ASAC 2005 Conference
Ryerson, Toronto

ANOTHER ONE BITES THE DUST:
TURNOVER AND FAILURE AMONG THE LEADING CANADIAN FIRMS, 1973-2003

The Parable of the Family Jewels
 

Ownership often became a contributing factor in the turnover of leading firms. Closely-held enterprises proved especially susceptible to elimination. Controlling interest by families or major investors does not axiomatically lead to weakness. In countries like Spain and Italy, closely-controlled firms prospered at the national or multinational level (see Chandler, Hikino, and Amatori, 1996). Nonetheless, there is a risk that the ‘gene pool’ of talent will run thin or that income maintenance from the ‘family jewels’ will assume dominance over the priorities integral to corporate regeneration. This phenomenon surfaced in the histories of Dylex, Ivaco, Maclean-Hunter, Simpsons, Southam, and Woodwards. It is well represented by the experiences of the Oshawa Group, a tale of third-generation failure.

The Wolfe family emigrated from Lithuania to Canada early in the twentieth-century. Max Wolfe bought a wagon and supplied produce to small grocers or sidewalk vendors in Toronto. With the aid of his brother, Maurice, he founded the Ontario Produce Company, a venture that expanded into the wholesale import, export, and exchange of fresh fruit and vegetables. Most family members worked for the firm but by the early 1940s Ray Wolfe, Maurice’s son and a graduate of the University of Toronto, emerged as the heir apparent. Ray broadened the product range and network of clients by acquiring Oshawa Wholesale (re-titled the Oshawa Group), a distributor of grocers, confectionaries, and health and beauty aids.

Grocery chains were important clients for Ontario Produce but during the post-war era the systems began to integrate vertically, bypassing established wholesalers. Concurrently, independent grocers found it difficult to compete against the chains, which could achieve superior economies from joint operations and bulk purchasing. Ray secured a Canadian franchise from the Chicago-based Independent Grocers Alliance (IGA), which gathered independent grocers under a single identity and marketing approach. Across three decades he built up a large clientele (peaking at 30 percent of the independent grocers in Canada) who adopted the IGA logo, bought supplies from the Oshawa Group and paid a royalty on sales. Ray then expanded the firm in a diverse set of operations: Food City grocery stores, Towers department stores, Kent and Drug City pharmacies, health and beauty outlets, regional suppliers, and real estate.

The enterprise provided numerous employment opportunities for the prolific Wolfe family. Most never worked anywhere else but few Wolfes demonstrated executive talent. In addition, voting shares in the Oshawa Group were restricted to family members who were employees. Other relations could only hold non-voting shares, a policy that divided the family into ‘ins’ and ‘outs.’ Ray Wolfe kept tight management control and forced out those who seemed less competent. He owned one-fifth of the voting shares and retained the proxies for the other voting blocs. When he suddenly died in 1991, he was replaced by Alistair Graham, a loyal lieutenant, with the expectation that Ray’s son, Jonathan, would succeed.

The changeover became problematic because the firm’s performance had been deteriorating for a decade. The Oshawa Group remained a wholesaler with strong regional divisions and a portfolio of quasi-related operations. Its responded slowly to competition and the inter-personal relations constructed with independent grocers deteriorated as the firm grew. After the company sold several warehousing operations, franchisees complained about inconsistent treatment, poor delivery services, and deteriorating merchandise. Meanwhile, a leadership crisis unfolded. Jonathan Wolfe, erratic and changeable, questioned the caretaker management of Alistair Graham. Many directors and managers though his sister, Elizabeth, or Ray’s niece, Rhoda, had more talent. The splits became so severe that the Boston Consulting Group was hired to mediate a new shareholders’ agreement in 1994. Jonathan was incensed by one term of the new pact, the creation of a ‘family council.’ Headed by Harold Wolfe, a long-time opponent of Ray, the council demanded that the Oshawa Group be operated as a public company with professional managers and independent directors.

With no clear leader to reconcile the parties, bickering characterized family council sessions. Other relations resented the loss in shareholder value across the previous two decades and the decreasing employment of family members in the business. When Harold was injured in an accident during 1999, a cabal of Wolfes used his incapacitation to arrange a sell-out to Empire Co., the holding enterprise for the Sobey’s retail and real estate activities. The Wolfe families received about $250 million in the $1.5 billion takeover, a sizeable sum but a modest return on decades of investment and effort.

Other materials/links
Loblaw Companies Limited - Acquisition of certain assets of The Oshawa Group Limited in Atlantic Canada
THE MAX WOLFE MEMORIAL SCHOLARSHIP
UPC SYMBOL LOCATION GUIDELINES
History