the IrvIngs - The Globe and Mail

Transcription

the
Irvings
What happens when one
family owns a province
The Wek era is officially over
Amazon’s global
takeover continues
the jerk
conundrum
betting on the ponies
the CN
Tower
turns
forty
cracked
Pick-and-pay cable is coming soon to a small screen near you
TV will never be the same
march 2016
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S:7.125”
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Experience the 2016 Lexus GS for yourself today. AMAZING IN MOTION
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S:10”
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2016-01-25
AM
COVER PHOTOGRAPHED exclusively for report on business magazine by c.j. burton; (Top) Karen Stentaford
contents
03/16
Features
38
Company province,
provincial company
The bitter debate over the
Energy East pipeline places New
Brunswick’s reclusive Irvings
on the national stage. It’s an
awkward moment for the feuding
family. /By Bruce Livesey
32 What’s wrong with this picture?
Ottawa’s move to allow consumers to pick cable TV stations
à la carte amounts to one big bundle of questions for the industry.
First and foremost, who’s going to survive? /By James Bradshaw
48 The big shrink
What explains the falling fortunes of the independent brokerages
that once gave Bay Street its buzz? One memo blames “the amorphous
blob that is the bank oligopoly.” /By Tim Kiladze
54 Your business here
The cloud is a wonderful place where our software and data migrate
so we don’t have to worry about them. Or maybe it’s a place where
Amazon stealthily continues its global takeover. /By Iain Marlow
march 2016 / REPORT ON BUSINESS 1
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TAG HEUER CARRERA CALIBRE HEUER 01
Chris Hemsworth works hard and chooses his roles carefully. He handles pressure
by taming it, and turning it to his advantage. #DontCrackUnderPressure was
coined with him in mind.
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03/16 CONTENTS
DEPARTMENTS
5 Feedback
9 The Interview
Not content to merely
head the Canadian
Football League, Jim
Lawson aims to bring
back the horse-racing
crowds for Woodbine
Entertainment Group
12 Graphic Details
No wonder pension funds
are going to the dogs: All
that kibble and veterinary
care adds up to billions
54
photographs (top) john kealey; (right) Dennis Robinson/The Globe and Mail; (bottom) Clinton Hussey
14 Venture
After years of roaring
start-up success, Craigslist
challenger VarageSale
needs to keep its army of
moms onside
16 Made in Canada
You want an umbrella that
won’t go inside out in the
wind? Then cough up for
Vancouver-made quality
24 Architecture
Hail to a very tall Toronto
structure, a “monstrous
dart,” on its 40th birthday.
Guess which building
we mean?
26 Disruption
Beware the successful
platform. Case in point:
WeChat. What started out
merely messaging now
owns a large chunk of
China’s e-commerce
Ottawa’s Shopify has
relied on cloud storage
ever since the firm
began around 2004
28 Corporate
Governess
Generally, telecommuting
is good…until it’s not.
Specifically, it’s a great
way to get that annoying
jerk out of the office
29 Reguly
Pure electric vehicles are
no longer imaginary. But
their supposed benefits
still aren’t for real
This issue
contains
18
dogs
(4 painted)
1
1
Horse
Metallic
Bull-Shaped
BarbeCue
And
30 Investing
American workers’ share
of the pie is growing:
That’s good. But what this
portends is not so good
60 Exit Interview
Every business school
teaches students
the numbers. Peggy
Cunningham is proud
to have also taught hers
how to behave
photo
shoots in
6
provinces
and
2
U.S. states
Distinctly Canadian:
a Vancouver umbrella,
a Toronto tower
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Globe eBooks
March 2016, Volume 32, No. 7
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
Associate Art Director BRENNAN HIGGINBOTHAM
Director of Photography Clare vander meersch
Contributors
Navneet Alang, david berman, Richard Blackwell,
James Bradshaw, steve brearton, antony hare, Diane
jermyn, TiM Kiladze, Bruce Livesey, Mark mann, Iain
Marlow, Ian McGugan, eric Reguly, Alec scott, sean
stanleigh, doug steiner, patrick white, shirley won
Advertising
Chief Revenue Officer ANDREW SAUNDERS
Business Manager, Magazines rolfe jones
Advertising Co-ordinator,
Marketing Solutions Group sonja tasovska oi
po
H
co
wi
th
do
isn
th
fro
de
at
an
Bi
wh
de
to
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
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tgam.ca/r
CPWM013
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9
0,
Feedback
MAD
ABOUT OIL
In his column
“Running on
empty,” Eric
Reguly urged
big Western
oil companies to diversify their
portfolios or risk extinction.
His opinions ignited a spirited
conversation: While people
will debate the speed at which
the world moves away from oil
dominance, the trending direction
isn’t in dispute. It reminds me of
the auto industry moving away
from North American production
decades ago. This comment
attracted responses, both pro
and con: Post du jour, mon ami!
Big Oil is going the way of buggy
whips, top hats and home milk
delivery. Another reader begged
to differ: We are using more oil
year over year. Remember those
three-billion-plus people living in
poverty in the Third World. They
want a middle-class lifestyle
too. The last word goes to
this reader: We behave as if
fossil fuels will last forever, as if
transition is a matter of choice.
Geology tells us otherwise.
RENT OR BUY?
In “The final install,” Mark
Mann examined the rising
tide of software makers that
rent their apps over the Web.
Most commenters were not in
favour: In other words, instead
of having customers pay for
something once, force them to
start paying for it on a regular
basis. No, thanks. A former
network engineer waded in:
Installation and maintenance is
a breeze, for sure, but the speed
What you were
reading on the
Web this month
24%
Running on empty: Big Oil
needs a bigger vision
21%
Ex-CEO of Lululemon
makes her new pitch:
high-end frozen food
18%
The sixth annual Invest
Like a Legend issue
15%
Slow plane to China:
B.C.’s Harbour Air eyes
massive market
13%
The final install:
Say goodbye to buying
software
9%
Other
and robust functionality of a
native coded application is just
not there…Shifting to the cloud
is just plain dumb. Not so, wrote
a small business operator: The
biggest cost for me was software
upgrades. I finally shut down
because I could no longer afford
major upgrades every six months.
digging deep
Perhaps the best line goes to
this reader, commenting on
our interview with coal king
Bob Murray: Maybe he’ll dig up a
dinosaur that looks just like him.
Correction
An article on Harbour Air in the
last issue of Report on Business
magazine included an incorrect
surname for the company’s
president. He is Peter Evans,
not Peter Blake as published.
WILL HISTORY
REPEAT ITSELF
REPEAT ITSELF?
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the Quality
factor
When it comes to investing, quality isn’t always
obvious. Identifying high-quality opportunities
takes effort and insight.
At Invesco, we’ve invested our time in developing strategies
that make quality investments stand out from the crowd.
Learn why quality matters.
Visit www.invesco.ca/quality.
Commissions, management fees and expenses may all be associated with investments in exchange-traded funds (ETFs). Unless otherwise
indicated, rates of return for periods greater than one year are historical annual compound total returns including changes in unit value and
reinvestment of all distributions, and do not take into account any brokerage commissions or income taxes payable by any unitholder that would
have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Please read the
prospectus before investing. Copies are available from Invesco Canada Ltd. at www.powershares.ca.
