The Failure Specialist

Why do companies fail? And what can be done to turn them around before it is too late? While these are common questions in the business world, the responses frequently are inadequate and the lessons of failure are not always taken to heart. In a capitalist economy built on risk and reward, business failures are bound to occur and are a normal, healthy part of what the economist Joseph Schumpeter called “creative destruction.” At the same time, there are ways to improve the odds of success, as any business school professor will tell you.

Most problems begin with bad management— perhaps the entrepreneur who started the business with a great product or idea is the wrong person to take the company to the next level. He or she may be good at product development but not at marketing and commercialization.

Corporate governance is another big issue; directors may not be sufficiently independent of management to do a proper job of oversight or they may simply not understand the business well enough to identify problems before trouble occurs. Senior executives, often motivated by excessive compensation packages, recite the mantra of shareholder value, but their decisions in many cases destroy growth in the long term.

Part of the problem in this country has been the clubby nature of Canadian business, which was dominated for decades by large holding companies and by the same cast of players who did business with each other and sat on each other’s boards. The issue came to prominence in the mid 1970s in a takeover battle between two of the country’s biggest conglomerates: Power Corporation of Montreal sought to take control of Argus Corporation of Toronto, prompting Prime Minister Pierre Trudeau to convene a royal commission to examine the public policy issues surrounding corporate concentration. The Power Corporation bid ultimately failed and there were no immediate changes in legislation resulting from the commission’s recommendations. But Canada did implement significant reforms to competition policy in the 1980s that have helped to curb the monopolistic appetites of some corporate groups.

Still, there are issues particular to Canada that continue to pose problems for corporate governance and effective management. One is that family-controlled businesses in this country are, to a much greater extent than in the United States, protected by dual-class share structures that entrench voting control with groups that have only a minority of the equity invested in the business. That does not promote good management or accountability to shareholders.

Tony Griffiths came of age as a business executive during the period in the 1960s and ’70s when corporate concentration was growing. The mismanagement of Canadian business is one of the purported themes in Corporate Catalyst: A Chronicle of the (Mis)management of Canadian Business from a Veteran Insider, a memoir of his long and eventful career as an executive, director and turnaround artist at many Canadian companies. Unfortunately, his account does not deal sufficiently with the issues that lead to poor corporate governance and bad management.

Griffiths’s CV includes stints at Mitel, once the darling of Canadian high-tech companies before it crashed, and Confederation Life, where he was a director when the highly leveraged financial firm went down. He ran businesses as diverse as cable television, carpets and consumer glass, and was often solicited for his advice as a consultant and turnaround strategist.

“Business success is usually a direct result of values that define the culture of an organization,” he writes. “So much depends on the honesty and integrity of the CEO and his or her relationship with the chair and the individual directors. The code of conduct should be guided by what is the right thing to do for the entire organization—not what benefits the CEO or the senior management.”

It is a simple ethical principle but one that is rarely followed in the business world, where greed and expedience rule. As Griffiths plays back the deals, takeovers and refinancing packages in which he was involved, many handshakes were betrayed and many promises broken. Clearly, one cannot put too high a price on ethics and integrity. It is too bad the country’s business schools do not do a better job of instilling those values in MBA graduates.

Griffiths had a ringside seat at the Canadian business circus in the 1970s and ’80s, when holding companies such as Edper Investments and Brascan were dominant. He fenced with Ted Rogers, whose company, Rogers Communications, wound up buying Canadian Cablesystems, the cable TV company that Griffiths ran for a long time. At Mitel, he had to deal with less than helpful controlling shareholders: first British Telecom and then Schroder Ventures. Others who make appearances in his book include Conrad Black, the Belzberg family, the late media mogul Izzy Asper and financiers Chris Ondaatje and Prem Watsa. It would be easier to name the Canadian business tycoons who did not deal with him than to recite the list of those who did.

Griffiths clearly earned respect for the manner in which he conducted himself in the many deals discussed. But the reader comes away from this book wishing for more reflection and insight from this veteran of the corporate wars. The details of refinancing packages are recited in mind-numbing detail and one wishes the author could have taken a deep breath and drawn some larger lessons from everything that happened. If mismanagement is so common, then surely Griffiths must have more to tell us about why.

It is a question as pressing today as ever, given the struggles of BlackBerry maker Research In Motion, once considered Canada’s greatest success in high technology. The management mistakes at RIM include failing to react quickly enough to changing technology in the smartphone market and failing to take the competition (especially Apple) seriously enough. Technology entrepreneurs are often great at developing products but do not always have what it takes to manage growth.

The absence of a contemporary perspective on Canadian business management is perhaps the biggest problem with this book. The bulk of it was written in 1994 but Griffiths postponed publishing it until now, nearly 20 years later. That is a very long time in today’s fast-moving business world. Consider all the changes we have seen in technology, capital markets and globalization over two decades and you realize that managers and directors today are dealing with a whole different set of problems.

Still, some values and principles do endure and the final chapter offers useful reflection on how to turn around troubled enterprises. By the time the firefighter arrives on the scene, says Griffiths, it is usually too late to get rid of the CEO, the damage has been done, cash is running out and the competition is taking full advantage.

The turnaround strategy needs to be decisive. “In many cases management will not act fast enough or go deep enough. My rule of thumb is to do what has to be done to regain profitability once. To try to accomplish this incrementally leads to disaster. It means that layoffs, downsizing, and the selling off of assets will be revisited two or three times, creating uncertainty and continued demoralization.”

Turnaround strategies often do succeed, partly because Canada has developed an effective body of legislation to protect companies from creditors while they work out new business plans. But success also depends on the ability to determine which parts of the business can be jettisoned or salvaged.

Companies may have to sell a good division or brand to survive, even when they are reluctant to do so, and not doing this in a timely fashion can narrow the options down the road. Many companies in trouble have been criticized for failing to divest good assets, including General Motors, Nortel and CanWest Communications.

While this is a useful history of a colourful era in Canadian business, one cannot escape the feeling that it could have offered us more of the author’s hard-earned insights and wisdom on the thin line that sometimes separates success from failure.