a year aFter Flash Boys made Brad Katsuyama Famous, he`s still

Transcription

Is management guru
Robin ShaRma for real?
tideS vS. tuRbineS:
an epic shoWdoWn
Pack mentality:
Why every kid is
toting a herschel
GooGle X, big sWinging
bats and Beeston on
Being Benched
Have onlIne
ne buyer’s remorse? blame thiS StaRt-uP
Flash
Fo rwa r d
a year aFter
Flash Boys made
Brad Katsuyama
Famous, he’s still
trying to save
wall street
From itselF
october 2015
DM151599_PgOFC_ROB_OCT_2015.indd 1
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contents
10/15
COVER PHOTOGRAPHED ExClusiVEly fOR REPORT On businEss mAGAzinE
by will sTEACy; (TOP) ROCHEllE suRETTE; (bOTTOm) TREVOR bRADy
44
the tides are big
in the Bay of
Fundy—and so, too,
are the turbines
that will tap them
Features
26 Starring Brad
Katsuyama as himself
The hit book Flash Boys made Brad
Katsuyama the hero of a Wall Street
morality tale. But this Toronto
native would rather forget the hype
and focus on building his own stock
exchange. /By Patrick White
34 The karma of Sharma
In what world do humility and
leadership go hand-in-hand?
Only in the touchy-feely realm
of Toronto leadership guru Robin
Sharma. /By Maryam Sanati
44 The moon is a
harsh mistress
The Bay of Fundy’s fabled tides will
soon generate the greenest power
around. Assuming they don’t trash
the turbines, that is. /By John Lorinc
52 Leaders of the pack ⟶
In just six years, Vancouver
hipster bag-purveyor Herschel
Supply Co.—the creation of
Jamie and Lyndon Cormack—has
grown into a global phenomenon.
/By Iain Marlow
OCTObER 2015 / rePOrt ON BusINess 1
DM151599_Pg01-03_ROB_OCT_2015.indd 1
15-09-09 10:04 AM
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15-09-08 11:23 AM
10/15 CONTENTS
10
These gulls smell
smelt—with Great
Lakes Food Co.
in pursuit
DEPARTMENTS
4 Feedback
PHotoGrAPHs (toP) joHn PAckmAn; (bottom) AlAnA PAterson
7 The Interview
Can you say you designed
something that hundreds
of millions of people
use every day? Thought
not. But Doug Wightman
of Google X can
10 Fisheries
Lake Erie’s smelt fishery
depends on two things.
One is Asian demand. The
other is the survival of a
population threatened by
invasive species
12 Graphic Details
There’s no baseball
without stats—and the
Blue Jays show that total
payroll may be the most
important stat of all
14 Venture
When a shopper is just
a click away from
committing, Edmontonbased Granify is there
to close the sale
18 Made in Canada ⟶
Landyachtz is a slacker’s
class project that turned
into sales of 100,000
longboards a year
20 Corporate
Governess
What’s not worth getting
an ulcer about (people
who are 10 minutes late
for a meeting); and what
might give you a heart
attack instead (chronic
managerial rudeness)
22 Reguly
The worldwide obsession
with building skyscrapers
is not just destroying
historic views—it’s erasing
the distinct character
of great cities
66 Exit Interview
After a career at the
Blue Jays stretching back
to day one, retiring
president Paul Beeston
has no regrets—except
for how Toronto could
be a bit more like Boston
october 2015 / REPORT ON BUSINESS 3
DM151599_Pg01-03_ROB_OCT_2015.indd 3
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Feedback
October 2015, Volume 32, No.3
Editorial
Editor gary salEwicz
Managing Editor Judith PereirA
Senior Editors dAwn cAlleJA, John dAly, ted mumford
Copy Editor JeAnette king
Research cAtherine dowling, dAwn Promislow,
chArles rowlAnd, AnnA-kAisA wAlker
art
Art Director dOmENic macri
Director of Photography clAre vAnder meersch
contributors
Jennifer AlexAnder, dAvid bermAn, steve breArton,
Antony hAre, diAne Jermyn, tim Johnson, John lorinc,
iAin mArlow, iAn mcgugAn, gordon Pitts, kristene
quAn, eric reguly, mAryAm sAnAti, seAn silcoff,
seAn stAnleigh, doug steiner, ivor tossell,
PAtrick white, shirley won
advertising
Chief Revenue Officer aNdrEw saUNdErs
Business Manager, Magazines rolfe Jones
Advertising Co-ordinator,
Marketing Solutions Group sonJA tAsovskA
Production
Director, Production sally Pirri
Production Co-ordinator isAbelle cAbrAl
Publisher PhilliP crawlEy
Editor-in-Chief, The Globe and Mail daVid walmslEy
Report on Business magazine is published 10 times
a year by The Globe and Mail Inc., 444 Front St. W., Toronto
M5V 2S9. Telephone 416-585-5000. Letters to the Editor: [email protected]. The next issue will be on
Oct. 30. Copyright 2015, The Globe and Mail.
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tgam.ca/r
FATHERS
And SonS
argued one reader. Others agreed,
including this one: Unbridled
“Cry of the
tiger,” Tim
Kiladze’s
comprehensive look behind the scenes
at mutual fund giant AGF
Management, hit a nerve. This is
be required reading for anyone
intending to vote.
what happens when daddy bestows
the CEO title on his little boy. Same
story at Bombardier, commented
A nASTY piECE
oF woRK
one reader. This opinion had
some traction: Blake [Goldring]
is no Warren [Goldring]. Warren was
a maverick in the mutual fund
industry in Canada and had amazing
business and people sense—things
that aren’t genetically passed
on in some cases, this being the
most obvious and painful one. A
disgruntled former AGF investor
also commented: Talk a good
game but deliver poor performance
and clients leave. I’m one.
HARpER on
THE HoT SEAT
Prime Minister
Stephen Harper
evokes strong
feelings in
Canadians of
all political
stripes, as
demonstrated by the flood of
comments we received about
Lawrence Martin’s feature
article “The great economist.”
Harper’s years constitute a crafted
catastrophe…for our economy and
for our democratic institutions,
wrote one reader. 20, 30, 40 years
from now, how will history remember
Mr. Harper? It won’t be for jobs
creation, it won’t be for building
wealth for Canadian citizens, said
another. But a sizable group of
readers don’t blame the Prime
Minister for Canada’s economic
woes: Wow—in case [Martin] didn’t
realize, there was a global recession
and a total collapse in oil prices
during Harper’s tenure. Comparing
economic accomplishments of a
boom era to that of the biggest
recession since 1929 is ridiculous,
growth is not sustainable, and when
it ends, economies slow—doesn’t
matter who’s in office. The final
word goes to the commenter who
had this to say: Excellent. Should
In “Take it from
a jerk,” Cathal
Kelly advocated
for more jerks in
the workplace,
because they get things done.
Not according to most of the
comments we received: You
know who else gets things done?
Non-jerks. Non-jerks are easier
to work for. Non-jerks are easier
to work with. Who cares if a jerk
occasionally hits one out of the
park? In this job market, I can get
lots of good people lined up to work
for me who are not jerks, wrote one
dissenter. The jerks I’ve worked
with, and for, are notable for going
out of business or leaving the
business in total shambles as they
moved on to their next victim. Real
leaders are tough enough to handle
the unpleasant but necessary
challenges without unnecessary
collateral damage and drama, wrote
another. Lastly, this commenter
added: C’mon Cathal. Surely there
is some choice between being a
jerk or a wimp. It’s quite possible to
be focused on delivering excellent,
timely work and enjoy yourself in
the process.
CoRn in THE CAR
Commenters unanimously
rejected plans by seed developers
like Monsanto and DuPont to
expand corn production in the
Prairies by developing hybrids, as
Eric Atkins reported in “Make it
pop.” We don’t need it, one reader
wrote. Big picture: One of the major
demand drivers is corn ethanol
and we DO NOT need corn ethanol!
Bio-based fuels can be produced
4 october 2015 / REPORT ON BUSINESS
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fro
ar
pe
So
O
Ti
Go
re
st
At
wi
slo
Ha
to
Al
Fi
Ca
ou
he
D
qu
In
d,
n
o
What you were reading on the Web this month
from feedstocks and in ways that
are not so intensive of land, energy,
petrochemical and water use.
SO LONG!
Our Exit Interview on Alex
Tilley (“The hat must go on,” by
Gordon Pitts) prompted many
readers to share their Tilley
stories. A success story indeed.
At the beginning Alex came up
with the wonderfully prophetic
slogan: The Not Yet Famous Tilley
Hat. Many readers just wanted
to say goodbye: Hats off to you,
Alex Tilley! Enjoy your retirement.
fiGhtiNG wOrdS
Calgary is down but far from
out, says Mary Moran, the new
head of Calgary’s Economic
Development agency (“Mary,
quite contrary,” by Alec Scott).
Interesting contrast between how
Alex Tilley hangs
up his hat
Crude prices
be damned,
Calgary’s
not worried
Jerks are
unpleasant
to be around,
but they get
things done
20%
10%
12%
26%
27%
5%
this stretch of economic bad news
in Calgary is being handled, versus
the 2008/2009 meltdown that hit
Ontario hard. Albertans? I have not
seen one scream for the government
to bail out the oil companies.
Instead they’re telling the new NDP
government to basically stay out of
the way, wrote one reader. Some
The inside
story of the
mess at AGF
Harper’s
economic
plan: Spin
to win
Other
commenters didn’t share Moran’s
optimism: Calgary’s not worried…
I can tell you individual Calgarians
are. Everyone I know that works
in oil and gas is worried every day,
when is the axe going to fall. About
half of the people I know have
already lost their jobs, the rest of us
are unbelievably stressed.
Winner of
our eagle-eye
award
The September
issue had a
piece comparing
Toronto to
Chicago.
It reported
435 murders
in Chicago
compared to
Toronto at 104.
That didn’t
seem right, so
I checked and
the actual
number for
Toronto was 57.
Steve Lico
Toronto, Ontario
e
e
s
s
r
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10/15
The new commute
Landyachtz sold
100,000 of its
cruise-worthy
longboards last
year page 18
Business Intelligence
Tiny fish, big business • Baseball’s bang for buck • How e-stores get you to buy • Jerks at work • Reguly bah-humbugs big buildings
The Interview
Moonshots
Doug Wightman’s goal at Google X is to develop technologies that, if they work, will change the world
photoGraphs chris amat/Great northern collective; (top) john kealey
S
etting up an
interview in a semisecret location can
be tricky, although,
at first, I thought
just the opposite would be true.
After all, Doug Wightman works
for Google. Couldn’t I just
Google it, I (lamely) joked in
a text to him? Apparently not.
Wightman doesn’t just
work for Google—he’s a lead
software engineer at Google
X, the company’s generator of
innovative new products and
technologies. It’s the place
that pioneered Google Glass,
attempted to make a Back to
the Future-style hoverboard
and a Rocketeer-esque jet pack,
and that’s currently putting
self-driving cars on the roads
of Northern California. When
I had tried to find the offices on
Google Maps, the application
pointed me to a now-shuttered
location. Wightman ended
up texting me the directions,
with the understanding that I
wouldn’t share the co-ordinates
with the world.
He meets me there on a sunny
California afternoon in the
parking lot of a nondescript
building, a boxy glass-and-brick
structure that would look at
home in any suburban office
park. Wightman, casually clad in
the uniform of Silicon Valley—Tshirt, jeans and sandals—clips a
security badge onto my shirt and
walks me into the stripped-down
facility, part office, part test lab.
Google X, Wightman explains, is
aiming to improve technologies
by a factor of 10. Instead of
Wightman wields
a piece of a WiFi
transmitter Google X
has developed to
help connect the
world to the Internet
DM151599_Pg07-08_ROB_OCT_2015.indd 7
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10/15
2 the term
T
Top 1000
Check-in
In venture capital
parlance, unicorns
are tech start-ups
valued at a billion
dollars or more.
Once as rare as
their mythical
namesakes, the tech
incarnations now
seem as ubiquitous
as squirrels at a
park. Vancouver’s
Hootsuite and
Waterloo’s Kik
Interactive are
unicorns, and
more established
Canadian firms
such as Open
Text Corp. (#82),
Constellation
Software (#137)
and Amaya Inc.
(#690) likely would
have once qualified.
Analytics firm
CB Insights has
identified about
130 unicorns valued
at $485 billion
(U.S.) spread
around the world.
UniTed STaTeS
“design thinking”
settling for incremental change, of people every day.”
known, was created
was popularized
they step back and look at the
When Wightman talks and adapted for with the ambitious
business by David goal of providing
big picture. “The idea is that the about his start-ups—he
kelley, the creator
same effort is often required to
has incorporated a halfInternet access to
of apple’s first
make a 10-times improvement
dozen companies—and
mouse. he went the two-thirds of the
on to found iDeo, world’s population
as a 1% improvement.”
his work at Google, he
an influential
We grab a free, gourmet
often talks in terms
that is currently
design firm in
lunch from X’s cafeteria and
disconnected. So far,
of design thinking (2),
palo alto.
sit down outside at a picnic
ideas he honed at
they’re working—the
table. Easygoing and selfStanford. It’s a business
balloons have stayed in the
deprecating, you’d never guess
philosophy that draws on the
air as long as six months, one
that Wightman holds one of the work and processes designers
has circumnavigated the globe
world’s most in-demand jobs.(1) have long used, and which are,
nine times, and, like small
He is also thoughtful, pausing
in some ways, antithetical to
satellites, they’ve provided a
for a brief moment after each
traditional business practices. In good connection on the ground.
question as he explains how he
short, design thinking embraces Wightman is responsible
arrived near the pinnacle
failure, a willingness for the project’s cost curve,
1 each year, more to try prototypes and determining how many balloons
of the tech world.
than two million
A native of Kingston,
see what happens,
are needed to provide adequate
people apply for
jobs at Google,
and brainstorming
Ontario, Wightman had
quality of coverage over a given
and only a tiny
a peripatetic academic
wild
ideas.
Failure
is
region. “It’s pretty exciting to
fraction secure
career. He majored in
part of the cultural
navigate balloons around the
a position—it’s
almost 10 times
commerce at Queen’s
fabric at X (3)—new
world,” he says, “in simulations
harder to get a
University—“I didn’t
and with real balloons.”
ideas
are
subjected
job at the tech
want to be stereotyped
While the commercial
giant than to get to repeated and
into harvard.
as a programmer”—
applications are still a ways
persistent testing
before moving on to Stanford,
with the goal of making them
off, Wightman says he loves
where he earned a master’s
his work on Loon—in part
fall apart. Many of these ideas
in computer science, and
because it’s solving one of the
are called “moonshots”—
studied at the university’s
seemingly crazy ideas that have world’s most needful problems.
groundbreaking Institute of
“I believe the Internet is
little chance of success but
Design. It was his dissertation— which would, if they were to
incredibly empowering,” he
again at Queen’s—exploring
says, noting stats that show
succeed, change the world.
how online search could make
increased connectivity leads
On the way to lunch,
programming easier that caught Wightman had shown me mock- to steady, concurrent rises in
the attention of some Google
GDP. “It’s about opening up
ups for some of the projects.
execs in 2012, and launched
opportunities for people to live
There was a drone built for
his career at the company. His
different lives—and the fact that
some undisclosed purpose,
subsequent work on a software
as well as a prototype
we can, hopefully, play a
system for the search engine
substantial role in that is
of a lightweight
3 created in
2009, X is the
significantly reduced the time
balloon, which as
very exciting. It’s a legacy,
baby of Google
that was required to load pages. it criss-crosses the
something that you can
co-founder
“It’s still confidential, that’s the
Earth from the edge
tell your kids—that I was
sergey brin,
who holds the
tricky part,” he says, carefully.
of space, beams
one of the people who
title of Google’s
down an LTE signal.
“But I built a system that’s
figured out how to make
director of
Project Loon, as it’s
used by hundreds of millions
special projects. this happen.” /Tim Johnson
79
northern peso
% gain/loSS (2015)
3
mexican peso
7
5
germany
-12
canadian dollar
17
Canada
-9
auGust
india
-3
january
-6
UniTed Kingdom
0
China
The Bank of Canada’s two interest rate cuts
this year sent the loonie into a deep dive. The
swoon had economists and Bank of Canada
head Stephen Poloz anticipating a boost
in manufacturing. The argument: A low
Canadian dollar makes our goods cheaper for
American buyers. Turn on the hiring spigots!
But that never happened, a result Poloz in July
called “a puzzle.” Maybe the problem lies in
the chart at right: As the loonie fell, so did the
Mexican peso—all the reasons manufacturers
have flocked to Mexico instead of Canada
over the last decade are still in place.
3 2
-15
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T L
15-09-08 2:14 PM
10/15
Fisheries
Great Lake swimmers
O
Fishers on Lake Erie are sending their catches to markets as far away as Asia
Besides the men with the nets, the smelt in
the Great Lakes face other, more pernicious
man-made threats. The shipping industry has
inadvertently introduced such invasive species as sea lamprey—a parasitic fish native
to the Atlantic Ocean—and zebra mussels,
which scientists believe are contributing to
algae blooms. The arrival of Asian carp here
also looms. “If you’ve seen what has happened in the U.S., it might be a little cause for
concern because the carp have just gone in
and taken over massive bodies of water,” says
John Neate, the president and chief executive
officer of Great Lakes Food Co.
Perhaps the most pressing issue for the
$170-million industry, however, is finding
people to work the nets; fishers are in short
supply. “I think that younger kids look for different work than this,” says Joe Zimba, captain of the Donna F. “It kind of takes a lot of
your summer time and your personal life.”
The Donna F.’s catch this day, after two
hours of trawling, was about 8,000 kilograms
of smelt. Their final destination—dinner
tables in Asia.
/Kristene Quan
PhOTOgRaPh jOhN PackmaN
On a recent August day, the fishers aboard
the Donna F. and their sister boat the B.E.
Miller chugged out into the waters of Lake
Erie. The conditions were ideal. You need
hot weather to fish for smelt, tiny fish which,
when fully grown, range from 7.5 to 11.5 centimetres long. As the water warms, the smelt
school in the lake’s cooler, deeper regions;
the fishers then lower their seine nets and
take the whole lot in one go.
The Great Lakes Food Co. in Chatham,
Ontario, owner of the Donna F. and B.E. Miller,
is one of the largest harvesters of freshwater
smelt in the world. With five boats trawling
Lake Erie this year, and two others on contract, the company controls almost half of the
nine-million-kilogram annual quota.
Of the five Great Lakes, Erie has the largest
fishery, accounting for about 80% of the commercial catch. “The species with the highest
value are definitely walleye, yellow perch
and what’s called whitefish,” says Kevin Reid,
the assessment manager of the Ontario Commercial Fisheries’ Association in Blenheim,
Ontario. “After that, I would put the smelt.”
10 octobEr 2015 / REPORT ON BUSINESS
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PhOTOgRaPh jOhN PackmaN
after the catch
is transferred to
waiting trucks,
it will be driven
to the great Lakes
Food co.’s plant in
chatham, Ontario,
where the fish
are frozen, graded
and packed
octobEr 2015 / REPORT ON BUSINESS 11
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10/15
Graphic Details
ROI of RBIs
In late July, the Toronto Blue Jays gambled that the addition of shortstop Troy Tulowitzki and pitcher
David Price would give them a shot at the World Series. The trades added $9 million (all figures in U.S. dollars)
to the team’s annual payroll—at $134 million, the Jays are the 10th most expensive team in baseball—
but quickly helped boost them into playoff contention. Of the 10 teams with the largest payrolls, only three—
Toronto, the New York Yankees and the LA Dodgers—had a chance for a playoff berth as of Sept. 1.
Here's how the Jays and their stars match up against the other contenders. /Steve Brearton
COST PeR HOMe Run*
$545,000
LA Angels
first baseman
Albert Pujols
44
Toronto Blue Jays
outfielder
José Bautista
40
Detroit Tigers
designated hitter
J.D. Martinez
43
Seattle Mariners
outfielder
Nelson Cruz
49
Baltimore Orioles
first baseman
Chris Davis
44
Toronto Blue Jays
third baseman
Josh Donaldson
44
$350,000
$326,000
$292,000
$272,000
# OF HOMe RunS
0
50
COST PeR win
$26,200
19 Pittsburgh Pirates Gerrit Cole
$27,950
$1.2
MillioN
$4,200
$103,000
$887,000
P
$25,800
N
$1.2
MillioN
$1.2
MillioN
$996,000
P
116 Baltimore Orioles first baseman Chris Davis
ls
uston
Ho
120 Arizona Diamondbacks first baseman Paul Goldschmidt
$1.4
MillioN
ets
123 Colorado Rockies third baseman Nolan Arenado
$80,600
$1.5
MillioN
Chi
c
YM
124 Toronto Blue Jays designated hitter Edwin Encarnación
$121,700
irates
115 Toronto Blue Jays outfielder José Bautista
$32,600
KC
131 Toronto Blue Jays third baseman Josh Donaldson
yals
Ro
onto Blue
or
o Cubs
ag
COST PeR Run BATTeD in *
$1.8
MillioN
$2.4
MillioN
ys
Ja
Tex
as
$450,000
ngers
Ra
sburgh
it
16 Toronto Blue Jays David Price
$1.2 million
$3.4
MillioN
St. Lou
17 Toronto Blue Jays Mark Buehrle
es
20 Houston Astros Dallas Keuchel
NY Yanke
T
$347,500
ers
dg
Cardina
is
20 San Francisco Giants Madison Bumgarner
Do
$171,400
LA
21 Chicago Cubs Jake Arrieta
of teams that could make the playoffs*
tro
As s
COST PeR PiTCHinG win*
photographs (pujols) tom gannam/ap; (bautista) jon blacker/cp; (martinez) mike segar/reuters;
(cruz) duane burleson/ap; (davis) patrick semansky/ap; (donaldson) chris yound/cp
$98,000
*All numbers are projected totals for a 162-game season, based on performance to Sept. 1
15-09-09 10:21 AM
TOY BLOCKS
PILLOW FORT
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YOUR PASSIONS
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available hybrid engine, intuitive park-assist, handcrafted heated steering wheel and ventilated
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2015-08-26 10:49 AM
15-09-08 11:09 AM
10/15
Venture
You’d look great in that
granify turns hesitant digital browsers into decisive shoppers. No wonder its numbers are gangbusters
pants, Granify’s software springs into
action, reminding you of a generous
return policy or showing you the nearest
store where you can exchange your new
pants for a larger pair if need be. If your
mouse has been hovering or you’ve been
looking for a cheaper price somewhere
else, it might be time to flash a discount
or offer free shipping.
Welcome to shopping in the world of
big data.
Granify co-founder and CEO Jeff
Lawrence was studying at Stanford
University in 2011 when he read about
Hadoop, a piece of software then under
development that would allow for the
cheap storage and processing of massive
amounts of data across many computers. Before Hadoop, the big-data ideas
that drive Granify would have been too
technically cumbersome and expensive.
Lawrence now had the tool to make his
ideas come alive.
Despite a background working for
other people, including time as a risk manager at ATB Financial, Lawrence had a history of founding
companies before Stanford. In 2002,
when Internet advertising was awash
in faux-neon and whack-a-mole games,
he had founded a precursor to Granify
that used data to help target ads. Clients
could put down the digital megaphone.
At Stanford, Lawrence wanted to face
the next challenge. He was no longer
interested in driving shoppers to websites; using the power suggested by
Hadoop, he now wanted to persuade
them to buy something when they got
there. Granify’s business model—charging clients according to how much its
software increased their sales—gradually fell into place. “I figured the time
was now, it’s so obvious,” Lawrence
remembers. “I didn’t need to be first—I
photograph chris thomaidis
Y
ou aren’t alone when
you’re shopping online.
Whether you’re searching for a pair of chinos
while sitting at your
kid’s soccer game or
browsing for a cheap flight at the office,
the business on the other end is anticipating your next move—or it is, at least,
if it has bought software from an Edmonton company that’s gathering 400 data
points on you every second.
