IMPORTANT: The RDG-CARS termination, the error of the CARS President and Board, and reform for CARS
To the shareholders in Canadian Rally:
I write to you as a competitor only and not representing any interest group.
The President of CARS (Terry Epp) and the Board of CARS (the elected representatives of the competitors in each of the five regions) committed a grave error at the end of last week that jeopardized rallying in Canada and from which it may not recover in the near future. The significance of this is enormous, it should not have happened, and it indicates to me, and I hope to you, that profound changes have to be made in the way rallying is run in Canada. I believe that it may cause me to lose my sponsors and not be able to continue racing.
BACKGROUND:
As you may know, the Rally Development Group (RDG) was formed early this year by Jud Buchanan and Keith Townsend to handle the business end of rallying in the country ? sponsor development, media relations, competitor relations, and so on. This had previously been the mandate of CARS through the Board of Directors and Terry Epp.
RDG came into being essentially because Subaru Canada, the most significant sponsor of the rally series in Canada, felt that its support had been taken for granted and that CARS was not doing its part to develop other co-sponsors of the series to take some of the burden. At the 2002 CARS Annual General Meeting (AGM) in Calgary they said that they would renew their sponsorship for one more year on the explicit condition that a cosponsor be found during 2003. When CARS did not do this, they gave the sponsorship money to RDG to be used as RDG saw fit in 2004. At the 2003 AGM in Montreal, Terry Epp and the Board arrived at the meeting with no sponsorship in place for 2004 and RDG arrived with Subaru?s mandate in hand.
The majority of the Board and President did not accept RDG and the arrangement with Subaru happily. They resisted the idea of a marketing group and thought that they could negotiate an independent deal with, first, Subaru, and then Yokohama.
By then end of the meeting only the intervention of the committee of event organizers broke the deadlock and a tense arrangement between CARS and RDG, with Subaru?s backing, was put in place for 2004.
THE CURRENT YEAR:
Throughout 2004 RDG did what I (and I believe all competitors) thought was an excellent job of marketing rally in Canada. We?ve seen newspaper coverage of an unprecedented scale, the TV shows have been excellent, and RDG was developing sponsors for 2005 and beyond. Tow funds have allowed more competitors to cross the country to make the series more national. The RDG webpage was very professional and I could send sponsors there to explain the series and follow its progress, which I could never say of the CARS page. In short, they were marketing rally in Canada better than it had ever been marketed before. They were running it as a business, but as a startup business in which they took a personal loss in the first year in order to build the business.
The RDG-CARS agreement that had been hammered out under the tense circumstances of the 2004 Montreal AGM contained a termination clause that would allow either party to terminate for non-performance of some substantial aspect of the agreement. The deadline for the termination provision was midnight on Nov. 12.
THE UNJUSTIFIED ACTION:
On Nov. 11, Terry got what he considered enough support from the board - and not everyone on the board participated in this process - to go to RDG and stipulate contract changes on the day before the termination clause deadline. The changes were significant and odd: a two-week termination notice provision (which is impracticable when working with sponsors who expect to be able to rely on RDG for at least the whole year), stipulated consultation with the CARS president (alone) for any sponsor negotiations (also highly burdensome), and a $2,500 licence fee per event to be paid by RDG to CARS. What any of these things was likely to achieve or how it addressed any perceived problems with RDG was not explained to anyone, including the certain board members who were not consulted.
As a lawyer who negotiates contracts every day I can tell you that these are highly onerous obligations to impose, for no apparent reason, at the last possible moment, and if I were a lawyer for RDG I would have advised them to consider, among other things, walking away.
RDG considered the obligations too onerous, and their unwillingness to capitulate led Terry, acting alone or with partial board support, to terminate the agreement with RDG at literally the 11th hour - half an hour before midnight of the termination deadline.
THE CONSEQUENCES:
Either Terry and the board members did not consider the consequences or they were monumentally blind to the significance of the termination.
In the first place, all goodwill with current sponsors and RDG itself is lost. Now, I don't think anyone saw RDG as a one-year startup - these relationships take time to build and all evidence indicated that RDG was doing as good a job as anyone could in similar circumstances. I see no negligence on their part.
Of course the most precious relationship has been with Subaru. We know from last January's AGM that Terry believes that CARS can convince Subaru to renew and that he can do it directly. But all evidence is to the contrary: Subaru appointed RDG as their agent for the sponsorship monies for a reason and that's how we (a) got here with RDG and (b) convinced Subaru that renewing was worthwhile even after the previous year which had been conditioned upon CARS getting co-sponsors of significance. That failed, so Subaru went to RDG. Now CARS has caused RDG to fail, and I will not be surprised if Subaru pulls out of title sponsorship.
