Ugliness at Irwin. From Today's Canadian Business.
Trouble in toyland
Irwin Toy enjoyed a reputation as a fun place to work. But the atmosphere soured when family members began feuding. After surviving a coup attempt, can George Irwin restore peace to his demoralized empire?
By Sean Silcoff | Dec. 31, 1999
Mention the name Irwin Toy Ltd. and a happy thought probably enters your head. You or your children have undoubtedly played with one or more of the company?s products, whether it was a Slinky in the 1960s, a Star Wars action figure in the 1970s, a Pound Puppy in the 1980s or a Mighty Morphin Power Ranger in the 1990s. If you read the financial pages, you might know Irwin Toy hosts the looniest annual meeting in corporate Canada, complete with hundreds of screaming and crying kiddie shareholders and regular appearances by wrestlers, mascots and sports stars.
But despite being in the fun-and-games business, a bitter crisis has erupted behind the scenes at Toronto-based Irwin Toy (TSE: IWT). Just two months ago, a long-simmering rift at the guarded, third-generation family-operated company boiled over with the Toyland version of a failed palace revolt. As a result, three high-ranking members of the Irwin family have abruptly exited the 73-year-old company. Gone are: Bryan Irwin, 56, one of three senior vice-presidents and youngest of the three brothers in the second generation of the family business; Scott Irwin, 48, another senior vice-president and son of former CEO Arnold (Bryan?s eldest brother); and marketing director David Irwin, 47, the younger brother of CEO George and son of the company chairman Macdonald (Mac), the middle brother between Bryan and Arnold. Finding themselves on either side of a deep family split are Arnold and Mac, the two 70-something brothers of the second generation, who for decades ran the company together harmoniously and prosperously.
The man left standing in the middle of this family feud is 49-year-old George Irwin, who took over as president (and later CEO) from his uncle Arnold nine years ago. Having prevailed over a brother, cousin and uncle who attempted to oust him, George is now solely in charge of the company?s destiny. "I?m still CEO, and we?re a company that is moving forward," he says. "The good news about the company is that we have an opportunity for new ideas, new people, and we can build on that." But the battle could just be beginning. The 73-year-old Arnold?until recently the company co-chairman and a key force behind the insurgency movement against George?is the largest shareholder of the company, with 17% of the voting stock. Hard feelings also exist throughout the rank and file. Many nonfamily employees think so little of George they offered to sign a petition supporting efforts to boot him out.
But that was before Black Friday, as it?s known at the company: Friday, Oct. 8, the date of the board meeting that sealed the fate of the three departed Irwins. "What these four men [Bryan, Scott, David and Arnold] did was stand up for the interests of employees," says one shaken company insider. "Unfortunately, everything just sort of backfired. This didn?t just affect four people; this affected a family company. We were all like brothers and sisters. It?s more devastating than I can put into words." Something tells us you might not want to bring your children to the next Irwin Toy annual meeting.
By early December, the company had not disclosed anything to the market about the high-level departures. "I don?t consider it to be material to the running of the business," George Irwin insists. His official line is that two competing strategic directions emerged for the future of the company?and those at odds with his vision and goals left the company. (The departed Irwins aren?t talking?they can?t, according to their severance agreements, Bryan says.)
There?s little doubt that rancor is a fact of life at Irwin Toy. After interviews with a dozen current and former employees, what emerges is a picture of a senior management team divided by personality clashes, petty bickering and an endless stream of disputes over products and strategies. "Bryan couldn?t be in the same room as George; David and George hated each other even though they?re brothers; and then there?s Peter [Irwin, the vice-president of licensing and international sales with the company] and George, who always stand together as a united front," says one ex-employee. "Scott is the softspoken nice guy but always has his own opinions and you never know which way he?s going to go. But it?s always a battle. Always. It was ridiculous and it was uncomfortable."
But that?s only part of the story. So is the fact that the company has lost money in three of the past four years. What triggered the executive exodus at Canada?s largest independent toy company was George?s heavy-handed meddling in the marketing department over the past few years?at the expense of his duties as leader of the company. The vacuum at the top would eventually turn the company into a war zone. And the victims continue to pile up: since Black Friday, two employees have gone on stress leave; many others are polishing off their r‚sum‚s for the first time in decades, looking for a way out.
The turmoil at Irwin comes just as the company is about to embark on what should be one of its most successful years. For the first time since 1994, the company looks to have a solid winner in its catalogue: Dragon Ball Z action figures, small plastic dolls based on a popular Japanese kids TV show that is starting to catch on in North America. Action figures have carried Irwin Toy to big profits in the past, and early indications of strong Dragon Ball Z sales gave a jolt to the company?s languishing stock earlier this fall. But winners come and go in the toy business, and even before Dragon Ball Z hits the big time, toy industry observers are already wondering what, if any, future Irwin Toy can carve for itself in the increasingly global toy business. "I didn?t think Irwin would still be around right now," says one toy industry executive. "Right now they?re lucky because they have Dragon Ball Z as a licence. That?s luck. You can?t survive that way. There has to be more vision."
The Irwin family business dates back to 1926, when Samuel Irwin started selling souvenirs out of his Toronto home. Sons Arnold and Mac took over in 1949 and soon began branching out into toys. At the time, few of the big toy makers in the US handled their own distribution in Canada, and Irwin became their middleman of choice here. As a result, the name Irwin was associated with some of the biggest toys in the coming decades?Star Wars action figures, Rubik?s Cubes and Atari 2600 home video game systems?along with stalwarts such as Etch A Sketch, Slinky and tabletop hockey. Despite going public in 1969 (with the Irwins collectively controlling 52% of the voting stock), Irwin Toy retained a strong family atmosphere among its ranks. Arnold and Mac?s much younger brother Bryan joined the company in sales after abandoning a career in law; between the three brothers, no less than five of their children have also worked for the company. Employees were treated as family. "Our reputation in the toy business was that no one ever left Irwin Toy, and those that left missed it immensely," says one employee. Part of the company?s charm was its junior shareholder program, which allowed thousands of children to buy as little as one share in the company?thus guaranteeing lively, endearing shareholder meetings.
