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Interview with: Edward W. Kelley, Jr and Allie Mae Autry Kelley
Interviewed by: Charlotte Peltier and Louis Marchifava
Date: October 24, 1975
Archive Number: OH 089
I1: 00:11 Interview with Edward W. Kelley, Jr. and Mrs. Kelley, October 24, 1975. Perhaps to begin the interview, we would like to find out about your personal backgrounds and how you became involved with Kelley Manufacturing. So, if we'll start with Mrs. Kelley and find out some information about your background, with your husband into the business.
MK: When we came back to Houston from Oregon in 1938, not knowing whether we were going to stay in Houston or go someplace else, but my husband was so fascinated with the business possibilities in Houston that he wanted to stay here. So he started looking around for something to get into, and one of the bankers, shall I say who?
MK: —Mr. Farrow, the Union National Bank knew about the Tennison Manufacturing Company. Mr. Tennison had died, I don't know how much before, but he left it in his will that his widow was not to keep it. It was to be sold. So The First National Bank was running it until they found a buyer. And Ed decided to go into it. It was at that time, what just buckets and tubs and flashing and that sort of thing—a small place on Franklin, I think the building is still there, I don't know what's in it now, but we stayed there for 2 or 3 years and then Ed built the new plant, which was new. It's an old plant now on the Bayou, and I'm not sure of the date.
EK: 01:53 That was 1940.
MK: 1940—just before we went away in the war.
MK: 02:01 Then he was called back into the service, and we were gone for—he was gone for 2-1/2 years. And the company did—war work at the time while he was gone. And then he died in 1946.
EK: So he actually only ran the Company for maybe a year and a half before he went into the service, and then what—6 or 8 months after he got back.
MK: Yes. After he came back he was not well, and he didn't do very much, so the people that were running it then, just—kind of—it kept on going on its own momentum.
I1: I see. Did he just take on the staff of the Tennison Company, more or less? Or did he actually move in some people that he—
MK: Well, he kept some of them—for instance, we had 1 man, George Reese that was there from the time he was 14 years old and he is now well along and retired and he ended way up at the top—before his retirement. But he did bring in some other people. And that, I don't know. I was busy with my small children. I wasn't very active in his business.
I1: What type of management experience had your husband had, before?
MK: Well, he had been in the Army for 17 years and at that time, which I didn't know, but I finally found out gradually, that an Army Officer is exposed to practically everything from building on up—because during the CCC, he built camps—out in Oregon. He taught at the University of Oregon for a while.
EK: 03:34 I might be able to fill in a little bit on that point, which I think is interesting enough, just kind of, learned this in bits and pieces since I have been in the business. Mom, you may not even know it—his Army experience, of course, had been invaluable when it came to leading people. And he was a super people person. But he, of course, had had no exposure to the commercial world, he'd been in the Army all of his adult life and he really had some rocky times right at first.
MK: Oh really?
EK: He really did.
MK: Of course, I didn't get in on that.
I1: 04:06 Could you give us some examples of that—
EK: Well, he—he had some instances where—for instance, a management consultant came in and really sold him a bill of goods about what he could do for the company as a consultant, and Daddy took him on, and he did much more harm than good at a high price. There were instances of people—involved in some minor, but damaging industrial espionage, that a more experienced person would have probably been able to foresee. There were some abortive product developments that I think an experienced person probably would have not gotten into. I certainly don't say this critically of him, it's just interesting that a different background doesn't really prepare you to come in and jump right into the top of some other kind of endeavor. But—he was such a very fine people person, that he inspired tremendous loyalty among some key people, and they really did see him through those first couple of rocky years. He had great ability, but he did have to learn business.
I1: You mentioned some industrial espionage. Was that like—other companies coming in and trying to—pick up on some—
EK: I'd probably just as soon not get to terribly specific about that—but—there were some instances that were damaging—and—really they originated inside the company. Some people who were terminated. Some of them are a lot older still around—so—
I1: 05:43 Do you find that that's still—a problem today?
EK: —We haven't had much problem with it in recent years, I don't think. Not that I know of. You read about it—
MK: Do we have anybody out there now that was there when Papa was there?
EK: Not when he was there in 1938 Mom, I believe all of those are gone. There are a few people who were around at the end of the war—they were just coming in from the service as young people when he was there for that brief period of 1945 and 1946. So there are some people, and I think he would be proud of every one of them—who would remember him from then—but not from the 1938 to 1940 time.
MK: Well, and Frank Walls was there before his death.
EK: For sure.
MK: 06:32 Who is still with us.
EK: Frank Walls came in as Daddy's secretary. You had male secretaries in those days—and he is now Vice President of our holding company and manages a number of different aspects of it.
I1: What kind of impact did World War II have on the company, that perhaps, you remember your father talking about?
EK: Well, of course, I don't remember Daddy talking about it, because I was too young, even at the time he died, to go into much of that. But—the company did all right—most smaller companies during the war were in kind of –what you'd call—a holding sort of a time in the sense that they were needed, and they did useful work, and—
MK: We made gas tanks then—poison--
EK: Yes—they made things that had to do with parts for flame throwers and a number of different jobs. And—they were allowed to make enough profit to financially—survive, so to speak—but—certainly nobody got wealthy on it, and nobody could do much in the way of expansion or develop new products, new markets, new kind of—it was a time when I guess you did what you were told.
