(FORTUNE Magazine) – Ray Wallace, it would be fair to say, falls into the category of autocratic leader. For 41 years he was the force behind Trinity Industries, building the small Dallas butane-tank maker into a multinational conglomerate. If there was a decision to be made, Ray made it. He was an intimidating boss. And while his door, he says, was always open, few Trinity workers dared darken it. One senior executive recalls a colleague joking that she steered clear of the tenth floor, where Ray had his office, because "that's where God lives."

But since Jan. 1, 1999, Trinity has been run by a different kind of CEO. He talks effusively about empowering Trinity employees. He asks blue-collar workers to help redesign the assembly-line process. He lets executives wear khakis. He's Ray's youngest son, Tim, 46, and by the way, he has his father's blessing.

Tim didn't come by Ray's approval overnight. No leadership transition is easy, but when an independent child replaces an domineering father...well, more than one melodrama has exploited that theme. "These family stories are so complicated," says University of Southern California professor and leadership guru Warren Bennis. "The test of leadership in these instances is, How do you adhere to the symbols of change and revision, yet with enough honoring of the past?" A chosen successor, whether in the family or not, has to become a master contortionist--bending in new ways without totally breaking with the old. Tim knows that. He had plenty of disagreements with Ray, and went so far as to hire an intermediary to help them talk. But the remarkable thing is that the transition went smoothly. Ray learned to respect Tim for his results, even if he thought his methods were flaky, and perhaps most important, each figured out when to step back and defer to the other.

Trinity is a brick and, quite literally, mortar company that makes big, heavy-duty, tangible stuff: steel highway railings, barges, concrete, and more freight railcars than any other manufacturer in the world. Ray Wallace built this public company, which in March reported fiscal 2000 sales of $2.7 billion, by buying up businesses when their industries tanked.

Ray was happy to hire his sons, Tim and Tim's older brother, Patrick, but he made it clear that they would get no special treatment at Trinity. Patrick discovered that in 1978, when he was 29. Working as an assistant general manager in the liquid-petroleum-gas division, he began arriving late and missing important meetings. The cause: alcoholism. After several warnings, Ray summoned him to the executive suite. "You're not doing satisfactory work," Ray recalls saying. "There isn't a job for you any longer." Ray then showed Patrick the door. "I don't think management can spend a lot of time working on those that don't want to fall in line," Ray says. "If you are here, you know what the task is, so let's get on with doing it and be happy about it."

Growing up, Tim had no plans to follow his father. After graduating from high school in 1972, Tim told his father that he didn't want to go to one of Ray's handpicked small, conservative schools like Southern Methodist University. Rather, Tim wanted to go to the University of Texas in Austin. Ray said that if Tim went to Austin, he wouldn't pay. Tim went anyway, working as a line chef, a gas station attendant, and a diamond wholesaler, and getting some financial help from his mother (his parents had divorced). For a year and a half Tim had almost no contact with Ray. Fine by Tim. "It gave me a sense of independence, of breaking away," he says. But the isolation began to wear on him. "I realized that I really wanted to have a relationship with my father," he says. So in the middle of his sophomore year, Tim called Ray: He would go to SMU. Skeptical, Ray agreed to pay Tim's way as long as Tim maintained a 3.0 average. Soon after, Tim asked if he could work at Trinity part-time. The answer was yes, but, said Ray, "if you start, you have to stay."

Tim began his career at Trinity washing trucks. His father wanted him to learn how to get along with the blue-collar workers who make up the majority of Trinity's work force. Tim worked his way up, and by the time he was 27, he was ready for his first big management challenge: delivering two Staten Island ferries to the city of New York. The project was a year and a half behind schedule, and Ray needed someone who would take charge. It was also a test. "I wanted to find out whether he could or couldn't lead and direct a group of people through a problem," says Ray.

