Passing On Pride of Craft
Chicago’s steel-making Finkls
Howard Muson, one of my editors at Across the Board, left that job to start up a journal about family businesses. We agreed on a piece that would profile A. Finkl & Sons, a fourth-generation firm in Chicago. The firm has since left Chicago, the 50-acre site of its plant to be rebuilt as a $5 billion city-within-the-city.
A fourth-generation firm in Chicago, A. Finkl & Sons is a steel mini-mill that melts, forges, heat-treats, and machines customized steel pinion shafts, gear blanks, hammer rams, reamer bodies, and similar industrial arcana for oil drillers, die makers, plastics molders, and artists.
Yes. One of Finkl's customers is the noted New York City sculptor Richard Serra, whose monumental steel sculptures often weigh as much as 35 to 40 tons. Serra is finicky about his steel, and he lists Finkl among the few U.S. firms that can match what the best of today's German and Japanese mills can do. Most steel customers have their orders forged to rough dimensions and then mill them to more precise shapes; Serra demands that the maker forge to within a millimeter. Making fine sculpture with a forge's hammer is like doing fine cabinetry with a broad ax. You have to be pretty good with the tool to pull it off.
Finkl's reputation is out of proportion to its small size—$56 million in sales in 1991. It is the world's largest supplier of die and mold steel, and owns some 100 patents for its innovations in making and shaping steel. Its most impressive accomplishment, however, may be simply having survived; the U.S. forging industry lost a third of its firms in the 1980s, many of them smaller family-owned companies.
For 113 years A. Finkl & Sons has maintained what it calls "a low profile" in Chicago. It was founded in 1879 by Anton Finkl, a seventh-generation blacksmith from Bavaria. He was a skilled tradesman but as the youngest son stood no chance of inheriting the family shop, so he went to America.
The current chairman is 72-year-old Charles W. "Chuck" Finkl, great-grandson of the founder. He is the fourth of his family to head the firm, and one of 10 Finkls who have worked there over the years. The latest is Chuck's son, James, who has worked in personnel and new product sales since coming aboard full time in 1985.
The Finkls don't just sign the checks. Anton's grandson William, Chuck's father, graduated from the prestigious Illinois Institute of Technology as an engineer. He apprenticed with steelmakers in Ohio and Michigan, where he perfected new alloys for the auto industry. Chuck was trained as a mechanical engineer at Northwestern University as well as IIT, and like his father apprenticed in the outside world (working in carburetor, aircraft, and automobile companies) before being called back home.
A member of 10 engineering and metals industry associations, Chuck Finkl in particular has been an innovator in his field. Among the achievements of his administration was the perfection of the vacuum arc method of de-gassing molten steel. This radically new process virtually eliminated the contaminating gases that contribute to flaking and other problems in finished alloys, and is today used under license by firms around the world.
That kind of inventiveness doesn't always lead to new products and processes. Talk to any Finkl executive and they will explain that the firm's smallish size and its family heritage of craft—plus the absence of stockholders looking over the shoulders of managers eager to try out new ideas—are why the firm has survived and thrived.
Company managers learned that lesson in a difficult way in the 1970s. Innovation is easier for most big firms to buy than to create, and Finkl & Sons was bought by giant Republic Steel in 1969 and run as a subsidiary. The sale gave Republic access to "the Finkl touch" in specialty steel-making; it gave Finkl a valuable lesson in why bigger is not always better.
The decision to sell was a reluctant one, and the motive would be familiar to many family businesses. Explains Chuck: In 1969 William Finkl, who served as president or chairman for 51 years ending in 1984, owned the bulk of the business himself. According to his son Chuck, William knew he couldn't generate enough cash for the inheritance tax, and he wanted to avoid a panic sale that would force the family to jeopardize control of the business.
Republic, for which Finkl had done some research, agreed to take on the firm as a wholly owned subsidiary through a tax-free exchange of stock. Chuck Finkl still ran the plant—sort of. "We couldn't get the money for the things we wanted to do. Everything was based on ROI—return on investment. With that logic, you could never make a major improvement to a steel mill. It became impossible to do business efficiently."
In 1974 Republic faced cash problems of its own. As Chuck recalls, "We found out by accident that we were for sale. We were delighted. The next day I got on an airplane and flew to see the president of the company," Chuck says. "I made him an offer and he threw me out of his office. I went back and made another offer and he threw me out again. He wanted book value or nothing." Desperate, Chuck, his brother, and several fellow senior managers put together what must have b one of the first leveraged buyouts.
Timing was on Chuck's side. The notoriously boom-or-bust steel business began booming the very next year. "They say you need to be smart or lucky," Chuck says, "and we got lucky." He and his co-owners were able to get free of the debt they incurred for the buyout, and the company has remained debt-free ever since. As an independent company, says Chuck, "we don't have to meet bottom-line requirements because of decisions made by managers who may not have the best interests of the company in mind."
The risky buyout also had an unintended benefit: Because Chuck and his brother in effect bought the company from their father, using Republic as the middleman, they rendered moot any inheritance taxes that would have otherwise been owed on the transfer. "That's the only way we made it to a fourth generation as a family firm," Chuck muses.
Nearly all of the firm's 470 employees work out of a two-dozen building complex on the North Branch of the Chicago River. A 1990s steel forger is a wonderful blend of alchemist and demolition crew. Finkl's plant includes instruments that deal with steel one molecule at a time—scanning electron microscopes and mass spectrometers—and machines of brute power, like the 6,000-ton hydraulic press that can hammer red-hot ingots 10 feet in diameter and weighing up to 85 tons ("Like a taffy pull," says a Finkl hand).
