knapp, our director of marketing; and me - you can see that it's not a birthright to get a job here at the company.

TH: Has that occasionally caused hard feelings?
MM: Absolutely. There's always some people out there who thought, for whatever reason, they should have a position with this company. By and large, at the end of the day, we continue to succeed and we continue to grow and prosper. I think that's a direct result of the employment practices that we have in place here at A.Y. McDonald.

TH: It won't be long and you'll be looking to the sixth generation. It's very remarkable in this day in age. Do you see a need to more formalize the expectations, or has the policy served well and will it serve well in the future?
MM: We have discussed this among the fifth generation members and, again, are continuing to discuss it with the fourth-generation members that are still involved to some extent. We're looking at how we continue the legacy that we've created for five generations. And it is a unique legacy to not only have a company that's lasted for 150 years, but is managed and controlled by the same family for that entire period of time. We look at the challenges. We struggle with them on a daily basis, but at the end of the day, our success is because we employ qualified people and put them in positions that meet their capabilities. We utilize their strengths to the benefit of the company and the group as a whole. We will definitely find some struggles when it comes to making the transition to the sixth generation. We faced those struggles transferring from the fourth to the fifth. But, by and large, I think we succeeded. And the success of the company shows how well we've succeeded by keeping tight control of the comp any and keeping the ownership of the company, even though it continues to get spread down through various generations through trusts, the actual controlling company is controlled by a select few people.

TH: Generally, there's an assumption that private ownership is good, family ownership is good. Are there any downsides to private ownership - or, more specifically, family ownership - in terms of financial resources or other areas you might think of?
MM: Certainly from a financial standpoint. As a private company, we can't go out on the market and float a new issue of stock to raise capital. We generate all the cash that we need to reinvest in this business through our operations. As a result of that, that may stifle your growth over time. We are committed to reinvesting into this business heavily. We've been fortunate because of the tight control and the ownership of this company to continue to invest significant amounts of money moving forward and just to build our base. We are much better today than we were 20 years ago or 25 years ago when we moved over to this facility. The downside of being a family business also provides you with a lot of upside and that upside being, you can take a much longer-term look at how you're going to grow the business. We're not necessarily concerned about quarterly profits. Obviously, I answer to the board of directors four times a year, but at the end of the day, if it makes sense for us to make an investment today that's going to pay dividends two or five years down the road, we can make those decisions a lot easier than a public company can.

TH: When you're out of town traveling, you meet someone and they say "Mike, what do you do?" How do you describe this very diverse company that you oversee?
MM: We as a company primarily are a brass foundry. We manufacture brass waterworks, valves and fittings. We use brass component parts in our pump line. We use brass in our plumbing line. We use brass parts in our high-pressure gas line. We generally have four primary product lines that we manufacture and sell. The waterworks being the biggest. But as a waterworks manufacturing company, we produce the fittings that are used from the main to the home. All of those fittings are diverse - between Dubuque and Asbury and any utility in the country - which is one of the beautiful things that creates a huge barrier to entry in the business that we're in. Product diversity is one thing that I've promoted since I've been here. We continue to make widgets for utilities that not only get us their business, but also keep our competitors out. But by and large, we're a foundry company. And a captive foundry at that, which provides you a unique position in the marketplace. We can use and sell everything that we can manufacture here today in our foundry. So we're not out looking to become a job shop; we're not taking bids and buying business or looking for opportunities to sell our castings to other manufacturing companies. We literally use everything that we make. In addition to that, we purchase casting outright to supplement the demand.

TH: According to your literature, you have roughly 600 full-time and part-time employees in all your operations.
MM: Within the manufacturing group, that is correct. We also own a plumbing/heating/cooling distributor down in Kentucky. It's a company that our family bought in 1964. They're in the distribution business. They've got roughly 200 employees down there. As you'll recall, we just recently completed the acquisition of a brass foundry in Canada, a company called Cambridge Brass. They have roughly 140 people.

TH: So, now we're up to about 850 or so.
MM: It's very close to 900.

TH: How else would the size of the company be described? For example, I don't know if you disclose annual sales, but in the ballpark, could you share what size company you are?
MM: Once again, as a family company or as a private company, we don't disclose financial information. If you pulled our D&B (Dun & Bradstreet), our sales would be just under $200 million. That's about as specific as we'll get in terms of our annual revenues.

