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The McCains – When the chips are down

Source : Family Wars – Grant Gordon & Nigel Nicholson

The Mccain Dynasty

The McCain family were part of the wave of emigrants from the British Isles who began farming in the fertile lands of Eastern Canada in the 1860s. H H (Henry) McCain was an innovator and a genuine entrepreneur. His first venture concentrated on apple growing on his farm in Florenceville, New Brunswick. He also set up a general store, and was one of the first merchants in the area to pay farmers for their produce in cash rather than goods. He had three daughters and one son, Andrew Davies (A D). Andrew from an early age proved to be hard- working and intelligent, earning him responsibilities beyond his years. In 1910, Henry and Andrew started potato farming, and called their enterprise the McCain Produce Company. Potatoes became the most important cash crop in the area, and the McCains grabbed the opportunity to export their produce to the United States and beyond. Andrew worked tirelessly, and by the time Henry passed away in 1920 the business was flourishing.Andrew and his wife Laura had six children: Marie, Andrew, Robert, Eleanor, Harrison and Wallace. The gene lottery this time dealt a matrix of personality types that was to be an important leitmotiv for the family saga. The eldest, Marie was quiet and timid by nature; Andrew and Robert were solid, somewhat staid types, while younger sister Eleanor was quick-witted, funny and talkative. The two youngest siblings, Harrison and Wallace, were like twins, growing up very close to each other. A strict work ethic was instilled in all the children by their parents and mediocrity was not tolerated. The McCains never lavished money on the children. If they wanted something, they had to earn it. Mrs A D, as she was always known, was a strong and dynamic woman who ruled the McCain family.

Harrison and Wallace

Throughout their school years and into adulthood, it was the two youngest McCain brothers, Harrison and Wallace, who stood out. Harrison was a quiet and studious child, who not only flourished academically but was also an energetic athlete. He showed leadership qualities even in school, and in adolescence developed an uncom- monly strong interest in politics. Wallace, his ‘twin’, was the family jokester and somewhat of a rebel, who needed constant prodding to get him through his schooling. Yet in time he too flourished, largely by virtue of his enormous capacity for attention to detail. Both boys met their marriage partners at college: Harrison married Marion ‘Billie’ McNair, the sophisticated and well-connected daughter of the New Brunswick premier, and Wallace married Margaret Norrie, a strong and independent woman. At university the brothers were also building their social networks, which included an important relation- ship with the successor of a major industrialist, K C Irving, in whose firm they both obtained their first jobs on leaving college.

A D McCain died in February 1953, aged 74, with the business on his mind right to the end. But Harrison and Wallace decided not to join the family business after their father’s death, and chose to continue working for K C Irving. A D died intestate, which required his estate to be divided as specified by law. His widow Laura received a third of the assets, and the remainder was divided equally among the six children. The running of the family company fell largely to older brothers Andrew and Robert, with active support from Laura, in the role of company president.

Mccain Foods Ltd

In November 2001, Tom Jr and his three sisters fired the new CEO and decided to bring about a change in ownership structure of Bata. Although Tom Jr was willing to step in and manage the company operations, he was hampered by a trust structure that excluded Bata family members from exercising direct control over the organization. The siblings believed the company had dropped in value as a result of poor leadership over a decade, and were convinced that a new owner- ship structure would help them get onto the path to recovery.

This time the parents and the non-family trustees were willing to listen, and accepted the argument that a new structure was needed to survive the changes in the shoe industry. Now Tom Jr was able to assume the role of CEO in a reconstructed seven-member board, which included three Bata family members and four outsiders, with Sonja Bata holding the Bata charitable foundation board seat. With this new structure, the company’s destiny was once again in the hands of the Bata family.

The family were able to set aside the problems that had arisen during the long years of transition from second to third generation, and for the business to go forward with greater confidence as a family company and with a common sense of purpose.

The younger brothers jumped at the idea of setting up such a venture, both investing C$30,000 for a one-third stake, with Andrew and Robert both contributing C$20,000 for a sixth share each. Additional finance to their C$100,000 start-up capital was raised via a bank loan, supplemented by a federal grant towards the cost of a new cold- storage plant that was needed to warehouse the company’s products. Harrison was already available to start work preparing the ground for the new business, and Wallace soon joined forces with his brother to oversee the building, construction and installation of the plant and equipment. The brothers formed Opco (‘Operating Company’), an umbrella group under which McCain Foods, Carleton Cold Storage and future McCain subsidiaries would operate.

The board was filled with family members, including the four brothers plus sister Marie’s husband Jed Sutherland, a practising dentist. In the early stages of the McCains’ frozen-food venture it grew rapidly under the shared leadership of Harrison as president and Wallace as vice president, selling most of the produce to the catering trade. Harrison from the start was highly confident and led from the front. He was the McCain seen in the public eye, whereas Wallace was more of a details man focused on the business operations. Year by year the business became more profitable and the company grew steadily. Meanwhile, the cattle and farming company founded by their grandfather, McCain Produce Co, which grew crops for the new processing plant and continued to ship seed potatoes worldwide, was still being run by Andrew and Robert.

