THE GAHAHOQUE GAMBLE PAYS OFF
When the workers bougler this plant they sang in the reet. Three years later, there’s a success story to shout about
THREE and a half years ago the eyes of industrial Canada were focused on the little Ontario town of Gananoque where what sceptics called “a noble but foolhardy experiment” had begun. By pooling their life savings and their credit the 210 employees of the Parmenter and Bulloch Company, largest manufacturers of rivets in Canada, had bought the business.
To the startled sceptics this “every worker an owner” idea meant an industrial Tower of Babel destined to crumble into failure within six months. Instead, after six months of employee ownership,, the company declared its first dividend in eight years. And it has continued to pay dividends every six months since then.
Today, even the most confirmed opponents of the employee - ownership scheme admit that P&B president Tom Delaney is right when he says: “The Gananoque Experiment is past the experimental stage. Canada’s first 100% employee-owned industry is a success.”
That this success coincided with the general postwar expansion in Canadian industry must, of course, be considered. It may well be that their toughest test has yet to come. Yet Delaney and his fellow worker-owners are convinced that the current industrial boom has not been the prime factor in the steady growth of their venture. They are not worried about the future.
“A depression would naturally be the supreme test for many businesses,” Delaney says, “but we are confident we could face it far better than most industries. As every worker is also a shareholder, the familiar gap between labor and the front office is missing. We are all prepared to tighten our belts if need be—but we seriously doubt it will be necessary.”
At the moment, the belts of P&B’s workerowners are open to the last hole. Never in its 86-year history has the company been in better
financial and physical condition, and never have its employees been so well off. The factory buildings, formerly a dirty brick-red, have been painted a bright cream. The interiors have been redecorated, fluorescent - lighted and air - conditioned; the dirty overhead-drive belt system has been replaced with individual motors for each machine; machines have been painted in “color dynamic” hues (bases green, moving parts yellow, electrical attachments orange) for greater efficiency and maximum safety; machines have been regrouped and departments rearranged; new and faster machines have been installed; and new products manufactured.
Most of the ideas have come from the men who work in the faqt%y, the men who as workers get paid by the hSOir, and who as owners collect dividends on tAir shares twice a year.
To top it off, P&B customers have commented on the improved quality of the company’s products.
The employee-owners have looked after themselves too. They have given themselves a 22% raise in pay so that their wages are now the highest in the industry. They have cut working hours from 44 to 40 a week. They have increased vacations and paid holidays: formerly they got only
one week with pay, now they have all statutory holidays plus two weeks with pay, scaling upward with length of service, with many getting three to four weeks annually.
They have changed working conditions (smoking on the job, twice-daily canteen breaks), and have set up scores of employee benefits such as full sick pay, retirement pensions, Christmas bonuses, and free hospitalization for themselves and their families.
Despite all these new expenses and a three per cent drop in sales due to the loss of war orders and a drop in export trade because of the foreign dollar shortage, the company’s profits have shown a slight increase. Its assets have increased many times over. When the employees took over, the ratio of current assets to current liabilities was one half to one. Today it is seven and a half to one (bankers consider a ratio of three to one as excellent) . And although marriages, retirements, deaths, and voluntary departures have reduced the staff 30%, the company’s production has increased 14%.
Even with these and other evidences of success (for example, a bank loan of $130,000 which the employee-owners inherited has been paid off), the new P&B still has its critics. Many think the setup is socialistic. President Delaney and his worker partners laugh at this.
“We don’t mind being called socialists,” Delaney retorts, “but the facts say different. We are not state-owned. Each of us is an owner and a capitalist. This is practical capitalism in its finest form.”
The dramatic success story of how the entire staff of a factory, from general manager to the newest apprentice, bought the business to save their jobs—and incidentally became capitalists—begins on a February day in 1946. That day, ageing W. V. Bulloch, Parmenter and Bulloch’s president and owner, told his 43-year-old general manager, Tom Delaney, that he intended selling the business and retiring.
The asking price was $600,000, and the likeliest purchaser was a Canada-wide metals company
which, according to local talk, probably accurate, planned to move the factory’s machinery to a surplus war plant hundreds of miles away.
