An Overview of Golder Associates from 1960 - 2000

How the Corporate and Share Ownership Structure Evolved - Excerpts from Golder’s History

From: Conversations on Our First 50 Years. By John Boyd. Published by Golder Associates, 2011

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The 1960s

There are very few records of company management activity over the first decade of its existence and the

fragments that remain are mostly in the form of notes made by Vic Milligan as he wrestled with the issues that concerned him at the time. From this record it appears that all of the standard problems that beset a consulting firm with more than one office affected Golder – how to maintain fair compensation, how to recognise the growing competence of individuals, how to value the company’s shares and raise additional capital, how to balance the marketing needs of the local office while acknowledging the broader entity of which it was a part. All of these issues were part of the growth from a small office/small company to a broader concept that would not only span a continent but would become multinational within its first 10 years of operation.

By 1968 a consistent approach to valuation based on book value and capitalised earnings was under discussion). Recognising the important nature of individuals, the companies quickly established key man insurance policies on the lives of the Directors, policies owned by the other key Principals to ensure that in the event of the untimely death of one, the others would be able to pay out the shareholding value to the deceased’s estate. Management also became more complicated – there is a three hour time shift between Toronto and Vancouver. It made sense to have separate management in the two regions and to operate on a day-to-day basis independently.

Further complications to the operating structure occurred in 1968 when the Boston office of Golder Gass Associates Inc. was opened. As well as having an international boundary to cope with, the picture was complicated because one of the owners was not an employee of the firm.

Directors of the operating companies met three times a year and notes suggest that the meetings focused on operational issues including such matters as attendance at international conferences and the purchase of large pieces of equipment. Share valuations of the companies were set, and agreed lump sums were provided to each firm to allow for bonus payments to staff. Directors meetings were immediately followed by meetings with the local senior staff in order to communicate the results of the discussions and to provide opportunities for input from others.

As the regional operations developed there were many discussions about marketing and advertising. On the one side it made sense for the local operation to advertise its presence and downplay the existence of other members of the informal group. On the other hand the group had a growing presence and there was a need to develop a broader picture of the company. This was becoming particularly important for large clients that might have a presence where Golder had more than one company and for industries that made consultant selection choices on a broader basis. By 1967 consistency in branding was an issue being extensively discussed and by 1968 a consistent style of advertising using the name Golder Associates was being encouraged.

The first Golder office 2446A Bloor Street West Toronto, Ontario

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The 1970s

In the late 1960s and early 1970s there were some substantial changes to the way that the various

operations in Golder Associates were organised. In particular, 1969 saw the beginning of the integration of what had previously been several independent operations under a unifying company structure. The process of settlement with the estate of Larry Soderman, one of the founders, after his untimely death, involved share acquisitions of different portions of the firms by most of the Principals and shifting of the ownership of various key man life insurance policies. The opportunity was taken at this time to rationalise the structure so that towards the end of 1972 it was possible to form Golder Associates Ltd. as a holding company that owned the various parts of the other operations that were within the group. At the end of 1973 the first integrated financial report of the group was presented. It took a number of years to work out the kinks in these new arrangements. The issue of intercompany charges for staff loaned and borrowed between operating companies was a recurring theme of various meetings with different “rules” created from time to time (and seemingly ignored) – a problem that persisted at least until the mid 1990s. Consistency in the external presentation of the companies was also an issue with numerous references to the need to portray the different operations as “Golder Associates” as opposed to the local legal names of the individual companies. Consistency in marketing, report writing, and even in simple things like the form of business cards were also recurring issues.

With this integration came a requirement to create some form of centralised management. The previous system of Directors meetings followed immediately by Principals meetings and Principal and Associate meetings had become too unwieldy and in 1974 a new structure was adopted – an operations group consisting of several of the original owners plus representatives of each operating company assembled to develop operating policy which would then be implemented in each individual company. This group was not the board of Golder Associates Ltd., but rather an expression of the first attempt to separate consideration of operational issues from those of board issues.