Operating far from the California tech
heartland, Granify is largely unknown.
But the start-up’s software knows a lot
about you and your tastes. By the end
of the average shopping session, the
software will have logged 100,000 data
points from your clicking, all while asking itself a simple question: How can I
persuade you to buy?
When you’re hesitating on a sizing
chart or flipping back and forth between
Developers led
by Granify CEO
Jeff Lawrence
lovingly refer to
their shoppertracking software
as “the brain”
DM151599_Pg14-16_ROB_OCT_2015.indd 14
15-09-03 10:26 AM
15-09-08 2:02 PM
10/15
figured there were already 10 out there.”
There weren’t. Since Granify was
founded in October, 2011, no direct competitor has emerged.
There’s no elevator pitch for Granify.
In the company’s early days, its salespeople would be met with crickets when
they said they were selling an automatic
revenue optimization platform that
gathers data in real time and dynamically changes a website. Brady Cassidy,
the company’s director of growth, says
the pitch to prospective clients still takes
more than a half-hour.
Sitting in a hoodie and black Granify
T-shirt in the downtown Edmonton
office where 31 of Granify’s 39 employees
work, Lawrence gives the short version:
“We can normally predict what someone
is going to do before they do it,” he says.
“We are able to predict the future and
change the future to what we want it to
be. That’s how we merge machine intelligence and psychological design.”
The company’s precognition comes
from what Granify’s developers lovingly call “the brain,” the software that
tracks customers’ cursors and modifies
the website they are looking at to change
their behaviour.
With more than 90% of its business
coming from outside Canada, Cassidy
says the company is profitable as of
the end of 2014, with revenue having
grown by 1,200% in the preceding eight
months. “There’s a lot of hypergrowth
in tech, but that’s still pretty crazy.” And
Granify’s sweet spot is not going to disappear: Canadian e-commerce sales are
expected to grow 16% and top $29 billion
this year, according to research company eMarketer.
The company’s staff has doubled in
size from May to August, and it could
double again before the end of the year.
The company has hired across all divisions, bringing on new developers, designers and salespeople.
In May, Valar Ventures, a fund backed
by PayPal co-founder Peter Thiel, invested $9 million in Granify. Lawrence
says the money wasn’t as valuable as the
experience Valar will bring to Granify.
The company has 30 large-enterprise
clients, which it defines as those with
over 100,000 visits per month, although
Cassidy adds that most have several
million monthly visits. Granify recently
signed an airline and announced that it
had boosted the revenue of a Fortune
500 company by 28% in three months
(Granify will not identify either company). By the end of 2016, the company
aims to reach $25 million in annual revenue, Lawrence says.
Granify’s arrival is nicely timed as
analytical tools and big data transform
e-commerce, says Professor Umar Ruhi
of the University of Ottawa’s Telfer
School of Management. “Big data is
becoming business as usual for some
companies, and Granify is in that space,”
says Ruhi. “The world is moving toward
the use of more prescriptive and predictive analytics.”
While retail will remain the company’s core, Lawrence has contemplated
a future where Granify is used to plan
trips, manage finances and predict personal health. “All powered by the Granify
brain,” Lawrence says. /Justin giovannetti
•
Tall Tales
/kristene Quan
Thrive: The
Third Metric
to Redefining
Success and
Creating a
Life of WellBeing, Wisdom,
and Wonder
(Patagonia)
Let My People
Go Surfing
•
richard branSon
Losing My Virginity:
How I Survived, Had Fun, and Made
a Fortune Doing Business My Way
sofT
leSSon
Have fun
•
Jack: Straight
from the Gut
Lean In
People first,
strategy second
Sheryl
Sandberg
leSSon
•
howard Schultz
Onward: How Starbucks
Fought for Its Life without
Losing Its Soul
•
bill gateS
•
Business @ the
Speed of Thought
Martha SteWart
•
The Martha Rules
John Mackey
leSSon
Prepare for occasional
dark nights and
remain steadfast
(Whole Foods)
Conscious
Capitalism
•
reid hoFFMan
•
kirStine SteWart
(linkedin)
The Start-up of You
leSSon
How you gather,
manage and
use information
will determine
whether you win
or lose
•
eric SchMidt
How Google Works
skim
hard
This month, Kirstine
Stewart, Twitter’s vicepresident of North
American media, releases
her first book, Our Turn:
Time for a New Kind
of Leader, in which she
argues that women are
best suited to succeed
in the digital age. She joins
a slew of execs who’ve
expounded on the question
of leadership—some
offering concrete advice,
others not so much.
Here’s a guide on where
to devote your time.
•
arianna
huFFington
•
yvon chouinard
Leadership
Jack Welch
photographs (KirstiNe stewart) Fred lum/the globe aNd mail; (braNsoN) david shaNKboNe;
(welch) chip east/bloomberg; (gates) chris ratcliFFe/bloomberg; (martha stewart) david shaNKboNe
read
DM151599_Pg14-16_ROB_OCT_2015.indd 16
15-09-03 10:26 AM
479 Wellington Street West, Toronto, Canada M5V 1E7
Date: Sept. 1, 2015
PROOF #: 13
15-09-08 11:06 AM
10/15
Andy Soloman uses
a heat transfer
machine to apply a
graphic to a board
I
Made in Canada
Board games
Net worth of the three richest skateboarders
$135
mIllIon
Tony Hawk
$85
mIllIon
Rob Dyrdek
$50
mIllIon
Rick Howard
30
mIllIon
estimated number
of people worldwide
who skate at least
once a week
2014
skateboarding had
its olympic debut
at the nanjing
Youth games
photograph alana paterson
In the late 1990s, the University of Victoria was known for Ultimate Frisbee, hacky-sacking and general
slackery—the perfect incubator for a company devoted to the fine art of coasting. Landyachtz was born
when Tom Edstrand had to write a business plan for class and found inspiration in the homespun 40-inch
board his friend Mike Perreten used to cruise campus. “It was basically a plank on wheels,” says Perreten.
The class project proved that manufacturing commuter boards could be a viable enterprise, so they began
fashioning samples in a basement apartment. The two budding entrepreneurs focused on producing boards
with long decks, a low centre of gravity and big wheels that make downhill boarding akin to carving lazy
S-turns on ski slopes. “There’s a certain commute distance where a longboard works better than a bike
or anything else,” says Perreten. “With that in mind, we really sold boards as a way of improving people’s
quality of life.” Over 18 years, they grew out of basements and into a 9,000-square-foot East Vancouver
headquarters. Last year, Landyachtz shipped over 100,000 boards, priced between $130 and $300. Sales this
year are cruising for a 30% bump over 2014. But success hasn’t robbed the duo of time for camaraderie and
product testing. “We go to lunch almost daily on our boards,” says Perreten. “It’s such a great way to get
around. That’s how we know there’s still so much more potential.”
/Patrick White
15-09-03 9:42 AM
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Services; visit the CCTS website or see telus.com/bestservice for details. † Offer available for a limited time and is subject to change without notice. Available on 2 year terms for subscribers porting in from
a competitor. Available on PCS devices only for all Business account types with 2 or more subscribers. Not available for Consumer accounts. $300 credit available on Smartphones. Lower credit amounts
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15-09-08 11:15 AM
10/15
140-character
reviews
Are the machines
taking over?
Dunno, but just in
case, don’t lend
them these books
Corporate Governess
Our Robots,
Ourselves:
Robotics and the
Myths of Autonomy
by David A. Mindell
MIT engineering prof
weighs pros (exploring
locales like space) and
cons (killer robots).
When stakes are high,
humans intervene
It’s about time
—Cameron B., Toronto
Dear Cameron
A little of each. It’s really a catchphrase meaning, I didn’t leave early enough to allow for
[insert outlandish excuse here]. The truth is
usually that they ran into some traffic issue or
hit the snooze button one time too many. But in
the end, it doesn’t matter why they’re late. You
can’t make people appear on time, and you still
need to do business with them. It’s not worth
getting an ulcer over it.
So be gracious whether the reason is real—I
had to rush my child to emergency this morning—or not. You’re not the late police. However,
you have every right to manage your own time
when people call with their excuses. Say, “I’m
so sorry you’re going to be late, as that will cut
down on our time together. My day is already
booked so, unfortunately, I can’t go past our
scheduled time.” Or, “I’m sorry you’re having
difficulty getting here this morning. We’re going
to go ahead and start and you can just come in
quietly when you arrive.”
Be prepared to give the tardy offender a oneminute roundup of what they’ve missed and
make them feel welcome. The bonus is that you
then won’t be bogged down by their questions
after the meeting.
Dear Corporate Governess
Since I started a new position last year,
I’ve noticed that my blood pressure has gone
through the roof. It’s not the work, but my boss’s
rude management style. How do I teach the jerk
some manners without losing my job?
—Drew M., Vancouver
Dear Drew
Take a look at the whole organization and see
if rudeness runs rampant. Amazon’s bullying
management style is currently in vogue at some
companies that believe promoting conflict produces creative results. While Amazon may be
successful as a business, there’s a cost when
demoralized workers leave in droves. And leave
is exactly what you may need to do if yours is
that kind of company. According to Robert M.
Sapolsky, a Stanford professor and author of
Why Zebras Don’t Get Ulcers, our immune systems can’t take incivility for too long or too
often. While I get that you want to keep your job,
you’re risking a potential heart attack here.
However, if this guy is an anomaly in an otherwise respectful environment, you could ask
HR for help. Empathy training is a big deal these
days at more enlightened companies such as
Apple, which actually teaches employees how
to be kind to one another. Civility can also be
taught by example—ideally from the top down,
but don’t underestimate the power of one. Start
by praising your colleagues, including the jerk,
if “please” or “thank you” should accidentally
pass his lips.
What to Think About
Machines That Think:
Today’s Leading
Thinkers on the
Age of Machine
Intelligence
edited by
John Brockman
A book-length thread
on the smartest
web forum ever:
posts are brief,
sometimes brilliant
(@DrHelenFisher,
@DougCoupland),
often repetitive
Reclaiming
Conversation:
The Power of Talk
in a Digital Age
by Sherry Turkle
Alone Together author
@STurkle doubles
down on Malthusian
thesis—texting makes
us sad. Good thing
phones also have ondemand cat videos
IlluSTrATIon AnTony HAre
Dear Corporate Governess
I’m tired of people calling 10 minutes before
a scheduled meeting to say “I’m running late”
and expecting to be accommodated.
Am I being unreasonable or are they?
20 oCToBer 2015 / REPORT ON BUSINESS
15-09-03 9:39 AM
L ib ertad
y O rd e n
15-09-08 1:56 PM
Eric Reguly
The schlock of the new
London is not alone in the vertical sweepstakes. Toronto has
he new Blackfriars train station in London
is a marvel. The airy cavern of glass and hidden its waterfront behind a wall of look-alike condo towers.
steel straddles the Thames River, giving Paris is getting into the skyscraper game, as are other European
passengers magnificent views of the city. If capitals. Rome (where I live) is one of the few capitals in the
they look downriver, they will see St. Paul’s world yet to be despoiled, as egomaniac mayors and property
Cathedral, one of London’s best-known developers view very tall buildings as global status symbols.
Celebrity architects such as Renzo Piano, Frank Gehry,
landmarks for more than 300 years. Clarification: They will barely see St. Paul’s, for today Sir Christopher Zaha Hadid, Norman Foster and Daniel Libeskind are in high
Wren’s masterpiece is lost in a vertical jungle of skyscrapers, demand and pump out designs apparently aimed more at
attracting attention, like Renaissance codpieces, than enhancas if London were competing with Dubai.
Londoners have invented colourful names for their new ing a city’s traditional streetscape. Some of their creations are
towers, including the Gherkin, the Cheesegrater and the imaginative, stylish and practical; some are not, or are fine creWalkie Talkie. The 310-metre Shard, the tallest building in the ations plunked at the wrong address.
The process of turning big cities into clones of Atlanta or
European Union, dominates the south side of the river. It is
Hong Kong can create more than freakish cityscapes. They
shaped like a skinny pyramid and is strikingly elegant.
Two of the most startling new towers have Canadian pedi- create long-term problems. One is environmental. Sky-piercing buildings covered in glass windows
grees. Not far from the Shard is the Strata,
that can’t be opened require huge amounts
developed by an arm of Toronto’s Brookof energy all year round for heating, ventifield Asset Management. It looks like an
Celebrity architects
lation and air conditioning. Energy prices
electric razor and is laughably hideous. In
are in high demand
may be falling, but at some point they
2010, Building Design magazine awarded
and pump out
will reverse course. Many old buildings
it the Carbuncle Cup, for Britain’s ugliest
in Europe simply rely on thick walls to
new building. The Cheesegrater, officially
designs apparently
repel the heat in the summer and retain the
named the Leadenhall Building, was coaimed more at
heat in the winter. Their windows can be
developed by Oxford Properties, the propattracting attention,
opened to create a breeze, and ceiling fans
erty giant owned by the Ontario Municilike Renaissance
do the rest.
pal Employees Retirement System. The
Another big problem with modern
building at least appears to be stable. The
codpieces, than
high-rises is that they are single-purpose
Walkie Talkie is fatter at the top than at the
enhancing a
structures. Bank towers with enormous
bottom and looks like it could topple over.
city’s traditional
open trading floors wired to the fastest
The problem isn’t modern architeccommunications networks cannot be easture per se. When the modern complestreetscape
ily remade into housing, factories or shops.
ments the old, it can enhance a city—the
For the most part, they will have to be torn
Blackfriars station, the Sainsbury Wing of
London’s National Gallery and even the glass pyramid at the down when they have outlived their usefulness. In Europe,
Louvre are all examples. But when the scale is enormous, and strong old buildings keep getting reinvented, century after
when it has no connection to the features that have given the century. An 18th-century monastery can be converted into a
city its personality for hundreds of years, it overshadows that hospital, a church into condos, and a warehouse into an office.
But the main shortcoming of the skyscraper craze is the loss
city’s character. The new look is bland and homogenized.
Charmless architectural style is one thing; incongruous of urban identity. When I go to the City, I now go there because
location is another. The City, as London’s traditional finan- I have to. It’s far more enjoyable to stroll through Kensingcial district is known, was, until recently, a warren of sturdy ton, Hampstead village or Chelsea. Millions of tourists go to
low-rise buildings that included guildhalls, Samuel Johnson’s Rome, Florence, Paris, Prague, Edinburgh, Berlin, Barcelona,
house and old pubs such as the George and Vulture, which St. Petersburg and London because, for the most part, they
counted Charles Dickens among its frequent boozers. Wedged have not been “liberated” (yet) by towers that could have been
in between were small squares and big, handsome buildings designed on an Etch A Sketch. If these cities look like Dubai,
such as the Bank of England and Guildhall. The glass-clad who will want to go there? Not me.
behemoths are quickly eroding the City’s character. Dutch
architect Rem Koolhaas says the architectural style of cities is Eric Reguly is an award-winning columnist with The Globe and Mail.
converging. Welcome to the generic city, to borrow his phrase. He is now based in Rome and can be reached at [email protected]
photograph grEg FUNNELL
T
Jarring skyscrapers are sprouting up almost everywhere.
Why are so many major cities hell-bent on becoming another Dubai?
15-09-03 9:46 AM
T:8”
S:7”
THAT’S THE POWER OF ACTIVE MANAGEMENT.
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THERE’S NO SUBSTITUTE
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The value of active management through market cycles
Robert M. Almeida, Jr.
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Michael T. Cantara, CFA
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Joseph C. Flaherty, Jr.
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Our skilled active managers can exploit market
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• We believe skilled active managers are those who can demonstrate
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• Active managers with a higher degree of skill have shown the ability
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If a trend is a pattern of gradual change and skill is the ability to do
something well, which is of greater value to investors? To manage
growing investment challenges and continuously find opportunities
through changing market conditions, we would argue for active
skill over passively following market trends.
And yet as more assets have flowed into passive strategies, it seems that investors
may have discounted the value that skilled active managers offer. Trends can be very
enticing, particularly in continuously rising, monolithic markets. In all likelihood,
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©2015 MFS Investment Management 33409.1
15-09-08 11:12 AM
T:10.75”
S:9.625”
“ IN OUR VIEW,
ACTIVE MANAGEMENT
CAN RESULT IN
OUTPERFORMANCE
THROUGH MARKET
CYCLES.”
Congratulations to
these recent appointees
Phillip Crawley, Publisher & CEO of The Globe and Mail, extends best wishes to the
following individuals who were recently featured in the Report on Business Section of
The Globe and Mail newspaper. Congratulations on your new appointments.
Brenda Clark
to Member Director,
Canadian Payments
Association
Gerry Gaetz
to President
and CEO
Canadian Payments
Association
Lib Gibson
to Independent
Director
Canadian Payments
Association
Chuck Hounsell
to Member Director
Canadian Payments
Association
Malcolm Knight
to Deputy Chair &
Independent Director
Canadian Payments
Association
Sean Lesy
to Member Director
Canadian Payments
Association
Stewart MacKinnon
to Independent
Director
Canadian Payments
Association
Ron Matthews
to Independent
Director
Canadian Payments
Association
Eileen Mercier
to Chair &
Independent Director
Canadian Payments
Association
Dina Palozzi
to Independent
Director
Canadian Payments
Association
Curtis Stange
to Member Director
Canadian Payments
Association
Doug Steiner
to Independent
Director
Canadian Payments
Association
Stephanie Zee
to Member Director
Canadian Payments
Association
Innes Dey, B.Sc.
(Hons), LL.B
to Senior VP and
Chief Strategy Officer
Economical
Insurance
Gordon Reid
Chairman
Giant Tiger
Stores Limited
John Ruddy
to Board of Directors
Giant Tiger
Stores Limited
Greg Farrell,
Kevin Jackson
Thomas Haig
Michael Lewis,
Marco Marrone,
CPA, CA
to Board of Directors to Board of Directors
CPA, CMA
MBA, FCPA, C. Dir.
to Board of Directors
Giant Tiger
Giant Tiger
to Board of Directors to Board of Directors
Giant Tiger
Stores Limited
Stores Limited
Giant Tiger
Giant Tiger
Stores Limited
Stores Limited
Stores Limited
To make arrangements for an Appointment Notice,
please call 1-800-387-9012 or email [email protected]
View all appointment notices online at www.globeandmail.com/appointments
15-09-02 9:54 AM
Recent Appointees
John Cooney
to VP – Legal
Leon’s Furniture
Limited
David Leon
to VP – Information
Systems
& Controls
Leon’s Furniture
Limited
Graeme Leon
to VP –
Merchandising
Leon’s Furniture
Limited
Mike Walsh
to President – Leon’s
Leon’s Furniture
Limited
Get the
data you
need to
vote with
confidence.
Jonathan Bourchier
Sarah Louw
Ariel Breitman
to Calgary office
to Calgary office
to Calgary office
MacPherson Leslie & MacPherson Leslie & MacPherson Leslie &
Tyerman LLP
Tyerman LLP
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to Market Leader,
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15-09-10 10:23 AM
starring
Brad Katsuyama
as
himself
When Michael Lewis cast this Canadian
financial whiz as the moralistic heart
of his bestseller Flash Boys, he became
both hero and villain. But Katsuyama
isn’t interested in the spotlight—he just
wants to save Wall Street from itself
By
Patrick White
Photographs by
Will Steacy
There’s a definite
Silicon Valley vibe
at IEX. Katsuyama
eschews his office
to sit on the floor
with his employees
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15-09-10 9:27 AM
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15-09-10 9:27 AM
If
there’s one thing Brad Katsuyama
has learned over the past two years, it is that 60 Minutes
isn’t just for old folks. It was March 30, 2014. Katsuyama
was 35 and had recently launched his own private stock
exchange—one that wouldn’t allow so-called high-frequency traders to fleece investors with what amounted to
a hidden tax on trading shares. His interview with Steve
Kroft for an item titled “Is the U.S. stock market rigged?”
went well enough; Katsuyama figured he’d hear from a
few older friends and relatives back home in Markham,
north of Toronto, when the segment aired.
Instead, Katsuyama’s image became seared into the minds of nearly 13
million viewers, who came to see him as a reluctant hero in the vein of
Luke Skywalker, revolting against the evil empire of Wall Street. People
started to recognize him—a waiter in Hong Kong, a guide at Disneyland
who delayed the Katsuyama family’s tour to phone his father and brag
that he was hanging out with the guy they’d watched on 60 Minutes. And
then there was the trip to Turks and Caicos, when Katsuyama and his wife
shared a cab with a couple who’d clearly been arguing. Katsuyama, being
an intensively inquisitive type, wanted to know the source of their discord. It turned out the husband wanted to quit his job in construction
because he felt the business was inefficient and lacked integrity. What had
sparked his sense of idealism? He’d been watching 60 Minutes one night
when a Canadian guy came on and talked about quitting his $2-million-ayear trading job at the Royal Bank of Canada to “do the right thing.”
Katsuyama’s wife looked at him and shook her head—here we go again.
“That was me!” Katsuyama exclaimed to the man.
The cranky husband stared at him for a few moments, then punched his
seat in excitement.
“He just went crazy,” Katsuyama recalls. “We spent the next hour talking it through.”
Katsuyama became famous in financial circles, too, of course—or
perhaps infamous is a better word. He and
his team formed the moralistic heart of
Flash Boys: A Wall Street Revolt, author
Michael Lewis’s exposé of predatory electronic trading practices. The bestselling
book chronicles their mission to create a
stock market, IEX, that would thwart the
largely unchecked skimming that had come
to contaminate equities trading. In Lewis’s
recounting, IEX Group Inc. could revolutionize the markets, bringing fairness and
transparency to Wall Street.
Flash Boys hit No. 1 on The New York
Times bestseller list, became required reading at the Securities and Exchange Commission, prompted lawsuits, spurred multiple
federal and state investigations, and caused a
televised fit of yelling and manic hand-waving by William O’Brien, president of the rival
BATS stock exchange, that cost him his job.
At IEX, media calls poured in. Clients
who were mentioned in the book wanted to
argue about their portrayal. Old Wall Street
friendships were shattered and new alliances grew. A wave of fundraising netted the
company $75 million (all currency in U.S.
dollars) from an array of investors, including Bain Capital Ventures, Vegas mogul
Steve Wynn and Netscape co-founder Jim
Clark, to fund IEX’s transformation from
a so-called dark pool—the sinister-sounding name for private exchanges where the
size and price of trades are invisible to the
broader market—into a full-fledged, SECapproved stock exchange.
But that process is taking longer than
Katsuyama anticipated, and time is not on
his side. Just as IEX opened shop, market
insiders began predicting a contraction in
the number of trading venues in the United
States—which, including dark pools run by
the likes of Goldman Sachs, Credit Suisse
and Morgan Stanley, numbers more than 50.
At IEX headquarters, there’s a diagram kicking around called the “Death Star Slide” that
shows the many ways buyers can link to sellers. It looks more like an unravelling ball of
yarn than a functional way to underpin the
economy. “In the next couple years,” says
Ronan Ryan, one of IEX’s nine co-founders
and its chief strategy officer, “there will be
less dark pools and potentially even less
exchanges. Less is better. We’re not saying
bring this back to one venue. But we want
to be one of the venues that remains, and
please God, let that be the case.”
“At different levels of
incentive, people will
stray from the path,” says
Katsuyama. “And the
incentives on Wall Street
are really, really high”
DM151599_Pg26-33_ROB_OCT_2015.indd 28
15-09-10 9:27 AM
G
pl
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G
erald Lam is possibly the most
relaxed person on Wall Street
today. It is July 8, and at 11:32
that morning, Wall Street had
plunged into a panic when the New York
Stock Exchange, which handles one-fifth of
trading volume in the United States, went
dark. On CNBC, the exchange’s president,
Tom Farley, is trying, and failing, to explain
what has gone wrong. Chinese terrorists?