To cheery, chubby (261 pounds) Tom Delaney who had come to Gananoque 24 years before with a Toronto crew of canoeists for a national title race and had stayed to don P&B overalls, it meant unemployment for 210 workers. Over 800 men, women and children would be directly affected out of a population of 4,244. It would be a body blow at local merchants, but far worse for P&B employees, many of whom had worked in Gananoque 20, 30 arid 40 years. Morale in the plant and in the town sank to dismally low levels.
Consuming most of a box of his favorite mild cigars, Delaney remembered a conversation he had once had with an executive of the Graybar Electric
Company in San Francisco. A generation ago, it seemed, Western Electric decided to divorce manufacturing from distribution, reorganized its distributing division, and, partly to ensure continuity of management, sold the new company to the distributing employees on a basis that kept the stock strictly in employee hands, with no employee holding a predominant block. Delaney’s informant had enthusiastically pointed to many years of harmonious success with this scheme. Graybar is a large, dispersed outfit, does no manufacturing, but operates through its 96 warehouses as a national distributor of electrical supplies and appliances all of which contrasted sharply with P&B as a small, concentrated, manufacturing plant. But the precedent was there and, in this stringent emergency, Delaney decided to see if he could apply this plan to keep P&B alive.
He put the idea of buying the business up to his immediate staff, secretary-treasurer A. T. Cornell and plant superintendent E. T. Walmsley. They thought it was worth a try. So did the workers and the union, a local of the United Steelworkers of America (CIO). They began a campaign of pledges to see if they could raise enough cash to make an offer to buy. As the fund grew, despair gave way to hope.
Workers plunked Victory Bonds and savings earmarked for a new car or refrigerator into the pot. Bank accounts were emptied. War veterans tossed in gratuities and accumulated pay. When it was learned that Delaney was going to mortgage his house to raise money, more than 60 workers, like veteran rivet-maker Alex McDonald, went to him to find out how they could do the same. Others borrowed on their equities. Still others—Delaney among them—borrowed on their life insurance.
Local merchants, including jeweler A. G. Woodley, Gananoque’s mayor, advanced cash to employees without other resources against assignments of shares in blank, pay-off to come from dividends.
When it was near the $200,000 mark, Delaney was already asking the Bulloch family’s attorney for an option to buy on behalf of the employees. Conservative lawyers are not given to looking favorably on such out-of-theway propositions, but this one knew Delaney and the P&B typt? of employee, and not only listened but also laid the idea before his clients so favorably that, hoping to see the family name perpetuated, they knocked the asking price down to $575,000.
Then he recommended to Delaney one of the most eminent firms of corporation lawyers in Canada as the right people to lay the legal foundation of a scheme without Canadian precedent. As it happened the firm (Elliot, Kelly, Palmer and Sanky, of Toronto) included a bright young Rhodes scholar named Ken Palmer who liked the idea the moment he heard of it and worked himself into a lather of whereases to make sure it could not founder on any legal rocks. The fee was high—$5,000 never hay at P&B—but it bought 133 typed pages of trust deed that weighed well over two pounds and thoroughly protected everybody.
A Cousin Had (he Cash
Meanwhile, the snowball rolled on. Workers, like young rivet-maker Alex Wheeler, borrowed heavily from banks, loan companies, relatives and friends and sold their cars and everything they
could possibly do without. Many even hocked the family jewels.
Cecil Covey, who operates a wirebending machine even though he is practically blind (he has five per cent sight in one eye), and his wife who works in the inspection department, put up their entire life savings against shares. v
Delaney warned the employees they could expect no dividends for at least two years, but in the end, every man and woman on the payroll was somehow in.
The last worker to sign his name announced that his cousin was subsidizing him to 320 shares ($32,000) which brought the total to $252,000. The owners were so impressed they lopped a further $50,000 off the price, making it $525,000.
There wasn’t time to float a bond issue for the remaining $273,000 before the 30-day option expired, and M. H. Hay, manager of the local branch of the Bank of Montreal, was approached for a temporary loan, negotiations for which were greatly furthered by a Toronto friend of Delaney’s, E. D. Goulding, of the investment house of Goulding and Rose.