One of the McCains’ best strategic moves during the 1960s was to focus their international development efforts on the British market, rather than attempting to go next door, to the United States. This turned out to be an inspired choice, for they entered the United Kingdom at a time when fast food restaurants were springing up all over the country. In 1971 the brothers changed their titles to better reflect the jobs they were actually doing in the business: Harrison became chairman and Wallace president.

Later, they started to compartmentalize the business, splitting their responsibilities along geographic lines: Harrison took charge of the United Kingdom, Europe and their transport business in Canada, while Wallace directed operations in Canada, Australia and the United States, all markets in which the company was now working. McCain sales grew strongly during this period

Uneasy Partnership

Harrison and Wallace worked hand in hand as a sibling partnership team. Harrison liked to play the role of the patriarch, though he had a temperamental streak. He focused on business development and finding talented people to staff the growing business. Wallace, with his meticulous attention to detail, kept the factory running, ensured costs were under control, and continually searched for ways to improve productivity. In all his dealings, with employees and suppliers alike, Wallace was tough but scrupulously honest. In those early days governance was relatively unstructured and the brothers rarely had board meetings. They sought informal consensus to make the most of their decisions.

While their wealth might have been comparable, their status was not. Harrison’s social standing had been given a major boost when he was appointed to the board of the Bank of Nova Scotia in 1971. Wallace disapproved of his brother taking time out of the family business to pursue other professional activities. A second more seriously divisive issue around ownership planning arose at the same time. Three of the brothers agreed to a plan for transferring their shares into trusts. The fourth, Harrison, increasingly a man of distinction, stood out against this move. His view was that you shouldn’t automatically trust your family. Wallace was shocked. What could it signify that his once so close brother could be so low in trust? Might this not mean that Harrison was untrustworthy himself.

Harrison and Marion had five children; two sons and three daughters: Mark, Peter, Ann, Laura and Gillian. None of their five offspring would establish a successful long-term career path in the family firm. To a large extent the reason lies at the door of their dominant father. There was not much light for growth under the shade of Harrison’s increasingly looming presence, and all found it better to develop their lives away from the family company. Also, while the hiring policy for male family members was very loose, with easy access to jobs in the firm, the McCain daughters were not welcomed. Laura seemed to have the skills and to be the most motivated to work in the family company, but she only stayed in the firm for a very short period before leaving to set up her own seafood business.

Wallace and Margaret had four children: Scott, Michael, Martha (who was adopted) and Eleanor, and their success rate in career terms was destined to exceed Harrison’s children. The first-born son Scott, aregular guy who loved hockey and socializing, was to become the vice president of production in McCain Foods, but Wallace’s other son Michael proved to be the most ambitious. Academically bright and brimming with self-confidence, it was Michael of all the McCain chil- dren who demonstrated most interest in joining the business.

Michael openly expressed his ambition to one day succeed his Uncle Harrison. He did not do so in any kind of weak-minded way, but with a belief that family should prove themselves, and that the current hiring policy was too lax, protecting the weaker family members by placing too little emphasis on performance. Michael also knew that it would be very difficult to rise to the top because of the tension that existed in his relationship with his uncle. He sensed early on that they would be engaged in a fight. It was a case of the young stag versus the old bull. His mother, Margaret, seeing this cloud of conflict on the horizon, wanted her youngest son to get out of the family business before a clash occurred. Meanwhile, other family members were eying the same prize. Michael’s cousin, Allison, from the Andrew McCain branch, an engineer by training, applied to his Uncle Harrison to join the business. Harrison’s agreement to hire his nephew was taken without his brother Wallace’s knowledge.

The Tension Rises

Suddenly an illness struck the second of the brothers, Robert, who died in 1977 at the age of 55. On top of this, the situation revealed deficiencies in the firm’s governance procedures. There was no guidance on how to resolve the question of who should succeed Robert on the board,for he had died suddenly and unexpectedly leaving no succession plans in place. The family at this point invited their family lawyer Roger Wilson to join the board. Harrison and Wallace knew that appointing close advisers to the board was not sound practice in governance terms. A slate of independent directors would have been more valuable at this stage. The brothers did however make a gesture to the minority family shareholders and started small dividend payments, the first in over two decades. Soon however Harrison and Wallace slipped back into their normal mode of running their fast- growing business, without attending to questions around governance and succession planning. So it was with Harrison and Wallace, steadfastly ignoring the issues between them while they continued to drift apart. But cracks started to emerge through which the tension burst.

One visible incident occurred when Harrison was inaugurating a new plant in France in October 1981. Harrison held a press conference during the launch party, failing to invite or even inform Wallace, who had been intimately involved in the groundwork to get the factory up and running. This piece of neglect was compounded some years later in 1988 at an awards ceremony in Toronto, honouring Canadian business leaders, which Harrison had won but again didn’t invite his brother to attend. Wallace found out independently and was determined to be there, so he pointedly booked a table, to which he invited his own list of company executives. But Harrison trumped him at the last. When Harrison went to receive his award and make his acceptance speech, he introduced all the people at his table but made no mention of his brother. For Wallace this was a very public humiliation.

