THE ODD COUPLE AT MCDONNELL DOUGLAS An ever more competitive world lies ahead for the aerospace giant. But that doesn't keep Sandy McDonnell from sculpting -- or his cousin John from gazing at the stars.
By Colin Leinster REPORTER ASSOCIATE Stephen J. Madden

(FORTUNE Magazine) – THE FIRST COUSINS who run the McDonnell Douglas Corp. -- Chairman and Chief Executive Sanford N. McDonnell, 64, and his anointed heir, President John F. McDonnell, 49 -- are yin and yang, opposites in almost every way who nevertheless work together with tooled precision. One thing they do share is the initial impression they give of being a wee bit odd. Maybe it's genetic. John's father, the late James S. McDonnell Jr. -- the legendary Mr. Mac, who launched the St. Louis company 48 years ago -- had a lifelong fascination with the paranormal. He spent lavishly on research into whether the human mind can bend an iron rod, say, or whether life exists in inanimate objects. He named some of the fighter planes he built after the nether world: Devil, Voodoo, and Phantom. Mr. Mac's nephew Sandy is a born-again Christian who plays the bagpipes, an engineer who quotes from the likes of Benjamin Franklin and Albert Schweitzer while discussing profitability. He is also an amateur sculptor, and when the mood strikes, he dons an apron and starts to play with clay. President John McDonnell is a shy, private man who likes to retreat to what he calls ''my own little room'' -- a 12-by-12-foot glass-walled turret perched aerielike on the roof of his home. Sometimes he gazes at the night sky through an $89 department-store telescope. The room's only piece of furniture is a lawn chair. ''I go there for quiet, to study and to think,'' says John. The cousins have a lot to think about. As Wolfgang Demisch, a security analyst with First Boston, puts it: ''They're scrambling to keep their place on the throne.'' Like the rest of its industry, McDonnell Douglas, the third- largest aerospace company, with sales of more than $12 billion in 1986, has always been buffeted by the riches-to-rags spending habits of its customers. These days McDonnell Douglas has to fight its battles on several fronts at once. Its commercial aircraft compete with Boeing and Europe's Airbus, and its fighter planes with a squadron of other manufacturers. The space hardware the company makes -- space stations, rockets, cruise missiles, and a galaxy of Star Wars components -- must go toe-to-toe with the products of some 40 other manufacturers. As if the competition weren't tough enough, McDonnell Douglas's biggest customer, the Defense Department, has suddenly rewritten all the procurement rules. In the past a company that developed, say, a new fighter plane, got to manufacture it. Now it must share its technology with competitors, any one of which may then submit a lower bid to snatch away the contract. ''The whole defense environment is under pressure, and McDonnell Douglas can't dodge it any more than anyone else,'' says Demisch. To make things even more uncertain, diversifications into other operations show mixed results. A series of write- offs, designed to trim down the company for the future, have knocked earnings for a loop, though Demisch expects sales and profits to grow modestly in the years ahead. Typically Sandy and John have devised some odd solutions to their problems. Big believers in participative management, they encourage workers and managers to split into cells to set their own productivity targets. Some managers have hauled their desks onto the factory floor to reinforce their roles as cell members. Not everyone has been won over. At McDonnell Douglas's commercial aircraft plant in Long Beach, California, union workers are staging a slowdown in a dispute over work rules and the size of their contributions to a health insurance plan. To encourage communication between the ranks, the cousins open the executive dining room to all comers on Thursdays. True, the menu is soup and salad, vs. roast beef and chicken on other days, but Sandy and other top executives make frequent appearances. On trips to the company's far-flung facilities, John invariably eats in the employee cafeteria. He carries a small notebook to jot down what people say. The autocratic Mr. Mac carried a small notebook too, mostly to record his own ideas. Mr. Mac called his employees ''teammates'' -- John says his father liked ''comrades'' better, but the Russians beat him to it. Yet, paradoxically, he rarely sought advice from his teammates (as McDonnell Douglas's 106,000 employees are still known) or anyone else. Sandy recalls the time a vice president