16-02-08 9:43 AM
Advertorial
Overlooked
qualities
Investments that experience higher
volatility have the potential to erode
principal much more quickly than
lower-volatility investments. With
smaller losses in down markets, lowvolatility stocks don’t have to rise as
much in value in order to recover their
pre-downturn value.
Not all low-volatility
strategies are the same
As global equity markets continue
to convulse, the perils of tracking a
capitalization-weighted benchmark
index have been laid bare once again.
A benchmark doesn’t seek to boost
an investor’s exposure to undervalued
securities, nor is it able to tap into other
qualities overlooked by the market,
such as lower volatility. The benchmark
simply follows the herd.
Many investors build their
portfolios with strategies that simply
track the benchmarks. But investing
isn’t about achieving average results;
it’s about achieving goals.
Many investors may be hoping to
reduce the volatility of their portfolios,
but simply holding cash could
jeopardize many investment plans.
A central tenet of finance is that
investors seeking to reduce risk must
accept reduced returns. Yet research
suggests a portfolio of less-volatile
stocks tends to provide a degree of
protection during broad market
declines while still participating
in subsequent rallies.†
Critical differences
Managing volatility is critical to
investment success because volatility
has the potential to wear away capital
quickly. When choosing a low-volatility
strategy, it is important to consider the
qualities that go into that strategy.
While some low-volatility indices
have sector constraints that prohibit
them from straying too far from their
parent index, the low-volatility indices
created by Standard & Poor’s (S&P) have
the ability to dynamically rotate in and
out of sectors as volatility dictates.
This allows S&P low-volatility
indices to adjust to market conditions
in a more timely fashion, focusing
exclusively on volatility, without
arbitrary constraints.
For example, PowerShares S&P/TSX
Composite Low Volatility Index ETF
(TLV) employs an unconstrained
rebalancing approach. By adhering
to this methodology, TLV’s underlying
portfolio began to reduce its energy
weighting in September 2014 as
volatility in the energy sector started
to spike. By March 2015, the energy
weighting in the portfolio had been
completely eliminated.
An investment tracking the capweighted benchmark would have
reduced its exposure to the energy
sector but still held roughly 20% of
assets in the struggling sector.
A constrained low-volatility
strategy, bound to deviate only slightly
from the benchmark, would have
maintained its exposure to energy, even
as the sector continued to fall through
the latter half of 2015 and into 2016.
Between June 30, 2014 and
January 31, 2016, volatility spiked
repeatedly. In August 2015, the Chicago
Board Options Exchange Volatility Index
(or VIX) hit levels not seen since 2011, the
last previous period of major volatility.
During this period, TLV captured
only 75% of the S&P/TSX Composite
Index’s volatility, outperforming the
benchmark by 18.29 percentage points
and demonstrating the value of a lowvolatility strategy.
Cumulative return
Name
PowerShares S&P/TSX Composite Low Volatility Index ETF (TLV)
S&P/TSX Composite Index
Low-volatility advantage
June 30, 2014 to Jan. 31, 2016
7.05%
-11.24%
+18.29%
Energy weight in low-volatility and cap-weighted indices (June 30, 2014–January 31, 2016)
Index value
Feb. 2016
Jan. 2016
Dec. 2015
Nov. 2015
Oct. 2015
Sept. 2015
Aug. 2015
July 2015
June 2015
May 2015
150
April 2015
200
0
March 2015
250
5
Feb. 2015
300
10
Jan. 2015
15
Dec. 2014
350
Nov. 2014
400
20
Oct. 2014
450
25
Sept. 2014
500
30
Aug. 2014
35
July 2014
Energy weight (%)
– Energy weight in S&P/TSX Low Volatility Index (left-side measure) – Energy weight in S&P/TSX Composite Index (left-side measure)
– S&P/TSX Energy Total Return Index level (right-side measure)
Sources: Invesco and Bloomberg L.P., as at January 31, 2016. You cannot invest directly in an index.
Performance of PowerShares S&P/TSX Composite Low Volatility Index ETF (TLV), as at January 31, 2016: 1-yr, -1.73%; 3-yr, 8.42%; and
since inception (April 5, 2012), 9.26%. Performance of the S&P/TSX Composite Index, as at January 31, 2016: 1-yr, -9.88%; 3-yr, 3.44%;
5-yr, 1.86%; 10-yr, 3.65%; and since inception of the ETF (April 5, 2012), 4.95%.
Source: S&P Dow Jones Indices LLC.
S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and has been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by Invesco
Canada Ltd. TSX is a trademark of TSX Inc. (“TSX”) and has been licensed for use by S&P Dow Jones Indices LLC and Invesco Canada Ltd. The S&P/TSX Composite Low Volatility Index is a
product of S&P Dow Jones Indices LLC, and has been licensed for use by Invesco Canada Ltd. Invesco Canada Ltd.’s PowerShares Index ETFs are not sponsored, endorsed, sold or promoted
by S&P Dow Jones Indices LLC, its affiliates, LSTA, or TSX and none of such parties make any representation regarding the advisability of investing in such product.
Because the underlying index (the “Index”) is comprised of the 50 least-volatile stocks in the S&P/TSX Composite Index (the “broader index”), the Index is expected to have less volatility
than the broader index from which it is drawn. However, the Index will not have the same performance as the broader index, and its performance over any given period may be better or
worse than that of the broader index from which it is drawn.
Invesco is a registered business name of Invesco Canada Ltd. 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. Trimark®, Knowing pays® and all associated trademarks are trademarks of Invesco Canada Ltd. © Invesco Canada Ltd., 2016
†
16-02-08 9:44 AM
16-02-03 10:05 AM
03/16
Going batty
Renaissance man Frank D'Angelo
directs and stars in Sicilian Vampire
page 27
Business Intelligence
Pension funds: In for a dog’s age? • A mom-friendly variant of Craigslist • WeChat = WeChamp • Electric vehicles emit baloney
The Interview
Horse latitude
To bring the excitement back to thoroughbred racing in Ontario, Jim Lawson is betting on a casino
photograph ryan stone
A
career can take
you a lot of
places—even,
if you’re Jim
Lawson, back
in time to reconnect with your
late father.
At 20, Mel Lawson became the
youngest quarterback to win a
Grey Cup (for a forerunner of the
Hamilton Tiger Cats); he played
hockey for the Toronto Marlies
(under coach Harold Ballard); he
worked his whole life, well into
his 80s, at the family business,
a lumberyard in Hamilton, while
also fielding horses that won
46 stakes races.
“He was of that generation that
worked one job their whole lives,
that believed in loyalty, in being
proud of what you sold,” says his
son, recently appointed head of
the Woodbine Entertainment
Group (WEG). “Our careers don’t
follow that path much any more.”
The younger Lawson is his
own case in point: Now in his
late 50s, he’s on career number
four. After undergrad (at Brown),
he played pro hockey with a
Montreal Canadiens farm team.
In the ’80s and ’90s, he earned
partnership at two blue-chip Bay
Street law firms, papering the
real-estate deals of the likes of
Peter Munk and Paul Reichmann.
