Rich 100: Inside Irving

Canada’s second-richest family demystified.

 

When Jim Irving accepted a lifetime achievement award bestowed on legendary New Brunswick oil-and-forestry mogul K. C. Irving last May, he imagined the advice his late grandfather might have whispered before he took the podium. “If he was here tonight and heard about the request to talk about him and the lessons I’d learned,” he told businessmen gathered in a Halifax ballroom for a $200-a-plate gala to honour Atlantic Canada’s top CEOs, “he would reach over and quietly pat you on the arm and say, ‘Jimmy, don’t say too much.’ That,” said Irving, a tall, imposing chip off the K. C. block, “is the way it was.”

It’s the way it still is. The Irvings have amassed one of Canada’s largest fortunes, and rank among the wealthiest families in the world, claiming the 140th spot on Forbes magazine’s latest list of the world’s billionaires. But they remain as secretive about their businesses and their bottom line as their notoriously tight-lipped patriarch — especially now, as rumours and headlines predict the breakup of a conglomerate worth what we have estimated to be $7.1 billion.

The Irvings have built a network of more than 250 privately owned companies that operate in Atlantic Canada and New England. Their name adorns hundreds of service stations, as well as a string of pulp and paper mills, sawmills and shipyards. Irving-flagged tank trucks rumble along East Coast streets and highways to deliver gasoline and home-heating oil, past construction sites where Irving cranes do the heavy lifting. Irving-owned brands provide a dizzying array of products and services: facial tissues, French fries, long-haul trucking, office equipment, marine towing, building supplies, translation services — even the day’s news.

It’s estimated the Irvings employ one in 12 workers in their native New Brunswick, population 750,000. In Saint John, where many Irving enterprises operate and almost all have headquarters, the concentration of employees is far higher, earning the venerable port city the unofficial title of Canada’s largest company town. Forget six degrees of separation — you would be hard pressed to find anyone anywhere in Atlantic Canada who has not been an employee or customer of the Irvings at one time or other.

Sound like a business empire? Not to the Irvings, who bristle whenever the E-word is tacked onto their surname. “They don’t like the term ‘empire,’” cautions one New Brunswicker who has known the family for decades and asked not to be named, to ensure that relationship continues. “They think it’s a family business.”

It’s a family business on a massive scale, yet one that thrives under the radar of much of corporate Canada outside the Atlantic provinces. Jim Irving’s Halifax speech was a rare foray into the spotlight for a family that’s traditionally been reclusive to the point of obsession. But expansion plans on the energy and industrial fronts, both in Canada and New England, are making the Irvings harder than ever to overlook, let alone to ignore. And the empire — sorry, guys, the word fits — is restructuring to accommodate the ambitions of a new generation of Irving owner-managers.

The best way to understand where the Irvings are headed is to take stock of where they are and how they got there.

Let’s start with Irving Oil Ltd., founded when K. C. opened his first service station in small-town New Brunswick in the early 1920s. Its Saint John refinery is Canada’s largest, producing 300,000 barrels of gasoline and other petroleum products each day. More than half its output is sold in the northeastern United States, accounting for more than 40% of the country’s petroleum exports. Irving, working in partnership with BP PLC, plans to build a new $8-billion refinery in Saint John, doubling production capacity to 600,000 barrels a day. Irving Oil boasts 700 filling stations in Eastern Canada and New England, a fleet of tankers and 13 marine terminals, and employs 7,000.

Jim Irving is president of J. D. Irving Ltd., often dubbed “the woods” side of the business. J. D. was James Durgavel, Jim’s great-grandfather and a first-generation Scottish immigrant who operated a sawmill, general store and farms in Bouctouche, a community overlooking the Northumberland Strait. From these humble beginnings, J. D. Irving has amassed 1.4 million hectares of forest land in New Brunswick, Nova Scotia and Maine and manages another one million hectares of Crown land in the region. Irving’s 11 sawmills have an annual output of close to one billion board feet of lumber. Each year, Irving’s New Brunswick fibre mills produce 335,000 tonnes of wood pulp, 420,000 tonnes of high-quality paper and 210,000 tonnes of cardboard. At Irving Tissue in Saint John, 75,000 tonnes of fibre is transformed into paper towels, toilet paper and facial tissues.

