After shakeup, DIRTT founder soldiers on
On Mogens Smed’s 70th birthday, he sweeps through his company’s headquarters like a whirlwind, constantly on the move, touching down to talk to workers.
By his estimation, the entrepreneur works up to 80 hours a week at DIRTT Environmental Solutions Ltd., the Calgary company he helped co-found more than a decade ago.
“When I find a 40-year-old that has got more energy than me, that’s when I’ll think about slowing down,” he says.
On this day, Smed simultaneously chats with self-described “DIRTT-bag” employees and walks with a couple of visitors through the company’s bustling headquarters in the city’s east end.
But 2018 has already been a period of upheaval within the public company — and for Smed.
On Jan. 2, the company unveiled a major shakeup in its management ranks, replacing the longtime CEO and entrepreneurial force of nature.
Smed was shifted into the executive chair position, where it’s said he will continue to focus on the company’s sales network and business initiatives.
As part of the change, president and interim CFO Scott Jenkins left the company. The board of directors brought in an interim CEO, Michael Goldstein, and interim CFO, Peter Henry, as replacements.
Reaction to the switch was swift, with the company’s shares falling nearly 18 per cent that day. Stock in DIRTT closed Friday at $5.31 on the Toronto Stock Exchange, down about 21 per cent since the announcement.
It wasn’t only the leadership switch that caught people off guard, but the fact Smed told an analysts’ call he hadn’t been made aware of the changes until only a few days earlier.
A company statement said the board conducted an internal assessment of the firm and made the changes to “improve performance, succession planning, strategy and corporate governance.”
Previous board chairman Steve Parry, who is now lead director, also mentioned “cracks in the governance process,” but noted it wasn’t connected to a financial reporting issue.
Inside the company’s office, Smed makes a couple of points clear: he was surprised and somewhat insulted by the change, but remains committed to sticking with DIRTT to make it a bigger success.
“We weren’t part of the decision, we didn’t participate in the decision, and candidly it came as quite a shock to us,” he says.
“Having said that, we’re not going to see this company get destroyed. We owe it to each other, we owe it to our DIRTTbag employees, we owe it to our customers, we owe it to our shareholders, that we make the best of this and we move forward.”
The company, which uses 3-D software to design and produce customized prefabricated building interiors, has grown through- out the years. It has just under 1,200 employees across North America, including more than 700 in the city.
Annual revenues grew to $219 million for the first nine months of 2017, including a record third quarter, up from $140 million for all of 2013.
DIRTT, which stands for Doing It Right This Time, was created by Smed, Barrie Loberg and Geoff Gosling in 2004.
Five years ago, the company went public at $3 a share, climbing to almost $9 by 2015, before spending much of the past year in the $5 to $7 range.
A veteran Calgary businessman, Smed has run public companies before — launching a successful office furnishings manufacturer, Smed International, that was sold in 2000 to a U.S. conglomerate — and understands they are ultimately controlled by shareholders and boards.
“There was nothing egregious that happened here,” he says of the change.
“Clearly the board didn’t have the confidence that we could take it to the next level ... I think it’s fair to say that the board did not understand the value of our culture here and the power of our culture here.”
Asked if the change was caused by a problem with a large shareholder, Smed flatly says there was “no shareholder displeasure in this. None.”
Analyst Neil Linsdell of Industrial Alliance Securities says he doesn’t think DIRTT is given enough credit for what it has done using technology to change the industry, with some outsiders viewing it as a furniture company.
“It’s not a bad idea, as far as repositioning the company, to highlight the high-tech aspect to it. I can understand and appreciate what the board is trying to do, from that side.”
Yet, the drop in share price and sudden management overhaul bothers Darrin Hopkins, director and co-head of the private client capital markets division at Richardson GMP.
Hopkins, who says his clients own substantial stock in the firm, believes DIRRT is a great company, but worries it could be stuck in the investor penalty box because the board didn’t adequately explain what prompted the shakeup.
“At the end of the day, I’ve not got a single concrete answer as to why this was done,” he says.
“This company was inspired by Mogens, it was created by Mogens, it’s been driven by Mogens, their success is because of Mogens. And now you’ve just removed the most integral part of that company.”
The company insists that’s not the case.
Parry, the lead director, says the former CEO will continue to play a pivotal role moving forward.
As for the governance matter, he says no single issue, material event or error led to the management change, but the board felt DIRTT had to improve its processes to grow.
The company also went through three chief financial officers last year, although Parry says that wasn’t a specific reason for the changes.
Asked to assess the firm’s performance, the director said DIRTT has had “great top-line performance, but could do better on the bottom line.”
“We believe there’s significant ability to — or opportunity to — improve profitability and continue to grow the business,” Parry adds.
Back at the office, Smed doesn’t believe his role will change, as he will keep a hand in sales, preserving the corporate culture and vision for the company.
He’s not going anywhere — “I will stay here as long as they let me” — and intends to help propel DIRTT forward as it expands further into areas such as health care.
“I’m disappointed this happened, of course I am. But you know what, this isn’t about my own selfish agenda, my ego,” he says. “This is about supporting the vision of this company.”