Man in Management

DR. CRANFIELD:

Would you agree that a man is truly educated when his breadth of learning is from four of this continent's most respected universities? Such, too, would be a man who has established his position as an author with a book on internal auditing and another on the history of United States Banking. When a man is a member of five of Canada's Learned Societies he was undoubtedly a successful student. If, in addition, he has been an associate professor and presently is a member of the Institute of Strategic Studies in London, England he is an established scholar.

Our speaker joined Canada Packers Ltd. as a University graduate though only 20 years of age. By age 28 he had become the Chief Auditor and was successively Secretary, Treasurer, Vice-President, Director and member of the Executive Committee. In 1960 he moved to Intercontinental Packers Limited as President and in five years tripled the size of the company. In April of 1966 he was asked to become President and Chief Executive Officer of Burns Foods Limited. The company at that time was suffering losses at the rate of $4,000,000 a year. This former boxer and aviator was unable to resist the challenge. Last year (1969) the company had a pre-tax profit of $4,000,000. Sales have increased from $200,000,000 to $300,000,000 since 1966.

The audience, I feel sure, will forgive a personal reference to my father. He retired from business as the manager of two Burns business branch enterprises which he held simultaneously. This was in the early days of affluence and success in the Burns Foods corporation. The image of Burns drawn by father compelled me to seek out its present leader so that you might hear his message. This man is both schoolmaster and business man and he respects and understands both worlds.

I assure him now, that you, the audience will abide by the adage, "Spoil the rod". Gentlemen here is Mr. Arthur J. E. Child who is the best qualified person one could find to speak about "Man in Management." Mr. Child

MR. CHILD:

This is the third of three speeches I wrote for this luncheon address. The first two had a social and political theme and I finally decided they were too polemic, which might not be good business in my position. Eventually I sought the advice of one of your members. He told me that those who attend the Empire Club luncheons like to hear something they know very little about, so he said why don't you talk about your industry and your firm. I have taken his advice. Our industry, the meat packing industry, is certainly not a glamorous one. To many people it is not very attractive. In fact, when I left school this was the last business I would have chosen. I wanted to go into the nice clean steel business but there were no jobs in the steel business at that time. There were no jobs, period, except a very junior clerkship in the Harris Abattoir Company.

It surprises me that many people say: what do you people do in the meat packing industry? You sell meat in packages or tins. Do you sell any other kind of meat? Possibly they think that all the fresh meat they see in a retail store was slaughtered by or for the retailer, as used to be the case in the old days. The fact is that virtually all the meat consumed in Canada in any form--fresh, frozen, cured, smoked, cooked, canned--comes from the meat packing industry. We are the people who transform cattle, hogs, calves, lambs and poultry into meat products. We are not in the live stock raising business, nor do we sell at retail to the consuming public. We are manufacturers, in the middle between the live stock raiser and the retailer. The fact that we are in the middle creates many of our problems.

The size of our industry will surprise you. It is the third largest in Canada, with annual sales of some billion and a half dollars. In western Canada meat packing is the largest industry, ahead of oil and gas. In Saskatchewan, our company's operations alone in that province are bigger than the much publicized potash industry. In nine prairie cities the meat packing industry is the largest employer. In the City of Calgary, Burns Foods is the largest employer and Burns is the largest company with its Head Office in Calgary. We are far ahead in size of any Calgary-based oil company.

In these days of grain surpluses and lack of grain sales the meat packing industry has been invaluable to the prairie economy. We pay cash on the day that live stock is delivered to our plants. Cattle, hogs and sheep, you may not realize, are a perishable commodity. They must be marketed the day they are ready or they deteriorate in quality. The meat packing industry takes all live stock the day it arrives, whether or not it has a market for the meat. Our job is to find the market.

An industry with our turnover requires large amounts of raw material. In Alberta there are four million cattle, as against 1 1/2 million human beings. The province of Saskatchewan has twice as many cattle as people. And the flow of hogs to meat packing plants this year will be over 8,000,000 animals. In any given farm district it takes an enormous supply of live stock just to keep one packing plant going.