In the 2000s, he went client-side,
helping Canada’s richest woman,
the Thomson heiress Sherry
Brydson, run her investment
firm, Westerkirk Capital, earning
as much as $2 million annually
in salary and bonuses.
So far, so good. But after his
father died, in 2011, things fell
Jim Lawson
feels that one
thing horseracing needs is
more owners
(like himself)
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03/16
markedly over the last decade—
one set of estimates has them
falling 20%, from over $1 billion
in 2008 to just over $800 million
in 2014. (2) With a flagship
stadium built in the 1950s, much
of Woodbine’s physical plant
looks tired. Its vast bleachers are
seldom filled except on Queen’s
Plate day. “You would not build
Woodbine today with 12,000
seats,” Lawson admits.
The industry is still reeling
from the shock it received
in 2012, when the provincial
Liberal government started
relieving tracks of their lifesustaining slot machines
(owned by the Ontario Lottery
and Gaming Corp., or OLG).
After much squawking from the
industry, Queen’s Park agreed to
give it a subsidy of $100 million
per year until 2018.
To ensure WEG’s post-subsidy
survival, Lawson and his team
sought and won approval from
the City of Toronto to build a
full casino at Woodbine. “The
sooner we break ground, the
better,” he says. WEG will get a
cut from whichever gaming firm
OLG chooses to build the casino.
The facility is projected to
apart, at least for a bit. In 2012,
Brydson let Lawson go, and
he’s currently suing—and being
sued—over the termination.
After that unceremonious
exit, Lawson got the nod to run
his father’s league, becoming
chairman of the CFL’s Board
of Governors and also filling in
briefly as commissioner. And,
early last year, he became CEO
of the outfit that runs the track
where his family’s horses have
often won, showed and placed
over the years. (1)
In both roles, he’s tried
to figure out how Canadian
sporting events can retain
buzz and earn money in an
increasingly international
market. “The power of the NFL,
the live-streaming of races from
Europe, from big U.S. courses
like Gulfstream and Santa
Anita—it’s a constant barrage,”
he says. “How do we compete?”
His starting point: You don’t
carry on as you have been.
“Complacent” is an adjective he
uses multiple times to describe
the state of WEG when he took
it over early last year, replacing
Nick Eaves. Revenues at all of
Ontario’s 17 tracks have declined
1. Lawson owns
a thoroughbred
filly, Cozshecan,
which finished
first in a race last
fall, but was taken
off the podium for
bumping another
horse mid-ride.
2. WEG hasn’t felt
the same hit as
the industry as
a whole, with its
racing revenues
holding steady in
the $700-million
range for much of
the last decade.
3. Just how
solid a revenue
stream won’t
be known to
the public: WEG
only discloses
its complete
financials to
government
regulators.
bring in about $650 million in
gross gaming revenues initially,
with potential for growth
to over $1 billion. “There’s a
20-year agreement in place,
which should give a solid
revenue stream,” Lawson says.
(3) (Skeptics might say that
such projections need to be
taken with a grain of salt in an
arguably built-out business.)
Some racing purists have
criticized the casino plan, but
Lawson sees no other viable
option—indeed, he’s also
working on getting a casino
authorized at WEG’s other big
track, Mohawk, in Milton,
west of Toronto.
Lawson inherited his interest in horses early, from his
father, but he says he’s worried
about getting today’s young
generation into it. “If we build
the entertainment district we’re
thinking of—live music, dining,
theatre—we think we can draw
people, millennials here. But
the industry as a whole is facing
a shortage of horses. Getting
the up-and-coming generation
interested in the big investment
of owning a horse is an absolute
necessity.”
/Alec Scott
Dow 500
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1 9 97
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
On Oct. 19, 1987, the Dow Jones Industrial Average plunged by more than 500 points—the biggest one-day percentage drop ever.
It turned out to be a bottom, but markets were rattled for years afterward. Since then, there have been 16 one-day drops of
at least 500 points. This past Jan. 20, the Dow sank 550 points by lunchtime, then surged back. Some investors barely noticed.
Five hundred points isn’t that big a deal any more.
%
0
▼
504 PT
5
▼
513 PT
▼
508 PT
▼
▼
▼
531 PT 588 PT
(Aug.
21)
520 PT
(Aug. 24)
▼
▼
▼
▼
▼
▼ (Sept. 15)
▼
(Aug. 4) 635 PT (Aug. 10)
▼
618 PT
514 PT
▼
▼
(Oct. 7)
513 PT (Apr. 14)
(Aug. 8)
(Oct. 22)
778 PT
685 PT
554 PT (Aug. 31)
679 PT
680 PT
733 PT
(Sept. 29)
(Sept. 17)
(Oct. 27)
10
(Oct. 9)
(Oct. 15)
(Dec. 1)
15
Asian
currency
crisis
20
▼
508 PT
(Oct. 19)
Russian
economic
crisis
U.S. inflation
report is higher
than expected
First day
of trading
after 9/11
Lehman Brothers collapses
on Sept. 15, triggering the
2008-2009 financial crisis
and bear market
Global economic jitters.
Standard & Poor’s
downgrades the U.S. credit
rating to AA+ from AAA
Chinese
economic
growth
slows
The next biggest percentage decline ever was Black Monday: Oct. 28, 1929.
The Dow dropped 38 points (12.8%) to 261, ushering in the Great Depression
10 march 2016 / REPORT ON BUSINESS
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16-02-03 9:58 AM
03/16
Graphic Details
Animal house
Some of the world’s biggest pension funds are betting that businesses engaged in the care and feeding
of dogs and cats are a smart place to invest their money. They might just be right.
Biggest pet deals
$8.3 billion (U.S.)
PetSmart Inc., the largest pet-store chain in the U.S., was bought by a group led by BC Partners a year ago. It
was the biggest leveraged deal for an American company in 2015. In addition to BC Partners, the consortium
includes Caisse de dépôt et placement du Québec and StepStone.
7.9 million
cats in Canada
5.9 million
dogs in Canada
Owners that consider their
pets as part of the family
89%86%
Retail sales of pet food
in Canada ($millions)
dog72.5
cat
other
720.3
67.9
542.6
$4.6 billion (U.S.)
$520 million (CAD)
The Ontario Teachers’ Pension Plan’s
The Canada Pension Plan Investment Board
private capital group bought U.S.
and private equity group CVC Capital Partners
veterinary business acquirer PetVet
are acquiring San Diego-based retailer Petco
Care Centers in January, 2015
Animal Supplies Inc.
$595
1,080.7
$100 million (CAD)
799.8
Fairfax Financial Holdings Ltd.
bought Oakville, Ontariobased PetHealth Inc. this past
summer
20062016
Top 3 Most Popular Breeds
(for the past three years, in Canada and the U.S.)
million (U.S.)
Value of the pet
insurance market,
according to the North
American Pet Insurance
Association
3%
Pets that
are insured
in Canada
1
1%
Pets that
are insured
in the U.S.