Meanwhile, McCain Foods had grown to become the market’s largest French-fry maker, employing more than 18,000 people, with 55 plants around the world. Harrison and Wallace worked in adjoining offices connected by an unlocked door, and they often talked on an intercom or shouted through the open door. Decisions in the business were taken by consensus, and the brothers continued to work together as a team, despite the antipathy bubbling away beneath. The one issue that openly divided them, however, was the subject of succession. Over the years, Harrison felt his brother Wallace was becoming blinded by his regard for his son Michael.

The Crunch

Wallace for his part thought Harrison was becoming corrupted by power, and that he would hang on as long as humanly possible, effectively stifling the ambitions of the next generation. By now the standoff between the two brothers was beginning to negatively impact the corporation. In 1988 their largest competitor in the United States was put up for sale and McCain didn’t even enter a bid, thereby surrendering an unrepeatable chance to try and acquire a bigger slice of the US market.

With the relationship between the siblings heading towards breakdown Wallace decided to try to find a solution with the help of external intervention, hiring Professor John Ward, the eminent family business scholar and consultant. This was not the first attempt. Two years earlier, another family business consultant had proved unable to broker a lasting peace between the brothers. Ward saw the primary need to be greater objectivity and detachment, by establishing a board with a majority of independent directors, requiring the brothers to both back off from their respective positions. The directors’ task would be to decide on a plan for leadership succession. Predictably perhaps, trust between the brothers was at such a low ebb that they were unable to agree on the board structure, let alone on candidates for the non-executive director positions. Ward’s intervention was doomed. Although his remedy was correct in theory, it failed because it did not pass the first hurdle of assent by the warring brothers. When the patient is in no mood to take the medicine, the physician’s wisdom is wasted. Wallace had expressed his wish to appoint his son Michael as the CEO of McCain’s US operations, a new post the organization was due to fill. In fact Michael had been running for some time the largest of the three US divisions, McCain Citrus, the fruit juice business, significantly growing its revenues and returning it to profitability.

The Ousting Of Wallace

The succession battle by now had become openly vitriolic and extremely messy. Wallace proposed three options to break the logjam:
split the operations of the company geographically into two separate units;
implement what is known as a buy-sell type agreement, under which ownership control can change through the highest bidder being able either to sell or buy shares;
sell the company outright.

Wallace let it be known that he had no desire to be thrown out of the business or demoted to play second fiddle to Harrison. Harrison unsurprisingly rejected Wallace’s proposals, sending a letter to board chairman Andrew McCain describing Wallace’s proposals and asking the directors to decide on a course of action. Following a quick-fire series of board meetings it was decided Wallace must step down from his CEO position.

The decision was backed by all board members except Wallace’s sons. He had only one last card to play. He offered to buy 17.5 per cent of McCain shares from his relatives to try to gain a majority shareholding in the group. With the share offer for the first time a value had been put on the company, but Wallace’s bid to buy the shares expired without any takers. The outcome left Wallace and his family sidelined. At this point Wallace and his family decided to sell their shares to the company and make a full exit from the business. Thus ended the long struggle of the McCain siblings. The split ended the brothers’ relationship, and while Harrison continued to lead the original business well into his twilight years, Wallace and his family, staying true to their entrepreneurial values, acquired a large stake in Canada’s largest producer of breads and processed meats, Maple Leaf Foods, starting a parallel dynasty that thrives to this day.

Summary

This looks like another case of sibling rivalry, which of course it is at one level, but this is more than a case of brotherly rivalry. It really revolves around a changing adult relationship, a fascinating case of dual leadership gone wrong. Dual leadership models are much more common in the family business arena than elsewhere, and often they work well, with brothers, cousins, uncles, parents, as well as family and non-family, sharing leadership. Sometimes joint titles are held, such as co-CEO. In other cases one is designated chairman and the other CEO. It really doesn’t matter. What counts is how good the match between personality and roles is. How does the relationship evolve? How conscious and in agreement are the partners over their respective roles? How sensitive are they to each other’s needs and rights? What kind of process regulates their interaction?

Here two close siblings entered a space that was too crowded for them and too psychologically unregulated – by either of them. Harrison could have shown more restraint in his thrusting ambition, Wallace more openness in his attitude to family rights and obligations. Here the fighting for the crown was a surrogate battle fought out by the seniors on behalf of the next generation. In the absence of any effective governance to regulate the relationship and the process for decision making, it should have been up to the brothers to enter a constructive problem- solving mode.

Another lesson here is that advisers are only as good as the way in which they are used. What is especially pertinent here is that the family sought advice, got it, but were unwilling or unable to adopt it. This seems extraordinary and irrational – but think about it. Perhaps this behaviour is more common than we like to admit. Do people not go to their doctor and then ignore the advice? Why? Because they went for some reassurance that they did not get, or they were prescribed medicine that would be too painful to take. The sacrifices to their current life style were too great. The good advice they received would have created a complete reversal of their accustomed and preferred pattern of action, which was to keep outsiders at arm’s length and to trust in the good fortune that hard work and force of will had brought their family in the past.