This article is part of our Beyond the Family Business series.
Hosted by Luke Hansen-MacDonald, a second-generation family business leader, Beyond the Family Business is one of the most thoughtful and engaging podcasts about family enterprise in Canada. In every episode, Luke goes beyond the headlines with other leaders in family businesses and family offices to explore lessons they have learned, their successes and their challenges.
In this episode, Luke sits down with Geoff Smith, former CEO of EllisDon. His story weaves us through the relationship he had with his father, how his succession story unfolded and why he ended up as the CEO of one of Canada’s largest construction and building services companies—Ellis Don, which generates over $8 billion in annual revenue.
Geoff explains his decision to give his employees equity and how the structure of his business allowed it. He still believes it was the morally correct thing to do, and notes that as employees were getting wealthier, it also improved employee engagement and passion.
In her conversation with Luke, Geoff shares:
- The hands-on learning that made Geoff a better leader, including firing people that were a drag on the organization
- How a law degree held it’s value throughout the years, and what it signals to others in a crowded room
- The succession plan that unfolded in a manner that seems ‘moviesque’ upon reflection
- A frank exchange on personal energy and how running a company at age of 40, is not the same as running a company at the age of 71 (Geoff’s age today)
Previous episodes of “Beyond the Family Business” on Canadian Family Offices feature K.C. Daya, Jeffrey McCain , Ian Wilson, Derrick Hunter, Pierre Somers and Iqbal Kassam.
Disclaimer: This podcast is sponsored by BMO Private Wealth. The information provided in this podcast is for informational purposes only and does not constitute financial, investment, or professional advice. The views expressed by the host and guests are their own and do not necessarily reflect the opinions of any organization or company. Always consult with a qualified financial advisor or professional before making any investment decisions.
Transcript
This transcript is provided for convenience and is based on the audio recording of the video. While efforts have been made to ensure accuracy, minor errors are possible.
Luke: Hi, I’m Luke Hansen-MacDonald, and welcome to Beyond the Family Business, a podcast about family enterprise and the challenges that come with it. Today’s guest is Geoff Smith. He’s the second-generation owner and executive chairman of EllisDon, one of Canada’s largest construction businesses. Geoff was formerly the CEO and oversaw many decades of prolific growth. This episode is brought to you by BMO Private Wealth. As a client myself, I’ve seen firsthand how they can help families like mine. And this episode was made in collaboration with Canadian Family Offices. All right, let’s jump into it.
Luke: Who are you, where are you from, and what do you do?
Geoff: My name is Geoffrey Smith. I was born and bred in London, Ontario. I currently live in Oakville, Ontario. Now I’m executive chair of EllisDon, which is a, we call it a construction services company now. I was CEO for 25 years. I’ve been with the company about 45 years. It’s a second-generation company that was founded by my father exactly 75 years ago. And I’m doing a bunch of charity stuff as well.
Luke: Cool. We will get into all of that and more today. So, to start us off, for anybody who somehow doesn’t know what EllisDon is, can you give sort of a high-level description of the business and the breadth of its operations?
Geoff: We started off and were, for the first 50 years of our life, just a pure bread-and-butter construction company. But we build big buildings. We build hospitals. We build university buildings. We built, it was for a long time, just buildings. For example, we don’t build single-family houses and we don’t build roads, but we build just about everything else. Over the last 20 years, we’ve expanded not only into big civil construction, big bridges, just about everything. Now we’re doing billion-dollar data centers. Every project now seems to be over a billion dollars.
But we also expanded, starting just after the turn of the century, into broader construction, what I call construction services. We do construction finance. We have a capital services department. We do facilities management, so we guarantee not only how much it will cost and when it will be done, but how it will operate, and then we’ll go in and operate for the hospital, the courthouse, whatever it is. We just bought another company in Ireland that does facility management in hospitals. So, we have what we call a cradle-to-grave strategy, where we think we can help public and private sector clients right from almost the concept of the building right to the end of the life cycle. Construction being at the center of the risk that that client has generally.
Luke: Wow.
Geoff: So that’s what we do.
Luke: Incredible.
Geoff: And we try and be very entrepreneurial, so if somebody comes up with another idea for a new profit center, well, then we’ll say, “Okay, let’s take a look at that.” It’s got to be in the spectrum of the cradle to grave of construction. We don’t do laundromats and we don’t do– But we have a digital sciences division, which I’m very involved with still.
Luke: I read about that.
Geoff: Not just digitize our traditional, what they call legacy construction business, but we have a new app all around analytics around subcontractor risk that we sold all across the US and is making us all sorts of money, although it took a while to get going. So, we’ve got a whole digital profit center as well.
Luke: Cool. Yeah, I read an article about that, so I definitely want to get back to that topic as well.
Geoff: Right.
Luke: Maybe just to rewind the clock, when was the business founded? You mentioned you’re the second generation. Can you talk a little bit about those early years of the business? Who founded it, and when?
