CELEBRATING THE McCAIN FAMILY
Family Profile | May 2018 | by Gordon Pitts
In this series, Creaghan McConnell Group captures important lessons learned – and some inspiration – from Canada’s most accomplished ‘families in business.’ We believe these stories need (and deserve) to be told in order to support other families in their own journey.
In 1957, the McCain brothers — Harrison, Wallace, Andrew, and Robert — founded McCain Foods in the small village of Florenceville, New Brunswick. The brothers went on to create the first-ever frozen potato chip, changing the way many families prepare their evening meal. Today, in its 60th year, McCain Foods is the world’s largest manufacturer of frozen potatoes, processing 4.5 billion potatoes in Canada alone.
It’s a $9-billion-a-year enterprise with more than 20,000 staff around the world. And McCain Foods is still family-owned, with four family members on its board.
Here, we celebrate one of Canada’s true entrepreneurial success stories, told from the vantage point of Wallace’s eldest son, Scott McCain.
THE MCCAIN STORY: INTRODUCTION
Who is more credible talking about family enterprise than “the people who have been through the wars?” asks Scott McCain, as he settles his lanky frame into his office chair.
Who, indeed? Scott is acutely aware that in Canada, the McCain name is associated with two things: worldwide business success and world-class family dysfunction.
The success part is a global food processing company, McCain Foods, famous for its ubiquitous French fries. Over 60 years, it has grown from its rural New Brunswick base to encompass 20,000 employees, and annual revenue of $9 billion, selling food in more than 160 countries.
The dysfunction label stems from the early 1990s, when founding brothers Harrison and Wallace McCain feuded over their succession and fought it out in the courts, splitting the family into two hostile camps. It became the worst kind of front-page news story.
For many people, that’s where the story ends. For Scott, Wallace’s older son, it’s just the beginning. Twenty-five years after that dramatic split,that script has to be rewritten – into a story of continuing business success and highly functioning family leadership.
SCOTT MCCAIN: REWRITING THE STORY OF FAMILY LEADERSHIP
Scott has been on a personal journey that has come full circle – from total immersion in the family company to bitter exile and now back to wholehearted engagement as a board member with McCain Foods, working with cousins, professional managers and independent directors.
He believes his journey points to a way forward for any family dealing with potential conflict and generational change. For Scott, the vital ingredient has been governance – of the company and of the family. In each case, it has meant clearly written rules, independent voices at the table, and an ability to separate – as much as humanly possible – the business owned by the family and the ‘business of the family,’ as embodied in a family office, such as the one Scott’s branch has developed.
“Our family business is potatoes and appetizers and trucking; the business of the family is the family office.” He proceeds to tick off those family office issues – from philanthropy and managing outside investments to marriage contracts and next-generation employment.
If there’s any indication governance is working, it’s the seamless transition of executive leadership at the top of McCain Foods in August 2017. It took only a heartbeat from incumbent CEO Dirk Van de Put’s announcement he was leaving (to head consumer goods giant Mondelez) to the designation of his successor, Chief Financial Officer Max Koeune. Both are sophisticated global managers, the latest in a series of non-family
ENTREPRENEURIAL SUCCESS... AND THEN FRATERNAL CONFLICT
This lack of drama stands in contrast to the fractious 1990s, which Scott describes, shaking his head: “Man, what a nightmare.” The bad scene might never have been entirely avoided, given personalities and events, he concedes, but the odds of upheaval would have been much smaller if the family had done the right things back then.
Now that he’s through “the wars,” Scott talks to other business families and in too many cases, finds they’re unprepared for the future – “like deer in the headlights.” Scott’s credibility is earned through a life story that began in tiny Florenceville, NB in the Saint John River Valley, a place where potatoes form the very essence of life. His grandparents, Andrew and Laura, grew and sold seed potatoes for customers around the world. But their business truly took off when their sons – headed by Harrison and Scott’s father, Wallace, and brothers Andrew and Robert playing key roles – decided in the late 1950s to get into the nascent enterprise of frozen fries.
McCain Foods caught the wave of the fast food revolution and a voracious demand for easy-to-prepare meals for working families. It became one of Canada’s great entrepreneurial success stories, expanding to six continents and diversifying into other frozen food lines, as well as trucking.