The meat packing industry was not started to supply meat products to the people of Canada. It began here in Toronto when an English butcher named William Davies built a plant in 1874 to ship sides of pork to Great Britain. In 1901 William Harris formed a company in Toronto to send beef overseas.

Nobody at that time thought of supplying meat to the Canadian consumer by means of a factory operation. The retailer did his own butchering of cattle and hogs, made his own sausage, and smoked his own hams.

The original concept of a meat packing industry to supply beef to Great Britain was a failure from the start. Canada is not able to compete with much cheaper beef from Australia and Argentina. I am sure you well know it is price, not sentiment, that determines the course of export trade. The demise of pork shipments to Britain took longer. The trade flourished until 1910 and created the wealth of people like Joseph Flavelle who gained control of the William Davies Company. After that date the Danes and the Dutch and the Poles pushed Canada out of the British market. We could not compete in price, and to some extent in quality. There was a great revival of shipments during the two wars when Europe was cut off, and in the 1930's strenuous attempts were made to re-enter Britain with pork products. However, the simple fact is that it costs more to raise hogs in Canada than in Denmark. A price that gives the Danes a nice profit is so low that the Canadian farmer would abandon hogs if he had to accept it.

Fortunately the loss of the British market was offset by human population growth in Canada. A substantial hog industry in Canada can now be supported by domestic consumption at prices high enough to give the farmer a profit. Except for some shipments to the United States, and a world market for certain by-products, it has not been necessary up to now for us to seek export markets for pork. The same is true of beef. We have never exported beef in any significant quantity from Canada. Today we are in fact short of beef and we import a great deal from Australia and New Zealand.

The large companies in the industry handle a wide range of products other than meat. In addition to our meat packing division we have a dairy division for milk and ice cream, a fruit and vegetable company, and a grocery products division. All of these have manufacturing facilities but they also act as distribution agents for other manufacturers.

The task of sending meat and other food products into the far north might interest you. Our company maintains distributing branches at Whitehorse in the Yukon and Yellowknife in the North-West Territories. The Whitehorse operation is supplied by our plant at Edmonton and the shipments go by refrigerated truck over the Alaska Highway. The distance is 1300 miles and the unpaved portion of the highway is one of the worst in the world. The dust in the summertime is unbelievable. I once saw a truck arrive at Whitehorse three hours late because eight tires had blown on the trip. The previously scheduled truck had not arrived at all. The driver was in the hospital at Watson Lake, having failed to make a bad turn.

Shipment to Yellowknife is somewhat different. There is a road, all gravel, 750 miles from Edmonton. There is no bridge over the Mackenzie River, so the road is closed during several weeks in the spring and fall when the ferry cannot operate or the ice is not thick enough. In those weeks Yellowknife is supplied by air. The remote sites are supplied by air all year round unless they can be served by winter tractor train or by the Mackenzie River system. In that case the merchandise goes on the barges of the Northern Transportation Company. There are two big barge movements a year: in the spring when the ice goes out and in the late summer before freeze-up. The barges go right down the river to the Arctic Ocean. One of our big items for the north is ice cream. It is very popular with the Indians and Eskimos.

Meat packing is probably the most complex of any manufacturing industry. To illustrate, let me compare it with the oil and gas, pulp and paper, steel, and automobile industries. On both the supply and demand side of those industries there is a stability of costs and prices completely unknown to us. For the most part these other industries can make long-range plans for a definite amount of raw material at known costs. They usually control their supplies of raw material. In our case we have absolutely no control over our raw material supplies. We can estimate, but we have no control because our supplies come from tens of thousands of farmers across Canada, each one making his own decision as to when and where he will ship his live stock. Our prices for live stock, which are our raw material cost, are never known in advance. We can only guess what we will pay for hogs next month, next week, or tomorrow.

