Inside Tim Hortons: Dark, rich and bitter

A fired CEO, shifting allegiances, a billion-dollar lawsuit and a history of infighting

Dark, rich and bitter

Steven E. Frischling/Getty Images

Don Schroeder is in the early days of what his $6-million severance agreement describes as the “quiet period.” For at least the next three years, the ex-president and CEO of Tim Hortons is forbidden from uttering a public word about the closed-door discussions that led to his swift—and still unexplained—exit. He is not permitted to speak to the media. He cannot say or write anything “disparaging, derogatory or defamatory” about the company that canned him. And he has agreed, after consulting with a lawyer, not to sue.

Even during private conversations, Schroeder must choose his words carefully. Clause 17, for example, allows him to share the details of his abrupt dismissal with “immediate family”—but only on the condition that their mouths remain equally shut.

In the meantime, as the 65-year-old settles into his new role as a well-paid (and tight-lipped) Hortons consultant, the full story behind his bizarre firing remains as much of a Bay Street mystery as it did that morning two months ago, when Canada’s favourite coffee shop announced it was suddenly in need of a new boss. “It was the oddest press release I’ve ever seen,” says Brian Yarbrough, an analyst at Edward Jones. “It didn’t say: ‘This gentleman is resigning’ or ‘This gentleman is pursuing other opportunities.’ It was just: ‘He is no longer with the firm.’ We were all sitting here scratching our heads.”

Officially, the company says Schroeder was terminated because he and the board of directors could not agree on a timeline for succession. Although Hortons won’t reveal specific sticking points, the gist is clear: certain board members had an exit date in mind, and Schroeder, three years and three months into his tenure, believed his job performance had earned him more time. He lost the debate.

Paul House, the 67-year-old executive chairman of the board—and himself a former Hortons CEO who still enjoys godfather-like status at the head office in Oakville, Ont.—declined to be interviewed by Maclean’s. But a few days after Schroeder was sacked, House provided the most detailed explanation yet to a gathering of industry reps. “Sometimes succession can be a difficult and challenging process, even painful, and that unfortunately was the case for us,” he told the audience. “The board always looked at Don as a three- to four-year leader of the company, and he did a great job. We would have liked a smoother transition than we had, but it is what it is and we’re moving on with life.”

It is not that simple, of course. Schroeder was not the president of a faceless investment bank. He was in charge of Tim Hortons, the closest thing to Canada’s official brand. At Timmy’s—where a double-double is one part coffee, one part patriotism—customers don’t see a multi-billion-dollar corporation thirsty for more profits. They see a piece of themselves. Every heartwarming commercial—the immigrant at the airport, the exchange student overseas—is designed to reinforce that sacred connection. Hortons is home. Hortons is family.

Yet there was Don Schroeder, a loyal, long-time executive tossed aside like a day-old doughnut. No glowing accolades. No red carpet. Just a cryptic press release and an extra-large cup of hush money.

“I think anybody would feel betrayed,” says Richard Schroeder, Don’s older brother and a Hortons store owner in Chatham, Ont. “Your name means a lot in this day and age, and when something like this happens, it reflects on your name and your reputation. And that hurts more than anything else, I think.”

Richard says he has not spoken to his brother about what transpired, and declined to speculate. But the Hortons rumour mill, both inside and outside the chain, continues to percolate. Some believe Schroeder was pushed out because the last two quarterly reports fell short of analysts’ expectations. Others say he was more caretaker than visionary, and not the best choice to lead the all-important push south of the border.

But ask enough members of the Hortons “family,” and most fingers point squarely at Paul House—and his protege, David Clanachan, a former Tim’s baker-turned-senior-executive whose signature achievement was introducing customers to frozen doughnuts. Inside the company, it is no secret that House and Clanachan are extremely close. Says one source: “David is Paul’s chosen one.”

Will Clanachan be the next CEO of the country’s most iconic restaurant? Is House determined to see his star pupil assume the corner office? Did Schroeder, a steady hand who steered the company through a nasty recession, believe he deserved another year at the top? Perhaps two?

For now, only one thing is certain: Schroeder’s unceremonious ouster, whatever the reason, is just the latest chapter in Tim’s rich history of executive infighting and corporate backbiting. Hortons may be “your friend along the way,” as the ad famously says, but that’s not always the case inside company headquarters, where colossal rivalries and shifting allegiances are as much a part of the brand as honey dips and children’s camps.