2
Labrador retriever
German shepherd
+ =
Dog math
Cocker spanielPoodle
$2 million
in China in 2014, making
it the priciest dog ever
purchased
Golden retriever
+ =
Cockapoo
A Tibetan mastiff puppy
reportedly sold for over
3
Golden retrieverPoodle Goldendoodle
+
Maltese
=
Shih Tzu
Mal-Shi
16-02-04 9:31 AM
If you value your property, insure it with professionals.
The Chartered Insurance Professional (CIP) designation is recognized
as the benchmark of professionalism in the property and casualty
insurance industry in Canada. Acquiring the CIP demands several
years of rigorous study and adherence to a strict code of conduct.
Awarded exclusively by the Insurance Institute, the designation
indicates that the CIP is well qualified to provide professional service.
If you want to be assured your insurance needs are being handled
by qualified professionals—look for CIP after their names.
Be assured.
Learn more at BeAssured.ca
16-02-03 3:16 PM
03/16
Venture
fu
ap
ad
by
he
tio
to
bu
th
U
tra
T
ac
th
Clutter is their bread and butter
Frustration with Craigslist inspired a Montreal couple to build their own family-friendly app
for selling stuff. It caught on like gangbusters—but how long can VarageSale stay sticky?
Craigslist:
The Sequel
Following Airbnb’s
example, companies
around the world are
competing for a slice
of Craigslist’s pie
co
in
of
sp
A
Eu
re
bu
“o
ev
lio
Marketplace,
from Facebook
(Menlo Park, California)
OfferUp
(Bellevue, Washington):
VarageSale’s biggest
competitor
letgo and WallaPop
(Barcelona)
SELLO, from Shopify
(Ottawa)
sp
(U
fir
W
la
al
5miles (Dallas)
Sell It Easy
(San Francisco)
VENDCHAT (Vancouver)
D
ecluttering probably has never had more VarageSale began life
fruitful a moment than when Montrealer in Carl Mercier and
Tami Zuckerman’s
Tami Zuckerman, preparing for the arrival of Montreal home;
her first child, surveyed what needed selling now they work from
a Toronto HQ
in her household and turned to Craigslist.
Popular though it may be, the seemingly
all-conquering successor to classified advertising did not turn out to be simpatico.
Zuckerman didn’t like meeting in person with strangers or receiving delivered items
without her husband present (Craigslist, after all, has been linked to more than a
hundred murders).
She then followed the example of friends and neighbours who were selling their
stuff on Facebook and Yahoo buy/sell/trade groups. For Zuckerman, this approach
was not just less creepy than Craigslist; as well, it actually felt sociable. But it was
also disorganized and frustrating. Posts would get buried in the feed, there was no
way to display all her items together in a virtual storefront, and the transactions were
getting mixed up with her personal messages.
Twice burned, Zuckerman turned to her husband, Carl Mercier, a software developer, and asked him to build her something that worked. Mercier balked initially. “I’m
not building another classifieds app,” he told her. “I don’t want you to,” she replied.
What she did want was just a few basic things: “Large pictures, someone’s face,
someone’s name, and what they’re selling.” And a storefront for each vendor, so it
would be easy for shoppers and sellers to see each other’s inventory in one place.
With those simple specs, Mercier built the app over a few weeks. It uses Facebook Login to eliminate anonymity, and organizes members into geographically specific communities to create a neighbourhood feeling. There’s also a scrolling feed
of newly posted items that members can
check as often as they’re inclined. It was
clunky at first, says Mercier, but even so
it immediately gained an enthusiastic
following. “Our earliest users are power
users to this day,” says Mercier.
Zuckerman and Mercier had hit upon
a new basic truth of digital business.
The old-school view values websites
and apps by the numbers of visitors or
downloads. But the ascendant analysis
is that quantity no longer beats quality
online. Rather, it’s “stickiness” that matters: return visits, time spent, comments
made, links shared, etc.
And VarageSale is as sticky as they
come. Half of the site’s mobile users
come back every single day, and they sell
on average 10 items per month.
Users told Zuckerman and Mercier
that their site’s family-friendly ethos
set it apart from competing apps. Some
85% of VarageSale users are women, and
of those, most are moms with young
children.
photographs (varagesale) jean-baptiste le mercier; (Dance) courtesy morning gloryville
MELLTOO (Dubai)
DM161782_Pg14-15_ROB_MAR_2016.indd 14
16-02-08 9:33 AM
ad
ea
pa
in
tiz
ac
th
m
ra
m
M
To
six
Va
ha
bl
al
tio
ex
pe
ci
Va
cr
co
m
an
as
so
ic
er
on
ss.
es
or
sis
ty
atts
ey
rs
ell
er
os
me
nd
ng
photographs (varagesale) jean-baptiste le mercier; (Dance) courtesy morning gloryville
:
Having hit a sweet spot, VarageSale
further encourages engagement by
appointing some members as volunteer
administrators, who vet incoming users
by checking their Facebook profile,
help host discussions and answer questions on the site. Zuckerman has gotten
to know many of these communitybuilders personally; their pictures line
the walls of the company’s cafeteria.
Users can also rate each other after a
transaction using a system of “Praises.”
Those results, combined with users’
activity on the site, can elevate them to
the status of Top Member.
Transactions often take place at big
community meet-ups (typically in parking lots), sometimes with thousands
of members attending. VarageSale has
spread to every Canadian province and
American state, as well as Australia,
Europe and Asia. The company doesn’t
release membership or usage figures,
but Mercier says, hyperbolically, that
“our members view billions of items
every month, and we save families billions of dollars every year.”
Investors have taken notice. Last
spring, VarageSale received $34 million
(U.S.) from heavyweight venture capital
firms Sequoia Capital and Lightspeed.
With the extra resources, the company is
launching the VarageSale Wallet, which
allows people to pay with their phone.
VarageSale is free to use and has no
advertising, which means it hasn’t yet
earned a penny of profit. But an in-app
payment processor, launched in the U.S.
in January, will make it easier to monetize operations down the line, as a transaction fee is added.
Monetizing is, of course, no small
thing, and at VarageSale it recently got
more urgent. After several years of
rapid growth, in which the company
moved from a suburban outpost in
Montreal to an office in downtown
Toronto and jumped its payroll from
six employees to more than a hundred,
VarageSale announced on Feb. 1 that it
had let go 26 people. Mercier said in a
blog posting that the downsizing would
allow the company to streamline operations, increase focus on core product
experience, and prepare for “what’s expected to be a difficult year in the financial markets.”
It’s also likely to be a year when
VarageSale’s homey niche gets more
crowded (see the list of international
contenders above). The battle for maximum stickiness is on. /Mark Mann
Morning Gloryville
produces exercise
raves in 21 cities
worldwide, among
them Toronto,
Vancouver and
London. The freeform dance parties
start at 6:30 a.m.
Fitness
Losers and real losers
It has been almost
two months since
you made your New
Year’s Resolution and
chances are that,
like some two-thirds
of people who did
likewise, your hopeful
proclamation focused
on losing weight
or getting fit. And
chances are that
the gym bag with
your new workout
togs lies discarded
in the corner.
You’re not alone.
About three-quarters
of the people who
make health-related
resolutions never
follow through.
A whole industry—
call it the obesity
industrial complex—
has sprung up to profit
from our perpetual
dreams of thinness
and good health. Gym
membership runs at
around four million
in Canada, though
#1
20% of people who
sign up this year will
never lift a dumbbell.
