Arkansas Inc. Podcast: Secretary of Commerce Hugh McDonald

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TRANSCRIPT

Hugh McDonald:

This is Hugh McDonald, Arkansas Secretary of Commerce, and you're listening to the Arkansas Inc. Podcast.

Clark Cogbill:

Welcome to the Arkansas Inc. Podcast. This is Clark Cogbill. I serve as Director of Marketing at the Arkansas Economic Development Commission. On December 27, 2022, Arkansas Governor-elect Sarah Sanders announced her intent to nominate Hugh McDonald as the Secretary of Commerce. She said, "As governor, I'm ready to unleash bold reforms to make Arkansas the best place in the nation to start and grow a business. And I'm proud to announce that Hugh McDonald will help me accomplish it as Secretary of the Department of Commerce." And we're lucky enough to be joined today on the podcast by Secretary McDonald.

He previously served as president and chief executive officer of Entergy Arkansas from 2000 until his retirement in 2016. Entergy Arkansas is the largest electric utility in the state, serving over 700,000 customers with annual revenues exceeding 2 billion. Hugh currently serves on the Board of Trustees of The Nature Conservancy of Arkansas, as a trustee for the North Dakota State University Foundation, and as a member of the Arkansas Career Education and Workforce Development Board. He holds a Bachelor of Science degree in Construction Management from North Dakota State University and earned an MBA from the University of New Orleans. Hugh and his wife, Michelle, have three children who all reside in Arkansas. Secretary Hugh McDonald, welcome to the Arkansas Inc. Podcast.

Hugh McDonald:

Good morning.

Clark Cogbill:

Well, Hugh, we are recording this podcast on April 11, 2023, 11 days ago, tornadoes hit multiple cities and towns in Arkansas. Five lives were lost and there was extensive damage to hundreds of homes, businesses, churches, and schools. The Arkansas Department of Commerce has organized some helpful resources that are available to those impacted by the storms. For our Arkansas listeners, would you please tell us a little bit more about that information and where they can find it?

Hugh McDonald:

Would be happy to, Clark. Let me start first, the Governor's Office, they actually created a webpage where you could go to search all sorts of information, and that webpage is helparkansas.com. The Department of Commerce also created a webpage with resources for both individuals and businesses, and you can visit that by going to commerce.arkansas.gov and you'll see a link to the Arkansas Tornado Response page. On that page, there's helpful links to the Small Business Administration, FEMA, Disaster Unemployment Assistance, insurance information, and also consumer protection.

Clark Cogbill:

There's a lot of good info out there, I know it's being updated daily. Again, visit helparkansas.com as well as commerce.arkansas.gov. Hugh, you're enjoying retirement after a successful career, culminating as president and chief executive officer of Entergy Arkansas. And then you get a call from then Governor-elect Sarah Sanders. What motivated you to exit retirement and step into the role of Secretary of Commerce for the state of Arkansas?

Hugh McDonald:

Thanks, Clark. I've gotten that question numerous times. First, it was honor just to be in the mix to get a phone call like that. I was happy. My wife and I were happy in retirement bliss. I think we were streaming something on Netflix one night and we got the call that we certainly weren't expecting. Very humbling, and as I said, just honored to be in the mix.

But I knew Governor Sanders was planning to do some big things with regard to economic development, workforce development, starting businesses in the state. I've done some economic development work in my previous life with Entergy and served on the Workforce Development Board with the Office of Skills Development for, gosh, maybe seven, eight years. Also, leading a large company, a large organization.

My wife and I thought about it for a little bit. My first reaction was, "Oh my gosh, I don't know if I've got the energy. I've been out of the game for quite a while," but it didn't take us long to think about. We've still got something to contribute. She told me, the governor told me that she wanted me to run commerce like I'd run a business. So, you just don't get those phone calls very often. I did not want to be sitting on my couch 10 years from now wondering what would I have done had I not accepted the position. So, I didn't want to be in a position of regret. So, we've jumped in both feet.

