"What finally convinced the board was the conclusion that to continue growing, I needed more money. They didn't have the $2.45 million we needed, and the most compatible partner for them was the employees. Gee, it was pretty -- the whole $2.45 million went right into the company, and the debt retirement is all deductible.
"It took a lot of doing, though. A lot of them said, 'To hell with it, why not just stop growing?' My response was, 'That's one alternative. But if that's the one you choose, I'm not running it for you."
Pushing through the ESOP, however, was the battle that cost Allan Gallant his job. Usually the master politician, he failed to understand how the new voice on the board would change the power equation. "Allan was probably writing his own pink slip all the time he was working for the ESOP," says Patricia Walsh, one of the four employee board members elected after the plan was instituted. "He failed to understand that a democratic company needed a democratic leader. He needed to be king."
"I tried to warn him," Perry Eaton says. "You have to respect your boss, and that's where he got in trouble. With the ESOP, the employees became his boss -- and he never understood that."
As 1984 came to a close, there was talk of a recession in the bush. Oil prices were down, and the flood of petrodollars was ending. Construction and government spending were being curtailed, and belt-tightening was the order of the day.
There were dire predictions for the bush's number-one merchant, too. Although AC's projected annual sales were up to $57 million, Gallant told his board that earnings would barely top $30,000. Although the ESOP was approved retroactive to April, the actual $2.45 million hadn't arrived until October, pushing Gallant through his available credit. A new store in the town of Cordova, originally scheduled to open in 1984, had been delayed for months. Even worse, Gallant had lobbied for the right to lease the Anchorage International Airport gift shop for $100,000 a month, then had watched as the store's opening was hampered by the discovery of asbestos in the airport ceiling. The board had approved the project, reluctantly, on the assumption that it would be a way of funneling money from the city into the bush. Now CEDC found itself in the uncomfortable position of owning a for-profit subsidiary that was taking dollars from the villages to subsidize Anchorage.
Gallant himself was beginning to feel burned out. He and Eaton sang each other's praises publicly, but the intrigue and manipulation taking place behind the scenes was wearing. He had fought to push the ESOP through, only to see Eaton convince the board that he should not share in the equity. Eaton told him that his plans to become a "twenty-first-century retailer," with cash machines, travel agencies, and financial services in the bush, "didn't pencil out" and would have to be shelved. Then Eaton had tried to get him to move upstairs, to take over a new for-profit holding company created under the CEDC umbrella. Frustrated and restless, Gallant spent more and more time in 1984 on personal ventures like his new natural-foods supply company and Alaska Business Monthly magazine.
After a month's vacation in Maui, though, his natural ebullience seemed to return. When he came back to start the new year, he announced that there were going to be some changes made.
For as long as he could remember, Gallant told his staff, the winter quarter had been a disaster for the company, with the biggest losses of the year. This year there would be a new productivity campaign, with a potential cash reward. All vacations would be suspended, and he was adding a half-hour of work time per day to the company's office hours. But, he promised, he would reward them all with cash bonuses if they could improve the company's performance by a certain amount.
The response astonished him.
Patricia Walsh, for one, was livid. "Imagine coming back after taking the month of December in Hawaii and telling everybody they couldn't take vacations!"
The board was equally inflamed. "Giving away profit is the board's prerogative, not yours," Eaton told him. "You're exceeding the boundaries of your authority."
"I've been taking that month off for four years, and I'm not going to change because of an ESOP," Gallant shot back. "If everybody worked as hard as I work, we'd have a better company."
"Not my prerogative!" he stormed to the board. "If that's where you are, maybe you ought to fire me."
By the end of the quarter, the issue was moot. Even with Gallant's austerity program in place, AC had lost money. But as spring began, the CEO was embroiled in far more serious problems.
Tim Frye, the recovering alcoholic Gallant had helped rehabilitate, was the last employee he might have expected to turn on him. But Frye was director of budget and systems, and once seated on the board, began to ask if Gallant's "creative financing" might not be a shade too creative. Expense accounts and car allowances, leased condos and political contributions: he made a list of possible transgressions and brought it to the board.
On April 17, Perry Eaton, accompanied by CEDC and AC board chairman Richard Romer and an accountant from Touche Ross & Co., appeared at the AC office in Kent, Wash., and began to delve into Gallant's financial management. Just how much compensation, exactly, was the CEO taking out of the company? Was he taking a $700 housing allowance that wasn't in his contract? What about Nutra-Source Inc., the natural-foods supplier? Gallant was a member of the board and part owner: did he have a $60,000 AC check written to purchase the Nutra-Source business? And what about the airport? Was there anything fishy about that lease? Was there any money being sloshed around -- to lobbyists or politicians, say?
The allegations that resulted were contained in an eight-page letter from the Touche Ross accountant to the board. Gallant didn't get to see them until the special board meeting convened on May 7 to discuss "possible termination of the president of Alaska Commercial Co. for cause."
"Chicken shit," Gallant wrote in bold black letters across his copy. But the lawyers hired by the board felt differently. They saw possible "malfeasance or fraud," and grounds for immediate dismissal.
