Company Of Adventures - Merchant Prince Part 33

opportunity for expansion. The item came up again at a January 23 meeting, where the selling price was set at $8 million over book ' value, with an 80-percent cash advance. Approval to Jettison this most historic of the HBC's departments--the territory for which it had received its Charter 317 years eailier-was granted at the directors' meeting on January 2 8, 1987.

The official minute hardly does that momentous decision justice: "The Board discussed the pros and cons of such a sale. On the one hand N.S.D.

is profitable and represents to Canadians the heritage and pioneering spirit of the company. On the other hand, it operates in a total welfare environment with considerable risks of government intervention, it requires capital for modernization and has little growth potential. On balance, given the overriding need to substantially reduce debt, the Board decided to approve the sale."

Strangely, no outside directors attended that meeting, though they were polled by telephone. Only four executives, who also served on the board, were there to vote on the fateful motion to cut the ties with the I IBCs own history.* "My recollection," recalledj.W. "Bud" Bird, one of the directors who was telephoned on the issue, "was of feeling a sense of loss, that we were really changing the character of the Company, but that It was sort of a sidebattle in the mission to establish three main retailing giants and to concentrate where the volumes were and the super-store kinds of activity. The preservation of the origins of the Company was no longer commercially attractive to the main mission of the Company."

That seemed more of a retroactive rationalization than a reason. Northern Stores had been a dependable money-maker, clearing$28 million in operating profit on

*They were: Don McGiverin, George Kosich, fain Ronald, and Gary Luka.s.sen. All the directors polled by telephone agreed to the sale.

DISASTER AND DELIVERANCE 545.

~1 $400-million sales volume the year the division was sold. Spinning the 178 stores off for $189 million reduced the parent company's debt by a net $150 million, about 6 percent of the totai it then owed, which didn't make any material difference. 'Filler was as puzzled by the decision as anyone.

"I couldn't fathoin how they could possibly come to that decision," he said, "particularly since we ha~ a five-year profit trend that was right on target and was marching on and on.The most difficult experience for me was having to face iny people, who all have an 11BC stamped on their backsides, and tell them about it."

Rolph Huband, the U113CS vice-president and secretary, was the only Company executive who took note of the sale's historic dimensions. "The heritage and adventuring spirit of the Company is gone," he lamented.

d.i.c.k Murray, the former managing director, came out of retirement to thunder: "Only unpardonable cowardice and incompetence could lead the Canadian owners of this great historic company to throw away these jewels in their crown. The Company now abandons the Canadian North; it severs generations of a trusting and respectful relations.h.i.+p between native peoples and traders--it deletes the words and discards the heart of its historic name: Coinpanv of Adventurers. One might Just as well take the RCMP and sell it to Pinkertons." These sentiments were shared by former Deputy Governor Sir Eric Faulkner, who mourned: "If the HBC is alive three hundred years froin now, it will be neither the fault of the Thonisons or of the Bay directors from 1970 on. If we had foreseen what would follow ... would we all have been persuaded to transfer to Canada?"

*The last of the great British directors, Sir Martin jacorub, expressed his vieiA s of the sale by quietly investing in the successoi company lo the Northern Stores Division, which at George Whitmans suggestion became known as the North West Company.

546 FAREWELL TO GLORY.

On May 2, 1987, precisely 31 7 years after the Company of Adventurers had taken up Charles 11's Charter to expiolt the upper half of the North American continent, Derek Riley, the Winnipeg businessman who had been elected chairman of the offshoot company, folded the Governor's flag that had flown over the posts of the HBC's northern division and banded it back to Don McGlverin. Suddenly it was over--3 17 years of history cut adrift as if they had never happened. Ken Thomsons main interest in the transfer was to claim for the HBC the art works collected by the northern division, taking three-quarters of the Inuit sculptures, prints and historical paintings.

Ile felt very much more strongly about getting rid of the Company's fur business. "I was just praying the Company would sell it," he confided after the decision had been made. "I think it's an anachronism. We don't need to kill animals to feed our vanity. They may not be a high order of life, but animals have the same right to live as we have. They can say what they like about anitrials being humanely trapped-its not true. You can't kill an animalwithout making it suffer. So why should we kill creatures who are out there trying to survive? That's all they're doing, trying to sumive. Over the coming years, people are just not going to be wearing fur coats. It's a dying business. I know that somebody else is still doing it, but it has nothing to do with my family." That was a revealing statement, because it was the one aspect of current HBC operations that Thomson really felt pas- sionately about (except, of course, for losing all that money), yet he himself did nothing about it, allowing the Company's executives to work their way towards his conclusion on the issue--but only eight years after he became the Company's princ.i.p.al proprietor.