Clark Cogbill:

Well, we're glad you did. You're originally from North Dakota, you attended North Dakota State University, as I noted earlier. What is the origin story for how you got to Arkansas?

Hugh McDonald:

It's funny, I tell students when I talk to them, never say never, because I remember like it was yesterday when I was a junior, senior in college and getting ready to fill out those job placement packets. There were two questions on there, where would you most like to live? Where would you least like to live? And my most like to live was my wife, girlfriend at the time. We either wanted to move to the Rocky Mountain region or the West Coast. The other question is, where would you least like to live? And I checked Southeastern United States.

And wasn't two years after that, we had an interim stop in Kansas City for two years, worked for an engineering firm, and then in 1982 moved to New Orleans. So, within two years it went from Fargo, North Dakota to New Orleans, Louisiana, which most people say that you can't find much more of a cultural change than that. But we love New Orleans. All of our kids were born there. Various moves all within Entergy to Southern Mississippi and Austin, Texas, back to New Orleans and then to Little Rock in 2000. We're Southerners. We've lived in the South longer than we've lived in the North and that's how we got here. We've loved it. Lots of different experiences and no regrets, for sure.

Clark Cogbill:

Fantastic. We can now claim you as both a Southerner and an Arkansan, so we'll do that.

Hugh McDonald:

Yeah.

Clark Cogbill:

You've had a lot of great experiences, a lot of leadership roles. How do you draw up on those experiences and the roles you've had in your career? And how did they prepare you for now what we'll call your second career as Secretary of Commerce?

Hugh McDonald:

Yeah, the utility industry is a great industry. I'm biased, of course, it's a regulated monopoly and that has negative connotations. But it's really as a result of the structure of the industry and defined service territories that have been set by policymakers over the years. The rates are regulated. But at the end of the day, it's a service-related business. I was just blessed to be able to rise through that industry in four different states, many different functions along the way to ultimately become a CEO.

So, I got to experience all the different pieces that makes up a utility, electric utility, got involved in public policy issues, obviously, operations of the utility, the investment community, what investors expect, because Entergy is a public, investor-owned utility, legislative and regulatory arenas, the rulemaking process, emergency response, customer service, economic development, and all kinds of stakeholders that the utility industry has.

There's not many industries, frankly, that get one exposed to all those different facets of the nation's economy, frankly. Being CEO, I get to see all of it, not in depth, but some very much in depth, but certainly got exposed to it when issues bubbled up to me. So, blessed to be able to have those experiences and I think it dovetails very closely with my current job in economic development and with regard to the Department of Commerce, which is supporting business, trying to reduce burdensome regulations on business. You have to have regulations of some sort, but you don't want them to be so burdensome that people can't run a business.

So, there's a balance there and trying to reduce those regulatory burdens on business is a good thing, at the end of the day. I talked about economic development and just running a large organization, Department of Commerce has about 1,400 employees, so that's something I've done before and I know how to run an organization and structure an efficient organization. So, I think all of those experiences have lent me the ability to be able to contribute.

Clark Cogbill:

Also, not only your ability to run the Department of Commerce, but we're going to talk in a little bit about your perspective as an executive and, in economic development, executives are a key audience. When I joined AEDC, I was surprised to learn how involved energy companies are in economic development. Can you talk a little bit more about the important role that utility organizations like Entergy Arkansas play in economic development?

Hugh McDonald:

Sure. I came from the investor-owned side of electric utilities and gas utilities, and they have a financial incentive to sell more kilowatt-hours or Mcf of gas, heavy fixed cost industry. As I said earlier, it's a regulated monopoly and the rates are approved by its regulators. So, they are always looking to sell more kilowatt-hours to spread those more kilowatt-hours over that fixed cost to help actually reduce rates. Back in the early days, before nuclear power, they AP&L, Arkansas Power and Light at the time, had a motto that was called helping build Arkansas. They built lines, they built power plants, transmission, distribution, all over the state to help build Arkansas and recruit new business. The more kilowatt-hours they could sell over that fixed cost actually helped drive rates down for a time. The motivation is still there to try to recruit new business, sell more kilowatt-hours, that helps their bottom line. But it also is consistent with the wants and desires of the state to grow jobs, grow the tax base and help the state move forward.