Geoff: Sure. My dad was a typical Depression-era kid. He had no dad. One of these typical entrepreneurial stories. He didn’t have a dad. Dad died when he was six. Single mother raised him. She was a clerk in an Eaton store in Toronto. So he was just a self-starter. Got moved down to London by what was then the Foundation Company of Canada as a superintendent at the age of about 25, 26 maybe. Just got married, had a kid. And 25 is very young to be a superintendent today, and it was very young to be a superintendent then. He was always an overachiever. And at about 27 years old, he just struck out on his own, and his first project was a very small house addition, and then he just drove the business. He drove it. He worked every day. He worked all day and night. He was tough, man. This guy was very ethical and very honest, but very tough. And back then it was all lump sum construction, your plans and specs. He would hire and fire on a whim. We’ll come back to this.
A lot of people would come to the company just to get three or four years of experience under Don because he would give you all sorts of responsibility and experience early, and then either you would say, “I can’t take this anymore,” or he would fire you, and you’d go off and have a more normal career. Kind of what happened to me. And then he gradually, he grew the business. He was up and down. Like he was doing really well, and then he wasn’t. We almost had a big cash flow crisis in 1980, so around our 30th anniversary, a few before that. But then around ’85, he got this idea, we weren’t a very big company, that he’d compete for what is now the Rogers Centre, the SkyDome. So far outside of our capability. Long and terrific entrepreneurial story. Won that. By 1989, he was on top of the world when it opened. And by 1994, we were almost broke again. And then that’s when we got into the generational change, we want to talk a little bit more about. But that’s how it started. It was my dad driving hard, driving his people hard, driving himself hard, and being a real way out in front entrepreneur.
Luke: Wow. That’s an incredible project to be part of. I didn’t realize that. That’s incredible, so very interesting. What were your earliest memories of the business? When did you start to realize that you had a family business, and what was your early perceptions of it?
Geoff: So I can’t remember not having a family business, so I’d say my earliest perceptions of having a family business were probably my earliest perceptions of being alive. So, I don’t know, maybe four and five years old. I can remember my dad was always home for dinner. He was never home during the day, of course, not really home on the weekends. He’d come home for dinner, and then he’d go back to work. And then he’d take us in to work on the weekends, the usual that happens in a lot of entrepreneur families. So, we’d go in and bang away on the typewriters, climb over the cranes. And my dad was always bringing work home with him. So just because he was such an effusive guy, he couldn’t keep anything inside, so he would tell you about his day. Like I’m 12 years old, and he’s telling me about his day in business, and I just really want to go out and play. And I don’t recall that negatively at all because he just had so much energy around it. You go, “Wow, that’s really great. That’s really interesting. Okay, now I’m going to leave.” And I realized much later, I probably had as much, or not as much, but a lot of great deal of knowledge of the construction industry by the time I was in my early 20s and was in law school and had no intention of ever going into the construction business, than most people have after they’ve been in the business 10 years just because it’s not me, it’s because it was unavoidable. It was just all around all the time because of his personality and because of how hard he worked. So that’s the ocean, that’s the water that I was swimming in.
Luke: And how about your mom? What was the other side of the parent equation with a father that sounded fairly gruff and tenacious, et cetera? What was it like with your mom?
Geoff: So, my mother was the exact opposite in terms of personality. She was very philosophical. She was a graduate in philosophy at the University of Toronto, so she approached things quite thoughtfully. She was always a, well, I’ll call it do-gooder, very involved in charitable causes, United Way, Children’s Aid, everything to do with people and trying to help people. So, she wasn’t home much either because she was always out doing something. They were both pretty ambitious people, both very driven people, but completely different personalities. And so, she was the softer side. Everybody was the softer side of my dad because you could never get over to a harder side of my dad. He was way at that end of the spectrum. But she was no shrinking violet. She was very tough. She was very strong. I don’t want to say tough, I want to say strong. And I don’t mind saying that a lot of people might say, “Well, my dad was my hero.” Well, guess what? My dad wasn’t my hero. My mom was my hero. I tried to model myself after my, and to think like my mother, and to analyze things like my mother right from an early age. So, she was a very big influence on me.
Luke: Yeah. I think it shows up, I don’t want to jump ahead to the employee equity part of our discussion, but obviously her charitable and philosophical side has echoed on through what are somewhat unique practices for a person in your role. So-
Geoff: I’ll just interrupt you quick. I was at the celebration of her life when she died about 10 years ago. I was giving a speech, and I was talking about her influence on my dad and her influence, which he never really acknowledged, but you could see it, and her influence on me, and I said– I was going to crack this joke, and I frankly just forgot. I said, “We’re going to change the name of the company to,” because my dad’s name was Don, right? “We’re going to change the name of the company to EllisDon & Joan,” which was intended to, obviously, we weren’t going to do that, but that’s the extent of the influence she had on me and on the company.
Luke: Yeah. Incredible. And so, you went to law school.
Geoff: Yes.
Luke: Can you speak a little bit about what was your decision-making, if you recall it, of why did you not try to get into the family business immediately, as many people do, basically working there since high school? What was your process of deciding to go down the road of becoming a lawyer and the motivation?
