A.Y. McDonald’s fifth-generation heir epitomizes

multi-generational strength

BY MORRIS R. BESCHLOSS

PVF and economic analyst

Since joining TMB Publishing almost six years ago, I have focused my December Q&A’s on close industry friends, colleagues and their offspring, who have become part of my extended family.

With 51 years of continued involvement in this wonderful industry, this family has grown quite large and even the grandkids of some of these captains of business have become good friends.

This year I’m proud to single out an industry manufacturing leader who not only has taken the vaunted name of A.Y. McDonald to new heights, but whose parents J. Bruce McDonald and Katherine D. McDonald were my wife’s and my closest friends ever. Tragically they both died young. Ruth and I miss them terribly, remembering all the great times we enjoyed together.

Michael McDonald, president and CEO of A.Y. McDonald Mfg. Co., is another illustrious son of the five-generational clan that celebrated the company’s 150th anniversary last year. In fact our son Michael, who has distinguished himself outside of the industry, is only a few months younger than Michael McDonald.

Since it would be redundant to repeat the many honors heaped on McDonald justifiably in the past year. I want to concentrate on him and his accomplishments and how he has maintained this fabulous McDonald clan in a continuous growth mode, bigger and better after five generations. Having had the honor of maintaining a relationship with key family members since entering the industry in 1956, it gives me great honor to focus on Michael McDonald and the great company that combines the best of the original traditions with the most modern technology and ideas available today.

Beschloss: As you know, your parents were so close to my wife, Ruth, and I. I think of you with great pride as much as I do my own son. My pride in your stewardship of A.Y. McDonald has special meaning. Everything I’ve heard and read about you indicates your best years are ahead. Do you agree?

McDonald: I am very optimistic that our best years as a company lie ahead. We have built our business on one simple theme -- “Who’s the Boss?” -- and every employee in our organization recognizes the importance of the customer in our equation for success.

My position as the steward of this company took on a special meaning last year during our 150th anniversary celebration as we recognized the contributions of those who came before us, creating the solid foundation for us to build on. My father instilled in me the worth ethic, character and demanding expectations to allow me to succeed as an individual and a leader, eventually rising to my current position as president and ceo. I will always be indebted to him for his mentoring and guidance as I learned the fundamentals of this business and began contributing to its overall success.

Our company has reinvented itself many times over five generations, and my charge as today’s leader is to ensure that we continue to focus on the fundamental thread, that being the customer and their ever-changing needs.

Beschloss:  What special ingredient inspires today’s A.Y. McDonald to exemplify the same desire to expand as it did in the early years?

McDonald: My great-great grandfather coined the phrase that continues to guide our company to this day, “We will make good products and sell them honestly.” In the past 25 years since I became involved, we have expanded all four of our product lines significantly and continue to do that to this day. This drive to become more important to our customer base creates many opportunities for our employees and provides a solid platform to continue this unparalleled growth.

Beschloss:  As you’ve stated publicly, family membership doesn’t buy you an automatic ticket into company management. Are you satisfied with the optimum mix between family participation as well as professional managers?

McDonald: Our company initiated an informal family employment guideline prior to my involvement that has worked very well over time. A prerequisite to family employment at this company requires a minimum of five years of outside experience prior to any consideration. In addition, we do not create jobs for anyone, but will consider qualifications for existing positions and hire the best potential candidate -- be that family or not.

Our company now has nearly 900 employees in all of our subsidiaries and currently only four McDonalds from the fifth generation work in any of them. We believe this mix of family and non-family professionals provides the skills and vision to match our growth strategies and allows all our employees the opportunity to advance as the company grows.

Beschloss:  Your production facilities, foundry, machine shop, assembly appear to be state of the art. Since you are in the $200-million revenue range, are you able to finance this expansion internally or are there other financial means to keep your manufacturing operations and inventory levels up to snuff?

McDonald: During my tenure here, we have been fortunate to be able to fund our growth through internally-generated earnings as well as seasonal line of credit borrowings. Reinvesting in the company is important to our stockholders, and being a family business allows us to have more flexibility in this regard. At times we are able to sacrifice short-term returns for meaningful long-term growth without having to answer to a large group of stockholders.

Beschloss: In addition to internal advertising and sales promotion, and a cadre of sales reps and regional management, to what do you attribute your outstanding growth?