Clark Cogbill:

Well, we certainly have a strong partnership at AEDC with Entergy Arkansas and with all of our energy partners in the state. I think one of Arkansas' strengths is our ability to collaborate in partnerships to make us more competitive.

Hugh McDonald:

Very much so. Yes, that's right.

Clark Cogbill:

You talked about the Department of Commerce, actually created in 2019, is a large organization. It includes Arkansas Development Finance Authority, the Division of Aeronautics, the Division of Workforce Services, the Insurance and Securities Departments, the State Bank Department, Waterways Commission, Wine Producers Council, some folks' favorite part of the Department of Commerce, the Office of Skills Development, and the Arkansas Economic Development Commission. You've talked about the opportunity to improve the collaboration among these divisions. How can your vision of one commerce, as you've called it, make Arkansas more competitive from an economic development perspective?

Hugh McDonald:

Yeah, it's a good question. There's a lot of different divisions that you reeled off there, and they all, in one respect or another, have some impact relationship to businesses and employment in our state. All the divisions, while I say we're one commerce, we're not all the same, but we do have some consistent and common themes among us and that is to support business.

Like all organizations we want there, there's limited priorities, and what I want to make sure that all the divisions are aware of the strategic priorities within commerce that supports Governor Sanders' priorities as well. But sharing that information across all the divisions, so everybody is knowledgeable of what those priorities are and sharing the expertise, so we can maximize those limited resources across our divisions and help one another.

Easy to say, not so easy to do within a state agency. But, as I said, we've got limited resources and I think we can restructure our agency a little more efficiently than we have in the past. Bringing some of my experience with running a large organization to bear, I think we can do better. People have heard me talk about having more shared services organization, which means that we can run those functions more efficiently and take those savings and invest in areas where we need to make our programs better or even add new programs.

That's what I talk about when we're one commerce and maximize our limited resources. That's what the governor's expecting us to do, frankly, is let's try to change from within first and being able to compensate our employees closer to the market. We can take some of those savings and hopefully apply those to some salary changes. So, a lot of that all works together. So much of this is tied together, making a change over here, making a change over there, and how we can take those savings and apply them to what the highest strategic priority is for the Department of Commerce and ultimately for the state.

Clark Cogbill:

It makes a lot of sense. In a recent interview with Arkansas Business, Hugh, you talked about the race for talent and the importance of reshaping the state's workforce to meet the demands of industries like agriculture, manufacturing, aerospace and defense, technology, and so many others. How do we, as a state, attack the challenge of preparing our workforce and recruiting talent?

Hugh McDonald:

Yeah, I think that's probably the biggest challenge. All states have got this. With Arkansas, let's start first with a comprehensive statewide workforce development strategy that includes all the stakeholders, from K through 12, to employers, to higher education, to your four-year institutions. Parents, for example, have obviously got to be a key player in that, but the state has developed, the governor has established a workforce cabinet with the chief workforce officer, his name is Mike Rogers, an executive from Tyson, great guy, bringing a lot of experience to the table to really focus our attention, focus more of our attention compared to historical, but focus a lot of our attention on that high school, junior high school, up to two-year college, and all the opportunities in between the certificates of proficiency, technical certificates, apprenticeships, you name it.

We've got to do a better job of exposing those kids in high school, and their parents, and their career counselors, in high school to all of the opportunities that exist today for careers that may not necessarily require a four-year college degree, but they require a two-year degree or less. Getting all of those ducks aligned is a challenge, but that's what we want to do. For example, the two-year colleges are critical for this segment of the workforce, and getting them aligned to the needs of their employers in their particular region is absolutely essential. Where we've got the kids getting exposed and actually getting some training while they're in high school to some of the employers in their particular region and they go straight to work, making a decent wage, decent salary right out of high school. They'll still require some training, of course, most every job today requires training, post-secondary training of some sort.

