COVER

THE TOUGH TYCOONS

A NEW BRUNSWICK FAMILY PUSHES TO EXPAND ONE OF THE WORLD'S RICHEST EMPIRES

JOHN DeMONT February 6 1989
COVER

THE TOUGH TYCOONS

A NEW BRUNSWICK FAMILY PUSHES TO EXPAND ONE OF THE WORLD'S RICHEST EMPIRES

JOHN DeMONT February 6 1989

The citizens of Saint John, N.B., call the 13th-storey penthouse “The Bridge.” And sometimes, when the sunlight hits its windows just right, passers-by can see an old, lean, hawk-faced man gazing out over the city like a captain commanding the fleet. Spread below him, Kenneth Colin Irving—who Forbes, the American business weekly, says is the world’s third-richest non-monarch—finds many of his prize assets, all branded with his name, arranged like the spoils of a Monopoly game: there is the Irving oil refinery, the largest in Canada, the sprawling Irving shipyard, a fleet of ships larger than the Canadian navy and some of the 3.4 million acres of prime timber that he controls in New Brunswick. Despite the size of the $10-billion empire, Canadians know little about the 89-year-old tycoon who is so rich that, on a whim, he could alter the nation’s balance of payments—and who has permanently altered the course of life in his region.

These days, Irving’s favorite pastime is to board one of the planes in his fleet of 14 and fly over his vast New Brunswick timber forests. Officially, he retired to his sprawling, $2.5-million estate near the sandy beaches of Bermuda in 1972 to avoid succession duties. But Irving—who will turn 90 on March 14—often is on The Bridge, reflecting on what may be his final triumph. Near the end of his life, the patriarch has succeeded in passing the day-to-day running of one of the world’s largest private fortunes to his tough and equally shrewd sons, James (J.K.), 60, Arthur, 57, and John (Jack), 56. They in turn are grooming their own 11 children to take over and are extending the Irving reach beyond their Saint John command post into the United States. There, they are teaching the sometimes uneasy residents of Maine a lesson that the more compliant citizens of New Brunswick already know: what the powerful, reclusive family wants, it usually gets.

Richer: The Irving empire, which is thought to be the largest privately owned conglomerate in North America, includes an estimated 300 companies which extend into every corner of New Brunswick life. Hop on a bus in New Brunswick, fill up at a service station, visit a convenience, lumber or hardware store, turn on a television, and the Irvings likely stand to get richer. Their interests also include trucking lines, automobile dealerships, a shipyard, a fleet of deepsea tankers, a tugboat company, pulp and newsprint mills, sawmills, office and apartment buildings, ironworks, home fuel companies—even a security company that may be the fourth-largest police force in New Brunswick. The family owns all four English-language daily newspapers in the province. In 1974, in fact, the New Brunswick Supreme Court convicted the Irvings of monopolistic practices—a decision that was subsequently reversed by the appeals division of the provincial court.

The end result is an extremely complex corporate structure, which includes a number of holding companies incorporated in the taxfree haven of Bermuda through which the family’s oil revenues pass. The empire is so complex that in 1971 the Seafarers’ International Union actually had to abandon a campaign to become certified as the bargaining agent for the crews of six of the Irving ships because it could not determine the precise ownership of the ships. And a clear indication that the family’s prosperity is still growing emerged last month when the Irvings bought back the 48-per-cent interest in Irving Oil that Chevron Corp. of San Francisco acquired in 1957.

A rare series of exclusive interviews with Maclean’s—during 14 hours of travel over two days with K. C. Irving’s three sons earlier in January—provided an intimate portrait of the people running the powerful conglomerate. The early-January travels included stops at the Irving-owned pulp and newsprint mills, refinery, shipyard, service stations and vast timberlands. During a trip with the unassuming, and at times shy, trio into Maine, the sons addressed questions about their controversial U.S. expansion drive. But, at one point during lunch at an Irving station near St. Leonard, N.B., James Irving revealed the family’s legendary competitiveness when he said bluntly that people who criticized the family’s style would get a “punch in the mouth.” Yet, for all their plain talk and simple lifestyle, the Irvings own a fortune that already compares to that controlled by Queen Elizabeth II.

Passions: It is an empire that prompts mixed passions. Opponents of the billionaire family claim that its members regularly influence the course of the New Brunswick provincial government. The family’s critics say that, despite the vastness of their domain, at times they have gone to extremes to eliminate their competitors. Nothing, they say, escapes their attention. Last year, Wayne Murray, a small independent service station operator in Scotsburn, N.S., drew the family’s wrath by daring to open in the shadow of an Irving station. The Irvings fought his application before the Nova Scotia Public Utilities Commission, which first rejected Murray’s application but finally reversed its decision. Said Richard Oland, president of Brookville Transport Ltd., a Saint John trucking company that competes with Irving trucking lines: “New Brunswick’s free enterprise system has become a 20th-century version of the Family Compact,” a reference to the elite Tory families who controlled Upper Canada before Confederation. But the Irvings themselves brush off the criticism. Said James Irving in an oversized understatement: “We just run a small, family-owned Maritime business.”