Similarly, selling price changes of the primary processors whom I have mentioned (oil, steel, automobiles, etc.) are not frequent. The manufacturer's price may stay the same for a whole year. The prices of our meat products very often do not stay the same for a whole day. The reason is that, like the supply side of our business, we are negotiating on the selling side with tens of thousands of customers. We operate under a whole host of variable market conditions such as weather, feed grain prices, consumer preferences, U.S. markets, world by-product markets, interaction of food products, and farmers' decisions.

In the calculation of costs we are different from almost everybody else. The cost of an automobile is the sum of the cost of the parts. But how do you determine the cost of a loin of beef, which is only a part of a whole animal? You know what you paid for the steer but not for any of its components.

All of these complexities and variables have made it nearly impossible so far to computerize our industry. We cannot lock in a set of constants to a computer programme and then turn out answers by a few variations in input. Virtually all of our inputs are not only in a continual state of change but most are impossible of precise prediction. And when one works on a profit margin of less than one per cent, then the need for precision is absolutely mandatory.

Perhaps this now makes clear to you that the human factor in our industry is very important. First of all, it is necessary for us to have profit centres by regions and then by our major commodities. Because of the volatile nature of costs and selling prices a company of our size needs hundreds of men in decision-making positions. There is no way that our Head Office can do anything but give general direction. Our day-today operations are in the hands of men in the field. At Head Office we have no control over prices, for example, except to see the ultimate effect of price movements in the weekly results of each profit centre.

The importance of the human element is illustrated by the history of the individual firms in the industry. Let me tell you a little about our own company.

Patrick Burns was an Irish Catholic born in Oshawa, Ontario. Like the proverbial Horatio Alger hero, he went west to seek his fortune, first as a homesteader, but soon as an entrepreneur in a small way. He hauled freight for farmers and bought and sold cattle. Eventually he bought cattle but sold them as beef, to the gangs building the first railways across the prairies. In the beginning he operated on the spot, where the construction was going on, but in 1890 he built a plant at Calgary and thereby acquired a fixed base. We are still in the same location, but it is not the same plant.

The opening up of the west made it essential to construct plants to supply meat to the growing population. Pat Burns kept abreast of developments by building plants in most of the prairie cities plus one in Vancouver. For those times he became an entrepreneur on a very large and imaginative scale. In addition to meat packing plants he built a network of wholesale branches, dairies, cheese plants, fruit warehouses, and a large chain of retail stores. The number of Burns establishments in the 1920's was far greater than we have today, attesting to the energy and initiative of one man. Furthermore the enterprise was eminently successful.

By the late 1920's, however, Pat Burns was over 70 and no longer desirous of active administration of the company. He had no son to carry on. Therefore he decided to sell all of his interests, except ranching, to the public and in 1928 the Burns firm became Burns & Co. Ltd. Pat Burns, who became a senator in 1931, was Chairman of the Board until his death in 1937.

The sales of the company in 1928 were about $40,000,000. Over the next 35 years there was a steady growth in sales, reaching $190,000,000 by 1963. This growth multiple of almost five times compares with six times for Canada Packers, the leading firm in the industry. However, the profit record of Burns came nowhere near that of Canada Packers, which has never known a loss year and whose annual net profit has climbed steadily from a million dollars in 1928 to $10,000,000 in the last fiscal year. In the 1930's the Burns record was an unhappy one, with losses forcing a capital reorganization. The late 1940's and the 1950's were reasonably good years, but the early years of the next decade found the firm again in difficulties. By 1963 the market value of Burns shares had been driven down far below book value and appeared to present a takeover opportunity.

We might at this point ask what happened to Burns after 1928. Why did a previously very successful firm turn into a mediocre performer? I have no personal knowledge of affairs inside Burns, since in all this time I was with Canada Packers. I do not want to discredit anyone in Burns, but I suppose I can speculate out loud. I would guess that the spark went out of the company when it was no longer under the personal leadership of Pat Burns. I have already referred to the importance of the human element in the management of meat packing operations. The highly competitive nature of our industry requires the highest possible amount of energy, initiative and imagination from the whole management group across the country. There must be a willingness and even a zeal for hard work, long hours, and dedication to the interests of the firm. Top management must set the example in this respect.

