Cara executive provides food for thought

The father was a dashing yachtsman who plunged into drink and depression.

The children went through a painful succession that frayed their relationships.

The family company is now controlled by a trio of women, including a PhD-educated sociologist and an environmental filmmaker.

With this story line, you could make a movie about Toronto's Phelan family and its 119-year-old food services company, Cara Operations Ltd. -- and Gail Regan has done just that.

Ms. Regan, the vice-chairwoman of Cara, which controls such restaurant chains as Harvey's, Swiss Chalet and Second Cup, was a creative force behind a video that explores the dark side of succession, including the descent into despair by her father, Paul Phelan Sr., Cara's onetime chief executive officer.

Called Proud Waves Break,it compares family business succession to the trials of Job, as recounted in the Old Testament.

For Ms. Regan, the documentary -- which combines the Phelan story with that of a U.S. resort-owning clan -- provides case studies for other families to ponder. Embarking on the project six years ago, "I was convinced that the actual succession stories weren't being told."

It's a fitting project for a former university teacher who still displays an eccentric and original mind that seems more suited for the seminar room than the boardroom. At 57, with an MBA plus a PhD in sociology, she is a rare intellectual in the world of hard numbers and pragmatism.

Ms. Regan, married to a former Cara manager and the mother of four children, says she could never have stayed home to raise the kids. "I have a really high IQ, and I would get too bored," she says matter of factly.

She says she still feels unsatisfied at some board meetings, when other directors seem content to deal with the financial details, rather than trying to explore the underlying causes.

"As a sociologist, I am looking for factors or trends or patterns. But no, we just look at the numbers and everything's fine, and I'm thinking, 'That was the meeting, guys?' "

As an intellectual, "it's hard to be accepted in business," confesses Ms. Regan, who shares control of Cara's voting shares with sister Rosemary Robbins and niece Holiday Phelan. Ms. Phelan is a California documentary filmmaker and the daughter of Ms. Regan's and Ms. Robbins' deceased sister.

Cara, co-founded by Ms. Regan's great grandfather, began in the 1880s as Canadian Railway News Co., which ran newsstands in railway stations, and diversified over the years into restaurants, catering and airport and inflight food services. It went public in the late sixties, but the Phelan family has retained control through voting shares.

Ms. Regan says Cara's strategic planning has narrowed its focus to certain core businesses, led by restaurants, inflight service and food services distribution. That has meant cutting some operations (it sold a cafeteria operation, for example) and intensifying attention on others (it recently acquired all of Second Cup.)

Ms. Regan seems content with her role as an active, non-managerial owner, who does a lot of the heavy thinking about the company.

But as the video highlights, getting here hasn't been easy. For her, the most telling comment in the video is when one expert observes: "In the owner's mind, he is thinking that 'If I'm not in charge, am I still part of this family?' "

She believes this issue of identity accounts for the demons that stalked her own father, Paul Phelan Sr., who is now 85 and suffers from dementia.

After inviting her into the company in 1992 -- causing her to sacrifice her university teaching career -- he strung her along for years. That drove Ms. Regan into other pursuits, including an investment in a real estate brokerage and leading a campaign to save Women's College Hospital in downtown Toronto. (It has since merged with another hospital.)

The process was frustrating, she said, because she could have committed herself to another business or to university life. She would say to her father and mother, Helen: "How can you do this to your child? I'm bright, I have done the MBA, the PhD, I've had the kids and I've worked -- and now you are betraying me."

The succession issue burst open in 1995, when her father's health collapsed and he was unable to continue at Cara. The three women took control in 1998, acquiring shares in the family holding company from Ms. Regan's brother, Paul Phelan Jr. The sisters are now estranged from their brother.

For all the pain, Ms. Regan remains a champion of the family business. She says family owners tend to take a demanding oversight of a company, that goes beyond the narrower interests of directors and management.

She argues that senior managers almost naturally collude in a pervasive corporate ideology -- what she calls a "metapurpose" -- that often works against the company's ultimate interests. "That's why I think a family is so important, because it will hold the organization accountable for its performance."

In widely held companies, particularly in the United States, "what you often find is self-appointed management. Management appoints the board and the board appoints management.'

Ms. Regan sees nothing wrong with the fact that she and her family control the company through voting shares, while the great bulk of shareholders have no votes. (In all, the three women control 53 per cent of Cara's total shares, but 80 per cent of the votes.)

For most shareholders, the investing process "is the same as going to the races and betting on the horses. They have no loyalty to Cara. They are just there to flip it. So I think it is completely appropriate that they do not have a vote."

Whereas she would use her votes to elect a high functioning board, other Cara shareholders may simply want to make trading gains. Besides, they benefit from coattail provisions that would allow them to share in any takeover bid.

Ms. Regan says the family owners have a mission for Cara that they constantly advance: The company should work toward a positive economic valued added (EVA), a measure of its ability to return more than its cost of capital. That has not happened yet, Ms. Regan admits, mainly because of the expanding Kelsey's restaurant group and a new flight kitchen.

Ms. Regan admits that her priorities can create tensions with other directors. She recently convinced the board to create pay incentives for top executives based on EVA, after meeting resistance. She also persuaded the audit committee that stock options should be fully expensed, after some directors had argued for a footnote to the financial statements. Ms. Regan clearly revels in this kind of debate. "It's challenging all the time."