Rea Magnet Wire’s owners have built a thriving operation.
The Fort Wayne-based company’s annual revenue has grown to more than $1 billion – 10 times what it was when Jim Vann, Bill Gorman, Ron Foster and Bill Wyatt acquired Rea in 1986.
But they know that isn’t enough.
To achieve long-term success, the owners need to craft a company that can flourish without them.
In the shorter-term, they need to set strategic goals while maintaining profitability in an unpredictable economy. That desire has prompted management to push a pay scale that’s unpopular with some workers.
Rea makes magnet wire insulated with copper, aluminum and brass. Every item with a motor contains magnet wire. Household examples include refrigerators, washers, dryers, dishwashers, vacuums, hair dryers, microwaves, alarm clocks, air conditioners and TVs.
Despite the company’s long-term growth, it hasn’t been immune to economic ups and downs. During the tough times, workers and managers have sometimes gone without raises.
The greater objective has been not to lay off workers, but that’s not always possible, Vann said. The board has to consider the financial health of the organization, which can’t afford to pay people not to work. Taking losses puts the company and other employees at risk, he said.
In 2011, Rea management negotiated a two-tier wage structure to hold down payroll. Numerous other manufacturers in recent years have pushed similar concessions on unionized employees, who typically fight the disparity in pay.
Bob Hardy, president of IUE-CWA 84963, sees two-tier wages as a major problem in the plant because it creates two classes of workers. People are working side-by-side with the same basic duties, but some are paid several dollars less per hour if they were hired after the current contract was ratified, he said.
Hardy represents about 155 hourly Rea workers in Fort Wayne. About 15 workers are paid according to the second-tier scale.
Vann, who said he’d prefer to have all Rea workers on the same pay scale, sympathizes with union members.
I understand why they’re not crazy about it. It is contentious, the chairman said. We do it to remain competitive.
CEO Scott Harrison said the second tier’s lower wages allow Rea to hire more quickly as orders increase. Some of the jobs wouldn’t have been created without those payroll savings, he said.
Hourly workers haven’t made all the sacrifices over the past three decades, Vann said. Board members have lowered or eliminated their dividends at times to keep experienced, trusted workers on the payroll.
And management has worked hard during those times to win new orders to get people back to work, he said.
One of the issues that drove the owners to acquire the company in a 1986 leveraged buyout led by Vann was the desire to keep jobs in Fort Wayne, he said. That’s also true with Rea’s acquisition of Phelps Dodge, which doubled the company’s size in 2006, he said.
Employee-related issues aren’t the owners’ only concerns, however.
Building the next-generation of leaders is one of Rea’s four strategic initiatives. Vann, company chairman and oldest of the group, celebrated his 85th birthday in January.
The board accomplished an important step in succession planning late last year when Harrison, who will turn 49 next month, was hired as president and CEO.
Rea’s owners, who are all board members, are carefully planning their transition out of the company.
Sherry Connolly, Vann’s daughter, has been attending board meetings for almost two years. She’s married to Mike Connolly, Rea vice president and chief marketing officer.
Sherry Connolly is Vann’s designated successor to the board of directors but probably isn’t destined to fill his role as chairman. That’s despite the fact that the Vann family owns 51 percent of the company.
The board elects its chair, so Vann doubts that his daughter would be chosen over someone with a strong history in the industry or a financial background.
Vann, who said there’s no timeline for his retirement, plans to remain on the board as long as he can.
The majority of Rea’s board members are outside directors, which isn’t required or common for a private company, Vann said. Each of those five was selected for a particular expertise the manufacturer needed.
The four original shareholders are still on the board but are less and less active in the business, Vann said. They rely more on the outside directors, who meet separately before the full monthly board meeting.
Rea’s board has adopted a five-year strategic plan that, in addition to dealing with succession, calls for:
More diversity in its products, allowing it to diversify its customer base while using workers’ knowledge and skills of rolling and insulating wire.
Growth though joint ventures in the U.S. Rea’s leaders want to pursue only those deals that require their expertise – not just their money – and offer a controlling interest.
International growth – primarily in China – that doesn’t call for a controlling interest. The company is looking in Brazil, Argentina and India for more joint ventures. Executives want to limit risk in international joint ventures because they aren’t experts on the local culture and government regulations.
Instead, Rea’s management has positioned itself as experts on fostering trust, transparency and teamwork. Vann considers them the three T’s for business success.
Rea’s leaders have placed trusted employees in key positions. Both the company and its employees are asked to be honest and open – that’s the transparency piece. And effective teamwork is the core ingredient for an organization to reach its potential.
Even so, Hardy, the union leader, wishes that middle managers communicated more openly with Rea’s workers. That’s a concern that Vann plans to follow up on.
Harrison, the CEO, said transparency is an ongoing challenge.
Communication is always a job you’re not done with, he said.
Vann acknowledges that his company’s management is imperfect.
We have had occasions when we did not walk our talk, he said this year in a speech to an industry group. And in every instance, we paid a price and had to go back and reinforce these principles in our company.
Vann told The Journal Gazette that production has suffered when managers aren’t on board with various policies, including the company’s strict safety protocol.
Other times, managers haven’t been transparent with workers, creating trust problems.
We’ve had to replace people in management who weren’t trusted by the people who worked for them and by other supervisors, he said. It affects the bottom line.
Rea’s strategy seems to be paying off.
Power Partners and GE – two major customers – this year recognized Rea for outstanding performance.
GE Energy Management presented awards this year to just the top five of its 22,000 suppliers. GE Energy uses Rea magnet wire in generators, motors, transformers and electrical components.
Harrison said that even after nine months in the CEO seat, he brings an outsider’s perspective to the organization. He appreciates that the privately held business can make decisions based on long-term success.
The executive chose to pursue his career at the manufacturer because he liked its culture and commitment to the city.
There’s a lot that would attract somebody like me to a company like Rea, he said. It’s a real treasure for Fort Wayne.