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January 1, 2009

THE PROFESSOR WITH A CHIP ON HIS SHOULDER

Don McNeeley learned early stage capitalism with paper routes, math by calculating trifecta payouts at the track and the importance of having a Plan B as a prospective minor league baseball player. Now he wants to teach everything he knows to the next metals industry generation.

Few metals industry leaders are better known than Donald R. McNeeley. President and chief operating officer of Chicago Tube & Iron Co. (CTI), a longtime leader and former chairman of the Metals Service Center Institute, a professor with two decades of seniority at DePaul University and Northwestern University, and a marathon runner—the man is an overachiever whose idea of “normal” would be debilitating high pressure for most human beings. “We keep a loaded tranquilizer gun around here,” says Susan Hamilton, Chicago Tube’s vice president, administration.

McNeeley instructs students in his masters of engineering management course at Northwestern University.

But while education is a centerpiece of McNeeley’s biography—he holds four university degrees, including a Ph.D. in business economics, an M.B.A., a master’s of science in organizational behavior and a B.A. in business administration, from an array of universities including studies with Harvard Business School, the University of Wisconsin, George Williams College, Benedictine University and Columbia Pacific—less well-known is his continuing dedication to a benefit for all CTI employees that’s rare among companies. CTI pays 100% of the cost of ongoing college education for all employees, including union workers. Reimbursement covers tuition, fees, books, supplies and even the cost of parking for evening classes, if necessary. Dozens of employees have earned A.A., B.A., B.S. and M.B.A. degrees in the last decade, all on CTI’s dime.

“I absolutely could not afford college without this,” says Linda Lautner, an administrative assistant who is studying for a CTI-paid bachelor’s degree in business at DePaul University with plans to seek a master’s degree in administration later. “Even at community college, the tuition was $700 or $800 a credit hour. It took a very long time to save up for that while raising a daughter.”

Says McNeeley, “How could I ever not offer tuition reimbursement when I’m a product of it and never paid a penny? I think the key to our financial success is that where other people look on the P&L statement and see it as an expense, I’ve always looked at it as an investment, and we’re getting a return on that investment. Tuition reimbursement is sacrosanct, and if I have to, I’ll self-fund it.”

Don McNeeley, the oldest of eight children, comes from a blue-collar Chicago family of Irish descent. His mother grew up in a housing project, and his father, the youngest of a family with 11 children, lived on a farm in central Illinois, near Princeville. His parents met at the Veterans Administration hospital in Maywood, Illinois, where she worked as a volunteer and he, an Army veteran, recovered from Korean War wounds. His father was a quarry worker for Material Service Corp., his mother a switchboard operator.

McNeeley believes that his first brush with business came when he was 12, when he signed up for three paper routes, each earning him $8 a week, all subcontracted to 10-year-olds at $5 a week. “Entrepreneurship at a young age,” he says. He learned of an aptitude for mathematics when he joined his father and other quarry workers at the racetrack and computed payouts for the daily double and perfectas. A hard-hitting center fielder in high school, he had a short tryout in 1972 with the Montreal Expos, “long enough for a cup of coffee,” he says.

“I hit .400 in high school, and in American Legion ball I was hitting .425. In AA ball, they throw at 95 miles an hour, but they don’t know where the ball is going. I hit .127, and those are numbers that you don’t forget,” McNeeley recalls. “I came to the realization that I was a good ballplayer, but that at the next level, those guys were great. You come to accept that there had better be a Plan B.”

At first, Plan B seemed to be life as a sheriff ’s deputy in Chicago’s Cook County. There, McNeeley joined another deputy, Bob Haigh, on the department’s combat pistol team. Haigh’s father, John, ran family-owned Chicago Tube & Iron, founded by the family in 1914 on Chicago’s South Side. And later, when McNeeley concluded that the sheriff ’s department was too political to permit long-term stability, he took a job in 1972 at “the Tube,” as everyone there calls it, filling orders on the shop floor.

Two events led to McNeeley’s entry into John Haigh’s informal management training program. First, he showed an aptitude for the business. When McNeeley overheard a salesman say that a particular machine couldn’t make a 60-degree cut, he urged the rep to take the order, then demonstrated how, with the use of a 15-degree wedge, the machine’s limit of a 45-degree cut could be expanded to 60 degrees.