It all began because of a corporate snub in 1923. K. C. Irving’s father, James, was a successful general merchant in the tiny oyster-farming town of Buctouche, N.B. His son, K. C. Irving, then in his middle 20s, had acquired agencies to sell Ford cars and Imperial Oil Co. gasoline. Imperial, allegedly under pressure from Irving’s local business rivals, withdrew his franchise. Undaunted, and in a bout of stubbornness that would become the hallmark of his career, Irving arranged a $2,000 bank loan, bought a broken-down storage tank and a small fleet of trucks and went into the business for himself, using oil shipped from Tulsa, Okla. From such modest beginnings came a $10-billion conglomerate fuelled by burning ambition and shrewd tactics.

Slick: No enterprise in the 300-company empire is so small that the three brothers ignore it—not even a single gas station in Maine. Not owning the customary black limousine, the brothers set out in late morning on Jan. 5 in a green Ford van—with a broken door on the passenger side that would not shut—to inspect the location of the new station. They did not at all resemble slick, powerful billionaires, moneyed princes or oil-rich sultans. Shy by nature, James and Jack sported beaver-skin hats and last winter’s suede coats, while Arthur wore a red-and-black plaid woodsman’s jacket. All three wore standard-issue rubber snow boots.

As youngsters, James, Arthur and Jack had to endure the nicknames of Greasy, Oily and Gassy. And their hard-driving father did not coddle them. Despite his vast wealth, they received most of their education in public schools. Once they were old enough, James, Arthur and Jack began serving apprenticeships in the different family operations. Eventually, all three attended Acadia University in Wolfville, N.S. But, like their father, they left without degrees to return to the family business. Recalled James: “I quit school on a Friday, and Monday morning I was 250 miles north of Saint John, helping move Irving logs down the Saint John River.”

They served their apprenticeships well. Earlier this year, as they wheeled to a stop at the customs checkpoint at Van Buren, Me., a bearded U.S. border guard, who clearly did not know who the three billionaires were, asked James why he was crossing the border. “For business,” he replied. “We’re just looking at a piece of property.” The guard then waved the brothers through. Once in Van Buren, James drove slowly along a slushy road for several blocks before Arthur finally directed them to a small parking lot in front of an abandoned liquor store. Puzzled, James asked where their newest holding was. “We’re parked on it,” said Arthur. “We’ve got 600 feet on the main street.”

For 20 minutes, three of the richest men in North America went unnoticed as they tramped up and down the sidewalk, while Arthur explained his plans to level the buildings and put up a new Irving service station—and accompanying convenience store—which would market primarily Irving products. Then, back in the warmth of the mud-splattered van, Arthur explained why 600 feet of land on Van Buren’s main street is so symbolically important in the family’s plans. The Canada-United States Free Trade Agreement, said Arthur, “is the best thing that ever happened to Canada. The richest market in the world is in the northeastern seaboard of the United States. That is a natural way for us to go.”

Widely: And Arthur made it clear that the Irving corporation plans to expand widely in the area: “We will go wherever things take us.” For the past three years, the Irvings have been quietly buying their way into the Maine gasoline, home-heating, timber and convenience-store markets. And the brothers have also started extending their reach into nearby New Hampshire. As a result, many Maine residents have expressed concern about the Irvings’ corporate annexing, although many others said that they would welcome new employment opportunities.

Later, as the trio crossed back into New Brunswick, they stopped for lunch—soup and breaded chicken—in a restaurant attached to an Irving gas station. While they could walk unnoticed on the streets of Van Buren, almost all their employees know the Irving brothers by sight. As they entered the restaurant, heads turned and employees snapped to attention. The brothers immediately began introducing themselves and shaking hands. Eventually, they picked a table in the back—but the young, well-groomed station manager’s eyes rarely left the Irvings.

In between bites on a crusty roll, James denied any suggestion that the Irvings regularly feud with other industrialists—particularly the McCains, New Brunswick’s other super-rich family, which operates the $8-billion frozen-food empire in Florenceville. That rivalry officially began in 1983 after the Irvings decided to compete against the McCains in the frozen-food business. “We are the best of friends,” James said angrily, adding uncharacteristically that “any bastard who says anything about us and the McCains is looking for a God damned punch in the mouth.” The Irvings do not need flow charts and computers to detail their successful strategy. Instead, Arthur says that he can sum it all up by comparing the company’s restaurants to its competitors. “See this,” he said. “It is Heinz. The other guy doesn’t use Heinz.” He points to a package of cream. “See that? Eighteen per cent. The other guy uses 12 per cent.” Then, for final emphasis, he picked up a paper napkin. “See this: big napkins. The other guy uses small ones.” Leaning forward, he concluded profoundly: “That’s the key to our success: Heinz ketchup, 18-per-cent cream and big napkins.”

