Sam Steinberg’s Non-Lasting Legacy

by Shel Horowitz

CORRECTION, RECEIVED 2/23/18: For your information, you have several errors in your article, the most glaring being the assertion that Sam Steinberg and his immediate family held all the voting shares of the company. In fact, the shares were held by other family members as well as Sam, notably my father and subsequently myself together with my two brothers. For tax reasons, the vote associated with those voting shares was placed in a voting trust controlled by Sam’s wife, Helen. To break that trust required 15% dissention. My younger brother, Harvey Cohen (my grandmother Mary and Sam’s mother Ida were sisters) convened a family meeting at his home to do just that – break the voting trust which carried the day. Once the trust was broken, the hawks in the form of the Ontario Teachers Pension Fund and others attempted a friendly takeover but our esteemed Quebec Premier, Robert Bourassa, was not going to let such a prize of Quebec industry go without a good fight. The Caisse du Depot picked up the real estate while a shipper with no grocery experience picked up the store operations and with that, rent. He was doomed from the start. The company was only making money because it had no rent to pay but now it did.
The rest is history. –Syd Cohen, Son of Sam Cohen – the “6th brother”. PS.  Sam Steinberg also had a sister named Lilly who married a Rafman.

Steinberg’s, a Montreal grocery chain founded in 1917, appeared to be the picture of success. It was opening new stores constantly, developing new markets and new opportunities, bringing in millions of dollars. Among other achievements, the chain pioneered self-service and grocery carts in Canada, thus offering significantly lower prices than full-service competitors.

The only thing it lacked was a viable succession mechanism.

In a presentation to the Family Business Center at the Lord Jeffrey Inn November 16, UMass Professor of Entrepreneurship Jim Theroux presented a case study of Steinberg’s. The talk was interactive, drawing heavily on audience predictions and analysis.

Though he would have preferred school-or the more typical boyhood activities his brothers found time for-Steinberg had been only 13 when he started making the major decisions at his mother’s store within a year of its founding. He was not the oldest, but second in line-and none of his brothers had any real managerial aptitude. He took the role of father and provider, his real father having been kicked out by his mother.

So it was Sam Steinberg who grew the business, starting with the decision to double the first store’s floor space, then opening up in a nearly undeveloped part of the city, and continuing a cycle of growth, low prices through volume purchasing, and customer service. In the early years of the Depression, Steinberg saw a market opportunity as A&P and other chains were closing stores; he doubled his holdings from three to six stores in 1931. And during World War II, he bought cheap land in neighborhoods that would soon be developed. The chain was up to 179 stores by 1969, when Sam Steinberg was ready to retire.

Steinberg’s primary motivation, apparently, was to create a means of support for his large family: four brothers, a sister, his mother, and assorted aunts, uncles, cousins, nieces, and nephews-and later, sons-in-law and grandchildren.

Steinberg continued to make a place for every male member of the family in his business. He sidestepped the problem of competence by shoring up the family people with outside managers. But there was never any question about decision-making-that always fell to Sam, but not the blame if it didn’t work out. He once told a senior manager, “If it’s a success I’ll take the credit. If it’s a flop, it’s your head.

In his last 10 years at the helm, Steinberg began to overreach. A series of bad decisions cost the business millions: buying a marginal supermarket chain in Ontario without careful investigation; another acquisition called Miracle Mart (similar to Caldor or Bradlee’s), even a sugar refinery and a fast food chain. None of these worked out-and Sam Steinberg grew so disconnected from the business that when he wanted to show a visitor the sugar refinery, he had to ask where it was located. And he put his brothers in charge of these new divisions, even when it was clear they weren’t up for the job.

But Sam Steinberg, born in Hungary and very old fashioned about the place of women in business, isolate his own children-four daughters, no sons-both from the day-to-day realities of running a large and complex business, and from the need to earn a living. Rich and pampered, they had little commitment to the business, and inherited their father’s arrogance, but not his business acumen. And, raised in suburban isolation with a largely absent father off growing his empire, they also lacked the tight family cohesion of the previous generation.

When the time came to pick a successor, he considered only his sons-in-law.

The logical choice was Leo Goldfarb, husband of the number 2 daughter, Rita, who shared Sam’s views and style. Sam was prepared to appoint him, but when he gave Leo the task of informing the oldest daughter, Mitzi, and her husband, Mel Dobrin, the pair were furious and sabotaged the deal. (Rita Goldfarb died of cancer at 38, about a year later.)

Sam appointed Mel, knowing it wouldn’t work out. His logic, according to a store executive quoting Steinberg: “This is not the most qualified person we’re selecting, Mel Dobrin. It may be in the best interests of the corporation to have a professional manager. But I’ve had so much fun building and running this business that I wouldn’t deprive my family of running it.”

Four years later, Steinberg offered Mitzi-with no prior management experience-the task of turning around the floundering Miracle Mart chain, over objections from senior nonfamily managers. She got good press, but was unpopular with her employees-and Miracle Mart continued to lose money.

Yet, following her father’s death in 1978, Mitzi assumed more and more control of the company-alienating people wherever she went, and having her husband undo decisions by the presidents who followed him. Finally, in 1985, tensions grew so strong that Mitzi resigned. Then Mitzi decided it was time to sell off the business, but her sisters-all of whom together owned all the voting stock, held in a messy joint trust-refused. What little family togetherness remained disintegrated into outright hostility, and at the same time, Steinberg’s began to decline on the stock market. Eventually, the sisters ended up in court.

Once the fighting was out in the open, board members started pressuring them to sell, saying the company couldn’t operate with what was going on.

Finally, in 1989, Steinberg’s sold out to the Quebec government pension fund. The sisters each made $112 million on the deal. But the buyer was undercapitalized and Steinberg’s went bankrupt, losing the pension fund some $800 million in the process.