For Michael Kalinsky, founder of Empyrean Management Group, a recruiting and staffing company based in Blue Bell, Pennsylvania, it was bad enough that he was feuding with a vice president, David Kenworthy, who also happened to be his former brother-in-law. The conflicts were becoming all too frequent, mostly because Kalinsky and Kenworthy disagreed over how much autonomy Kenworthy had to make decisions involving the company's biggest client, banking behemoth Capital One (NYSE:COF).
But complicating matters even further was the fact that the father of the vice president/ex-brother-in-law--Kalinsky's former father-in-law, Bruce Kenworthy--was Empyrean's biggest investor. Regardless of family ties, Kalinsky was beginning to wonder if it was time to take radical action and confront his former brother-in-law.
The family had endured its share of turmoil since Kalinsky co-founded Empyrean with a childhood friend, Allen Jordan, in 2000. Soon after depositing a check for $100,000 from Empyrean's original investor, Kalinsky received a call from his then father-in-law, an officer at the bank, who told him that the check had bounced. The investor had changed his mind, but Bruce Kenworthy was familiar with Empyrean's business plan and offered to bankroll the fledgling company with $100,000 from his retirement account. "I saw a chance to build a business for the family that we could pass on to the next generation," Bruce says. There was a catch: Under the terms of the loan, Kalinsky would have to appoint Bruce's son, David, to the position of vice president and make him a minority shareholder.
Eager to open for business, Kalinsky readily agreed to the terms. Empyrean quickly landed business with blue-chip clients, including Sun Trust Bank and Capital One, and began building a staff of recruiters. Then the problems started. In August 2001, Kalinsky received a shocking notice from the IRS informing him that Empyrean had failed to pay its payroll taxes that year. Jordan, who, as the company's chief financial officer, was responsible for handling payroll taxes, had quit a few months earlier to become a consultant. (Jordan declined to comment for this story.) Kalinsky was devastated. He faced the prospect of enduring an IRS investigation that could sink the company, and to make matters worse, his wife, Margaret, asked him for a divorce that summer. "I couldn't believe what was happening," he says. "I was losing my wife, my best friend, and my company all at the same time."
Bruce continued to be a supportive counsel for Kalinsky after the divorce, and even invited him to live in his home for a few months. Kalinsky's relationship with his former brother-in-law, however, began to unravel after the younger Kenworthy moved to Richmond, Virginia, to manage the Capital One account at the bank's headquarters. With hundreds of miles between them, the pair worked independently and rarely saw each other, keeping in touch mainly through infrequent phone calls and e-mails. They drifted further apart during the next two years, as Kenworthy focused on the Capital One account while Kalinsky devoted most of his time to the IRS investigation. (David Kenworthy declined to comment.)
Finally, in 2003, the IRS completed its audit. It demanded $250,000 in back taxes from Empyrean and required Allen Jordan, who had retained his stake in the company, to pay off roughly 20 percent of the debt. Kalinsky and Jordan worked out repayment plans with the IRS, and with the troubles behind him, Kalinsky began to refocus his efforts on growth. By the end of 2003, the company was back on track, posting about $2.9 million in annual sales and turning a profit. But Kalinsky wanted Empyrean to tackle bigger jobs and take more risks. He pushed Kenworthy to expand the relationship with Capital One and bring in new accounts. He also asked him to spend more time in Blue Bell. Kenworthy, in turn, requested a promotion and a larger ownership stake.
Kalinsky was considering the request when he received alarming news from Capital One in early 2004. The bank, which represented 40 percent of Empyrean's revenue, had decided to give the contract to a larger firm. Kalinsky had no idea that the account was even in jeopardy. "I never saw it coming," he says. And he blamed Kenworthy for not alerting him: "I just couldn't understand how he could allow the situation to go so far without letting me know."
A few weeks later, the competitor pulled out, granting Empyrean a chance to win back the contract. Kalinsky immediately made plans to hop on a plane to Capital One's headquarters in Richmond. Then he received a call from Kenworthy, who made it clear that he resented the interference. "He claimed he had the situation well in hand," Kalinsky says. Kalinsky opted not to make the trip, but he did call several other Empyrean employees based at Capital One to find out what was happening. Some of the employees told him that Kenworthy often criticized Kalinsky's decisions and questioned his leadership in front of both them and Capital One staff. "It was clear that there wasn't a great deal of mutual respect between Mike and Dave," says Thomas Brady, a former staffing director at Empyrean who worked with Kenworthy in Richmond for seven months. "They each had their own ideas about how to run the business."
Now, instead of promoting Kenworthy, Kalinsky was thinking about firing him. It seemed like every conversation they had turned into a battle, Kalinsky says. Bruce noticed the strain as well. "It seemed like the stress of the situation really created a conflict between Mike and Dave's personalities," Bruce says. "To this day I'm not really sure why they grew to dislike each other."
One thing that would keep Kalinsky from firing Kenworthy was concern about his relationship with Bruce. In addition to being Empyrean's biggest investor, Kalinsky's former father-in-law had continued to be a trusted business adviser and confidant through the divorce and the IRS troubles. Firing Bruce's son was bound to damage that relationship. What's more, David had been integral to keeping the company afloat during the IRS investigation. Should Kalinsky try to work this out, or should he act?