MK: 07:44 No—not—not as I remember—
EK: So I think the company came out of World War II in essentially the same kind of shape and condition that it went into World War II.
I1: 07:55 All right. Now, your husband passed away—when—40?
MK: Did what?
I1: Your husband passed away in '48? Is that correct?
I1: In '46—and then what happened to the company immediately after his death? What kind of impact did his death?
MK: Well—it went on pretty much the same, because we had people that had been there as I remember. You're asking me an awful lot right now. (laughter) —I'm trying to think, when we put in a new—oh—it was—Henry Brown came in first, and managed it.
EK: 08:33 Well, he had managed it through the war and he had—
MK: He managed it through the war and probably Papa just—Daddy just left him on—and he went on until he was—hell and I don't know the date of that—
EK: 1950—I think he passed in '49 and—he'd had a rough time in there—
MK: So then we—had gotten in a younger man that we thought was pretty good, and he was for a while—and he eventually took on the management until Mike got out of Harvard Business School and took it over.
I1: I see—now was the man that you're speaking of—was he the general manager?
I1: And then were you president of the corporation officially?
I1: You were president.
MK: (laughter) Well, a very ineffectual one—
I1: But a general manager more.
MK: 09:24 Yes, he ran the place, I didn't—I went to meetings and I heard all of what was going on and what not—but I am not a businesswoman, in any way, shape, or form. As Mike would band me out—
EK: I might be able to—flush that out just a little bit—right after World War II—
MK: No names.
EK: Okay. Right after World War II, there was a time when materials were very short for—oh 3 or 4 years. And businesses that were in business and were established with raw material sources and so on and so forth, were able to do pretty well, pretty easily because the company was, the country was rebuilding—and there was a demand for product and competition was not too severe if you had something to sell, you could sell it. This changed around 1950 at the same time this new younger man, that Momma just mentioned, came in and—so really the business did fine from 1945 to 1950, and then it kind of coasted on it's momentum for several years, but then it kind of began to slide downhill pretty badly. And that's what Mother was talking about—that this fellow did all right for a while, and then things got to be progressively more unsatisfactory, I'll say from about 1955 to 1959 and by the time we got to 1959, they were extremely unsatisfactory, and that's when we had a little bit of a management revolution.
MK: 11:08 You went in before 1959—
EK: I was at work there before 1959, but I took it over in '59.
MK: Yes—you went to work in '53, didn't you?
EK: Well, of course, I'd worked out there part time all of my life—but—
MK: Yes, you worked out there—he's got it at the back door—
EK: I went to work full time in 1956 after I came out of the Navy.
MK: It was '56.
EK: 11:32 Yes—
I1: Well, could you tell us a little more about your personal background, and your education in terms of training before—
EK: Well, fine, I was raised right here in this house where we are now, and went to Rice, and graduated from Rice in 1954 before I went into the Navy. And was in the Navy for 2 years, through spring of 1956—as I just said—I worked at the company all of my life, doing everything there was to do except managing anything—and—went to work in '56 at the warehouse that we had in Dallas at that time. Then, in the fall of '57, I took two 9 months leave of absence and went back to graduate school at Harvard and got an MBA—and about the time that I was finishing up at Harvard, things were reaching crisis proportions in the company, and so I came back immediately after graduating up there on the 1st of June or so in 1959 and immediately assumed control of the company. Made a number of management changes and we started trying to dig our way out and that's what we've been at ever since.
I1: 12:57 You mentioned—a period of stability, or actually improvement from—'48 to '50?
EK: Um-Hunh (affirmative)
I1: And then kind of a stagnation—and then a down—
I1: What kind—do you attribute the different type of stages and—
EK: Well, just speaking real grossly, as we said, you're 1940 to 1945 period was a war time, where everybody was kind of in a holding pattern. In '49 to '50 the country was trying to get itself back on its feet, and—our company did well, and other companies did well in that time. Then from 1950 to 1959 we had this period where we coasted a while and then began to slip downhill at an accelerating rate.
I1: What were the reasons—that the downgrade, the deterioration—at that point.
EK: Well—competition was getting a lot tougher. Trade channels were changing and our management seemed to be unable to cope with change—that's really about what it amounts to—they just simply did not move with the time. There was a lot more sophistication being evidenced through various competitive kinds of situations—and we had, more or less antiquated methods, antiquated products, and not very progressive kinds of ideas, and the business just simply cannot go very long on that basis. You—when you start to fall behind and fail to keep up with the movement of the world—well you can coast for a while—and—while dry rot begins to set in, you can't see it for a while and it doesn't even show up in the numbers—but then all of a sudden, when you begin to see it in the numbers and realize it's happening, the process is pretty well advanced. Then it just becomes a matter of how quickly somebody does something about it.
EK: And in our case, it got quite far advanced before we did something about it.
I1: And you were actually in manufacturing and so-called jobbing where you sell to the middleman before it goes to the retailers—and was there a problem there in terms of other competition?