With growth and diversification came major increases in the number of Principals and Associates and, in response, 1974 saw the first requirement to significantly increase the capitalisation of the firm and increase the distribution of its shareholding. It also became clear at that time that the old practice in years of high profitability of paying significant bonus amounts to a small group of original shareholders to compensate them for low regular salaries had also out-lived its usefulness. Henceforth there was a requirement to relate payout to ownership, both to facilitate share purchases and also to demonstrate the value of such investments on the part of the individuals who were involved. A straightforward dividend would not be adequate – what was needed was a bonus related to performance and responsibility levels – both of which would control the number of shares the individual was offered. The connection was thereby indirect – those who received the highest bonus payments would also be the largest shareholders.

For the first time something resembling a prospectus was written and circulated in the form of an “Information to Shareholders” document, dated December 1974. This was a key component of the drive for additional capitalisation through a significant increase in share ownership by others beyond the original shareholders group.

The original Golder logo

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The new operations group did not last very long (less than a year). It had a tendency to discuss operational issues that could be delegated to individual companies acting within the framework of broader policies to be established at a corporate level. It was replaced by increasing the authority of the CEO (Vic Milligan) who could call upon other committee structures for recommendations – with his actions accountable to a corporate board of directors who met three times a year. Since the individuals who constituted the management committee were the same as those who were on the corporate board of directors, the change was accepted easily.

In 1976 the new holding company also developed a centralised loan facility from the Bank of Nova Scotia to replace the individual loans for each operating company guaranteed by the Principals of those operating companies. The new loans were guaranteed by all Principals equally and an effort was begun to increase the retained earnings in order to accommodate growth and to make it possible to relinquish the system of personal guarantees. GAL appointed a chief financial officer (John Schultz) whose responsibilities crossed operating company boundaries.

In order to satisfy the demand for shares, those relinquished by departing shareholders were supplemented by H.Q. Golder share sales and by some shares sold by Vic Milligan. Dr. Golder’s share sales related to his retirement in September of 1976 but the Milligan share sales set an example of senior behaviour that was echoed in subsequent years – senior individuals behaving in a manner that superficially was not in their personal interests yet advanced the development of the firm.

The company continued to grow and gradually the number of Principals and Associates also increased. For the first time, in 1978, a written definition of the criteria for Principals and Associates was prepared and the company gave some consideration to the optimum number of such appointments in relation to the rest of the staff. It was decided that the total number of P’s and A’s should not exceed 14% of total staff and that the ideal distribution was 6% P’s and 8% A’s. The title Principal primarily denoted a technical responsibility towards clients.

By the end of the 1970s the collection of individual operating firms that was the origin of Golder had morphed into a single entity that acted under the direction of a corporate management. This entity was owned by a holding company and had a central board of directors who carried the ultimate responsibility for its behaviour. It was beginning to behave more like a company and less like a collection of professional studios individually dominated by strong groups of local individuals. The accounting and treasury function was becoming centralised, marketing had the beginnings of a centralised identity, and growth was forcing a more regular concept of shareholding, valuation, and profit sharing.

Notwithstanding this more organised and increasingly centralised mode of behaviour, the company was still very dependant on the good examples being provided by its founders. Dr. Golder had demonstrated that senior people could progressively reduce their influence on the firm, hand it off to the tender ministrations of the next generation, and retire. Vic Milligan had demonstrated the continuing need for the most senior levels of the firm to act in an altruistic manner to safeguard its overall future interests. Gradually, the system of management turnover, ownership transition, and profit sharing occurred on a more regular and sustainable basis. Growth continued and the company was learning what was required to gracefully accommodate that growth.

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The 1980s

By 1980 the company was referring to itself in promotional material as “an international group of

consulting engineering companies offering specialised services in the geotechnical and mining engineering fields.” There were operating companies in Eastern and Western Canada and in Eastern and Western United States, in the United Kingdom, and in Australia. There were approximately 500 employees worldwide of whom 32 were Principals and 30 were Associates.