At this stage things definitely got desperate. Everything was set with the bank when at the eleventh hour the bank changed the official in the department okaying the loan. The man who knew about it moved out, a new man came in, and the first thing he saw on his desk was what struck him as a very queer proposition indeed —something about the employees of some small-town gadget factory buying the plant with the bank’s nice clean money. It is hard to blame him for ringing full speed astern—after all, the deal would now be his responsibility —and saying, “No money till I can look further into this.”
Time had just about expired and the arrangements were in ruins. Hearing of the disaster late the afternoon before the April deadline day, Delaney and Goulding began a frantic session of telephoning that lasted all night. They got away from dinner or out of bed everybody in Canada who knew either of them and was in a position where he might help clear the loan through representations made to important bank figures. One key bank official, out for the evening, was finally traced to a Montreal night club.
By 11 a.m. on deadline day they had their victory. The documents were signed, the deal completed. The news spread quickly. Workers put down their tools and poured into the streets, shouting and singing, forming a spontaneous parade that swept across the bridge and down the decorous main street of quiet little Gananoque. The festivities lasted all night and Gananoque’s retailers breathed sharp sighs of relief. The first 100%, employeeowned business in Canada was born.
They went to work smiling the next morning—210 partners in this unique venture, men and women who only hours before had been close to unem» ployment. In the dingy corner where he had worked for 35 years as a rivetheader-upper, old Claude MacNeil straightened his stooped shoulders and peered around. “Since 1911, I have worked right in this corner,” he said wonderingly, “and now I own this corner—or at least I have a first mortgage on it.” He went back to work whistling.
Can’t Inherit This Stock
Not everyone was as happy or as confident. Even in Gananoque there was much criticism. “Everyone will want to be boss,” “There’ll be 210 bosses now instead of one,” “Nobody will turn up for work,” “Production will fall off,” “There won’t be any incentive,” “Socialist experiment! What do common laborers know about business? It won’t last six months!” were some of the comments.
But when the new Parmenter and Bulloch Manufacturing Company offered $273,000 in debentures running over 10 years to retire the emergency bank loan the whole issue was snapped up even before the certificates were printed. The Bank of Montreal, in fact, bought the first five years in a block.
Roughly, the present setup is this: Everybody on the P&B payroll must own or be paying for some stock at $100 par (largest single holding—not Delaney’s—is 330 shares). At discretion, the company can limit individual holdings to prevent outsiders from mixing in through dummies. New recruits without cash available can pay for stock through payroll deduction. Anybody leaving the payroll, whether voluntarily or not, must sell his shares back to the company at par. If an employee dies his widow (but no other heir) may retain the shares until her death when they must be resold to the company.
Most of the present employees are simultaneously redeeming debentures and buying additional shares at the rate of about $25,000 a year—about eight per cent of the total annual payroll of $300,000—the proceeds going into a revolving fund to handle redemptions and repurchase of stock.
At the present rate all debentures will be redeemed (to date 30%) within the stipulated 10 years and all corresponding authorized stock will be issued to employees. The six dividends declared to date total $14.50 per share, or an annual return of five per cent.
The management is a voting trust of five elected “working executives,” three elected for 10 years: bachelor
Tom Delaney, 47, president and general manager; vice-president and secretary-treasurer Art Cornell, 35, father of two (vice-president Cornell’s father is an employee in the shipping department); and vice-president and plant superintendent Ernie Walmsley, 37, who also has two children; and two directors who are elected yearly (they have always been re-elected so far): 72-year-old machinist George S. Mastin, grandfather of many; and 42-yearold toolmaker Wally Beauchamp, father of four. This concentration of executive power in active workers, plus consolidation resulting from vacated jobs, has brought in annual savings of more than $50,000.
From Bridges to Buckles
The management has the same powers of hiring and firing as in any other industry (score to date: three
hired, none fired). “Board meetings” are shirt-sleeves and overalls affairs. Between them, the directors hold only
590 of the shares. Whenever a major move is contemplated a meeting of all employees is called and reasons are explained or discussed.