Scores of companies
supply pills and
powders with hopeful
names like Fatburner
and Hypercut (the
supplement industry
is worth $102 billion
globally). Publishers
churn out book after
book on the newest
surefire diet—20
Pounds Younger,
The Lean Muscle Diet,
and so on.
Often the only thing
getting thinner is your
wallet. But you can
still salvage 2016:
Switch to veganism
(the diet this year),
stock up on the newest
miracle food (coconut
oil) and even attend a
morning exercise rave.
Or just head out to the
garage and dust off
the ThighMaster you
bought way back in
1998. /Bryce Warnes
MOST OBESE nations on earth
% of population that is obese
Tonga
Samoa
#2
Kuwait
#3
#16
U.s.
Canada
60.1
57.6
47.7
32.8
21.2
15%
#62
34
Number of
international spinoffs
of The Biggest Loser
171
Pounds shed in 18
weeks by Toma
Dobrosavljevic, the
winner of the 2015
instalment of The
Biggest Loser
10
million
Total number of
ThighMasters sold
$14.5
million (U.S.)
Estimated value of
Suzanne Somers’s
mansion in Palm
Springs, California
18
million
Estimated number of
Fitbits sold in 2015
Oprah’S STAKE IN WEIGHT WATCHERS
Oprah announced her success using the Weight Watchers
program in January, tweeting that she’d shed 26 pounds.
Shares climbed some 20% the same day.
DM161782_Pg14-15_ROB_MAR_2016.indd 15
16-02-08 9:33 AM
03/16
standout
umbrella
movies
Rain check
(lifetime gross)
Corry Flader suffers from reverse seasonal-effective disorder. When the skies over Vancouver darken,
her demeanour brightens. “It’s overcast today, so I’m in a very good mood,” she says, from the home
base of her family-run business, The Umbrella Shop, the last company making umbrellas in Canada.
The incentive to offshore has proven irresistible among umbrella builders. While Flader constructs
around two-thirds of her products outside Canada, the remainder are manufactured in-house by one
of her 12 employees using Singer sewing machines that have been in the family for 70 years. “Our
products are $4 or $5 more than anything that would be competitive,” says Flader, “but ours don’t rust
and don’t go inside out in the wind.” In the past, financial advisers have asked why she bothers staying open given her low returns, but the business is in the blood. Her grandfather, Isadore Flader, first
opened The Umbrella Shop on Pender Street in 1935. Recently, her obstinate devotion to costly, local
manufacturing has begun reaping rewards. Thirteen years ago, the company was moving about 2,400
units a year. Today, they hit that milestone every two months. “I’m seeing this new consumer who
wants to buy things once, not 300 times,” she says. “People are tired of things that break. /Patrick White
7 of 10 wettest canadian cities are in B.C.
1 Prince Rupert 2 Chilliwack 3 Abbotsford 4 Campbell River
5
Sydney
6
St. John’s
7
Halifax
8
Vancouver
9
$102 million
Mary Poppins
$45 Million
Lost in Translation
$2 Million
Singin’ in the Rain
Nanaimo
10 Courtenay
photograph Clinton Hussey; (singin’ in the rain) REUTERS
C
Made in Canada
16-02-04 9:45 AM
At home in Canada and
everywhere else you do business.
Dentons. Now the world’s largest
global elite law firm.*
dentons.com
© 2016 Dentons. Dentons is a
global legal practice providing
client services worldwide through
its member firms and affiliates.
Please see dentons.com
for Legal Notices.
*Acritas Global Elite Law Firm
Brand Index 2013−2015.
16-02-10 2:37 PM
SponSor Content
BuSineSS eduCation in Canada
globeandmail.com/adv/businesseducationincanada
Connecting to
the power of
online learning
Specialty business programs in data, HR and other streams are a
flexible option for busy executives
S
heri McKillop retreats
from the hustle and
crush of a human resources
trade show held this winter at
the Metro Toronto Convention
Centre. “It’s always a good
event with a large variety of
sessions and exhibitors,” says
McKillop, associate dean of
the Sandermoen School of
Business at the University of
Fredericton in New Brunswick.
One reason she is attending
this year’s trade show is
because last fall, Sandermoen,
a fully online institution,
launched an MBA and EMBA
with a specialty stream in
human resource leadership.
“The understanding of
business issues and demands
with an HR lens ensures the
graduates of the program
can contribute to the
organization’s success,” says
McKillop.
For those in the early stages
of their career, the new
program provides a stronger
understanding of how to best
integrate business strategy
with HR principles. More
advanced HR professionals
will benefit from honing
skills accumulated over the
course of their careers, while
at the same time obtaining
the advanced degree
often required for seniormanagement advancement.
“Students in the program
have a unique opportunity
to pursue the education
they need to be successful
in their careers without
sacrificing work or personal
commitments,” adds McKillop.
Also this fall, the
Sandermoen School of
Business launched an MBA
2016_BusinessEducationInCanada.indd 1
Students can interact in real time with professors and fellow students for a
true classroom experience.
and EMBA with a specialty
stream in business analytics
leadership. The programs
will equip students with the
ability to make data-driven
decisions and more effectively
communicate with IT
departments, data scientists,
and business leaders in
general. As the programs are
taught completely online,
students will have the
opportunity to immediately
apply their new skills and
knowledge as they continue
working full-time.
“The business analytics
stream was a result of
awareness that large quantities
of data are being collected,”
says associate dean McKillop.
“Companies know there is
value there, but are not quite
sure what to do with it. This
stream responds to this need
by training students how to
understand the data and,
most importantly, how to use
it to make business driven
decisions.”
Sandermoen uses live virtual
classes hosted by Cisco WebEx
to deliver its entire curriculum,
including diplomas and
master certificates in areas
such as health, safety and
environmental processes for
candidates who already have
an MBA but need to upgrade
their academic credentials.
The WebEx platform allows
for interaction between
faculty and students through
audio, video and chat. Any
documents, presentation
slides or additional files a
faculty member wants to
utilize can easily be shared.
This same system allows
students to book team rooms
where they can collaborate
on projects and assignments,
which is an essential
component of any MBA
program and helps to foster a
network of business contacts.
An online approach to
executive education not only
allows students to enroll from
across Canada, but also makes
it possible for Sandermoen
to recruit part-time faculty
from other universities and
organizations. For example,
it has worked closely with the
Canadian Society of Safety
Engineering and Real Estate
Institute of Canada to deliver
its health and safety and real
estate leadership specialty
streams respectively.
Most recently Sandermoen
announced a strategic
partnership with Wittenborg
University in the Netherlands.
The main objective of this new
research and development
partnership is to design a
“gamified” MBA. Wittenborg
has been working with a
team of educational gaming
specialists since 2012 to
develop a full set of courses
that utilizes game-based
simulations.
The point of gamification,
which utilizes digital game
design and video game
elements, is to improve
student engagement by
modelling real-world scenarios
such as employee training and
customer reward programs.
Wittenborg is already
using gamification in some
of its regular classes, but as
a fully online institution, the
University of Fredericton
brings a unique perspective
to the table that can greatly
extend the reach of this new
approach.