Scott joined fresh out of university in his early 20's and had every reason to think he would be there forever. He rose to vice-president of production for McCain Foods in Canada. It was the best of times, but the worst would follow. Harrison and Wallace, the co-CEOs, started bickering over succession to their roles – Wallace backed his business-school-graduate son Michael, Scott’s younger brother; Harrison opposed the choice.
THE MOVE TO MAPLE LEAF FOODS
The dispute escalated into a legal battle with Harrison, his family and members of Andrew’s and Robert’s families on one side, and Wallace’s family on the other. It ended with Wallace, Scott and Michael being removed from their roles with McCain Foods, while still owning a third of the company. They moved to Toronto to take control of another food giant – meat, bakery and animal feed processor Maple Leaf Foods.
Through the fraternal conflict, McCain Foods remained a successful enterprise, partly because a core of independent directors would navigate the business shoals while the family veered tragically off course. Scott can see their role more clearly now, mediating between the two brothers.
At Maple Leaf, Wallace was the chairman, and brother Michael rose to become CEO, while Scott took charge of agri-business operations, including animal feeds. He stood beside Michael as the company endured a series of adventures, notably a tainted meat crisis in 2008 that resulted in 22 deaths. But the circumstances also established Michael as the textbook model of an effective crisis manager.
Wallace died in 2011. Scott was approaching 60, and could see his runway at Maple Leaf Foods getting shorter. Maple Leaf was restructuring, doubling down on its core business of pork, poultry and processed meats, and shedding non-core assets, including the animal feed operations. Michael was tightly focused on Maple Leaf, having sold off his minority stake in McCain Foods.
DEEP SATISFACTION AS A MCCAIN DIRECTOR
In 2014, Scott retired from Maple Leaf, intent on doing his own thing. His beloved Maritimes became a focus – he partnered with members of the Sobey family in a private equity investment company; and he acquired the Saint John, N.B. junior hockey team, the Sea Dogs. But his deepest satisfaction arose from his director’s role at McCain Foods.
The company had continued to prosper as a professionally managed business, and family wounds had healed a bit with time. Harrison and Wallace, now deceased, had reached a measure of reconciliation before their deaths. Scott found he liked spending time with his cousins, including Harrison’s son, Mark. They could disagree at the boardroom table and then go out and have dinner without any residue of ill will.
The governance of McCain Foods made it easier to separate operational differences from family matters. At Harrison McCain’s insistence, McCain Foods had adopted a European-style two-tier structure of operating company (OPCO) and family holding company (HOLDCO). OPCO runs the company and is overseen by its own board to which management reports. The board is chaired by Allison McCain, the son of Scott’s uncle
Andrew, but this is no cozy family gathering. Of the 10 members, the family holds four seats, management has two and the remaining four are independent directors.
That independent foursome boasts battle-worn expertise – Jacques Bougie, former CEO of Alcan who heads the audit committee; J-P Bisnaire, the respected retired general counsel at Manulife Financial; Vic Young, veteran corporate director, former senior bureaucrat in Newfoundland and Labrador, and one-time fishery CEO; and Janet Plaut Giesselman, a recent appointee who is an established executive in the U.S. agriculture and energy industries. These people don’t shrink from telling truth.
THE GOVERNANCE STRUCTURE PAYS OFF
Then there’s the board of the family holding company. Harrison McCain saw this as a mechanism for the family to exercise authority over significant issues like CEO appointments, dividend policy and mergers & acquisitions. The duties and relationships of governance in the two tiers are clearly spelled out in a thick document. HOLDCO’s board consists of seven members, with its composition reflecting the ownership weighting – Mark McCain’s branch has two seats; Scott’s has two; and the branches represented by Allison and Andrew McCain (son of Robert, another of the original four brothers) hold one each. In addition, there’s one respected external director.
Scott, like his father before him, first resisted the idea of this extra layer. Decades later, he admits it’s working well. “Our HOLDCO board has teeth and bite; some things the CEOs have to bring to us and they know they have to defer to [the board].”