Yet “the woods” accounts for only one corner of this empire-within-an-empire. J. D. Irving is a major player in shipping, shipbuilding and ground transportation. It operates the 364-kilometre New Brunswick Southern Railway, which shuttles freight between Saint John and Maine, and Kent Line’s 12 cargo ships. Another subsidiary, Atlantic Towing, operates a fleet of tugs, barges, dredges and offshore supply ships out of five East Coast ports. Three trucking firms — Midland Transport, RST Industries and Sunbury Transport — fall under the J. D. Irving umbrella and have hundreds of 18-wheelers on the road. Jim Irving’s empire includes Irving Shipbuilding, which constructed the Canadian navy’s fleet of modern frigates in the 1990s and operates four shipbuilding and ship-repair yards in Nova Scotia and Prince Edward Island.

There’s more. Chandler, an office-supply wholesaler, sells everything from desks and uniforms to sanitary products. Kent Homes builds pre-fab homes. Kent Building Supplies goes head-to-head with Home Depot and other home-improvement centres at 33 locations in Atlantic Canada. Atlantic Wallboard produces enough wallboard at a newly opened $90-million Saint John plant to build 35,000 homes a year. Irving Equipment operates 136 cranes, the largest fleet in the region. Cavendish Farms competes with McCain, another New Brunswick success story, and lays claim to the title of North America’s fourth-largest French fry producer.

In addition, Jim’s father, J. K. Irving, owns Brunswick News Inc., publisher of all three New Brunswick dailies as well as more than 20 English and French publications in a province with a large Acadian minority. A Senate committee that recently probed media ownership in Canada expressed concerns about the family’s near-monopoly over the province’s print media and “the implications of a dominant media force linked to a dominant industrial base.” While a Brunswick News official denied any pro-Irving bias in the papers’ coverage, the committee’s 2006 report cited other witnesses who feared that Irving journalists exercise restraint and self-edit when writing about the family — “unconscious loyalty to the parental control,” as one put it.

The media-shy Irvings turned down Canadian Business’s requests for interviews with the men who have built, and who operate, this regional juggernaut. “To be honest, they don’t do a lot of media interviews,” says Jennifer Parker, the media contact for Irving Oil. “We do appreciate the opportunity,” she added, but “as a private company, we don’t typically participate in rankings.” J. D. Irving spokesperson Mary Keith conveyed the same response. “There is a choice that is involved, in terms of whether to participate or not,” she said, “and so that’s where we are.” Speculation and news reports of internal struggles over succession have met with official denials. Irving Oil has been “separately run and managed for decades,” Parker assured a wire service reporter last fall. “Succession planning is a normal and necessary process in any family business and has been ongoing for some time,” Keith added at the time. “It’s business as usual.”

A casual observer almost needs a spreadsheet to keep track of the family behind this web of enterprises. Kenneth Colin, born in 1899, assembled most of the pieces on his way to becoming one of Canada’s most powerful and successful businessmen. He founded Irving Oil, inherited J. D. Irving and bought or established most of the subsidiaries; he was a billionaire several times over when he died in 1992, at age 93.

Most remarkable is that K. C. managed to build all this in a small province, with a limited resource base, in a have-not region of the country. “We have to survive really on our wits and our entrepreneurship far more than other provinces,” notes Donald Savoie, an expert in public administration at the University of Moncton. “We’ve done fairly well, and I think a large measure of that is due to the Irvings and the McCains.” John DeMont, a reporter and author of the 1991 book Citizens Irving, thinks this accident of geography contributed to K. C.’s success. “There wasn’t a lot of competition, and the place was wide open. Not to take anything away from him, but I think that was a key. Different place, you’d have a different result.”