So, it's really getting all of our oars in the water and rowing in the right direction, the same direction, to make that strategy happen. Four-year colleges are still very, very important, but historically, and not just Arkansas, but across the country, we've said that all kids need to go to college. Well, I don't think that's the right strategy. I think we certainly want more kids to go and finish a four-your college degree, because that's still very, very important to innovation in economy, innovation in entrepreneurship, starting small companies that can scale and grow into big companies. But for the 60% of the kids in Arkansas that won't have a four-year degree and maybe won't have a complete two-year degree, we want to make sure that they've got the best skills possible and are exposed to all the opportunities out there and actually have a great career and build a great life and family in Arkansas.

Clark Cogbill:

I've heard you talk recently about, when it comes to talent, how, in a recent report, Arkansas was ranked number one in terms of the rate of inbound movers in a 2021-2022 report, meaning, in a given year, we had a higher percentage of net people moving in. How much do you think, rather than call it quality of life, I'll call it life in the Natural State, how much do you think we can leverage that as a selling point to talent acquisition?

Hugh McDonald:

We have to. Some of that was COVID, but I think some of it is a permanent sort of reassessment of people in their lives, work-life balance, quality of life, quality of place is becoming... I mean, that was more important, frankly, from an economic development standpoint, prior to COVID, but I think it's becoming increasingly more important from an economic development standpoint.

So, we definitely have to increase our attention and our resources on attracting talent to the state. There are efforts already underway. Northwest Arkansas has done a really good job in terms of trying to recruit entrepreneurs and high-tech professionals to Northwest Arkansas, and it's called their Life Works Here campaign. And they've done a great job. I think Central Arkansas is going to begin doing something like that. As a state, we need to do the same thing. There's just so much opportunity from a career standpoint in the state of Arkansas as well as a quality of life living in Arkansas.

It is a hidden gem, I think, to many outside of the state. I have friends and relatives who, when they come to visit, they're shocked. They have no idea of how beautiful the state is. The state has a multitude of different regions from rivers, and lakes, and mountains, and delta, and swamps, and they all have their specific diverse nature, but provides a quality of life that few can see, frankly, in the country. And low cost of living-

Clark Cogbill:

Right. Among the lowest.

Hugh McDonald:

Among the lowest in the country, provides a great quality of life. So, there's just a lot of opportunity that I think we need to tap. Now's the time to start tapping those opportunities and telling our story as a state, and recruit more people to the state, more people that can start their own business to grow their own jobs. A lot of opportunity for the state to continue to grow and recruit businesses and entrepreneurs to the state of Arkansas.

Clark Cogbill:

A lot of opportunity indeed. Hugh, in economic development marketing, which is my job, we're always thinking about who is our audience. One of our high priority audiences are executives. As a former executive of a Fortune 500 company, what's appealing to you about Arkansas as a place to operate either a company headquarters or a major operation?

Hugh McDonald:

Well, first of all, it's a business-friendly administration, business-friendly environment. The legislature is also business-friendly. Low cost of doing business, and the cost of doing business is getting lower with continued reduction of income taxes, both personal and corporate. Regulation is relatively low. Think about the state, which I found helpful when I was a CEO, was it's a problem-solver. If you have a problem as a business, you can go to the respective agency, you can go to the governor's office, frankly, and they're going to become a problem-solver for you, help solve your problems and actually not become a problem-creator for businesses.

The workforce is strong here. The desire to work for the typical Arkansan is a quality workforce. Like I said, the state's willing to help with new companies to train their workforce. Of course, I've said earlier, the quality of life, for any CEO who's moving their company here or starting to expand, expanding their business, or moving a facility here, they want to understand the quality of life for their employees as well. And the quality of life is frankly second to none, in my opinion.

Clark Cogbill:

I agree.

Hugh McDonald:

We've got lots of options for public education, higher education, the outdoor recreation economy is booming in this state and going to continue to increase. So, it's got a lot of options. It's got four seasons, not too hot, not too cold.