A glitch in the NYSE’s outdated computer
infrastructure? Analysts are talking in apocalyptic terms.
Lam, meanwhile, sits with legs outstretched and crossed just above his Birkenstocks, deep ankle tan on display. From his
glassed-in perch at IEX’s headquarters on
the 44th floor of 4 World Trade Center, the
company’s head of marketing and communications can see baby-blue skies stretching from Tribeca all the way to Yonkers. An
investment banker by trade, with an MBA
from Columbia, Lam is trying to explain the
basics of electronic front-running (more
on that later) while keeping one eye on
his Samsung phone. It’s begging for atten-
an
on
et
in
ed
by
se
0.
kat
llof
he
ys
rs
be
ss
ng
nt
nd
tion, the little blue alert light flashing as his e-mail inbox fills with media
requests. He ignores it.
He knows what they want—the same thing everyone has wanted since
Flash Boys came out. Those early days, says Lam, “were absolute madness.” Interview requests dropped by the dozen, forcing Katsuyama to
criticize many of the very players IEX needed to woo. On its first day of
trading, Oct. 25, 2013, IEX matched half a million shares and routed just
under a million more to public exchanges—a virtually undetectable piece
of the seven billion shares moved during the average U.S. trading day. To
boost volume, IEX had to persuade brokers to steer more trades its way. It
also had to remain in the good graces of the SEC. And if the regulator did
finally bestow IEX with public exchange status, it would have to persuade
investment bankers to list companies there—a lucrative business now
monopolized by Nasdaq and the NYSE (which made $367 million last year
off listings alone). But how could IEX keep everyone onside when Katsuyama was on TV saying things like “I believe the markets are rigged”?
Post-Flash Boys, everyone at IEX with any connection to Wall Street
got blowback. Ryan, a native Dubliner and electronic trading expert who
got his own chapter in the book, says his meetings with buy-side clients
became “very argumentative. …A lot of people got their backs up over
what was said in the book, and understandably so. People get defensive
when you come and shit in their yard, and that’s what happened.” It took
between six and nine months, Ryan says, before “people became rational.”
So Lam won’t take the bait this time, knowing the journalists want him
or his boss to say that the 11 existing U.S. stock exchanges are rigged and
broken, that they have sold out technological robustness in a quest for
speed, that IEX would be different, so
watch out, big boys.
“Glass houses,” he keeps repeating.
“We’re not going to comment.”
Soon, a yell comes from outside the
conference room.
“Gerald!”
Jay Fraser, the sole Wall Street veteran
at IEX who actually looks like a Wall
Street veteran—complete with monogrammed shirt, monogrammed belt
buckle and gelled-back hair—stands in
front of a TV screen.
“Gerald!” he repeats. “Come here!”
Lam grabs his phone and springs to his
Birkenstocks. “Sorry, I’ll be right back,”
he says (because an unfailing Canadian
politeness pervades the entire IEX office),
and hikes away.
All the business news channels are
broadcasting live from the floor of the
NYSE, in full hysteria mode. IEX is pulling 1.7% of market traffic, compared to its
regular average of roughly 1.4% (which,
though still small, is a bigger piece of
overall trading than dark pools run by
the Street’s major investment banks). If
they hold at 1.7 all day, it will be a new
in-house record.
IEX’s traders keep glancing toward
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15-09-10 9:27 AM
W
hen Katsuyama started as a trader at RBC’s New York office
in 2002, swapping stocks was simple business. Four out of
every five market trades took place on the NYSE or Nasdaq.
Humans on the floor processed most trades. A single company traded on a single exchange. By 2009, a series of regulatory changes
sparked mass fragmentation in the U.S. equity market. Suddenly, there
were 11 SEC-regulated exchanges, and a single company’s shares could be
found on several of them. Heavily guarded computer servers had taken the
place of human traders. When a single electronic buy request for 10,000
shares of XYZ Corp. passed through a trading router, it was diced up into
multiple requests sent to multiple markets, all arriving at their intended
destinations at fractionally different times.
There were upsides to this: tighter spreads, faster trades, no human
error. But as Katsuyama and his team at RBC would discover, there were
heavy downsides, too. As a fast-rising trader at RBC, he had taken over
the electronic trading desk in 2009 and
noticed that the act of buying shares
electronically had become deeply mysterious. A simple click of the “buy” button was no longer a guarantee of securing a 10,000-share block at the posted
price of, say, $31.01. Instead, Katsuyama
found that his purchase attempt would
yield only a fraction of the shares he
wanted. He could get all the shares available on one exchange, but the price
would increase at other exchanges the
moment he tried to execute the trade. It
was as if the market knew his intentions
and moved against him.
Someone was, indeed, front-running
RBC’s (and everyone else’s) trades, a
fact Katsuyama and his team discovered
after deploying Thor, a computer program they designed to hack the problem.
Thor programmed delays into the multiple buy requests contained in a single
order so they would arrive at the various
exchanges at the same time, down to the
so
c
str
th
le
tra
a
c
th
T
o
de
Katsuyama spent 15 years eating
lunch at his desk. At IEX, employees
sit at a long table in the middle
of the office, and drink beers on
Fridays. “It creates conversations
that are necessary to keep
the company rolling,” he says
DM151599_Pg26-33_ROB_OCT_2015.indd 30
T
microsecond. Thanks to Thor, RBC traders
could once again buy U.S. stocks at the price
they saw on their screens.
At the root of the problem: speed, or lack
thereof. High-frequency trading firms had
spent billions developing complex algorithms that, in combination with hyper-fast
computer hardware and data lines, provided
a more up-to-date picture of market action
and the ability to execute faster trades. The
HFTs could see Katsuyama’s XYZ order
arrive at a single exchange and anticipate
it was a small piece of a much larger order
going out to all exchanges. In the microseconds’ delay it took the XYZ order to arrive at
the remaining venues, the HFTs could send
identical buy requests ahead of Katsuyama,
then sell him the shares at a higher price—a
practice known as electronic front-running.
They were gaming the system, earning, by
Lewis’s estimation, more than $160 million
a day in the process.
Many dispute Katsuyama’s conclusion.
Flash Boys spawned a whole new advocacy
group, Modern Markets Initiative (MMI),
whose sole mission is to defend high-frequency trading. According to the group’s
website, its core principles are transparency, fairness and equal access—which
sounds an awful lot like IEX’s tagline, “A
fair, simple, transparent market.”
“So far, we haven’t seen any data to sup-
photograph (gosling) evan agostini/invision/ap
Katsuyama’s desk, as if searching for guidance. But it’s empty: Early that
morning, he’d flown to Toronto to attend the funeral of a friend’s father. A
recent hire named Pat Healy is working the phones, politely nudging contacts. “As I’m sure you’ve seen, NYSE is down,” he says. Healy’s previous
job was advising companies on where they should list stock. Katsuyama
hired him to attract new listings to IEX. “They’re trying to bring it back up,”
Healy continues over the phone, “but if they can’t, there’ll be hell to pay.”
Lam stands rooted next to Fraser, staring at the screen. “This is going to
be an interesting day,” he says.
As the day wears on, though, IEX’s share of trading begins to slip.
The NYSE comes back online at 3:13 p.m. By the closing bell, IEX sits at
1.563%—good, but not the boost the team had hoped for.
As for the shutdown itself, the NYSE blames it on a “technical issue”—
which, in this era of trader-less exchange floors, is kind of like saying the
Leafs aren’t winning due to a hockey issue.
15-09-10 9:28 AM
t
The Michael Lewis Effect
rs
ce
the phenomenon whereby the
author’s often-obscure subjects
emerge as celebrities
ck
ad
ost
ed
on
he
er
te
er
cat
nd
ma,
—a
ng.
by
on
The Big Short
Inside the Doomsday Machine (2010)
somehow, lewis manages to make the creation of
credit-default swaps gripping as he follows Wall
street players like Meredith Whitney, who predicted
the bubble was about to burst in the
lead-up to the 2008 financial crash.
Hollywood version
the film, due out in 2016, stars
Ryan Gosling as Deustche bank
trader greg lippmann; christian bale
as Michael burry, creator of scion
capital; brad pitt as ben hockett,
the head trader at cornwall capital;
and steve carell as hedge fund
manager steve eisman.
n.
cy
I),
ep’s
rch
“A
Moneyball
The Art of Winning an Unfair Game (2003)
oakland athletics general manager billy beane is
painted as a new-age baseball prophet
for his reliance on arcane statistics
to evaluate players. his model has,
after predictable resistance from
old-guard managers, spread to
every major sport in the world.
p-
Hollywood treatment
With Brad Pitt as beane, the film
grossed $110 million (U.s.) and
garnered six oscar nominations.
The Blind Side
photograph (gosling) evan agostini/invision/ap
Evolution of a Game (2006)
sean and leigh anne tuohy adopt a
developmentally delayed black teen, Michael oher,
who goes on to become a college football star
and, eventually, an nFl offensive tackle.
the tuohys rake in cash on the speaking circuit.
Hollywood treatment
Sandra Bullock won an oscar
for her portrayal
of leigh anne tuohy.
port the anecdotes in Flash Boys,” says MMI’s CEO, Bill Harts. “If this is a
debate about anecdotes, our market is not well served by that discussion.
We are served by hard data.”
There’s no debating the exchanges encouraged the rise of HFTs, providing rebates to market actors simply for offering liquidity in a given
stock. Furthermore, they sold speed. The NYSE earned $430 million in
2014 from selling co-location—preferred access to its trading data and
matching engines—and proprietary market data, a 214% increase from
2006. Nasdaq, meanwhile, made $257 million from similar products for a
347% increase over the same span. To maximize profits, they prioritized
speed in a manner that has been likened to car racing. You can rip out the
airbags, the seats, the brakes and anything else not geared to making the
car move faster, but you’ll end up with a death trap.
At RBC, Katsuyama and his team began flitting from investor to investor,
spreading the word about the unfairness that had been built into the market by the markets themselves. Katsuyama first met with Doug Schrank,
senior trader and principal at Southeastern Asset Management, in the
summer of 2009. “It was amazing. We were seeing the same problems Brad
was seeing, and we hadn’t been able to get any suitable explanations,”
says Schrank, whose firm manages nearly $29 billion in assets. What really
shocked guys like Schrank was that Katsuyama had uncovered the rot in
the market and, rather than exploit his new-found knowledge for financial
gain, had decided to let everyone in on the secret.
The next logical step—at least, if you’re Brad Katsuyama—was to quit
RBC and start his own exchange.
Though RBC declined to invest in IEX—to ensure its independence—it
executed the exchange’s first-ever trade.“We’re happy to support Brad,”
says Greg Mills, RBC’s global head of equities and the guy who hired Katsuyama. The bank still does a certain percentage of trades on IEX each day.
“It’s a less toxic pool of liquidity,” says Mills. “We know when we execute
our client orders there, we’re less likely to be interfered with by predatory
forms of high-frequency trading.”
That’s because Katsuyama and his eight co-founders—including a Canadian algorithm whiz and a group of puzzle mavens drawn from his team
at RBC—devised a method of thwarting most front-running strategies by
introducing a speed bump. All incoming orders would be routed through
61 kilometres of fibre optic cable, creating a 350-microsecond delay before
orders are filled. The gap would give IEX’s matching engine—the proprietary algorithm that pairs up buy and sell orders—time to update its prices
based on feeds from other exchanges, foiling attempts by high-frequency
traders to take advantage of stale prices. They also decided to ban colocation and rebates; revenue would come purely from shares traded and
orders routed—$0.0009 per share matched and $0.0001 for shares routed
to other venues. Forbes put IEX’s revenue at roughly $27 million as of January, 2015, a one-year increase of 6,770%.
“Their growth is amazing in a world with great fragmentation and a
large part of the industry likely rooting against them,” says Schrank, who
serves on a buy-side advisory committee at IEX but is not an investor. “But
we felt strongly that if there was one guy who could pull this off, it was
Brad. He has great integrity. Maybe it has to do with him being Canadian.”
K
atsuyama returns to IEX two days after the NYSE outage. He is
walking gingerly, wearing jeans and an IEX fleece vest, though
it’s 30 C outside. After the funeral, he’d been diagnosed with
strep throat, which kept him away a day longer than expected. In
the meantime, dozens of people have tried to reach him, including general
news outlets like Fox and CNN—not the usual callers.
“I ignored it all,” he says, leaning back in a conference room chair.
When I express surprise that he’s overcome strep in a single day, he
smiles wanly. “Gotta rally, right?” he says.
Two years after launching IEX, Katsuyama must be wondering if he’ll
ever get a break. He’s had to forgo golf and give up TV, aside from the HBO
comedy series Silicon Valley, whose episodes are parsed by IEX staff every
DM151599_Pg26-33_ROB_OCT_2015.indd 31
15-09-10 9:28 AM
On IEX’s application for
exchange status, Ronan Ryan
says: “The SEC didn’t just say,
‘Oh God, these guys got a book
written about them, push them
along the conveyor belt’”
IE
th
sations, Kill the Company and The West
Point History of the Civil War.
Katsuyama knew he couldn’t simply
will the company’s pretension-free culture to remain the same post-Flash Boys.
So he hired a chief culture officer, Brannon Skillern, to observe and, as much
as possible, codify everything that was
unique and beneficial about the IEX
office environment. As a veteran of three
tech start-ups (including the photoediting software-maker Aviary, which
was acquired by Adobe), Skillern had
watched how nascent company cultures
bloom with a small office full of likeminded idealists, then falter as soon as
staff growth begins to dilute the original
spirit. “We were always very un-siloed,”
she says of IEX’s early days, “very collaborative. We welcome input, but we can’t
have 30 cooks in the kitchen because
decision-making suddenly slows down
and is super-inefficient. To stay agile,
you have to start cutting people out of
decisions, and that doesn’t feel good.”
Before she could devise a plan for
scaling the IEX culture, Skillern had
to define what made the place tick.
A favourite saying around the office,
spouted by various IEXers, is “We’re
capitalists, but we believe in responsible capitalism.” And while every tech
start-up claims to have a change-theworld, Peter Thiel-esque core mission
that motivates everyone to put in superhuman efforts (a tendency brilliantly
skewered in Silicon Valley), Skillern
learned that, at IEX, there was actually
some meat to the rhetorical altruism.
“I loved my last company, but helping
teenagers take better selfies—that’s not
what gets me out of bed in the morning,” she says. “When I interviewed
here, I realized people actually wanted
to change the world, and that was quite
new to me.” After an initial inventory
period, she came up with a set of core
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Monday morning, and Ole Miss college football games (his wife, Ashley,
is an alum). “There are things you don’t want to give up,” says Katsuyama.
“But when you take an inventory and ask yourself what you’re getting
from it, you have to.” He gets up at 5:30 a.m. most mornings, goes for a run
in Central Park and is on the subway to 4 WTC by 7. Ten hours later, if all
goes according to plan, he’s on his way back home for dinner and bath time
with his two sons. Granted, you get the feeling the guy was never exactly
a hard-partying Wolf of Wall Street type, but when he was invited to speak
at SXSW in Austin this past March (his talk was titled, “How to Disrupt
Wall Street: The Flash Boys Blueprint”), he flew to Texas in the morning,
skipped the conference’s legendary parties and flew right back to New
York. “I get invited to a lot of cool things now, but I can probably count on
one hand the number of times I’ve been out past 10,” says Katsuyama. “So
I guess I gave up my social life.”
He is determined not to succumb to the Michael Lewis Effect. During the reporting process for Flash Boys, he read an article in New York
magazine about a tendency among the author’s characters to morph into
national celebrities with Hollywood doppelgängers (see “The Michael
Lewis Effect,” page 31). “I was just like, holy cow,” says Katsuyama. He had
no desire to change or be changed. “I thought, if I can behave in a way that’s
the same as it was before, then everyone else at IEX can follow that lead.
Michael Lewis has an effect on his characters that can be larger than life. It
can be easy to get caught up in that. We’re probably in the second or third
inning of the game we’re playing. I didn’t want to get off the rails so early.”
IEX’s 60 employees occupy a spare office with white walls, white furniture and a bird’s-eye view of the Sept. 11 memorial. (The principals picked
this location, according to co-founder and chief operating officer John
Schwall, “because, f---ing America, man.”) The place has a definite Silicon Valley vibe. In one day, I spotted six pairs of flip-flops, eight pairs of
shorts, one Captain America T-shirt, a whole lot of fleece and not one
necktie. A large kitchen and long table dominate the floor. “I spent 15
years eating at my desk in front of my screens,” says Katsuyama. “At first,
we had four small tables here, and I was just like, f--- it, I want one big
table. It forces you to be part of the conversation. It creates ideas. It sparks
an interaction. After work, people sit here and have a beer. You don’t have
to go to the bar. It creates conversations that are necessary to keep the
company rolling.”
Depending on the day, employees can find free fruit or bagels or doughnuts here, though no free lunch. That, says Katsuyama, would give investors the impression of fiscal irresponsibility. But once a week, Dan Aisen
(better known to Flash Boys fans as Puz, so named for winning the 2007
Microsoft College Puzzle Challenge, and who now spends his days scrutinizing IEX trading activity for any trace of electronic predation), buys
everyone soup or sandwiches. This week, he wanders into the office toting
a plastic bag from Parm, a new favourite among Wall Streeters. “We like to
keep it casual around here,” he says as he plunks the bag down on the table.
Only when visitors walk past this spot can they see the entire floor—
seven rows of open-concept seating, each desk fitted with dual-monitor
computer terminals (some have three or four). The techies keep their
heads down. Someone on the business development team offers me a beer.
The middle bank of desks is the closest thing IEX has to an executive
suite. This is where Katsuyama and Ryan sit, their desks no bigger than
those of junior employees. Katsuyama is the only IEX employee with an
office, but staffers seem to use it as an extra conference room. It betrays
hints of the CEO’s personality: pictures of his kids, a few awards, a modest
library of volumes such as How Successful People Think, Difficult Conver-
DM151599_Pg26-33_ROB_OCT_2015.indd 32
15-09-10 9:28 AM
est
IEX values, such as “Be committed to
the mission” and “Act with integrity.”
Those values are what drew John
Ramsay here. At age 55, Ramsay sticks
out in the IEX office. His hair is whiter,
his steps more laboured, his conversation delivered at a slower, more considered pace than most of his co-workers.
He came to IEX from the SEC, where
he’d first gone to work in 1989 out of
a desire to “make a positive contribution, to do something that was more
than just about making money.” After
a 10-year stint in the private sector, he
returned to the SEC because he “lost
and missed that sense of doing things
I really believed in.” Before leaving in
2014, he helped implement chunks of
the Dodd-Frank Act, designed to rid the
market of some of the risk that led to the
2008 meltdown. He also ran the group in
charge of overseeing broker-dealers and
self-regulating organizations like securities exchanges and, yes, dark pools. He
assumed he would have to set his idealism aside once again and find a job in
the private sector. “It never occurred to
me that I could work in the private sector and make a positive change,” he says
with a slight Texas drawl, “which is kind
of a sad commentary on Wall Street—
for most people, it doesn’t even occur to
them that you can do that.”
A few meetings with Schwall (who
was part of the Thor team at RBC) and
others at IEX disabused him of that
notion. He was hired as chief regulatory
officer last year and now oversees market policy. “I instantly fell in love with
the group and what they were trying to
do,” he says. “They rescued me from a
dull life in the private sector.”
It’s certainly not all la-di-da around
IEX, though. “It might seem relaxed,
but not every day is Sunday,” says Jay
Fraser, who worked at Deutsche Bank
before joining IEX a year and a half ago.
“We have all these people out there
for whom our success isn’t necessarily
beneficial. We’re coming into a market
and taking share away. People literally
tell us they don’t trust what we’re doing
because they don’t believe we would
do this for the greater good. They don’t
believe anyone would behave like this
in this industry.”
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EX skeptics like to point out the fact that 20% of its trading volume
comes from high-frequency traders. It’s proof, they say, that Katsuyama’s conclusions about front-running were bogus. “It’s a strange
turn of events,” says Harts, the HFT lobbyist. “HFT loves IEX.”
Yet, Katsuyama has emphasized over and over that high-frequency
trading is not empirically bad—just some of the predatory practices at
some of the HFT firms. People on Wall Street, he says, are no worse than
people in any other industry; they’re just incentivized to do the wrong
thing. “At different levels of incentive, people will stray from the path,”
says Katsuyama. “And the incentives on Wall Street are really, really high.
That has created this friction between Wall Street and Main Street. And I
think that is going to change. We’re living in an ultra-transparent society
where there is very little you can get away with any more.”
The words “fairness” and “transparency” are appearing more and more
often on the Street these days. In October, 2013, IEX became the first
private exchange to publish its Form ATS, an accounting of its internal
activities. Since then, more than a dozen competitors (including the pools
run by Goldman and Morgan Stanley) have followed suit. In Canada, a
firm called Aequitas Innovations is using something very close to the IEX
model, with an exchange called NEO, to thwart high-frequency traders
and take on the dominant Toronto Stock Exchange.
“It’s fine, it’s good,” says Katsuyama of the increasingly crowded space
for ethical markets. “More people are competing for the right things, and
it’s up to us to ensure we’re one step ahead of everyone else.”
Right now, IEX is focused religiously on snagging exchange status,
which it’s expecting to happen late this year or early next. The SEC, says
Ryan, “has taken a very, very, very structured, data-driven approach with
this. They don’t just say ‘Oh God, these guys got a book written about
them by Michael Lewis, push them along the conveyor belt.’ No. It was
scrutinized, but scrutinized for the betterment of the market.” When it
comes, IEX will gain protected-quote status, which forbids trades from
being executed at any price other than the best one quoted for a given
security. “When we get that,” says Ryan, “it will turn on a spigot of additional volume.” It doesn’t hurt that Norway’s Government Pension Fund,
the world’s largest sovereign wealth fund, has publicly endorsed IEX or
that the SEC has commended its transparency. By 2017, IEX hopes to draw
8% of trading volume and list as many as 250 companies, according to The
Wall Street Journal (something IEX won’t confirm).
While they wait, IEX—soon to be rechristened Investors Exchange—
is working on some side projects. Its model, says Katsuyama, can move
beyond stocks and into, say, private securities or digital currency. He’s
vague on details. “We built our technology from scratch, and it can apply
to trading a lot of different things,” he says. “Our brand extends beyond
stock trading. It’s about trust and using technology to create fairness. We
feel like transparency is a major competitive edge, so we’re willing to push
the envelope to places where our competitors can’t follow us.”
It’s a Friday afternoon. As the trading day ends, staff begin clopping
out the glass door, but some linger at the table for a pre-weekend confab.
Bottles of raspberry ale appear. Everyone’s looking forward to the next
office potluck—a sort of Iron Chef, where the business types battle the
techies for culinary supremacy. Tech earned Katsuyama’s deciding vote
last round with a combination of cocktails and amuse bouches. “There is
a level of respect accorded people as individuals here,” says Ramsay, “and
an ethic about the way you should interact with colleagues as people that
is unique and, I think, stems from values I associate with Canada.”
That last point bothers me. Lewis played up that Dudley Do-Right
characterization to an almost patronizing degree in Flash Boys. I ask Ryan
whether there’s anything to it and whether this friendly vibe can survive
IEX’s inevitable growth.
During his time at RBC, he says, there was a strict “no-asshole” rule.
That still prevails at IEX. “I was in Toronto recently and met up with a
number of RBC people,” he goes on. “It struck me that there was no arrogance to them at all. It must be you crazy Canadians. I don’t know what’s
in the f---king water up there, but it works.”