In 1982 there was a worldwide Principals' meeting in Atlanta. Vic Milligan announced that it was time for him to step down as CEO of the company at large and recommended that John Seychuk, as its President, should take over that role. It was agreed that the former structure of a CEO and a COO would be replaced by a President. Group Vice Presidents would be in charge of each operating area (region). Each Group Vice President would report to the President and work with him on an operations committee to run the company on a day-to-day basis. On July 1, 1982, John Seychuk took over in the role of CEO.

1982 was a difficult time in the consulting industry worldwide. By October, total worldwide staff had dropped from 577 at the beginning of the year to 439 in September

By early 1983 there was a concern that the overall Golder share valuation was too high (book value plus the average of the previous five years operating income). A suggestion emerged that, as a mechanism for affecting a change, the share value might revert to book value in future and that it might be frozen at the then current price of $40 per share until such time as the book value grew to that level. There were 145 shareholders with only 10 holding in excess of 5,000 shares and a proposal was considered to limit maximum holding in future to 2,500 shares.

Golder has always had a strong culture of local management and the process of balancing the staff to reflect business demand was considered a local decision. In economically difficult times, the board agreed that some sort of tool was needed to “encourage” the regions that were having trouble to “manage their business in a more productive manner”. The mechanism was called a Local Incentive Programme or LIP. In effect, the payout

from shareholding would be provided in two parts, a uniform annual payment to all shareholders (the common pot or COMPOT as it was called), and a second variable payout that would depend on the financial performance of the regional operating company to which the individual shareholder was attached. This proposal was opposed in areas that were struggling to achieve adequate profitability, and it was not supported overwhelmingly by areas that were doing well, but the board agreed that something had to be done. One of the sensitive issues was the inclusion of a punitive clause that, in the event of failure to achieve a threshold level, a negative LIP would be carried forward. The President and the board persisted and for a time tried variations on LIP. In the end LIP was discontinued in 1986 because it was deemed to be too divisive and because the original problem had been largely resolved by that time. Since that time shareholding has been uniformly rewarded regardless of geography. One of the recognised cultural strengths of the company is central ownership in a common holding company that encourages cooperation across the regions: ”If my colleagues in region X succeed, I succeed.” If additional funds are required to recognise and reward exceptional performance, discretionary bonuses are provided in the successful region.

One of the positive side effects of the slowdown in business in the early 80s was a significantly diminished need for additional capital (which is always required when operations are growing). Although clients were having their share of difficulties in paying for services, and accounts receivable were of long duration, by the end of 1983 the company was showing excess cash on its balance sheet. It took the opportunity at this time (early 1984) to buy back some of the outstanding shares (26,600 out of a total of 159,576) in order to create a more balanced ownership pattern. There was one group of shareholders who, because of the company’s history and their involvement in that history, had significantly more shares than the rest with little prospect of the gap being closed in the normal course of share purchases. This group of senior shareholders agreed to voluntarily sell some shares to bring their holdings more in line with the others – another example of senior staff behaving in a manner that was not in their personal best interests but benefited the company as a whole.

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In 1985, the age-based share selldown which had been suspended earlier in the decade was restarted.

The internal demand for Golder shares was strong; a projected share shortfall led to agreement by the board to allow up to 5% expansion of the total shareholding by issuing new shares. The progressive and gradual expansion of the number of available shares continued for several years to meet the high demand for shares, with the board deciding the number of new shares that should be made available each year.

In order to maintain and improve technical and business quality, a group of senior staff from various operating companies was formed (STRATA – Selected Technical Review/Advisory/Training Audits). This group was charged with the responsibility for carrying out audits of individual projects in selected offices. They reported their findings to the office managers and project managers affected, and submitted an annual report to the President and the regional Group Vice President. This was the precursor of systematic risk management and gradually evolved into the board-level risk committee and the GAIMS (Golder Associates Integrated Management System) process used today to manage risk, review contracts before signature, and provide the strategy for dealing with claims as they arise.

At this time the company also took the first steps to provide systematic risk management and formed an in-house insurance company to provide professional liability insurance.

