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January 1, 2013

A Family Business Transformation

Worthington Industries’ John P. McConnell details the challenges of managing a rapidly expanding company and the necessary changes to make it work

For John P. McConnell, chairman and CEO of Worthington Industries in Columbus, Ohio, the people and culture of his steel dynasty are both his most precious resources and his biggest challenges.

“That’s really the holy grail, keeping the philosophy alive and making sure managers understand their jobs,” he says.

Under McConnell’s leadership, the global company processes steel for a variety of industries, including automotive, construction, hardware and aerospace. In addition to steel processing, Worthington Industries specializes in custom metal products, pressure cylinders, engineered cabs and energy innovations, employing about 10,000 at 82 facilities in a dozen countries. The company also has several joint ventures in metals-related markets. 

Despite its modest beginnings—his father, John H. McConnell, founded the company in 1955 after using his 1952 Oldsmobile (pictured above) as collateral for a loan—Worthington Industries quickly expanded. The company went public on the New York Stock Exchange in 1968 and has grown from $350,000 in sales its first year to $2.5 billion in the company’s fiscal 2012.

John P. McConnell began his time at Worthington during high school summer vacations, cutting the grass on company grounds and gaining experience on the factory floor. He officially began his career there in 1975 as a general laborer in the Louisville, Kentucky, steel plant.

“I grew up in it,” he says. “I wasn’t really sure what I wanted to do, but I ended up coming into it early on and I have been here ever since.”

After working as a sales representative and climbing the company’s ranks as corporate personnel director, vice president and general manager, McConnell was named CEO in 1993 and chairman of the board in 1996.

He spoke with Forward about his management philosophy, Worthington Industries’ growth and establishing his own legacy in the metals industry.

We got a call from one steel division saying we got this business today, and we got another call from another division saying we lost this business today. We stole the business from ourselves at a lower price

 

How does carrying on your father’s legacy influence the way you do business as you rapidly expand?

That is a question we have stumbled over. The bigger you get, the trickier carrying on that legacy becomes. Really, the only way to do it is to have a strong infrastructure in place and a good-enough talent development program. Our program includes a new employee on-boarding program, basic financial training and sales and customer training, which requires spending time in our plants to understand everything from the flow of material and processes to customer service, negotiation skills and relationship building. As a result, everyone who leads one of these facilities understands what that means, what the philosophy is, how to properly interpret [their responsibilities] and believes in our employees and treats them with great respect. When you have one, two or three facilities, you can be that ambassador and visit those facilities yourself. When you have 75 or 80, you can’t do that, so you must have a great people development program and an infrastructure that lets you get a pulse on [the progress of a vision for the company].

We also conduct culture surveys to verify that employees are engaged, determine to what degree they understand their role, if they have the proper tools and training and work in an environment that promotes success. Once the survey results [are in], we help the leadership group digest the results and identify three focus areas for the management team.

How has your long career at one company shaped the kind of leader you are today?

It has been very helpful that I have had so many different jobs at the company. I know what is expected and required of our employees. You have to look at everybody as an integral part of what you’re working toward. All of that has been important in how I run the company today.

At first, [being CEO] was a fair amount different than I’d thought it would be. One of the best pieces of advice I got when I first became CEO was from Gerry Mitchell [former CEO of Dana Corporation and past member of Worthington’s board of directors] who told my father that I couldn’t be successful until I had my own team in place. He was absolutely correct. 

What are the company’s core principles?

I was raised with certain core principles and they reflect our philosophy: Treat customers, employees and suppliers how you would like to be treated. It also comes down to respect. Treating people respectfully and giving everyone a fair opportunity to do what they would like to in the world. People don’t want to go home and say they did the exact same thing as they did yesterday. That’s not what excites the human spirit. We ensure compensation is as directly related to job performance as possible so people can see the results of their efforts coming back to them, and share in our success.

How would you describe the company’s past and present growth strategies? 

 

Success is a mighty enemy. Once people get ingrained in what works, they aren’t going to want to change.

My father was very set on the idea of not having any corporate overhead. Everybody had to run their division in their own way. As a result, you didn’t know how the business structure worked. We relied on management by [physically] walking around [every factory]. At that point in the early 1990s, it got harder because we went from about eight or 10 locations to 25 in diverse industries.

That is when I started seeing issues develop. It culminated when we got a call from one steel division saying we got this business today, and we got another call from another division saying we lost this business today. We stole the business from ourselves at a lower price. You obviously have to find a way to correct some of those things. We had to get away from the idea that everybody had to have their own team in place and move toward centralizing [management].

Manufacturing experienced welcome growth in 2012, accounting for 16% of new U.S. jobs in the first seven months of that year and exceeding the industry’s 9% share of overall employment. Why do you think this happened, and do you think growth will continue in 2013? 

I think people were surprised with the strength of manufacturing. In fact, one of the strongest growth areas in the economy has been manufacturing. A lot of that has been led by the automotive resurgence. That’s not a surprise—when you are almost knocked out, you either die or you go up, which is where the Big Three were [during the automotive crisis of 2008–2010].

 John P. McConnell's father founded Worthington Industries after using his 1952 Oldsmobile as collateral for a loan. Today, the company is public on the New York Stock Exchange and reported $2.5 billion in sales for fiscal 2012.

Sometimes it takes getting in really rough shape to actually make the fundamental changes you need to make. I think [American automakers] have done a really great job in the last four years improving the way they do business. I think we will continue to see growth next year. It may be small, but we will continue to see it.

Worthington’s profits in 2012 beat analysts’ estimates for the year. What factors do you attribute to this stellar performance?