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15-09-10 9:28 AM
t
h
e
a
o
m
f
S har
ka r m
Somehow, a bored lawyer from Cape Breton is one of the world’
a
DM151599_Pg34-42_ROB_OCT_2015.indd 34
15-09-03 10:00 AM
of the world’s top leadership gurus. Try as she may, Maryam Sanati can’t find any humbug in his humble
Photographs by Aaron Cobb
While suburban Toronto
is home for Robin Sharma,
he takes his empowering
message all over the
world—even to Las Vegas
DM151599_Pg34-42_ROB_OCT_2015.indd 35
15-09-03 10:01 AM
If you’ve been to Bally’s casino in Las Vegas first thing on
a Sunday morning, you know it’s a disconcerting place.
Rows of slot machines ding euphoniously. A smattering
of diehard players slump in their seats. This is what Vegas
is like at 8 a.m. on a Sunday. Weltschmerz hangs in the air.
But it’s also a place of extremes. One minute you’re
walking through deflated-casino world and the next
you’ve arrived at Bally’s ballroom, a cavernous space
that has an entirely different energy altogether. It’s like
church today, and the holy spirit is in the air. More than
1,000 people are in attendance at a five-day summit of selfimprovement called Amplified Leadership. This morning,
on day two, they’re here to see 51-year-old Robin Sharma
from Toronto, one of the most famous leadership gurus in
the world.
What I’m not prepared for is the noise. It reverberates
from the speaker system, settling like a vibration in my
head. It’s the sound of euphoria. The crowd—most of them
network marketers, people who sell a variety of products
directly to consumers—whoots and pumps fists in the air.
“Yes, yes!” they yell, like fiery amens hurled to the ceiling.
Warming up the room ahead of Sharma is a motivational
speaker who tosses one-liners like orbs from a tennis-ball
machine. She’s from The Secret school of thought, which
is about as American an ethos as you can get. It says that
if you merely visualize your hopes and dreams—anything
from wanting a parking space to open up in front of your
building to wanting to land your dream job, or husband, or
wife—then ye shall receive.
“Design your own destiny!” she says.
“Stir your soul!”
“Let your clarity meet your conviction!”
Yes, yes, YES.
Everyone around me is filling up notebooks with these
aphorisms. Many are live-tweeting with aerobic hashtags.
#crankitup
#accelerateme
#leadersgofirst
#rockyourlife
Here at Amplified Leadership, strangers hug strangers.
They form shoulder-massage chains. They storm the stage
to the beats of Uptown Funk. “Crank It Up” is stamped like
a cattle brand on the logo for Amplified Leadership, which
itself shows the needle on a sound meter tilting past the
red zone.
I find it a little hard to fit Robin Sharma into the action
here. Having spoken to him at length a few weeks prior,
I know he is not The Secret type. Sharma believes that in
this life, you will reap what you sow, and sowing demands
a lot of work.
Still, when his intro film begins to play on the big screen,
I get it. The music is urgent and string-heavy, like you’d
hear in a Batman movie. We see footage of thousands of
people packing an auditorium. We see a shot of autographseekers swarming Sharma, a tiny head in a mass of outstretched arms, books and Sharpies.
“An icon of leadership,” says a title card.
“More than 15 million people are following his work,”
says another.
“10 million books sold.”
The music soars.
We see Robin Sharma with Jack Welch, with Richard
Branson, with Desmond Tutu! A voice intones that Sharma’s clients include Nike, GE, Starbucks and Coca-Cola.
We see Sharma himself appear on screen to ask the questions everyone is ready to answer: “How many people
want to be legendary in their work? How many people
want to be iconic?”
Yes! Yes!
When Sharma appears, dressed in his usual black, the
crowd is uncontainable.
Robin Sharma—the architect of this sizzle reel,
and a two-hour-plus seminar that follows—is part
of a business that has come a long way from its Dale Carnegie roots. Leadership training like the kind he provides has
become an estimated $2.6-billion (U.S.) industry in North
America. More broadly, spending by U.S. companies on all
corporate training—leadership or otherwise, internal and
external, in person or online—has bounded upward by
double digits in recent years, reaching $130 billion (U.S.)
worldwide. The number-one area where companies are
spending training money is on their management.
Which is where Sharma comes in. His fame in the field
is considerable. He’s written 15 books. They’ve sold 10
million copies, distributed over 62 countries and 75 languages. Of note to millennials, he is booming on social
media. Of interest to those higher up the food chain, he
does keynotes and coaching in a wild list of locations: L.A.,
Bucharest, Johannesburg, Monaco…
DM151599_Pg34-42_ROB_OCT_2015.indd 36
15-09-03 10:01 AM
At the Amplified
Leadership summit
in Las Vegas,
Sharma gives a
typically athletic
presentation;
then it’s time for
photos with fans
and useful advice, along with audience-friendly lessons
gleaned from iconic people like Mahatma Gandhi or Jay-Z.
That content makes him a breed apart from many motivational speakers; the bulk of that crowd seems content to
merely crank up heart rates with preacher-like platitudes.
Sharma is more erudite than he is evangelical.
This morning, as he often does in his seminars, Sharma
recites a passage attributed to the Bengali poet and philosopher Rabindranath Tagore. When he reads it, his lips are
close to the microphone, but his voice is quiet. He pauses
after every line.
Onstage, Sharma is compact, lean, muscular. With the
physique of a long-distance runner, he moves around athletically, accelerating his rhythms during the buildup of
fact and argument, stopping for effect when he lands a big
finish. His mellifluous voice is less sports coach than latenight radio host.
He is an effective storyteller, packing his presentations with case studies, literary references, scientific data
Spring has passed.
Summer has gone.
Winter is here…
and the song I meant to sing remains unsung.
For I have spent my days stringing
and unstringing my instrument.
The verse, about unfulfilled destiny and the passage of
time, supports Sharma’s thesis that the singular thing that
keeps us from being “iconic” (a status he values a lot) is
that we don’t spend enough time perfecting our métier.
It’s a premise espoused by many authors and speakers, but
DM151599_Pg34-42_ROB_OCT_2015.indd 37
15-09-03 10:01 AM
In Sharma’s view, pain—personal anguish—comes
from not fulfilling one’s potential for greatness. We
try to stifle our true and essential selves, compartmentalizing who we are for the benefit of the social order around us.
To combat this, Sharma has rather radical goals. For starters, he defies the laws of the corporate jungle. He believes
in “leading without a title,” which means you shouldn’t
care about your position in the pecking order; you should
care about your performance. He wants people in power to
practise being decent and curious human beings. He thinks
it’s the responsibility of business to make the world a more
equitable place. He believes you should put your personal
lives ahead of logging hours at the office. He tells me he has
no love for multitasking: “As Confucius said, he who chases
two rabbits catches neither.”
His clients say the formula works. “About 18 years ago,
Robin started to identify what I needed to do to balance
my life,” says Bruce Bowser, the president and CEO of AMJ
Campbell Van Lines. “I realized that working 80 hours a
week wasn’t the key to high performance. I poured more
into my family. I started eating well and exercising.” And it
all made the company better. Since that time, Bowser has
grown AMJ Campbell Van Lines into the largest moving
company in the country.
“Robin looks at life in more than one or two dimensions,” Bowser explains. “He understands business. He
has a spiritual dimension. He’s healthy. He’s fit. And he ties
these pieces together in a humble way. He’s not the kind
of corporate coach that a lot of us have come across—the
frankly nauseating type.”
I first meet Robin Sharma a few weeks before his Vegas
appearance at his office, a renovated rowhouse on Scollard Street in Toronto’s ritzy Yorkville neighbourhood.
There is no sign on the door of Sharma Leadership International Inc., where he and a group of five employees
preside over operations. The rest of the team is remote.
Graphic designers are in Serbia. His project manager is in
Newfoundland. His CEO is based in New York. It’s all very
efficiently outsourced.
We don’t stay inside long. It’s a beautiful spring day, so
Sharma takes me on a “walking meeting,” which he says is
something one of his heroes, Steve Jobs, used to do. Striding confidently through the fresh air in Yorkville, dressed
in his habitual black, he picks up Starbucks. I can barely
keep up. When he says things like “I was mountain biking in the woods the other day and listened to an incredible book called Mastery by Robert Greene,” his regimen
strikes my underachieving self as something to aspire to.
Another of his favourite books is Man’s Search for
Meaning, the Austrian neurologist and psychiatrist Viktor Frankl’s influential memoir about how he survived the
Holocaust. In this book, Frankl introduces the principles
of logotherapy, a psychotherapeutic method that asserts
that the most powerful motivating force for human beings
is finding meaning in life. This is a foundational philosophy for Sharma.
He’s clearly not a light reader. He was born to a family of education-minded Southeast Asian parents in
Uganda, several years before the deranged president Idi
Amin expelled South Asians from the country. Sharma’s
family left ahead of that purge in 1965, on Sharma’s first
birthday—first to Winnipeg and then to the town of Port
Hawkesbury in Cape Breton. Sharma’s father, Shiv, a physician, and mother, Shashi, a teacher, had another boy, Sanjay, who is now an ophthalmologist in Kingston, Ontario.
The boys were raised to value the tenets of a variety of
religions. The Sharmas were essentially pantheists.
photographs (ali) richard drew/ap; (robbins) john lehmann/the globe and mail
Sharma hits on a few juicy nerves with his central idea
that we are all born with immense talent but that societal codes limit us. We keep our potential small, in other
words. His counsel is to pinpoint what exactly it is we are
meant to do in life—and then pursue it. In the process, he
says, we have to acknowledge that human nature impedes
our success—in particular, our attraction to negativity, to
rest on our laurels, to make excuses and, the big one, the
tendency to distract ourselves. “Science shows us that we
are distracted on an average of 2.1 hours a day,” he says,
revving up for a rhetorical sprint. “When you watch Netflix, when you check your texts, when you chit-chat at the
office, when you complain—for that temporary period of
time, you feel a tremendous sense of unburdening.”
Then he gears down to a whisper, close-talking on the
mic, pausing after each few words.
“But all you are doing…
is medicating yourself…
from a pain that’s deep within.”
Yes. Pain. A thing few businesspeople are asked to
address.
A brief history of motivational speaking
b. 551 BC
b. circa 470 BC
b. 1466
b. 1729
b. 1809
b. 1820
ConfuCius
soCrates
erasmus
abraham LinCoLn
“Our greatest
glory is not in
never falling, but
in rising every
time we fall.”
“To find
yourself,
think for
yourself.”
“In the land of
the blind,
the one-eyed
man is king.”
Catherine
the Great
susan b.
anthony
“I beg you take
courage; the
brave soul can
mend even
disaster.”
“Whatever
you are, be a
good one.”
“I am like a
snowball—the
further I am
rolled, the
more I gain.”
DM151599_Pg34-42_ROB_OCT_2015.indd 38
15-09-03 10:01 AM
b
nap
(T
Gr
“A
a dr
ad
photographs (ali) richard drew/ap; (robbins) john lehmann/the globe and mail
Sharma on his
period as a Bay
Street lawyer: “I’d
wake up in the
morning and look
at the person in
the mirror who
was successful on
the outside but
not fulfilled on
the inside”
Robin excelled in high school and went on to Dalhousie University, where, opting for a left-brain/right-brain
combo, he studied biology with a minor in romantic
poetry. He completed a law degree at Dal, became a lawyer
and launched a successful career as a litigator, working at
Fasken Martineau on Bay Street and at the Department of
Justice in Ottawa. He married (and later divorced) and had
two children, Colby, now 21, and Bianca, now 19.
Sharma’s experience with the law had a profound influence on his work ethic. “Law school is about rigour and
painstaking study,” he says. “When you work late into the
night studying a case, you look for patterns and refine the
use of language to craft your argument. That spoke to the
creative part of me.”
All the same, he didn’t love the adversarial aspect of
the law. Eventually, he says, he was “struggling.” “I’d wake
up in the morning, and look at the person in the mirror
who was successful on the outside but not fulfilled on the
inside.” Because he was raised in a bookish household and
his father had instilled in him a particular appreciation for
biographies, Sharma channelled his dissatisfaction into
reading—or, as he puts it, “studying lives well lived.”
“There was something deep in me that was moved by
reading about Mandela, about Edison,” he recalls. “And I
discovered that these were ordinary people. The world
puts them on a pedestal and says they are cut from a different cloth. But science, through empirical evidence, shows
us that’s not true.”
Sharma is fond of referencing psychologist Anders
Ericsson, who developed the idea of “deliberate practice.”
It’s commonly known as the 10,000-hour rule, popularized
by Malcolm Gladwell: Being great is not about natural talent but more about investing a decade working at a very
specialized craft, and making the most of your connections and associations. “Genius is less about genetics than
about practice,” Sharma tells the crowd in Vegas.
In 1994, Sharma began cohering his budding world view
into a book. He had few ambitions as an author at first.
“I would produce it in a three-ring binder, or some such,
that I might sell for whatever,” he says. But then he told
his father about the idea; he replied that anything worth
doing had to be a genuine effort. “My dad never missed the
opportunity to use experience as a teaching point.”
Sharma decided that this first writing effort should be a
self-improvement manual based on lessons gleaned from
“peak performers.” He called it Megaliving!: 30 Days to a
Perfect Life—The Ultimate Action Plan for Total Mastery
of Your Mind, Body and Character. After taking a course
0
b. 1883
b. 1888
b. 1898
b. 1932
b. 1942
b. 1948
b.
y
napoLeon hiLL
DaLe CarneGie
stephen CoVey
muhammaD aLi
eCkhart toLLe
(Think and
Grow Rich)
(How to Win
Friends and
Influence People)
norman
VinCent peaLe
(The 7 Habits of
Highly Effective
People)
“The man
who has no
imagination
has no wings.”
(The Power of Now)
(Unlimited Power)
“Realize deeply
that the present
moment is all
you ever have.”
“If you can’t,
you must.
If you must,
you can.”
ea
—the
am
he
in.”
“A goal is
a dream with
a deadline.”
“Success is
getting what you
want. Happiness
is wanting
what you get.”
(The Power of
Positive Thinking)
“It’s always too
early to quit.”
“Sow a thought,
reap an action;
sow an action,
reap a habit;
sow a habit,
reap a character;
sow a character,
reap a destiny.”
b. 1960
tony robbins
DM151599_Pg34-42_ROB_OCT_2015.indd 39
15-09-03 10:02 AM
in self-publishing, Sharma took Megaliving! to a copy
shop to print an initial 3,000 copies. But he made a rookie
mistake. The type was too small. When he gave a copy
to David Chilton, author of The Wealthy Barber, Chilton
said, “Maybe you should pack it with a magnifying glass.”
Those 3,000 copies gathered dust in Sharma’s apartment.
He printed another, more legible set, and managed to persuade buyers at Chapters to take on orders. Megaliving! is
not a great book by any standard, but it sold decently on
the strength of Sharma’s hustle. More important, it paved
the way for Sharma’s breakthrough second book.
In 1997, Sharma self-published The Monk Who Sold His
Ferrari: A Spiritual Fable About Fulfilling Your Dreams and
Reaching Your Destiny. It’s the story of Julian Mantle, a successful trial lawyer, who re-evaluates his life after he suffers a heart attack. Echoes of Sharma’s life are evident, as
Mantle treks through the Himalayas on a path of personal
awakening. After an appearance at a bookstore, Sharma
caught the eye of HarperCollins Canada then-president
Ed Carson, who bought the rights for a mere $7,500. With
20 minutes on strategic planning and the final 20 on learning something new.”
In June, Sharma took the message to Los Angeles for an
appearance at a gathering held by Toms, a company that
donates a pair of shoes to someone in the Third World
for every pair it sells in the West. “Great having @robinsharma speak at our @toms global brand conference,”
said Blake Mycoskie, the company’s founder and CEO, in
an Instagram post. “Started my 20/20/20 this morning!”
The learning piece of 20/20/20, Sharma says, is the
game-changer. “Education is inoculation against disruption.” That’s a viral Sharmaism. He’s had more than 2.3
million Facebook likes for such content, which he puts
forth as “daily kick-starts” packaged into slickly designed
quote cards.
Here’s one about his aversion to time-wasting: “An addiction to distraction is the death of creative production.”
Many have an ethical bent: “You can be dedicated to fitting in. Or you can become devoted to changing the world.
But you can’t do both.”
“Robin looks at life in more than one or two dimensions. He understands business. He has a spiritual
dimension. He’s healthy. He’s fit. And he ties these
pieces together in a humble way.”—Bruce Bowser,
CEO, AMJ Campbell Van Lines
his new publisher, Sharma sold 10,000 copies of Monk—
enough to get him to jump off the diving board and leave
the law. “I said, ‘This is my shot. Every moment I’m sitting
in this law office, it’s a moment I’m away from my dream.’”
In the years since, the Monk franchise has added Leadership Wisdom from the Monk Who Sold His Ferrari, Family
Wisdom from the Monk Who Sold His Ferrari, Daily Inspiration from the Monk Who Sold His Ferrari, and Who Will
Cry When You Die?: Life Lessons from the Monk Who Sold
His Ferrari.
Everything that Sharma is and does today can be traced
back to the series’ basic message: Shirk your ego, follow
your aspiration, and model your actions on those people
whom you most admire. For Sharma, that’s foremost his
father, Shiv, who, at 77, still practises medicine. When
Sharma was a teenager, Shiv stuck the Tagore verse about
stringing and unstringing one’s instrument on the family
refrigerator.
Sharma lives in the suburbs north of Toronto, and
commutes to work when he is not in the state he
calls “deep creative.” That’s his term for the two days a
week he spends unplugged from contact with his team.
During “deep creative,” which happens on Tuesdays and
Thursdays, he writes. One of the books he’s working on
now is titled The 5 A.M. Club, based on a method he practises and teaches to his clients.
“It’s a 20/20 formula,” he explains. “The idea is to wake
up at 5 a.m. every day and spend the first 20 minutes in
intense exercise—fuel the endorphins and neurochemicals and jump-start your metabolism. You spend the next
And: “Success without decency is a hollow victory.”
When we go back to his office after our walking meeting, Sharma Skypes with his New York-based CEO, Robert Camper Bull, whose job it is to disseminate Sharma’s
creative output, consisting of blog posts, one-liner quotes,
and videos, to as many eyeballs internationally as possible. Camper, as he is called, appears to be working in a
home office.
They start with the online and social-media numbers.
“We gained 34,000 new YouTube subscribers this
week,” Camper says. “You’re 60 to 70% higher than all of
our target competition.” Later, when I ask Sharma who
this competition would be, he says that he doesn’t really
believe in the notion. “To me, focusing on competition is
a waste of key assets like energy and drive. I simply consider others in my arena as peers. And many have become
friends.” He provides a list of names that ranges from
motivational speaker to executive to scholar: “Tom Peters,
Jim Collins, Malcolm Gladwell, Jack Welch, Tony Robbins,
Ken Blanchard and John Maxwell.”
Compared to these men, Sharma’s reach is respectable.
On their Skype call, what excites Camper more than anything seems to be the eyeballs Sharma is getting online.
“Your best post of the week had 1.4 million Facebook
likes. …That’s circular viralocity right there!”
“Circular viralocity” sounds like a parody of Silicon Valley jargon. But it’s a real thing, a term for a do-it-yourself
Internet marketing technique. You build your own media
channel with your own content, which you make available
in a consistent fashion, every few days or so. You build
up an audience that is expecting this content and repurpose it every which way—a blog post is compacted into
DM151599_Pg34-42_ROB_OCT_2015.indd 40
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There’s far more to
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Come and meet the hidden gems in the small-cap space
President’s Club Conference
November 6-8, 2015 Nassau, Bahamas
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Exhibitors:
15-09-08 2:21 PM
a quote card on Twitter, for instance. You make content
that will be easily passed around. Circular viralocity, or
“social stacking,” as Camper calls it, is Sharma’s focus for
the immediate future. “It’s about building scale,” Sharma
says. “I can go to an event and speak to 2,000 people and I
will stay for two hours afterwards and shake every hand.
That’s great. But all the travelling and presentations keep
me away from shooting videos or writing posts that will
influence a million people.”
Each quarter for the past decade, Sharma has done an
extensive speaking tour, sometimes ticking off another
city on his itinerary every two days. His message: “How to
build an organization that wins its markets and a leadership—versus victimhood—culture of high performance.”
In the recent past, he took the message to Dallas for the top
suppliers of Hewlett-Packard. He spoke to 5,000 Microsoft employees at their headquarters in Seattle, at a series
of events for Carlos Slim’s Telcel across Mexico, to rising leaders at GE, to Nike’s executives in Israel, at FedEx’s
annual conference in Canada, and to Starbucks’ Canadian
leaders at their retreat in Vancouver.
Now, though, he’s slowing down on speaking so as to
grow the online business, to write and to concentrate on
the marquee event that is at the top of the priority list, his
own Titan Summit.
Sharma says the monetizing piece of his social-media
drive will come once there’s a mass of fanatical followers. He does not pay for YouTube or Facebook advertising. He’s building an organic base on social media. A lot of
his peers didn’t make that right-angle turn when Sharma
started to build that audience by marketing a series of
online courses in 2008. “I’ve tried to see what’s coming
and to make sure we’re relevant. To me”—believe this or
not—“impact is more important than income.”
And for income, there are other streams. People paid a
lot for the Vegas conference, between roughly $1,000 to
almost $3,000 (U.S.) for a five-day ticket. Sharma’s fee for
an event like this is $35,000. After speaking onstage for a
few hours, he will also hang back to shake hands with a
long lineup of fans who invariably come to see him. Typically, he’ll also attend a VIP reception.
Sharma is polite but firm when I ask him how much he
takes in. “I fully understand the need for numbers,” he
says. But he doesn’t want to go there. “I was raised to keep
finances private.” He will say that the retail price for a seat
at The Titan Summit, which he holds each December in
Toronto for 200 or so ticketholders, is $25,000. He also provides private coaching to “a small group of game-changers” in his IconX program for $100,000 per year. The group
meets in Toronto, Rome and South Africa.
In Vegas, Sharma told his audience that to be a
strong leader, you must have three things: inspiration, influence and impact.
It’s the first part of the trio that Sharma circles back to
again and again. When he’s meeting with Camper, they
spend a good chunk of time deconstructing the most
inspiring piece of rhetoric in modern history, Martin Luther King Jr.’s
“I Have a Dream” speech. They play
a recording of it together. They talk
about its effective transitions from
the “we” to the “I,” from the collective
to the personal.
From: “No, no, we are not satisfied,
and we will not be satisfied until justice rolls down like waters, and righteousness like a mighty stream.”
To: “I have a dream today.”
For decades, scholars have studied the power of this profoundly
well-delivered address. Sharma and
Camper are having a go, too, because
in a few days, they will shoot an inspirational video featuring Sharma that
they’ll post online. So, why not learn
from the best?
Explaining the approach, Sharma is,
as ever, a study in earnestness. “People want to see others doing good,” he
says. “They want to see more humanThe essenTial source for a canadian perspecTive
ity. They want to see more dignity.”
I can’t detect a cynical atom in this
man. That said, I’m not sure what kind
Find it in paper, online, in Report on Business magazine
of currency that gives him in our culand in the new Globe and Mail App.
ture. What do we value more, cynicism or earnestness?
Subscribe today, visit: globeandmail.com/spark
Unlike me, Robin Sharma is unequivocal. “Cynicism blocks exceptionalism.” That’s a Sharmaism you
Apple and the Apple logo are trademarks of Apple
can take to the bank.
Inc., registered in the U.S. and other countries.
powering canada’s Business
App Store is a service mark of Apple Inc.
DM151599_Pg34-42_ROB_OCT_2015.indd 42
15-09-03 10:02 AM
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15-09-08 2:01 PM
photograph (left) DaviD DoDge/greenenergyfutures.ca
The
Moon
IS a
haRSh
MISTReSS
DM151599_Pg44-51_ROB_OCT_2015.indd 44
15-09-08 10:12 AM
G
a
p
in
th
in
M
By
ph
photograph (left) DaviD DoDge/greenenergyfutures.ca
S
Green-energy fans
are excited by the
potential of the tides
in the Bay of Fundy,
the most powerful
in the world.