EK: 15:14 Yes. That is—that's one of the places where we got into trouble and a number of new competitors showed up at—actually in the 1940s and '50s, the manufacturing part of our business, was secondary to this jobbing, or distributor business. And that's where new methods and new competitors and changing distribution channels began to show up and all of these things interacted to cause the company that was standing still to get into trouble.
I1: What type of change in the distribution channel? Do you mean like, transportation-wise or—
EK: Transportation would certainly be one of them. I think probably in our case, the biggest single change that happened was that historically, way back through the Tennyson years, the biggest customer group that the company had had was the retail lumber dealers. And the retail lumber dealers began to lose their market share or their place in the distribution chain of things very rapidly after World War II. There was an intense amount of consolidation. A number of small businesses either went out of business or combined into much larger businesses. A whole new breed of wholesaler began to grow up, which now dominates the building products trade. And so, established relationships, deteriorated, and it was necessary to form new kinds of—of concepts—new relationships with new customers—and—all of this happened at a time when competition was accelerating and the sophistication of the competition was growing, and that of course, as it does and should in a free enterprise system resulted in price pressures, and service pressures—this is an ongoing revolutionary kind of thing that we all live with all of the time and you've just got to go with it, preferably lead it—but if you fall behind it, you get in trouble.
I1: 17:30 You mentioned that there were, well, of course you've mentioned several factors that—one factor was that the change in the product itself. A different type of construction of the product—now you were into—could you say that you were into galvanizing products? In the '50s primarily, that was your main interest? Building material—
EK: Well—we called most of our products galvanized because they all were coated with zinc, but we did not at that time, actually do the galvanizing process. We do now, but we didn't then and in fact, that was 1 of the things that got us into trouble. We should have been galvanizing, we were not—but what we did, and still do a lot of as a matter of fact in some cases, is buy steel that is pre-coated at the steel mill with zinc and so our raw material that came to us was already galvanized.
I1: 18:27 All right. You mentioned several changes that came about after your presidency, as many presidents do, in different administrations, different types of work. What did you accomplish? What—
EK: Oh gosh—
I1: The beginning—start with the beginning.
MK: He did go out and look and see what's out there now.
EK: Well—it's a couple of categories. For 1 thing, we were grossly over staffed. We had way too many people, which caused our costs, of course, to be way to high and that was one reason that we could not be competitive in the marketplace. So—we went to work and found ways to cut the number of people that we needed to get the job done, and the job as we had it then, we cut it way back. As I recall when our present administration started, at that time the company had something like 150 or 160 employees and we cut it back to about 85 and got the same job done better. So that obviously was a tremendous cost saving and helped us get competitive.
I1: Did you do that on your own? Or was there a consultant involved? In this decision?
EK: We did it on our own—yes—
I1: You just worked it out yourself—
EK: 19:43 Yes—just worked through it. You know, we had some good people and they knew the business and I'd grown up in the business and we just figured it out and did it. We had a very core engineering staff at that time and our manufacturing costs were grossly too high, so we went to work on those and achieved tremendous reductions in our cost of product, and I might say, simultaneously making a better product. We improved both the quality and the cost structure in the manufacturing process—and here again, this was something that was there to do—when you've got good people in there and gave them a free hand and some backing to get it done. Those are probably the 2 major areas that we moved in on right away, and we were able to show just a lot of progress in a couple of years. Then we began to try to evolve a strategy on how we could make this company grow. Just as kind of a benchmark in 1960, we'll say. We were down to about 85 employees and had sales of approximately 3-million dollars. We wanted to make the company grow and prosper and we began trying to evolve a strategy to do that. One thing we decided was that we would become manufacturers and get out of the jobbing business because we didn't think that the jobbing business was going to be an area that would permit us to grow in the way we wanted to grow. Both because of limited—the limited field that you could extend yourself to, as we perceived it at that time, and also because we just didn't think that it was going to be a very profitable place to be. So we decided we go into the manufacturing business, and having done that, we had to devise a product strategy so that we could try to set ourselves up to be able to have an evolving, never-ending series of new products that where one would build on and help the other. This was going to require both new product lines and also new territories. So beginning in 1962 and coming right on down through today, we have made a series of carefully planned and integrated acquisitions of other companies and we have added a number of other product lines, as you see in the catalog you have there, and if you look at them, you will see that they all closely inter relate in either or maybe both their manufacturing process and also the end market that they go to. We never had the slightest interest in becoming a conglomerate, and still do not, so we are always looking for things that we can use to build on what we've already got. We can achieve the centuries of having new products help our other existing product lines and close of the ring, have the existing product lines help us grow the new things. So we've bought a series of companies that were, that had good sound product lines, and good production facilities, but were not really exploiting their market potential, and we've gone into these and tried to beef up the staff and beef up the market and marketing effort and—kind of grow them up to be what they had the potential of being. That's what we do.
MK: Well Mike, have you said anything about how you've expanded over the country instead of staying right here in Houston?
EK: That's, of course, part of it. In 1959 our field of marketing endeavor was limited to overwhelmingly Texas with a little bit of Louisiana, Arkansas and Oklahoma. And of course, now we sell all of our product lines to a full national market all over the United States and some export.
I2: Before we get onto the expansion of the company, I'd like to go back and just ask you, the question just came to my mind as we were talking about the reforms that you enacted. Could you make use of consultants?