TH: In a previous visit, someone mentioned to me that one of the interesting things about A.Y. McDonald is that most of your product is underground or in basements or in closets or otherwise out of sight. Does that pose some interesting or peculiar marketing initiatives or opportunities?
MM: Not really from a marketing standpoint because the customers that we sell to and the distributors that we work with and the cities that we work with, they understand the product and the know what the product is. But to the average homeowner, to the average citizen, they're not aware of anything that we manufacture because it is, in fact, buried underground. Again, getting back to the diversity of the product line, when you bring water from the water main to the home in Minneapolis, and you do it six feet underground, versus Tampa, Fla., where it's 18 inches underground, just to get it out of sight, because there's no freezing issue down there, it creates an opportunity for you to expand the line because they're using totally different fittings down there and every city utility in the country is operated that way. There is a distinct difference between the way Asbury does things versus Dubuque.

TH: What would be an example?
MM: Just different types of products. They have a different way of doing it. In some areas, the city itself comes out and makes the tap into the main. They tap a live water main with our products and then hook up a line that serves the home. In other areas, they contract that out and the contractors actually do that. One of the barriers to entry that we see in this business is that every utility has got to specify the use of a specific product. They put us on a list to provide product and they'll identify the type of product that they want us to use. That prevents a lot of people from foreign countries from getting into our business. No. 1, the size of the business isn't big enough really to attract because the volume isn't there for any one item. We literally run a job shop out here in Dubuque because our production runs are not a half-million pieces. We run 5,000 pieces, 10,000 pieces, 20,000 pieces. Those are big runs for us because of the product diversity. In addition to that, every utility uses a different type of pipe to make that connection. We do not manufacture the pipe, but the end connections that hook onto the pipe are different in all areas, so, again, product diversity is key for the longevity of our company.

TH: You end up having some very small runs, too.
MM: Absolutely.

TH: How small is small? What would be an example of very short run of a particular product?
MM: If, in fact, what we would consider a C or a D item in our inventory would require 50 or 100 or 200 pieces, we would more than likely probably run a year's supply at that time, but that would be a small run. By and large, most of our runs are significantly bigger than that. As a result, we can gain some economies of scale in the manufacturing process. We've literally converted this whole facility in Dubuque to a cell manufacturing concept, where we not only machine, as you saw on a tour earlier this year, we machine the product; we assemble it and we test it and we put it in a box, all in the same general area. If you were in this facility in 1983 when we moved in here, you would see that we machined it over here and then moved it over and then set it down. And then somebody else set up another machine and ran it and cut it and threaded it in a different. And then we sent it down to a finish machine area and then we sent it down to an assembly area and then we sent it down to a test area and then boxed it up. We've literally taken most of that out of this facility. The thing that you get when you do that is you control the quality much better because you know right away that you've made a bad one, as opposed to running 5,000 pieces only to put them at the next assembly bench to find out that the threads don't match or the nuts don't screw on. It's really enhanced and improved our quality as well. And the machining technology today obviously, compared to when this company started, is ten-fold, leaps and bounds above what it was back then.

TH: Sure. You have lots of high-tech, high-cost technology - computer-driven technology - working on all those various products.
MM: For a mature industry, we have incorporated as much technology - if not more than as any one of our competitors. I mean, when you talk about the competitors that we deal with, one of the things that we look at is the last person to get into this business did it over 100 years ago. So it's not something that has generated an awful lot of interest. Again, it's a close-knit little group of people. There's five of them. We now own two. As a result, we can control our own destiny much better than we have been able to in the past.

TH: One thing that you're not involved in now is A.Y. McDonald Supply. A lot of people see it out on Dodge, here on the west end of town. You divested of that particular enterprise several years ago.
MM: Let's put to rest the urban myth right now. A.Y. McDonald never has, never will and never did manufacture plumbing fixtures. And you're right, Brian, because people see the showroom that continues to carry the A.Y. McDonald name on them, even though it's A.Y. McDonald Supply. We divested ourselves of that business in the late 1990s. Actually, it took an awful lot of soul-searching for us to do that. But what we saw happening in this market was that we as a manufacturing company - which was a separate subsidiary from A.Y. McDonald Supply Co. - were selling to not only our customers throughout the country, but we started selling to our competition, who started moving into the Iowa, Illinois, Missouri market area, which is where our 18 locations were. In addition to that, we also saw the "big box" retailers get into the same market. We were now competing with Lowe's and Home Depot and Menards and historically, our vendors, our suppliers, would not sell direct to those people. They'd run that business through a wholesale outfit. They quit doing that about the mid-90s and it made it ever more apparent to me and other members of our management team that that might be a good time for us to look at getting out of that. We have roughly 200 employees that worked for that company. As I said, we had 18 locations here in the Midwest. With that, we were a small regional player, competing against large multi-national players. The company we sold to is a company out of Ardmore, Pa., and they had roughly 200 locations at that time. Most of the profit in that business today, unfortunately, is made on the purchase side of the equation, as opposed to the sell side. Specifically, when you have Menards selling a Kohler fixture or a Delta faucet or a Moen faucet, they're controlling the sell price; then it's only a matter of, how good do you buy? How good a job does your purchasing department do? We saw that handwriting on the wall. Fortunately, I can tell you that all 200 employees who were with that company were much better off the day after we closed than they were when they were with us. Any of those that decided to or wanted to stay with that organization stayed and they continue to be much better off today just because of the landscape in that side of the business.