Maybe too powerful
By John Lorinc
photographs by Rochelle Surette
o
n Dec. 16, 2010, hundreds of spectators flocked to the windswept shores of the Minas Passage, a dramatic strait between
the Bay of Fundy and the Minas Basin, to watch a mechanical
giant rise from the deep.
For much of the previous year, a three-storey-high turbine
sitting on the bottom of the Passage had been generating
data about the ebb and flow of the tides that wash through
the Bay of Fundy. The 300-tonne device was the all-in bet of a
$10-million pilot project jointly mounted by Emera, which is
Nova Scotia’s power utility, and OpenHydro, an Irish firm that
designed the turbine.
For Nova Scotia, the stakes were huge. The Minas Passage
experiences some of the most forceful tidal currents in the
world. If the trial pointed to a reliable flow of green energy, the
opportunities to tap Fundy seemed limitless—and a boon to a
province with a sooty heritage and scant economic prospects.
Yet scarcely a year into the experiment, readings from the
at aecon’s plant in Pictou, nova Scotia (above),
workers assemble one of the massive turbines
that will be installed at Cape Sharp (left)
DM151599_Pg44-51_ROB_OCT_2015.indd 45
15-09-08 10:12 AM
turbine had mysteriously flatlined. So on that December day, the project’s partners dispatched a barge to winch up the contraption from its resting spot, some 30
metres beneath the surface. Residents of the region’s tiny villages watched from
the shore or from fishing boats. “When the turbine was brought up,” recalls Mary
McPhee, a manager at Fundy Ocean Research Centre for Energy, “you couldn’t
find a place [to park] along the shoreline.”
When the dripping machine rose from beneath the waves,
the onlookers were shocked by what they saw: Every one
of its 12 giant blades had been punched out. “It was a sensational thing,” McPhee recalls.
Company officials spun the news as much as possible,
describing the recovery as an “exciting...milestone.” Five years
later, however, Nova Scotians still talk about that crippled turbine. And this fall, the joint venture between OpenHydro and
Emera, which is called Cape Sharp Tidal, is making a second
effort at harnessing the Bay of Fundy’s wild power, using two
even larger turbines.
The pressure is even more intense this time. Nova Scotia
officials know that the United Kingdom, along with some of
Europe’s largest energy-equipment players, is pushing hard
to build its own world-beating technology to tap what many
experts regard as the last great clean energy play. The race is
on. As Emera CEO Chris Huskilson says, “It’s critically important that the machine does a good job.”
w
ne
ick
nsw
Bru
Pictou •
Parrsboro
•
Minas Basin
Minas Passage
f
yo
Ba
nd
Fu
y
va
no
tia
Sco
Halifax
•
R
enewable energy advocates have long looked to the sky to find
alternatives to fossil fuel: to the sun, the wind and, increasingly,
the moon, whose gravitational pull is the main force causing
the world’s oceans to slosh back and forth with clockwork predictability. Not every coastline, of course, experiences forceful tides. But there are many that do, and their locations have
been well-known to wary mariners for centuries: the northern
reaches of Ireland and Scotland, France’s Atlantic coast, the
southern tip of South America, Alaska’s Pacific shoreline, parts
of Australia. Besides Fundy, another Canadian tidal hot-spot is
the Hudson Strait, which separates Quebec and Baffin Island.
Fundy, however, is in a league of its own, with high tides that
could swallow a five-storey building. The twice-daily surges,
experts say, have increased over the millennia as the Bay’s contours become more attuned to the Atlantic’s rhythms.
In the Minas Passage, the ocean roars like a fast-moving river,
with 14 billion tonnes of water rushing in and out at speeds of
up to 10 knots. The volume is a hundred times the flow rate of
the St. Lawrence River as it disgorges the Great Lakes. According to modelling done by Richard Karsten, an Acadia University mathematician, the tidal currents in the Minas Passage
could generate 2,500 megawatts of power. That’s a rough match
for the capacity of all of Nova Scotia’s generating stations, from
coal to wind to hydro, put together.
The potential global tidal resource, meanwhile, is estimated
to be between 90 to 120 gigawatts. That’s just less than Canada’s current electrical generating capacity, and could yield
annual revenues of $40 billion.
All of this energy is, of course, only in the realm of the hopeful. But Nova Scotians have sought to tap Fundy’s tides for as
long as there’s been a Nova Scotia. By 1604, Acadians were
using the current flowing out of tidal pools to grind grain. This
was the first in a series of tidal technologies: Mills simply captured the energy as water receded from existing landforms.
In 1915, engineers began studying Cape Split, a treacherous
ho
hy
th
of
gy
its
w
so
ei
co
tid
Po
th
20
Bu
un
photograph (bottom left) anDrew vaughan/cp
By year’s end, Cape Sharp
Tidal will deploy two turbines,
of the style illustrated above,
to tap Fundy’s famous boatbeaching tides. The joint
venture is named for a point
of land near Parrsboro, facing
hook-shaped Cape Split
across Minas Passage
DM151599_Pg44-51_ROB_OCT_2015.indd 46
15-09-08 10:12 AM
jo
en
sil
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th
en
ra
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e,
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photograph (bottom left) anDrew vaughan/cp
er,
of
of
derge
ch
m
hook of rock in the Minas Passage, as a venue for generating
hydro using sluiceways and holding tanks. Nothing came of
the idea and the tidal potential lay dormant until the oil shocks
of 1970s rekindled government interest.
It appeared that the next stab at tapping the tides could piggyback on some existing infrastructure. When it expanded
its highway network, Nova Scotia had constructed causeways across river estuaries on the Bay of Fundy—a cheaper
solution than building bridges. With water levels varying on
either side of the causeways, utility engineers figured they
could turn them into a sort of hydroelectric dam known as a
tidal “barrage.” It wasn’t until the mid-1980s that Nova Scotia
Power, the pre-privatization incarnation of Emera, retrofitted
the decades-old causeway across the Annapolis Basin with a
20 MW turbine and actually began to produce tidal energy.
But that modest start is as far as things went, thanks in part to
untoward environmental effects: silting and fauna fatalities.
In 2005, a year after Chris Huskilson stepped into the top
job at Emera, the company decided to take another look at tidal
energy. At the time, 90% of Nova Scotia’s energy came from fossil fuels, and there was political pressure to switch to cleaner
forms. Emera started investigating a nascent tidal energy technology—so-called tidal-stream turbines that could be set on
the ocean bottom or suspended from floating platforms. The
energy is generated by simply letting the water flow through,
rather than directing it through turbines in a dam or causeway.
Some designs featured a large opening in the centre of the turbine, so as to reduce the risk of fish and marine mammal strikes.
All told, Emera vetted almost 50 tidal-stream turbine
designs. It decided to partner up with OpenHydro, an upstart
firm that hailed from the British Isles, a hot spot for things tidal.
The small Dublin company was founded in 2005 by an Irish
hotelier-turned-financial consultant named Brendan Gilmore, who wanted to invest €10 million in the new technology.
acadia University’s Richard Karsten has
calculated that Fundy’s tides could supply
as much power as is now generated by
all of nova Scotia’s generating stations
Gilmore had recruited James Ives, a young automotive engineer with utilities experience and an ocean skipper’s licence,
to run the operation. “To me, it [was] the perfect fit,” says Ives.
The company designed a prototype—a small turbine that
measured six metres in diameter, with a capacity of 250 kW—
and installed it at the European Marine Energy Centre on the
Orkney Islands. OpenHydro hooked the 300-tonne device
to the grid and started producing power, a U.K. first (it still
runs). In 2007, an excited Gilmore said of tidal power, “It has
the potential to be enormous and to generate revenues of
€1 billion a year, just like the wind industry.” These days, Ives
contends that the global market could be worth €200 billion.
Hype, it seems, emanates from companies pushing a new
technology as relentlessly as, well, the tides. Since OpenHydro was founded, Gilmore has continued drumming up
capital while Ives has energetically promoted the firm’s prospects, publicizing various renewable energy agreements and
indicating that major deployments were just around the corner. While the privately held firm worked on trial projects,
its publicity machine churned at full throttle, stoking media
speculation about large valuations, a looming debut as a public company and huge orders that always seemed to be just
over the horizon. Always there’s a drumbeat of public benefits. As Ives said in 2008, “[tidal] is the fastest-growing emerging technology in the renewable-energy sector and is set to
make a major contribution to the security of energy supply
and to carbon-free energy generation.” The firm aims to have
$1 billion in revenue in 2025.
DM151599_Pg44-51_ROB_OCT_2015.indd 47
15-09-08 10:12 AM
I
WHO’S GETTING
WET NEXT
Besides Cape Sharp Tidal (a joint
venture of emera and openhydro),
three other consortiums, each with
their own technologies, are planning
to install tidal-stream turbines
at the Fundy FoRCe facility.
Atlantis resources corp./Lockheed
Martin/irving Shipbuilding
Atlantis, a Singapore-based firm, will
install 1.5 MW single-rotor turbines,
using a design that the firm has tested
in Scotland’s Pentland
Firth, where it intends
to build a 398 MW
tidal-stream array.
Atlantis raised $25
million in an IPO
last year. Lockheed,
one of the world’s
largest aerospace
and defence companies, is Atlantis’s
manufacturing partner. The marine arm
of New Brunswick’s Irving empire, one of
Canada’s largest shipbuilders, will build
the turbine in Dartmouth, Nova Scotia.
Minas Energy/Siemens/Bluewater
Energy Services
Minas, a private
Nova Scotia firm,
is partnering with
a marine-energy
subsidiary of Siemens,
Europe’s largest
engineering firm,
which is designing
a 2 MW tidal-stream
turbine that is suspended from a floating
platform. The turbine will be built by
Siemens and Bluewater, a Dutch firm
known for making offshore-oil gear.
Black rock Tidal Power/Schottel
Black Rock, a two-year-old Halifax
firm focused on Fundy’s tides,
will use technology
from Schottel, a
German propeller
manufacturer. Black
Rock’s system involves
a bank of 36 small
turbines tethered to
a submergible base.
n the five years since Fundy’s tides busted OpenHydro’s test turbine, the tidal
energy sector has become ever more turbulent.
The U.K. government has been aggressively promoting the development
of tidal energy in areas like the Severn River estuary and the Pentland Firth, a
choppy strait between mainland Scotland and the Orkney Islands. Westminster
reckons that tidal turbines and lagoons installed along the U.K.’s coasts could
meet about 20% of the country’s current power needs.
A new round of global climate change negotiations is scheduled for this fall. To U.K. officials, those talks signal not just
environmental urgency but also a sizable economic-development opportunity that could see tidal turbines supporting a
supply chain including shipbuilding yards, engineering consultants and firms that make undersea cable and sensors. The
U.K. Carbon Trust estimates British firms could soak up a fifth
of the global market for marine-energy equipment, which is
projected to generate revenues of $150 billion by 2050, as well
as 20,000 jobs. MeyGen, an Edinburgh-based firm that recently
raised $100 million, is now deploying four commercial-scale
turbines in the Pentland Firth, with plans to add almost 400
MW over the next decade.
Nova Scotia officials and the province’s tidal players understand they’re now in a dead heat with the U.K., and both the
provincial and federal governments have poured millions into
tidal-energy R&D.
There’s an expectation of a return on these investments. An
April, 2015, report by the Offshore Energy Research Association of Nova Scotia concluded that if Canadian suppliers could
grab even 5% of the global marine-energy sector in coming
decades, it would bring as much as $5 billion in exports, as
well as emission reductions. But the report warned that Nova
Scotia needs to create a favourable policy environment and
fast-track the construction of at least 500 MW of tidal-energy
capacity over the next 15 years if it wants to compete globally.
“Success in the export market,” the report cautioned, “would
be enhanced if tidal development were to occur earlier, or at
least no later, in Canada than in other jurisdictions.”
At a shipyard in Pictou, N.S., workers have been racing since
the spring to finish constructing the two 2 MW turbines that
Cape Sharp Tidal will deploy in the Minas Passage this fall,
as well as a 680-tonne barge designed to take them out on
the water. The crew is employed by Aecon, a Toronto-based
engineering giant that can lay claim to such iconic Canadian
projects as the CN Tower, the Vancouver SkyTrain and the St.
Lawrence Seaway. Nova Scotian firms have made some components of the equipment. But the specs and the intellectual
property all belong to OpenHydro.
By the end of the year, Cape Sharp Tidal says, the barge
will transport the five-storey-high turbines toward a berth at
the bottom of the Minas Passage. After the turbines are submerged, they’ll be hooked up to a deep-sea cable already tethered to Nova Scotia’s power grid. And if all goes according to
plan, the tides will begin turning those massive blades, generating enough clean power to provide electricity to a thousand
homes. (Cape Sharp won’t disclose the capital cost.)
Naturally, Nova Scotia officials are eager not to repeat the
experience of 2010. While there’s no official explanation for
the mistake, Richard Karsten says the incident “drove home
that you have to do your homework. You have to match up the
turbine to the conditions.” He knows that as a fluid-dynamics
expert who has studied the Fundy tides for eight years. But he
knows about Fundy’s might on a less theoretical level too: As
an occasional kayaker, he stays clear of the Minas Passage.
DM151599_Pg44-51_ROB_OCT_2015.indd 48
15-09-08 10:12 AM
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Since 2010, scientists, policy-makers and experts have
focused on developing a better understanding of the conditions out in the Passage. Karsten set to work recalculating
old estimates of the energy potential of the area’s tides, using
computer modelling to understand what would happen to the
currents if there were an array of giant turbines all the way
across the five-kilometre strait.
The results were eye-opening, counterintuitive and potentially very lucrative: Karsten’s findings showed that large
numbers of installed turbines would slow the tidal currents.
That effect would in turn increase the difference in high-tide
water levels between the Bay of Fundy and the Minas Basin,
creating additional momentum when the ocean ebbs.
The bottom line? Earlier research had estimated that the
tides in the Minas Basin had the power of 2,000 MW. Nova
Scotia officials reckoned they could tap about 15%, or 300 MW,
of the total resource.
Karsten’s more recent work, however, suggested the raw
power of the Minas Passage is closer to 7,000 MW. The amount
that could realistically be exploited with tidal-stream turbines
is the figure mentioned earlier: 2,500 MW, enough to power
the entire province of Nova Scotia. Cape Sharp Tidal’s longterm goal is to install about 300 MW of tidal turbine capacity
in various locations around the Bay of Fundy by the 2020s, and
sell it at a price that’s competitive with wind power.
Meanwhile, other scientists have considered the ecological
consequences. “We don’t really know if these turbines have a
negative impact on fish and marine life,” says biologist Anna
Redden, director of the Acadia Tidal Energy Institute, an Acadia University research unit. The Basin is home to Atlantic
Cape Sharp Tidal’s turbines will be put in place
using a massive (680-tonne) barge now under
construction in Pictou
sturgeon, harbour porpoises and the occasional whale; the
region also supports a small fishery and lobster industry.
More vocal, however, are some of the 5,000 local recreational
anglers, who are worried that the heavy, churning blades of
turbines will destroy the Basin’s large striped bass population.
Redden points out that porpoises tend to avoid submerged
moving objects, while fish seem to be capable of sensing obstacles, such as offshore oil rigs, and navigating around them.
Research at other tidal-turbine sites has turned up little in the
way of evidence about fish morbidity, she says. Still, Cape Sharp
Tidal will install specialized audio-sensing equipment on the
bases of its big new turbines to track how Fundy marine life
behaves in the presence of these new foreign objects. “Until
the turbines are in the water, we can’t know that,” observes
Graham Daborn, a biologist who headed Acadia University’s
Centre for Estuarine Research prior to his retirement. “That’s
the major environmental question we still have to address.”
Despite the dearth of data, he says he’s “cautiously optimistic,”
given the general patterns of marine behaviour.
All this scientific scrutiny is taking place within a campaign to sharply reduce carbon emissions in a province that
still loves coal. Nova Scotia has passed a law requiring it to
reach 40% clean energy by 2020 (the mix is currently 25%).
Besides Emera’s costly link to Labrador’s hydro power (which
has drawn fire from groups claiming the venture will raise
DM151599_Pg44-51_ROB_OCT_2015.indd 49
15-09-08 10:12 AM
In Pictou, the project comes together at Aecon’s
plant: top, one of the footings for a base that
will support a turbine; middle, inside an
as-yet vacant blade assembly; below, Brendan
McCormick, Aecon’s operations manager
retail hydro rates), the government has established a feed-in
tariff similar to Ontario’s: Energy producers were enticed with
long-term “power purchase agreements” that guaranteed
higher rates of return than conventional sources. Nova Scotia
decreed that the subsidies could not increase retail electricity
rates by more than 2%.
After it took office in 2009, Premier Darrell Dexter’s NDP
government stepped up the push on tidal. The Liberal regime
that defeated the NDP in 2013 has continued the policy, tabling
the Marine Renewable Energy Act this April.
The Liberals position tidal as both an environmental and
industrial development play, with the potential to tap U.S.
markets, including states like Massachusetts, which, like Nova
Scotia, is trying to green its energy portfolio. “We see that
as an opportunity for tidal and wind,” says Energy Minister
Michel Samson.
The modern history of Atlantic Canada, of course, is littered with the wreckage of wide-eyed economic-development
schemes meant to create jobs and buy votes. Moreover, Ontario’s bid to force wind and solar producers to manufacture their
equipment in the province turned into a mess that should serve
as a cautionary tale.
Nova Scotia officials say their approach is less prescriptive.
Samson insists that tidal producers won’t be hamstrung by
made-in-Nova Scotia procurement rules. “We have established
targets for local investment, but we haven’t set specific procurement rules.” Local firms, however, are lined up to get the
work. As Samson and Huskilson point out, Nova Scotia companies have garnered 70% of first-phase spending on the Cape
Sharp project.
Perhaps Nova Scotia’s smartest move has been establishing Fundy Ocean Research Centre for Energy, or FORCE, the
tidal energy testing facility whose location outside Parrsboro
affords postcard views of the Minas Passage.
FORCE—funded by the province, Ottawa and energy giant
Encana—has spent the past several years developing a test bed
out in the Passage. The province put out an international call
for bids from consortiums interested in building and deploying
commercial-scale turbines that will be hooked directly into the
grid so their actual performance can be assessed. Four groups
were selected, with Cape Sharp Tidal first up. The other teams
include the likes of Siemens, Lockheed Martin and Irving Shipbuilding (see box, page 48). The involvement of such heavyweights points to the solid potential of tidal-stream technology, proponents say.
FORCE operations director Anne-Marie Belliveau says the
facility is similar to one operated by the European Union in the
Orkneys. “Everything we’re doing here is leading-edge. A lot
of the projects being done here are first-ever.” She won’t say,
however, when the other three teams will be ready to launch.
There has been plenty to do just to get Cape Sharp’s project operational. Belliveau cites the example of how FORCE
ran heavy-duty undersea cables from a nearby substation to
the four test sites off shore—an involved, two-year-long project completed last fall at a cost of $15 million. There’s nothing novel about laying undersea cable, but the currents in the
passage are so powerful and turbulent, Belliveau says, that
FORCE couldn’t use the course-correcting frigates normally
employed for such tasks. So her team turned to veteran Fundy
tugboat skippers for the job of hauling four 150-tonne cable
spools out into the passage and unwinding them along a meticulously plotted path.
At the end of each cable is an oil-drum-sized termination
“can”—a vacuum-sealed container that holds the plug to
which each turbine’s cable will be connected. Since last fall,
th
th
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CPA 2330
DM151599_Pg44-51_ROB_OCT_2015.indd 50
15-09-09 2:27 PM
nd
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ll,
those four cans have been sitting on the ocean floor. When
the Cape Sharp barge arrives with its two 1,000-tonne cargoes
later this fall, the operators will have to hold the ship’s position directly over their termination can, which will then be
winched up to the surface, connected and re-submerged. Timing is crucial, as there’s a brief lull in the currents just after
high tide that allows the barge to remain relatively still. That
window lasts for 15 minutes. As Belliveau says, “No other site
is like the FORCE site. It’s called the Everest of tidal energy.”
The other teams have adopted different approaches, including arrays of smaller turbines. “The single-turbine approach
leads to enormous machines,” points out a website statement
by Black Rock Tidal, which will use technology developed by Schottel, a German
propeller giant. “Besides the high capital expenses for these huge machines,
the operating expenses are significantly
driven by the necessity to transport the
devices to a maintenance base, requiring
heavy gear, expensive vessels and suitable
onshore infrastructure.”
In any event, the four consortiums that
will operate from the FORCE site have
been granted 15-year power purchase agreements, with each
operating 4-to-5 MW arrays whose technical, economic and
environmental performance will be closely scrutinized and
made public. FORCE’s berths and cables allow the teams to
scale up if things go well, so the facility can produce 64 MW
of power.
But Cape Sharp Tidal, notes Huskilson, intends to develop
tidal arrays elsewhere in the Bay of Fundy as it moves to a full
commercial scale in the 2020s. For now, he intends to continue
to use OpenHydro’s turbine technology. In 2013, OpenHydro
sold a controlling stake to DCNS, a €3.1-billion-a-year French
naval defence contractor with the deep pockets and manufacturing facilities required to manage larger orders. “I very much
describe OpenHydro as being in a transition phase into a commercial organization,” says Ives, who boasts that the firm now
has 920 MW of tidal-energy projects “under development” in
Ireland, Scotland and the Channel Islands. “We need volume
to drive down cost.”
First, OpenHydro must prove that its bulky commercial-
o
scale tidal-stream turbines will work sustainably and economically in conditions like Fundy’s. Indeed, to date the company
only has two turbines in operation—one is the test model in
the Orkneys mentioned earlier; the other is a larger commercial project off the coast of France. The latter site is run by EDF,
a giant French utility that recently won regulatory approval to
install 14 MW of tidal-stream turbines.
For now, Huskilson says Emera is satisfied with its partnership (Emera’s deal heaps the risk of another failure on OpenHydro), but he allows that Emera isn’t wedded to any particular
turbine design, and will ultimately go with the most efficient
model. “We’ve always said we are technology-agnostic.”
n a rainy afternoon in August, Alex Hay, a Dalhousie University ocean physicist, stands on a rocky beach in Parrsboro, a
few kilometres from the FORCE site. He and several colleagues
are installing four acoustic sensors on a contraption that looks
like a solid steel zodiac. Wearing green rubber coveralls to
ward off the wet, Hay explains that the device will be carefully
lowered onto the ocean bottom near the Cape Tidal berth,
where it will continuously measure the speed of the roiling
water. “The reason turbulence is important is that it affects the
turbine’s operating life,” says Hay, making an oblique reference to the tide’s apparent ability to knock the rivets out of a
300-tonne turbine.
Garfield Strong, who lives in a town up the road, looks on
admiringly as the technicians assemble the equipment. Asked
if his neighbours were paying attention to the forthcoming
launch, Strong replies, “Oh, Jesus, yes.” He’s optimistic, but
many others are dubious. “The older generation is somewhat
pessimistic because they know the tides and they know the sea
and they know how rough it is,” he says. “They figure the tide’s
going to chew up the turbine.”
Watching Hay work on his sensing platform, Richard Karsten
admits he’s excited to see what happens come launch day, and
plans to stake out a spot to watch. He’s confident that over the
past five years, OpenHydro’s engineers have figured out how to
reinforce the blades to withstand those fearsome ebbs and flows.
“It’s been a long time since we’ve been in the water,” he
muses.
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DM151599_Pg52-56_ROB_OCT_2015.indd 52
15-09-08 9:47 AM
In just sIx years, HerscHel
supply co.’s bags Have
reacHed Icon status,
strapped to HIpster backs
from HelsInkI to cape town
by Iain marlow
Leaders Of
pack
the
O
Of course Herschel Supply Co.’s head office is located in
Vancouver’s gritty Railtown neighbourhood, where outreach centres lie just a few minutes from pop-up stores
selling “performance” denim you can wear to yoga. Of
course it’s in a cool industrial loft space. Of course there are
Monocle magazines—as well as in-house magazines that
look like Monocle magazines—positioned on a shelf near
the entrance. Of course the place is staffed by hip young
people, as well as slightly older people who are dressed like
hip young people. Of course Herschel hired 20 people in
the past two weeks, is outgrowing its cramped space and is
taking over an 11,000-square-foot office a few floors below.
