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March 1, 2006

His Word and a Handshake

With a personal style increasingly rare in this corporate era, Thomas Mallan won the loyalty of customers, suppliers and staff. He treated them with dignity, didn't pinch nickels and trusted employees to do the right thing.

In a business world frequently focused solely on profits, where remote accountants often swing more power than front-line operations or sales associates, Tom Mallan's leadership style is worth careful study.

That's because Mallan, like many post-war leaders of the metals industry, built a business, Main Steel Polishing Co., on lasting relationships and loyalty among employees and customers without succumbing to today's harder-edged, win-at-all-costs, squeeze-every-nickel management style. Mallan and others of his generation focused on the “man” in management and found that being a good person was compatible with being a good business person.

“I treat my employees and business relationships the way that I treat a member of my family,” says Mallan. “I look you in the eye and make an agreement, and you do the same with me. Then we shake hands. That's the contract. There's no need for paper. My word is my contract.” Mallan, 71, who suffered a heart attack and stroke in 1999, still comes into the office several times a week.

With revenues of less than $100 million, mid-sized toll processor Main Steel, based in Tinton Falls, N.J., has been consistently profitable. Annual staff turnover among its 350 employees is below national averages. The typical Main Steel employee stays with the company nine years—a critically important statistic in an industry where skilled workers are not always easy to find. Customer retention also is high, averaging 95% year after year. Today's Main Steel, with 10 plants in the U.S. and Mexico, processes more than a billion pounds of metal annually—including stainless steel, aluminum, red metals, painted metals, nickel-based alloys and titanium—for its base of more than 500 OEM, mill and distributor customers.

“You could count on him,” recalls Joe DeCarlo, stainless product manager who started at Thypin Steel in 1976, of Mallan and his reliable operation. “If you had a hot order, they would fit it into their schedule, that afternoon or the next day. He was the only processor we used because he was so good.”

WRINGING OUT A NEW BUSINESS

Born in New Jersey, but raised in the border town of Marfa, Texas, Mallan migrated north in the 1950s to work at his family's New York metals distribution company. Within a short period of time, “Tom felt that he could do a better job and had some innovative ideas,” says Thomas J. Connell, who succeeded Mallan as chief executive officer.

So in 1956, with no more than the promise of processing work from a few customers, Mallan set up shop on Baretto Street in the Bronx. Stainless steel had begun to be more widely used in applications from fast food kitchens to hospital work stations.

 
Breaking ground for a new plant in Illinois: the company expanded in the 1980s and 1990s.

At first, polishing the metal was cumbersome. A stainless sheet was clamped to a table and polished with a one-headed machine. It then had to be turned 180 degrees to do the second half of the sheet. But with the help of a supplier, Mallan designed a machine with pinch rollers that functioned like the wringers on an old washing machine. This way, the metal could be fed into the line, continuously polished and ejected at the other end.

From a base of five customers, Mallan expanded to the mills and other distributors. Producers such as Jones and Laughlin Steel Corp., Armco Steel Corp. and Crucible Steel Co. would send their metal. “The trucks waited while he polished the sheets,” says Jody Pitts, vice president of marketing. “A big order would be 10 to 15 sheets.”

One of Mallan's first tests came in 1961, when a neighborhood fire burned the Baretto Street plant, badly damaging much of the equipment.

“How are you doing?” asked Eddie Franks, a manager at Washington Steel Corp., when he heard about the fire.

“I guess I'm out of business,” Mallan replied. “I only have skeletons,” referring to the machinery.

Two days later, Pitts says, a truck from Washington Steel arrived, filled with machine parts that put Main Steel back in business. What goes around, comes around. Five years later, a grateful Mallan did the same for a competitor that was hard hit by a fire.