If all goes well, the plan is to
launch the first program to use
gamification throughout an
entire MBA degree.
“Being completely online
means geographic locations
do not present boundaries,”
says Peter Mersereau, director
of operations at Sandermoen.
“The partnership with
Wittenborg University to
create a gamified MBA
addresses the growing need
for global education that is
accessible, engaging and
applicable to real business
needs.”
This content was produced
by The Globe and Mail’s
advertising department. The
Globe’s editorial department was
not involved in its creation.
2016-02-03 12:42 PM
16-02-03 3:20 PM
Abdul R Rahimi
MBA candidate (’16)
Pharmaceutical manager in UK
who chose Goodman to do his MBA
Our MBA takes you from campus to career path
An MBA at the Goodman School of Business goes beyond the classroom, from our acclaimed co-op programs to
service-learning community leadership opportunities.
Ask Abdul Rahimi. He wanted to make his career soar, and chose Goodman’s MBA to add a comprehensive
business degree to his pharmaceutical industry background. He enjoys small class sizes and engaging faculty
members, and applies his knowledge every day at the Goodman Consulting Group, providing consulting services
for real clients.
Goodman offers full-time, part-time and co-op MBA programs. Apply for our renowned CPA accredited
stream, or choose from business analytics, finance, human resource management, marketing, or operations
management specializations.
A unique approach to a business education, in the equally unique Niagara region - just an hour from the GTA.
Learn more at goodman.brocku.ca/mba
For both sides of the brain.
Brock University | Niagara | Canada
16-02-03 9:27 AM
SponSor Content
Students at
your service
B
arry Wright calls it a
“deep-generalist”
approach to the MBA.
Wright, dean of Brock
University’s Goodman School
of Business, is describing the
school’s business-education
philosophy.
First, students take a course
in each of the main disciplines
to learn the language of
business. Then they choose
to specialize in one area, such
as business analytics, finance,
marketing or operations
management.
Business analytics in
particular has become a
popular specialization because
it’s a growing field that is in
high demand with employers.
“Graduates of this program
are able to work in the field
of big data with a winning
combination of a statistics
and a strategic management
background,” explains Wright.
The Goodman MBA also
puts students on a fast track to
professional designations. For
example the accounting stream
prepares students for the CPA,
the finance stream prepares
students for the CFA and the
human resource management
stream prepares students for
the CHRP.
One major feature of the
Goodman School, in St.
Catharines, Ont., is something
it calls “service-learning.”
This program matches a
local client, usually a notfor-profit or a small- to
medium-sized business, with
a group of students either in
the undergraduate or MBA
programs. The students treat
the project like a consulting job
and are tasked with helping the
client solve a business problem.
The consulting is typically
tied to course work with written
assignments, presentations
and communication with
the client, all of which goes
to make up a final grade.
“The practical application
of theory builds a great case
for service-learning and the
impact on our local community
is astounding,” says Wright,
noting that Goodman students
provided $552,000 worth
of in-kind contributions to
the community in the last
academic year.
A case in point is a
communications plan created
for the Niagara Regional Police
to help combat cybercrime.
“The students developed some
incredible ads that the client
wanted to use immediately,”
says Todd Green, assistant
professor of marketing who
specializes in corporate
social responsibility. He adds
his students felt a sense of
accomplishment by identifying
ways to communicate to
children at risk and their
parents.
Goodman’s consulting work
also developed an information
system for the Hope Centre
of Welland, Ont., – a charity
that runs a variety of social
programs including a soup
kitchen and food bank.
Until this system was
implemented, volunteers had
to fill out a comprehensive
paper form. Matching interests,
skills and availability for an
assignment meant hours of
searching through hundreds of
forms. A team of MBA students
fixed that by designing a
computer application to allow
volunteers to input information
and for the centre to optimize
the matching of skills with
projects.
To raise its international
profile, Goodman has
established exchange programs
with over 40 overseas business
schools, including China, Brazil
and France.
T E L F E R S C H O O L O F M A N A G E M E N T U N I V E R S I T Y O F O T TA W A
CON N ECTS YO U TO WHAT MAT TER S
If what matters to you is learning in small classes with
ample opportunities to personalize your MBA, our program
is the right fit for you.
Professional MBA (2 years, in English or French)
Intensive MBA (1 year, in English)
AACSB AMBA EQUIS
telfer.uOttawa.ca /mba
2016-02-03 12:42 PM
16-02-03 3:27 PM
SponSor Content
Skills for the
real world
O
ne of the most
important tasks for a
business school is to provide
its students with a bridge
between theory and realworld practice.
Applied knowledge is
important for graduates
of most disciplines, but no
more so than in the tough,
hard-driven world of business
and commerce. With this in
mind, the Telfer School of
Management at the University
of Ottawa has opened a
newly-expanded Financial
Research and Learning Lab,
designed to help its students
learn real-world skills.
The lab is a state-of-theart research and education
facility equipped with
industry- standard software
and applications in finance,
accounting and statistics.
“As we evolve, it becomes
increasingly important for us
to not only provide students
an education that is grounded
in sound theory, but to also
provide experiential learning
to better prepare them for jobs
after graduation,” says Pouya
Safi, manager of the Financial
Research and Learning Lab.
A new Telfer Capital Fund
(TCF) will manage a real
investment portfolio and use
the lab for its weekly stock
pitches, sector updates and
portfolio analysis. The fund,
an initiative for Bachelor of
Commerce students, will start
with seed capital of $50,000
to $100,000, aiming to grow
to $500,000 in principal in the
next 5-10 years.
Meanwhile, a new PhD in
Management program is set
to launch this fall, focused
on five key fields, including
entrepreneurship, health
systems and finance. The
creation of the program is a
natural evolution for the Telfer
School, which introduced
two research-based M.Sc.
programs (in Management
and in Health Systems) eight
years ago.
“The next logical step for us
was to launch a PhD, which is
the hallmark of a school with
research-active faculty,” says
Silvia Bonaccio, director of
the new PhD program. She
says many of the graduates
will not seek tenure-track
academic careers in large
universities. As a result the
PhD program will also prepare
candidates for applied careers
at consulting firms or think
tanks.
“The PhD will continue to
allow us to attract and recruit
excellent professors to the
school, which in turn will
contribute to growing the
Telfer School’s reputation
and increasing the value of
the degrees we offer,” says
François Julien, Dean of the
Telfer School of Management.
On such degree is
Telfer’s Master of Health
Administration (MHA). Unlike
most other MHA programs
offered in Canada or abroad,
this program is based in the
school of management. “The
Telfer School is recognized
as a powerhouse in health
systems, health informatics
and health management,”
says Julien. The strength of
the program comes from the
fact that students enroll in
a combination of core MBA
and health-care specific
courses. The latter are based
on a leadership competency
framework developed in
collaboration with the
Canadian College of Health
Leaders.
This approach has allowed
the Telfer MHA to prepare
students for leadership
positions in all areas of
Canada’s challenging healthcare system.