Of course I get lost trying to find it, and then spot two
Herschel-bedecked hipsters—like birds circling an oasis—
and instantly know that I am in the right place. Were they
dedicated, Herschel-wearing Herschel employees, or just
young people who happened to be wearing Herschel near
the epicentre of the global Herschel phenomenon? It’s hard
to tell. Everyone seems to be wearing Herschel these days.
The company, which was founded in 2009 by brothers
Lyndon and Jamie Cormack, has come from nowhere to
emerge as the wildly successful global bag company of
the Instagram generation. It is the not-actually-vintage
vintage company, whose signature hand-drawn “Herschel
photographs by trevor brady
teens (left to right) charlotte, chris, Meg/richard’s Models; Stylist carla Pedersen/theyrep;
Hair/Makeup Amanda Greenwood/theyrep; Location Landyachtz, Pop-up Vintage Arcade
DM151599_Pg52-56_ROB_OCT_2015.indd 53
15-09-08 9:47 AM
Supply Co.” logo tugs at everyone’s nostalgic desire for
something classic, while being affixed to bags that are
both deceptively simple and modern. It is, at its core, a
fast-fashion company—like H&M—whose bags are far
from cheap and far from expensive, but so stylish and so
numerous that they are bound to appeal to somebody. It
is a Canadian company whose branding is amorphously
global; a company named after a rural town in Saskatchewan that feels, at the same time, unambiguously urban.
Herschel is the bag company of weekend Airbnb jaunts
to New York and Tokyo, of university students and young
professionals. They even have a kids’ line.
The company is private, and neither brother talks about
hard numbers. But they will say that Herschel has always
been profitable, outside of year one, and saw 75% growth
in sales between 2014 and 2015. It now has 70 employees in
Vancouver and three in a design office in Los Angeles—
although the majority of the design work is done here in
Vancouver and led by Jamie (Lyndon is the sales and marketing guy). Herschel now sells in around 70 countries and
is distributed through a network of 7,000 retailers. “We’re
under $100 billion in sales,” Lyndon says sarcastically. “I’m
just kidding. Don’t write that.”
t
The Herschel phenomenon is hardly an accident. It was
highly planned by two brothers descended from Scottish immigrants to the town of Herschel (population: 30).
They grew up as best friends and played pond hockey
together (Lyndon jokes that he is “younger than Jamie,
and stronger and better-looking”). Both of them live in
North Vancouver, barbecue together, own boats they take
out together, and play beer-league hockey on the same
team. Before founding Herschel, both worked for global
fashion/lifestyle brands. Lyndon, now 40, worked at Vans,
the purveyor of iconic skateboarding shoes, while Jamie,
41, worked at K2 Sports, an outdoorsy, West Coast company in Washington state (that also happens to have been
founded by two brothers).
“Jamie’s always been my best friend. He’s a pretty easy
guy to work with, though I don’t know if he’d say the same
of me,” Lyndon says. “We’re best friends first, brothers
second and colleagues third. …We celebrate each other’s
DM151599_Pg52-56_ROB_OCT_2015.indd 54
15-09-08 9:47 AM
“jamIe and I are best frIends fIrst,
brotHers second and colleagues tHIrd,”
says lyndon, tHe younger cormack (left)
strengths, and we come to each other when
we know we need help.”
Lyndon and Jamie, having meticulously
designed their logo, created some rough
prototypes and took them to the Agenda
trade show in New York in January, 2010.
One of them was the heritage backpack,
with which Herschel has since become
synonymous: a slightly rounded top, a
square pocket on the front with a woven
logo in the bottom right corner. Orders
came in from retailers like Nordstrom,
Urban Outfitters and Need Supply Co. The
brothers had to double the orders they got
just to hit the minimum runs required by
the factories. “We were definitely, back in
the early days, hoping the product sold,”
says Lyndon. “And hope strategies aren’t
the best ones. It was sort of hope and pray.”
But soon the first sales reports began
trickling in. Stores were well on their way
to selling out. “We knew the product was
right,” Lyndon says. “It was pretty exciting,” Jamie cuts in.
Part of their success has been in how
the brand was conceived. Both say they
saw a clear gap in the market. “There were
really good mid-to-high-end and high-end
options, but we didn’t think there was anything that had a really great value proposition and the design-driven attributes that
we were into,” Lyndon says.
Lyndon, trim and clean-shaven and sitting behind his
desk in a fuzzy light-grey crewneck sweater, has often
compared Herschel to a shoe company that makes bags—a
lifestyle company whose brand immediately says something clear about the person wearing it, like wearing Vans
says you’re into skateboarding. But Lyndon and Jamie are
aiming well beyond a niche, and it’s obvious when I ask
them to describe the typical Herschel customer. Lyndon
says it is “someone who celebrates design, someone who’s
creative, someone who appreciates utilitarian products.”
He goes on: It’s also members of the “creative class,” and
“people who like to march to the beat of their own drum,”
who “celebrate their own individuality,” but who also
“celebrate their own cities,” “are passionate about travel,”
and “who are passionate about discovering new places,
whether that’s around the corner or abroad.”
Because this is 2015, and because this is Herschel, one of
the stats the company hands over to show its size is Herschel’s social media footprint: 636,000 followers on Instagram, 327,000 on Facebook, 36,000 on Twitter. Its Instagram feed is a lesson in effortless branding, in creating an
atmosphere around products. A woman sitting on a concrete outcropping in Istanbul, Herschel bag visible, star-
ing at the minarets over the dark blue waters of the Golden
Horn (15,600 likes). A beanie-wearing man—with a Herschel bag, of course—in red Adidas on a vintage bicycle
in Copenhagen (14,200 likes). Some posts are people-free,
like one of a black Herschel backpack with a speckled blue
pocket (11,500 likes, and one comment, among many, that
reads: “how can I get herschel stuff in jakarta?”). There are
some photos—a young woman on a scooter in a ladybugpatterned helmet, a brilliantly white colonial street corner in Singapore—that don’t even have Herschel products
in them; others are short, choppy stop-motion videos of
items (including Herschel accessories) magically packing
themselves into a Herschel duffle.
“People travel,” Lyndon says. “Whether it’s from here to
work, or, you know, from here to the local Whole Foods.
People require bags for whatever they happen to be doing.”
Jamie, who has joined us in Lyndon’s office, cuts in.
“Even toiletry bags,” he says. “Every category is growing
so fast for us. Definitely backpacks were the thing that got
traction for us, but everything else is catching up.”
O
On a Thursday afternoon in August, Herschel’s third-floor
office is buzzing, at a time when most offices have emptied
out to celebrate the two months of the year it does not rain
here. The office is also overflowing, perhaps predictably,
with bags. One hallway is littered with them. But they are
not this season’s bags. They are pre-production samples
for fall 2016, fresh from a factory in China, and a young
woman is going through them meticulously. She is conducting what is known as a “spec check,” ensuring that the
company’s designs are being executed perfectly before its
operations people tell the factories to go for it, and begin
manufacturing millions of items that will be shipped to
retailers around the world. Few details are too small to
escape notice. “Just as I was leaving the office, we were
agonizing over what shade of orange we were going to use
for a new print for fall,” Lyndon says, as he drives home to
North Van. “Is it too peachy? Is it too bright?”
Herschel does highly specific design collaborations
with retailers around the world, and with brands like
Coca-Cola and Walt Disney Co., and puts specific products in specific stores. It is all part of an operational strategy that might be called, to borrow a sports term, “flooding the zone.” Herschel sells roughly 5,000 products in
any given year, many of them simple bags that are only
subtly different from each other. Though you can always
recognize a Herschel bag—that logo, the vertical straps,
the simple pocket—you never seem to see the exact same
Herschel twice. This was deliberate from the start.
“We were going to be really hard to compete against,
DM151599_Pg52-56_ROB_OCT_2015.indd 55
15-09-08 9:47 AM
Many of those factories (all audited
for sustainability and regulatory compliance by supply-chain giant UL)
“we reverse-desIgn every bag,”
have been with the company from day
says jamIe. “we look wHere we need
one. Lyndon seems proud of that and
makes sure the factory owners know
to be In tHe marketplace and desIgn
Herschel’s broader catalogue, what
to tHat prIce poInt—tHe rIgHt
products might be coming and why
things are done a certain way. He says
features, tHe rIgHt materIals”
it helps them believe in the Herschel
vision. “We’re friends,” Lyndon says.
Maintaining the same exacting standards is sometimes
because we have so much to offer,” Lyndon says. “For contougher now than in the early days, Lyndon says. “Because
sumers, they have individuality. And the retailers can also
when we grow 30% or 40% on top of the current numbers,
offer something unique.”
it’s a huge number. You’re adding millions of units.”
Making something stylish and affordable, without also
Although impressive by volume, some doubt how this
making it look cheap, more than a year in advance of actusort of strategy can yield decent profits. “Herschel has
ally selling it—around the world, in dozens of markets—
cleverly blown up a segment of the bag-accessory area
is no small feat. Of course, because the Cormacks live in
that they will own with their vast assortment,” says Wendy
the world of fashion trade shows, employ trendsetting
Evans, a Canadian retail consultant. But “while they can
designers and compete against other companies doing the
own the segment, manufacturing and stocking so many
same, coming up with something cool a season or two in
products makes achieving economies of scale very chaladvance is par for the course. It’s the operational side that
lenging. It becomes almost a custom business, but at their
requires extra effort. Jamie flies to China, mainly Shanghai,
low prices, the gross margin would not seem high enough
as often as six times a year to visit suppliers and manufacto generate a good profit.”
turers. And he has a close relationship with them (some
Still, at least as Jamie tells it, there have only been a
even came over for his wedding). There is also plenty of
few hair-raising experiences as the company grew. “More
experimentation with raw materials, like rubber and other
hair-raising would probably be all the Chinese food I had
leather alternatives (faux-leather, as Nordstrom’s online
to eat over there,” Jamie says. “Because I was there so
store refers to it). They also take fabrics from other indusmuch, building the team out, really digging in. I’ve spent
tries—such as a puncture-resistant fabric Lyndon refers to
days and days and days over there to make sure everything
as “seal tech”—and use them in bags. That said, they do
was perfect.”
not simply make a bag and hope it sells; Herschel looks
“Operationally, both Jamie and I worked for large comat the market and tries to figure out where a prospective
panies before this, in a sales capacity, but you could always
bag should be selling, and then designs a product before
count on the back-end support getting their products to
someone else does.
the retailer or the end consumer, on time, all the time,”
“We reverse-design every bag,” Jamie says. “We look
Lyndon says. “We can’t show up late now, either. And the
where we need to be in the marketplace and design to
volume’s significantly higher. So it’s more challenging
that price point—the right feature set, the right materials.
than it used to be. Shipping millions of bags versus 10,000
We both have a pretty strong understanding of what was
bags is very, very—I should say products, not bags.”
working in the market, what didn’t work, where the hole
Both brothers are trying to shake the habit of referring
was—and where we could set ourselves up for success.”
to Herschel as a bag company.
Lyndon jumps in. “Our range—bags, specifically—goes
“The backpack is definitely our hero product,” Lyndon
from $40 to $300, and our key price points tend to be
says. “But we’re a hell of a lot more than backpacks in relaaround $100 and under. And that’s where we have it. So,
tion to the composition of our sales. The wallet business is
you know, when Jamie talks about reverse engineering...”
a great business for us. Headwear is great. Duffle bags are
“Reverse design,” Jamie corrects him.
huge. Luggage. Everything from hip-sacks to totes to, you
“Reverse design, okay, sorry, reverse designing,” Lynknow, other bags.”
don says, continuing in a slightly sarcastic tone. “So as we
The company is expanding, and continues to rack up
reverse-design products—I f---ing hate that!”
partnerships with valuable global brands. They now sell
He laughs and tries again. “As we reverse-design prodtheir bags and laptop sleeves through Apple’s highly
ucts, we know there’s a whole bunch of our consumers—
curated stores and online, including Apple stores in
let’s take someone who’s going back to school. We know
China, which is the next chapter. So far, Herschel has only
their price point, and the feature set they need, is not going
established a couple of small tastemaker relationships,
to lend itself to a $200 bag.”
such as with Lane Crawford, which sells high-end brands
Herschel’s vast array of products and price points
(Jimmy Choo, Givenchy and so on) into Hong Kong, Beirequires a lot of flexibility in terms of manufacturing. Lynjing, Shanghai and Chengdu.
don and Jamie, ever since they founded the company, have
“Although we sell in all the surrounding countries
worked exclusively with one small company that manages
around China, we’re really still strategically coming up
their supply chain. It has grown along with Herschel and
with a plan for how we’re going to execute the business
only works for them, co-ordinating the raw materials (zipin China. You have one chance for a first impression, and
pers and fabric) from 40 or 50 factories, and managing the
when we enter the Chinese market, we’re going to make
26 facilities that churn out Herschel products full-time.
sure the first impression is on point,” Lyndon says. “We’re
“We don’t really mention who it is,” Jamie says. “It’s basijust scratching the surface.”
cally an extension of Herschel Supply.”
DM151599_Pg52-56_ROB_OCT_2015.indd 56
15-09-08 9:47 AM
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SPONSOR CONTENT
Visit globeandmail.com/adv/saskatchewan
1
ONE OF ThE MOST COMPETITIVE bUSINESS ClIMATES IN NORTh
AMERICA – AND AN AMAzING PlACE TO CAll hOME
Saskatchewan’s population is growing faster than it has in generations. “Tens of thousands
of people are moving here, and businesses are investing billions here, because they feel
their opportunities and their futures are brightest in our province,” says Bill Boyd, the
provincial government’s minister of the economy. “We feel they’ve made the right choice.”
Kipp Sakundiak does too. Right after graduating with a degree in engineering from the
University of Saskatchewan, he scored a great job with a respected international corporation.
But a few years later, he learned that advancing his career further would require leaving
the province. “I decided I had to find a job with a local business,” says Sakundiak. “A smaller
company where I knew I could make a real difference and add value.” >> See page 3
Saskatchewan
#youshouldbehere
#GRowinGBuSineSSeSGRowinGcoMMunitieS • Page 3
Kipp Sakundiak
is a resident of Saskatoon and General Manager of Prairie Machine and Parts
“It’s so wholesome here. We can grab our bikes, or our snowshoes in the winter, head down to the trails along the river
valley and have access to such natural beauty. And the people here – they’re just real, good people.”
#MininG • Page 4
Kenneth P. Green
Photos: toP, Regina Regional oPPoRtunities Commission; all otheRs, suPPlied
is Senior Director, Centre for Natural Resources at the Fraser Institute
The Fraser Institute Annual Survey of Mining Companies: 2014 identified Saskatchewan as the second-best jurisdiction in
the world for mining investment. The province offers a “transparent and productive approach to mining policy” along with
“a competitive taxation regime, good scientific support, efficient permitting procedures and clarity around land claims.”
#ManufactuRinG • Page 4
Derek Lothian
is Executive Director of the Saskatchewan Manufacturing Council
“Our ingenuity, our international savvy, and our sheer willingness to accept the risks and push the limits of the status quo
has earned Saskatchewan manufacturers a truly world-class reputation.”
#fooDSuPeRPoweR • Page 5
Randy Burton
is Vice President of Communications at PotashCorp, which operates five mines in Saskatchewan and is responsible for
about 20 per cent of global potash capacity
“The UN predicts the world’s population will grow from seven billion today to nine billion by 2050, and there is a limited
supply of arable land. Saskatchewan’s fertilizer can help bridge the gap.”
this content was produced by Randall anthony Communications, in partnership with the globe and mail’s advertising department. the globe’s editorial department was not involved in its creation.
DM151599_Pg58-62_ROB_OCT_2015.indd 58
15-09-08 12:00 PM
sponsor content
2
Saskatchewan • #youshouldbehere
#infoRMationtechnoLoGy
lEVERAGING WORlD-ClASS NETWORkS WITh TEChNICAl
ExPERTISE FOR INTEGRATED SOlUTIONS
Ron Styles,
sasktel’s president and Ceo, responds to questions
about the company’s current direction.
What are some of the factors driving SaskTel’s transformation
from telecommunications company to information
communications technology (ICT) solutions provider?
our first data centre was opened in the 1960s to support our
own it functions, and we began extending these capabilities to
our customers more than 15 years ago. iCt represents an area of
continued growth and increased focus for sasktel, as evidenced by
our continued expansion into this market.
today’s rapidly changing technology landscape is defined by
converged solutions designed to meet the end-to-end needs of
growing businesses. our iCt offerings leverage the world-class
networks that our customers already trust and rely on, along with
in-house technical expertise, to architect real solutions for our
customers. We’re a step ahead of our competitors in this regard,
providing solutions that help our customers stay a step ahead of
their competitors as well.
Rather than just selling products and services, sasktel is blending
elements of traditional telecom service with information technology
(it) solutions. data centre services like managed hosting and cloud
services are foundational services that allow us to expand and
enhance our future offerings, enabling our customers to grow their
businesses.
What does this mean for the future of the province?
today sasktel hosts over 60 corporate, government and private
business customers in over 23,993 square feet of dedicated data
centre space, and we are entering the construction phase of a new
data centre facility in saskatoon to expand our portfolio of services
to meet the needs of the province’s businesses. in the long run, the
end vision is that everything we do will fit within an iCt framework
– providing integrated solutions that strengthen saskatchewan’s
businesses and our economy. n
When soils are healthy, economies grow.
Soil is the foundation for the global production of food, animal feed, fuel and natural fiber. So
the healthier a nation’s soil is, the more crops they can grow. The better their citizens can eat.
The more jobs they can create. And the more competitively they can trade. So you see, the soil
nutrients we produce help grow more than just crops. They help grow economies. As a result,
they help us nourish human potential. Potashcorp.com/Nourish
DM151599_Pg58-62_ROB_OCT_2015.indd 59
15-09-08 12:00 PM
Photos: bottom left, keith moulding; bottom Right, kevin hogaRth
since its inception in 1908 as part of the department of Railways,
telegraphs and telephones, sasktel has evolved along with the
province’s economy, an evolution that has accelerated exponentially
in the last decade.
sponsor content
Visit Saskatchewan.ca
3
#GRowinGBuSineSSeSGRowinGcoMMunitieS
ONE OF ThE MOST COMPETITIVE bUSINESS ClIMATES IN
NORTh AMERICA >> From Page 1
Photos: bottom left, keith moulding; bottom Right, kevin hogaRth
a few days later, invited to the
home of his girlfriend’s parents
for dinner, he found himself in
the kind of conversation that
happens surprisingly often in
close-knit communities like
saskatoon. “amanda’s father told
me about the amazing business
he’d built, Prairie machine and
Parts (PmP). he also said it was
at a point where he was going
to have to hire a couple of new
salespeople.”
sakundiak joined PmP as
a salesperson 11 years ago,
eventually becoming head of
sales and engineering and then, a
year ago, general manager. along
the way, he and amanda married
and had two girls.
the couple still can’t imagine
living anywhere else. “it’s so
wholesome here. We can grab
our bikes, or our snowshoes in
the winter, head down to the
trails along the river valley and
have access to such natural
beauty. and the people here –
they’re just real, good people.”
established in 1977 to
manufacture parts for the
growing potash mining industry,
PmP has since expanded to
become a world leader in
heavy industrial machinery
and machine components
manufacturing. earlier this
year, sakundiak oversaw the
acquisition of Papabravo
innovations ltd., a manufacturer
of electric vehicle platforms for
underground mining.
the sakundiaks aren’t alone
in loving both the lifestyle and
opportunities the province offers
– saskatchewan’s population is
on track to reach 1.2 million by
2020. With one of the strongest
economies in Canada, more
than $40 billion in energy
investment is expected in the
next several years; agricultural
exports reached nearly $14
billion in 2014. the province is
ranked number one in Canada
for energy investment potential
and number two in the world for
mineral investment potential by
the fraser institute’s 2014 sector
surveys.
“Saskatchewan’s economy
is well positioned to weather
economic downturns, such
as the current decline in oil
prices, because of a robust,
diversified economy, an
accessible resource base, and
our work to create the best
possible environment for
businesses and investments,
large or small,” says boyd.
While commodity price
declines have had the expected
impact on economic activity,
the province is poised for further
#eatLocaL
#PoweRLineS
haRveSt eateRy anD fReSh MaRKet
KitSaKi ManaGeMent
Garrett Thienes had been
away from his hometown
for 15 years when he
discovered that about 30 per
cent of the world’s greatest
restaurants (according to
the renowned Pellegrino list)
are not located in an urban
setting. Remembering that
Saskatchewan residents
will “drive far and wide to
get good value – to get the
best of anything,” Thienes
decided it was time to go
home. He and his wife Kristy
opened Harvest Eatery and
DM151599_Pg58-62_ROB_OCT_2015.indd 60
Fresh Market in Shaunavon
in July 2013. Since then, it’s
quadrupled his revenue
expectations and earned its
first star of excellence from
Where to Eat in Canada,
the influential Canadian
restaurant guide published by
Oberon Press.
Focusing on what he calls
“gourmet comfort food,”
Harvest uses locally sourced
ingredients to create dishes
that feature flavours unique
to the region, such as slowroasted Black Angus beef
brisket with Saskatchewan
Chanterelle mushroom demiglace.
The payoff, says Thienes, is
being able to use his culinary
skills to “turn bad days into
good ones for his customers,”
who make the drive from
Swift Current, Medicine Hat
and even Montana. n
Kitsaki Projects launched
three years ago when about
250 of its employees cleared
brush in 17 remote northern
Saskatchewan camps as
part of a line-upgrading
project for SaskPower. Their
effectiveness led to a labour
services contract to assemble
about 500 37-metre power
line towers required for the
project, and then to a general
services contract including
labour services, security,
safety and transportation
work for a construction
contractor.
“That’s when we began to
recognize the opportunity
in power line development,’’
says Russell Roberts, chief
executive officer of Kitsaki
Management Limited
Partnership, the Lac La
Ronge Indian Band’s (LLRIB)
economic development
growth when prices turn, he
adds. “saskatchewan’s stable,
business-friendly operating
environment enables a long-term
strategy. in fact, our regulatory
environment is one of the best
in the country, earning a b rating
from the Canadian federation of
independent business.”
the province’s economic
resilience is built on a
commitment to diversification,
says boyd. “eighty-five per
cent of saskatchewan’s gdP is
generated outside of the oil and
gas sector. major contributors
include wholesale and retail
trade, comprising 11 per cent
of saskatchewan’s gdP, real
estate rental and leasing at 9 per
cent, agriculture at 8 per cent,
construction at 8 per cent and
manufacturing at 7 per cent.
“saskatchewan’s diverse
economy can be a powerful
arm. “We decided we didn’t
want our only involvement
to be assisting with the
work, in terms of labour, but
also getting into the more
technical jobs.’’
First Nations and Métis
people represent 70 per cent
of Kitsaki’s total labour force
of about 1,000 employees.
With nine companies
currently in its portfolio,
annual revenues are in the
range of $120 million to $180
million – helping to ensure
more jobs, training and
economic well-being for LLRIB
members. n
15-09-08 12:00 PM
sponsor content
#MininG
#ManufactuRinG
ENTREPRENEURIAl CUlTURE,
RICh RESOURCES: bEST
INVESTMENT ENVIRONMENT IN
NORTh AMERICA
FROM FARM MAChINERy TO
COMET lANDING,
MANUFACTURERS SET ThE
PACE FOR GROWTh
With the highest discretionary
income in Canada, the
residents of estevan,
saskatchewan enjoy average
household incomes 114 per
cent higher than the national
average. Robust mining, oil
and gas, manufacturing,
agriculture, real estate, retail
and even tourism sectors
make this young city an
exemplar of the province’s
unique value proposition:
a rich natural resource
base combined with an
entrepreneurial culture.