EK: 24:17 No.
I2: All of these reforms, you were responsible for all of them?
I2: I know many companies do hire consultants to—
EK: 24:30 Well—that's true—consultants have their role and have their place, but—frankly, we rightly or wrongly always felt like we could do as good or better a job with our company than some outside expert could—so—we really have not used them much.
I1: With you having been to Harvard Business School, I imagine you achieved a certain amount of technique—
EK: 24:53 I guess you become a bit of a chauvinist or something, I don't know, but at any rate, for better or worse, we have not used consultants.
I1: You mentioned something about a management revolution, of course, when these changes occurred, what was the attitude of this? The operation of your management and your executives?
EK: The ones leaving or the ones coming in?
I1: Of course—
EK: The ones leaving, of course, were not that happy and felt like—I was a young upstart and was coming in and was absurdly ambitious and incompetent and was throwing people out of work who really were professionals who ought to be permitted to continue what they were doing.
MK: Mike, we didn't fire them—we let them retire.
EK: 25:41 Okay. I don't know if that will come through facetiously on this tape but it was facetious—and in some cases—in at least one case—we had a fellow who was fairly prominent in the community at the time, we took a fair amount of community flack, I guess you'll say, for doing that, and they, of course, did not know what was going on inside of the company—no way they could—the community, in general, I'll say, but that has since, of course, died out. The people that stayed there, that really were much more than my right and left arm, they were my partners, my teachers and everything else, their attitude toward the company was just tremendous.
MK: Do you have any idea of their loyalty?
EK: And it went back to my Father, they—the key people were loyal to him, even though this was, what 13 years after his death. They were willing to take me on and put their shoulders to the wheel and try to save the company—with me out of loyalty to him from way back when—and—it was really quite an astonishing thing and really without them and without their feeling—I never would have been able to make it.
MK: 27:15 Where do I start?
EK: You were talking about, just to get you started again, about how these key people stayed—
MK: Their loyalty—I will be indebted to them always for, because they've been there and they knew Mr. Kelley and were loyal to him—and had been wonderful to me in my stumbling along, and they had asked me repeatedly—after Mike was grown—was Mike coming into the business and I told them I didn't know, and as a matter of fact at the time he didn't think he was, he didn't know what he wanted to do, but he didn't think he wanted into Kelley. Why, I don't know. But at the time he was in Harvard Business School, and his last year there, in the spring, he was to write a paper on a small business, and he asked if he could do it on his own company, the family company,
EK: Which I knew was not doing well, but I didn't know—the details
MK: And—so he came home and asked me if he could go into the private files and I told him, of course. My life is an open book anyway. Which he did and that's when he found out that the company was in very serious trouble. And he wanted to quit Harvard right that minute in April when he was going to get his degree in June and stay home and start housecleaning. But he did go back and finish and I let it be known that he was coming into the business when he came back and that's when the manager resigned. And these other men that had been there, in Mr. Kelley's time, carried on with Mike until Mike learned a lot, and they helped him—they were just simply superb. Here was this little boy that they had known when he was like this—and yet, he was over them and they were perfectly happy about it.
EK: Well, we were partners.
MK: Big enough people, that's what I really mean by it.
EK: We were partners and friends, but they were big enough people to be willing to accept that—
MK: I don't think there are many people like that left.
EK: 29:19 Actually, the incumbent management resigned right then in April—
MK: Yes, there were 2 of them—
EK: We had a big blow up—and—while I was still here writing that paper, and they left, and these other men—ran the company for 2 months with me over the long distance telephone calling from Boston while I finished up there and came back when we really started.
I2: Did you find it was simply mismanagement or were a couple of individuals taking advantage of the situation?
EK: If you ask any more questions down that line of investigation, I'll say both. But I really don't want to go into—
MK: Everybody's sworn to secrecy on that.
I1: Was this involving the management alone, or was it connected with the Board of Directors?
EK: No—no definitely not the Board of Directors, for sure.
MK: No, it was just the management.
EK: Just the management.
I1: What was the status of the Board of Directors then and the attitude toward the management in the company?
EK: I think the Board of Directors were very frustrated with the management, but they did not really do anything about it—I think—Momma, you comment—but I think they were just kind of hoping that the boat would right itself.
MK: Well, and not only that, we would go to board meetings and these 2 people would give us glowing accounts of how things were happening and I'm very ignorant about it, and we had a small Board of Directors at the time, and—we trusted them so. It never occurred to anybody on the Board of Directors that they weren't doing their very honest best.
I1: Had the Board of Directors remained in the same type composition as it was when your husband—so that hadn't changed—
MK: I think I was the only one who was added—that is right? I did not go into it—
ED: Well, it was a typical small company Board of Directors, and they—those types of boards tend not to be very effective, and that was the case here.
MK: And Mike's doing something about it—
EK: Very fine people. And relatives of mine, and people I love, but as a board, they were not really very effective. That's the fact of the matter.
MK: 31:40 We just don't discuss it.
EK: And Mother referred to the fact that I came—went out there and went into things and—I found a lot of things that the Board didn't know.
MK: Oh yes, because they had been cushioning everything. They could have told me anything, because I trusted them to the end resort.