Second, he demonstrated a remarkable streak of good luck. When his fiancée’s apartment complex was hit by an airplane, McNeeley rushed to the scene, found her unhurt, and also ran into John Haigh, who was there in his secondary role as the Cook County coroner’s representative at aviation accidents. Haigh, like his son, took a liking to the young man and at McNeeley’s wedding pledged to pay for his subsequent education.

Although McNeeley credits his many years of night school as playing a most significant role in his development, he also is grateful for mentoring from members of the small tube distribution company’s board of directors. In particular, he says, Robert Lauterbach, who retired in 1977 as president and CEO of Wheeling-Pittsburgh Steel Corp. and later served as chairman and president of Westminster College, played a major role in his development.

“His job was to finish what John Haigh started in preparing Bob and me to run the company,” says McNeeley. “I would go over to his house once a week, and he’d have a flip chart and markers, and he would teach me about business. Once a week my wife would come over and his wife would teach her how to entertain. It was a great, great education. Without a handful of people [who] impressed upon me the value of education and the rewards of work, I wouldn’t be here today.”

McNeeley was CTI’s operations manager by 1977, employee relations manager in 1979, vice president, operations in 1982, and executive vice president from 1984 to 1990, when he then became president and chief operating officer. “I followed Bob each step of the way,” he says. “He would leave a job, and I would take it.” Haigh, McNeeley’s senior by eight years, is now chairman and CEO of the company, which has about $300 million in sales and 10 branches in Illinois, Wisconsin, Minnesota, Indiana, Iowa and North Carolina. Haigh and McNeeley together control most of the stock.

Forward talked with McNeeley at his offices in Romeoville, Illinois, where CTI opened a new headquarters and 400,000-square-foot warehouse, built for $22 million, in 2005.

How, and why, did you get into teaching at the university level?
The requirement of my Ph.D. program was student teaching, so I taught at Triton Community College, where the Industrial Management Institute had a program, and they offered an associate degree in applied science and management. I taught there for three years, and that led to seven years with DePaul University [of Chicago], where I taught the capstone course in their M.B.A. program. Then, almost 10 years ago, I was recruited by Northwestern University.

At DePaul, I used the M.B.A. program as a fertile recruitment ground. If I’d see a sharp student, I would hire them to maybe do a research project for me, or I would bring them into the company as an intern. That could lead to employment. But at Northwestern’s business school, it was much different. Everyone wanted to be investment bankers or consultants at the time. I found overwhelming apathy for manufacturing. So I ended up at Northwestern’s McCormick School of Engineering, where the program that I’m in, the Masters of Engineering Management, is all about manufacturing. My students are master’s and Ph.D. candidates with significant intellectual skills and unlimited potential. These are the students who will probably run industries. Northwestern, and in particular the engineering school, has international representation, so the impact of these students will be global. It’s been very refreshing.

At DePaul, I was with people who have my background. They get all the humor. They’re quick on the uptake. Northwestern is totally different. If you look at the admission standards there, the students all have genius IQs. They’re in the 99th percentile of the world. So it’s my job to ground them, to leave them with some common sense or practical aspect of how to harness their genius and use it for practical applications. We get interns from Northwestern, but not employees.

Why is that?
We can’t afford them. All we can do is expose them, as interns, to what business is about, to have experiences they probably won’t have any other way. Their market value and compensation expectations are often beyond what our industry can provide.

Are they the employees that a Chicago Tube needs?
Probably not. In many cases, especially with the Ph.D. candidates, they are destined for research jobs. Ironically we’ve been far more successful with the C students than the straight-A students. We want a guy who has been a caddy, a guy who has delivered pizzas and who has always had to work for his spending money. Those guys and gals are more well-rounded.

To some extent, we’re fueled by a chip on our shoulder. Here’s the reality. People from my neighborhood do not grow up to run companies. People from my neighborhood don’t run out to get Ph.D.s or teach at Northwestern or go to Harvard Business School. It just doesn’t happen.

But the reality is that a lot of people use that for their crutch. So when someone from the neighborhood does those things, doesn’t it force everybody else to maybe look in the mirror?

So I think that the more people said you can’t do something, the more motivating it was to, in fact, do that. Do I think where I grew up and how I grew up was an inhibitor or a motivator of my success? It was absolutely a motivator. The older I get, the more I realize that a modest, working-class childhood of minimal means was actually a privileged childhood because it prepares you for life’s realities.

I remember in 1967 we had a big snowfall in Chicago. My dad was stuck at the bottom of the quarry for three days. My mother was stuck downtown. The trains weren’t operating. I’m in seventh grade, with a bunch of brothers and sisters who needed diapers changed and food and heat in the house. That prepares you. At the time you think, ‘Oh, my God,’ but you rise to the occasion, and 20 years later you’re still harvesting from that opportunity to stand and deliver.