The great work of a lot of people. Trying to get the company to understand its need to change has been a long battle. I’ve developed a view that success is a mighty enemy. Once people get ingrained in what works, theyaren’t going to want to change. My father’s favorite saying was, “If it ain’t broke, don’t fix it.” But, over the years, we developed a kind of entitlement culture here and we had employees who probably weren’t earning their stripes anymore. Those were people we exited. I believe that really helped revitalize the company. In 2008, we were able to hold up a mirror to ourselves and ask how we could improve. From that moment forward, we found leaders who were embracing the prospect of change and were excited about the opportunities in front of them. It just made a radical difference.

We also learned from the recession, used it as a playbook and, depending on where the market slowdown was, took action by reducing shifts and implementing four-day work weeks. We revisited our plan often as the economy slowly rebounded. If we need to take action again, we are ready to pull those levers.

Do you predict similar success in 2013?

Yes, I don’t think we are anywhere near our capabilities. In fact, we have barely scratched the surface. We have a great set of leaders in place who can run the company. They are focused on what’s next.

In addition to our forward-looking capabilities we are devoted to innovation and product development. We recruited a Proctor & Gamble manufacturing veteran to help us get this area up and running, and he is off to a fast start. We work harder to proactively bring ideas to customers as opposed to just reacting and producing solutions when asked.

Worthington Industries has been named four times to Fortune magazine’s “100 Best Companies to Work For.” In your opinion, what makes the company a desirable place to work?

Our greatest perk is our profit sharing and salary plan. The company views employees as partners in the business. The cash profit sharing plan began in 1966 and allows all eligible regular full-time employees to share in the profits they help produce. Senior management is paid with annual bonuses, based on company performance and targets. In addition, employees are not financially penalized for time off for legitimate reasons, such as family legal matters, death in their immediate family or personal or family illness. There are no sick days and you take what you reasonably need.

We expect frank and open communication about any situation. Employees are encouraged to first discuss issues with their supervisors and if dissatisfied, speak to their operations managers, business unit managers, corporate HR or members of corporate management up to and including the president and chairman. I think the company has a reputation about caring for each other and that goes a long way in making employees feel valued. That’s why we have people who have multi-decade careers with us.

Since July 2011, Worthington Industries has completed four acquisitions, including Westerman Companies, an oil and gas production equipment manufacturer, and Angus Industries Inc., a manufacturer of parts for heavy equipment. Can you describe your acquisition strategy?

We are proactive. Our acquisition strategy is about accelerating growth and eliminating underperforming segments. That means acquiring high return, high volume-added manufacturing businesses. Each business division has its own development person, as well as its own corporate [level] team, and they work very well together. On the other hand, we have also made sure our doors are open to anyone who wants to come to us. We are most excited when we can find a family-owned business that needs to transition or sell. Anyone who has joined our family would say they have been treated respectfully.

How does your acquisitions approach differ between international and domestic companies?

 

I think the company has a reputation about caring for each other and that goes a long way in making employees feel valued.

When I was growing up, our family owned a Wendy’s franchise in Hawaii. My father was good friends with Dave Thomas and told him that the people of Hawaii really wanted rice in their chili. Dave’s response was simply that Wendy’s didn’t serve rice, it was just not the way they did chili. You have to be sensitive and make sure you are addressing cultural needs without sacrificing your core principles. That’s where people get confused and that’s exactly where Dave Thomas got confused. The things you do don’t always have to be the same, as long as you still have the same principles. That’s what our philosophy is for the company. It allows us to acquire countries overseas without losing our core principles.

What is your take on how the new energy economy—particularly the steady move toward natural gas and shale—will affect U.S. independence? How will it affect the metals industry, as a whole?

A lot of this activity is right here in our state. We see great opportunities for us in all of these developing energy markets. I think new energy will be very important to us as a country in developing our independence from other countries. Wind is closer than solar to being cost-effective, but [the United States] is just not there yet. Should we subsidize some research? Absolutely, but I don’t think we should subsidize the industry.

We entered into the alternative fuel space a few years ago with the acquisition of Structural Industries, a company capable of producing compressed natural gas (CNG) and liquefied propane gas (LPG) tanks. As a result, we are now working with General Motors and Honda on their alternative fuel vehicles. They also supply tanks to bus and fleet vehicles, which is the majority of the market in the United States. It fueled our strategy to grow our alternative fuel footprint and we have acquired STAKO in Poland and Nitin India to serve the largest markets for LPG and CNG powered cars. We are also supplying large storage tanks and processing equipment to most of the companies active in the Marcellus and Utica shale formations through our recent acquisition of Westerman Companies.

We have also invested a lot of money in trying to understand how we can reduce the energy needs of all our facilities. I think it’s important to get as efficient as you can. The greatest example is in our steel plants where a group of employees suggested putting shot clocks in the facilities at each of the machines to measure progress. We benefitted from machine changeovers that went from 4 minutes and 30 seconds to an average of 2 minutes 30 seconds to change the coil of steel. Our overall equipment effectiveness and improvement have shown dramatic increases, for example, from 41% in 2009 to 256% on our slitters. On-time delivery is also up from 84% in 2009 to a 92% average since 2012.

How do you define success for your company?

I’m dyslexic and have attention deficit disorder, so numbers and I don’t get along very well. Success to me is whether the culture continues to evolve. Mark Russell, the new president of Worthington Industries, talks about people being in the zone. It’s the place where you are always striving to do better than you’ve done, regardless of how well you are currently performing. It’s not that every outcome is going to be right. If you aren’t making mistakes, you’re making a mistake. We’re really focused on innovation and I’ve come to realize that innovation is a discipline in itself. That’s what is fun. That’s what I think is success.