In 1980, net sales for Mark Controls Corporation exceeded $263, 000, 000, a 13% increase over the previous year, coupled with an after-tax earnings increase of 42% to $7,769,000. The principal businesses of the company were energy management systems and services, and valves and flow control products and services. During the decade 1970-80, the compounded rate of growth had been 32% for sales and 33% for net income. A number of acquisitions and divestitures had been completed during this period, the most notable, the merger with Powers Regulator Company in 1978.
Markets and Product Lines
Operating through elevan atonomous untis, the company sold to many end-user markets:
||% of 1980 Sales
|New building contruction
|Chemical and other process plants
|Water systems and general industrial plants
|Residential and other construction
In the energy management systems and services segment, the company designed, manufactured, installed, and serviced a broad line of products that control the temperature, ventilation, energy-use, fire, and security protection in non-residential buildings. For this segment of the company, 1980 sales were approximately $128,000,000, income before taxes $7,300,000 and identifiable assets $61,500,000. Through more than fifty branches throughout the United States and Canada, the company sold and serviced computer-based systems to minimize energy costs for large buildings, and pneumatic control equipment for all sizes of buildings.
Long-term service contracts offered by Mark Controls helped building owners maintain peak operating efficiency and attain longer life for their control systems and related equipment. The company sold to both retrofit and new construction markets. In a related area, the company manufactured and serviced material distribution systems for commercial building, hospitals, and industrial plants.
The other major part of the company, valves and flow control products and services, manufactured and sold a broad line of specialty valves and flow control products to customers in several industries. Company products were highly engineered for distinct market sectors. Sales of these products in 1980 were $113,300,000, income before taxes $9,000,000, and identifiable assets $85,000,000.
The basic strategy for Mark Controls was developed by company management in 1969 under the direction of Gary MacDougal, the Chief Executive Officer. It remained essentially the same in 1980, and had been published every year in the company’s annual report:
1. Build a major multinational (Fortune 500) corporation, primarily in the field of flow control equipment, equipment for the energy industries, and other related products and services with particular emphases on the following growth areas:
- Energy management and control systems, equipment, and related products.
- Equipment for petroleum refining, chemical, and other process industries.
- Petroleum production equipment.
- Water management equipment and systems.
- Power generation equipment.
- Pollution control equipment and systems.
2. Achieve well above average earnings per share growth through an effective combination of internal earnings improvements and selective external growth through acquisition.
3. Capitalize on the growing needs of flow and energy control equipment users for increased technical and service support and broader systems capability by:
- Acquiring companies with technical and marketing organizations which are complementary to those of Mark Controls.
- Focusing product development and acquisition efforts primarily on proprietary products and systems with substantive technical content.
- Increasing technical capabilities and marketing orientation of the present Mark Controls organization.
- Developing a broad range of services to assist customers in solving problems.
4. Achieve a market share of at least 20% in all major market segments in which the company competes by:
- Anticipating customer requirements with new products and services through major commitments of engineering resources.
- Developing strong distribution and representative networks to provide increased availability of the company’s products to all major market areas.
- Increasing direct sales coverage of major end-users and distributors through reduced territory size and an increasing number of capable field sales and field engineering personnel.
- Maintaining the company’s leading reputation for quality products and for meeting delivery commitments.
- Increasing both product and market specialization to the maximum degree feasible in the marketing and field sales organizations as appropriate for each individual territory and market.
- Becoming the most cost-effective producer in each of the company’s product areas.
5. Develop a competitive advantage in the management of these activities by attracting and retaining high talent manpower at all levels in all areas of the business by:
- Making every effort to involve all employees of Mark Controls as partners in the business, both through attractive stock ownership opportunities and by participation in decision making.
- Investing heavily in employee training and communications and by emphasizing promotion from within.
6. Build a major Mark Controls international business primarily through direct ownership and manufacturing, but also through licenses and exports, such that international activities represent approximately one-third of Mark Control’s sales and profits.
7. Conduct an ambitious but highly selective acquisition effort which:
- Focuses on companies with related products and markets.
- Maximizes the effectiveness of the company's management resources by concentrating the acquisition effort on companies of significant size in relation to Mark COntrols (generally at least 20%).
- Is financially structured to avoid earnings dilution.
8. Maintain, under normal circumstances, a conservative financial structure with debt averaging approximately 40% of the total capital structure.