His son David confirms his fathers reluctance to applv the force of his authority, even in a cause he feels pa.s.sionately about. "My father has never wished to DISASTER AND DELIVERANCE 547.

dictate his will to the business operators," says he. "Power is always perceived; when it is used, it ceases to be. He had believed that the people within HBC supported the business and that itwas beneficial to the Company.

Although he made his personal feelings very clear on numerous occasions, he would never unilaterally end the fur business within the IJBC."

The Canadian fur-sale operations near the Toronto airport were sold for $45 million to Len Werner, the prevtous manager. Disposing of the British facilities at London's Beaver House was a much more complicated affair.

Hugh Dwan, the president of the HBC's British fur unit, received a phone call from lain Ronald ordering him to be at the London offices of Morgan Stanley a day or two later to hear the details pertaining to the sale of his company. Dwan, who had up to then received no notice of the move, was just as puzzled as Marvin Tiller had been about jettisoning the northern stores, particularly since the auction house had been turning good profits and he had just recently submitted (and had approved) his optiinistic budgets. The sale-to the Finnish Fur Sales Company, for $37.5 million-had been negotiated without his knowledge or consent. "They told me that selling the auction house would enable the Company to concentrate on their core business," he recalls. "In f~ct, the fur business in England was no drain at all on Canadian management because we didn't need them. The debt reduction benefits were a drop in the bucket. To me, their decision seemed like chopping up the kitchen furniture to feed the fire, and then finding out you have no place to sit. . . They sold the company in the face of fastrising fur prices, so if they had waited one more year, they could have got several million dollars more. It was an undignified scramble to get out."

Dwan had a devil of a time persuading London's ftir traders that the HBC move was serious. Three centuries 548 FAREWELL TO GLORY.

is a long time. "They thought it was some kind of reverse takeover for tax reasons and that the HBC would end up owning the Finnish co-operative," Dwan remembers. "There was strong feeling that the Company had let them down. In furs, the HBC was a mark of confidence all over the world." After his day at Morgan Stanley, going over the dreary details of the sale, Dwan walked to Earls Court, then took a taxi home. "I turned on the TV news," he recalls, "and there was young David Thomson, who had just purchased a Constable for Y~2 million, saying that as its new owner he was anxious the United K-ingdom not lose its heritage, and that he therefore might not take it out of the country. I thought to myself, 'They've just sold out the best trading name in the world,' and I cried."

On January 31, 1988, the fur men held a wake on the auction floor at Beaver House. It had been on January 24, 1672, that the first London HBC fur auction was held at Garrawav's coffee house, near the Royal Exchange, where tea frorn dried leaves imported by the East India Company had originally been brewed. That first sale was a very special event attended by the Company's founder, Prince Rupert, his cousin, the Lord High Admiral, the Duke of York (who would become the FIBCs second Governor and, as James 11, King of England) and the poet John Dryden. Now it was all over, and from seven in the evening to midnight, a lot of rum was tasted, songs were sung, and stories told. Special arrangements had been made to transmit the Company's farewell telegrams and telephone calls that day, presuming there would be some form of official farewell wishes sent to mark the end of the Company's founding department. Incredibly, no message ever came. "They didn't even know we still existed," said a bitter Arthur Frayling, Dwan's predecessor and a sixty-eight-~ ear veteran of the fur trade. "The greetings from head office in Canada were as they had DISASTER AND DELIVERANCE 549.

been for some years previous-zero. They had actually established in their minds that the Company's great background and tradition was, in fact, a drawback. Now that I can't take. I'm sorry, I can't b.l.o.o.d.y well take it."

The British fur trade ended with Frayling, well over six feet tqll and with the hearing of the infantry colonel lie once was, standing on the bidding stage at Beaver House and leading the mourners in song:

Dear old pals, jolly old pals all in together in all sorts of weather. Dear old pals, jolly old pals, Give me the solace of dear old pals ...

T[ IE RULF OF THI 'roRY-KOSICI I-RONALD triumvirate ended on July 1, 1987, with the appointment of George Kosich as the HBCs president and chief operating officer. A University of British Columbia Commerce grad, he had spent twenty-seven years with The Bay, and even though his cutbacks had earned him the nicknaine George Carnage, he was a capable retailer with

Having divested itself of its northern stores and fur trade, the Company went on a kind of scorched-earth rampage, getting rid of the very last historic symbol it possessed. This was the collection ofsilver objects minted in t670, the year of its incor poration, that had been gathered b ' v various Governors and kept at Beaver House. 'rhe thirty hallmarked pieces were s.h.i.+pped without notice to New York for sale bv Christie's, so that some of the foi met British I IBC directors ~ad less chance to buy them, or, as one former Governor intended, to donate them to the city of London.