K.C. not only faced few competitors, he preferred to be his own customer. He was a master of vertical integration. Why sell another company’s gasoline when you can refine it yourself? Why pay someone else to haul it around when you can use your own ships and trucks? And who better to top up the tanks of logging trucks and pulp and paper mills? As Jim Irving told his business audience last May, the trick is keeping the cash flow in a closed loop. “One company building and buying from or selling to another and building a base that would allow you to export or expand into new markets and new products elsewhere,” he explained. “It was good then, and today it’s still just as good for us.”

The driven and hard-driving K. C. groomed his three sons — James (known as J. K.), Arthur and Jack — to take over the business. They accompanied their father to business meetings and on tours of mills and properties, earning the nicknames Oily, Greasy and Gassy. By the time they were in their 20s, they were working for their father. K. C. took the same hands-on approach with the third generation. Jim Irving recalls, as a teenager, accompanying his elderly grandfather on weekend trips into the woods to check on seedlings replanted after logging, enduring the heat and the blackflies while the rest of the family and their guests enjoyed salmon fishing at the Irving lodge on the Restigouche River.

By then, K. C. was living in Bermuda for tax reasons and day-to-day management had passed to his sons. J. K., the oldest, trained on the woods side and took over J. D. Irving. Irving Oil went to Arthur. Jack got the leftovers, including part ownership of a major construction firm, now OSCO Construction Group, and management of Irving-owned lands and buildings not part of the forestry divisions. Since many of the properties were service stations, Jack, the youngest brother, has long been seen as being under Arthur’s wing.

The third generation built on the solid foundation their father and grandfather J. D. left them, expanding here and updating there but, for the most part, never straying far from the resource-based, core industries that have generated the Irving billions. “They’ve always stayed with mature businesses,” says Barry Boothman, who teaches corporate governance and business history at the University of New Brunswick in Fredericton. “From a business strategy perspective, they’re somewhat predictable.”

The brothers, in turn, have groomed their sons to succeed them. J. K.’s oldest, Jim, runs J. D. Irving out of Saint John while his Moncton-based brother, Robert, is in charge of several divisions, including Midland Trucking, the tissue business and Cavendish Farms, and is the owner of the Moncton Wildcats, a junior hockey team, which, in typical Irving fashion, he bought and transformed into one of the best in the country. Both men are in their 50s. Arthur’s 47-year-old son, Kenneth, has taken over as CEO of Irving Oil. The construction and real estate divisions are now in the hands of Jack’s son John, who’s in his early 50s, boasts a Harvard MBA and has been indulging his passion for historical restoration by refurbishing a cluster of office buildings in downtown Saint John. A few other cousins have minor roles in the business. So far only one of the two-dozen members of the fifth generation has emerged as executive material — Jim’s son Jamie, a Columbia University journalism grad who’s just turned 30 and publishes the largest Irving daily, the Saint John Telegraph-Journal.

J. K. turned 80 this year and his brothers are nearing that milestone, fuelling speculation the transition to the fourth generation could unleash a succession battle rivalling the ugly 1990s split between the McCain brothers, Harrison and Wallace. The Globe and Mail’s Report on Business took the speculation public in late 2007, with headlines proclaiming “A clash of ambitions” and “Irving brothers look to break up empire.” J. K.’s appearance at a November 2007 luncheon in Toronto to announce the then-pending induction of himself, Arthur and Jack into the Canadian Business Hall of Fame was seen as evidence of a family split; sons Jim and Robert tagged along, but J. K.’s siblings and nephews were nowhere in sight. J. K. brushed off questions that day about the succession, saying only that the business was “evolving.”