During the 1960s, Mallan worked from three different Bronx locations. In the 1970s, he began to expand nationally with the acquisition of a 5,000-square-foot polishing business in Atlanta. In 1978, Mallan acquired a cut-to-length plant in Evanston, Illinois, and a year later, a coil polishing line in Schaumburg, Illinois. These operations later were consolidated and Main now operates a slitting and cut-to-length plant in Wheeling, Illinois and a polishing and buffing operation in Bartlett, Illinois.

A second cut-to-length operation was opened in Dayton, New Jersey, and, in 1982, New York area operations were consolidated in Union, New Jersey. The company's accountant, Andy Kutz, recalls
being parked in a back office at that Union plant in October 1983.

“I heard this infernal banging that shook the walls and floors,” he recalls. “I tried to ignore it and finally yelled, ‘What the heck is that noise?”

Mallan, who was nearby, took Kutz on a plant tour and showed him the cut-to-length line. “That's the sound of money being made,” he told Kutz. “When the shear comes down that means business is good. When I don't hear it, that's when I get nervous.”

DARK DAYS
Mallan had plenty to be nervous about in 1985 when it was discovered that an executive at the New Jersey location had, over a period of months, stolen $2 million in stainless coils and sold them as scrap. The company that had never missed a payroll was looking squarely at the possibility, and Mallan was devastated.

The help he needed arrived from one of his best customers, Davey Thypin, the owner of Queens, New York, distributor Thypin Steel.

“How much do you need, kid?” Mallan's wife Linda recalls of Thypin's phone call. “Davey, I need $100,000.” “Come over and get it. The check will be ready for you.”

Although Thypin helped Main Steel cover its payroll, Mallan then had to compensate customers for the uninsured loss of $2 million worth of metal. One-third of the material belonged to a large customer, Eastern Stainless Corp. Thypin and J&L had coils missing as well.

“Some got cash, some got services,” recalls Connell, who was then new to the company and part of the operating team. “There was no question that they would get their money back.”

Kutz recalls that Main Steel was particularly vulnerable because the metal served as collateral for Eastern's bank loan. “The banks had every right to come in and shut us down,” he recalls.

But they didn't, in large part because Mallan won the loyalty of customers and other business people in his straightforward, old-fashioned way.

Burl Carey, a longtime sales representative who covered the Southwestern states and Mexico, remembers that a steel fabricator in Monterrey, Mexico, in the mid-1990s had problems paying for material because of the falling peso. “Tom went down and met the folks around a big oak table,” Carey says. “Their concern was that he would stop selling [to them].” Instead, Mallan extended credit. “And if things haven't changed in a few months, we'll sit down and talk again,” Carey recalls him saying.

 

HIS OWN STYLE

Constant communication and an open door were the hallmark of Mallan's leadership style. In his weekly calls to the plants, his opening comment was always, “What can I do for you today?”

“[Mallan] would talk to working people in the shop as if he was talking to his own peers,” recalls Izzy Horowitz, who worked at Main Steel for more than 30 years repairing equipment. “Anything you did for him, he appreciated. He said, ‘Thank you, you did a good job.'”

Mallan took it as a matter of pride to know everyone's name. He called the Atlanta plant one day and didn't recognize the voice at the other end of the phone. But because he knew his company, he called the young woman by name. She was astounded that the president knew who she was, although they had never met, Kutz recalls. Mallan also made a point of learning employees' tastes and preferences—even what they drank. When he entertained, recalls his son Tom Mallan, Jr., he would always have the individual's favorite brand available.

Mallan also believed that a good company hires the best. When he determined that he needed another manager, he did his homework, and sought out the best he could find. Once a new manager was in place, he would say, “Here is your job, now go do it.”

“He gave you a credit card and a car and said, ‘call me if I can help,'” says Carey, who retired in 2003 and lives in the Dallas area. Carey appreciated the responsibility and latitude of being his own manager.

But to really understand Mallan's generosity of spirit and his unfailing support of his employees, it took a tragedy. Mallan had hired a regional manager, Dave Musick, who had started on on Sept. 1, 1994. Seven days later, Musick was killed in a plane crash. “My immediate orders from Tom were to make sure [his widow] knew we would take care of her,” Connell says. The company paid salary and benefits for close to a year, until larger settlements were reached that assured her and her children financial security.

