The Last Canadian Knight

by Gordon Pitts

  When Day moved from Shipbuilders to Rover, the security remained intense. Rover was a manufacturer of military transport vehicles. Now there was a new dimension to the threat in the emergence of terror groups on the continent: Action Direct in France, Baader-Meinhof in West Germany, and Brigado Rosso in Italy. The French group shot and killed the CEO of carmaker Renault outside his flat in Paris. Most chief executives of leading European vehicle businesses lived in “secure” structures. The Days did not. There were constant reminders of a dangerous world. On trips to certain European cities, such as Frankfurt, Day would be joined by a couple of ex–secret service operators. The watchfulness increased when Rover was acquired by British Aerospace, one of the world’s major weapons systems suppliers, and thus a key player in the First Gulf War. Day was chairman of BAe when, just around the corner from his London offices, the IRA lobbed a bomb into the grounds of 10 Downing Street. When he led the electricity company PowerGen, its windows were blown in when the NatWest Tower was bombed. He was not in the office at the time.

  In all these security challenges, it was not Graham Day, the person, who was the target—it was the holder of the job. Anyone in these kinds of jobs was at risk. Day has little patience with those who think that such risk confers special status or importance. The challenge for the Days was to go about their lives as normally as possible, which was hard as long as the media hovered. “I became too recognizable,” Graham says.

  Nova Scotia began to look better all the time.

  Chapter 14

  The Chocolate Chairman

  They met for dinner, three middle-aged men in the dining room of the Cadbury Schweppes offices in central London. The hosts were Sir Adrian Cadbury, chairman of the one-hundred-and-fifty-year-old candy and beverage company founded by his Quaker family; and Dominic, his younger brother and the company’s CEO. The third man was Graham Day, the leading candidate to join the Cadbury board and ultimately to succeed Sir Adrian, who planned to retire as chairman in a year or so. In late 1988, the two Cadbury brothers were hunting for a director who could prove to the outside world that the company’s leadership was not as sweet as its products. It was a tough-minded, professionally managed company that intended to grow and thrive independently.

  The brothers found Day to be direct, straightforward, with no agenda other than to serve the company and its shareholders. He had a global perspective and, what’s more, he understood North America, where Cadbury Schweppes had significant interests. He did not know much about Cadbury’s iconic Creme Eggs or Schweppes ginger ale, but he knew marketing—he had repositioned the Rover auto brands. He had proved to be agile and decisive in the corporate wars. After several hours of far-ranging conversation, Day left. Sir Adrian commented to his brother: “Well, that’s a pretty easy choice.”

  It was the beginning of a new vista for Day’s wandering curiosity and focus. Up to then, he had managed crisis situations, but Cadbury Schweppes was a profitable, well-run publicly traded business with a long and revered history. Yet there was a problem. The Cadbury family was still influential in the company, but did not control it; in fact, it owned less than 10 percent. The family charitable foundations that had once held controlling stakes had seen their interests diluted in a quest for diversification beyond the company shares. Cadbury was in danger of becoming “in play,” the stock market’s terminology for a company vulnerable to a takeover. A US company, General Cinema, was acquiring shares, and had built its holdings up to 18 percent. Cadbury was searching for a director and prospective chair who could deal with this interloper, while maintaining the family reputation for probity and quality. “We wanted someone who was not afraid to take on a fairly difficult situation,” says Dominic Cadbury, speaking twenty-five years later. “We were threatened and under a microscope. We were looking for someone who was not intimidated.”

  They wanted a chocolate chairman, but one with a hard centre—and that would be Graham Day. He would become a non-executive chairman, with no operating role. In his two earlier big-company assignments, Day had combined the chairman’s role with the chief executive’s. But those were special situations in which he was driving the company towards privatization and he needed to concentrate both roles to get it done expeditiously. Today, combining those two offices would be considered poor corporate governance, but in the 1980s, especially where a business was in considerable difficulty and privatization was mandated, having one boss was considered vital. “For me, it would have been impossible to tackle Shipbuilders or Rover had I been required to thread the needle of corporate niceties,” Day argues.

  Of course, at both Shipbuilders and Rover—which had a very small public float—there was a single shareholder, the UK government. Had he failed to deliver, the government would simply have sacked him. “For this shareholder in these situations, corporate governance was largely irrelevant.” After the Rover Group was privatized, Day was never again employed as a CEO. Yet in some situations he could use his role as chairman to encourage certain actions. That was the situation at Cadbury Schweppes. In Day’s case, he brought an extra gift to any board he served: the reputation for being tough and street-smart.

  Cadbury Schweppes had already separated the jobs of chair and CEO. Furthermore, one of the champions of good governance was Sir Adrian Cadbury, who would write an influential report that helped shape the debate worldwide. Graham Day’s time at Cadbury became crucial training for his later assignments as a lead director and chair of Canadian companies.