Despite operating in one of the world?s most fickle businesses, Irwin Toy managed to grow sales to the $100-million level by the early 1980s while remaining consistently profitable. But then the company lost its solid footing in the Canadian toy industry (annual sales are estimated to be in the $1.5-billion range) as market forces began to shift. Irwin Toy posted its first-ever loss in 1985, when drastic markdowns on its popular Atari game systems ate into sales and profits. More significantly, some of its major manufacturers began canceling distribution agreements with Irwin, deciding instead to handle Canadian sales themselves. The biggest loss came in 1986 when General Mills Inc. decided to take over Canadian distribution for its Kenner Products (Canada) Ltd. toy company, better known for its Care Bears, Easy-Bake Oven and Star Wars figures. That cut out an astounding $26 million from Irwin?s sales. Two years later, Casio Inc., a Japanese electronics manufacturer, followed suit in taking Canadian distribution in-house. And then to top it off, US toy giants Hasbro Inc. and Mattel Inc. began gobbling up several toy companies that used to distribute through Irwin in Canada.
To make up for lost business, Irwin tried to develop its own lines and expand into the US?with varying results. In 1988 the company introduced a line of six "My One and Only" male dolls?Marc, Rad, Matt, Cliff, Cory and Colin?for lovelorn, preteen girls. If the girls wrote letters to the dolls, the company promised it would write back and send them perfume on their birthdays. The line was an utter failure, although to this day Irwin still gets dozens of letters intended for the dolls.
But Irwin?s fortunes are still dominated by its reliance on Canadian distribution and licensing deals with foreign companies. The company has managed to grow its US sales to the point where it should account for close to 50% of its business next year, but that still makes Irwin a small player south of the border. "They?ve not made the transition into becoming a product-driven company," says one industry observer referring to the company?s ability to churn out its own homegrown toys. "And if you had good vision there you might have been able to make the change quicker. Also, they don?t have the eye of the tiger. They?re not a marketing-savvy company. I think what?s clearly led the industry in the last few years is innovation, and they?ve not kept pace with that."
Other changes that would have brought Irwin up to speed in the industry were slow to come. Dirk Drieberg joined the company as a US marketing manager in September 1996, with a mandate to oversee and coordinate marketing activities for the US market. "One of the comments that we constantly heard from the major US retailers was, ?Your marketing and advertising isn?t up to par with the bigger and smaller boys in the US. You need to improve that,?" says Drieberg. "When I passed on those comments from our customer base, they fell on deaf ears. The party line a lot of times was ?Well, that?s not how my uncle did it? or ?That?s not how my father did it. We?re going to keep doing it this way.?" Drieberg was fired by George in January 1997.
In the mid-1990s, George Irwin (then just a few years into his tenure as CEO) started to spend much more time in the marketing department than he had in the past. His presence had the effect of distorting reporting relationships within the department and severely undercutting the authority of his own brother, David, who was marketing boss. George denies there was anything wrong with his change of focus: "I was very much involved in marketing, so I would be involved with all the marketing people. If that was creating a problem . . . I?m not sure."
But it was. In one instance, George and a marketing employee continued developing a doll even after a team of senior employees had nixed the project. "[George] would go out and just take on product lines or work on projects that nobody knew about or did not have the board of directors? blessing for the funding," says one source. As a result, millions of dollars were poured into toy products that many in the marketing department felt should have died an earlier death. In one move, George bought US distribution rights to Meccano, the outdated building toy with a dwindling following, despite widespread objections from the family. "George stopped listening to the men who worked with him and started running the company himself," says another insider. In the past three years, at least four marketing employees have left the company as morale has plummeted within the department.
While Bryan, Scott and David had had their differences in the past, they were united?along with Arnold, the former CEO?in believing that George no longer belonged in charge of the company, and began gathering evidence to make their case to the company?s directors. Before they had their chance, however, George brought the matter to a head at the fateful October board meeting. While George refuses to discuss what happened during the meeting, company sources say the CEO, backed by his father, argued that the board should remove Bryan and his supporters for undermining his authority. Bryan and Scott, who are both directors, were asked to leave the room while the board (seven of 12 members are non-Irwins) decided on their fate. The votes were cast in favor of the CEO and Bryan was forced to resign. Scott and David were then given the option to stay on, so long as they signed a piece of paper promising to abandon all efforts to remove George, an insider says. Instead, they too chose to resign.
It?s early December, and George Irwin is trying to put a happy face on the calamitous events of the fall. "The past is the past," he says. "We?re moving the company from being a sales organization to being a marketing-driven company that is going to develop and build brands. We?re all trying to row the boat in the same direction. Half the challenge of being successful is believing you can be successful." But judging from the animosity and gloom in the voices of employees, it seems the far greater challenge for George Irwin will be getting his own depleted and demoralized staff to believe him. Even greater hostilities lie ahead with his own board of directors, where Arnold, Bryan and Scott are still members. One thing is certain: it will be a pretty joyless Christmas at Irwin Toy.
Well this rates IWT a hold or a sell. Can't help the price any. Let's see what Monday brings.
Jack |