Making steel is an inescapably dirty business, but Finkl has long prided itself on running a clean shop. In the 1950s the company devised an innovative forced-air system to capture heavy metals emissions that stream off ladles of molten steel. More recently, Finkl & Sons pioneered the use of pulse-fired gas furnaces that cut emissions by 75 percent.
To Finkl, environmentalism is merely long-term production efficiency in another guise. That makes it hard to distinguish from old-fashioned German thrift of the sort inculcated by the firm's founder. Says one Finkl exec, "Chuck never lets us forget that we're spending his money." While old-style family firms can be as negligent about spending money as they are smart about saving it, Finkl & Sons has kept up spending for new equipment and expanded marketing in spite of the recession.
The Finkl plant uses scrap metals to feed its melt shop, for example, and the working heart of the firm's mammoth computer-controlled 6,000-ton press was recycled from a machine made in Sheffield, England, in 1907. And various innovations at the Chicago plant have reduced the energy input required to produce a ton of steel by more than one-third—a savings that will seem prescient if the Clinton administration's proposed energy tax is approved.
Money isn't all that's saved by fuel efficiency. Steelmaking burns a lot of fossil fuels, and that produces carbon dioxide, the chief contributor to what appears to be global warming. As Robert Ladevitch, Finkl's director of energy and planning, explains, "We burn a lot of natural gas, and we wanted to do something about what we put into the atmosphere."
Trees, which are each thought to absorb perhaps 40 pounds of atmospheric CO2 during their lifetimes, are being cut down faster than they can be planted. The solution is to plant more trees. A lot more trees. Ladevitch figured that it would take something like 2 million trees, living from 80 to 100 years, to offset Finkl's C02 emissions. He contacted various state programs that provide tree seedlings used for windbreaks, for erosion control, and to replant public forests and natural areas.
The result was Finkl's "Forging a Fresher America" program and a National Arbor Day Award in 1991. To date, Finkl has helped plant 300,000 pines in state forests in northern Wisconsin, while in Illinois Finkl is buying 100,000 seedlings a year that are planted at state parks and natural areas. "It's so easy," says Ladevitch. "All you do is write a check."
The tree-planting was Chuck's idea. Unlike many a successful man of business, the chairman did not take up environmentalism when pollution threatened his hobbies. (Finkl's interests run more toward race cars than fly fishing.) During his presidency the firm combined clean-air technologies to achieve standard-setting pre-EPA emission reductions from its furnaces, and pioneered in-plant noise reduction programs.
Finkl & Sons' environmentalism rises from an engineer's desire for efficiency and an individual's sense of civic duty. Like his father, Chuck is a bit of a corporate do-gooder. About his motivation, he says only, "It's just that we care." They also act. News reports about atmospheric pollution caused Chuck to wonder how much of the world's C02 was coming out of Finkl smokestacks. The answer turned out to be a disconcertingly large 30,000 tons a year. "Our furnaces were already probably the most efficient in the world, so we couldn't lower emissions any more that way," Chuck says. "You can't convert C02 with machinery, at least not affordably. But trees are a pretty good converter."
Usually when a CEO starts talking about trees the stockholders start talking about bringing in a younger man. But as a closely held firm, Finkl & Sons enjoys the freedom to indulge in what more bureaucratic corporations would regard as eccentricities. As far as Finkl is concerned, planting trees to eat up the C02 that the plant produces is just another way of running a clean shop.
Finkl's tree-planting is just one way in which old-fashioned qualities suddenly make the company very new-fashioned. "Family business" refers to an operating style as well as a form of ownership. Says artist Serra, "They treat people as extended family members. They don't make distinctions between a cottage industry customer like me and a big corporation." Says an admirer who has done business with them, "They have good priorities, a good sense of themselves and their company. They want to do things that are different and want to do them well."
Finkl & Sons is now seeking business in Asia, Latin America, and the European community. The firm hopes soon to be doing as much as 25 percent of its business with international customers, and is investing in overseas infrastructure to do it, in spite of the recession. As Anton Finkl knew, you sometimes have to look abroad for opportunity.
Asked whether Anton's values are still relevant in today's business climate, Chuck says, "We think they are. Quality is always important. Also, we're conscious of our responsibility to our employees as well as the people who own the company. The proof is that we have the sons of some of our people working here, and in another 20 years we may have their grandsons. You never know."
Finkl & Sons has had great success in raising family members who have had the desire and obtained the education to become steelmakers. Each generation apprenticed at Finkl and at outside firms. However, the latest newcomers have not had the same technical interests, and in the early 1980s Finkl was faced with a choice between installing a bona fide steelmaker or a Finkl in the president's chair. The firm chose a steelmaker. Its last two presidents, beginning in 1983, have been non-Finkls—one a 30-year veteran of Bethlehem Steel, the other a highly regarded young engineer and inventor from U.S. Steel. In this way the Finkls have avoided the stagnation that often stifles inbred family firms. Finkl & Sons sees itself as a steel-making family firm rather than a family steelmaking firm.
"My son and I are the only ones left," Chuck says of the diminished Finkl presence at the firm. Like Chuck and his brother Bud, who used to work in the family shops while going to school. Chuck's son has put in 10 years at various posts at the plant. The younger Finkl also has been exploring outside opportunities, although he will be returning to the fold shortly. "Kids have to do their own thing," says the elder Finkl.
In the meantime, Finkl & Sons has devised a new way to raise promising generations of steelmakers, using its contacts at such institutions as the Colorado School of Mining and IIT. "We find out who the best kids are," Chuck explains, "give them a chance to grow with us, and train them to our way of business." Thus even if Finkl & Sons does not continue as a family business in terms of Finkl ownership it will continue in terms of Finkl values. Says Chuck with apparent pride, "Our president says he'll keep this place alive another 100 years." ■