  It is not an easy transition from an executive to non-executive chair, Day notes. He sees it in terms of a classic Canadian analogy: the snowball fight. As a CEO, even when subject to a board of directors, Day both made and threw snowballs. As a non-executive chair, he might give advice from time to time on the making and throwing of snowballs. But his major responsibility was to ensure that the CEO and management team threw snowballs in a way the board (and shareholders) expected. “It’s hard, maybe impossible, for me to judge my own success in such a transition,” he says. What he does know is that, as a chair, he performed better when the company had significant challenges than when the situation called for business as usual. He was, in temperament and training, a crisis manager.

  When Day joined Cadbury, he was fifty-five and at the height of his reputation. His two biggest jobs were largely behind him, although he was still chair of the Rover unit inside British Aerospace, as well as a board member at BAe. He had time to take on extra roles, especially of a non-executive kind. The danger was that, although each of these invitations on its own was manageable, the cumulative effects would be overwhelming.

  At the meeting with the two Cadbury brothers, the message Day gleaned was that they needed someone who wouldn’t have to worry about running the business. His job was to be the unintimidated face of the company if things got dodgy with General Cinema. The message: once you have a reputation for toughness, it might not be necessary to act tough; you just have to be there. But Day turned out to be much more than a figurehead.

  Valerie Grove, the profile writer for the Sunday Times, summed up the Day persona: “He could be the nicest man who ever axed an entire workforce or fired a senior director on the spot. Look what he managed to do with ailing Rover. What might he not do with the fizzy drink and the creme egg?” In fact, he never fired an entire workforce—never came close—but the image of the charming executioner had seized the public imagination. Nonetheless, this time, Grove wrote, “he finds nobody to sack, no bleeding to staunch: a profitable company in a competitive expanding market, our national consumption of chocolate and fizz being obsessive. (We bought three hundred million gooey Creme Eggs last year.) But the choice of Day as chairman is plainly a strategic move by a company determined to see off foreign predators.”

  The most visible predator was General Cinema’s boss, Richard Smith, a US financier who had inherited a string of drive-in theatres from his father in 1961 and parlayed it into an impressive investme
nt portfolio. The actual business of theatres did not do well, but Smith made big money by buying stakes in undervalued public companies and profiting as more strategic investors jumped in, allowing him to sell out at a profit. Cadbury’s undervalued stock fit the profile of an investment target.

  But Cadbury was more than a company; it embodied a holistic philosophy of business. The Cadburys were Quakers, a sect that practises strict moral values and a lack of ostentation. In founding its chocolate company in Victorian Britain, the family blended hard work, discipline, and abhorrence of debt with a social mission based on pacifism, philanthropy, and workers’ well-being. Nancy Cadbury, in her 2010 history of the chocolate business, says “straight dealing, fair play, honesty, accuracy and truth form the basis of Quaker capitalism.” The Cadburys were one of a collection of Quaker businesses that were in the vanguard of Britain’s Industrial Revolution. Chocolate was a natural calling because it was seen as a flavourful, non-alcoholic alternative to liquor and beer, sources of the rampant drunkenness of the time. It is no accident that Britain’s three great chocolate enterprises—Birmingham’s Cadbury, Bristol’s Fry, and York’s Rowntree—can claim Quaker origins.

  In the 1860s, two brothers, Richard and George Cadbury, third-generation Birmingham tradesmen, inherited their father’s struggling chocolate factory and turned it into an international success. In 1878, they bought open land just outside Birmingham for a model industrial enterprise known as the Bournville Works, and it began to take shape. “The factory in the field was a revelation: a temple to space and light and order,” Nancy Cadbury writes. Outside was a bucolic atmosphere of cricket pitches and gardens, and cottages for key staff, along with train connections to the centre of Birmingham. It was a Utopian conception, based on the view that healthy, contented people were more industrious, productive workers.

  One hundred and ten years after the founding of Bournville, the Cadbury family had changed a bit. Many family members had shed their pacifism and fought, often heroically, in two world wars. Their devotion to the Society of Friends had wavered, but the sixth generation running the company still believed in the advancement of moral and social good through business.

  Cadbury was now an international company, trading in forty countries and competing against behemoths such as the Swiss conglomerate Nestlé and US confectionery giants Mars and Hershey. A wave of consolidation washed through the confectionery business as diversified food companies eyed lucrative candy markets. Cadbury was a survivor among the old British chocolate companies, but it had merged with Schweppes, the fizzy drinks maker. The share dilution and public listing meant it was no longer a family controlled company.

  Global food giants hovered, eager to add the Cadbury brand to their portfolios. General Cinema made its move to acquire shares, sensing a bigger deal in the cards. Cadbury Schweppes was now led by Dominic, a marketing virtuoso with a Stanford MBA, supported by the chairman, Sir Adrian, his elder brother by eleven years and now a widely admired business statesman. Their response was a strategy of expansion that would make the company more valuable to investors and more difficult to take over. Day became a key part of supporting that strategy.

  In many countries, the Cadbury executives faced competition rules that made it hard to expand in their core businesses of chocolate and beverages. But they also had a stake in sugar confectionery—non-chocolate candies—which was a widely fragmented business. They saw an opportunity to become a consolidator and to use this as a source of growth. Cadbury started accumulating smaller businesses such as Lion Confectionery, Bassett, and Trebor Group, with its popular mints.