Scott was also dead set against any McCain family members ever working again at McCain Foods, which was understandable given the strife around that issue. But today, two members of the third generation are in the company. “We’re trying to treat them as if they were just anybody else,” he says. Then he adds: “But they’re not.”
THE BUSINESS OF THE FAMILY
As a result, one of the key components of governance is a highly detailed family employment policy, a document sadly lacking in many family companies. According to the McCain policy, the performance of family members working in the company is monitored by a management resources committee of OPCO independent directors to which the HR
department reports annually on the progress of the individuals. There’s a clear ban on any interference in the process by a family member.
If the governance of the business of the company is in good hands, so too is the governance of the business of the family – in this case, the Wallace McCain branch of the family.
Scott shakes his head when he thinks of the classic way that many business families deal with their “other issues,” such as decisions about outside investments, including, for example, a new business start-up proposal by a child.
In the old days, an entrepreneur, intensely focused on the business, might call the CFO or the accountant to say: “Can you just deal with this?” The manager would naturally feel uncomfortable giving this kind of personal family advice and wading into the dangerous waters of family politics. The issue might be handled badly, or not at all.
There’s also a tipping point when non-company issues proliferate, moving from simple tax and compliance issues to outside investment portfolios, inter-generational wealth transfers and philanthropy. Mike Milligan, a veteran lawyer and corporate executive who was recruited to run the McCain family office, pinpoints the moment when any family should think about its own office: “When the business of the family starts to compete with family business for time and resources.”
DEVELOPING DIRECTORS FOR THE NEXT GENERATION
Milligan oversees a staff of nine people mandated to manage the extensive non-McCain Foods interests of Scott, Michael, sisters Eleanor and Martha, and their nine children, as well as their mother Margaret, a prominent philanthropist. Scott says Milligan – who also sits on the HOLDCO board -- brings not only his legal and financial expertise but a sensitivity to relationships. If a child has an issue, he or she can bring it to the office to deal with it in a detached, unemotional manner. “When Mike Milligan tells my kids something, they listen,” Scott says.
Milligan suggests there are times when the parent should step back. He equates it to when children have to learn to drive using a standard shift. “Sometimes parents aren’t the best advisers.” Having a non-family member take over the nitty-gritty details frees Mom and Dad in their critical role of being loving, supportive parents. Scott realizes it won’t be easy as the family and company look ahead to the third generation, which includes his own three children. Inevitably, personal goals and attitudes will be different. Not everyone will share the passion for the potato business that drove Wallace and Harrison – or even Scott and his cousins.
The primary task now is to develop great directors in the next generation. In the next five years, he and other family directors will be focused on finding their replacements. “We’re in the identifying phase.” The new directors must not only be business-savvy but also attached to the idea of a company that is resolutely Canadian, with Atlantic Canada roots.
THE POWER OF EXTERNAL ADVICE FOR THE LONG TERM
The hope is to increase the odds of maintaining the family enterprise. Rather than dwell on the past, think about: “How do you make sure the next generation has a better chance of survival? Instead of a 30-per-cent chance, how do you increase your odds to a 60-per-cent chance?”
Speaking to other families, Scott emphasizes that to maintain successful governance – of the company and the family – owners and founders have to quit holding their cards close to the vest. Strong-willed entrepreneurs may be used to doing their own thing, and resist sharing information with independent directors or a family office – but at some point, they have to listen to outside reason and wisdom.
Gaining that trust is the biggest challenge, and Milligan agrees. Wealthy families are naturally skeptical of esoteric planning concepts, but they can be gradually won over with patience and understanding. “You need to have the implicit trust of all the family members that what you’re doing is in their best interests for the long term.”
For families that resist such openness, “that’s fine if that’s what you want,” Scott advises. But your daughter, for example, may not relate to your accountant and CFO, who may in turn not want to deal with a sensitive family issue. “No trust is built up and then something happens to you. Without that trust, good luck.”
And luck, as Scott McCain has learned, is no foundation for a family business that hopes to last for any more than a speck of time.
QUESTIONS TO CONSIDER FOR YOUR BUSINESS:
1. What does the next ownership transition for your business look like?
2. What governance structures do you have in place?
3. Are you leveraging external wisdom and advice that will support you for the long term?