Customers will get a further taste of that bitter side later this month, when a proposed class-action lawsuit finally reaches a Toronto courtroom. On paper, the case pits two long-time store owners against head office, with claims that Hortons’ historic shift to frozen baked goods has taken a bite out of their bottom lines. But inside the court file, underneath boxes of affidavits and exhibits, lies an old-fashioned grudge match between Ron Joyce, the man who built the Tim’s empire, and Paul House, the man who replaced him.

If Don Schroeder ever does talk (or testify), he would have a lot to say. In happier times, he was close friends with both.

The conventional Tim Hortons narrative, told countless times over, began nearly 50 years ago, when the legendary Maple Leafs defenceman opened his first shop at a converted service station in Hamilton. The original boasted only two menu items: coffee and doughnuts. Half a century later, Hortons is the country’s dominant quick-service restaurant, with thousands of locations and a brand loyalty that borders on religious. Of all the coffee poured outside the home, nearly 80 per cent ends up in a brown Tim’s cup.

Though Horton was the household name in those early years, the man most responsible for the company’s runaway success was his partner, Ron Joyce, a former cop who quarterbacked the company’s expansion. In 1975, the year after Horton was killed in a highway car wreck, Joyce bought out his partner’s widow and kept on growing.

Through it all, Joyce followed two rigid rules: keep the products fresh, and the franchisees happy. During Joyce’s heyday, a typical store owner, after paying rent, royalties and advertising fees to head office, enjoyed profit margins that regularly topped 20 per cent. “If there was ever a sure thing,” he famously wrote in his 2006 autobiography, “owning a Tim Hortons franchise was it.”

One of those early franchisees was Donald Bruce Schroeder, one of Joyce’s closest friends. The youngest of seven children (six boys and one girl), Schroeder was raised in Oakville, the son of a labourer and a stay-at-home mom. Of all the kids, he was the only one to attend university, earning a master of laws degree from Osgoode Hall. Though a talented lawyer—“a superstar in the profession,” as one colleague put it—Schroeder possessed an equal passion for business, and in 1978, with two older brothers as partners, he purchased his first Hortons in Chatham.

The Schroeders embarked on a much riskier venture a few years later, when Don convinced Joyce that there was a market for Hortons coffee in Hilton Head, an island resort town in sunny South Carolina. They opened two outlets. “Unfortunately, they didn’t become profitable,” Joyce recalled in his book. “It was difficult to attract either employees or customers, leading to large financial losses and forcing us to close the stores.”

“It was a little disappointing,” admits Richard, who still operates that original store in Chatham. “We thought we could make a go of it, make a break-in and go from there, but it just didn’t pan out the way we thought it would.”

North of the border, though, the chain was flourishing. By 1985, Hortons boasted more than 200 stores—and a new member of senior management: Paul House.

Born on a farm in rural Stoney Creek, Ont., House learned the food business at a young age, helping his parents peddle their crops at the downtown Hamilton farmers’ market. He joined Dairy Queen as a district manager in 1972, and worked his way to the top of the chain’s Canadian operations. Originally hired as Hortons’ vice-president of marketing, House would soon become Joyce’s right-hand man—and anointed successor.

Though largely unknown to people outside the industry, House was a driving force behind the company’s meteoric growth in the 1990s. “He is unbelievable, a true, true entrepreneur,” says David Lauer, a former member of the Hortons board. “What makes him great is that he can communicate with all people, all walks of life. Paul is just as comfortable on the line of Tim Hortons serving coffee as he is in the boardroom.”

By the time House was promoted to chief operating officer in 1993, Don Schroeder had also joined head office, primarily as president of the Tim Horton Children’s Foundation. Also in the senior circle was a former engineer named Archibald Jollymore, Joyce’s executive vice-president—and first cousin.

“I began delegating many of the day-to-day managerial tasks,” Joyce later wrote. “I still carried out my work as president and sole owner, and had to approve all expenditures, but we had very capable people in place to run the operation effectively.”

He would eventually think otherwise.