  All the while, Day rebuffed the demands of General Cinema for representation on the board. Smith claimed that he wanted “investment with involvement.” He was told that he could acquire such shares as would be available to him on the market, but not to expect a board seat. Day made it clear he would receive only such information as was available to all shareholders.

  Cadbury’s candy purchases were successful in their two purposes. They were profitable and accretive for the firm’s shareholders and, as Cadbury Schweppes grew, it became very expensive for General Cinema and any other raider to buy. As the brothers had hoped, in the end Smith just went away, although he did very well on his investment. Cadbury Schweppes even helped him dispose of his shares through the stock market. But Day and the brothers had held firm and preserved the company and its Quaker culture as an independent entity.

  With General Cinema sent packing, Day enjoyed working with the Cadbury brothers. He would often travel with Sir Adrian, a role model of statesmanlike wisdom. The elder Cadbury brother liked doing the yearly milk run of recruiting trips to British universities, where he gained insight into the kind of young people the company needed to attract. The conversation often came around to the proper conduct of the individual in business. In one question-and-answer session, a young woman stood up and asked Sir Adrian, as a businessman, how he decided on a particular course of action in a tricky ethical situation. She said: “You have to ask yourself: do I do this or do I not? How do you resolve that?” And Sir Adrian said, “If you have to ask the question, the answer is always no.”

  The Cadbury brothers did face criticism of their moral stance on one issue: South Africa. During the 1980s, the racially riven country, mired in repugnant, white-imposed apartheid, had become the centre of a global political firestorm. Civil rights groups pushed hard for economic sanctions and for corporate disinvestment. Cadbury Schweppes had a long history in the country and, echoing its Quaker ethics, was considered a good employer, with extensive housing, education, and social support of its overwhelmingly black workforce. But it was under great pressure in the United Kingdom and elsewhere to step back from its investment. Canadian prime minister Brian Mulroney was a leader in advocating government sanctions against the pariah regime.

  Cadbury financially supported anti-apartheid organizations, but it would not surrender its presence in the country. It felt a moral responsibility to its African employees and to its shareholders worldwide. So the company came up with a simple construction: it would build a ring-fence around its South African operations. Within that fence, it would not invest any new money from the parent company, and it would not declare any dividends back to the parent company. It would remain in South Africa, but it would isolate the business financially.

  Dominic, who had worked extensively in South Africa, says: “We always took the view that we actually were a force for good in the South African economy, and we didn’t think that pulling out of South Africa and simply dumping the thing was going to help the races in South Africa. We employed a lot of people, and the conditions under which they were employed were good. So we never subscribed to the idea that it would be beneficial to the average South Africans if we disinvested.” Margaret Thatcher was kept informed, and she approved of Cadbury’s stance. That remained the company’s approach as South Africa began to make the transition, still difficult, from an apartheid state to a functioning democracy in the twenty-first century.

  Day had assumed that, in his role as Cadbury Schweppes chair, there would be fewer security concerns than in state-owned companies. But one morning he received a visit from national security officers who informed him that the Irish police had found his name, with others, on an IRA list. Cadbury Schweppes was a significant employer in Ireland, and this added a further dimension to his personal security issues. On the few occasions he visited the republic, he travelled under an assumed name, was met by the police, and never registered or checked out of his hotel.

  The security threat was exacerbated by Day’s high profile, as his name kept popping up as someone who would take on hard jobs: he was still seen as safe hands by politicians, the media, and markets. The calls for help invariably originated in the prime minister’s office, and one came in November 1990. The government had announced its intention to privatize the Central Electricity Generating Board, which provided electricity to En
gland and Wales and controlled the two state-owned Scottish power companies. The plan was to separate generation from transmission and distribution. The generation part was to be divided into three companies, two “conventional” and one nuclear.

  Privatization of the nuclear business was postponed, but the two conventional companies, PowerGen and National Power, were formed. Because of his privatization experience, Day was asked to join the PowerGen board. Planning was under way to sell both generator companies through 100 percent share offerings on the London Stock Exchange. By now, Day could write the textbook on privatization: strengthen the board by bringing on people who are credible to the markets; get the best management you can, and ensure they are competitively paid and not liable to poaching; make sure the accounting is accurate (often a big challenge because incumbent accounting firms are wedded to their valuations); try to get the unions onside, and give workers participation through shares.

  But, at PowerGen, they had trouble following that script. About two months before the offering, Day got a request to see John Wakeham, secretary of state for energy. Wakeham’s message: the investment bank advising the government on the flotation felt PowerGen’s chairman elect, Robert Malpas, was not “suitable” to lead the share issue. The bankers and the government wanted Day to take the job. Again, he had that presence.

  Day had two concerns: Ann had to agree, particularly since they had started to enjoy more time together. And he would have to get the okay from the Cadbury Schweppes board. He told Wakeham it was not a job he wanted. The minister replied that Day could say no to him, but he should understand that “she will wish to speak with you.” Day said, “John, why me?” Wakeham replied, “She trusts you.”