Watching a privately held firm run into trouble after becoming a publicly traded company can be an uncomfortable exercise. At it's worst, it's like watching a car slide into a ditch on an icy winter day.
You see the car begin to lose control. You watch the driver desperately try to adjust, using the brakes and steering: perhaps making things better, perhaps worse. Finally, the driver loses the battle.
The driver represents the former owner, in this case, and the ice represents the new stockholders. The ice doesn't always win, but the driver had better be prepared for slippery conditions and be really adept at steering through trouble, because otherwise it's very easy to lose control.
Which brings us to Royal Group Technologies Ltd.
The company will start down a new path in 2004, following founder Vic De Zen's recent decision to retire as co-chief executive officer. (He will remain as chairman.)
It was inevitable that this day would come. Not just a day when De Zen would turn over the reins of the company that he founded in 1970, which grew to become one of North America's largest extruders. Mortality alone guarantees that no single person can control a company forever.
No, the inevitable part of this tale is how an entrepreneur can build a tremendous company, but then lose control of the firm after stockholders become part of the picture.
Let's turn the clock back to 1994. Royal is preparing for its initial public offering, and the company for the first time is required to disclose details about its finances. Everything looks very good. Royal reveals that it expects to log sales of US$333.9 million that year, up 27 percent from 1993.
To investors, it looks like an opportunity to cash in on De Zen's track record of runaway success. Stock analysts in Toronto and New York fall over themselves to praise the company. Royal shares trade that December for about $11 each.
Advance a few years, to 1999, and you'll find things are still going well. Royal has just won Plastics News' Processor of the Year award, and the stock is at about $30 per share. Analysts are in love with Royal and De Zen.
The company's branded products are sold at all the right stores, and Royal has footholds in emerging markets all over the globe.
Fast forward, now, to this spring: Royal's stock, battered by the recession, has dropped below $7 per share. De Zen is under fire for giving himself a $5.6 million bonus, up from $2.2 million the year before. Pressure also forces the company to name more independent directors to Royal's board. The critics feel that Royal is still being run like it was De Zen's private company, and they demand changes.
Change comes - the bonus is cut, more outside directors are added - but not fast enough.
Now De Zen is out, and he can blame himself. That's the price you pay when you don't go overboard to look out for independent shareholders when times get rough.
Is that what's best for the company? We'll see. He built one heck of a company, and Royal won't be the same without him in charge. But maybe he's not the right guy to manage it day-to-day anymore.
But that's beside the point. The bottom line is that you can't manage a public company like a private fiefdom, and that's a lesson that other processors should take to heart.