EK: I asked Mother to call a Board meeting right then and there and—went into some of these things with the Board and told the Board that I thought the management ought to resign, and they agreed with me. And the management did resign—and at that point, the game was on.
I1: You mentioned—some flack in the community—so to speak. Was this in regards to the status of the management that was actually being fired?
EK: 32:27 You had a situation where a management that was established and respected in the community was being fired and replaced by a kid just coming out of graduate school, who happened to be a member of the family that owned the company.
MK: And the Board of Directors was sworn to secrecy.
EK: You can't—and we did not want to then, and we do not want to now, go into the kinds of things that were discovered. So—you can imagine the kind of opinion that left people who didn't know the situation. But, you know, it passed.
I1: 33:05 You mentioned some changes in the Board now, to prevent that from happening again. What changes have been made?
EK: Well, we've added some other people to the Board and I try to bend over backwards to be open with the Board and talk to them and get their reaction. A good friend of mine who was, in the field of business education, who was on the faculty of Economics at Rice, Dr. Ferd Levy, I don't know if either one of you all know him, he's now the Dean of the School of Industrial Management at Georgia Tech, is on our Board. And he is a very sophisticated guy, and even though he is my close friend, he'll sure tell me what he thinks. My brother in law, who married Alley, is a very knowledgeable business man, he's on the Board, he's a big help. So, I do not believe that we have the kind of Board that we had then.
I1: 34:21 Okay, getting back now to the expansion of the company itself—you mentioned that you were local—here for a while and then Texas, eastward Alabama and Los Angeles, in means to buy these individual companies, it was an effort to integrate with what you already had. How does that tie in with—the growth locally? Of the city itself and your efforts to market what you not only produce here, but in your other areas?
EK: Well, I really don't have any regrets about what we've done with the company, but I do regret that fact that so far as the growth of our Company is concerned, we have not really directly built upon or been a part of—the tremendous dynamism of this city. Of course, we live here and we've been very active in community affairs and so forth, but so far as the business is concerned in the narrow sense of the word, Houston is just another city like any other one in the United States. It's a market, and it's a very good one, but we have not really primarily built upon the dynamism of Houston in our Company. So—while I believe we've probably made some progress over the years, it doesn't really tie into the same parallel of progress that you find in the City of Houston in any direct identifiable way.
I1: What about the availability of capital, as the City has grown and expanded? Banking techniques, banking policies in your Company?
EK: 36:32 We have had the same banking relationship overall this whole time and it has always been perfectly satisfactory. We have never wanted to do something that we had any problem finding the money to do. I think this is probably, as much as anything, because we're financially—responsible and conservative—and we have not, ourselves wanted to ask for anything that we thought was unsound—in the way, say a bank might think it was unsound. So we've had no problems whatever. The availability of capital has been a constraint in the sense that we have been a private company and haven't been able to go out and sell new equity. Our equity has grown only as we have been able to retain earnings. So just the basic structure of the company has been a constraint in that regard, but so far as the Houston financial community goes, we've had all of the backing in the world right down through the years and have it today.
I1: And you never really felt the pressures of the changes in the economy? Had it affected your Company, because of—
EK: That's correct.
EK: We've felt it in the marketplace. Whenever we have a recession in this Country, we can show you where it showed up in our figures. But so far as availability as capital goes, it's never been a constraint.
I1: And you mentioned—the changes in equity itself—is there a plan in the future for you opening your stock up in the market? In that way, and thereby expanding in your—
EK: 37:51 Well, this is a very dynamic area. We—back through the '60s, we had a corporate strategy that was pointing in the direction of going public. But as of today as we make this interview, as we see the nature of the financial world going—we are kind of off of that now, and have changed our strategy, at least for the next few years, to—permit us to remain closely held without the need to go public. Fortunately we've got ourselves positioned now so that we can continue very satisfactorily and strengthen our financial position without the need to go to the public equity market. So we're just going to stay back out of that arena for a while and see how it develops. There are a lot of things that are not (inaudible) to this discussion that—that lead me to be disenchanted with going public today. So we're not planning to it as of now. We may come back to it.
I1: Other than the expansion of your territory in the market itself, and the availability of capital, what other reasons have been the cause of your growth and continue?
EK: 39:09 Well, of course, our whole economy has made tremendous progress over the course of the last fifteen years, and an expanding market is the best way in the world for a company to have the opportunity to expand. But, we've added—essentially four new product lines, which were separate whole industries in themselves as far as—the product lines were concerned. We've changed from a three state market to a national market. Obviously this opens up tremendous opportunities for you to sell your products. So that's the direction we've tried to go and in an orderly way. We've expanded our staff; we've worked very hard to keep at least current if not in the forefront of new business methods and sophisticated kinds of approaches to doing things. I think we were probably, to my knowledge we were one of the very first small companies to actually go into an in-house computer system. And we developed it all ourselves from scratch inside. Now we did have some consultant help in the area of getting started in computers.
I1: When was this?
EK: Well, we started in 1968, and we actually went on-stream in 1970. I don't think you found very many companies, if any, that is our size and had their own, really quite sophisticated, in-house computer system at that time. It's much more common now. But we were definitely out ahead of our competition in the kinds of things that we were able to do. And that's an example of the way we try to keep ourselves developing.