called in a consultant to discuss strategic planning. Mr. Mac walked in mid-meeting and angrily ordered the executive to follow him to his office. ''I'm the strategic planner here,'' he said. ''You forget it.'' Orders were orders in Mr. Mac's day. IT WAS ORDERS from the U.S. Army that indirectly put Sandy on his uncle's team. Sandy's father, Mr. Mac's elder brother, was a prominent St. Louis banker. When Sandy graduated from Princeton with a degree in economics, it seemed likely that he, too, would go into banking. But in 1943 he joined the Army, which sent him to engineering school and then to work on the Manhattan Project. The young sergeant, who had despised science in high school, came to love engineering. After his discharge he earned two engineering degrees, a bachelor's at the University of Colorado and a master's at Washington University in St. Louis. Sandy joined the family company in 1948 and began a steady climb. But he never had any guarantees of becoming the boss. During the 1960s, the odds-on favorite to succeed Mr. Mac was president David Lewis. But in 1970 Lewis, despairing that Mr. Mac, then in his 70s, would ever let go, moved to General Dynamics as chief executive. ''Thank goodness he did,'' Sandy chuckles. ''Otherwise I might not have this job.'' With Lewis gone, Sandy became president and, a year later, chief executive -- but only as a device to get his uncle off the hook. Mr. Mac had had a phone call from Robert Six, then head of Continental Airlines. Unhappy with some item on a new plane, Six demanded to see McDonnell Douglas's chief executive in Continental's Los Angeles office the following Monday. Mr. Mac promoted Sandy forthwith, and dispatched him to California. Giving up the C.E.O. title did not mean Mr. Mac's grip was loosening. Sandy tells of a disagreement with his uncle that ended with a memorable exchange. Sandy: ''I understand what you're saying, but now that I'm chief executive I'll take responsibility and do it my way.'' Mr. Mac: ''You may be chief executive, but I'm still the boss.'' They did it Mr. Mac's way. Sandy tells such tales without bitterness. He clearly liked and admired his uncle. ''I could never have done the things he did,'' he says, referring to the single-minded way Mr. Mac built the company. But he also feels that McDonnell Douglas drifted during Mr. Mac's last years. The need to share decision-making became increasingly acute. ''There was a bottleneck'' on Mr. Mac's desk, Sandy recalls, and what delegation there was came ''only by default.'' When Mr. Mac died at 81 in 1980, Sandy became chief executive in fact as well as name. He immediately sought help in a way that might have humbled a vainer or less self-confident man. He called Reginald Jones, then chief executive of General Electric and an innovator in strategic planning, and arranged to spend a half day with him to ''get his ideas and counsel.'' Among other things, Jones, who remembers the meeting well, urged Sandy to bring on more outside directors who could help plan for the future. For further advice Sandy turned to a book called Self Renewal: The Individual and the Innovative Society by John W. Gardner, the former head of Common Cause. Says Sandy: ''Gardner described how organizations, like people, tend to grow old and take on the characteristics of old age. There's less ability to reason. The flexibility of the joints and mind begin to go. They grow old and die because they are not able to respond to the marketplace. To survive they must retain the characteristics of youth.'' SANDY MULLED the message in Gardner's book, bouncing ideas off his top executives. But it was the backing he got from John, who had become president after his father's death, that meant the most. They reduced the book's message to five maxims. These became the ''five keys'': strategic management, human resources management, participative management, ethical decision-making, and quality/productivity. The keys, which appear on placards throughout McDonnell Douglas facilities, are at the heart of the post-Mr. Mac corporate culture. ''If John hadn't been supportive, it wouldn't have worked,'' Sandy says. John also sided with Sandy in what turned out to be a critical decision for the company. Some board members, noting that Boeing had taken a clear lead in commercial airliners and that Airbus was coming on strong, argued that the company should quit the business altogether. Other directors, urging the opposite, pressed Sandy to produce an entirely new commercial aircraft, which would have meant a mammoth investment. Sandy wanted to take a middle course. He argued that the