Firings Were Unlike Anything Director Had Done Before
By PAUL WALDIE AND KAREN HOWLETT
Globe and Mail November 30, 2004
James Sardo has fired people before in various roles at other companies, but nothing compared to what he was about to do at Royal Group Technologies Ltd. last Friday.
The company and several executives have been under RCMP investigation for months and Mr. Sardo chairs a special committee of Royal Group's board that is reviewing police allegations.
Some time around 3 p.m. on Friday, Mr. Sardo jumped into his car and drove to the company's head office in Woodbridge, Ont., just north of Toronto. He was about to fire five senior company officials including chairman and co-founder Vic De Zen as well as chief executive officer Douglas Dunsmuir and chief financial officer Ron Goegan.
The committee had met for five hours in a law office and unanimously agreed to the dismissals. The decision was not based on the RCMP probe, which involves all five men, but on information the directors had received a week earlier from a team of forensic accountants from Kroll Lindquist Avey.
The information concerned a land deal in 1998 in which a numbered company owned by Mr. De Zen and the others bought a 185-acre piece of land across the street from Royal Group's head office for $20.5-million and immediately sold it to Royal Group for $27-million. Mr. Sardo said the board had no idea at the time that the land was owned by company insiders.
"I was stunned with the fact that there was a $6.5-million gain on this transaction which related parties, officers and directors gained at the expense of the company, who could have done this transaction at the original cost," Mr. Sardo said in an interview.
When Mr. Sardo reached Royal Group's office Friday afternoon he headed for the offices of Mr. Dunsmuir and Mr. Goegan. He told each man separately that they'd been dismissed and offered them the opportunity to clean out their desks immediately or come back later.
Mr. Sardo then tried to reach Mr. De Zen, who was at a resort in St. Kitts that he co-owns with the others. That resort, and its relationship with Royal Group, is at the centre of the RCMP probe. Mr. Sardo couldn't get through on the phone so he had the committee's lawyers inform Mr. De Zen's lawyers that he'd been dismissed as chairman.
He also asked Mr. De Zen and the others to step down from the firm's board. So far they have refused.
The dismissal was a blow for Mr. De Zen, an Italian-born entrepreneur who arrived in Canada in 1962 with $20 in his pocket and immediately went to work in the building products industry. He started Royal Group in the 1970s and took it public a decade ago.
On Saturday, Mr. Sardo dismissed Mr. De Zen's long-time partners, Domenic D'Amico and Fortunato Bordin. Mr. D'Amico is a co-founder of Royal Group while Mr. Bordin is Mr. De Zen's brother-in-law. Both work in the company's tool and die division and both were involved in the land deal. They also co-own the St. Kitts resort.
Yesterday morning, Royal Group's full board met to approve the appointment of Mr. Sardo as interim CEO and Robert Lamoureux, another director, as CFO. During the call, Mr. Dunsmuir gave a short presentation. Mr. De Zen was expected to say something as well, but the phone line cut off.
Shortly after the meeting, Mr. Sardo faced a barrage of tough questions on a conference call with analysts. How could the board not have known that Mr. De Zen owned the land when it was common knowledge among analysts? Didn't they make any inquiries?
Mr. Sardo insisted that the board knew about the deal, but did not know who owned the land. In an interview, Mr. Sardo said the information about the deal had actually come from Mr. Dunsmuir and Mr. Goegan.
The committee had expanded its review several weeks ago and asked the two executives to assemble a list of all related-party transactions for Kroll to review. When asked why Mr. Goegan and Mr. Dunsmuir would supply that information, Mr. Sardo replied: "I don't want to speak for them and what they thought and how they felt."
