FAIR ENTERPRISE Founder

He came to Canada at age 22 with nothing more than a suitcase, a few hundred dollars and a penchant for hard work, and within several decades he parlayed his business hustle and toolmaking know-how into what would become one of the largest automotive parts manufacturing companies in the world.

His name: Frank Stronach. His company: Magna International Inc., the world’s most diversified automobile parts supplier, with $6 billion in annual sales and 24,000 employees at more than 100 manufacturing and product development facilities. His vision: the creation of a revolutionary new economic culture known as Fair Enterprise, the cornerstone of which is a Corporate Constitution that guarantees the rights of employees, management and investors to share in the profits they all help produce. It was a brilliant business innovation that made Magna a world leader and Frank Stronach one of Canada’s great pathfinders….

Frank Stronach was born in the small town of Weiz in the foothills of the Austrian Alps. He grew up in a working-class neighbourhood ravaged by war and depression, and left school at 14 to apprentice as a tool and die maker. Driven by a desire to travel the world, he arrived in Montreal in 1954 and travelled by bus to Kitchener, Ontario, where he landed a job as a dishwasher in a local hospital. After saving enough money, he moved to Toronto to look for work in his toolmaking trade.

By 1957, Frank had opened his own business, Multimatic Investments Ltd. Using personal savings and a $1,000 overdraft, he purchased some second-hand lathes and milling machines and set up shop in a rented gatehouse in Toronto’s old manufacturing district. It was here, working long hours, spending the night on a cot next to his lathe, that Frank began building his small operation into Canada’s largest automotive parts manufacturer. By the end of 1957, his company had ten employees. Soon after, the firm landed its first automotive parts contract – an order to produce metal-stamped sun visor brackets for General Motors in Oshawa. The company never looked back.

As the company grew, Frank held on to his best managers by giving them a share of the profits and ownership. In so doing, he was able to harness their entrepreneurial energy and enthusiasm and place the company on a path of phenomenal growth. Initially, only managers participated in the profit and equity sharing arrangement. But in order to generate even greater growth and to avoid the adversarial labour/management conflicts he saw taking shape around him, Frank wanted to give every employee a share of the company’s profits and ownership, as well, making each of them a part-owner with a tangible stake in the company’s success.

In the late 1960s, his company merged with Magna Electronics, a publicly-traded firm. As Chairman of the new firm, Frank expanded the profit and equity participation plan to include every employee, and the concept of “Fair Enterprise” was born.

Frank Stronach’s Fair Enterprise business philosophy provided the foundation of Magna’s unique corporate culture. At the heart of this culture is an operating philosophy based on profit-sharing between the three driving forces of the business: investors, employees and management. Each of these key stakeholder groups receives a pre-determined percentage of the company’s annual pre-tax profits. This profit and equity sharing principle –sometimes referred to as Magna’s “success formula” – is enshrined in a governing Corporate Constitution that clearly defines the rights of all employees and investors. Employees receive part of the profits in cash, while the remaining portion is used to buy Magna stock on their behalf, making them shareholders.

As a testament to the unique entrepreneurial culture established by Frank Stronach, Magna began booming in the 1970s. Over the next decade, company sales skyrocketed from $10 million to $180 million annually, and the number of factories grew to more than 40. A decade later, Magna had more than 100 factories throughout the world, and annual sales approaching two billion dollars. The company was opening a new plant every six to eight weeks and producing more than 5,000 different automotive components.

However, the company’s meteoric expansion would eventually lead to problems. The company had borrowed heavily to finance its rapid growth. By 1989, in the throes of one of the worst industry downturns in decades, Magna became seriously overextended.

Frank worked with a special management team to restore Magna’s financial health. In 1991 the company succeeded in raising a $100 million convertible bond issue. It marked the beginning of Magna’s remarkable recovery and re-emergence as one of the preeminent auto parts suppliers in the world. Share prices, sales and profits all climbed to new record levels.

Today, Magna’s Fair Enterprise culture stands as a role model of business success. Magna is not only expanding once again throughout North America, but also in Europe, where the company has made a number of strategic acquisitions, and where Frank Stronach, founder of Fair Enterprise, continues to play a key role in charting Magna’s course as a global leader in the automotive industry.

Mel James