Although seeking outside advice goes against the entrepreneurial grain, Amtrol has flourished in a troubled industry by drawing on expertise only its directors were able to provide.
In the second-floor boardroom of Amtrol Inc. on this December morning, Chester H. Kirk, founder, chairman, and chief executive officer, is sitting at the head of a large conference table, surrounded by his management team and the company's four outside directors. They have gathered at the headquarters of the privately owned manufacturing company, in West Warwick, R.I., for Amtrol's final meeting of directors for 1982. Scattered on the table before them, between the coffee cups, are budgets and projections for the next 12 months and through 1985. But today, not unexpectedly, many of the people seated around Kirk reserve their closest scrutiny for the company's actual performance in the midst of a sagging economy.
As a maker of plumbing, heating, and water-system equipment, Amtrol's fortunes have always risen and declined with the health of the housing and construction industries. As a result, nobody is a bit surprised to see the revenues of the 36-year-old company slump from $62.1 million in 1981 to about $56 million in 1982. For many of its competitors, the long, deep recession has brought both contraction and failure. But even though Amtrol's sales have shrunk, the company has never been healthier. Net profits are soaring past the $2 million mark for the first time. There is no need for any new debt -- indeed, there is an unprecedented problem of what to do with a growing pile of cash. And, in most product areas, market share has continued upward, even after 1981 price increases.
Results like these during 1982 would hardly have been possible if Amtrol hadn't seized some major opportunities to pare costs and ensure profits even before the recession hit. Its strategy over the previous two years had included eliminating product lines that weren't meeting profit goals, consolidating manufacturing plants, and thinning the ranks of salaried personnel. Amtrol also adjusted its prices for inflation. And while the steps themselves may not have been all that unusual for a well-managed company to take, the inspiration behind many of them certainly was.
As signs of a sputtering economy began to appear in 1980, Kirk and Amtrol's other top executives, in a practice familiar to them but rare among most privately owned companies, had listened carefully to criticisms by outside directors about Amtrol's weaknesses and excesses and had acted upon them. Many of the directors ideas, in fact, had been advanced at board meetings in this very room more than two years earlier.
Amtrol's board has long played an influential role in helping management set the overall direction of the business, unlike the boards at most private companies and esspecially at businesses still run by the founders. At such companies, in fact, the idea of an outside board challenges the very independence many entrepreneurs cherish. "Entrepreneurs are used to taking all sorts of risks, but about 95% resist the idea of a board," says C. Roland Christensen, a professor at Harvard Business School who has studied companies and their boards for 30 years. Although this resistance may be strong, Christensen says, "the return on investment for managers can be tremendous. Outside directors are the most underappreciated and underutilized asset available to any business."
It was exactly such a respect for outside views that seemed to come naturally to Chester Kirk. Founding his business in 1946, at age 29, Kirk began very early to bounce business ideas off top Amtrol executives, as he weighed decisions, particularly in areas other than product development and marketing, his own strong points. He tested his gut feelings on people whose opinions he respected.
Operating first under the name American Tube Products Inc. and then American Tube & Controls Inc. (the name of the company was changed to Amtrol Inc. in 1973), Kirk -- an engineering graduate of the University of Rhode Island -- and a few associates had worked untiringly during the 1950s and '60s trying to establish a market for what, in effect, was the company's sole product: a technologically advanced water tank designed by Kirk to work with home heating systems that used hot water. The company was competing in a rough-and-tumble market that was saturated with dozens of outdated but accepted tank designs.
By the late 1950s, Amtrol had made inroads in selling plumbing and heating equipment to wholesalers with its tank, built around a flexible diaphragm to maintain heating-system pressure and thus boost efficiency and durability. Within a few years, moreover, a prolonged campaign to win large orders from big homebuilder manufacturers would start to pay off. Meanwhile the company was beginning to exploit promising markets in Western Europe.
To allow himself as much time as possible in the areas he enjoyed most, Kirk handed responsibility for manufacturing and operations to his brother, Ken, and relied on another younger associate, Al D'Amico, to take charge of finance. "From the very start," says Kirk, "my idea hadn't been to build a reputation but to make some money.
Amtrol's financial worries were increasing, just as the business started to see its first real market successes against scores of old-style tank makers. As sales of its heating-system products propelled revenues from $4.4 million in 1964 to more than $9 million in 1969, the company was using its retained earnings and all the credit it could lay its hands on to add new manufacturing facilities in Texas, Tennessee, and Europe. The need for more capital back in the early 1950s had driven Kirk to take on a partner (although not as an active member of the management team). But now, as Amtrol attempted to expand and diversify into two new tank-based products -- one, a derivation of the first tank for use in residential water well systems, and the other, a cylinder for storage and distribution of refrigerant gases -- there were renewed strains on the company's finances. Finding the money to support these activities was becoming a major headache.
The problems didn't end with money, either. Many of the time-worn ways of doing things were no longer working. In the old days for instance, with only a single basic product to build and promote, it was easy for Kirk to communicate ideas and objectives about marketing by chatting casually with a few people or calling an impromptu meeting. "Communication took place on a daily basis," says D'Amico, now 51, who is Amtrol's chief financial officer. But as growth exploded and new products were integrated into Amtrol's lineup, along with the personnel to support them, the informal system began to burst at the seams. Without a written company plan to follow, the signals Kirk and other top management sent out didn't always reach the ranks. For example, notes D'Amico, sales and marketing personnel would continue to place priority on the established products they were used to selling instead of redirecting corporate resources to the newer ones.
