The Last Canadian Knight

by Gordon Pitts

  Day is a very modern kind of leader in his mentoring, particularly in his support of women and underdogs. But he is also an old-time story spinner in the Maritime tradition, who can hold a room spellbound. Sometimes, he just wants to correct the flawed representation of history. One incident stands out. It concerns a scene in a movie showing an elderly woman in a raincoat entering a little grocery store. She appears to be in a daze as she buys a pint of milk and worries about the price. As the movie Iron Lady unfolds, it becomes apparent that this is Margaret Thatcher, once a powerful prime minister, now reduced to an old woman in an advanced stage of dementia, as played by the gifted actor Meryl Streep.

  The Stewart McKelvey lawyers were treated to a showing of the movie, with Day offering commentary. He explained that he could never buy this cinematic portrait of the woman he served. For one thing, there was no security officer shown in the scene, he said, and she always had security with her. He could list all the ways the movie did not measure up. But one aspect he liked. Thatcher had this facial thing, a subtle way of clenching her teeth to denote determination. A couple of muscles would tense up. Day saw Streep do this. “It was a powerfully true portrayal in a bad movie.”

  Another thing bugged him. Thatcher always wore a brooch, and always on the left. In the movie, the brooches moved from one side to the other. It was a small thing, but Day remains unflaggingly true to the memory of the woman who changed his life. Loyalty, to the people and institutions that made him, would be centre stage in all his performances.

  Chapter 18

  Family Man

  Bill McEwan remembers his initiation into the supermarket company known as Sobeys and its founding family from northern Nova Scotia. He was sitting in a room in Toronto with a group of board members, who were sizing him up as their potential next CEO.

  McEwan was a career grocer in his mid-forties who had grown up in British Columbia, started bagging groceries in a local store at fifteen, and climbed to the top ranks of the A&P grocery chain as head of its US Atlantic division. It was now 2000, and he had been headhunted by the Sobeys to run their dramatically expanding supermarket company.

  The Sobeys were just coming off a blockbuster takeover of the Oshawa Group, a national food distributor and retailer more than three times their own size. “The Sobeys had literally swallowed a whale,” remembers one of their former senior managers. The takeover meant formidable integration challenges for what, for many years, had been a regional company based in tiny Stellarton, in Nova Scotia’s Pictou County. The company’s ownership was in the second generation, after builder Frank Sobey had taken over his father’s little store in Stellarton. The family was moving from hands-on management to a more detached ownership role, and for the second consecutive time, the next CEO would be a non-family outsider. The job, however, would be much bigger and more challenging than ever before.

  It was McEwan’s first interview for the job, and here he was, confronting a search committee that included David and Donald Sobey, the two brothers who had expanded their father’s company into the number two supermarket chain in Canada; Paul Sobey, David’s accountant son and a key architect of the Oshawa Group deal; and some independent directors, including a tall, bearded man with a deep voice and a sparkle in his eye.

  McEwan, a quick-witted, irreverent type, was in a good mood, enjoying the interview, when, two-thirds of the way through, David Sobey asked a question. It was an important question, reflecting the tug of war pulling the family between two forces: the company’s sacred Nova Scotia roots and its westward business push to central and western Canada. David observed that McEwan must have discussed the job with his wife Donna. So how would she feel about moving to relatively isolated Stellarton, after living in New Jersey, close to where A&P’s Atlantic operations were based?

  “She says she is going to miss me,” was McEwan’s deadpan retort. There was a moment of silence as the group processed this answer.

  Suddenly the guy with the beard, name of Graham Day, piped up: “Where is Donna from?” “Meaford, Ontario,” McEwan volunteered, referring to a town on Georgian Bay in rural Ontario. “Wait a minute,” Day said, “if she could live in Meaford, she can live in Stellarton.” The whole room relaxed, and there were chuckles. It was the right comment at the right time. “That was my first fond memory of Graham,” Bill McEwan remembers sixteen years later. (Day, in fact, knew Meaford, because his daughter-in-law came from there.)

  There would be plenty of those moments. McEwan took the job at Sobeys, guiding it through the integration and its expansion as a national retailer until he retired because of poor health in 2012. Yes, both McEwans did move to Stellarton. And Day became someone Bill could rely on for wisdom, humour, and the perfect thought, the ideal epigram, that would lift the younger man out of a funk and guide his forward thinking.

  It is typical of Day’s role on boards. He had earned a reputation as a shoot-from-the-hip CEO who could make decisions on the fly. He had been a high-profile captain of industry in Britain. But his new role was more subtle and discreet. He could still be shockingly decisive—one of his mottos, remember, is “sometimes wrong, never in doubt.” But he got very good at the quiet background conversations that stiffen the spine of a CEO, a board member, or a chair.

  Day would gain a lot of experience with private, family-owned companies, largely but not exclusively in Atlantic Canada. Paul Martin’s Montreal-based CSL is one prominent example from outside the region. Through all these associations, two challenges were pre-eminent: management succession and oversight—sometimes expressed as governance. Some families handle these things better than others. Says Day, “These issues exist outside family business, but family adds a dynamic which sometimes can be toxic.”