I believe that Subaru has been very, very clear that it will not deal with CARS directly. If Terry and the board did not realize that (and, it appears, may still deny it) then we have to question the wisdom of those who do not see what was perfectly plain to everyone else at the last two AGMs: Subaru feels taken advantage of and will only deal with rally in Canada through more businesslike channels than they did previous to 2003. Further, they have lots of requests for their sponsorship dollars and must consider where to most effectively place them. If the placement is not effective or the relationship too difficult, then they can and will pull out.
If there is no title sponsor equivalent to Subaru, then there can be no television, and without that, the manufacturer rally teams (including Subaru?s own, and Suzuki?s) become less valuable and difficult to keep in the series. Without TV, I expect teams will pull out.
I and others at the front of the pack cannot make competing viable without TV and media for my sponsors, and at this crucial moment - while budgets are being done and decisions being made ? if I tell them that there is no TV I will have a harder time convincing them to support me. So I'm in a very bad position personally. Without a change, I won't be able to race.
WHAT HAPPENED?
So the way that I see it is this: essentially unilaterally, or perhaps with partial support of the Board, but for no apparent reason, Terry Epp has probably lost Subaru, lost whatever other sponsors RDG had been cultivating, and consequently removed a number of competitors from the field. Further, I understand that some of the Subaru money has traditionally been used by events to cover expenses ? without this, organizers will find it more difficult to make events viable, and entry fees may rise, affecting all competitors.
So corporate legitimacy and consequences aside, here's what really upsets me and what we must address: did anyone think of the competitors? Did Terry (and the partial board?) just not realize that his actions would take out not just individual competitors, but possibly entire teams? Early yesterday I emailed Terry to ask ?what I am supposed to do now?? but he has not responded.
Also, as a matter of corporate procedure and accountability, not involving the whole board in a meeting to discuss a very significant executive action is against the law of corporations. In a business it would normally lead to the removal of the director in question. Worse, it appears that Terry and at least some of the board are now participating in a reprehensible plot to solicit Subaru directly with the expectation of being turned down in order to shift blame away from themselves and onto Subaru and RDG, which is preposterous.
So I believe that something has to be done.
WHAT CAN WE DO?
First, I think that Terry Epp should resign or be removed as president for abusing his position as an officer elected by the Board that he did not properly consult.
Second, I think that the competitors in Canada should form a Competitors? Committee so that their interests can be articulated and protected at the national level. Technically, of course, the regional directors on the board are supposed to fill this role, but they have not done so on this occasion and I believe that a Competitors? Committee, mirroring the Organizers? Committee that currently exists, is an appropriate entity. Board members must be made accountable to their electorate.
Third, I think the by-laws of CARS should be revised to (a) increase the number of board members from five to seven, to include the President of the Organizers? Committee and the President of the Competitors? Committee, and (b) reform the process of electing a President to a more complete and democratic process that does not involve the outgoing president presenting himself to the Board at the end of the final Board meeting of the year, literally at the 11th hour on the night before the AGM, for reappointment.
Fourth, the tasks and paperwork associated with the CARS office in the Epp?s home should to the extent possible be contracted to a secretary or other entity. The Epps are paid an annual stipend for this. It has been suggested that the ASN itself might be an appropriate administrative office, and we can negotiate the fee. Otherwise there are others who I think might be willing to take this on.
All of the above is simple enough to achieve with respect to the bylaws and operating procedures of CARS ? it just requires the competitors and club presidents to use their voices.
IN CONCLUSION:
In summary, something has to change in CARS, from the parties who are running it, to the by-laws that require revision, to the lack of consultative process, to the unbusinesslike modus operandi. As a competitor and shareholder I feel absolutely cheated. If this were a corporation and I an investor, I would sue for management negligence, and CARS would become another Enron or Andersen with directors that misrepresented the business realities for their own interests.
What can we do right now about the departure of RDG and possibly Subaru? The first thing is to attempt to reform CARS along the lines above, or along lines that you might suggest. The second is to request in the most reasonable terms that RDG reconsider their position. The third is to tell Subaru that, unbelievably, CARS doesn't fairly represent the people who give the board its mandate, and that continuation is viable and wise.
Will this undo the very grim consequences of Terry?s actions on behalf of CARS last week? I sincerely hope so. I also hope also that we can move forward with a better organization and a stronger community. This is a terrific sport, and we need effective, businesslike people running it who both love it as a sport and know how to manage it.
As a competitor,
ACP
Please see related posting at http://www.specialstage.com/forum/cgi-bin/DCForumID4/680.html for announcement of a meeting at Tall Pines this weekend to found a Competitors? Committee.