Geoff: Well, a couple of things. First of all, I wasn’t sure whether I wanted to go into business or go into law school. That was a decision I made at the last moment after two years of university. But I knew I never wanted to go work for my dad, because that’s just craziness. It’s way too rambunctious and way too insecure, and I’m not a builder. I’m not really, to this day, that interested in the nuts and bolts of construction. People always say, “Oh, I drive by those buildings that EllisDon built,” and I say, “That’s my company” or “That’s the job that I worked on.” I never do that. I’m always looking for the next deal, the next iteration. So why did I choose law school? I chose law school because I wanted to be Clarence Darrow, because I thought I was a pretty good arguer and debater. I thought you want to do good in the world. I thought law was a good way to do that. It didn’t work out that way, but that was the plan.
Luke: As with any path, even if it doesn’t work out, usually there’s a lot of value in it that you see later on when you reflect on it. What were some of the benefits of going through law school?
Geoff: So, the first thing is it teaches you just going through and trying to get good marks in law school teaches you great discipline. Way more. I always found university pretty easy and high school pretty easy. I didn’t find law school incredibly easy, and all the people around you are working really hard, and you have to consume all this information. So just around managing your time and learning how to study and learning how to consume information and distill facts and all that stuff that you do in law school, I found to be a great discipline for me later in life. And the second thing, and I say this to young kids when they ask me if they should go to law school, I say, “You may not practice law.” Because I practiced law for about a year. But I say, “You know what? That law degree is something.” When you walk into a room and you say, “I’m a lawyer,” well, people say, “Well, I don’t know if he’s a nice person or a person with great values, but I know he’s not stupid.” It’s an accomplishment that stands for something. I also learned a great deal from it. And one of the things I learned was that I wasn’t going to save the world and do a lot of good in the practice of law, and I didn’t like it that much. So, I did it for a while, and then I got out of it.
Luke: And how did that then turn to you joining your family business, which you swore not to do, it sounds like?
Geoff: So here I am. I’ve got one year of law under my belt, practicing law. And I don’t want to do it, and my dad was trying to get me to join the company. But he never really pushed me. He just said, “It’s here for you. I’d love to have you.” And I finally decided that he could teach me business. I wasn’t necessarily interested in the construction business, but I thought, “I’ll go to work for this guy for five years, and I’ll learn a lot. And then I’ll take a graduate course in business from my dad,” a better master’s, I think, than any MBA could give you, and then I’ll go do something else. And as it turned out, I wasn’t that far off.
I went to work for him and had a huge experience and learning experience and experience experience. But then we started fighting, so I did leave. But anyway, the plan was to stay for a few years. I stayed for about 10. And I learned a lot about myself. It turns out, there’s a lot of stuff I’m not good at in life. I’m not good at most things in life, but I’m pretty good at being an entrepreneur, and I’m pretty good at running a business, as it turns out. Who’d have thunk? But I’m not a good builder. But if you don’t mind me saying so, I’m pretty good at, and I found that I could get people to work with me. I found that I could hire good people, and they would stay. I had those, or at least I developed those kind of skills.
And I really was surprised at how much I didn’t like law. I was equally surprised at how much I just love business. I just love the doing the deals and the uncertainty and the fear and frankly, making money and succeeding and working with construction. You work with all sorts of different kinds of people. I just loved it. I still love it. So anyway, that’s sort of how I made the decision and a quick preview of how it turned out.
Luke: And do you remember, I find those early years for me in our family business, there’s a few roles that stood out as huge learning experiences, meaning I made a lot of mistakes, but also recovered from those mistakes as rapidly as possible. Was there a couple of key moments or roles that you had in that 10-year stint that were really pivotal as far as your development goes as a leader or a manager?
Geoff: So, I go to EllisDon because I’m going to go into business. My dad says, “Well, I need help on the legal side.” I said, “I don’t want to help you on the legal side. If I wanted to be on the legal side, I would’ve stayed at the law firm.” He says, “Well, I don’t care. I need help on the legal side.” Well, it turned out he was right, I was wrong. Because he would get into lots of fights and had a fair amount of litigation going on. When I managed that, here I am, I’m 27 at the time. I’m now dealing with clients directly because I’m trying to settle these lawsuits. I’m now dealing with the vice presidents and senior vice presidents at EllisDon. So immediately, I was on the front lines of the business, what goes right, what goes wrong, settling these lawsuits, because that’s what I was trying to do. Going to court is a terrible idea in construction.
You learn all about human psychology, about ego. “Well, I don’t like him. I ought to sue him.” Well, hold it. Let’s slow down. Let’s back up. And if you want to know quickly the mistakes I made when I first got in there, and I was insecure, and I was young, and I didn’t know what I was doing. So, what people do, often, we all see it, they start throwing their weight around. They start, “No, this is the way it is.” I got a little ahead of myself. And it was actually a couple of the women that worked in head office who took me aside and said, “Slow down, brother. You’re not making any friends here.” And they gave me a book, I can’t remember the guy’s name now, “How to Win Friends & Influence People.” And so, they were telling me, “Your leadership skills are not leadership skills. Are like alienation skills. So, you may want to think about this.” And so, they punched me in the face. I took the face. I took the punch, excuse me. And so that was a big learning I got. And then I did that for two years and said, “Okay, well now I do want to get into the business.”