9. Conduct a business within a framework of the highest ethical standards and social responsibility.
Mark Control’s corporate offices were located in Evanston, Illinois, in the same modest office building which had housed its main offices for thirty years. The corporate officers were Chairman and Chief Executive Officer, Gary MacDougal; President, Joe Casey, who also served as president of one of the larger operating units; Bill Bendix, Group Vice President; and Tom Mahick, Vice President of Finance and Secretary. An Assistant to the Chairman was responsible for planning and development. (See Exhibit I)
A small booklet distributed to all employees set the tenor of relations among the people in Mark Controls:
MANAGEMENT’S COMMITMENT TO THE EMPLOYEES
We are all the employees of the company—from Chief Executive to the newest person in any job. To be successful we need to treat each other as partners, with every job and every person playing an important part in our company’s success. We provide every employee with an equal opportunity to succeed based upon performance and independent of race, religion, age, national origin, sex, and handicaps.
No company is perfect and Mark Controls is not perfect. However, we are striving to create a people oriented company in which people freely contribute their talent and effort and actively share in the success of the company. In order to make our company a good place to work we support the following policies:
We Build Our Organization Around People
Our company is primarily our people, working together with a common purpose. Methods, equipment, and procedures are important and we constantly strive to improve them. But the most valuable assets we have are capable and loyal people.
We try to assign responsibilities and duties which use fully each individual’s talents and abilities and which will enhance and extend them. All of our people regardless of their jobs, can make important contributions to our company.
- We Do What We Promise
Our fellow employees and customers expect us to meet our commitments—they will not excuse us for giving less. We will always attempt to promise only which we realistically can do, and do what we promise. People must always feel that they can rely upon our word.
- We Strive to Maintain a Spirit of Teamwork
Throughout our organization we capitalize on the advantages of working together as partners in an informal manner. Although specific responsibilities are assigned to individuals in various functions of our business, we act as a team of partners. Combined efforts which help any part of our organization serve to strengthen our entire organization.
Every person should feel free to discuss matters with anyone else in our company. However, this informality does not relieve anyone of the obligation to respect lines of authority. Rather, it reflects mutual confidence in the good faith and sound judgment of our associates.
- We Delegate Responsibility To Our People
The principle of broad delegation of responsibility, subject to review with others when appropriate, is applied to all our people. We assign our people to jobs when we have confidence in their judgment and ability to assume the responsibilities involved. Once on a job we give them reasonable freedom to carry out their assignments.
- Good Performance Is Our Only Guarantee of Job Security
Good performance is the guarantee of security for Mark Controls as a corporation. Similarly, good performance by all employees must be ensured so that all of our people can share in the resulting personal satisfactions, monetary rewards, and long-term security.
Good Mark Controls performance requires that each position be staffed with qualified people who achieve good results, who really care, and who are willing to pay the price in effort. While we provide opportunity for people to grow with the company, it is up to the individual to take advantage of the opportunities. We are not committed to job guarantees for those who are not carrying their load.
- We Conduct Frequent Evaluations With Each Person
Our supervisors are expected to make day-to-day and week-to-week evaluations of each person’s performance which enables us to arrive at mutual understanding and agreement about goals, past performance and the steps necessary to improve the individual’s future contributions. It is essential that these evaluations be communicated candidly and constructively to each person.
- We Try to Promote From Within
We can expect to be a first-rate company only if we are staffed with first-rate people. We strive to fill each position with the most qualified person available. We fill all positions from within our ranks whenever we believe that a present employee can perform the duties of a more responsible position. We fill a vacancy from the outside only when the outside candidate has markedly better experience or development potential than an inside candidate. All other considerations being equal, or nearly equal, we greatly prefer to promote from within.
We Encourage Participation And Suggestions
We invite help and encourage suggestions in solving problems. Before implementing a plan for improvement, we seek the ideas of the people directly involved, knowing that their participation will improve the plan and result in a greater interest in carrying it out. We carefully consider any suggestion that might be of value. If we adopt a suggestion, we give full credit; if we cannot adopt it, we explain the reasons.
- We Pay Our People Fairly
We maintain pay scales and benefit programs that compare favorably with local community practices. For all employees we do thorough research of competitive pay practices on a regular basis to ensure our employees are paid at appropriate levels for their position and geographic area. For non-union represented employees we normally review local pay scales at least once a year and make appropriate adjustments in pay ranges and individual rates when warranted. Labor union agreements govern rates of pay for those represented by unions.