While saskatchewan is
probably best known as the
number one potash producer
in the world, its mining
sector is deep and diverse.
along with gold and coal, the
province is also the secondlargest uranium producer in
the world, with ore-grade 100
times that of other producers.
The Fraser Institute
Annual Survey of Mining
Companies: 2014 identified
the province as the
second-best jurisdiction
in the world for mining
investment. according to
survey director kenneth P.
green, the province has a
“transparent and productive
approach to mining policy”
along with “a competitive
taxation regime, good
scientific support, efficient
permitting procedures and
clarity around land claims.”
Pam schwann, executive
director of the saskatchewan
mining association, stresses
that the sector also receives
strong support from residents
and communities, including
the province’s first nations.
DM151599_Pg58-62_ROB_OCT_2015.indd 61
PotashCorp, mosaic
Company and agrium have
recently invested $14 billion
in their existing potash
operations “to nearly double
their pre-expansion capacity,
while k+s Potash has invested
$4.1 billion to bring the new
legacy mine into production
in 2017,” says schwann. the
Cameco-operated mcarthur
River mine provides 17 per
cent of the world’s annual
uranium production, and the
Rabbit lake mine is on track to
produce close to four million
pounds of uranium in 2015, its
forty-year anniversary.
Potash and uranium
mine expansion has been
a significant driver of
saskatchewan’s growth, with
over $25 billion invested since
2007, says schwann. there is
also robust activity in other
sectors. Claude Resources’
seabee
gold mine had a 44 per cent
annual increase in production
in 2014. exploration
expenditures are expected to
be around $235 million.
altogether, the sector
expects current activity levels
When the Rosetta spacecraft
landed a probe on a speeding
comet last november,
scientists communicated
with the spacecraft via three
five-storey ground stations in
argentina, australia and spain
constructed by saskatoonbased sed systems.
it was a momentous
achievement for
saskatchewan’s manufacturing
sector, the most recent
pinnacle of a long history of
technological innovation.
“Agricultural implements,
food products, wood
products, chemicals and
refined petroleum, primary
metal manufacturing,
fabricated metal – you
name the industry and
chances are it has enjoyed
rampant expansion over
the past 10 to 15 years,”
says derek lothian, executive
director of the saskatchewan
manufacturing Council. “add
in continued development
in specialized industries
encompassing aerospace and
defence, bio-processing, as
well as advanced electronics,
and you have a recipe for
success.”
saskatchewan – too long
regarded as a province of
farmers and miners – is also
home to one of the fastest
growing, most innovative
manufacturing sectors in
north america, he adds. “and
more than three-quarters of all
manufacturers in this province
are exporters.”
since the turn of the
century, manufacturing sales
increased an average of 131
per cent annually (to more
than $16.4 billion in 2014)
here, compared to roughly
10.6 per cent nationally. sales
per employee – a key measure
of productivity performance –
increased nearly 160 per cent.
“our proximity to
commodity- and resourcebased markets has
been a driving force in
saskatchewan’s manufacturing
sector for decades; however,
the province has really earned
its chops on the global stage,”
says lothian.
throughout the province,
growth in the manufacturing
sector has made it possible
for residents to maintain an
unparalleled quality of life
15-09-08 12:01 PM
Photos: toP RoW, fRom left: ingRid PiCkeRing; univeRsity of saskatCheWan (3); bottom RoW: PotashCoRP
Saskatchewan • #youshouldbehere
Photos: toP left, suPPlied; Right, fRom toP: suPPlied; aRdel steel; Jne Welding
4
sponsor content
Visit globeandmail.com/adv/saskatchewan
5
#fooDSuPeRPoweR
Photos: toP RoW, fRom left: ingRid PiCkeRing; univeRsity of saskatCheWan (3); bottom RoW: PotashCoRP
Photos: toP left, suPPlied; Right, fRom toP: suPPlied; aRdel steel; Jne Welding
PROVINCE’S FARMERS, RESEARChERS AND FERTIlIzER
PRODUCERS kEy TO FOOD SECURITy
in the next 50 years, the world’s increasing population will require
more food than the total consumed since the first human appeared
on the african savannah. saskatchewan, long known as Canada’s
breadbasket, is poised to play a vital and growing role in meeting
that challenge.
Canada exports about 70 per cent of its food production, and
saskatchewan – with about 43 per cent of the country’s arable
land – is the country’s food export epicentre, says maurice moloney,
executive director of the global institute for food security (gifs) at
the university of saskatchewan.
long known as a wheat producer, saskatchewan is also the
world’s largest exporter of both canola and green lentils. the
province also produces about 25 to 30 per cent of the world’s
potash, one of the three primary nutrients used in fertilizers.
agricultural research has been key to making these gains, and
the university of saskatchewan has been internationally recognized
as a research powerhouse for decades, says moloney. many regions
of the world have benefited from the more than 400 crop varieties
and micronutrient research produced here.
gifs was launched in 2012 through the university’s publicprivate partnership with PotashCorp and the government of
saskatchewan, and a recently announced $37.2-million award by
the Canada first Research excellence fund will enable the university
to exponentially expand its leadership.
by 2022, the Phenotyping and imaging Research Centre will
allow development of sustainable new crop varieties at a speed
and scale previously unimaginable, says karen Chad, vice president
of research. “With over a century of renowned crop development
and innovation success, the u of s is well positioned for enhanced
global impact in its signature area of research. thanks to this grant,
our cross-disciplinary research teams, led by gifs, will transform
Canada’s capacity to help feed a growing world.”
“the first plant genome was completed the same year the
human genome was completed, but you cannot get full value
DM151599_Pg58-62_ROB_OCT_2015.indd 62
out of dna sequencing unless you can link dna to the traits that
plant breeders most value,” explains moloney. “dna databases
can be searched in a second or two – but the search for the traits
that plant breeders look for is all done by eye or by slow, laborious
analytical techniques. We want to automate some of those
activities as well.”
While these new technologies are expected to have an immense
impact on modern agriculture in Canada and other developed
countries, many will also benefit developing regions where food
insecurity is most acute. “having surplus food – more than you
need to feed your family – is a critical part of starting economic
cycles that create civil peace and contentment, with no need to
migrate to another country,” says moloney.
a key component in saskatchewan’s current and future role in
food security is its vast potash deposits, left by ancient, evaporated
seas. “the un predicts the world’s population will grow from seven
billion today to nine billion by 2050, and there is a limited supply
of arable land. saskatchewan’s fertilizer can help bridge the gap,”
says Randy burton, director of public relations and communications
at PotashCorp, which operates five mines in saskatchewan and
another in new brunswick. the company is responsible for about 20
per cent of global potash capacity.
even today, fertilizer accounts for about 50 per cent of the
world’s food production, and demand will rise as farmers all over
the world seek to improve their yields, he points out.
another key driver of this increased demand is the developing
world’s growing desire for higher-protein diets. as the middle class
grows in emerging markets like China and india, so too does their
demand for meat.
in addition to supplying this vital nutrient to the world’s farmers,
PotashCorp’s seven-year, $35-million contribution to gifs will help
the company fulfill its vision of “helping farmers around the world –
as well as those here at home – to produce bigger, better crops in a
sustainable fashion,” says burton. n
15-09-08 12:01 PM
FOcuSIng On yOur cuSTOMErS
uSIng SavEd TIME and rESOurcES
TO grOw yOur buSInESS
Every minute you or your team dedicates to IT infrastructure is a minute
away from key projects. Our SaskTel Managed Hosting team will maintain
the IT infrastructure that supports your business so you can focus on what
matters most—your customers.
sasktel.com/managedhosting
15-09-08 12:03 PM
sponsor content
Not your
grandfather’s
gold mine
When Goldcorp set out to build a new mine in northern Quebec,
the focus was on far more than just adding ounces to production
capacity. Right from the start, the company’s intention was to
construct a world-class gold mine that would be safer for miners and
more technologically advanced than anything it had done before.
World-class standards mean safer, more
efficient production.
its productive mine life and provide direct
employment for about 1,000 people during
ongoing operations.
Goldcorp COO George Burns says
Éléonore is one of the most technologically
advanced mines in the world and sets new
standards for how mines will be developed
in future.
“For example, we’ve introduced
innovative ways to reduce reliance on
water and manage mine tailings,” he says.
“Addressing these issues is fundamental
for the industry, and it’s a competitive
advantage for Goldcorp to be on the front
end.”
The tailings management design reduces
water use and eliminates the need for large
tailings storage ponds, which have become
a public concern due to dam breaches and
damage to the environment in some cases.
At Éléonore, water is squeezed out of
the tailings with large filters to recycle
more water and reduce risk. Some of the
filtered tailings with sulfide rock are mixed
with cement and pumped into mined-out
stopes as cemented backfill, eliminating
the potential for acid rock generation. The
non-sulfide tailings are deposited in a lined
permanent storage facility that poses no risk
of a dam failure as the water has also been
squeezed out and recycled.
“Embracing this filter technology virtually
eliminates the risk of tailings pond spills,
which definitely improves our social licence
to operate,” says Burns.
Another key innovation at Éléonore is the
way the mine deploys infrastructure.
“Historically, many underground mines
invest in ramps or shafts near the surface
and then stretch out the infrastructure to
This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail’s advertising department. The Globe’s editorial department was not involved in its creation.
DM151599_Pg64-65_ROB_OCT_2015.indd 64
D
A
T
I
W
m
pHOTOS: GOldCORp
Building the ÉlÉonore mine on
the Eeyou Istchee James Bay territory in
northern Quebec was no small task. It took
an investment of $2 billion US by Goldcorp
and more than 2,000 construction workers
over three years to get the job done. But
when it was officially inaugurated in July, the
mine proved to be just what the company
had aimed for: a model of productivity,
efficiency and safety.
Construction of Éléonore followed
the signing in 2011 of the Opinagow
Collaboration Agreement with the Cree
Nation of Wemindji, the Grand Council of
the Crees (Eeyou Istchee) and the Cree
Regional Authority. The agreement set the
framework for the mine’s development
based on partnership, collaboration
and respect. The company also invested
approximately US$130 million in public
infrastructure, including the construction
of 63 kilometres of access roads, 60
kilometres of power lines, an airport and
telecommunication capabilities that will
serve local communities and other mining
exploration activities for years to come.
The first gold pour was on October 1,
2014, and commercial production began
in April this year. When the mine ramps up
to full capacity in the first half of 2018, it
is expected to produce between 500,000
and 600,000 ounces of gold per year over
15-09-08 11:45 AM
G
Q
S
G
Online? Visit globeandmail.com/adv/gold
reach deeper ore, which can be an inefficient
way to invest,” adds Burns. “At Éléonore,
we did enough exploration to give us
confidence that the grade of the lower
part of the ore body is better than that of
the upper part, so we put in a lot of that
infrastructure at the start and now have an
exploration shaft and a production shaft that
will last for a couple of decades.”
While it meant additional capital up front,
it’s a more efficient use of that capital over
the life of the mine, he says.
Other advanced technology at Éléonore
includes ventilation on demand. An
automated system monitors signals from
80 pieces of underground machinery and,
using Wi-Fi, tracks the location and status
of underground personnel at all times. Air
quality is measured in each part of the mine
to ensure a safe working environment.
Ventilation fans can be slowed down,
speeded up or even turned off depending
on where equipment and people are at any
time.
“Typical underground ventilation systems
pump enough air for the maximum demand
at all times, often using more electricity or
using more diesel for power generation to
run the fans and more energy for heating
the excess air in the winter,” says Burns. “Now
we’re optimizing energy use on a real-time
basis, and that saves a lot of money.”
Operating equipment remotely is another
Éléonore innovation, adds Burns. For
example, an operator takes the drill to the
rock face, sets it up based on a pre-designed
pattern, pushes a button and the drill does
the rest. Also, during a shift change, when
all production normally stops, remotely
operated equipment keeps working.
“We can remotely operate drills and
scoops and loaders from the surface,” says
Burns. “Even in an area that is unsafe after
a blast because we are waiting for gas
to clear or the ground to settle, we can
remotely operate the equipment and not
put anybody in harm’s way. Technology is
providing these huge opportunities to be
more productive, more efficient and safer in
the business we do.” n
Gold mining’s global
economic impact
The price of gold may be on a downward
trend, but the contribution of the gold mining
industry to the global economy remains strong
as demonstrated by an in-depth research report
published earlier this year by the World gold
council. The study, undertaken for the Wgc by
Maxwell stamp plc, showed that in 2013…
90%
of employees at
gold mining
operations in most
regions were local
workers.
70%
of total expenditures by
gold mining companies
were on payments to
suppliers, contractors
and employees.
1 million+ people
were directly employed globally by gold
mining companies.
3 million+ jobs
were attributed to the industry’s
procurement activities.
sOurcE: World gold council –
“The social and economic impacts of gold mining”
DIG AROUND
AND SEE
THERE’S MORE BENEATH THE SURFACE
phOTOs: gOldcOrp
In a volatile market, our strategy remains unchanged.
We continue to focus on execution – operating safely and efficiently,
maintaining financial discipline and delivering sustainable value.
NYSE: GG | TSX: G
goldcorp.com/careers
GOLDCORP ADVANTAGE
Quality Growth
Safe, Profitable Production
Gold Focused
DM151599_Pg64-65_ROB_OCT_2015.indd 65
Peer-leading Balance Sheet
Responsible Mining Practices
Low Political Risk
15-09-11 10:36 AM
I don’t regret one minute of it.
We helped build the business
of baseball there. The only
thing that I really missed was
that you couldn’t really have
a cheering interest for any
one club.
You went back to the Blue
Jays in 2008 on an interim
basis, then you hired yourself
as CEO. Were there no other
suitable candidates?
I brought them three
outstanding people—I’m
not telling you who. For
several reasons, none of them
worked out. Then, at the end
of the search, I was asked
if I would just stay on. By
this point I’d been back for
about a year, I’d got to know
the people here, I said let’s
give it a go.
Can Canada sustain even one
Major League Baseball team?
Butting out
the first guy hired by toronto’s new baseball team in 1976 was a 31-year-old
accountant. Paul Beeston started as vice-president of business operations,
and was named president and ceo in 1989. he was at the helm when the Jays
won the World Series in 1992 and 1993. beeston then moved to new York and
served as president of Major League baseball (MLb) from 1997 to 2002.
In 2008, the Jays rehired him. the glory days did not return, however, and this
past January, beeston said he would step down at the end of the season.
then came a great career third act, as the Jays caught fire this past summer.
You were a successful
accountant. Why did you join
a baseball team that hadn’t
even played a game?
A lot of people questioned
it. I was living in London,
Ontario, at the time and had
been offered a partnership
at Coopers & Lybrand. I had
a young family. But it was a
no-brainer. I was never much
of an athlete, but I was a big
sports fan. Back in the 1950s,
I’d go see the Tigers play in
Detroit with my father. To
come to the Blue Jays without
even applying for the job?
It was an easy answer.
How has the business of
baseball changed?
When I started, it was more
of a sport than a business.
The year I joined the Blue
Jays, we had a team budget
of $780,000 (U.S.) in player
salaries. Now the contracts
are huge, and you’ve got new
stadiums, network television
deals, cable, merchandising
and the Internet.
Toronto’s old Exhibition
Stadium was pretty rickety.
Before you moved to the
SkyDome in 1989, did you
feel like you were running
a major-league team?
It wasn’t just the worst
stadium in baseball, it was
the worst stadium in sports.
But it was ours, and we were
quite proud of it. We had a
great clubhouse, great offices.
The seating wasn’t so great.
There were only 10,000 seats,
the rest were all benches.
The only covered area was
the $2 seats way out in the
outfield, which was the old
CNE Grandstand.
You became president of MLB
in 1997, but then resigned
during negotiations with the
players’ union in 2002.
Any regrets?
Is it better for baseball in the
Toronto sports market when
the Leafs struggle?
I’m a Leafs fan. I agonize like
everybody else does. But I
believe you’re better off if all
of a city’s teams are winning.
Why wouldn’t we want to
be like Boston? Since 2000:
three World Series, four
Super Bowls for the Patriots,
a Stanley Cup for the Bruins
and the Celtics winning an
NBA championship. When
one wins, it puts pressure
on the rest to do the same.
What would it mean to you
if the Jays won another
World Series as you head
into retirement?
It would be fantastic. How
could you not want to score
the final goal in game seven in
overtime to win the Stanley
Cup, or hit the walk-off home
run to win the World Series,
and then say, “I’m retiring.”
/Robert MacLeod
This interview has been condensed
and edited.
photograph nathan denette/cp
Exit Interview
The biggest challenge for this
team is the Canadian dollar.
It’s as simple as that. We take
in Canadian money and we
spend U.S. money. When the
Canadian dollar is down,
it’s hard on the bottom line.
15-09-09 10:12 AM
clashes
Duel or debacle?
Everyone may have lost as a result of Michael Sabia’s assault
on Bombardier’s dual-class share structure
By DaviD MilsteaD
In a way, Bombardier won its
showdown with Caisse de dépôt
et placement du Québec in February. The company approached the giant
pension fund manager to be lead investor in
a desperately needed new equity offering.
But Caisse CEO Michael Sabia has been
on a campaign against the dual-class share
structures that many Quebec dynasties use
to maintain voting control of companies.
The Caisse asked Bombardier to revamp its
share structure, and give it a say in choosing a new CEO. Bombardier balked. It went
ahead with the offering and raised $1.1
billion, with the Caisse as just a small buyer.
Yet Bombardier did bend. Two weeks
before the offering closed, CEO Pierre
Beaudoin stepped down and the company
named respected United Technologies
executive Alain Bellemare as his successor. In the longer run, however, everyone, from Bombardier and the founding
Bombardier-Beaudoin family, to the Caisse
and the other shareholders, might lose.
Despite the management change and possible asset sales, Bombardier seems not to
grasp the dire straits it’s still in.
The Caisse’s demands are a classic case
of locking the barn door after the horse is
gone. Bombardier’s CSeries line of jets,
announced in 2004, has been plagued by
missteps and delays ever since. Yet the
founding family remained at the helm.
Through 10-for-1 voting shares, they still
control 54% of the company, despite owning just 14% of its equity. Even the Caisse’s
objectives were limited—as it has with
other Quebec companies, it proposed
reducing the voting leverage to 6-to-1.
Indeed, the family have not had their
feathers ruffled too terribly. Pierre Beaudoin and his father, Laurent, remain on the
board, and Messrs. Bellemare and Beaudoin socialize in their off time.
Bellemare has announced a transition
plan that aims to “build a strong performance culture.” But the company burned
through $1.6 billion in cash in the first
half of 2015, while also delaying the most
recent version of its Global business aircraft by two years.
Investors haven’t been impressed. Bombardier’s share price has declined from
around $4 in January to less than $1.50 in
August. Its bonds have fallen, too, suggesting that debtholders are getting more
nervous about getting paid. (Tip: If the
bondholders don’t get paid, stockholders
get zero.)
One potential lifeline: an initial public
offering of the company’s Berlin-based
Transportation unit, which makes trains
for both heavy and light rail. It’s Bombardier’s biggest and most profitable division. It could be worth around $5 billion,
estimates BMO Nesbitt Burns analyst
Fadi Chamoun.
An outright sale or a 100% IPO of Bombardier Transportation would be a boon
for Bombardier’s balance sheet, which has
nearly $9-billion worth of debt. Alas, the
company has so far said it will sell only a
minority stake. Investors interested in
speculating in Bombardier stock should
wait and see whether the company can, for
once, bear to give up some control.
illustration barry falls
10 october 2015 ❘ Globe Investor
15-09-08 10:56 AM
t
photographs Christopher griffith/trunk arChive
enhancing technology,” he says. “Then,
during the macroeconomic expansion,
you hire the heads back and put them to
work on this technology you invested
in during the downturn.”
Among defence contractors, that strategy favours “the guys who make things
that fly and float,” says Gursky. The biggest winners will include: Lockheed Martin Corp., Raytheon Co. and Northrop
Grumman Corp. for missiles and airplanes; Huntington Ingalls Industries Inc.
and General Dynamics Corp. for the seas.
The Pentagon’s workforce will eventually increase, too, of course. “When the
next war comes around, we’ll hire the
heads back,” he says. “Like it or not, the
United States is a fairly war-mongering
country. We’ve been at war, on average,
every two years of our existence. I don’t
think it’s a question of if, it’s when.”
shoPPiNg list
$85
million
F-35A LIGHTNING II
STEALTH FIGHTER
(Lockheed Martin)
faceoff
higher and higher
After a history of lousy market returns, Air Canada’s shares
have soared recently. How long can they keep it up?
By TiM shufelT
The airline sector’s jolting ups and downs give plenty of fodder to its
many detractors, and few are more vocal than Warren Buffett. He has
dismissed airline investing as “a death trap,” and his own forays into it
as “temporary insanity.” Among individual carriers, Air Canada has a
particularly discouraging track record. After emerging from bankruptcy
in 2004, the airline continued to struggle with high costs, high debt,
low returns and huge pension deficit. But the past two years have seen a
remarkable turnaround. Air Canada’s share price has climbed more than
sixfold. Is this surge still for real? We asked a bull and a bear.
Bull
Bear
$1.6
million
TOMAHAWk CRUISE
MISSILE (Raytheon)
$222
million
RQ-4 GLOBAL
HAWk DRONE
SURvEILLANCE
PLANE (Northrop
Grumman)
$10.4
billion
GERALD R.
FORD-CLASS
AIRCRAFT CARRIER
(Huntington Ingalls)
$2.7
billion
vIRGINIACLASS ATTACk
SUBMARINE
(General Dynamics)
Air Canada has improved its
efficiency, but Poole says too
many forces remain beyond its
control. Low fuel prices have
plumped up its profit margins
because Air Canada has not
passed on savings to travellers.
“At some point, that may change
rather quickly,” she says. “How
sustainable is that margin
improvement if jet fuel starts
moving the other way?”
Some macro forces are already
working against Air Canada. The
Canadian economy is sputtering,
but the airline is still adding
capacity at a rate well in excess of
GDP growth. Meanwhile, the weak
loonie is inflating Air Canada’s U.S.dollar expenses and squeezing
Canadian travellers’ budgets.
It’s possible for investors to
make money on Air Canada over
the short term, Poole says. But it’s
a risky, cyclical play that requires
them to time peaks and troughs.
The growth in global air travel
is an investible theme, she says,
but she prefers to access the trend
through plane manufacturers such
as Boeing. “They’re not supplying
just one particular airline.”
Air Canada’s egocentric CEO, Calin
Rovinescu, has cut costs, resolved
the pension problem, reduced
debt, wrested labour concessions
and expanded abroad. But Nuttall
says Air Canada is still tarnished
unjustly: “It’s being painted with
that same old brush—crappy
service, pension liabilities, union
problems.” Critics need to wake up
and look at the operating earnings.
“They’ve had five record quarters
in a row,” he says.
You can’t dismiss those profits
as purely the result of declines in
oil prices, either. Yes, cheap jet fuel
has provided a tailwind. But when
crude jumped from less than $44
to $60 this spring, Air Canada’s
share price was resilient. “This is a
company in a duopoly in Canada
that’s beating its competitor,
[WestJet], and that’s going into
new markets,” says Nuttall.
Yet Air Canada is still cheap—its
shares have traded at about three
times forward earnings recently.
Of course, all airline stocks tend
to be cyclical. “This is a stock you
rent, not own,” says Nuttall. “You
can rent it for some time, but
probably not for years to come.”