So, it’s a long and it’s a great story, but he put me in charge at 29 years old of the Western Canadian operation, which was Vancouver, Edmonton, Calgary, and Saskatoon. So here I am, a guy who’s never done any construction, who’s only been in the business two years on the legal side, and I’m in charge of this great big operation. And the only reason I got that job, not because I was the boss’s son, maybe a little, but not really, he wanted to give it to somebody else. It was because he’d like sent six people out there over 10 years, or hired them out there to run the operation, and he’d fired them all. So now nobody would go. Nobody at EllisDon would go, and nobody wanted to. It was a death trap. So he said, “You’ve got to go.” And like a stupid, ambitious 29-year-old kid, I said, “Okay, I’ll go.” So I went, and what I learned very quickly was, is you asked me about big learning lessons: There were some good people out there, not very many. When you have six bosses in 10 years, you end up with a lot of people, and they’re all scared of their own shadow and some of them are no good. But so, we had some good, some terrific people, and a fair amount of not very good people. And I realized really quickly, if I didn’t fire those not very good people, if I didn’t get rid of them, then those few very good people I had were going to quit, because they were very… So, the first thing I did once I figured it out, it didn’t take me that long, was to go around to the good people and say, “You’ve got to stick with me. You’ve got to help me. I’m going to get rid of these other people. You’ve just got to give me a little time to finish the jobs,” and blah, blah, blah. But I learned very quickly, if you don’t deal with your problems, the people you need who are watching you deal with your problems, say, “You know what? I’m going to go work somewhere else.”
In construction, I don’t know any other business, you can have three good jobs, and in one bad job will lose all the money those three good jobs made. You don’t deal with those people who lost you all the money, then all the good people say, “I don’t know why I’m working here. I’m working my tail off, making money, and dipshit over there is losing it all, and Geoff won’t do anything about it. I’m out of here.” I learned very quickly, when I got there, I had no time. And I literally, I can think of a few people I begged to stay. Like just literally said, “Please, just please give me six months.” I’m 29, remember, and I’m the boss’s son, and I’m a lawyer, and that’s the definition of useless, right? So, they’re looking at me and I’m begging them to stay, and they’re going, “I don’t know, shit, whatever,” right?
Luke: Yeah.
Geoff: So those are the things I learned.
Luke: Interesting. So be relentless about building a great team and more importantly, getting rid of those weaker team members so that your strong team stays around and believes in your leadership, basically.
Geoff: You know what I learned about clients? When you go in to see clients and they’ve got real questions about either the job they’re going to give you, you want them to give you, or the project you’re building for them, and they ask you these questions, you don’t really need to know the answers. But you need to go find those answers really quickly and get them to that client. I learned it’s totally okay to say, “I don’t know. I’ll be back to you this afternoon with an answer.” And I learned that in construction, you can always find the answer. There are builders around, there are architects around, there are subcontractors. You go, “What do I do here?” Then you’ll learn quickly who’s bullshitting you and who’s telling you the truth. And then you go back to the client and go, “Here’s the answer.” And he goes, “Okay.” Like that’s all they care about. So, the fact that I knew nothing about construction, I always thought in the end, believe it or not, it helped me because it forced me to surround myself with good people, the way I’ve already set out. And I didn’t threaten anybody, and it forced me to become a better leader because I learned how to get things done by relying on other people and just kind of leading through them, if that makes any sense. And so that’s been my leadership philosophy pretty much from the beginning, and I’m still a lousy construction person, but I’m still frankly not bad at attracting good people and getting them to stay around and promising them an adventure and delivering on it.
Luke: And so, you had this, as you said, you got the punches in the face from some of your coworkers early on. Your mom obviously had a big impact on you and your style. You knew you didn’t want to be like your dad, so you start building this other style of management, which has worked very well for you. But in that 10-year period, did it start to become a clear conflict between your probably more progressive style of leadership and your dad’s recession-era, hard-nosed type of leadership? Was that a problem trying to build your own culture within an organization where maybe your dad did it a different way?
Geoff: No. Frankly, I think it’s actually simpler than that. I came back from the West after four years, so now I’m 34, and to be honest, we turned around the West, and now the West is doing really well, and his board was pushing him, he’d be 66 or 67 at this point, to do something around succession. He had a chief operating officer who he didn’t want to make president, so he made me the president. At that moment, you go with my dad, you’re his favorite or you’re in the dirt. And then you’re his favorite again, then you’re in the dirt again.