Like most relationships that end badly, the Joyce-House rift is a difficult one to pin down. Neither has divulged the details in public, but the hard feelings have been hinted at again and again, both in Joyce’s autobiography—where House’s name barely warrants a mention—and the looming class-action lawsuit. But the roots of their feud can be traced back to one thing: Joyce’s decision to sell Tim Hortons to Wendy’s, the U.S. burger chain.

Although he pocketed hundreds of millions of dollars in the 1996 deal, Joyce has regretted the transaction every day since, repeating many times that if he could turn back the clock, he would never again sell his “baby.” During the negotiations, both House and Schroeder were key players.

“Don wasn’t making the deals as the guy sitting at the head of the table, but there wouldn’t have been any deals made had he not been at the table,” one source told Maclean’s. “Ron relied on him tremendously.”

The sale turned Joyce into Wendy’s largest shareholder and a senior chairman of the board, but he soon came to believe that the burger chain was “poorly managed and maintained,” and that “we should have conducted a more thorough review of Wendy’s operations” in the months before the deal.

In 2001, Joyce sold his shares. He didn’t realize it at the time, but as he cashed his cheque, the company he built was quietly replacing its deep fryers with deep freezers.

Hortons’ move to frozen goods is Paul House’s legacy, but the man who actually made it happen was David Clanachan. The marching orders fell on his desk, and as always, he delivered. “David is like the Energizer bunny,” says Lauer, the former board member. “He has Tim Hortons in his blood.”

Clanachan’s connection to the brand began at age 14, when he and his little brother rode their bicycles to the first store built in Windsor, Ont. “He asked me if they could help unload the truck,” recalls Gabriel DeLuca, who owned the franchise back then. “It was a godsend. I said: ‘Of course you can.’ ”

When he turned 16, Clanachan was hired to bake doughnuts on the weekend day shift, and continued working at the store right through university. “Reliable as hell,” DeLuca says. “It was a pleasure to have him around.”

On one memorable morning, DeLuca and Clanachan arrived at work to find a shattered front door and a team of paramedics. A late-night bar fight had spilled into the parking lot, and ended when one brawler tossed another through the window. “David cleaned up all the blood and shovelled all the broken glass,” DeLuca remembers. “He was marvellous, and took it all in stride. And at about seven o’clock in the morning, we got a call back from the Windsor police—telling us not to clean anything up. But by that time, it was spic and span. That was David.”

Now 49, Clanachan joined the corporate side of Hortons in 1992, and the same work ethic that landed him a gig unloading trucks propelled him up the company ladder (he is currently the COO of Tim’s U.S. and international operations). “He has the same kind of personality as Paul House,” says Ron Buist, the former Hortons marketing man who invented the “Roll Up the Rim” campaign. “They are both dynamic men. They work hard, and they are honest, fair people.”

Even before Clanachan was dispatched to find a revolutionary doughnut, many franchisees were begging for an alternative. Despite the enticing aromas, in-store scratch baking was rife with headaches—and waste. As Clanachan recently wrote in a sworn affidavit, “doughnuts under scratch baking were 10 per cent of sales but 90 per cent of problems.”

His proposed solution, after two years of research that took him from Ireland to France to Minnesota, was a cutting-edge technique that “flash freezes” fritters and crullers as soon as they leave the grease. Frozen solid, the doughnuts can then be shipped across the country and reheated when needed, in a matter of minutes. The Wendy’s board, still in charge at the time, was impressed enough to launch a joint venture, with a European firm, to build Maidstone Bakeries, a mammoth production facility in Brantford, Ont.

It was a crowning moment for Clanachan—but a public relations disaster for the company. Instead of selling customers on the perceived benefits of par-baked products (the quick turnaround, the consistency), Hortons chose to treat the change like a matter of national security, deflecting all questions from the press.

When the truth finally did emerge, the source was none other than Ron Joyce.

Contacted by the Calgary Herald in October 2003, he confirmed the switch to frozen doughnuts. “This is not a philosophy that I would have embraced if I still owned the company,” he said. “I’ve tried them,” he added later, “and they’re certainly not the same.”

By coincidence, the executives who ran the company happened to be in Calgary for a gathering of franchisees when the story broke. “All of a sudden there was this big kerfuffle during the morning,” recalls one store owner, who spoke on the condition of anonymity. “Everyone was coming and going, saying: ‘What the hell happened?’ Then Paul talked about it later in the afternoon. He was a little emotional about how disappointed he was, but you could just see the rage.”