McDonald: Our business structure is nimble enough to be able to react to market opportunities when they arise. As you know, for many years we achieved great success within our wholesaling subsidiary. In the late 1990s, we look at the plumbing wholesale market and realized that we were a small regional player in an increasingly national market. We divested our wholesale subsidiary and sold it to Hajoca, which provided those employees with the buying power of a national player.

As a private company, we were able to reinvest those proceeds in new foundry and factory equipment, opened another manufacturing facility, and acquired a plastic-injection molding company to supply component parts to our businesses. A recent acquisition, Cambridge Brass, coupled with our own r&d efforts, puts A.Y. McDonald in a leadership position supplying lead-free products to the waterworks industry. This proactive initiative will position our company for significant growth moving forward, as we see the “green movement” take hold in this country.

Beschloss: Having served as your major supplier of bronze valves decades ago, I’m well aware of your demanding quality control. I presume that is still the hallmark of all your products, whether internally manufactured or purchased. Are outside purchases still a significant factor in your overall offering?

McDonald: Without question, quality control is our hallmark and always will be, whether we make it or buy it. Being family owned and carrying the McDonald name for five generations really means something, and we continue to enforce stringent quality control measures in all areas of our product offerings.

Outside sourcing continues to provide our company products to market along with our own manufactured products. Virtually all of our plumbing line is imported from Italy, Taiwan or China. Iron products, which sell with our waterworks line, are also sourced domestically and overseas.

The single largest increase in our sales, however, has come with domestically manufactured products produced in one of our three factory locations. The growth of our waterworks line has far outpaced the growth of all of our other lines, and the majority of that product line is poured in our Dubuque foundry and machined in one of our plants.

Beschloss: What would you define as the main secret of your success in maintaining such a well-balanced and highly effective manufacturing organization?

McDonald: The key to our manufacturing business is the flexibility that is inherent in a private company. We employ great people and provide them the tools to perform their jobs, while not micro-managing every detail from the top. We are quick to make decisions or respond to a market need and can typically out-perform our competition in this area. We remember our humble roots and strive to improve our processes and productivity day in and day out.

Beschloss:  Despite the superb acceptance of the A.Y. McDonald brand name and the up-to-date facilities that support your highly diversified offerings, is foreign competition an increasingly significant factor?

McDonald: Foreign competition, as you know, has taken over the plumbing valve industry in this country. Years ago, McDonald, Hammond, Crane and many others manufactured all of the products in this line only to see it move overseas. That situation hasn’t manifested yet in our waterworks and high-pressure gas lines, but we are not naive enough to assume that foreign competition isn’t a potential threat. Local specification issues have until this point prevented a foreign supplier from gaining a foothold in these markets. Our continuing effort to promote product diversity will make it more difficult for them in the future and our emphasis on r&d will bring new solutions to the markets we serve.

Beschloss:  Has the possibility of selling the company ever been considered?

McDonald: We do get inquiries every week from venture capitalists, equity funds and individuals looking to expand into our markets, “Never” is a long time but, in my opinion, we have just started to build this company into a national force. Our family creed has always been to leave this business to the next generation better than we received it, and the fifth generation is committed to continuing to expand our market presence and build our manufacturing base. We believe that staying privately held is the best thing we can do for our employees, stockholders and customers.

Beschloss:  Since your markets transcend plumbing, pumps, waterworks, and gas valves, do you believe that your overall markets are geared for growth in the foreseeable future?

McDonald: Although our current business is negatively affected by the housing slump, we remain confident that our core businesses will grow and prosper in the future. Every day we read about the crumbling infrastructure in this country and our waterworks line will be a major factor in that refurbishment. I believe that clean, potable water is the best value in America today. During the balance of my working career, and for generations to come, significantly more emphasis in that area will emerge.

Our other product lines are sold in concert with our waterworks line and our ability to package has proven invaluable to our customers. Growth will come in all areas of our company if we continue to out-perform our competition, provide our customers with value, and stand behind all the products that carry the McDonald name.

Beschloss: With two great teenage sons, is there any possibility that there is a sixth generation in your genetic line of the A.Y. McDonald family?

McDonald: My teenage sons are still exploring their options for college, outside training and finding their passion. As a father, I will encourage them to be successful in whatever field they choose and support them in that decision. If they enter the family business, that would be great. If they don’t, there are other fifth-generation family members who have children who can carry on our family’s legacy in the future.