Well, at that point, I was pretty high. And so, he made me president at 34. So immediately, I’m maybe back where I was when I first joined the company. I’m trying to be the president and trying to lead these people who’ve been in the really most senior levels of the business for longer than I’d been with the company. But the main thing was, so I’m trying to exert myself as a leader, maybe sometimes effectively, maybe sometimes insecurely. But meanwhile, he won’t let go. And he’s the CEO, and I’m the president and chief operating officer, and he just won’t let go. And he just wants you to do what you’re told. Sorry for the language, but that’s the way it was. There was a lot of profanity. There was a lot of, “You do it because I told you to do it.” And so, I’m not one to be bullied. And so, he and I just clashed, and we clashed about me trying to be the leader with him giving up the leadership. And maybe I could’ve been more patient. Maybe he could’ve been more supportive. Neither of us were. And so, we just clashed.
And the industry was doing very poorly in the ’90s. That was back, most of your listeners will be too young to remember, but all of our clients went broke in the early ’90s, so we were in a bit of trouble, had no work. And after five years, I just said, now I’m turning 40. I’m 39. And now I’m saying, “I can’t do this for the rest of my career. I’ve got to go.” So, I quit.
Luke: And so, where’d you go after that?
Geoff: I bought this little company that had nothing to do with construction. It was in the electronic components business. The reason I did that was because, A, it looked like a good deal, and B, I couldn’t start my own construction company or even buy a non-union company because I didn’t have any money to buy a big company. And I couldn’t buy a small one because of my background with EllisDon. The labor relations board here would’ve certified us immediately, and we would’ve been… I was 90% sure; I’m still 90% sure that’s what would’ve happened. So, I decided to do something outside of construction. Didn’t really work very well. Didn’t make any money, didn’t lose any money. I was kind of screwing around looking for something to do at 40 years old.
Luke: And then how did you get pulled back in?
Geoff: Well, that’s a very dramatic story. I could tell you in 40 minutes and take up the rest of the time telling you, so I’ll do it as quickly as I can. Company was doing very badly. When I left the company, my dad put another guy in charge who turned out to be a really bad leader, and frankly not very honest, an American guy. So, then he’d found he couldn’t work with my dad, so he tried to buy the company from him. He didn’t have any money. He was bullshitting his way through this. So Labor Day of 1996 was the deadline that he had to come up with the financing. Frankly, he had to come up with a check to pay my dad. Not a huge amount, but in the tens of millions of dollars. And so Friday at the end of August, he couldn’t come up with the money. Now we’re in a real panic because my dad’s 72 or something at this point. Let me just think. Anyway, he’s in his early 70s, and we don’t have any cash, and it’s just a freaking mess.
So, the guy that had been his advisor was the executor of his estate, a guy named Jack Adams. He was a very accomplished businessman, an accountant, very sober, very analytical, very different from my dad. Was helping my dad with the sale, and then when the sale fell through on the Friday, Jack Adams called me on the Saturday morning. You have to know that I hadn’t spoken to my dad in a year. I’d barely seen my mother, and I hadn’t seen much of my siblings. I was out. He calls me on the Saturday morning and he said, “The deal to sell the company just fell through yesterday.” And I said, “I literally just heard that five minutes ago from my sister.” He said, “Well, I think you should come back and run the company, because you ran it before and somebody needs to run it. Your dad needs to retire.” He’s exactly the same age as my dad. “And you’re the guy to do it.” And I started laughing at him. I said, “Did you run this by my dad? Because he’ll never have me back.” He said, “We’re going to have a meeting tomorrow at your parents’ cottage, and you’re going to be there.” I’d known Jack Adams all my life, and he wasn’t asking me. He was saying, “And you’re going to be there.” And I said, “Oh, I’ll go. Sure. I wouldn’t miss it, Jack. This’ll be fun.”
I go over to that meeting. Jack literally tells my dad; Now, there was a trust in place. So, me and my siblings, through the trust, of course, owned about 70% of the company. My dad owned 30. It used to drive my dad crazy, but that’s a whole other issue. And so, Jack, with my mother there, said, “Don, you’re going to sell this company to your kids.” And my dad said, “Like hell I am.” And it was a very dramatic moment. My dad was white hot with anger at his friend, Jack Adams. And my mother said, at a very pivotal moment in that meeting, “Well, you better listen to Jack.” So now he had nobody. He didn’t even have his wife. And we left it. Jack said, “We’re going to make you an offer.” So, over the next, literally, I have to say, my wife is now not happy with me either because I’m going back to the company, which I probably shouldn’t bring that up. But over the next 48 hours, Jack and I came up with a letter basically paying book value for the company, which turned out to be nowhere near book value. It was way overstated because there were all sorts of hidden losses. But the key element of that was that he had to retire, and he wasn’t allowed back in the building of the company that he founded. We offered him an office in downtown London. We said, “You can take your secretary. We’ll pay the rent. We’ll pay you X amount of dollars a year, and that’s it. You’re gone.” And, because if you let him in that building, he’s going to start ordering people around again. It doesn’t matter. And he wasn’t. He was on the board till we paid off the money we owed him because part of the purchase price was, he had to take a note back. And then he accepted that deal. I think his wife had a bit to do with that. And two weeks later, I’m running the company.