Our compensation includes much more than salary alone. When considering pay ranges and negotiating wage agreements, we give due weight to benefits. These benefits, which increase our financial protection and security, are part of the total compensation paid for by our company.
- We Insist Upon Integrity In Our People
We try to represent our company honestly to employees and expect honesty in return. We expect honesty from them in their handling of the substantial amounts of equipment, money, materials, and other property with which they are entrusted.
We expect honesty in intangible things as well—in time, effort, and full value of the jobs we perform, in fair play in dealing with others and in the acknowledgment of mistakes or other shortcomings. For our company to be known for its integrity, each one of us must meet high standards.
- We Produce Products And Operate Plants Which Are Safe
Nothing is of greater concern to us than to avoid serious injury to our people and the general public. In the design, construction, operation, and maintenance of our products, equipment and facilities, safety is a primary concern.
We encourage participation in safety awareness activities. We are all committed to fostering safe practices in all our work. By meeting safety standards, we will be contributing to the well being of our people, our company and the communities we serve.
- We Treat Our People Fairly And Without Favoritism
We recognize employees as individuals with different interests, abilities, needs, and values. We attempt to accommodate and satisfy these individual needs while treating the group as a whole on a fair, equal basis. We believe that impartial, fair treatment of people is a keystone of our management practices and is essential to making Mark Controls a good place to work.
- We Do Our Best To Give Every Employee Complaint Prompt, Sincere Attention
Even little misunderstandings, if overlooked or neglected, may lead to great dissatisfaction. We establish methods for each employee to be heard. We try to anticipate and remove causes of legitimate complaints. Where a question exists, we give the employee the benefit of the doubt. When we reach a decision, we do our best to follow-up and take action that is just, both to the employee and the company.
- We Try To Keep Employees Informed About Company Activities And Plans Which May Affect Them Or Their Work
A well-informed person performs more efficiently and avoids misunderstanding of objectives. Our face-to-face, written and other communications are to help inform our people and their families, give public recognition to employee achievements and encourage teamwork and cooperation.
- We Encourage Employees To Participate In MCC Ownership
We encourage membership in the MCC Stock Purchase Plan. Our company pays the expenses and a portion of the stock purchase price which gives members of the MCC Stock Purchase Plan a stake in the financial success of the company.
Interview with Gary MacDougal, the Chairman and CEO
"This is my first time ever attempt to describe my job as CEO. Starting with a blank piece of paper, I have defined the job as I see it from the past eleven years' experience.
"The CEO job requires a blend of knowledge about the industry and of management principles. As much as 80-85% of this knowledge is transferable from our company to another. Keep in mind, though, that the job of the CEO changes with the size of the company and its stage of development. For example, as a company grows, more structure is inevitable, or the emphasis will be different in a turnaround situation versus a mature company. In the latter, expect more structure, more planning, and less firefighting.
"I have identified four important elements in my job: leadership style and coaching of other managers, developing a strategy, establishing an appropriate framework or structure, and selective problem solving. They are not in order of importance. All are important.
"In my leadership/coaching role, I have several objectives. I want to create an entrepreneurial feeling in other managers. Let them manage. You can be a coach, but not the guy who sends in the plays. Next, I want to establish a common set of values. The customer is the reason we are together and service to him is uppermost. At the same time, timidity in raising prices is usually wrong and should not be confused with customer service.
"Another of my objectives is to establish the organization as a partnership, a paritcipative environment. The other managers get their cues from my style, my habits, my expectations. Our offices are modest. I share a secretary with three other officers. There are no reserved parking spaces. If you are the first one in, you take the first space. Everyone is on a first-name basis. Titles are minimized inside and are used mainly for outside contact with customers. If you want to see someone, you go to his office rather than asking him to come to yours. Desks are not thrones and we try to have conversations out from behind the desks. Written communications are usually short, handwritten, informal, and minus company jargon.
"We are extremely cost conscious. It is known that I take paper clips off documents which are going into the waste and reuse them. Everyone flies coach and stays in a minimum single room when traveling. The one place we don’t economize is on management bonuses. When earnings are good, we reward outstanding individual performance with generous cash and stock bonuses.
"We try to be ‘on time’ with everything—meetings, reports, customer inquiries, deliveries, whatever.
"About half my time is spent as the Chief Personnel or Human Relations Officer. We consciously struggle to open upward communication. The principle of multiple channels means that each employee has at least two people he can talk to. Senior executives stay in touch with people at all levels with frequent, direct contact, but no directions are given to anyone outside normal reporting relationships.