Savoie, for one, dismisses talk of internal rivalry as “grossly overblown.” He attended the Hall of Fame induction earlier this year and reports that J. K., Arthur, Jack and their sons were there. “I tell you, there was no visible animosity between the three brothers.” While that seems to be the case, the anonymous Irving watcher confirms there’s tension among the cousins now in control. Jack’s son John “can’t go near” J. K.’s son Jim. “They don’t like each other.” But this incompatibility only reinforces a fault line that’s been developing for years between the two silos of the sprawling empire — Jim and Robert on the woods side, Kenneth and John on the oil and property side. “The answer’s really simple,” this source says of the split. “It’s the two solitudes. It’s no more complicated than that.”

The reasons for the Irvings’ success aren’t complicated, either. “It’s small-town values,” says Savoie, who hails from the Irving homeland of Bouctouche. “They’re very down to earth, ‘my word is my bond,’ old values.” Irvings are old-school, hands-on managers. They’re aggressive and hard working; they drive a hard bargain and can dissect a balance sheet in record time — all traits inherited from K. C. They’re also decisive and, if someone makes a mistake, the response is to fix it immediately and move on. Another Irving trait is focus. “They’re incredibly disciplined,” says DeMont, who wrangled rare face-time with K. C.’s three sons when he was researching his book. “There doesn’t seem to be anything random about anything they do.”

Kevin Cox, a former Atlantic correspondent for The Globe and Mail who now keeps tabs on the family for Halifax-based online business news service allnovascotia.com, notes the Irvings rarely buy and sell; they prefer to build from scratch and usually keep what they’ve built. “They put in their own money, and they put in their heart and souls,” he says. “They push their businesses to the hilt, to take every nickel out of them that they can possibly take…capitalism is almost like a religion to them.” So is customer service. Stories abound of K. C. fielding customer calls at home and, on one Christmas Eve, driving off in a blizzard to deliver salt to a stranded motorist. “For my grandfather, one of the key ones was looking after the customer,” Jim Irving recalled in his Halifax speech marking K. C.’s achievements. “That was No. 1. He instilled that in the family.”

Jim’s brother Robert draws inspiration from a novelty rock he keeps on his office desk (and held aloft while speaking at a Moncton business breakfast last spring) that’s inscribed with what could be a family mantra: “Winners never quit. Quitters never win.” Another Irving credo is “Keep it simple,” whether they’re negotiating a multimillion-dollar deal or deciding the best brand of coffee to serve in gas station restaurants. “That’s a top rule. Don’t ever say around them that it’s complicated,” says the anonymous Irving insider. “Their whole corporate culture is that you have to move very fast.…We don’t mean in a month, we mean this morning. No committees, none of that foolishness, no meeting longer than 15 or 20 minutes unless it’s really important.” The Irvings expect a lot from themselves and from their executives and consultants, who quickly learn to forgo weekends and evenings at home when there’s business to be done, this source says. “They’re demanding employers,” confirms Ken Langdon, who ran Irving-owned papers in Woodstock, N.B., for 11 years. “You were expected to make your numbers.”

And, as Langdon can attest, they’re extremely competitive. He quit as publisher of the Woodstock Bugle-Observer in 2007 to launch a rival weekly, the Carleton FreePress. Brunswick News, the Irving company that owns the Bugle, accused him of misusing confidential information about the Bugle’s operations and obtained a warrant — rare in civil disputes — to search his office, home and vehicle. A judge eventually rejected Brunswick’s bid for an injunction to prevent Langdon from soliciting local advertisers. “From my perspective, it was just to put me in the poorhouse and prevent me from being able to afford to start the newspaper,” Langdon says of the court battle that dragged on for weeks. “Maybe it’s just part of their genetics,” he adds. “They certainly don’t like competition.” The FreePress lasted for almost a year but folded at the end of October, after the Bugle cut its cover price and offered advertising deals to celebrate its 100th anniversary. Brunswick News issued a statement attributing the FreePress’s demise to production costs and the economic downturn.