Literally one week. I’m so far out, you can’t imagine, and I haven’t spoken to anybody in a year, and two weeks later, I’m back in as CEO, and the employees are going, “What the hell just happened here?” And that’s basically how I came back.
Luke: Crazy. It could be in a movie or in a book or something like that if it’s not already.
Geoff: It was really something.
Luke: And in retrospect, it must have been the right thing, not just for you and your family and the business, but for your dad as well. Was it the right thing, you think that happened for him to have to let go because he wouldn’t have otherwise?
Geoff: It’s hard for me to say. He wasn’t happy for at least a couple of years after that. He kept writing nasty memos, trying to get back in. The chair of the board was this fellow, Jack Adams. Jack protected me from that, which fractured their lifelong friendship. Do I think it was better for him? Yes. Do I think it was better for the company in the long run? I’m sorry, but I really do. Seems so obviously self-serving.
But let me give you a quick example. And remember, he hadn’t been running the company. This guy who’d made president hadn’t been running the company. First thing when I came back was, I fired him. He hadn’t been fired yet. So, Don hadn’t really been running the company for a year. And so, is he really going to come back in and run it? So, I get back there. The overheads have gone through the roof. The revenues are going through the floor, and we’re losing money on the decreasing revenues that we do have. And within, I came back in the middle of September, and in the middle of November, we cut the fixed overhead of the company by 25% in one day. On that Black Friday, our fixed overhead was $18 million on Friday morning, and by Friday night, it was 12. It was really ugly. So, was anybody happy? No. Was Don going to do that? I don’t know. But that’s what had to be done. I don’t think the company would have survived, frankly.
Luke: Yeah. Sounds like it certainly was going down a path, and there had been the same leadership for a long time, and it, I’m sure, was an emotionally exhausting thing to go through for you and for everyone in your family. But objectively, it’s hard not to agree with you that something had to change dramatically. And I think that is a lot of what the literature shows is the need for new ideas, new leadership, et cetera. It’s difficult for a person to reinvent themself.
Geoff: I think that’s right. And I also think it’s an energy level issue. At 40, you’ve got the energy to do it. I’ve been CEO here for three years. If our CEO was hit by a bus today, would I say I’ve got to go back as CEO even in a transitionary period? I don’t think I’ve got the energy to do it. I literally just don’t. I’m kind of tired. And you get, I don’t even want to admit it. I still get up early. I still work hard. I do all that shit, right? But running a company of any size takes all your energy. And at 40, you’ve got it, and at 71, which I am today, you don’t have it, in my view.
Luke: So, you had to cut back your overheads pretty rapidly. I get that. But what were the key strategic initiatives that really led to continued growth and turned the business around in the long term?
Geoff: We had to change our relationship with our clients. So, we became, we went on a huge charm offensive. And the subcontractors. But I would say to the clients, “You give me this work, and you will have every number. I promise you I will show you. You’ll know exactly how much I’m making, how much EllisDon is making. We’ll give you everything.” And everybody else said, “You can’t do that, Geoff.” The other clients, “How can you make any money if you’re going to show everybody where you’re making your money?” And I said, “Because, well, I get the clients to treat us fairly, and we don’t want to make any more money than is fair because we’ve got to build market share here.” That change in attitude took about two years, A) to make at EllisDon, because before that, we were all hard-nosed, lumpsum, low-price builders, and B) for the clients to understand that we had made the change. I thought it would take six months. It took two years.
The second thing we did was once the public-private partnerships came out, we seized on that to realize that if you’re a client, even in the private sector, construction is at the heart of your project risk. It’s not the financing, it’s not facilities management, it’s not the life cycle. So, we expanded into all those other areas. Why? Because we had the risk. So, if we’re going to be the center of the risk, let’s be the center of the equation. We can make money off of all those things. So, we created this thing called the cradle-to-grave strategy. Now we’ve got, years have gone by, this is 25 years ago, but we’ve got all sorts of different profit centers. We’ve got a capital services division; we’ve got a facilities management division. Most of our competitors have not done this. They go, “No, we’re in the building business. We stick with our knitting, blah, blah, blah.” That’s what everybody says. I get that. That’s what all the textbooks say. But in construction, there was room to really broaden our role, our value proposition to the clients, to be really nice people about it and transparent about it, and frankly, to make a whole bunch of money at it. We make a lot of money at those others.
So those two changes, the change in the whole ethos of the way we deal with our clients, of we call it complete openness, and the change in the strategy to looking more broadly within the cradle to grave experience that our clients have. Don’t just build the building, promise them how the building is going to perform over its life cycle and manage the hospital or the courthouse or the office building for them. So, we call ourselves a construction services company now, not a construction company. Those are the two things that made the difference at EllisDon.
Luke: And somewhat related, because on one hand, you’re doing this charm offensive, transparent policy approach, which of course is making your customers trust you more and keeping them happy. But these other new profit centers are only profitable because they are adding value to your customer. So presumably, they’re also a way to increase touchpoints and ultimately build stronger relationships with customers. So, both of those strategies are symbiotic in some way.