See also the news item that has just been posted at www.insidetracknews.com - click on "Breaking News"
To the shareholders in Canadian Rally:
I write to you as a competitor only and not representing any interest group.
The President of CARS (Terry Epp) and the Board of CARS (the elected representatives of the competitors in each of the five regions) committed a grave error at the end of last week that jeopardized rallying in Canada and from which it may not recover in the near future. The significance of this is enormous, it should not have happened, and it indicates to me, and I hope to you, that profound changes have to be made in the way rallying is run in Canada. I believe that it may cause me to lose my sponsors and not be able to continue racing.
BACKGROUND:
As you may know, the Rally Development Group (RDG) was formed early this year by Jud Buchanan and Keith Townsend to handle the business end of rallying in the country ? sponsor development, media relations, competitor relations, and so on. This had previously been the mandate of CARS through the Board of Directors and Terry Epp.
RDG came into being essentially because Subaru Canada, the most significant sponsor of the rally series in Canada, felt that its support had been taken for granted and that CARS was not doing its part to develop other co-sponsors of the series to take some of the burden. At the 2002 CARS Annual General Meeting (AGM) in Calgary they said that they would renew their sponsorship for one more year on the explicit condition that a cosponsor be found during 2003. When CARS did not do this, they gave the sponsorship money to RDG to be used as RDG saw fit in 2004. At the 2003 AGM in Montreal, Terry Epp and the Board arrived at the meeting with no sponsorship in place for 2004 and RDG arrived with Subaru?s mandate in hand.
The majority of the Board and President did not accept RDG and the arrangement with Subaru happily. They resisted the idea of a marketing group and thought that they could negotiate an independent deal with, first, Subaru, and then Yokohama.
By then end of the meeting only the intervention of the committee of event organizers broke the deadlock and a tense arrangement between CARS and RDG, with Subaru?s backing, was put in place for 2004.
THE CURRENT YEAR:
Throughout 2004 RDG did what I (and I believe all competitors) thought was an excellent job of marketing rally in Canada. We?ve seen newspaper coverage of an unprecedented scale, the TV shows have been excellent, and RDG was developing sponsors for 2005 and beyond. Tow funds have allowed more competitors to cross the country to make the series more national. The RDG webpage was very professional and I could send sponsors there to explain the series and follow its progress, which I could never say of the CARS page. In short, they were marketing rally in Canada better than it had ever been marketed before. They were running it as a business, but as a startup business in which they took a personal loss in the first year in order to build the business.
The RDG-CARS agreement that had been hammered out under the tense circumstances of the 2004 Montreal AGM contained a termination clause that would allow either party to terminate for non-performance of some substantial aspect of the agreement. The deadline for the termination provision was midnight on Nov. 12.
THE UNJUSTIFIED ACTION:
On Nov. 11, Terry got what he considered enough support from the board - and not everyone on the board participated in this process - to go to RDG and stipulate contract changes on the day before the termination clause deadline. The changes were significant and odd: a two-week termination notice provision (which is impracticable when working with sponsors who expect to be able to rely on RDG for at least the whole year), stipulated consultation with the CARS president (alone) for any sponsor negotiations (also highly burdensome), and a $2,500 licence fee per event to be paid by RDG to CARS. What any of these things was likely to achieve or how it addressed any perceived problems with RDG was not explained to anyone, including the certain board members who were not consulted.
As a lawyer who negotiates contracts every day I can tell you that these are highly onerous obligations to impose, for no apparent reason, at the last possible moment, and if I were a lawyer for RDG I would have advised them to consider, among other things, walking away.
RDG considered the obligations too onerous, and their unwillingness to capitulate led Terry, acting alone or with partial board support, to terminate the agreement with RDG at literally the 11th hour - half an hour before midnight of the termination deadline.
THE CONSEQUENCES:
Either Terry and the board members did not consider the consequences or they were monumentally blind to the significance of the termination.
In the first place, all goodwill with current sponsors and RDG itself is lost. Now, I don't think anyone saw RDG as a one-year startup - these relationships take time to build and all evidence indicated that RDG was doing as good a job as anyone could in similar circumstances. I see no negligence on their part.
Of course the most precious relationship has been with Subaru. We know from last January's AGM that Terry believes that CARS can convince Subaru to renew and that he can do it directly. But all evidence is to the contrary: Subaru appointed RDG as their agent for the sponsorship monies for a reason and that's how we (a) got here with RDG and (b) convinced Subaru that renewing was worthwhile even after the previous year which had been conditioned upon CARS getting co-sponsors of significance. That failed, so Subaru went to RDG. Now CARS has caused RDG to fail, and I will not be surprised if Subaru pulls out of title sponsorship.