550 FAREWELL TO GLORY.

energy to burn, and brought to his position an optimistic outlook and determination to dismantle the deadening sanctions of head office.*

Kosich's-and the HBC's-good fortune was to have at his side Gary Luka.s.sen, the Company's chief financial officer, who became a key man in its resurrection.

Kosich was tough and as single-minded as a mountain inule, which didn't enhance his popularity. On October 24, 1988, anationymous pet.i.tion was circulated at the fIB(",s head office, asking executives whether they respected Kosich's style of management. "Do you believe that the removal of George Kosich [as chief operating officer and president] would return the Company to a more stable and productive environrnent?" the questionnaire demanded. At the first rnanagettient committee meeting after its distribution, John Tory began the proceedings by turning to Kosich and, with inock seriousness, explaining, "Before we start the business of the meeting, there is an announcement I have to make. ft concerns the questionnaire that was circulated to the executive staff. We've tabulated the results. There were 17 5 replies that came in. Six percent voted for Ed Broadbent [then NDP leader], about 15 percent were undecided, and the others said they didn't know who George Kosich was." One of Kosich's prob- lems in dealing with staff morale was his vocabulary. He was always talking about ALB.W.A. (which meant Management By Walking About-a reference

*lain Ronald resigned the same day Kosich was appointed, later becoming president of administration for the Canadian Imperial Bank of Commerce. "I just couldn't stay at The Bay a moment longer, because I have to took at myself in the mirror every day, and can't shaN e with mN eyes shut," lie told a friend just after he quit. Doug Ntahaffy, t~e I IBCs senior N ice-president, finance, also resigned within a few weeks of the Kosich appointment.

DISASTER AND DELIVERANCE 551.

George Kosich, President, 11BC

to mingling with customers), eliminating T.N.M.J. (the That's Not My Job syndrome, when it came to helping close sales by using a little extra effort) and in a gush of participles, defined his formula for success as "downsizing, rationalizing, fine-tuning and refocusing."

With Ken Thomson's and John Tory's active backing, Kosich turricd the Company inside out, closing unprofitable units but supporting success with ambitious retailing plans. The deliverance of the HBC was not nearly as dramatic as its near disintegration. It was largely a matter of rationalization and reorganization- 552 FAREWELL TO GLORY.

the gradual reintroduction of the Company to its natural retailing audience.

Kosich eliminated layers of middle management and centralized buying and sales promotion to cut expenses. lie used computer technology to provide better data for buying decisions and his merchandising flair to pick commodity winners, then spent money backing those premium items with more inventory and upgraded locations in the stores. At the same time he restored flags.h.i.+p downtown units to some semblance of their former glory by installing colourful, contemporary environments for housewares and women's and men's fas.h.i.+ons.

It was at Zellers, the discount store that Joe Segal saved from bankruptcy and Don McGiverin bought at gunpoint, that Kosich and the FIBC enjoyed their most spectacular success. When he and David Thomson took over Zellers in 1987, it was experimenting with an upscale format to distinguish itself from its discount compet.i.tors. Kosich declared that a discount store must look like a discount store and ordered the newly installed part.i.tions and carpeting removed. He also insisted that in discounting, expenses are everything and put into effect the lowest operating costs in the industry.

This allowed Zellers to reduce its prices and trumpet that at its stores "the lowest price is the law." Customers responded, driving sales up, expense rates down, and prices still lower. As a result, Zellers' operating profits tripled in the four years of the Kosich presidency and for the first time since the Thomson takeover, the owners opened the pursestrings in November 1990 to purchase the fifty-store Towers chain. By, mid-April 1991, Kosich had their carpets removed, their expense rates reduced, and new Zellers signs installed.

In the meantime the Company had completed its transformation from a conglomerate to a retailer.

DISASTER AND DELIVERANCE 553.

"Disposal of the fur and northern departments was required to correct the daring excesses of the 1970s," maintains Rolph I luband, the Company's vice-president and corporate secretary. "The necessary corrections having been made, the HBc reset the course originally plotted in 1970-to become the most successful of Canadian business enterprises." With the distribution in August 1990 ofNlarkborough Properties shares to its own stockholders, the HBC was for the first time since 1870 mainly in one line of business-retailing.