Geoff: That’s exactly right. So let me give you a quick example. If you’re doing a public-private partnership and you’re one of my competitors, I won’t name any, and you’ve got, say, Honeywell doing the FM, and you’ve got the architects over there somewhere else who work for the equity piece, not for you as the contractor. Then you build the hospital or the office building. It’s done, it’s operating, and there’s a problem. Well, now what happens is the contractor blames Honeywell. Honeywell says, “It’s not my fault.” It’s the architect. The architect says, “It’s not my fault,” blah, blah, blah. Well, guess what? At EllisDon, I’m not saying that doesn’t happen. Problems always happen in construction. But if we’ve got our capital division blaming our construction, who’s blaming our facilities management, who’s blaming– Well, they go up into the CEO’s office, and it gets dealt with in an hour. You don’t have a meeting next week and bring everybody in to yell at each other. So, is that a key part of the value proposition to our clients? You bet it is. So, it’s a better experience for them, and we’re making money on each of those different profit centers. It just works really well in my humble view.
Luke: So, I want to talk about your team and how you ultimately decided to give them a huge amount of the equity of the business. This is a pretty unique decision for somebody in your position. So, could we talk a bit about the motivation behind that?
Geoff: There were a couple of things that were instructive. Frankly, our biggest competitor is a company named PCL. You’ll see their signs around. They’ve been employee-owned for a generation longer than we were. So, there was an example out there. Now, our model is different, and I won’t go into the differences, but I could see that it worked. Secondly, construction is the kind of business that doesn’t require a huge capital investment. We don’t need to invest tens of millions of dollars in plant, in a manufacturing facility or in huge equipment.
We’re really a service provider. We sell our people. So, we need to have cash on our balance sheet for bonding. But other than that, we don’t have to have it tied up. That means, frankly, you don’t have to go to the public market or the private equity market to raise capital. You can actually run this business. If you know how to run a construction company, we do, lots of my competitors do. You can run it without external cash. So, once you have that benefit, then it’s pretty easy to say, “Well, hold it.” And then the Smiths are getting older, my siblings are getting older. They want out. You go, “Why do I need to bring in private equity? Then these people are going to be working for private. Why don’t they just go to work for themselves? They’re earning all the money.” And so that’s the principle behind it. We can do it because the structure of the business allows us to do it, which is not a luxury a lot of businesses have. And I think it’s not just a moral thing to do. It’s kind of a selfish thing to do because the employees are buying the Smiths family out over time. We’ve got a declining interest, but we still have shares. Everybody’s making money. The employees are making money. The Smiths are making money. And I just think it’s a really … So, we did that because we could, and we did that because we thought it was the right thing to do.
Luke: And what was, I think there’s some ideological things in my head of what the effect would be. But once you did that, or even just when you announced it, how was it received by the team, and what were the actual impacts on it over the next few years after?
Geoff: Well, I’ve got to go back to the beginning because I came back to the … And I’ll do this quick. I came back to the company in ’97. And by ’99, I’m really oversimplifying this, but by ’99, first of all, I had to make sure the company wasn’t going to go broke, which wasn’t clear. But once we knew we weren’t going to go broke, I convinced my siblings, they were very, very generous about it. I want to compliment them. We froze the equity, issued all new common shares at a value of zero, and gave 45% of those to the employees. So as of 26 years ago, the employees owned 45% of the company.
At the beginning, they said, “Well, you’ve given me these shares. They’re not worth anything. What do I care? You just give me profit sharing.” At the beginning, there was a lot of skepticism. And then over time, we have a healthy profit-sharing program on top of the share equity ownership. Over time, they see their wealth growing, and then we’re selling more shares to more employees, but we sell them at book, and then they sell it back to us at book value when they leave. They’re getting wealthy.
Does that drive behavior? It absolutely does drive behavior. I’ve had employees challenge me at meetings saying, “I don’t know why we’re doing this. I’m a shareholder. I think you’re crazy.” I had one employee say, “Why are we still in the US? Every money we keep losing.” And we’re in Alberta. I said, “Well, you remember it took us years to turn Alberta around. We’re doing the same thing in the US.” And he said to me, “Geoff, I’m not buying it. Get out of the US. I’m a shareholder. I’m telling you, get out of the US.” Which we did. They’re not always right, by the way, but that case, he was right. So my point is, does it drive engagement? Does it drive passion? Yeah, it absolutely does. So, you end up with a much better company.
Now the employees are going, okay. My mantra always was, live off your salary. We pay well. Buy your toys or your house renovations with your profit sharing and retire on your shares because we buy them from you when you leave. And it’s a perfect crime. Have a nice day. But does it drive behavior? It absolutely does. And if you’re a values-oriented company, I’m sure most of your listeners call themselves a values-oriented company, if you’ve got your values straight, then it’s really good.
Luke: So, this is where the part I try to tie in the influence of your mother to you. She was a philanthropist. She had studied philosophy. This is a very progressive form of social capitalism or entrepreneurship, whatever you want to call it. But it’s not something that you see enough these days, in my opinion. It’s amazing when you do meet somebody like yourself who has this moment in time that they decide to share equity with their team members. And as you said to me before this call, it wasn’t just to the senior executives, it was to secretaries and whoever else.