"This little booklet on People Policies was written by me over a weekend, and edited by a broad group of our managers at a management conference. It is modified by our partners periodically. The wording has been changed several times. It’s posted everywhere throughout all our locations and applies at all levels.
"Periodically, we conduct attitude surveys. Our purpose is to spot weak supervisors at lower levels who need our help. For examples, the survey told us we had a problem in a small, remote operation of twenty people before the line managers picked it up.
Interview with Gary MacDougal, the Chairman and CEO (Part 2)
"Once a year, we require that each senior officer of the company (fifteen of us) be evaluated for his managerial and problem-solving abilities by his subordinates. The evaluations are in writing, but are processed in a way to preserve anonymity. We are not a democracy, controlled by votes, but we can oftentimes get some valuable insights from these reviews.
"All of the senior managers maintain their links to fast-track middle managers. We discuss the development of these people frequently, and I personally review the work of men and women whom we think are headed for top management.
"I take a strong role in recruiting managers for growth. My principal task is to sell the prospect, rather than exercise a veto.
"Although we now employ about 5,000 people, I insist on reading the exit interviews for everyone who decides to leave us. This may be the most objective information we can ever get about the company, and it’s a good influence on the manager to know my concern over losing an employee.
"To be effective as the Chief Personnel Officer, you must really like people, have respect for the little guy even in private, be convinced there are no ‘jerks’, only people in wrong jobs.
"It is my responsibility to communicate a code of ethics for the organization: always tell the customer the truth no matter how much it hurts; cut no corners on products; harbor no ‘friends’ with special deals, as suppliers; send back Christmas gifts no matter how modest; insist on immediate termination for lying or dishonesty, but be understanding of other kinds of weaknesses. Failures can be confronted without emotion.
"I try to set an example for being responsive, always available and accessible. When away from the office, I call in at least once a day. I also have a rule that any time an urgent matter comes to my desk, it gets attention within 48 hours.
"There is a time for family priorities. We never work on weekends unless there is an emergency. When a family is moving or some one is seriously ill, we expect the employee to put his family first. However, we do expect people to travel during non-work hours.
"We constantly stress the need for a scale of priorities. The organization must understand why I select certain things for my attention. One of the keys to good management is recognizing that what you choose to work at is more important even than how hard you work.
"Our attitude toward failure is that we are looking for good batting averages, not perfect records. There can be no real growth for the company or its people unless we accept the possibility of failure. I talk frequently about my own mistakes in order to remind people that we all make them, and reduce their own fear of making them.
Interview with Gary MacDougal, the Chairman and CEO (Part 3)
"Whether representing the company to the shareholders in the Annual Report, or to the financial analysts, or to the media, we want them to see all the employees, including the Board, as partners. Being a partner is one of the rewards of working here. A little thing, but the CEO’s picture doesn’t appear up front in the Annual Report.
"This is enough for now on the leadership style/coaching task. Let’s talk next about establishing a framework or structure. Our aspiration is to be less bureaucratic than any company that ever moved into Fortune’s 500. At corporate, we want to do nothing more than to support the entrepreneurs who are opening up new opportunities for the company. All of our managers have a copy of this schedule of meetings and reviews in front of them. (See Exhibit II.)
"This ‘Corporate Communication Structure’ may seem pretty involved at first glance, but be reminded it covers an entire year. Our Annual Business Plan includes a description of our market strategy and plan, market share, the niches we propose to fill, and the programs for implementing; also one-year financial projections with all the assumptions identified. Management is pretty good at one-year plans; less adept when we try to stretch to two years. We never go out beyond three years. Frankly, our confidence level starts slipping fast when we get beyond one year.
"Monthly I write a three- or four-page report for the Board, which includes numbers, analyzing how we are performing against plan. All officers are required to send me a similar report. The discipline of a monthly review is good for all of us, though we are careful not to overreact to new information when it first comes in.
"Each manager at Mark Controls has a set of goals which he or she has written on one page. The statement is limited to six or eight items, the three most important listed at the top, all quantified, if possible. This becomes a contract between the manager and the company. Exhibit II describes the periodic review process of these individual goals.
"We are strong proponents of what we call ‘split-offs.’ As soon as an activity is big enough to afford the necessary managers, we separate it from the existing organization and give it to a general manager. The activity must be small enough for one manager to get his arms around. For example, we have done it for international operations, for a promising product line, and for a service such as the repair of valves.