It is a good question whether the management of Burns during those years came up to this standard. I have been told that jobs in Burns in those days were a sinecure. Nobody got fired. Nobody wanted to rock the boat. If that is so, it is very easy to start living with inefficiency. And once a chief executive officer accepts inefficiency, it is very difficult for him to change pace. A new man can turn a company upside down. It is a rare case when this is done by an incumbent. It is a rare case when the need for it is realized. My former boss, the late President of Canada Packers, J. S. McLean, had a favourite quotation from Alexander Pope in this regard:

"Vice is a monster of so frightful mien,
As to be hated needs but to be seen;
Yet seen too oft, familiar with her face,
We first endure, then pity, then embrace."

As many of you know, a new group gained control of Burns in 1964. They bought the shares at $111/a which had a book value of $30 at the time. The leading figure in the take-over reasoned that the company could not only be made profitable, but it could be made the vehicle for a greatly expanded food empire. He was quite right. His vision was sound.

In the event, however, the company was on the edge of bankruptcy within two years. By the spring of 1966 it was losing $350,000 a month, which would be $4,000,000 on an annual basis.

What went wrong?

Again we go back to the need for highly-skilled, experienced, and hard-working management. The new group, with no knowledge of the meat packing industry, was not aware of this fact. They did not realize how much the industry depends on every man in the whole corps of operating management. They not only ignored the existing management group but they condemned the accepted methodology of the industry. They felt that new concepts would open up a new profit horizon, although they did not know what those concepts would be.

The major areas of a meat packing firm are production, operations, sales and finance. New people were brought in at the top in all of these areas, and most of them knew nothing about meat packing. In addition, five different consulting firms were used over the two-year period. In the dairy division a whole team of "experts" came into executive positions. The end result was indescribable and I do not want to talk about it in any detail. Suffice it to say that Burns lost a number of good men during this period, it lost ground seriously in sales and customer relations, and morale became so bad that one of its major offices invited the union to come in and organize it. And, of course, profits turned into frightful losses. In only one area was there a successful transformation. That was production, where a young man trained at Canada Packers succeeded in creating a great improvement in efficiency.

In March of 1966 I was asked to come as President and Chief Executive Officer, with carte blanche authority. You know the story. The losses were stopped. The company has become profitable and is expanding at a satisfactory rate. Again, you may ask: what happened?

First, a newcomer has no inhibitions about persons or systems or accepted practices. He has no obligation to anybody except the shareholders. Secondly, there was 35 years of experience in the industry. During those 35 years I had made plenty of mistakes, which is a great way to get an education in business. Thirdly, my old associates in Canada Packers were very helpful. They went on an 11-week strike four months after I came to Burns. They dumped a million and a half dollars in my lap to get me off the ground. It is no doubt true that success in this world is half hard work and half good luck. I have had my share of both.

As to the rest of the story, the management consultants had thrown in the towel before I arrived. The newcomers, the strangers to meat packing, had either departed or went within a few months. This left me for the most part with only the people who had been in Burns before the takeover. This was enough. I did not bring in any new people.

It was my good fortune to find all the people in Burns and its subsidiaries who could turn the company into a successful operation. Of course few of them were in the positions they occupy today. Rather there has been a great deal of sorting out since 1966. There has been an unyielding demand for the right people in the right jobs, without compromising standards of performance in any way. This has meant hundreds of promotions, demotions and lateral transfers. The process is still going on, but we had developed a fairly strong management group by 1968.

The first task in 1966 was to get down to a simple low-cost organization and then develop an aggressive sales programme. A complicated set of financial controls was discarded in the first week. A schoolboy can understand the accounting tools we use today. I said that Canada Packers gave us a million and a half dollars in our first six months. We gave ourselves two million dollars by expense reduction.