TH: They were better off in what way?
MM: Simply because they're with a much larger, stronger national power. Again, we deal with our customers; but when they go deal with Kohler or they go deal with Delta, Nasco, and try to acquire the product, they can, just through their simply volume, the size of their purchase orders, garner a much better price than we could.

TH: How would you describe your management style?
MM: I take a very unique approach. I guess my background in accounting provides me the insight to see and know what actually makes the bottom line work. But I'm really hands-off when it comes to the day-to-day management. My philosophy has always been to hire good people and empower them and give them the opportunity to do their job. We have been very successful as a company in hiring, attracting and hiring good people and keeping them here and keeping them interested. My management style today is more of a cheerleader than it is actually rolling up my sleeves and getting down into the nuts and bolts of a specific decision. I'm involved in most decisions that go on around here, but I also let my people come to me with their ideas, their approach, and, as I said, let them make the decision on a day-to-day basis.

TH: I know this also includes your 150th anniversary celebration. A lot of that is delegated, or you've got a committee that's been very active in that.
MM: Exactly. We had a committee that we formed almost two years ago that includes people from all areas of the company. We've got people from the floor, the foremen, a couple of foremen; one of the plant managers is involved. My secretary is involved. My sister's and the other family members are involved, but most of the work, and a lot of the legwork and preparation and ideas, came from the masses, as opposed to us saying, "Here's how we're going to do it." Our philosophy around here has always been none of us is as smart as all of us. So when we put our heads together collectively, we came up with what we think is a pretty good program.

TH: How did booking Jay Leno come about?
MM: That was a year-long process. We sat down as a group and decided what our goal was. And our goal really is to entertain our employees. We have a venue set up now for roughly 1,000 people, down at the Grand River Center. With that, the 400 or so people that are employed here at this facility can bring a guest. We have obviously the stockholders coming and a number of the retirees. Those 1,000 people are our audience. From the very beginning, we decided our job, among this committee, was to entertain that group. We talked about a number of entertainers, some of which may be out of reach, some of which may have been out of reach, but at the end of the day, we thought Leno was probably the most ... he was the first guy on our list, let me put it that way. And we were fortunate enough to get a booking firm to secure him for an evening, an hour-and-a-half of his time.

TH: So, what does it cost to book Jay Leno?
MM: I think Rob (McDonald) probably put that best in that we had been saving for it for 150 years.

TH: OK, we'll mark that answer down as "a lot." Certainly, the Leno event is the keynote, but you also have something important going on the day before, with the park dedication.
MM: That's correct. We were very fortunate in working with the city to secure the naming rights for what used to be called Water Works Park, to name that in the honor of our founder, A.Y. McDonald. The park dedication is scheduled for that Friday afternoon (Sept. 15), at which time we will unveil a stone that has the image of A.Y. McDonald and a little story of the history of A.Y. McDonald and officially name the park and dedicate it to the city.

TH: What does that mean to you as a family member?
MM: Actually, I'm probably prouder of that than I am the fact that we are bringing Jay Leno in. Simply because it's a lasting, it's certainly a lasting memory for me but it's going to be something that's going to be there forever in the city of Dubuque. The McDonald family has typically been a very behind-the-scenes company. As you know, most people in town really don't have any idea what we manufacture, what we do, how many people work here. We're just very behind the scenes. We're not real flamboyant, not to say that that's not a nice way to be, but we've always been behind the scenes. We don't publicize our gifts, we don't typically name things, but we thought it would be fitting to recognize the family and the contribution that A.Y. McDonald made over 150 years ago to this community in a way that would earmark him well into the future. Purchasing the naming rights was a great way to do that.