The only unit i hat never stopped bleeding was Simpsons. That upscale, Toronto-centred department store had proved a disaster since Don McGiverin had taken it over in the late 1970s. Simpsons had suffered through the tenures of eight presidents in a decade: 'I~d Burton, Charles AlacRea, Gworge Kosich, Al Brent, Bob Peter, David Thomson, Paul Walters and Bob Peter again. None ofthem could resurrect the sleeping elephant.

The store had lost its audience. 1111C management tried going first upscale and then downscale, firing sales personnel over thirty-five years of age, publis.h.i.+ng yuppie ads, shutting down the Montreal and Regina units, combining purchasing offices, arnalganiating advertising depart- inents, putting in the country's-probably the continent's-inost expensive food hall (in the bas.e.m.e.nt), but nothing,worked. The upscale shoppers didn't get upscale service-and so they stayed away. At any rate, there weren't enough of them to turn Simpsons into a northern Bloomingdale's.

Even internally, Simpsons was treatedas a joke,,~N ith Bay executives referring to its main Toronto store as "the Panty Palace." The Company became fed up with throwing people and money at the troublesome Simpsons division and finally in the summet of 1991 closed it down.

But that was all anti-climax. By the spring of 1989, the HBC's balance sheets reflected the dramatic 554 FAREWELL TO GLORY.

turnaround that Tor~, had masterminded and Kosich had engineered: profits at $144 million were up 389 percent from the previous year's.

The Company's salvation had been slow and painful but, against all odds, it had been achieved and its credit ratings had been restored.

The Hudsons Bay Company was once more safely in the black.

CHAPTER19.

LAST LORD OF.

THE BAY.

"I become excited at the thought of measuring 7nyself in varied situations, alongside Wellington in India oi being in afighter, attacking afirmation of bombers and being vastly outnumbered. It's an interesting way to testyourself because you setyour own limits.

-David Thomson

THE RICI I DON'T HAVE CHILDRFIN; they have heirs. For the first-born male, growing up is a brief interval during which he matures into becoming his father's Son, with all the baggage of continuity and shedding of spontaneity that such a rite of pa.s.sage implies. Youth involves being wafted through Father's private school and enrolled in his clubs at birth, experiencing all the right things (doing drugs means two Aspirins at bedtime), earning a Harvard MBA, and spending languid vacations at large summer homes on the manicured sh.o.r.es of cool green lakes.

These precocious progeny learn at their daddies' knees how to exude that air of besieged innocence that marks the Canadian Establishment's young-a mixture of being well bred and mentally inert. As a group, they seldom have an original idea, think it's daring to use an adverb and believe that culture means attending a Pavarotti gala in a tux. They are dull to the point of ba.n.a.lltv.

558 FAREWELL TO GLORY.

And then there is David Kenneth Roy Thomson.

I lis very name evokes the three -generati on dynasty he represents, and he is, by quite a wide margin, the most fascinating of Canada's inheritors, being his own kind of pensive rebel and a recognized art connoisseur to boot. At thirty-five, David Thomson is Deputy Chairman of Woodbridge, the holding company that controls the farnily a.s.sets. The trust set up by Roy Thomson, who died in 1976 at eightv-two, having ama.s.sed a corporate flush then worth at least $750 million, appointed David, Ken's elder son, to be the nexthead oftheThomson Organization. He will also a.s.sume his grandfather's t.i.tle, which will give him a seat in the House of Lords, never claimed by Ken. "David, my grandson, will have to take his part in the running of the Organization, and David's son, too," the dying Thomson wrote, spelling out the rules. "For the business is now all tied LIP in trusts for those future Thoirisons, so that death duties will not tear it apart.... These Thomson boys that come after Ken are not going to be able, even if they want to, to shrug off these responsibilities. The conditions of the trust ensure that control of the business will remain in Thomson hands for eighty years."*

*KenThomson has two other children: Lvnne, eighteen months younger than David, a sti inning brunette m ho graduated from the acting facult-,, at Harvai d and who was in Hollywood in 199 1, ,A orking witl~ a producer, and Peter, eight years David's junior, who partic.i.p.ates in Southern Ontario racing circuits and dirtrallV events, practising his driving four or five hours a day. A graduate of the University of Western Ontario, he owns a substantial interest in a4bronto cable-TYcompany and has begun his career inside the Thomson Organization. 'Ib a% oid succession duties, RoyThomson's will stipulated that his personal fortune would be divided among his seven grandchildren. Roy Thomson's trust is administered by his son, Ken, his surviving daughter, Phyllis Audrey, Campbell (the other daughter, Irma, died in 1966), his former chief of staff, Sidney Chapman, and John'Fory.

LAST LORD OF THE BAY 559.