Mallan strongly believed in continuous self improvement and attended numerous seminars and workshops with his managers to make sure no one was stuck in a rut. He believed in working hard, but he also believed that hard work deserved a reward and was adamant about showing his appreciation to the company's management. He held annual meetings in scenic locations to thank managers and their spouses for the time and effort they gave to the company. Most of those meetings included tours or speakers to continue to expand the knowledge level of the company.

The Mallan tradition continues today. Education programs are widely available. Employees receive turkeys every holiday season, a check for $400 if they quit smoking for a year, or a gift when an employee's child hits an educational milestone—$100 for graduating from high school, $500 for college. Long-time employees receive a company ring at 10 years, with the addition of a diamond at 20 years and a second diamond at 30 years.

CHANGING OF THE GUARD

Main Steel has changed somewhat since Mallan's stroke. Plans already were in place to promote Connell, who joined the company in 1984, to CEO in May 1999. Connell implemented more rules and standard procedures because as he puts it, “It was not my money.” The challenge for Connell has been to move Main Steel from, “a monarchy to a corporation” while preserving the family culture that makes the company tick.

Change has been difficult, and push back was predictable. “People said, ‘we always did it this way',” Connell says. But he is satisfied with the company's transition and the recent involvement of Mallan's 35-year-old son, Tom Jr., who joined the business in 2000.

Before his father's stroke, the younger Mallan, a painter and construction worker, lived in Vail, Colorado. He had no connection with the family business.

“Dad put in 16-hour days and I wrongly assumed it was not fun,” he says. “After being here and meeting everyone, I realized they support you and you support them. It's a great place to work.”

The hardest part now, he concedes, “Is being Tom Jr.—everybody knows my dad.” If the son had walked in right after the stroke, it would have been more difficult, Connell says. Preserving the best aspects of the Mallan culture will create a link to Tom Jr., who is expected to assume the helm after his immersion into all aspects of the company business is complete.

But enough time now has elapsed to allow Main Steel to evolve from a family-owned company into a business that combines its past with useful procedures from more traditional corporations. As Mallan, Jr., says, “It's no longer a one-man show.”

MANAGEMENT BY MALLAN

Although the rules have never been written down, Tom Mallan's management style is clearly discernible from his 50 years in the metals business.

Treat everyone with dignity and respect. Mallan made it a practice to know about the employees at Main Steel, including their name, their job, their background and even their favorite libation. It's all part of one of the oldest rules of positive human behavior—do unto others as you would have them do unto you.

Don't worry about every nickel, dime or dollar. Mallan has always been a businessman keenly aware of the need for profits. Yet he clearly values strong relationships far more than a simple focus on money. The lesson: A miserly, money-oriented focus is often not the best way to build an enduring business.

A high-quality workforce must have access to education. Like many top business people, Mallan has always valued educational programs and thinking that keep his workforce informed, current and fresh. It's not enough to hire the best. You must also keep your people on top of their game by giving them the intellectual stimulation they need.

Trust your employees to do the right thing. Without question, too much blind trust in everyone can sometimes be damaging, as the theft of $2 million of metal in 1985 proved. But Main Steel's ability to overcome that loss demonstrates the strength of Mallan's abiding belief that the best thing to do with your people is to simply let them do their job.

Management's top job is facilitation. Mallan practiced what he preached when he opened meetings by asking subordinates, “What can I do for you today?” Of course he had advice to share and direction to give, but he always emphasized removing obstacles to his employees' good work. Andrew Keyt, executive director of the Family Business Center at Loyola University, Chicago, says Main Steel is the type of business where family values are reflected in everything the company does. Especially in the early stages of a family business, when spare cash may be scarce, owners tend to “lean on human capital, not financial capital.”

At Main Steel, the very positive reliance on human capital continues.