Later, the van rattled and fishtailed down a stretch of icy, Irving-owned road through another part of the family’s Canadian holdings. On each side of the road, for as far as the eye could see, were forests of Irving-owned spruce and pine trees. Eventually, the brothers reached a clearing in the woods, parked, got out and peered across a small field at a granite boulder half buried in the snow. The engraved cairn marked the planting of the one-millionth seedling under an extensive reforestation program that K. C. Irving started in 1958.

As he looked at the memorial, James Irving reminisced about his roots. He recalled that their father carefully trained the sons to take over the business. “We have had the world’s best teacher,” he said, adding: “Our father has always been able to look at things and do what was required to run them correctly for the long run. He got a lot of things moving, and we are having fun running them.” As they drove away, Arthur looked out at the surrounding forest and said with a chuckle, “Isn’t this better than owning an office tower in Toronto?”

Intricate: The brothers, like their father, say proudly that they have not turned over management of the company to committees or outside managers. They know all of the workings down to the smallest detail. On an unannounced visit to the Irving pulp and paper mill in Saint John in early January, the attention to detail was evident. The mill, which employs 484 people, was operating at full capacity when the brothers arrived. They promptly began to pepper their managers with intricate questions about pulp production and capacity, inquiring about an Egypt-bound shipment. On the way back to the mill parking lot, James explained: “We are hands-on operators—always have been, always will be. If we had to stay in the office all day, we would die.” Added Arthur: “We do what we do because we enjoy it. But we are also out to win.”

Arthur, president of Irving Oil Ltd., is known as the toughest and most feared of the trio. James, president of Saint John Shipbuilding Ltd., which owns the shipyard, is less intense but is known as the sharpest negotiator. Jack, who heads some of the smaller operations, is the quietest and least public of the brothers. All three possess their father’s legendary passion for cutting costs, his distaste for wasting money—and time—and his knowledge of every tiny business detail. But, most of all, the brothers have a reputation as aggressive competitors who never give up—and seldom lose. Said Arthur: “We don’t apologize for our behavior. We have to compete against big multinational companies. And you have to be aggressive if you want to stay in the ring.”

Build: That aggressiveness paid off at the Irving shipyard, which is just a 10-minute drive from the pulp mill. About 3,000 employees at the yard are now working on a multibillion-dollar contract to build frigates for the Canadian Armed Forces. When K. C. Irving bought the shipyard for $4.5 million in 1959, it was teetering on the edge of bankruptcy and employed only 150.

Above the din of the shipyard, and walking past the workers—many of whom waved friendly greetings to the bosses—James dismissed critics who say that his family has grown too powerful. Said James: “We are not a huge multinational company which makes its money here and then sends everything back to the parent company in New York. When we make money, the dividends stay here. The people of New Brunswick benefit from that and we think they appreciate it.”

Buying: The Irvings are, in fact, old-style industrialists whom many New Brunswickers credit with helping their home province’s economy by buying and reviving moribund businesses. They have prospered without getting involved in the big-money leveraged buy-outs and takeovers that are now sweeping through the business community in Canada and the United States. Instead, throughout their rise to prominence, the family’s strategy has been based on “vertical integration”—buying or building companies that become each other’s best suppliers. K. C. Irving did it earlier—and better—than anyone else.

And there is another generation of Irvings getting ready to expand the empire. James’s son, James Jr., 38, helps his father run J. D. Irving Woodlands Ltd., which controls the family’s vast timber operations, and most Irving-watchers say that he is the heir apparent. His brother, Robert, 33, general manager of Cavendish Farms, runs the Prince Edward Island-based frozen-food operation and two trucking companies from Moncton, N.B.

Still, many critics in both New Brunswick and Maine say that continuing the Irving dominance through K. C. Irving’s grandchildren is unhealthy. They charge that the family stifles competition by eliminating their competitors. And they also decry the fact that the Irvings own all four of the province’s English-language daily newspapers and two of its three English-language television stations. In 1969, in fact, the Special Senate Committee on Mass Media called the situation “about as flagrant an example of abusing the public interest as you’re likely to find in Canada.” In 1974, the New Brunswick Supreme Court ruled that the Irvings had formed a monopoly of English-language daily newspapers—the first prosecution of newspapers under the Combines Investigation Act. But the next year, in a move that became a symbol of the impotence of the combines act, the appeals division of the New Brunswick Supreme Court overturned the decision. And the Supreme Court of Canada later upheld the reversal.

Defence: In their defence, the Irvings say that they have absolutely no influence in the editorial policies of the newspapers and television stations that they own—a view echoed by Paul Wilcox, publisher of the Irving-owned Saint John Telegraph Journal. But reporters at some Irving papers, requesting anonymity, said that Wilcox is merely following the corporate line, and that the papers would never be able to print an investigative story on the family with impunity.

On the other hand, many New Brunswickers argue that the Irvings are honest and hardworking and that the province would be far worse off without the billionaire family. And many are no doubt proud of the fact that the Irvings are expanding deep into the neighboring U.S. market. For their part, the Irvings say that they just plan on making their empire bigger and better. Said Arthur: “In business, you can’t stand in one spot or you will die.” The man on The Bridge would approve.