There was a complete elimination in the summer of 1966 of the marketing and advertising departments and their programmes. The advertising agency was dropped because there was no more work for them to do. You might say: how in the world could Burns achieve consistent sales increases since 1966 and do a thing like that?

The answer is that one Burns man was found, of long experience, who became the sole member of the new sales and advertising general staff. We went back to sales programmes that had worked in the past, we set up a modest advertising budget, and we began the task of revising our packages and labels and other image-building materials. All of the visual evidence of Burns that you see today has been developed by our own people over the last four years. The increase in sales is the work of our sales forces, responding to enthusiastic and imaginative leadership. We still have no advertising agency.

An immense morale-building job had to be done in Burns in 1966. There were many ways in which this was accomplished. By bringing in no outsiders, our people in Burns responded to the confidence and responsibility suddenly extended to them. A complete new concept of local autonomy was handed to plant and branch managers. And the sudden demand to do a job, or else, was in itself a morale-builder. Good people do not respect management which puts up with incompetence. Our people saw that we were trying to promote efficiency, correct inequities, and create opportunities.

We spent a lot of money to boost morale. In that first six months half a million dollars went for the up-grading of facilities. There was to be no tolerance in future of shabby plants and third-rate surroundings. Salaries were increased, even at Palm Dairies where cruel losses continued in 1967. The theory was that once the right people were discovered they were entitled to be well paid for the new responsibilities thrust on them. The greatest lift to morale of course was the realization by our people that their company could not only be rescued from disaster, but that their efforts were turning it into a profitable and successful enterprise. And we are going further than just restoring morale. It would not be unfair to say that the Burns of ten years ago was not exactly aggressive in spirit and outlook. Today we make no secret of the fact that we intend to increase our share of the market in every possible way, and we are trying to build that spirit in all of our 5,000 employees. Burns is not an impersonal bureaucratic machine. It is a living, breathing human organism.

As to the future we are confident, but by no means complacent. Our earnings ratio is still very far from satisfactory. We are not yet coping with market changes as well as we should, and there are times such as the present year when our expense control does not suit us. And in our industry the rate of obsolescence of plant and equipment is so rapid it would make a grown man cry. Expenditures in this area are never-ending.

We have of course made substantial progress since 1966. From sales of $200,000,000 at that time we shall reach $315,000,000 this year, and I expect that 1971 will see $375,000,000. There is some price inflation in these figures but nevertheless we have had a physical increase in sales volume every year. There are also acquisitions. In this respect Burns has no intention of becoming a conglomerate, of making acquisitions for the sake of size. All of our additions have been within our present orbit. We do not know how to manage business that are unrelated to our present activities, so in the foreseeable future Burns will not move in that direction.

I am optimistic about our future for several reasons. One reason is that so many of our people feel they are a part of management. We are all in each other's confidence. We know about each other's successes and failures, because it is our policy to keep everyone in management ranks fully informed of our operations. Our people are glad to see successes, but they are also intolerant of their colleagues who make mistakes. Our people feel strongly that they have a stake in the future of Burns, so they are not inclined to suffer incompetence in silence.

So this is the story of Burns. I wonder what this story means to those in this country who are anxious to destroy the free enterprise system. I suppose they might say that Pat Burns was nothing but a robber baron. I prefer to think he was a builder of the west. He created a great enterprise which was necessary to westward expansion and created jobs for thousands of Canadians. His wealth, honestly acquired, reposes in the Burns Foundation for the betterment of this country.

The enemies of the business world could say that the performance of Burns from 1928 to 1966 hardly bears witness to the claimed efficiency of the free enterprise system. I prefer to think that it is the profit motive that brings inefficiency to light and forces its elimination. The necessity to make a profit has forced us in Burns to remove round pegs from square holes, to promote people who demonstrate initiative, and to emphasize the virtue of hard work. One wonders whether this would have happened under state ownership.

The gratitude of the Club was expressed by Mr. R. B. Dale-Harris, D.S.O., F.C.A.