K. C. Irving’s long-ago decision to split his empire into two divisions, rather than shackling his sons together as partners, appears to have averted a major succession battle. Don Sihota, a Vancouver lawyer who specializes in corporate mergers and succession planning, says the Irvings have already beaten the odds. The success rate for family businesses handed down to the founder’s children “is pretty low.” And it’s natural, he says, for tensions to arise as the family tree expands. Not only do successors have to get along — they have to know what they’re doing. Every succession within a family business boils down to one question: “Is the next generation as capable as the existing generation?” says Sihota, who practises with Clark Wilson LLP. “Choosing your successor by the last name is not the best way.” That has not been the case for the Irvings now in power — brothers Jim and Robert, cousins Kenneth and John — who have clearly absorbed and mastered the teachings of the K. C. School of Business. The real challenges, UNB’s Barry Boothman suggests, won’t arise for another 20 years or so, when the fourth-generation Irvings will be ready to pass on the divided empire to their children.

For now, the Irvings seem more interested in expansion. Irving Oil has teamed up with Spanish energy giant Repsol YPF to build a $1-billion liquefied natural gas terminal near Saint John, which is nearing completion (Irving has a 25% stake). The firm and BP are spending upwards of US$100 million on design and engineering studies for the $8-billion second refinery for Saint John, with a decision on whether to build expected by the end of 2009. The projects are key components of Saint John’s ambition to become an “energy hub” serving the power-hungry U.S. northeast. In May, the oil company received provincial approval to explore the feasibility of generating electricity from the mighty tides of the Bay of Fundy. And, as if to reflect its growing stature and reach, Irving Oil plans to erect a $30-million headquarters on the Saint John waterfront to house up to 1,000 employees.

J. D. Irving is also thinking outside the New Brunswick box. Its subsidiaries already operate a potato-processing plant in North Dakota and tissue plants in Toronto and New York state. In August, the firm announced it would spend US$20 million to establish an American headquarters for its crane division in West Virginia; the same month Robert announced a US$120-million expansion to the New York tissue mill. Brunswick News is looking to expand into the U.S. as well, sending a team of executives to Maine in September to kick the tires on a small chain of papers the Seattle Times Co. has put up for sale.

OSCO Construction is making forays into the U.S., buying a steel fabrication plant in Conklin, N.Y., in 2004 and providing structural steel to buildings under construction in Boston and New York City. Irving officials did not respond to Canadian Business’s questions about the impact this fall’s economic downturn, falling Canadian dollar and oil-price drop might have on these expansion plans. Though in late November Irving Oil announced it would extend the construction time for its second refinery to eight years from four because of labour shortages and higher costs.

Aside from recent changes related to geography and growth, the Irving empire has been in a state of transition for some time. The family has been rationalizing its operations for years, says Boothman, quietly selling off some peripheral businesses, consolidating others and beefing up its team of executives and managers. “They realized that, if they were going to survive in the long run, they had to develop a more professional orientation to the company.” And that has meant abandoning some of the vertical integration K. C. prized so highly. J. D. Irving and Irving Oil find themselves competing for executives and skilled workers, and their sheer size makes it tough for them to keep out of each other’s way. They no longer share law firms, accountants and auditors, the unnamed Irving watcher says, and it’s now possible to buy everything from desks to vehicles from the supplier with the best price, not one that’s Irving-owned. That even goes for fuel; J. D. Irving announced in late October it would fit two sawmills with boilers to generate power from wood waste, saving 11 million litres of oil per year that would undoubtedly have come from Irving Oil.

So the Irving future looks much like the Irving past, only with two large, transnational and increasingly independent family businesses emerging from the monolith that K. C. built. Back in May, speaking to Atlantic Canada’s business elite in that Halifax ballroom, Jim Irving made the formula for building a multibillion-dollar corporate empire in an economic backwater sound like a lesson from a Business 101 lecture. “It’s not complicated,” he insisted, no doubt earning a scowl from the ghost of K. C. for revealing the secret of the family’s success. “The basic formula hasn’t changed. Invest, build a great team of people, produce a first-class product, give outstanding service, make a profit and reinvest again.” Easy, perhaps — for those few blessed with K. C.’s genes.

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