I1: What has the changes brought about by the use of, like your Daddy's system company, automation of the industry, how's that affected your relationships with your workers in the factories?
EK: 41:15 Oh I don't know that those facts that you mentioned there have affected it one way or the other. I think that good person to person relationships are the same now as they have always been—if you're open to people and try to maintain a responsible give and take relationship so that you develop confidence in your group and you're confidence in the group develops confidence in you—things work along. As we bought other companies, we have inherited unions. In fact, we've had a union here in Houston that dates back to about 1950, so essentially our management group inherited that union also and we've negotiated countless contracts and we have day to day inner relationships going on every day. We don't really have any problems with it. We had one strike that was a special situation over in our Birmingham, Alabama plant several years ago, and that's the only thing that we've ever had in the way of a strike. The only plant that we've got that is non-union—we have had two NLRB elections up there, and we want them both. So it's still non-union. So, I don't think that in a company like ours at least, the fact of ongoing automation hurts anything at all. We've had expanding production, so that as we automated, it didn't require any cutbacks in people. There was more work for the same people to do. They were able to do it more effectively. They haven't had to work as hard. The work has been more interesting. So we haven't had any problems with that.
I1: 43:01 You mentioned the strike in Birmingham—was that, do you think, directed from the outside in relation to other union struggles in the city, or in that union? Or was it confined to the company itself?
EK: Oh, I think it was largely internal. We had—had some specific individuals over there that were problems, and at that particular moment in time, we had some factory management there that was not responding in the way that was optimum, and the combination of our management shortfalls and some agitation in the plant, enabled the situation to get out of hand. So that was solved and corrected. We've since had two negotiations and new contracts over there and have been able to get satisfactory contracts going both times and haven't had any further problems.
I1: What was the basis of the complaint? Other than the management relationship? Was it wages or conditions?
EK: Well, it almost always manifests itself in wage demands. That's the way other kinds of problems get discussed in the atmosphere of a negotiation many times, and that was the case in this case. We were facing some really outrageous demands and they were just simply going to go on strike, in that particular instance, and there was no way that we were going to be able to do anything that could stop it and we didn't stop it. It subsequently course ran its course.
I1: How long were they on strike? Do you know?
EK: 44:46 About five weeks, I think.
MK: It wasn't terribly long—as I remember it.
EK: Seems like a terribly long time. I think it was about five weeks. But over the years, you've got to understand that we run five plants now, plus a data systems company, and I wouldn't be able to begin to know how many different contracts that we've negotiated—and the number of different unions that we have contracts with, and this is the only time we have had any problem.
I2: What kind of demands was placed on you?
EK: In that instance?
I2: Yes, in that particular case. As you recall.
EK: I don't recall all of the specific details, but it primarily manifested itself in wage demands that were just totally out of line, and they knew they were totally out of line, and they were meant to be totally out of line, and—what are you going to do? This was 1972, I guess.
I1: How did you get them back in?
EK: Well, it just kind of ran its course, you know, there were a lot of people over there that wanted to work. Eventually, compromises were reached and it finally got settled. There was nothing particularly dramatic about it. We really in the last analysis didn't have to up our final offer before the strike hardly at all. They just—in kind of—made their point and after a time the situation was able to be resolved. Really, I think that—our management at that particular plant is much stronger now, much more effective, as a result of having to go through that experience. So it wasn't all negative. We run a lot better shop than we were running at that time. It was not 100% the union's fault.
MK: And you've got a man running that place now that has come up through the organization, which I think is interesting. I—that when people can stay with the company for a long time and go on up.
EK: We've always bent over backwards to do that.
MK: Well, Mr. Kelley did.
EK: We've of course expanded the number of people that we've got in the company tremendously, so that necessarily involved hiring a lot of people from the outside, but we have always bent way over backwards to try to promote internally, whenever it is at all possible to do. Our employment now, for instance, before the recession, last spring ran around seven hundred to seven hundred twenty-five. So that again will give you a little bit of framework for how precisely the business has grown since 1959.
I1: 47:30 Have you noticed any real effect then on your company as a result of inflation in terms of your growth? Has it really retarded your growth substantially?
EK: Well, it's retarded our growth in the sense that—inflation was a very large factor in causing the recession that we've just been through. There was a time at the height of the inflation, which started probably a year ago now and ran through February or March of this year, when consumers just quit buying. So manufacturers didn't have any products to sell through and one thing that happens when your end user quits purchasing, then all of the merchants start to get panicky and they want to cut their inventories way back, which doubles up on the manufacturer, all the way back up at the front end of the chain, and so we had a severe recession which certainly hasn't helped our business this year. I think that it was largely due to the inflationary psychology that we had in this country for the last eighteen months. So that's how inflation has hurt us.
I1: Did you see it on a national level or was it more pronounced, like in California, or in the Eastern Division rather than here in Texas.