Clark Cogbill:

Right. Not North Dakota cold.

Hugh McDonald:

It's not North Dakota cold. That's right. It can get warm, but the seasons are not... The summers are not like... The six-month-long summers here are not like a six-month-long winter in North Dakota. I love North Dakota, my friends are in North Dakota, but they can have the snow and the shovels and the snowblowers.

Clark Cogbill:

Yeah. Today is a great example, I mean, as we're recording this, April 11th, I mean, it's a beautiful spring day outside and just driving around, it just makes you feel good.

Hugh McDonald:

Yeah, that it is. It's a great day. Not to make fun of my mom who's still living in Fargo, she had five inches of snow, new snow, last week.

Clark Cogbill:

No kidding, [inaudible 00:28:37].

Hugh McDonald:

On top of about three feet of snow.

Clark Cogbill:

Oh, wow. Wow. I'll take the spring weather we have today. Hugh, you have also identified entrepreneurship as a top priority. When you think about that, what is Arkansas' opportunity when it comes to fostering entrepreneurship and small business growth?

Hugh McDonald:

Yeah, I mean, the factors I just listed for a Fortune 500 company are really very similar for an entrepreneur and a small business owner, low cost of doing business, low regulation. But what Arkansas' got, it's got a burgeoning support network or an ecosystem across the state that strengthens the state's support for new business and entrepreneurship. What I'd like to be able to do at the Department of Commerce is continue to strengthen and broaden that net for new entrepreneurs and small businesses. The state can do more, in my opinion, and we will, we're working on a plan to actually do more, more to come on that.

But also, recently, the federal government through their SSBCI program will establish in Arkansas $45 million of venture capital, which will manage out of the Department of Finance and Authority, will actually allocate some of those dollars, the venture capital dollars to professional people who actually do venture capital and recruit businesses, and help grow businesses in Arkansas. So, 90% of those dollars will go to Arkansas companies.

Clark Cogbill:

That's fantastic.

Hugh McDonald:

So, those dollars will stay in Arkansas. We also want to ultimately leverage those, that $45 million, on a 10-to-one basis over time. If we do a good job at it, there'll be another tranche or potentially two more tranches of dollars from the federal government. So, we're excited about that. It's sort of a once-in-a-lifetime opportunity for states across the country to use these dollars most effectively to grow new potential and scale up new entrepreneur ventures.

Clark Cogbill:

Arkansas, really, if you think about it, really has a great history of entrepreneurship. We punch above our weight class when it comes to Fortune 500 companies. We have five in our state. You think about Walmart, Tyson, J.B. Hunt started with entrepreneurship.

Hugh McDonald:

It sure did. Yeah.

Clark Cogbill:

So, it's not new to the state.

Hugh McDonald:

Right.

Clark Cogbill:

Want to ask you about one more area of the economy, Governor Sanders has made growing Arkansas' outdoor recreation economy a priority. She created the Natural State Initiative and Natural State Advisory Council, which will work with several state entities, including the Department of Commerce, also the Department of Parks, Heritage and Tourism, and the Department of Finance and Administration. How can Arkansas capitalize on being the natural state to increase this sector, this outdoor recreation sector?

Hugh McDonald:

Yeah, it's a great opportunity for us. As I said earlier, we've got a beautiful state and our natural resources make it a beautiful state, and it's a huge asset to help us grow the outdoor recreational economy. As my friend at The Nature Conservancy, Roger Mangham, says, we can't love it to death, we got to protect our natural resources, of course, and we will throughout this process. But Northwest Arkansas, and the Walton Family Foundation, Steuart and Tom Walton, they've done a tremendous job of turning Northwest Arkansas into a mountain biking capital of the world in a very short period of time. The other work they've done up there with university and entrepreneurship in the outdoor recreation space has shown us that there's a huge opportunity for us in Arkansas.