The scenario is predictable; its leading man is not. The young Thomson marches to his own drum corps. lie is as private as Conrad Black-his only intellectual rival among Canadas young rich-is public. He has climbed to the second-highest position within the Thomson Organization with no profile, has yet to grant his first newspaper, television or any other interview (except for this book), and is so circurnspect that his 1988 marriage to a fas.h.i.+on buyer for Simpsons was missed by Toronto's social columnists and not detected even by the nosy Rosedale mavens who surround his home. His conversation, which is what he must mainly be judged by, since he has yet to exercise much visible power, is an improbable mixture of introspective genius and postindustrial babble. 'Fall and wispy, with curly sandy hair and frigid blue eyes, he is light on both feet, betraying the easy grace born of his training in the martial arts.

Intensity characterizes all his thoughts and actions. Ask him the meaning of life or the time of day and the brows furrow into deep scars (the forehead is too youthful to show supporting wrinkles), the eyes grow reflective, and the brain cells almost audibly start churning; there is never any small talk.

DAVID THOMSON WAS EDUCNFED at The Hall School in England and Toronto's Upper Canada College. He was (and is) painfully shy, staying away from the sports and military training in which both schools specialize. "I never understood the emphasis on playing games as the only forum for exhibiting manliness," he recalls. "The Upper Canada College Battalion was an unnecessary and wasteful commitment, ill.u.s.trating the shallow nature of so many contemporaries in early life. As a ch.o.r.e, it was counter to the deep emotional issues which I sought to begin my journey." Not your average prom-date jock.

560 FAREWELL TO GLORY.

He read history at Cambridge, specializing in studies of the civil service in India from the late eighteenth to the mid-nineteenth centuries, particularly under Mountstuart Elphinstone, who rose from aide-de-camp to Colonel Arthur Wellesley (later the Duke of Wellington) to governor of Bombay and was one of the chief founders of state education in India. "My cla.s.smates were more interested in military battles," he remembers, "and I must say Wellington fought tactically superb engagements, greater by far than any of his European campaigns, including Waterloo. His tactics were similar to Hannibal's against the Romans after his crossing of the Alps, when he gained the higher ground at the battle of Lake Trasimene. But I was much more fascinated with the mundane aspects of how the British were able to educate and develop an infrastructure of modern government in that huge land ma.s.s. Legalities are very important and represent absolute regulation, constrictive and formal. I prefer frameworks to guidelines, because you're able to be creative within them. My mind works with a.s.sociations and ideas. History taught me this above all else. At an early age, I realized that to not understand these life experiences would lessen my ultimate success and enjoyment in life." To lighten the academic load, Thomson played left wing on the 1976 Cambridge hockey team that beat Oxford for only the fourth time since 1930. "1 like to think I was on the team because of my abilities," he laughs, "but I owned a Volvo, which afforded me a constant place."

David believes his most significant formative influence was the weekends he spent with his grandfather at Alderbourne Arches in Buckinghams.h.i.+re.

"He was very lonely and we conversed for hours about business and people," the young Thomson reminisces. "His curious mind was always questioning why things were done in a particular way, seeking to understand the forces LAST LORD OF THE BAY 561.

that affect people's judgments. Granddad would relate ]its experiences with various personalities: Chou En-lai, .Mao, Khrushchev, Beaverbrook, compet.i.tors, social companions, family. He always admired those people who could laugh at themselves amidst the negative circ.u.mstances that surrounded their lives. He was an optinust with an uncanny ability to seize opportunities that others could not sec. This approach was in complete parallel to my own nature." There was another parallel: Roy Thomson unleashed the random thoughts that he credited with helping him resolve the most complex corporate problems by guessing the murderer in the dozen Agatha Christie and other whodunits he devoured every week.

Those mystery stories were for him what art woul~ become to his grandson, less an escape than a way to sharpen and exercise the mind for managing the exponential growth of the family fortune. (Every morning of every day David still puts on the copper bracelet Roy Thomson wore to ward off arthritis, as a reminder of the old mans spirit.) It was at this time that his serious interest in painting took root. "Art cam e to mean more and more as I became involved with the lives of the artists and came to better understand the context in which they lived.

For me, art has never been a financial or social game." Aware that any cultural hobby pursued by a rich kid was bound to be dismissed as dilettantish, David put in a long and arduous apprentices.h.i.+p under Hermann Baer, who ran a small shop on London's Davies Street that rented antique props to the film industry and was also an articulate expert in medieval art. The other mentor in art has been his father, whose collection, David claims, "should be celebrated in its completeness; even the frame mouldings are harmonious. He has distilled his vision of a few artists into a handful of works by each. The result is sincere and compelling."

562 FAREWELL TO GLORY.