EK: It was least pronounced of all right around here. This part of the country has been, by far, the strongest area in the country through the recession of 1975. The place where it was worst was over in the southeast. Now the southeast, of course, started developing back in the '50s and early '60s, that's why we went there first. They were at a very low economic base level as we all know. It dates clear back to the Civil War, and they started to wake up and get going in the late '50s and '60s, so the southeast has been a marvelous area for business for the last decade or fifteen years. But this year it caught up with them, finally. This is the—that we've had—three or four or five recessions since I've run the Company. And that part of the country has never felt that our business over there has been upright through every recession until this one. But in this one, the southeast got clobbered. And in fact, it is still today, the weakest part of the country.
MK: 50:01 Well they're closing, they're closing plants up there now aren't they?
EK: Oh yeah, it's been bad. They overbuilt so that construction stopped. The textile business got in trouble when the consumer quit buying. Furniture business got in trouble when homebuilding went to pot. The carpeting business got in trouble when homebuilding went to pot and these are the things that are the basis of the economy of the southeast. So that's been a slow area this year. The west coast has come through this recession quite well. That has not been a bad area.
I1: You mentioned that there was a particular time, like from September, October of last year to February, March of this year. Those were the crisis month of the slump. It—do you see any connection, perhaps with the political happenings? In that respect as to the effect on the economy with the resignation of the President—
EK: Oh sure, I think that resignation had a tremendous psychological impact on the country and it manifested itself in the consumer by helping him change his psychology to being very negative. As you probably know, the University of Michigan has a very sophisticated method by which they measure the degree of confidence or lack of confidence on the part of consumers. This index correlates very closely with what is actually happening in the consumer markets, and over the course of this last year, it's been the lowest that they've ever recorded as long as they've had that study. And certainly Watergate had a lot to do with it and I think inflation was the other part of it. Those two things, and the worst of that, as I mentioned, was last fall and this winter of this year, but the real effect on the manufacturer was somewhat delayed and really hit in the spring when all of the merchants looked around and found out they were not selling anything, and they had a lot of stuff in their warehouses, and so they quit buying. You see, it has a delayed effect as it backs up the chain of distribution. First the consumer quit buying and then the merchant realized that the consumer had quit buying, and then he quit buying from the manufacturer in turn. And that's the period that we have had to go through this spring.
I1: 52:30 But you've seen a turnaround, I guess with the reversal of the—
EK: It really didn't last but about six months. It was pretty severe. In our case, if it's the worst the economy every does to us, I won't complain, because it hasn't been that bad. The way we started down this road, as you were asking, had inflation hurt our growth, and it did, in fact, stop our growth. This year 1975, will be the first year since 1959 that we've not had a new sales record in the company. We've had, what is that fifteen straight. This year our sales will not quite reach 1974. That's why. So we'll be back. Next year when we go back on the new track again.
I1: As a result, have you actually laid off people?
EK: Yes. First time since I've been managing the company I've had to lay off people. It was really painful, but there's nothing else for it—you have to do it.
I2: Approximately how many people involved?
EK: One hundred fifty.
MK: Gosh, that's a lot.
I1: In which area did you—here or in your other?
EK: Mostly in, well in all of them, but—I think mostly in the others. This plant here, which is where, of course, we started, is now our smallest in terms of employment. Because it serves this part of the country where business has been best through this shaky period, they didn't feel it. The Houston's division business has held up better than any other part of the company, by far. I'm not sure we've had any layoffs here. I think really all we've done is just quit hiring. But in every other one of our plants, we've had to lay off some folks and they're beginning to get called back now. Our employment is beginning to go back up again.
I1: Was the bulk of the layoffs, perhaps in the southeast? In the area where—
EK: Yes. Much heavier over there. I'd say—I haven't looked at the figures, but I'm going to guess that probably two-thirds of our layoffs have been over there in our Birmingham and Chattanooga plants.
I1: I'd like to go back to kind of a discussion of the impact of plastic on your product itself, and what effect that had on the Company.
EK: 54:59 Well, you're probably talking about our galvanized wear line, which is the one we've had back through the ages, and the impact on that has been severe. I think we've long since felt it, and there's not a continuing rhodium going on, but the old line of tubs and buckets that we had going back clear in the '30s, and which we still have, deteriorated very, very badly—through the '50s, and I think that's one of the things that our old management failed to cope with. We still manufacture those things, but they're not important to us anymore because that market has heavily gone to plastic. And it should, in the case of that product is a better product. So I don't have any complaint about that. In the case of trash cans—plastic trash cans, of course, came on and they have their place and there are an awful lot of them sold. Probably as many or maybe even a few more plastic than steel. But we were expanding our market penetration so rapidly that our business in trash cans continued to go up every year, right on up to this year, when, of course, it's fallen back a little bit. But we were, in 1959, we were just barely on the fringes of the galvanized business, tubs and pails and trash cans. Just barely in it at all, and now we are the biggest company in that particular product line. So, even while the plastics were eroding the total market, we've come a long, long way in the steel market. And we made a decision fairly early on, that we did not want to chase that product line in the sense of putting in plastic machinery to make the same products out of different material. We decided rather, that we would prefer to use our energy and capital to go after new product lines and new geographic areas to penetrate. Which is what we've done, and we felt like we could continue to grow with our marketing ability, even though we knew that that total market was eroding in that case, so—we've just kind of let that go. We've continued to sell it very aggressively and we've done very well at it, but in terms of developing and chasing after it and worrying about it, concentrating on it, we've just kind of let that happen.