Once, a worker remarked wistfully, “Mighty nice day for a boat trip.” His partners agreed so the directors chartered a steamer and the entire plant personnel and their families piled aboard for a day and night of singing, dancing, games and eating while cruising through the Thousand Islands. Since then it’s been made an annual event.
Many industries watched the progress of the new P&B with some concern for P&B is not only the biggest rivet producer in the country, but the only manufacturer of riveting machines. It is also the only company that manufactures a complete range of rivets —more than 5,000 different sizes and types from huge structural steel rivets to the tiny, fly-speck rivets used by jewelers.
Although you probably don’t realize it P&B rivets play a big part in your life. There are P&B rivets in buildings, bridges, shoes, luggage, automobiles (Canadian car manufacturers are P&B’s biggest customers, also rent riveting machines), jewelry, purses and belts, radios, spectacle frames, airplanes, watches, and India tea casks. P&B also produces hundreds of metalstamped products, ranging from fasteners for zippers, hinges, buckles and book ends to a gadget to keep overshoes from slipping (called Never Slip Ice Creepers).
In 1946 when P&B stopped producing featherweight aluminum rivets for aircraft (more than 750,000 went into every Lancaster bomber), Tom Delaney started looking for replacement products. Two of his partners came up with the ideas. Today P&B is turning out aluminum knitting needles and meat skewers.
When the company’s export trade dropped from 23 countries and $50,000 a year to six countries and $12,000, Delaney again pondered a substitute. He found an answer in a Montreal bar where a buyer jokingly suggested P&B make brass rings for bulls’ noses. Up to then these rings had not been made in Canada. Delaney went back to Gananoque and told his partners that they were now in the bull ring business. Today P&B sells 400,000 bull rings a year and wonders where they all go (somehow or other a bull wears out two a year).
Recently the company started making aluminum rivets again—this time for Canada’s first all-aluminum bridge being built at Arvida, Que.
In three and a half years of employee ownership, absenteeism at P&B has declined to the vanishing point. Maintenance standards of the machines are high, wastage of materials is low, mistakes are few. The employees undoubtedly feel pride of ownership. Machines are not only kept clean, but polished; cigarette butts are not thrown on the floor; and no one would think of writing on the freshly painted rest room walls.
They eagerly show vistors around “our” factory, proudly pointing out their newest machine capable of producing 400 rivets a minute (only 25 to 70 from the older machines) and equipped with an automatic counter.
But perhaps the 150 employerworkers (20% women) are proudest of the gradual elimination of the time clock. First, employees with 20 or more years service, and more recently those with 15 years on the job (about half), have been exempted from punching in or out.
“I’d like to see the thing tossed out completely,” says Tom Delaney, “and in time it will be.”
Another objective is a yearly salary for everyone. At present foremen, office staff and executives are paid yearly, the remainder by the hour. Women employees have equal rights with men, are paid the same rates on the same jobs.
The Key Is United Effort
Apart from such obvious benefits as higher pay and dividends the P&B employee (statistics: average age, 43; all except eight of the men married; one half own their own homes; three quarters own cars or boats) reaps such “extras” as cheaper coal at home. The company buys coal in carload lots (the factories are oil-heated), sells it to employees at cost saving them over 15%.
Delaney has a simple explanation for these innovations. “When we took over there was a burst of pent-up ideas,” he says. “The boys came up with some good ones. Rearrangement of machinery was just one. The key to the whole thing is unified effort.”
Delaney himself came up with one idea that made everyone at P&B happy. Convinced that employee-owners had got a bargain in the company he hired the Chas. Warnock and Co., Ltd., consulting engineers and appraisers, to make an impartial and detailed appraisal of P&B’s fixed assets. It took three months and cost $2,200, but it was worth it. The experts, in a thick, thorough report advised Delaney and his partners that the replacement costs of their fixed assets would be close to $2 millions. At present, P&B carries $1 million fire insurance.