TH: The literature that I saw had a quote from your founder. Referring to the company, he said, "I started it and you can take it as far as you want to go." Where do you want it to go?
MM: Actually, Brian, I came back here in 1983, not really understanding an awful lot about how our business operated. At that time, I was on our board and I used to see the financial statements, but I didn't understand the industries that we participated in. We as a company have strived to develop and maintain relationships with a customer base, an ever-changing customer base, that has allowed us to grow significantly since 1983. We've done a lot of things right that has enabled us to continue to invest in this business and grow. Time is everything, they say, but I envision a manufacturing conglomerate, when I turn over the keys, that includes not only a company up in Canada, a plastics company in Wisconsin, additional manufacturing facilities for this company, but also would look for other opportunities going forward from an acquisition standpoint to continue to grow and build on the base that we've started. We have great opportunity here because we have a strong financial position as a company as we ha ve an opportunity to utilize those assets and to continue to grow the business. I look at acquisitions on a weekly basis. Some of them don't pan out; some of them get a little more interest than others, but we look for synergies of things that fit well with what we do. We looked at the biggest threat to our business going forward and it was plastics; so we looked at and found and acquired a plastics company. They do work for us, but they also do custom-injection molding for other companies, but it gives us a platform to understand that business and be positioned so that we can react to the market if it moves that way.

TH: In reading some of the company history, I note that the company was really on shaky ground during the Great Depression.
MM: In reality, I think all companies were on shaky ground during the Great Depression. One of the things that we are very proud of is that during that entire time, we as a company did not lay off one employee. Now, we had a number of periods when everyone took a little bit less home and we had pay reductions, from top management on down to the floor, but we didn't lay off a single employee at that time. Back in those days, keep in mind, it took an awful lot more people to do what we do today than we need today, just because of the equipment and the automation. Back in those days, there was no standardization of anything. Every product was a brand-new widget and it contained all different parts from everything else. We have people machining things all over the place, but again, we were fortunate enough to not have to lay off a single person through the entire Great Depression.

TH: What's a good day at work for you? Describe a good day.
MM: I think a great day at work would be engineering coming into my office and telling me we finally have a new product that we've been looking for. The sales department coming up here and saying we finally got an order from a new customer that we've been working on. Or a new specification that we've worked on. Just even the little things that happen around here on a day-to-day basis really contribute top the overall karma. We try to create a family atmosphere around here. Because of that, everyone, not only are we concerned about what's going on in their lives and what's going on in their world on a day-to-day basis, but we try to include them in what's going on in ours. So we try to acknowledge those successes. We let people know what's going on. We let people know when we're awarded a major contract from a large utility in the country. There's so many things that are going right. Obviously, there's a few things that go wrong as well. But anything that happens along that line makes my day and really cr eates the impression that we're doing things right.

TH: I wanted to ask you about time outside of the office. You listed some of your interests, and like a lot of people around, you have golf, hunting and fishing; that's not too surprising. But you also list "raising and showing quarter horses." I'm interested in that particular hobby.
MM: Well, my wife has been in the horse industry all her life. I literally married into it. But because of that, we moved onto a little acreage in Bernard, Iowa, and set up shop down there so that we raise quarter horses. My two children, my two boys are home-schooled. They literally show all over the country. They're gone for a good part of the year, showing horses as far away as Phoenix. They go to Tampa, Fla. They go to Virginia. They're in Texas and Oklahoma. They left this morning to go to Minneapolis. What it does for the children is it creates an environment which requires them to be very responsible. In inherently builds in a discipline that you know, horses are not something you just put in a garage and leave for the winter. It's a full-time job. We have about 20 horses at our ranch out in Bernard. It consumes an enormous amount of all our time. A lot of our horses are the retired show horses that the kids started with but we still take a very strong string of horses to compete on a national lev el.

TH: And you still have time for golf?
MM: I don't play as much golf as I'd like to, but I get an opportunity to play golf with customers quite a bit. I try to show up at some of the fundraising events here in town, but I'm rarely seen at the country club on a Saturday or a Sunday. There's just not enough time in a day. So golf has taken a back seat, specifically while the kids are home. My boys play golf, so we try to sneak out and squeeze in nine holes when at all possible. The horse industry and the horse business that we have garners a significant amount of our free time.

TH: As we wrap up this afternoon, I'm interested in your thoughts or your reflection on your being the president and CEO of the company at the very moment that it hits its 150th anniversary. What does that mean for your personally?
MM: It's certainly a unique opportunity. Something that I've strived for my entire life. I put in an enormous amount of time learning this business, whether it be on the road in front of our customers, being with our sales force, being down on the shop floor, being in the foundry, being in the factory. It's just great to see it all culminate in a celebration that we can provide for not only our employees, but the reason we're a successful company is because we have such great people that have been here for generation after generation. We have second- and third-generation people around here, as well. If anything, maybe I'm a figurehead; I give a speech or two; but at the end of the day, it's not because of what I do, it's what these 400 people do every day. They meet the needs of our customers and they continue to answer when we ask them for more. It's a unique opportunity for me to be president. There's no question about that. I'm humbled by the fact that I did finally rise to that position. But at the end of the day, it's certainly not me. It's everyone else that's working at this company that's making it successful.