  He sees family businesses following a classic evolution: First comes the entrepreneur phase, with a founder or founders who chart their own path, often with little outside input. The second stage is the owner-manager phase, when the business is more complex and decisions are reached more collegially. Third is the investor stage, when the family steps back and leaves the management decision making to other people.

  The transition from stage one to stage two is often the most seamless—it just happens—but very few family businesses reach the investor stage. “Stage three requires shareholder maturity, the exercise of judgment, and the avoidance of meddling,” Day says. Mechanisms such as family councils seek to combine ownership interests and the avoidance of tinkering. But, too often, “hope triumphs over achievement.” “There is no silver bullet,” he concludes, although families can improve their chances by, for example, preparing younger members through education, on-the-job skills training, and simply tough love.

  He speaks as much through sadness as recrimination. One of his early brushes with family companies came through Harrison McCain, when they were both directors at the Bank of Nova Scotia. McCain was half of a remarkable brother team that built a global food company from Florenceville, New Brunswick, a small village in the St. John River valley. Several times, Harrison discussed the possibility of Day’s joining McCain Foods, but he could never see it as something he wanted to do. Then, one weekend in 1994, Harrison phoned and said he needed a favour. The relationship between Harrison and his brother Wallace had reached the breaking point as they battled over succession. Wallace had pushed for his son Michael to become the future CEO; Harrison strenuously opposed the idea.

  The dispute cut a chasm through the Atlantic Canada business class. People who wanted no part of the family argument, who respected both men, were sometimes forced to choose sides. Toronto lawyer Purdy Crawford had been a university friend of Wallace, so he was automatically in the Wallace camp. Day and Harrison were friends, so Day found himself at Harrison’s side.

  The dispute escalated to the point where Wallace triggered a provision in the shareholders’ agreement that allowed disputes to be addressed through a private trial in New Brunswick under the rules of t
he province’s supreme court. Wallace and his family claimed that they were oppressed minority shareholders. The remedy they sought was the breakup and sale of parts of the McCain business. Harrison asked Graham Day to be a witness. Harrison’s counsel advised that not only must Harrison defend the primary allegation, he must also argue against the remedy sought—breaking up the company. Day’s role was to be an expert on brands and brand values, drawing on his experience with Cadbury Schweppes. In the end, the testimony was not critical, as the court ruled against Wallace’s claim of being an oppressed minority shareholder.

  Wallace left the company, along with his two sons, Michael and Scott. The family relocated to Toronto and bought another major food company, Maple Leaf Foods. The rift between the brothers continued for years until they achieved a personal rapprochement before Harrison’s death in 2004. Wallace died in 2011.

  Day’s involvement in the trial had been time-consuming and emotionally distressing. From the beginning, Harrison proposed to pay him for his time and reimburse his expenses. Day reminded him he was acting as a friend and refused all payment, though he was reimbursed for travel, hotel, and meals. “It was a long and grim affair,” he says, and “an extreme example of a family’s failure to come to grips with the succession issue.” There would be others.

  The Sobey outcome was more successful. Frank Sobey had been the entrepreneur, the grocer from Stellarton who established the chain. By the 1990s, the business was in the hands of his sons: David, the manager of stores, and Donald, the manager of capital. Day would help the family as it tried to move to stage three, the investor phase. “Collectively, they are almost there. It has not been an easy journey,” he says.

  There have been tensions among family members, but the Sobeys have managed conflict through their family council and the governance of their companies. The family retained control of the voting shares in the public companies; meanwhile, nonvoting A shares were listed on the Toronto Stock Exchange. Because of the public listings, the companies practised standard corporate governance, and the boards exercised their normal rights and duties. This has been an advantage for the Sobeys: they have had to listen to other voices around the table.

  Graham Day brought a worldly international experience that would help a regional company take its first steps out on the wider stage. Day first sat on the board of Empire, the holding company, as the family made its Oshawa Group acquisition. Then he joined the supermarket subsidiary, Sobeys Inc., when it went public to raise money and needed a public-company-quality board. Day understood the challenges of the Oshawa Group purchase. He would tell the Empire board that it was like the proverbial dog chasing the car: “When he catches it, he doesn’t know what to do with it.” That turned out to be prescient.

  David Sobey found that, if he needed to talk to someone, Day was at the top of the list. He felt Day and Nova Scotia blueberry entrepreneur John Bragg were the best board members for this purpose, and they had the advantage of closeness. You could always drop in to see them to talk over the business, and they would find time. It was a reflection of the personal approach that was lacking on Bay Street or Wall Street, but that characterized the Atlantic style: the handshake, the quiet conversation, the nod of recognition, the shared experience. It was David Sobey, after all, who had made the initial call to a friend of a friend of Bill McEwan to sound him out on the job of CEO. And, like David, Bill McEwan came to rely on Graham Day as a sounding board.

  McEwan was hired on November 25, 2000. Two days later, the stores’ computer systems crashed. Sobeys had just installed an $89 million enterprise software system provided by the German technology provider SAP, and it collapsed under the strain of the combined companies’ demands. A 2003 article by Stephen Kimber in Report on Business Magazine summed up the crisis: “The system stayed down for five days. That put Sobeys five weeks behind in the middle of a peak period. The system would have to go. That would cost the company plenty, not only in actual dollars but also—and more importantly—in Street credibility.” As one former Sobeys director put it, “When the shelves are bare, you know you have a problem.”