A Bouquet to the Boss
His partners are inclined to give Tom Delaney much more credit for the success of the new P&B than he is willing to accept. They refer to the plan as “Tom’s idea” and look on jovial, habitual punster Delaney as not only their boss but their friend, partner, leader and father confessor.
When he went on a business trip last February his partners decided to surprise him. They hired top interior decorators from Watertown, N.Y., to remodel the small, dingy office in which he frequently worked 12 and more hours a day (he usually gets to the office at 6.30, stays till 7 p.m.).
The result was ultramodern but luxurious simplicity. Two windows in one wall disappeared. The walls were paneled in British Columbia fir, the wandow draped in grey-green, the floor completely covered with a thick, fawngrey rug, the bright overhead lights replaced with soft, modern, green, Sillon lamps. The room’s furnishings from bookcases to desk are modern. “When I got back,” says 213-pound Delaney (since 1946 he’s lost 48 pounds), “1 fell in love with it immediately.”
The News Has Got Arouhd
The majority of the businessmen and townspeople of Gananoque feel that “Tom’s idea” and the resulting industrial revolution at P&B saved the town. Although Gananoque — a one - movie two-bank, weekly paper town—does a good summer business with hotels and Thousand Island excursions, it depends primarily on the handful of metalworking plants of which P&B, situated on the CNR’s three and a half mile Thousand Islands Railroad (world’s shortest), is the largest.
As stories of the success of the experiment have spread Canadians far outside Gananoque have become interested. Delaney has often been asked to speak on the employee-ownership
plan. He never refuses for he is firmly convinced that the plan can be successfully and practically applied in much larger industries.
Evefy week fresh enquiries pour into the Toronto law and investment firms who handled the formal details. Not long ago, Montreal interests looking for a spot for a new steel-fabricating plant bought a site in Gananoque, partly because a place where a thing like the new P&B could happen struck them as having the sort of civic and social climate they would like to settle in. This development, which will eventually mean more than 100 new jobs for the town, was an unexpected dividend from the experiment.
Still Paying Yearly Dues
American businessmen vacationing in the Thousand Islands area, of which Gananoque is the gateway on the Canadian side, glimpse a sign on the outskirts of town: “Home of the
Parmenter and Bulloch Manufacturing Company, Ltd., 100% EmployeeOwned,” pull off on the shoulder, back up, read it again, and drive on to stop at the plant to ask questions. The sign was put up free of charge by a sign company with a cordial good opinion of the new scheme.
Some of these over-the-border visitors go away muttering that this sounds to them like ironclad strike insurance. And apparently it is. Why strike against yourself.-’ However, the workerowners still pay $12 union dues a year to protect themselves from themselves.
There is a very Gilbertian situation every spring when the union contract comes up for renewal and the employees in the union start negotiating with themselves as stockholders. So far there has been no trouble there.
However, the strike angle is involved in a national dispute. During the 1946 wave of strikes, P&B’s local said “No, not for us,” when the United Steelworkers queried them about the possibility of a Dominion-wide sympathy strike in support of the union in plants already struck.
Nobody is sure what would have happened if the national high command had decided to call P&B out anyway. At present there is a new clause in their union contract excluding P&B from sympathy strikes.
Nice Words for the Union
Although only eight employee-owners showed up at the last general meeting of the union the majority are in favor of retaining it as a handy workers’ committee and a possible buffer. Besides, if they quit the union, they will be blackballed from joining any union.
Don Montgomery, of the Steelworkers’ Kingston subdistrict office, has nice things to say about Delaney and the scheme and thinks the union will go a good deal farther out of its way to co-operate with this kind of management. Alec Wheeler, of the P&B local, backed the idea from the start.
Other manufacturers in the same line are both surprised and a little envious of P&B’s healthy production figures. “Other industrialists tell us that it is remarkable,” Delaney says, “but 1 think it is a perfectly normal reaction. People will not waste time and material nor will they tolerate laxity on the part of fellow workers when their own money is invested.”
Said one manufacturer who visited Parmenter and Bulloch recently: “These days, every other manufacturer I know is getting only three days’ work for five days’ pay. But man! they’re getting six for five!” ★