Tim knew that he couldn't solve the problem the way his father would have. For one thing, he didn't have Ray's shape-up-or-ship-out personality. For another, he was young and untested; Tim felt he couldn't command results. So he assembled a crew that had the necessary expertise and worked to win them over. "I try to see where there is a need for a certain type of person in a situation and then let them do what they do," Tim says. The strategy worked. Under Tim's supervision, the boats were delivered, and the contract was paid in full. In the process, Tim solidified his father's respect. Afterward, says Tim, he made his father agree to judge him on results, not on methods. "I made a pact with my father," says Tim. "I said to him, 'I may do things differently from the way you would do them, and at times it will drive you crazy.' " Tim wanted a business "where our workers were passionately involved in their jobs."

Tim refined his ideas when he became head of the railcar division in 1985. In five years the group increased revenues from $76 million to $1.25 billion. He started a program to involve employees in the safety, quality, and efficiency of the production process. The results: Plant maintenance costs decreased; fewer injuries meant less time lost; and a redesigned assembly process--a direct result of line-worker input--meant greater efficiency. Tim managed to shave $50 million in costs over six years. Just as important, he says, workers began to feel a sense of ownership. When customers like Union Pacific and GE Capital Railcar visited, Tim asked workers to step off the line and field questions. "This lets customers know that the workers are interested in fulfilling their needs," says Tim. "And it gives the factory workers a sense of pride and knowledge of who the product is destined for."

Ray made good on his promise to judge Tim by his results, not his methods. But he didn't always like Tim's choices. For one thing, Tim rehired his brother, Patrick. After leaving Trinity, Patrick quit drinking and started his own video-production company. In 1993 he approached his father about coming back. Ray wasn't interested. But Tim needed help with an employee-training program and figured that Patrick's video experience made him the perfect choice. He also thought that Patrick deserved a second chance. Over lunch the brothers worked out a deal for Patrick to come on as a paid consultant. Ray didn't like the idea but said it was Tim's call.

After Tim's success with the railcar division, the board elected him president and chief operating officer in 1996, signaling that he would succeed his father. In that post Tim worked directly with Ray--which meant more conflict. Tim wanted to introduce new ideas--flextime, business casual dress, lunches with the CEO--but Ray resisted. Ray, wary of computers, wanted to put meters on every PC to monitor their cost efficiency; Tim thought the idea crazy. Eventually Tim brought in a communications consultant named Gloria Hoffman to mediate. With Hoffman's help, they came to an agreement to help ensure a smooth transition: For the year that Ray planned to remain CEO, he could veto Tim's ideas. But after that year he would pack up, leave the building, and not interfere. For six months Ray and Tim met independently with Hoffman to vent their frustrations with each other. She also forced them to talk about what they respected about each other. "They began to think like that and ended up doing it on their own," says Hoffman, who now serves as a conduit between Tim and senior execs. "It changed their relationship considerably."

Now retired, Ray, 77, is still on Trinity's board of directors. He meets regularly with Tim over lunch but has no regrets about stepping down: "I'd been intelligent enough to get the company to where it was. I need at least to be bright enough to know when it's time to get out."

He sees that Tim is expanding Trinity beyond North America, opening two factories in Romania; Ray preferred to keep his plants close by. With demand for U.S. railcars on the decline, Trinity's revenues dropped by $200 million last year. So Tim is branching out, pursuing an Internet strategy through a newly created division called Trinity e-Ventures. Headed by Stephen Polley, the former CEO of Cozone.com, the Web business of CompUSA, e-Ventures is moving into various online businesses, including creating a business-to-business exchange for industrial companies. Tim still seems pleased to have his father's unequivocal approval: "He said I was better equipped to run the company in today's business world." Ray has come around on another point as well: his son Patrick. Now a president of one of the railcar divisions at Trinity, Patrick has won over the elder Wallace with his performance. "Pat is doing one tremendous job," says Ray. "Hiring him back is probably one of the best decisions Tim ever made."

FEEDBACK: onthejob@fortunemail.com

GETTING RADICAL WITH HAMEL | ADDICTED TO KRAKEN | SHAME ON YOU (AND YOUR INTRANET)