Trivac Industries Ltd.

TriVac Industries Ltd., a Kitchener, Ontario-based manufacturer of centralized vacuum systems, was facing severe cash flow problems due to increasing demand for its products and rapid expansion of production facilities. Although the company’s prospects were bright they had overextended their finances and the banks were ready to foreclose their loans, which would put TriVac out of business.

Steve Heinrich, TriVac's founder and majority shareholder, flew to Germany to meet with the management of Rohrtech GMB to discuss the German company's willingness to become a majority shareholder of Trivac Industries in exchange for an infusion of much-needed cash. Rohrtech, who have been gradually expanding its worldwide market share in central vacuum systems, believed that buying a stake in TriVac would give them a valuable foothold in the lucrative North American market where it did not have a presence. The deal could also be valuable for TriVac shareholders as it would give some of TriVac products access to new markets. A deal was struck whereby Rohrtech would become majority shareholder while Heinrich would remain TriVac's president. One of Rohrtech's senior executives would become the chairperson of TriVac's Board of Directors and Rohrtech would appoint two other board members.

While Heinrich had been fully informed of Rohrtech’s strategic rationale for purchasing the company, he was only interested in partnering with Rohrtech for their money. He was desperate to maintain control of TriVac and kept Rohrtech at arm’s length, even though it meant TriVac would not increase its market reach beyond North America. As German companies tend to have a top-down management style, they had only ever dealt with Heinrich: other managers at TriVac were unaware of the opportunities that being part of Rohrtech could bring to the company. While Heinrich held a number of meetings with TriVac and management and employees to keep them informed, he stressed the importance of maintaining TriVac’s independence and never informed them about the potential benefits of integrating with Rohrtech. Heinrich reinforced an “us against them” mentality and lashed out and marginalized anyone who spoke positively about Rohrtech. After awhile employees kept their opinions to themselves and only voiced support for the strategy to maintain TriVac’s independence.

This relationship worked well until two years later when Rohrtech appointed a new CEO who was concerned that the TriVac purchase was not bringing the benefits they had imagined when they bought the company. The new CEO insisted that TriVac provide more precise financial information and share its innovative technology with other Rohrtech companies. Heinrich resented this imposition and refused to provide the necessary information and share TriVac’s technology. Relations between Rohrtech and TriVac Industries quickly soured to the point where Heinrich refused to let Rohrtech representatives into the TriVac Indus­tries plant. He also instituted legal proceedings to regain control of the company.

According to the original agreement between TriVac and Rohrtech, any party who possessed over one-half of the company's shares could force the others to sell their shares to the majority share­holder. Heinrich owned 29 percent of TriVac's shares whereas Rohrtech owned 36 percent. The remaining 15 percent of TriVac Industries shares were held by Tex Weston, TriVac's vice-president of sales and marketing. The remaining shares were held by TriVac’s management and employees. Weston was one of TriVac's original investors and a long-time executive at TriVac Industries, but he had remained quiet throughout most of the battle between Rohrtech and Heinrich. However, Weston, who shared Heinrich’s attitude toward Rohrtech, finally agreed to sell his shares to Rohrtech to solve some personal financial difficulties he was having. Heinrich lost his bid for control and was forced to sell his shares. TriVac's Board of Directors (now domi­nated by Rohrtech members) fired Heinrich as president. The Board immediately appointed Weston as TriVac Industries' new president.

Searching for a New COO

Several months before Heinrich was fired as pres­ident, the chairman of TriVac's board of directors privately received instructions from Rohrtech to hire an executive search firm in Toronto to identify possible outside candidates for the new position of chief operating officer (COO) at TriVac Indus­tries. The successful candidate would be hired after the conflict with Heinrich had ended (pre­sumably with Heinrich's departure). The COO would report to the president (the person eventu­ally replacing Heinrich) and would be responsible for the day-to-day management of the company and liaison with head office. Rohrtech's management correctly believed that most of TriVac's current managers were loyal to Heinrich and Weston and by hiring an outsider; the German firm would gain more inside control over its Cana­dian subsidiary (TriVac).

The executive search firm recruited Kurt Devine for the position. Devine was vice-president of sales at an industrial packaging firm in Montreal, Quebec and was considered a rising star in Canadian industry. The Rohrtech representatives explained the current situation and said the mandate for the position was to promote better integration between TriVac and Rohrtech. When Devine expressed his concern about rivalry with internal candidates, the senior Rohrtech manager stated: "We have a controller, but he is not our choice. The sales manager is capable, but he is located in British Columbia and doesn't want to move to Ontario." Devine who demonstrated throughout his career his ability to manage conflict and build bridges between opposing factions took the job.

One week after Heinrich was fired and Weston was appointed president, TriVac's chairman invited Devine to a meeting at a posh hotel attended by the chairman, another Rohrtech manager on TriVac's Board of Directors, and Weston. The chairman explained the recent events at TriVac Industries and formally invited Devine to accept the position of Chief Operating Officer. After discussing salary and details about job duties, Devine asked the oth­ers whether he had their support, the two Rohrtech representatives said "Yes" while Weston remained silent. When the chairman left the room for a bottle of wine to toast the new COO, Devine asked Weston how long he had known about the decision to hire him. Weston replied: "Just last week when I became president. I was surprised....I don't think I would have hired you." Devine told Weston that while he knew that Rohrtech bringing in an outsider was not a popular decision, that he was hoping that he and Devine could work together to bring the interests of the two sides together. Again, Weston was silent. When the Chairman returned he went into a long speech about Devine’s commitment to Rohrtech’s goals for Trivac and how he was just the man to bring TriVac into the Rohrtech family.