Geoff: The receptionist.
Luke: Yeah, receptionist. So, I guess, what impact did your mom have on this decision? And was this something that you had always thought about? Or I guess, where did the idea come from, is really what I’m trying to get to. Was it truly just looking at some of your competitors and saying, “Oh, they do it, too,” or was it something that had maybe been building in you over time with your different approach than your father?
Geoff: Listen, I think it evolves over time from various influences. My mother had a huge impact on me on equity, social equity, call it what you want. I learned when I was out West, when I was 29 and 28, if I didn’t have these people working with me, I was a dead person. And so, I was a success as the leader in Western Canada. What was my skillset? Convincing these people to stay and getting them to want to work here. Well, you do that, so if you share the wealth, and you’re very open, then everybody can see it, and everybody goes, “What a great place to work.” So, I believe the Smiths made far more money owning gradually less and less of the company than they ever would’ve made holding onto it. I don’t think my dad would’ve done it. Frankly, our shareholder equity program is much broader, we mentioned secretaries and receptionists, than our competitors’ programs. I just think that’s a terrific thing. Everybody gets to share.
We have this theory around here. I just learned, we’re in the leadership business at EllisDon. We lead clients. We lead subcontractors. We lead architects. We’re just people. We’ve got to make sure that building is done on time. If you have a leadership ethos with the right values throughout the company, we’ve had consultants say to us, “No, we’re going to train just your leaders.” I said, “Well, then you’re going to train all of us because all of us are leaders.” I want that receptionist, because we all know when you walk into some place, if the receptionist is a terrific person, you immediately feel better about yourself and about the meeting, about the interview, or whatever it is, right? If this receptionist is a jerk, whether it’s a woman or a man, then you go, “What kind of a place is this?” Right? So you want everybody engaged. So part of it is frankly selfish. Part of it is because it’s the right thing to do. Part of it is, as I said before, we could do it, so why not do it? Why would we give the money to private equity people? They’re not doing anything. They’re sitting over there on Bay Street. They don’t deserve the money. If I needed them, I’d do it, but we didn’t need to. And to me, it just works all around.
But was my mother a big impact? That’s why I said we should name the company EllisDon & Joan. Of course, she was. But it was also, I used to talk about it as socialism. Now I use the phrase, I’ll finish this way maybe, free enterprise, not a socialist. Socialists want other people’s money. I’m a free enterpriser, and the difference between free enterprise and capitalism, in my view, is that capitalism means the capital is on top. Money. Everybody’s working for the return on investment. You get up, you go to work in order to earn your shareholders a return on investment. No. I believe you get up and go to work to follow your passion. I know that’s trite, but that’s what I believe. And if you get everybody doing that, and they get the money, well, then everybody has a great career. So put the people over top of the money. Money is a commodity. Money doesn’t take risks. Money doesn’t have brains. Money just buys shit. It should not be at the top of the heap, in my view. Maybe I learned that from my mom. I didn’t learn that part from my dad, I promise you that.
Luke: Powerful. Last question. What do you want for your own kids? You had the experience you had with your dad, and obviously, you had your own unique path, which in some weird roundabout way, led to the business and away from the business and back to the business, and you could never script that if you tried to in a million years. How do you guide your own kids about their future, and what do you want for them, and what’s your vision for them?
Geoff: It’s funny you mention the US, because we’re going through it right now. I’m 70, my kids are in their 30s. I’m redoing all our estate planning. I’m involving my kids in their 30s very directly in that, whether we’re going to have a family office, whether we’re not going to have a family office. How are we going to do it? But two things. I did not say EllisDon’s a family company, and it’s going to be run by the family for generations. I did the opposite. I said to my kids, “I’m sorry I went through trauma. I’m a damaged individual. I fought with my dad. I was alienated from my mother for a couple of years. I’m still alienated from some of my siblings. I’m not doing that. So you can work at EllisDon, but you can’t. It’s too big a company.”
So, what are we going to do? Well, we’ve been fortunate. We’ve got some money to maybe think about a family office for them to pursue some of their own goals with some support. What’s important for me with my kids, I’ve been very clear, I just want them to be happy. I just want them to, at the end of their life, go, “I just had a happy life.” If they’re wealthy, well, fine. If they’re not wealthy, well, fine. We all know money, financial security is a good thing, but money doesn’t buy happiness. That’s all I want. It’s very simple. And you get happiness out of working. You get happiness out of being nice to other people. You get happiness out of giving back to the community. That’s what I want for my kids. And my wife raised them, and she’s better. I have great kids because while I was out building a company, my wife was raising the kids. She did a great job. I’m a lucky guy.
Luke: All right. Thank you so much, sir. That was a super interesting discussion. I found it very valuable myself. I know my audience will love it as well. And yeah, I wish you and your family all the best as you head into the future with whatever’s next.
Geoff: Great. Looking forward to talking to you again soon.