2016-02-03 12:42 PM
16-02-03 3:33 PM
SponSor Content
Where policy makers
learn their craft
The change in federal government is likely to stimulate new
demand for skilled graduates in public administration
W
ith the arrival of a new
Liberal government in
Ottawa, the federal civil service
has embarked on a hiring
spree after nearly a decade of
layoffs and attrition that left its
ranks tired and depleted.
For the School of Public
Policy and Administration at
Ottawa’s Carleton University,
which offers graduate
programs and diplomas for
people pursuing careers in
the public and non-profit
sectors, this change in
thinking is both welcome
and long overdue. “It’s not a
question of fattening up the
public service,” says Robert
Shepherd, associate professor
at the School of Public Policy
and Administration. “But the
lower ranks have not been
replenished for years and units
can’t do their work. Thankfully
there’s new demand for young
recruits and all our programs
are fully enrolled and bulging.”
In addition to Master’s level
and PhD degrees, the school
also offers five graduate
diplomas intended to provide
specialized learning for
public servants and other
professionals who want to
strengthen their skills in public
administration and policy
analysis.
Starting in the fall of 2016,
the school’s Graduate Diploma
in Public Policy and Program
Evaluation (DPE) will only be
available online. Ironically,
the decision came two years
ago in response to deep cuts
to programs and services by
the Harper government. The
result was a significant decline
in demand for evaluators, and
since many of the students in
the DPE were Ottawa residents
working inside federal
departments, the in-class
model became difficult to
sustain.
“We turned to an online
format to significantly
expand our market reach to
provinces, municipalities and
international applicants,”
says Shepherd, who is also
supervisor of the Diploma
in Policy and Program
Evaluation. “A professional
diploma with specific learning
outcomes like the DPE lends
itself perfectly to a distance
learning approach.”
Many provincial and
municipal governments still
Policy and Administration,
launched last year. This
diploma was created because
the school recognized the
need to develop leaders able
to navigate the complex
changes in federal, provincial
and territorial policies and
laws governing indigenous
people. “One of the areas of
near unanimity was that the
program should be online,
want to upgrade their skills
and credentials. For example,
some programs focus on
preparing students for jobs in
health administration, or the
energy sector, or regulatory
administration.
A diploma can be completed
in as little as 12 months,
compared to two to three
years for a traditional Master’s
program. “Universities have
had to respond to a shifting
labour market where it is no
longer assumed that people
will remain with the same
employer throughout their
careers,” says Carleton’s
Shepherd, who is past chair of
the Consortium of Universities
for Evaluation Education. “As
such, universities are having to
accommodate multiple points
of entry in the career paths of
individuals. This has raised the
need for focused and practice
the School of Public Policy and administration at Carleton university is a training ground for many of Canada’s top
public-sector officials.
have a relatively immature
evaluation function and
are actively attempting to
integrate evaluation into
their core responsibilities,
he adds. Carleton’s DPE also
prepares students to work
toward what is fast becoming
professionalization of the
field, both domestically and
internationally, by supporting
the Canadian Evaluation
Society (CES) evaluator
credential.
Another online-only
program is the Graduate
Diploma in Indigenous
so that it would be accessible
to people who were working
in their home communities
or could not relocate due
to family commitments,”
says Frances Abele, program
supervisor for Graduate
Programs in Indigenous Policy
and Administration.
The primary reason
Carleton’s School of Public
Policy and Administration
has been growing its graduate
diplomas is because there is
growing demand for focused
professional education by
people in career streams who
oriented short programs.”
Another innovation has been
the creation of Canada’s only
Master and Graduate Diploma
of Philanthropy and Nonprofit
Leadership, now accepting
its fourth cohort of students.
The non-profit sector is large
in terms of its economic
contribution and requires
sophisticated management
and leadership skills. But the
field is underserved in terms of
graduate education, unlike the
U.S. where some 200 graduate
programs are dedicated to
non-profit.
2016-02-03 12:42 PM
16-02-03 3:22 PM
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03/16
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W
When Canadian National Railway first proposed building a telecommunications tower on Toronto’s waterfront, its aim was purely practical:
The growing number of skyscrapers on Bay Street—first the TorontoDominion Centre, then Commerce Court West—had begun to interfere
with radio and TV signals. The plan wasn’t exactly greeted warmly. One
alderwoman huffed: “We’ll live to regret it if we let this monstrous dart
go up.” That monstrous dart—all 553 metres of it, built over three years
at a cost of $63 million—has, of course, become the city’s architectural
icon. It held the title of world’s tallest structure for three decades and
draws 1.5 million visitors each year, who take the 58-second ride to the
/Dawn Calleja
SkyPod in one of the tower’s glass-fronted elevators. Lordy, lordy, look who’s 40
Architecture
1889
0
200
400
600
Paris
41 years
Eiffel Tower
800 (metres)
1930
1931
1 year
36 years
new york city
1967
1976
9 years
moscow
Toronto
31 years
CN Tower
Ostankino Tower
Empire State
Building
new york city
Chrysler
Building
record held for world’s tallest
free-standing structures
2007
8 years+
dubai
Burj Khalifa
photograph dennis robinson/the globe and mail
03/16
Social climbers
We all know how badly the news business is hurting thanks to platforms
like Facebook and Twitter. Finance, retail and transportation are next
hours SPENt
ON SOCIAL
MEDIA DAILY
1.72
1.77
2015
2013
1.67
2014
1.61
2012
W
hen rumours recently surfaced that Twitter—the popular social platform notorious
for delivering 140-character messages—
might abandon that brevity for 10,000-character tweets, diehard fans were outraged. To
its core user base, the compression and pace
of Twitter is its raison d’être; to abandon that would be to fundamentally
change the platform.
It is an issue that, to those who don’t use Twitter, can seem baffling,
inconsequential or both. But to anyone following the broader trajectory
of modern media, the reasoning was clear and important: In allowing
longer messages, Twitter hopes to become a place to host media, rather
than simply pointing to it elsewhere. The coming change apes Facebook’s shift toward Instant Articles, pieces of media housed on the social
network’s site rather than the news publication’s own, and adopted by
everyone from The New York Times to BuzzFeed to The Guardian.
Why does it matter? Before digital, news organizations owned both
the content and the newspapers, magazines or TV channels to distribute it. But when most people’s time is dominated by social media, those
digital businesses become distribution networks of their own, capturing
both users’ attention and, importantly, the ad dollars that go with it. The
Average
person has
6
social media
accounts
and actively
uses
4
in
be
it
lik
m
m
co
so
tr
th
be
ru
en
un
illustration Sébastien thibault; (caan) Rose Prouser/REUTERS; (hannah) NurPhoto/REX Shutterstock; (assante) Derek Storm/Everett Collection; (Davi) gdcgraphics;
(Loggia) Matt Sayles/AP/CP; (Sorvino) Matt Baron/BEI/Shutterstock; (Baldwin) Broadimage/REX; (roberts) Broadimage/REX (PDAC convention) Thomas Dagg
Disruption
balance of power shifts from traditional media to the platforms that
have people’s eyeballs—and for
media companies, it is terrifying.
It is a prospect affecting far
more than just news, however.