"Corporate staff is kept to an absolute minimum. There are only general managers and the financial function. There is not lawyer and no corporate personnel function. The chairman, the president, and the group vice president are all an extension of the chief executive officer function, with help on planning and acquisitions from a ‘youngster’ who is in training for bigger things. Our objective is to let the managers manage, and provide them with staff at the operating unit level, but even then not large.
"My test for keeping controls under control is to ask myself, ‘If I owned the business, what would I have?’ On capital spending, a unit head can plan and approve up to $30,000, I can approve up to $200,000, and anything larger must go to the Board. We rarely present more that two proposals to a board meeting. We routinely audit capital expenditures. I must approve any contract which will represent 15% or more of an operating unit’s sales. Two levels of management must approve a hiring or promotion. Pay increases for those managers at $35,000 or above must be approved by me, as must any increase of 14% or more. Other significant control mechanisms are quarterly management meetings and the frequent ‘people’ audits and development reviews.
Interview with Gary MacDougal, the Chairman and CEO (Part 4)
"Liberal rewards make up a big element in our structure. Incentive plans must be a meaningful percent of base salaries in order to be effective. They are tied to the business plan and personal goals, both quantified and non-quantified. Our stock options are distributed more broadly and in larger numbers than you will find in most companies. 12% of our outstanding stock is reserved for options, a much higher level than the norm, but in my opinion, a powerful motivator. Our philosophy on base pay and fringes is that we be competitive, neither leading nor lagging the market. The big rewards will be from options. Personal recognition is another kind of reward. Mention of special achievements in the company newspaper, selection as the ‘employee of the month’ for a unit, we encourage all of these kinds of things.
"The development of people at Mark Controls must be a structured activity. In general, we want to introduce people at the bottom of the organization and bring them along rather than go outside to fill senior positions. We consciously plan corporate visibility for individuals of high promise. The frequent reviews of individual goals and plans are a reminder that we must give each employee a chance to grow on the job.
"Turning now to another of the four tasks of the CEO, we can call this strategy development. I am sure you have read the statement in the Annual Report, and let me go from there. As best we can, we evaluate the most powerful economic forces at work. The best opportunites are highly visible and we don’t believe in bucking the tide. When we assess the opportunities in energy conservation, for example, Mark Controls has many resources to work with. We are well aware the others will be attracted to the field if they are not already involved, and try to decide whether we can be a product leader despite the competition.
"A good question to ask ourselves is, ‘What else do our present customers buy which we could supply?’ We look for fields with flexibility so that there are lots of ways to go in case economic forces change. Another good question: ‘What do we know how to do that we could do with other groups of customers we don’t have now?’ We search for niches which are not being adequately served and market share is not controlling in our analysis.
"Our rule of thumb on acquisitions is that it must be of meaningful size. 20% of sales or earnings is about the smallest we want to consider. In ten years we have acquired four companies and sold off three. We make sparing use of stock in these transactions. We are not attracted to glamour businesses. Over time, the glamour always fades. We look for a company selling for less than book value and performing below average. A fixer-upper finds it easier to go from below average to average than to go from good to excellent.
"How do we develop a strategy? It’s a job for the CEO and the other top managers plus the corporate development assistant. The operating units must develop their own strategies. The corporate strategy and the unit plans must fit. The general managers can’t wait for a corporate staff to tell them what to do.
"The final role I call ‘highly selective problem solving.’ My commitments must be arranged so that I am free to become a resource for the profit center managers. They must deal with most of their problems, but I like to think I can help on certain ones. A marketing or pricing problem; a potential wage law or union problem in one of the operations; major recruiting requirements—whatever—I become staff to the manager facing the problem. Hopefully, they will call me rather than my calling them. As Chairman, I should be able to marshal resources not available to them. Corporate officers must demonstrate ability and leadership, convince the organization they are more than paper-pushers, and ask good questions. This involvement should probably be reserved for important issues, not just some pet project. As soon as my usefulness is ended, I back out and the manager continues on his own.
"Well, let’s see. I have rambled over lots of details, but let me try to summarize what I have covered. My job is to be a catalyst in picking good strategic direction, and articulating it broadly and deeply; to ensure that we have good people and that they are working well together; to feed plenty of raw meat to these managers—more than they can handle; to provide some structure, but little more than they could afford or want if they were independent entrepreneurs; to provide rewards as close as possible to those in independent entrepreneurs; and then just sit back and watch the action.”