I1: 57:37 Now you've bought out, or actually own just the controlling stock, is it Covey, is that how you own the company. But that is a separate company, or is it?
EK: That's a separate company. And they do work heavily in plastic, so now we are very much involved in plastics fabrication through the Covey Corporation.
I1: What is the reason for it remaining separate? Is it just that it's—
EK: Well—we tried for a couple of years after—do you have to go somewhere—?
EK: I have before terribly long—we tried for several years after we bought the Covey Corporation to market those products through our Kelley Manufacturing Company sales force, and it was just not real satisfactory for various technical reasons, so we split it completely apart and separate—and now it is run as a completely separate company from Kelley Manufacturing Company. They've developed a very high degree of plastics capability up there and we feel like we're pretty good at several different areas of plastics fabrication. But it is run separately from Kelley Manufacturing Company.
I1: When was this? Or when did the company actually become Kelley Industries and the separation of Kelley Manufacturing to Kelly Industries.
EK: 58:58 We formed Kelley Industries actually before we bought the Covey Corporation, back in 1970 or 1971, because we felt like that structure would be a better one for the kind of development strategy that we were operating under at that time. And so—we split it apart. It was at that time, really more on paper than it was a matter of ongoing management organization. And, of course, there's still a very close inter-relationship between the few of us that operate Kelley Industries and the people that operate the manufacturing subsidiaries. But it was a matter of creating a structure that we thought would be a better one to grow with.
I1: 59:44 What's the future like? What is your close hand objective?
EK: Well, we—we feel like if the economy will go ahead and behave—that we've got excellent prospects for being able to continue to grow. We've got several product lines now that work together very well. We have lots and lots of market potential that we haven't penetrated. We feel like we've got an excellent management group now. It's well trained, well educated. We think we've got good systems. Internally, I think we're in very, very good shape in the Company. We feel very good about it. This is certainly not any reason to be complacent, we're not—but we do feel like we have lots of opportunities to go forward. We have—started a program of doing some financial modeling of possible futures, and the models that we have been running in the last couple of months show that we ought to give any reasonable kinds of assumptions on the data we've put in there, we've got lots of places we can go and lots of things we can do. We'll just have to await future developments on how the economy and the political situation in the Country goes. I think that we're in an era now where you can hit situations in such radical change so quickly, they come out of the blue at you, that you always have to be very alert. You've got to be on your toes and ready to move and stay open to developments, both internally to your company, and to industry, and also in much wider context. I just hope that we're going to be able to roll with whatever punches come, and we feel like we're in the shape to do that. I don't know if that's the answer to your question or not.
I1: Do you see yourself expanding nationally. Picking up another area of the country—or—
EK: We are pretty well all over the country now. Once thing that we've been looking at very hard for the last couple of years is the export market. I think in the longer term future you have to say that the dynamics of—industrial developments are going to shift to some degree away from this country and into third world countries and other areas. And I think that a company that wants to continue to grow, had better give careful thought to be able to be ready to operate in those areas. Obviously many many big companies are. Whether or not this will prove to be feasible for us, or how we'll do it, is far from settled. That is an area of interest to us. How we can get involved in other countries. We are national now. We've got a lot of expanding that we can and will do in areas that we are fairly new to. We're going to concentrate on those heavily. We will just have to see, so far as the consumer markets in this country goes, we feel like we have positioned our product line properly for the changes that we see going on and the—nature of our culture—the changes that we're all aware of—peoples lifestyles and so forth, we feel like we are in tune with them. We feel like the way things are going has justified our choices of product areas to be involved in. So we'll have to see where that turns out to be true.
I1: 1:30:39 Well, is there anything that you would like to ad? Or Mrs. Kelley, that you would like to comment on, some area that we perhaps haven't covered?
MK: I can't imagine anything you haven't covered.
EK: She's a very good interviewer.
MK: She's excellent.
I2: I just have one question before you close up the interview, that I'd like to ask you, and it came to my mind when you were speaking about the well trained, educated businessman now, and perhaps this will bring us in full circle. Do you see the time of the man without the technical training, for example that you've had, in other words a man with good business sense, but perhaps not much formal education—
MK: Like it used to be—
I2: Yes, exactly. Do you see that date past, that a new era of business has arrived where a man has to have this technical formal training to be able to successfully compete?
EK: 1:04:33 I think that there always be a place for success for the dynamic, intelligent, motivated person who wants to do something with himself. That opportunity is still there in this country, but having said that, I think that there's no doubt that every single part of the environment that we all live in is far more sophisticated that it was, and a person that does not have the—educational and training opportunities is going to have to get that kind of expertise from somebody, somewhere. That is beginning to be made available through various efforts of the government, private groups, as you know and business is participating in this and I'm glad to see it. And helping people get started, who perhaps haven't had the good fortune that I've had and we're enabling our Company to make available to our other people. But if you don't have sophistication in a number of different areas, or whatever happens to be pertinent to your line of work, you're going to have to get it. You can't do without it.
I1: Well, I guess that's it. And we want to thank you both. You've been very cooperative.
MK: You've been very pleasant.
EK: It's our pleasure.
I1: On behalf of the Houston Metropolitan Archives, that's it.
End of dictation.