  McEwan was essentially paying for the unpreparedness of previous management. The company took a $49.3 million writeoff on the failed software. For McEwan, it was not a great “welcome to Sobeys” moment. The stock price collapsed, and he had to rebuild the company’s image. He crafted a vision of the company based on a concept of “sustainable worth” that would appeal to employees, franchisees, investors, and customers. Sobeys began to work its way back.

  When McEwan joined the business, David Sobey remained chairman of Sobeys Inc. for about a year before giving way to Graham Day. McEwan admired David as a savvy retailer, and now Day became his lifeline in trying times. It was lonely being the outsider CEO in a family company. Whom do you talk to? Day became a sounding board. It was a model of the chair-CEO relationships that corporate governance gurus like to talk about.

  “He did not dominate, he did not push, but he helped me navigate the waters in a way that was very calm, gentle, and disciplined, with a sense of humour and incredibly precise instincts in difficult situations,” McEwan says.

  Day agrees he and McEwan were a good team: “He knew the grocery business, I brought the corporate background.” In Stellarton, the Sobey business interests occupied two buildings, facing each other across the street. The grocery operating company, Sobeys, sat on one side, the family holding company, Empire, on the other, with a pedway connecting the two. Day explained to McEwan, “Bill, you worry about Sobeys; I will worry about everything across the pedway.”

  The Sobey supermarkets recovered from the systems crisis, but faced another life-and-death challenge. Walmart, the US retail behemoth, had entered Canada in the mid-1990s and was furiously ramping up operations. It launched an assault on all Canadian retail players, because of the Walmart superstores’ broad expanse of product categories, including groceries. The chains would have to go up against Walmart’s aggressive everyday low pricing in everything from detergent to food. Loblaw’s, the leading Canadian supermarket company, decided to meet Walmart head on by diversifying into a range of clothing and dry goods. As the number two grocer, Sobeys had smaller stores and its expertise was clearly groceries. Its resources were already stretched by the chain’s sudden expansion, and it couldn’t see making the capital commitments to become an all-things retailer. Under McEwan, it chose to focus on food and the much-promoted promise of freshness.

  It was a controversial response, and some investment analysts deemed it inadequate. Not even all board members seemed sold on it. McEwan came to rely on Day more than ever. Day was in Stellarton about twice a week, and the two would sometimes also meet in Toronto, where they found themselves frequently. Day had a favourite Greek restaurant called The Palace, just steps off Toronto’s Danforth Avenue, and that is where the two men convened in the depth of McEwan’s personal crisis.

  The staff was spontaneous in its joy at seeing Day again—he was a frequent customer. Day and McEwan talked about the strategy and its negative reception. “It was rough,” the younger man recalls. “I was somewhat down.” He expressed his frustration that some board members didn’t get it, and complained about the analysts’ inability to grasp the merits of the strategy.

  Day looked at him and slowed down that sonorous voice of his: “Bill, you can build a solid foundation with the bricks that others throw at you.”

  It is amazing how a well-timed, well-crafted sentence can make the difference. “All I needed was that one word of encouragement to channel and deal with the criticism,” McEwan says. He was already confident his strategy was right, even if some directors didn’t support him. McEwan would stand behind that strategy, and if it turned out to be wrong, he would go down with it. “You’ve got to believe in what you believe. If they determine it is not the right course, they need someone else to navigate the ship.” McEwan believes strategies usually don’t fail because they are bad
but because management lacks the courage to stick with them. “That moment was singularly critical in helping me navigate the next several years,” he says.

  As a young man, McEwan had come under the guidance of a wise West Coast grocer who taught him the trade. Now, in middle age, he needed a mentor wise in the way of corporate politics. Day’s words, over moussaka and baklava, gave him resolve. “I was a different person as a leader from that day forward,” says McEwan, speaking in 2016 on the phone from, yes, Meaford, where he and Donna have a home on her family’s farm.

  The Sobeys survived the Walmart threat, but as this book was being written in 2016, they were dealing with the integration challenges of a massive new acquisition, the Canada Safeway stores, which gave them a big entry into western Canada. The transition was not going well, and yet another CEO was facing a formidable challenge. (Shortly after this interview, Sobeys CEO Marc Poulin would lose his job in the wake of a $2.9 billion writedown.) The tough times seem to roll around in cycles, David Sobey mused one day, adding that “we’ve got to get down to the quick and the dirty and see what we can do to respond.” His brother Donald added, “Your best directors become very important then.”

  The message: it is a rough business, and it is good to have people like Graham Day in your corner. Through conversations with the Sobeys and other companies on whose boards he has sat, there emerges a profile of Day as a director. As McEwan says, he is a rock of support for management in the tight corners, and he is unflinching in candour and directness—whether he sits on a family advisory board (governance-lite, if you wish) or a public company board with full fiduciary duties. When called on, he is full of ideas, and in some cases, Graham Day can be a real pain in the ass to have on your board.