Sitting here at thirty thousand feet, my favourite time to reflect and reminisce. I am on the way to Calgary for a Private Equity conference. The last time this event was in Calgary, they had a fraud prevention expert as the keynote speaker. He started his speech with a theory on human behaviour. His view is that ten percent of people in this world are unconditionally righteous. They have a truly good heart and will always find a way to do the right thing. Conversely, he posits, ten percent of the people in this world are fundamentally bad. They are completely selfish and will always choose the actions that will benefit them over others as long as they can get away with it. Sociopathic even. For the eighty percent in the middle, he said, it depends. It depends on what is at stake, who is involved and how strong they are at the time. This theory helped him avoid the pitfalls of trying to figure out who was good or evil; in his mind most of us are capable of doing some pretty shitty things.
After moving to Toronto in 1987, I moved back to Montreal in 1990 and transferred to Concordia from U of T. I am sure there were some rational reasons behind my decision to move, but if I am being honest, I was mostly chasing a girl. Don’t worry, this is a business story. I will spare you the details of what happened to that silly romance. I spent three great years at Concordia getting my B. Comm with a major in accounting, a career I ultimately did not pursue. When I graduated in 1993 I was looking for my first real job. At the time I had no idea that management consulting even existed. My dad, Gilbert, owned a commercial and industrial painting business – St. Lawrence National Painting – but was no longer managing it himself as he had moved to Toronto to run another business. The painting business had reached a decent scale with about a hundred men in the field on various jobs and a full management team running it. The president was a man named Mike. Mike had been working with my dad in the business for many years prior, learning to eventually take the reins. He was a friendly guy, very funny and a great salesman. He could shmooze with the best of them. I knew him as Uncle Mike, such was the closeness of the relationship between my parents and Mike and ‘Auntie’ Claudette. Our families shared weekends at our country house, trips to Florida and many other great times together over the years.
By the summer of 1993, the painting business was in dire straits. It had not made any money for two or three years and the debt was piling up. The bank was getting nervous and the suppliers were getting aggressive. The business was still the market leader in the Montreal area and Mike had mostly found a way to keep everything running. Until he couldn’t. After a series of tense discussions, it was somehow determined that Mike was going to exit the business, and I was going to take over. I had no experience in the construction industry, nor of running a business of any scale. It wasn’t really a job offer as much as a determination of my fate. I will never forget my dad’s encouraging words: “You can’t fuck it up worse than the last guy.” Phew.
I knew the business was in bad shape, but a few weeks into my new job I discovered just how bad. There was nobody we didn’t owe. Every major paint and wallcovering supplier, obviously the bank, the car leasing company, the government of Quebec for unpaid GST remittances (about three hundred thousand just of that) and more. We even owed hockey great Dickie Moore, whose equipment rental business was a big supplier to us. When I say the phones were ringing off the hook, I mean it literally. Ameron Paint’s collection agency once called our office on every line – we had the old phone system with a square translucent button for each line that lit up when a call was coming in – until we agreed to talk to them. Wednesday nights were the hardest as payroll was Thursday morning. I needed until about 10 am Thursday to find out which supplier cheques had cleared our bank and which customer cheques had arrived in the mail. Then I could phone my bank manager and beg her to let payroll go through if needed. One Thursday in particular we were way too far behind for her to let me run another day. I dreaded the call. As if by magic we then got a call from The State Group in Prescott, Ontario to say that a payment for $47,463. 22 was ready to be picked up. I could live another day.
The more interesting discovery I made in my early days at St. Lawrence was that Uncle Mike had been robbing us blind. My dad had some suspicions in the preceding months but didn’t have the controls in place to really know. And to be fair he probably didn’t want to believe it. Most of the staff were too loyal to Mike to know for sure where they stood. I had specific deep suspicions of the bookkeeper, Leona and the estimator, Bernie who went to join Mike at his new company after the exit. The level of thievery and the brazenness of it was shocking: the personal expenses put through the business, the supplemental bonuses to family members who were employees, the unreconciled payments to Mike himself, and to my own shame, the painters who were still on my payroll for the first few weeks but that Bernie and Mike had staffed on their own jobs. You see they had started their new company, a full three months before Mike actually left the business. I hired a forensic accountant and came up with an original estimate of $635K of funds ‘unaccounted for’, but we all knew the likely number was much higher. We ultimately did not pursue Mike in court as the path to prove these allegations was a long and expensive one. Frankly we could not risk the expense and distraction in the business. Getting to Mike in a more unpleasant and less legal way was an option given our connections at the time, but one my father was not prepared to pursue. Despite my emotional need for retribution I admit I was relieved at that decision.
Once we figured it all out, it was hard to believe Gilbert had missed it, and hard for him to process the betrayal. But why did Mike do it? He was doing well and living a very nice lifestyle. If his fingers had not been in the till the business would have actually been healthy. He could have grown it, bought it, or even just asked for a bigger share. Instead, he left to start his own, went bankrupt twice and has been supported by his children for years. Was it ego? I learned in later years that he had actually told his wife that he was an equal partner in the business…so it was tough to go home and explain why their best friends had the country house and the pool and they didn’t. Was it spite? Was my dad a kind enough, supportive enough boss who gave Mike enough room to be a star? Or was it just too easy when the money was rolling in and the controls were not in place? Maybe the odd dinner that he ran through became the holiday, the car and the home renovation. I will never know. Among the many things I learned at St. Lawrence National Painting Ltd was just what humans were capable of. As much as Mike’s name is a four-letter word in my family, I have to say that I don’t think he is evil. He is weak, and stupid (50 bucks if you know the movie line), but he is not evil. His ability to do good or bad things depends on many factors including what he can justify to himself, who he is dealing with and how desperate he may be.
When you think of yourself and of the people in your circle, are you all perfectly moral? Have you ALWAYS done the right thing? When faced with the next really challenging moral dilemma will you choose the right path? According to my favourite fraud expert the answer is, at least for most of us, it depends.
Over the coming months I will be sharing many stories about my time in the construction business in Montreal. There are enough of them to fill a book, and one day they just may. I will often use fake names or only first names, as the stories are meant to be allegories with a lesson that can be applied in the business world, rather than a personal attack. Also, I have young children, so there are some people I would not risk outing…seriously. This first instalment is about my funny and friendly ‘Uncle’ Mike.