Confrontation with Tom O'Grady

Devine began work at TriVac Industries in early October and, within a few weeks, noticed that the President and two other TriVac Industries man­agers were not giving him the support he needed to accomplish his work. For example, Weston would call the sales people almost daily yet spoke to Devine only when Devine approached him first. The Vice-President of Sales, who lived in Vancou­ver, rarely communicated with Devine whereas Tom O'Grady, the vice-president of finance and administration, seemed to resent his presence the most.

O'Grady had been promoted from the position of controller in October and now held the highest rank at TriVac Industries below Devine. After Heinrich's departure, TriVac's Board of Direc­tors had placed O'Grady in charge of day-to-day operations until Devine took over. This decision was well received by other management staff at TriVac as O’Grady had been with TriVac since the early days and was liked and respected by all. O’Grady was extremely close and loyal to Steve Heinrich and was a confidante in Heinrich’s attempts to keep TriVac independent of Rohrtech.

Sensing O’Grady’s status in the organization and knowing that building good relationships with the “old guard” at TriVac was critical to his success as COO, Devine made several attempts to build rapport with O’Grady and Weston. After a number of unsuccessful attempts, O’Grady told Devine that while they had to work together it did not mean that he had to like him.

Devine depended on O'Grady for general Opera­tions information because he had more knowledge than anyone else about many aspects of the business. However, O'Grady provided incomplete information on many occasions and would com­pletely refuse to educate the COO on some mat­ters. O'Grady was also quick to criticize many of Devine's decisions and made indirect statements to Devine about his appropriateness as a COO. He also mentioned that he and other TriVac managers didn't want the German company to interfere with their operations. When Devine outlined the benefits of integrating with Rohrtech to O’Grady he was told that independence was more important to TriVac’s employees that the financial benefits that integration with Rohrtech could bring.

Devine would later learn about other things O'Grady had said and done to undermine his posi­tion. For example, O'Grady actively spoke to office staff and other managers about his problems with Devine and encouraged them to tell the president about their concerns. He also suggested to his friends in management that “keeping Devine in the dark” when he needed information would lead to a short career for Divine at TriVac and enable TriVac to maintain their independence. Devine once overheard O'Grady telling another manager that Devine's memoranda were a "complete joke" and that "Devine didn't know what he was talking about most of the time." On one occasion, O'Grady let Devine present incorrect information to resellers (companies that sold TriVac products to customers) even though O'Grady knew that it was incorrect "just to prove what an idiot Rohrtech had hired."

Just six weeks after joining TriVac Industries, Devine confronted O'Grady with his concerns. O'Grady was quite candid with the COO, saying everyone felt that Devine was a "plant" by Rohrtech and was trying to turn TriVac Industries into a branch office of the German company. He said that some employees would quit if Devine did not leave because they wanted TriVac Industries to maintain its independence from Rohrtech. In a later meeting with Devine and Weston, O'Grady repeated these points and added that Devine's management style was not appropriate for TriVac Industries. Devine responded that he had not received any support from TriVac Industries since the day he had arrived even though Rohnech had sent explicit directions to Weston and other TriVac Industries managers that he was to have complete support

in managing the company's daily opera­tions. Weston told the two men that they should work together and that, of course, Devine was the more senior person.

Decision by TriVac's Board of Directors

As a member of TriVac's board of directors, Weston included Devine's performance on the Jan­uary meeting's agenda, and invited O'Grady to provide comments at that meeting. Based on this testimony, the board decided to remove Devine as COO job and give him a special project instead. O'Grady was immediately named acting COO. The chairman and other Rohrtech represen­tatives on TriVac's Board were disappointed that events did not unfold as they had hoped, but they agreed to remove Devine rather than face the mass exodus of TriVac managers that Weston and O'Grady had warned about.

In late April, Devine attended a morning meeting of TriVac's board of directors to present his interim report on the special project. The board agreed to give Devine until mid-June to complete the project. However, the board recalled Devine into the boardroom in the afternoon and Weston bluntly asked Devine why he didn't turn in his res­ignation? Devine replied: "I can't think of a single reason why I should. I will not resign. I joined your company six months ago as a challenge. I have not been allowed to do my job. My decision to come here was based on support from Rohrtech and on a great product." The next day, Weston came to Devine's office with a letter of termination signed by the chairman of TriVac's board of directors.

SHORT ANSWER ESSAY QUESTIONS

 Answer all of the following 5 questions.
 Make sure your answer demonstrates your understanding of relevant theories.
 Each answer should be approximately 1.5 - 2 pages.
 While developing recommendations, use your knowledge from the course and secondary research containing best practice recommendations.

3. What are the sources of conflict between TriVac and Rohrtech and what conflict-handling style has each used? Provide recommendations on the effective merger of two companies and better integrating organizational cultures.

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What are the sources of conflict between TriVac and Rohrtech 1IMPROPER DEFINITION OF RESPONSIBILITIE... View the full answer