Tom and Russ
"A sucker for talent"
"I've always been a sucker for talent," Tom Monaghan told me when I interviewed him for my book, Living the Faith: A Life of Tom Monaghan. "And often I would not see faults."
Finding and inspiring talented employees helped Monaghan to build Domino's from a single Ypsilanti pizzeria in 1960 to seventy-six locations around the country by the end of 1973. But his trouble seeing people's faults also led to repeated disasters. In his 1986 autobiography, Pizza Tiger, he described how, as a young Marine, he was swindled out his life's savings by a "happy-go-lucky character driving a shiny '59 Buick." An early partner in Domino's bled the company of cash, then almost destroyed it with his debts.
By 1974, though, Monaghan was having doubts about his ability to run a big company and wanted to get all the help he could. "Our management structure had grown extremely complex," he wrote in Pizza Tiger. "The lines of authority were tangled in overlapping areas of responsibility, and it was getting to be too much for me to continue running single-handed." Looking through the business section of the Ann Arbor News one Sunday, he came upon an advertisement that instantly caught his attention:
An Important Message to All Business People Here is a brief accurate story about a real outstanding man who has just completed his latest project and who wants to go to work for a good group of people in the general area of this city ... This man has been in the capacity of General Manager and President of most every entity he's been involved with directly and he is used to starting over again and again ... He has an outstanding youthful open attitude realistic but full of confidence which he helps others build in themselves ... You should get to know this fellow.Could this be the man he had been looking for to help him run Domino's? Despite the appalling grammar and the obvious red flags
like "he is used to starting over again and again," Monaghan felt he had to find out, so he set up a meeting.
"He marched into my office precisely at the hour we'd agreed on," Monaghan wrote, "stiffly put out his hand, and said: 'Good morning. My name is Leroy A. Russell Hughes. My friends call me Russ.' I was impressed by his appearance. His dark blue business suit was obviously custom-tailored. I noted that the initials monogrammed on the cuff of his crisp white shirt were R.A.H., but it didn't occur to me to ask about the extra name he'd used to introduce himself. He wore glasses tinted so dark that I couldn't make eye contact with him, and this bothered me a bit."
Hughes showed Monaghan a list of the companies he had worked for with his salaries written out beside each position in fastidiously neat handwriting. "His description of what he'd done for these firms was fascinating," Monaghan told me. "He kept repeating that he understood how to achieve excellence in corporate management, that the company that followed his approach would achieve excellence. He was hypnotic."
The main reference Hughes gave was an "outstanding executive" in the Ann Arbor area. "'But unfortunately,' Hughes told Monaghan, 'he's on a business trip in Japan right now, so I'm afraid you won't be able to reach him.'"
Though he later discovered the executive wasn't in Japan, Monaghan wrote, he believed Hughes "may have made an honest mistake." Perhaps, but Monaghan had made a foolish mistake. Hypnotized by Hughes' line, he hired an executive vice-president without checking his references.
"The first thing I did, I put him in the commissary because the commissary was something I'd never made any money at," Monaghan wrote. "The main purpose of the commissary was to make the stores more successful. So I put him back there, and, boy, he shaped up that commissary! He measured every function. He had every cost down. I'd never seen anything like it before. And we started making money in the commissary." Hughes then unraveled Domino's tangled administration and did so "in an admirable fashion."
"But he wanted more," Monaghan remembered in our interview, "and so he talked me into [giving him] a higher position: he wanted to be president. He said he could do more if he had the title.
"He wanted to clean up this place. He always talked about how bad it was, and how much brilliance and excellence he brings to everything he does. He wanted me to step away from things because he couldn't do his job of bringing the company excellence if I'm there. So I said 'OK, make him president.'
"I thought I'd learn from this guy," Monaghan explained. "I listened to him talk for hours about how brilliant he is. I'd sit there and listen and listen and listen. I was a very patient man because I wanted to learn. I wanted to take the next step for the company."
"Russ deliberately created a mystique about his role," Monaghan wrote in his autobiography, "and I have to admit that I was mesmerized by it. After he'd been on the job six months, I boosted his salary to $25,000 a year [the equivalent of $127,000 today]. To show my appreciation for the outstanding performance he turned in, I bought him a used Rolls-Royce as a company car."
But being president wasn't enough for Hughes. "One Friday morning," Monaghan wrote, "he came into my office and said he had something important to discuss with me. I canceled all my appointments, and he spent the entire day and part of the night outlining his plan for a leveraged buyout of the company by himself and his friends. He said he was giving me a unique opportunity."
It was unique. Hughes and his friends wouldn't pay Monaghan anything up front. Instead, they promised to send him a check every month for the rest of his life. Monaghan asked him his plans for Domino's, and Hughes told him he'd dump the franchisees and keep only corporate stores.
"The more he talked, the more startling I found his plan," Monaghan recalled in our interview. "It was extremely detailed. He'd obviously spent a lot of time on it." At last, he saw Hughes' game. "I had given this man everything he'd asked for to help him do his job. But he hasn't been working for me at all. He's been working strictly for himself!"
Monaghan was furious but didn't let on. "This guy was insane," he remembered thinking, and suddenly odd things about Hughes began to appear both ridiculous and slightly sinister. "He had a toupee [but] never admitted it. I don't know why I was so naive. I didn't think anyone would wear a toupee. Early on, he showed me a picture in his wallet, and I saw his driver's license, and it was a bald man. When we'd go into restaurants, he'd keep his raincoat on for some reason. And he'd always watch where he's sitting so no one could get behind him."
When the meeting ended late that night, Monaghan was noncommittal. "My anger had been replaced by a sense of relief," he wrote later. "I couldn't wait to start analyzing the situation and laying plans. I spent the entire weekend with my legal pads, outlining the various options I had and how I might deal with them. When I finished late Sunday night, I had my whole plan worked out. The first step would be to call Russ Hughes into my office the next morning and ask him to resign."
It was Hughes' turn to be stunned. "I remember Russ was sitting there, and he said 'I don't understand. All I know is people,'" Monaghan recalled. Maybe so, but this time, Hughes had badly misjudged his man.
At last, Monaghan was nobody's fool. He'd been swindled by a grifter, cheated by his partner, blinded by his pride, and deceived by a man wearing dark glasses and a bad toupee. But not any longer. Now he knew he knew what he was doing, and secure in the confidence of that knowledge, Monaghan went on to fulfill all but one of his childhood dreams in less than a decade.
Russ Hughes wrote to every Domino's franchisee, announcing that he was starting his own pizza company. It lasted six months.
Excerpted with permission from Living the Faith: A Life of Tom Monaghan) (University of Michigan Press, 2012.
[Originally published in October, 2012.]