CEO, GlobeInvest Capital
Management
Portfolio manager,
Sprott Asset Management
christiNE PoolE
Eric Nuttall
oCtober 2015
❘
Globe Investor 9
DM151599_Pg68-69_ROB_OCT_2015.indd 68
15-09-08 10:48 AM
extreme
investor
War mart
The Pentagon is flexing
its muscles again, and
defence contractors’
order books are filling up
T
By DaviD MilsTeaD
Despite recent gains, the biggest
U.S. military contractors are
still trading at forward price-toearnings ratios below 20
18.1
growth of 0% to 2% per year. But Gursky
argues that the average growth rate could
be closer to 3%.
Here’s the logic: “We seem to have
agreement between Congress and the
President that the military of the future
ought to be smaller, more agile and more
technologically advanced,” says Gursky.
As a result, Washington will tilt new
spending in favour of equipment rather
than troops. He expects that the budgetary accounts for military personnel, operations and maintenance
will fall below the 2% growth trajectory, and the weapons-buying
accounts will move above the
2% growth trajectory.
Although it’s somewhat of a
“perverse way to think about
it,” Gursky argues that Congress and the White House are
behaving like a good CEO would
coming out of a recession.
During a slowdown, orders for
a company’s products and services diminish. “You usually cut
heads and invest in productivity-
18.0
Raytheon
General Dynamics
Northrop Grumman
here was a time, not really
so long ago, when there was
deep pessimism about U.S.
defence-contractor stocks. A
new president vowed to end
the country’s disastrous war
in Iraq, ushering in a sort of
Pax Obama. Then, a financial crisis evolved
into a fiscal crisis that looked as if it might
cripple Washington’s discretionary spending for many years to come.
Well, never underestimate the U.S.
war machine. A bipartisan consensus has
evolved that it’s time to drop billions more
dollars on the country’s military. Defence
stocks have already zoomed in anticipation: Most of the major defence contractors have seen their stock prices double
since Barack Obama’s second term began
in January, 2013.
But all the coming spending may not
be reflected in those share values yet, says
Jason Gursky, an analyst at Citigroup Global Markets Inc. As
summer waned, most of the
big defence stocks priced
in anticipated cash-flow
Lockheed Martin
16.6
Boeing
18.1
17.4
16.0
13.5
United Technologies
Huntington Ingalls
photographs Christopher griffith/trunk arChive
e
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U
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t
8 oCtober 2015 ❘ Globe Investor
DM151599_Pg68-69_ROB_OCT_2015.indd 69
15-09-08 10:47 AM
e
l
’s
r
t
d
n
s
s
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n
u
ll
ll
e
,
s
ll
a
,
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s
,
o
n
t
photographs google earth; illustrations leeandra cianci
sources globe investor, bloomberg
kind of steady income are scarcer. Antonatos says he can
look out his office window and see more than 100 incomeproducing office buildings in the Chicago area. But there
are just two airports—and that’s one more than many cities.
Infrastructure assets, he says, trade “more than you think,
but less than you would like.”
The good news is that the supply of those assets has to
increase—Puerto Rico recently privatized its airport, for
example. Developed countries face massive repair backlogs,
and developing countries need to sustain growth. Contracts
for highways, ports and other facilities are often awarded in
competitions in which public and private sector investors
are on equal footing. And governments have to share the
profits—often through contracts that last for decades and
have inflation clauses.
Still, choosing among the infrastructure funds and asset
managers can be bewildering. The holdings vary widely—
they’re not like Canadian large-cap equity funds, which tend
to load up on the same banks, insurers and energy companies.
A lot also depends on your objectives. Let’s say you want
low correlation with stock markets. You can check the beta
of a fund or stock on investment websites such as Globe
Investor. A beta of 1.0 would mean that the fund or stock
matched the performance of an index exactly.
The MSCI World Index is often used to benchmark
global infrastructure funds or stocks. A low correlation to stock or bond markets doesn’t necessarily mean better results, however (see chart).
Want to Buy some infrastructure?
These funds and companies all invest in big transportation stuff—ports,
toll highways, airports and the like. But you should check their lists of holdings,
because they also invest in other sectors, such as pipelines and utilities
Mutual Funds
Name
three-year aNNualized returN (%)*
BMO Global Infrastructure Fund
Desjardins Global Infrastructure Fund
Dynamic Global Infrastructure Fund
Investors Global Infrastructure Class
Manulife Global Infrastructure Fund
Middlefield Global Infrastructure Fund
O’Leary Global Infrastructure Income Fund
Renaissance Global Infrastructure Fund
Russell Global Infrastructure Pool
Sentry Infrastructure Fund
17.5
18.6
12.2
17.7
15.9
n/a
n/a
16.7
n/a
16.8
beta
0.68
0.83
0.57
0.98
0.73
n/a
n/a
0.92
n/a
0.48
ETFs
BMO Global Infrastructure Index ETF
First Asset Active Utility and Infrastructure ETF
iShares Global Infrastructure Index ETF
* to July 31, 2015
20.3
n/a
14.1
0.62
n/a
0.68
Companies
Name
Five-year aNNualized returN (%)**
Brookfield Asset Management
Brookfield Infrastructure Partners LP
Macquarie Infrastructure Corp.
19.6
28.2
46.8
beta
0.41
0.66
1.05
Closed-End Funds
Brookfield Global Infrastructure Securities Income Fund
Macquarie Emerging Markets Infrastructure Income Fund
Macquarie Global Infrastructure Income Fund
Macquarie Global Infrastructure Total Return Fund
** to Sept. 3, 2015
n/a
n/a
n/a
11.5
n/a
n/a
n/a
1.04
Macquarie Infrastructure Corp. has actually been more
volatile than the market over the past five years, yet its share
price has increased more than sixfold.
Highways, tunnels, airports and other transportation
infrastructure assets are grand and expensive. But the vehicles for investing in them are complicated, and you need to
choose your route carefully.
OCTOBER 2015
❘
Globe Investor 7
DM151599_Pg70-71_ROB_OCT_2015.indd 70
15-09-09 9:48 AM
Moving
parts
Governments desperately need more
private-sector money for highways,
airports and other transportation
infrastructure. But investment choices
for individuals are still limited
by scott blythe
T
hings that roll, float or fly exert an endless fascination.
Some people turn childhood passions for toy trains,
ships or planes into adult hobbies. Others, like Warren Buffett, buy whole railroads—in his case, Burlington Northern
Santa Fe.
Traditionally, governments built or nationalized major
ports, railway stations, highways and airports, and then
maintained them. Economies need transportation infrastructure to grow. But over the past two decades, regimes in
developed and developing countries have struggled to keep
up with demand, and they’ve had to tap the private sector
for more money.
Pension funds, private equity giants and other institutions
have rushed in, attracted by the prospect of steady longterm returns that matched their long-term obligations. “The
whole idea of investing in infrastructure originated from our
big Canadian pension funds buying the underlying assets, so
they can benefit from the cash flow and the inflation protection,” says Dan Hallett, vice-president of research at HighView Financial Group in Burlington, Ontario. Another key
infrastructure advantage: low correlation with often-volatile
stock and bond markets.
Canadian motorists are familiar with some of the results.
Ontario’s 407 toll highway, which bypasses Toronto to
the north, and the Confederation Bridge between New
DM151599_Pg70-71_ROB_OCT_2015.indd 71
Brunswick and Prince Edward Island, were built in the
1990s with private money, and are owned by institutional
investors and corporations.
So how can individual investors get in on the boom? It’s
tricky, but not impossible. You can’t buy into toll roads or
other big projects directly, but there are about a dozen infrastructure mutual funds with sizable holdings in transportation. There are also several ETFs and closed-end funds that
trade on the Toronto and New York stock exchanges. By and
large, the funds are small—less than $1 billion in holdings.
If you’re looking for more heft, you can buy shares in
giant global infrastructure asset management companies
directly. Toronto-based Brookfield Asset Management has
more than $200 billion (U.S.) in assets under management.
Australia’s Macquarie Infrastructure Corp. has more than
$300 billion (U.S.).
Regardless of the size of the fund or asset manager, you
have to look at the individual holdings, because they all
invest in pipelines, utilities and other sectors, as well
as transportation. The massive Brookfield Infrastructure
Partners LP, which trades in Toronto and New York,
has $4.6 billion (U.S.) of its $11.7 billion (U.S.) of assets
invested in transportation, including railways and toll
roads in South America, and 30 ports in North America
and Europe. But the Manulife Global Infrastructure Fund,
which is managed by Larry Antonatos, a portfolio adviser
with Brookfield Investment Management in Chicago, has
hardly any transportation holdings at all. Only one of its
10 biggest stocks is in the sector—Groupe Eurotunnel SE,
which operates the Chunnel.
Antonatos says that transportation is a tough sell, even to
an infrastructure fund manager. The key word is toll. Pipelines and electricity providers levy charges every day on
essential needs. Transportation holdings that provide that
photographs google earth; illustrations leeandra cianci
sources globe investor, bloomberg
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15-09-09 9:48 AM
companies. “Obviously nowadays if
you open any newspaper, any news
about China’s economy is quite
negative. However, that doesn’t
mean there aren’t opportunities to
find growing companies there,”
he says.
During his stay in China, Mr. Feng
noticed that many middle-class
Chinese consumers are using mobile
phone apps to order movie tickets or
takeout food, transfer money and
take taxis. “So you look and figure
that even if the economy is slowing
down, companies involved in mobilebased payments and commerce have
an increased chance [of thriving]. It’s
not all bleak. There are bright spots,”
he says.
“From there, you try to determine
who the leaders in these fields are.
What kind of management do they
have? Then you go and talk to them.
You figure out if they’re thinking
strategically, and you look at how
strong the competition is.”
Analysts “who sit comfortably in
North America reading newspapers”
tend to be unduly pessimistic when
short-term market setbacks occur,
says Mr. Feng. “[They’ll] think that
everything is bad and it’s going to get
worse,” he says, when in fact markets
are cyclical and a more detailed look
can reveal the likely timelines for
recoveries and upswings.
SponSor Content
“We don’t think totally avoiding
a market can generate returns for
investors,” he says.
Mr. Feng brings up the events of
August 11, 2015, when the People’s
Bank of China devalued the national
currency, the yuan, by nearly 2 per
cent, then let it fall to a four-year low,
triggering a major sell-off of Chinese
securities. (This was the largest drop
since China modernized its exchange
rate in 1994.) The Chinese currency
dropped even more on global markets
in the immediate aftermath of the
devaluation, as well as against the
benchmark U.S. dollar.
“In the short term the market can
be quite efficient,” says Mr. Feng.
“For example, when China devalued
its currency, most of the Chinese
companies listed overseas dropped
three or more percentage points.”
Naturally, this could be alarming
to investors focused only on the
short term.
Mr. Feng’s suggestion for those
who might panic? Not so fast.
The short-term and long-term
consequences of this kind of
sudden economic change may not
be the same.
“For some Chinese companies
that are heavily involved in exporting,
you have to look at whether this
[devaluation] could be a good thing or
a bad thing,” he says.
When currencies drop (as has
happened in Canada since 2014),
exporting companies’ goods and
services become cheaper for foreign
consumers and this can boost
international sales.
“On the other hand, if they have
a lot of input costs denominated in
U.S. dollars, it could be a bad thing
[for some Chinese firms],” says
Mr. Feng, because the raw materials
they need for manufacturing become
more expensive if purchased in
Chinese currency.
Hands-on research can sometimes
lead to surprises and unforeseen
opportunities, says Mr. Feng. “During
our research we may find that an
industry’s structure has changed due
to new technologies and habits.”
In other cases, he may start by
researching a sector-leading
company and find that one of its
competitors is better managed
or deploying better technology –
making it a better bet for inclusion
in a fund. “Competitors may have
the upper hand in the future, or the
leading company’s advantage may
be eroding,” he says.
Rather than specialize in particular
sectors to build funds, “we believe
it’s better to be generalists,” Mr.
Feng says.
While he and his Trimark
colleagues do try to strengthen
their understanding about certain
industries, Mr. Feng says this is done
to broaden knowledge so they can
include a wide array of sectors in
the global equity funds they build.
Specialization can leave funds and
investors more exposed to boomand-bust cycles or additional risk if
the regulatory environment for a
particular sector changes.
“Nobody can actually project the
short-term movement of any single
stock,” he says. “In difficult times, it’s
a good idea to focus on strong, highquality companies run by excellent
management teams. That’s what I’d
like investors to hear.”
this content was produced
by the Globe and Mail’s
advertising department. the
Globe’s editorial department was
not involved in its creation.
DM151599_Pg72-73_ROB_OCT_2015.indd 72
15-09-09 10:56 AM
SponSor Content
Jeff Feng’s
investment
secret:
Do your
homework
“[To] identify what drives the
historical return on investment,
we visit the companies, we talk
to their management teams, we
talk to their competitors, their
customers, their suppliers.”
W
Trimark VP says
nothing beats
on-the-ground
company research
hen he’s analyzing a
company to consider for a
fund, it would be easy for
Jeff Feng to simply read newspaper
articles and other people’s reports –
but it wouldn’t be enough.
“We’re a bottom-up type of
investor,” says Mr. Feng, vicepresident and portfolio manager at
Trimark Investments, part of Invesco
Canada. “We always try to do one
thing – pay less for a business
than what it’s actually worth today,
knowing that it’s going to be worth
more in the future.” To identify those
standout companies, it’s the detailed
research on the ground that makes
all the difference, he explains.
“[To] identify what drives the
historical return on investment, we
visit the companies, we talk to their
management teams, we talk to
their competitors, their customers,
their suppliers.”
In the past year, Mr. Feng’s research
has taken him to Australia, the
DM151599_Pg72-73_ROB_OCT_2015.indd 73
Philippines, New Zealand, Colombia,
the United States and China. In the
field, he focuses relentlessly on
return on invested capital (ROIC).
His goal when looking at a potential
company for a portfolio is “to find out
what makes the business successful
and what might guarantee that
success five or seven years down
the road.”
A lot of investors, as well as many
in the business media, focus on
short-term market trends, which can
trigger scary, volatile fluctuations.
The trouble with a short-term outlook
is that investors react too soon,
while on-the-ground research can
give a more relevant perspective,
says Mr. Feng.
“The short-term market is not very
good at evaluating these things,” he
says. “That’s why we think you need
to focus on fundamentals.”
Mr. Feng recently returned from
two months in China where he was
researching several locally listed
15-09-09 10:55 AM
is
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The indicator
Warren buffett says it’s
the one indicator he’d
want if he were stuck
on a desert island: the
weekly index of u.s.
railcar traffic compiled
by the association of
american railroads,
which tells you the
volume of raw materials
and finished goods
being carried around
the country.
average weeKly total u.s.
rail Carloads and intermodal
(in thousands)
JAn
feB
2014
2015
MAr
my faVOuriTE STOCK
APr
Down Mexico way
MAY
Cecilia Mo sees untapped value in Kansas City Southern Railway
JUn
e
t.
w
n
d
.
l,
e
w
-,
y
s,
e
e
le
te
d
r
c
g
s
s
-
illustration dushan Milic; spot illustrations lEEandra cianci
photograph Magida El-Kassis
BY ShirleY won
JUL
500
600
›› WHy dOES iT
STill maTTEr?
Yes, railcar traffic is a very
old-school, 19th-century
economic barometer.
About three-quarters of
U.S. GDP is now generated
by services, and railways
compete with trucks and
airlines. But a recent Bank of
America Merrill Lynch study
found that railcar traffic
tracks shifts in GDP more
accurately than five other
major weekly indicators—
electricity output, steel
production, lumber
shipments, chain store sales
and initial jobless claims.
›› When we asked Cecilia Mo, a portfolio manager with 1832 Asset Management,
to name her favourite stock for the next five years, she chose Kansas City
Southern Railway. Mo took over the Dynamic Canadian Value Fund in 2011 and
has managed it to index-beating returns. The fifth-largest U.S. railway’s tracks
reach deep into Mexico, and Mo sees it as a play on that country’s fast growth.
headwinds are temporary. Over the next
THE STOCK Kansas City Southern Railway
three to five years, I expect annual rev(KSU-NYSE)
Why are you upbeat on this railroad?
enues to increase by 5% to 6%, and earn› I am bullish because of its unique expo- ings per share to grow by 14% to 16%.
sure to Mexico, which represents half of What are the risks?
its revenue. It benefits from free trade as › The biggest risk is a recession, although
more automakers move plants to Mexico the railway’s shares could also get a lift
from Canada or the United States. Manu- during an economic downturn, when
facturers are also shifting production from there is often consolidation and takeovers.
China to Mexico to take advantage of Who are possible buyers?
lower wages and cheaper
Kansas City southern
transportation costs.
share priCe
›› HOW Can iT HElp
yOu inVEST?
Average weekly rail carloads
declined over the first seven
months of 2015, but stock
markets climbed. Were the
markets getting ahead of
the economy? The trend was
clear well before August.
How long have you owned
the stock?
› We star ted buying its
shares in May, after it sold
o f f o n slowe r ea r n i n gs
growth, falling crude oil
shipments and customer
service issues. But those
$120
90
60
2011
2012
2013
2014
2015
› It could be another U.S.
railway, such as U n i o n
Pacific Corp., that wants
access to Mexico, or more
of it. Kansas City Southern is probably worth $150
(U.S.) a share in a takeover,
because there are costcutting opportunities when
combining railways.
octobEr ❘ Globe Investor 3
DM151599_Pg74-75_ROB_OCT_2015.indd 74
15-09-08 2:56 PM
big idea
Highway to hell
If the Dow Jones Transportation
Average isn’t in synch with the rest
of the market, uh-oh
By DAVID BERMAN
S
omething has been worrying investors who stand by
one of Wall Street’s oldest market-timing signals:
The Dow Jones Transportation Average, a 20-member index of railroads, airlines, marine shippers and package
delivery companies, has been slumping since the beginning
of the year. To some veterans, this suggested that the broader
Dow Jones Industrial Average—and the U.S. stock market
as a whole—was headed for trouble. Sure enough, stocks
plunged in August.
The crash fit in with the Dow Theory, distilled from the
writings of Charles Dow, who founded the Dow Jones market indexes and The Wall Street Journal in the 19th century.
One of the central tenets of the theory says that transportation stocks should move with the broader market because the
transports deliver the products that other companies make.
The theory has a strong historical track record. The disconnect between the transports and the industrials would have let
you escape most of the carnage following the crash of 1929,
1884
The TransporTaTion
average was
Charles Dow's
firsT inDex
the implosion of the dot-com bubble in 2000 and the financial crisis of 2008-09. When the indexes
moved in tandem, the theory sent
buy signals during the market
depths of 1933 and 2009.
But are there flaws with the
theory? Alas, yes. Different analysts apply it differently. There
can also be lots of short-term buy
or sell signals, so investors have
to be nimble.
The underlying rationale has
also changed dramatically. When
Dow created the indexes in the
1880s, the United States was a
manufacturing powerhouse, and
rail was the dominant mode of
transport. But both the industrial
and transport indexes have grown
more diversified over time, yet
less representative of the economy and the stock market as a
whole. It is now unclear whether
the two averages should move
together. According to New York
City-based Birinyi Associates, the
Dow Theory is a lagging indicator
that can’t anticipate much at all.
Still, the transportation average
itself is an interesting investment.
The 20 stocks in the index now
include FedEx, railroad Union
Pacific, Southwest Airlines and
tank barge operator Kirby Corp.
Although the index is cyclical,
it has performed well over the
long term: It has beaten the Dow
industrials over the past three-,
five- and 10-year periods. Blackrock’s iShares offers a Dow transports ETF, and State Street’s SPDR family
of ETFs has a transportation fund.
If you dig deeper into the transports,
you might also find bargains. Airlines have
soared in recent years, but railroads have
struggled. If you’re a contrarian, the railroads could be worth a look.
Finally, the transportation average
reveals that one of the stronger investment themes of recent years—package
delivery—has stalled. FedEx and United
Parcel Service are down this year over
concerns about slow global economic
growth. The long-term trend driving
them remains, however: As consumers
order more things online, the companies
that drop off the books, shirts and eyeglasses will be kept very busy.
illustration dushan Milic; spot illustrations lEEandra cianci
J
f
M
A
M
J
J
photograph Magida El-Kassis
2 octobEr 2015 ❘ Globe Investor
DM151599_Pg74-75_ROB_OCT_2015.indd 75
15-09-08 10:40 AM
cover image alex maclean/trunk archive; spot illustrations leeandra cianci
TREND
The dominator
From the assembly line to the bottom line,
the iconic F-150 pickup pretty much is Ford
The sales
If you lump the F-150 in with Ford’s larger F-250
and F-350 pickups, it’s the top-selling vehicle
in North America. In the United States, it has
been No. 1 for 33 years straight. Why? Pickup
owners are more loyal to their brand than car
buyers. They’re also more loyal to Detroit’s Big
Three: GM’s Chevy Silverado and Chrysler’s
Ram finished second and third last year, ahead
of cars made by Toyota and Honda.
The bottlenecks
Ford actually sold 25,000 fewer F-150s
in its second quarter ended June 30
than it did in the same period a year ago.
Factories were still ramping up production
of the aluminum pickups. But the average
sale price climbed $3,600 to a record
$44,100, as buyers loaded up on fancy
interiors and electronics.
By DaviD Berman
The gamble
Ford spent $3 billion (all currency
in U.S. dollars) to switch its
pickup bodies to aluminum from
steel in 2015. Aluminum reduces
the F-150’s weight by 15% and
improves fuel efficiency by 20%.
But will that be a big selling feature
if oil prices keep declining?
The fat profit
At full production, the F-Series pickups
typically account for half of Ford's
pretax North American earnings.
The gross profit on each pickup is
about $8,000. If Ford can continue
selling more than 700,000 trucks a
year, that’s a $5.6-billion cushion.
The share price
Despite a 44% surge in Ford’s secondquarter earnings, its share price
drifted down this past summer. The
stock has traded at a modest eight
times forward earnings lately. Worries
about sales in China and Europe
persist, and analysts are roughly
evenly divided between buy and sell.
The bottom line
Given the modest valuation,
and the rock-solid demand
for the F-150, Ford seems
more likely to surprise on the
upside than the downside.
october 2015
❘
Globe Investor 1
15-09-09 2:24 PM
Popular is nice,
but smarter is better
Global
small/
mid-cap
Canada
small/
mid-cap
Global
Canada
CAD
hedged
Traditional indices allow the market to
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market can be fickle, overreacting to both
good and bad news.
There is a smarter way. RAFI® indices seek
to limit the impact of market sentiment,
weighting companies by four key business
fundamentals: sales, cash flow, book value
and dividends.
Speak to your advisor or visit
www.powershares.ca.
U.S.
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their values change frequently and past performance may not be repeated. Please read the prospectus before investing. Copies are available from
your advisor or Invesco Canada Ltd. at www.powershares.ca. FTSE® is a trade mark owned by the London Stock Exchange Group companies and is
used by FTSE International Limited (“FTSE”) under licence. The FTSE RAFI® Index Series is calculated by FTSE in conjunction with Research Affiliates,
LLC (“RA”). Neither FTSE nor RA sponsor, endorse or promote this product and are not in any way connected to it and do not accept any liability in
relation to its issue, operation and trading. Any intellectual property rights in the index values and constituent list vests in FTSE. Investors should
be aware of the risks associated with data sources and quantitative processes used in our investment management process. Errors may exist in
data acquired from third party vendors, the construction of model portfolios, and in coding related to the index and portfolio construction process.
While Research Affiliates takes steps to identify data and process errors so as to minimize the potential impact of such errors on index and portfolio
performance, we cannot guarantee that such errors will not occur. “Fundamental Index®” and/or “Research Affiliates Fundamental Index®” and/or
“RAFI®” and/or all other RA trademarks, trade names, patented and patent-pending concepts are the exclusive property of Research Affiliates,
LLC. Invesco® and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence. PowerShares®, Leading the
Intelligent ETF Revolution® and all associated trademarks are trademarks of Invesco PowerShares Capital Management LLC (Invesco PowerShares),
used under licence. © Invesco Canada Ltd., 2015
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