We just recently passed some legislation in the state this last legislative session, to create four opportunity zones as sort of pilot test projects on how we can maximize our opportunities in four different areas to look at and further grow the outdoor economy in four particular areas of the state. More to come on that, but I think it's a great place to focus our attention and the outdoor economy will become another one of our targeted industry sectors in our traditional economic development efforts within AEDC.

Clark Cogbill:

It just makes sense. All the things that we've been talking about today, the beautiful state, there's so many things to do outdoors in Arkansas. I grew up floating the Buffalo River, and it just makes a lot of sense. We know people come here, people who live here enjoy outdoor recreation, but it is an important part of our economy. So, to focus on that just seems to make a ton of sense. Big opportunity there.

Hugh McDonald:

Yep.

Clark Cogbill:

All right, Hugh, some rapid fire questions for you to end the podcast today. Favorite weekend destination in Arkansas?

Hugh McDonald:

Oh, wow. Well, I'd probably have to say where my two daughters live in Fayetteville and Bentonville to get up there and visit with them.

Clark Cogbill:

Okay. It's beautiful up there. Favorite restaurant in Arkansas?

Hugh McDonald:

Well, there's a lot of good restaurants. I like Table 28 here in Little Rock and I'll probably focus my attention on Central Arkansas. But Table 28's great. We enjoy that there. Of course, Arthur's is great. We like-

Clark Cogbill:

You have good taste, Hugh.

Hugh McDonald:

... Northwest Arkansas. Yeah, yeah, yeah. Arthur's is very good. Northwest Arkansas, there's a lot of good places up there. Oh, gosh. The restaurant in 21c Hotel, the name escapes me right now. But great restaurant, lot of good places. Exciting thing about that part of the entertainment world or economic development world, there's more and more good restaurants coming to Arkansas it seems like every day a new restaurant opens up, so that's exciting, too.

Clark Cogbill:

Fun to try out the new restaurants. All right. How about a favorite hobby?

Hugh McDonald:

Yeah. Before retirement, I kind of liked to do a little woodworking, and that's been put on hold temporarily for the time being. That was fun. We have a little, an old cabin on Lake Hamilton, so we'd like to spend some time on the Lake, but traveling as well as well is a good hobby.

Clark Cogbill:

Yeah. All right. Last but not least, I got in your truck the other day and there were some good tunes playing. How about, I know you're a fan of music and rock and roll, if you had to pick a favorite band or musician?

Hugh McDonald:

Can't do it.

Clark Cogbill:

How about just a few that come to mind.

Hugh McDonald:

I can't do it. Oh, gosh. The Band is a classic, of course, Dylan and Young, Neil Young, during the times when I grew up, I went through a period of hard rock and roll times, you can't talk about rock and roll without talking about bands like Zeppelin and The Stones, and yeah, there's just too many. I don't have a favorite. There are so many favorites out there. I mean, Miles Davis, for example, in jazz. Going way back to early jazz days. I love listening to all that music and classical, too. So, I'm regressing in my older life, going back and now buying vinyl.

Clark Cogbill:

That's really cool. Vinyl is cool.

Hugh McDonald:

Yeah.

Clark Cogbill:

Well, I've been talking today with Hugh McDonald, secretary of the Arkansas Department of Commerce. Hugh, thanks for taking time with us today and sharing your insights.

Hugh McDonald:

Enjoyed it, Clark. Thank you.

Clark Cogbill:

You've been listening to the Arkansas Inc. Podcast. This is Clark Cogbill. I'm Director of Marketing at the Arkansas Economic Development Commission. You can subscribe to the Arkansas Inc. Podcast on Apple Podcasts, Spotify, Stitcher, and other podcast apps. For more information about AEDC and to sign up for our monthly newsletter, visit arkansasedc.com and connect with us on LinkedIn, Twitter, Facebook, and YouTube. Just a reminder that you can visit commerce.arkansas.gov and helparkansas.com for links to helpful information, resources, and ways to donate and volunteer in response to the recent storms that hit Arkansas. Thanks for tuning in.