By 1987 there was no longer any insistence by the banks providing operating loans to Golder to continue with the A and B loans that had previously been part of the shareholder agreement. The two were rolled into overall shareholder loans and gradually phased out (most were converted into regular shares). Each year’s profits were divided in a consistent manner with a certain portion remaining in the company in the form of retained earnings; the rest was split into shareholder cash payouts and discretionary bonuses with the provision that more than 50% of what remained after retained earnings should go to the shareholders.

In 1987 a long-term model of the financial behaviour of the company was developed to enable the board and the management to examine the consequences of different levels of profitability, shareholding, retained earnings, discretionary vs. share payout, etc., since all of these parameters were linked, to some extent. Over time this proved to be a significant tool for financial planning and coincidentally a good way to save historical financial records to show the company’s actions in context. It distinguished Golder from many other companies in the industry who did not have such a tool and helped enormously to plan company development.

There was a desire on the part of the President to install operational titles throughout the company to reflect the role and position of individuals in the various firms and to replace the terms Principal and Associate. The board agreed with this step in 1987 but the push-back from the Principals and Associates was loud and long, and the board rescinded its previous decision in 1988 in the face of this response. It did, however, formally define the terms Principal and Associate to mean ownership and control rather than management and went on to define minimum requirements for shareholding as part of the membership criteria for these groups.

In spite of a difficult set of worldwide economic conditions at the beginning of the 1980s, the company bounced back and ended the decade much stronger and better organized than it began. Staff numbers rose from about 520 in 1980 to 1,104 in 1990 after taking a dip to a low of about 400 in 1984; gross revenues went from $27.6 million to $118.6 million in 1990; net income went from about $1 million in 1980 to $3.3 million in 1990; and the book value of the company went from $3.7 million in 1980 to $23.3 million in 1990.

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The 1990s

From the perspective of the shareholders, however, the company in the 1990s was characterised by regular increases in book value (because of the retained earnings) but only a modest and more or less uniform level of profitability. Because of the low profitability, the amount of money available to pay dividends and bonuses to people who needed the payout to buy up shareholding was limited; by 1994 significant numbers of shares remained in trust at the end of the year. There was also a crisis of confidence in the leadership of the company because it seemed to be impossible to look ahead, budget, and deliver the promised bottom line. The share problem persisted and the undercurrent of rumour around the company ranged from an opinion that the basis for share value calculation was inappropriate, to suspicions that there was a secret plot to take the company public or sell it to another firm. The board discussed all of these issues and in the end took a number of steps to clear the share backlog – instituting salary lay-away schemes to finance share purchase, buying back and cancelling shares, and instituting a no interest loan facility for those who wished to purchase shares. These efforts reduced the number of shares in trust but the problem did not fully go away until the profitability of the firm improved significantly and confidence in management returned.

If the 1980s was a Golder decade of outstanding success in terms of business growth, the 1990s were not nearly

as kind to the company. In the 80s, Golder Associates in the USA became the biggest Golder operating company and by 1990 almost half of the group’s operating revenues were coming from the US. In 1994 the company changed to denominating internal transactions in US dollars.

Throughout the whole decade the collective performance of the group was marked by regular and significant increases in revenue – the business was growing well on a world wide basis – but also by an almost stagnant operating income. In 1990 operating income was almost $8.7 million on revenues of $103 million (corrected to US dollars) but in 2000 it was $8.6 million on $221.5 million. Every year there were unpleasant surprises including: sudden shifts in business that required costly restructuring of staff; last minute write-offs from projects that were previously thought to be under control; sudden and often frivolous legal claims that nevertheless had to be fought and cost large sums of money in defense; and variations in cumulative translation adjustment (the impact of swings in foreign exchange on the book value of the company).

Because the company was growing everywhere it had an insatiable demand for cash, and the Golder pattern of being conservative in its financial operations stood it in good stead as it put away sums every year in retained earnings. Over the decade, the retained earnings went from a value of $15.2 million in 1990 to over $44 million in 2000. As well, in 1991, the revolving series of term loans from the various Golder banking facilities was replaced by a seven-year private placement with an American insurance company. The timing of this move could not have been better. Shortly afterward the savings and loan crisis erupted in the United States and the ability of many companies in the industry to get bank loans was swept away. Golder was much less affected by this problem.