I believe that Subaru has been very, very clear that it will not deal with CARS directly. If Terry and the board did not realize that (and, it appears, may still deny it) then we have to question the wisdom of those who do not see what was perfectly plain to everyone else at the last two AGMs: Subaru feels taken advantage of and will only deal with rally in Canada through more businesslike channels than they did previous to 2003. Further, they have lots of requests for their sponsorship dollars and must consider where to most effectively place them. If the placement is not effective or the relationship too difficult, then they can and will pull out.
If there is no title sponsor equivalent to Subaru, then there can be no television, and without that, the manufacturer rally teams (including Subaru?s own, and Suzuki?s) become less valuable and difficult to keep in the series. Without TV, I expect teams will pull out.
I and others at the front of the pack cannot make competing viable without TV and media for my sponsors, and at this crucial moment - while budgets are being done and decisions being made ? if I tell them that there is no TV I will have a harder time convincing them to support me. So I'm in a very bad position personally. Without a change, I won't be able to race.
WHAT HAPPENED?
So the way that I see it is this: essentially unilaterally, or perhaps with partial support of the Board, but for no apparent reason, Terry Epp has probably lost Subaru, lost whatever other sponsors RDG had been cultivating, and consequently removed a number of competitors from the field. Further, I understand that some of the Subaru money has traditionally been used by events to cover expenses ? without this, organizers will find it more difficult to make events viable, and entry fees may rise, affecting all competitors.
So corporate legitimacy and consequences aside, here's what really upsets me and what we must address: did anyone think of the competitors? Did Terry (and the partial board?) just not realize that his actions would take out not just individual competitors, but possibly entire teams? Early yesterday I emailed Terry to ask ?what I am supposed to do now?? but he has not responded.
Also, as a matter of corporate procedure and accountability, not involving the whole board in a meeting to discuss a very significant executive action is against the law of corporations. In a business it would normally lead to the removal of the director in question. Worse, it appears that Terry and at least some of the board are now participating in a reprehensible plot to solicit Subaru directly with the expectation of being turned down in order to shift blame away from themselves and onto Subaru and RDG, which is preposterous.
So I believe that something has to be done.
WHAT CAN WE DO?
First, I think that Terry Epp should resign or be removed as president for abusing his position as an officer elected by the Board that he did not properly consult.
Second, I think that the competitors in Canada should form a Competitors? Committee so that their interests can be articulated and protected at the national level. Technically, of course, the regional directors on the board are supposed to fill this role, but they have not done so on this occasion and I believe that a Competitors? Committee, mirroring the Organizers? Committee that currently exists, is an appropriate entity. Board members must be made accountable to their electorate.
Third, I think the by-laws of CARS should be revised to (a) increase the number of board members from five to seven, to include the President of the Organizers? Committee and the President of the Competitors? Committee, and (b) reform the process of electing a President to a more complete and democratic process that does not involve the outgoing president presenting himself to the Board at the end of the final Board meeting of the year, literally at the 11th hour on the night before the AGM, for reappointment.
Fourth, the tasks and paperwork associated with the CARS office in the Epp?s home should to the extent possible be contracted to a secretary or other entity. The Epps are paid an annual stipend for this. It has been suggested that the ASN itself might be an appropriate administrative office, and we can negotiate the fee. Otherwise there are others who I think might be willing to take this on.
All of the above is simple enough to achieve with respect to the bylaws and operating procedures of CARS ? it just requires the competitors and club presidents to use their voices.
IN CONCLUSION:
In summary, something has to change in CARS, from the parties who are running it, to the by-laws that require revision, to the lack of consultative process, to the unbusinesslike modus operandi. As a competitor and shareholder I feel absolutely cheated. If this were a corporation and I an investor, I would sue for management negligence, and CARS would become another Enron or Andersen with directors that misrepresented the business realities for their own interests.
What can we do right now about the departure of RDG and possibly Subaru? The first thing is to attempt to reform CARS along the lines above, or along lines that you might suggest. The second is to request in the most reasonable terms that RDG reconsider their position. The third is to tell Subaru that, unbelievably, CARS doesn't fairly represent the people who give the board its mandate, and that continuation is viable and wise.
Will this undo the very grim consequences of Terry?s actions on behalf of CARS last week? I sincerely hope so. I also hope also that we can move forward with a better organization and a stronger community. This is a terrific sport, and we need effective, businesslike people running it who both love it as a sport and know how to manage it.
As a competitor,
ACP
Please see related posting at http://www.specialstage.com/forum/cgi-bin/DCForumID4/680.html for announcement of a meeting at Tall Pines this weekend to found a Competitors? Committee.
See also the news item that has just been posted at www.insidetracknews.com - click on "Breaking News"