Frank Stronach delivers lecture on ‘fair enterprise’ at U of T

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Frank Stronach, the founder of automotive parts supplier Magna International, a company he started in a garage and now has sales of over US$35 billion, has a few ideas about how to make Canada more prosperous, democratic and free.

On Tuesday night, the Order of Canada recipient and 2023 Executive in Residence at the University of Toronto Scarborough delivered the first of two planned special lectures. Much of his talk focused on his management philosophy called fair enterprise, a profit-sharing model he credits for accelerating the growth of Magna.

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According to Stronach, once employees at Magna participated in profit sharing, the company’s revenue increased 60 per cent in the first year, 100 per cent in the second and 200 per cent in the third.

“Employees basically became partners in the business. By knowing they get a portion of the profits, they have a great incentive to make better products for a better price,” he said.

Born in Austria, Stronach arrived in Canada in 1954 after applying for work visas in four countries. Canada was the only one to accept.

Two years after arriving, he founded the predecessor to Magna, Multimatic Investments Ltd. Now 90 years old, Stronach divides his time between Oberwaltersdorf, Austria, and Aurora, Ont.

His fair enterprise philosophy was influenced by the “golden rule,” he told students on Tuesday.

“Those who have the gold make the rules,” he said. “I don’t want to be dominated by anyone. And If I feel that strong, then I should not be able to dominate somebody either. So really, what we have to think about it is how can we dismantle the chains of domination. Not by violent, destructive revolutions but by the revolution of the mind.”

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Stronach discussed the necessity for establishing an economic charter of rights, something he would like to see established out of the university.

“Universities are the ideal place. Right now, we are sliding downhill a bit. I think it’s very crucial that universities are engaged. What do we have to do to adjust? How can we create a more civilized society? That is the mandate.”

At Magna, Stronach said his fair enterprise approach redistributed profits among employees, management and shareholders, while also directing money toward philanthropic endeavours.

Under the company’s constitution, 20 per cent of profits went to shareholders, 10 per cent to workers, six per cent to management and two per cent to charity. The rest was reinvested in the business.

His only regret, he said, was not redistributing more to employees.

“Instead of the 10 per cent profit track, why not 20?” he said. “But for me, it was something new. And I learned through that process enormously. And I’m still learning. It’s an ongoing evolutionary process.”

Stronach added that the “moral right” workers have to share in profits is being neglected in today’s business landscape. “It’s an absolute must to do that,” he said. “People have enormous potential, and if you create that environment, it’s a totally revolutionary process.”

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For large companies, which Stronach classified as entities with more than 300 employees, 20 per cent of profits should be shared among workers. Small businesses, on the other hand, should face far less red tape, with the exception of workplace safety and environmental regulations, he said.

“That should be the two rules. Take all the other red tape away and businesses would flourish like crazy. There would be thousands of small businesses.”

According to Stronach, the Charter of Human Rights alone is not sufficient and needs to be “fortified” with an economic charter of rights.

“An economic charter of rights will lead to economic democracies, and economic democracies are the basis for democracy itself,” he said, adding that any society that “stifles its citizens’ pursuit of productivity, ingenuity and creativity is a decaying society.”

As the university’s Executive in Residence, Stronach said he hopes to work with students to develop the first economy charter in the world, “which could stand scrutiny and be a statement of fairness, where everything is more balanced and where we could eliminate poverty.”

Stronach will be returning in the fall to deliver a followup lecture.

“This is your country,” he said. “You can learn from the past to influence the future.”

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