My business point is this. I think we as business leaders collect our money during all these years, the good years. And then you have these inflection points, where choices have to be made to rethink your organization and its role in its industry. And if we don’t navigate the company in these transition points, these points of inflection, then I contend that in the good years we’ve accepted our spoils under false pretenses. When you look at our industry between 2000 and 2003, when a third of our industry went away, it’s because a lot of the leaders either weren’t prepared to navigate or their balance sheet had a burn rate that precluded sustainability. They didn’t stand and deliver.

So how does your education help you at times like this?
The Ph.D. is clearly no sign of superior intelligence. It is a sign of superior perseverance, and if you combine perseverance with a blue-collar, chip-on-theshoulder upbringing, and with athletics, where you just don’t like losing, now you’ve got the things to move you. We don’t like losing!

Our family didn’t have a whole lot, but people helped. It’s important to understand the responsibility of that. My mother used to say that “if you’re ever blessed enough to make a lot of money, use that money to do things for people, not to people.” It’s a message that absolutely resonates.

I understand the personal motivation, but does that translate to the conduct of the entire business?
Jim Collins, in his book that everyone has read, Good to Great, says that you have to confront the brutal facts about your business. We have had to ask ourselves, ‘Are we really great, or are we just good?’

Once upon a time, if you ran a good company, you were invincible. You were immune to attrition in the industry because attrition was going to take the poor companies, not the good ones. But now all the poor companies are gone, and today even the good ones are vulnerable.

I was with a customer one day bragging that at Chicago Tube & Iron our turnover was almost nonexistent. We probably had the longest average tenure in the steel service center industry. And the customer said, ‘That’s a shame. Where do your new ideas come from?’ And he was absolutely right.

So we started to go out and hire people at the higher levels of our company from the outside. Now, about a third of our management team comes from other companies or industries. I think we have the right people on the bus, and those people are in the right seats. They are less likely to accept pat answers. They understand the mindset that it takes for a company to be big. We haven’t achieved greatness yet, but we’re busy closing the gap.

Chicago Tube & Iron has been involved in fabrication since our founding in 1914. We began with maintenance work in the boiler industry. Technology changed, and we moved upstream to have influence in high-pressure power generation. Our Engineered Products Division includes plants in Owatonna, Minnesota, Locust, North Carolina, and here in Illinois. We offer field inspection and measurements and re-engineering services for design improvements. And with our advanced engineering and fabrication skills, we are involved in the defense industry, agricultural, petrochemical and athletic equipment, the rail tank car industry and more. We’ve actually been involved in projects throughout the world.

We’ve invested in equipment to support that kind of business. In the last five years, we’ve invested $20 million in things like five laser cutters, including an extremely sophisticated six-axis laser cutter. And we’ve added space to do all this work here in Romeoville but also in North Carolina and Wisconsin.

All of it has been funded from cash flow; we have no debt. We can accept and justify a financial payback of five years. That, in turn, becomes something of a barrier against the larger, public companies competing in the same areas because they usually require a three-year payback.

Our mantra here is consistent, reliable customer service. We’re a company that’s big enough to buy with the big guys, but small enough to still have a soul.

So a company of CTI’s size has a good future?
At $300 million, we are one of the top 50 service centers in the world. Fifty percent of all service centers have annual revenue of less than $15 million and are very successful niche players. But the people that are bigger than me are much bigger. So I don’t want to be a general line service center, and I don’t want to compete on price. These are industry spaces filled by other, very qualified companies. We have to know what our sweet spot is, and we do.

What drives me is that I perceive my role as a steward. There’s a corporation that I have the privilege and the blessing of running that’s 95 years of age. The reason that it’s a successful organization is a series of people who came before me who accepted their responsibility as stewards. Had they not done so, I would never have had the opportunity. My role is to get us to the next generation.

If you look back over that 95 years, it includes two world wars, two non-wars in Korea and Vietnam, numerous police actions, between 14 and 18 recessions and the Great Depression. So where does the additional burden come from? We’ve never had a year in which we failed to earn a profit.

In my periods of introspection, I wonder if America someday will have companies that are 300, 400 or 500 years of age. What can I do to increase the probability that ours is one of them? The second thing is, is it possible to continue this streak of uninterrupted profit? Because if the answer is no, I don’t want it to be on my watch.