Some franchisees were angry, too, but for very different reasons. By their calculations, the so-called “Always Fresh” system was cutting into their profits because the cost of buying the frozen products from head office was much higher than preparing them in-shop. One of the most outspoken critics was Arch Jollymore, Joyce’s cousin, who had purchased two outlets in Burlington, Ont., after retiring from head office in 1994.

Jollymore had spent years working closely with Paul House on the senior management team. In time, he would accuse his old colleague of threatening to shoot him.

In 2006, long after the frozen doughnut fracas had faded from the headlines, Wendy’s spun off Tim Hortons as a stand-alone public company. House remained in command during the transition, but by 2008 the board was actively searching for a new CEO. House, however, was not exactly retiring. The plan was for him to become executive chairman—and for the next CEO to report directly to him.

Many assumed that Clanachan was the front-runner for the job, not only because of his close connection to House, but because of the success of the new Brantford bakery, which was generating hefty profits for shareholders. But in February 2008, when the board announced the new CEO, the name on the press release was Don Schroeder—not David Clanachan.

Though a somewhat surprising choice, Schroeder was certainly qualified. A former franchisee with three decades of brand experience, he had overseen numerous facets of the company, from human resources to distribution to the children’s foundation. He was also the senior executive in command of all things coffee, an expert taster (“cupper,” as they’re called) who helped develop a Hortons program that trains small coffee farmers in Guatemala, Brazil and Colombia.

Perhaps most importantly, though, Schroeder was seen as a buffer between store owners and senior management, someone who understood the needs and challenges of both. “When Mr. Joyce was in there, everybody was like a big family, and we got away from it,” says Richard Schroeder. “I think Don was trying to bring back the family atmosphere in the company.”

And then, only four months into his tenure, Arch Jollymore and his wife, Anne, rocked the chain with their proposed $1.95-billion class-action lawsuit. The case, scheduled to reach a courtroom on Aug. 15, seeks redress for all the profits franchisees have allegedly lost since the switch to “Always Fresh”—and has exposed deep divisions between franchisees, current and former executives, and even relatives. (One of the store owners who has spoken out against the claim is Ron Joyce’s nephew.)

Some of the revelations, though yet to be tested in court, are damning. The Jollymores claim they have endured a “pattern of threats and reprisals” and “scare tactics” from head office, and that fellow owners are petrified to speak out. In one sworn affidavit, Joyce’s cousin even claims that House told a group of people: “If I had a gun, I’d shoot the bastard.”

The general consensus inside head office is that Joyce himself is bankrolling the lawsuit. But that rumour has not been confirmed or denied, as Joyce and Jollymore both declined to be interviewed by Maclean’s.

As for questions about Schroeder’s abrupt exit—Why now? Who’s next?—they were met with similar silence. A spokesman for the company “politely” declined a request to interview House and Clanachan, and every member of the board contacted by this magazine refused to talk.

Among franchisees, the few who did agree to speak had nothing but kudos for Schroeder. “He is so smart and articulate, and he was a steady, steady hand,” says Danny Murphy, who owns 19 stores in P.E.I. “I thought he did a great job, and we’ll miss him.”

House has been appointed interim CEO while the company searches for Schroeder’s replacement. Will it be David Clanachan this time around? Could a different internal candidate—Roland Walton, the COO of Canadian operations, or Cynthia Devine, the chief financial officer—rise to the top? Or will the board seriously consider bringing in an outsider, something Hortons has never done in its 47-year history?

The successful candidate will spend the next few years charting the chain’s future. And hoping the past, laid bare for all to see, doesn’t end up costing shareholders millions of dollars.

The family feud

A group of long-serving executives has steered Hortons to huge success, but they don’t always get along

The (former) loyal employee: Once a close friend of Joyce’s, Schroeder was unceremoniously fired as CEO

The old guard: Joyce’s rift with House is rooted in the sale of Hortons to Wendy’s

The godfather: After stepping down as CEO, House still wielded power

The frozen doughnut king: Clanachan, a top candidate for CEO, is House’s ‘chosen one’

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