company could stay in the business, save money, and remain competitive with a next-generation DC-9. He won, and the MD-80, as the company calls its 150-seat mid-range jet, has fared well. McDonnell Douglas is counting heavily on the MD-11, a descendant of the DC-10, to keep it in shape for the next round against Boeing and Airbus. UNLIKE SANDY, John always wanted to be an engineer. He graduated from Princeton in 1962 with an engineering degree and immediately went to work for his father. Within months he decided that engineering was ''too narrow'' for him. So he enrolled in night school at Washington University to study business administration. He still was a relative neophyte in financial matters, a backroom number cruncher, when the company put together McDonnell Douglas Finance Corp. in Los Angeles. It originally was designed as a marketing arm to provide financing for potential plane buyers. Now it has grown into a broad- based, highly profitable financial services company that also leases automobiles and invests in real estate, among other activities. By 1968 John was vice president of the division. Three years later John returned to St. Louis to organize the company's embryonic information-systems operation. The division already had bought the software rights to an electronic database of hospital patient information put together by an order of Illinois nuns. It grew fast, mainly through more acquisitions, including Tymshare. Today it still is paying down debt from its fast growth. John's years in information systems made him something of a stranger to the company's other operations. When he began to visit aerospace facilities in St. Louis, the red Jaguar sports car he drove was more recognizable than he was. Although they work closely together, John and Sandy are not kissing cousins. Aside from clan gatherings, they rarely see each other socially. Sandy and his wife are often seen at the St. Louis opera and other musical events. John prefers to ski and to canoe along the Canadian border with his wife. The two women are different too. Sandy's wife, Priscilla, is a patron of the arts. John's wife, Anne, runs a real estate business that rehabilitates inner-city housing. At John's request, Anne put together a committee of executive wives from McDonnell Douglas to study the feasibility of a company day care center. A good idea, she reported. McCare opened in July and tends 91 tots. WHETHER it's day care centers, parking lot priorities, or the differences in pay scales between secretaries on the West Coast and in St. Louis, John dunks himself in details -- though not as obsessively as his father. Teammates know that John will look into their problems, however picayune. They also know that he is subjected to the same ''skip-level evaluations'' that many of them get. As part of the new democracy, employees have begun to rate their immediate boss with his boss, listing his pros and cons. The boss passes the message back down a rung. Sandy hears all about John this way. Recently he relayed to John four suggestions on how to be a better manager. (John declined to share them with FORTUNE.) Overall John gets a very positive evaluation from his cousin. ''He's got all of his father's genius and none of his drawbacks,'' says Sandy. There's no doubt in anybody's mind that Sandy is the boss. The fact that John controls 8% of the stock (worth $212 million) vs. Sandy's 2% makes no difference, least of all to John. It may well be that John will be the last family member to run the company. His elder brother, James S. McDonnell III, 51, is a corporate vice president who company insiders say has no ambition to go further. John has not pushed any of his five children, age 18 to 24, to study engineering, and so far they haven't. The only member of the next generation working at McDonnell Douglas is Sandy's second child, William R. McDonnell, 35, an executive on a team pursuing a multibillion-dollar Army helicopter contract. And Sandy makes very clear that the McDonnell name carries no guarantees. The big question is when Sandy will step down and let John take over. John says only: ''We've had a meeting of the minds. But it's Sandy's life and his retirement. I'm uncomfortable talking about it.'' Sandy is vague too. ''I'll leave before Mr. Mac did,'' he says. The cousins field questions they don't want to answer with charm and a Scottish twinkle in their eye. Maybe what you see in the McDonnells -- intellect, an ability to work and think well, and a basic decency -- is precisely what you get. That in itself is pretty odd.


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