Because digital media often works
by taking over how people communicate, inform themselves and
shop, it becomes a platform in the
more literal sense of the term: a
place that other businesses build
atop of, whether that’s finance,
transportation or retail. When
you own the platform, you own
the customer, and with that comes
a whole host of changes to how
businesses are organized.
One difficulty in reacting to
this shift to platforms, however, is
that the threat comes from things
that can initially appear flippant,
even childish. Consider apps like
Facebook Messenger and WhatsApp: Though they started out as
simple ways to pass messages,
they are expanding to incorporate
commerce, too. While Facebook
has made small steps toward this
approach—such as allowing users
to hail an Uber from within the
Messenger app—Asia is at the
bleeding edge. China’s WeChat
has 650 million users and allows
them to shop within the app, manage bills, even check the news, and
it now runs a significant portion
of e-commerce in the country.
The lesson is that platforms first
collect and aggregate consumer
attention in novel, oblique ways,
then expand into other sectors.
We are beginning to see signs of
similar change emerging in other
industries. At the Consumer Electronics Show this year, General
Motors announced it was investing half a billion dollars in ridehailing app Lyft to help develop
a self-driving car. It’s easy to
imagine this heralding a gradual,
but understandable, shift from
human-powered cars to computercontrolled ones. But like messaging, self-driving cars promise to
become a platform of their own.
Cars that can move around and
come to you on their own, after
all, make the idea of a vehicle sitting in a garage for most of the day
seem wasteful. With the proper
systems in place, it’s easy to imag-
DM161782_Pg26-27_ROB_MAR_2016.indd 26
16-02-04 9:43 AM
di
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g-
illustration Sébastien thibault; (caan) Rose Prouser/REUTERS; (hannah) NurPhoto/REX Shutterstock; (assante) Derek Storm/Everett Collection; (Davi) gdcgraphics;
(Loggia) Matt Sayles/AP/CP; (Sorvino) Matt Baron/BEI/Shutterstock; (Baldwin) Broadimage/REX; (roberts) Broadimage/REX (PDAC convention) Thomas Dagg
diat
or
.
ar
er.
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mnd
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ld
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wn
es
w
ine fleets of cars roving the streets,
being called when needed. Taking
it even further, when a company
like Lyft or Uber has such fleets,
moving people can be but one of
many functions. Self-driving cars
could be used for deliveries, personalized shopping and public
transit, with in-car advertising
thrown in. The self-driving car
becomes another platform, interrupting established businesses by
enabling new economic activity in
unexpected ways.
A problem emerges for Canadian enterprises in particular.
What differentiates a product
from a platform is, simply, scale.
Facebook, for example, will soon
have over a billion mobile users,
including at least two-thirds of
Canadians—a number that’s likely
to rise. When a company operates
at that scale, entire sectors can get
swept up as mere side-effects—a
phenomenon that media is starting to grapple with now.
Yet consider what happens if
Facebook were to offer its users
financial products—money transfers, bill payments and so on—
thereby centralizing a person’s
day-to-day activity on its site. Or
imagine the very likely scenario
that Amazon continues to expand
its online retailing business, running it at break-even and propping
it up with its very profitable cloud
business (to read our story on
Amazon Web Services, see page
54). How might Canadian finance
or retail respond when a critical
mass of users—say, tens of millions—allows platforms to build
out other businesses atop their
primary one?
It is not quite as pessimistic a
question as it appears. After all,
consumers do often show a preference for homegrown solutions
in finance, retail and the service
industries tailored to local needs.
On the other hand, the platform
threat is very real. It is difficult
to predict, cutting across familiar ways of doing things. Most
worrying is the sheer scale—and
with it, the ever-looming worry
about the power of those companies to the south that have now,
thanks to digital, gotten exponentially more so. /Navneet Alang
Entrepreneurs
vanity, thy name is frank
F
Frank D’Angelo is a true gem of Canadian business,
providing publications like this one with an almost
endless stream of entertainment. He has been a beer baron
(Steelback), a restaurateur (Forget About It!), an energy-drink
maker (Cheetah Power Surge, promoted by disgraced sprinter
Ben Johnson) and a crooner (with a catalogue of 500 songs).
He is also an auteur of C-movies: His fourth—coming soon
to a theatre near you?—is Sicilian Vampire, starring D’Angelo
himself as mobster Sonny Trafficante, who gets bitten by a
bat and becomes a vampire. Here’s the movie by the numbers.
1
Oscar-nominated actor
1
1980s screen siren
5
$15
days
million
Typical duration of
D’Angelo’s film shoots
James Caan
(The Godfather, 1973)
4
2
Gangster-film stalwarts
Armand Assante Robert Davi
Robert Loggia
Budget
(according to D’Angelo)
Daryl Hannah
Siblings of A-list stars
Paul Sorvino
Daniel Baldwin
Eric Roberts
Mining
Mark your calendar: PDAC Convention, March 6-9
Last year, we sent writer Trevor Cole to
the Prospectors & Developers Association
of Canada Convention in Toronto. His
verdict: The annual gathering of 23,000
miners and financiers was grim. Expect
this year’s confab to be even more so.
The S&P/TSX
Global Mining Index
one-year return*
-42%
*to early February, 2016
Over the
same period
last year
-7%
DM161782_Pg26-27_ROB_MAR_2016.indd 27
16-02-04 9:43 AM
03/16
140-character
reviews
Three inside-baseball
(and basketball
and soccer) books
for diehard fans and
stats nerds alike
Corporate Governess
Hello, can you hear me?
—Aiden P., Toronto
Dear Aiden
Not at all. The office can be a lonely place at
companies where employees have embraced
telecommuting. While Yahoo’s move to curb
working from home in 2013 wasn’t popular, it
may turn out that CEO Marissa Mayer was right
when she said working side-by-side was key to
communication and collaboration. Although it
may come as a surprise to diehard fans of Skype
and Slack, recent research in the Academy of
Management Discoveries by Professors Kevin
Rockmann and Michael G. Pratt showed that
interacting in the same physical space builds a
level of depth and trust that’s not available with
other methods of communication. That’s partly
because people are better able to pick up on
nonverbal behaviour. Their study reported that
many people, including telecommuters, miss
the social and work benefits of the old office. In
addition, the professors claimed that working
off-site is “contagious” and that workers who
would normally work on-site begin to work
from home rather than face an empty office.
That sounds like what’s happening at your
workplace, but don’t expect your colleagues to
give up working in pajamas. Rockmann suggests
football
vs
football
The world’s most valuable
sports franchises both
play football (sort of)...
what’s important is agreeing on a consistent form
of communication across a team. I’d add that balancing time working remotely with face-to-face
interaction at the office—and really being present when you do get together—is crucial.
Dear Corporate Governess
I’m stuck with a real jerk on my team, but he’s my
top performer. I can cope with his toxic behaviour,
but it’s alienating others. Should I hang on to him?
—Sophie B., Vancouver
Dear Sophie
This is the one employee you want to work
remotely. He could still be a jerk on Skype but
at least you could turn off the video. If that’s not
a viable solution, consider losing him. According to “Toxic Workers,” a new Harvard Business
School working paper from Michael Housman
and Dylan Minor, jerks simply aren’t worth
the disruption. Their paper suggests that two
average employees are better than one superstar who exerts a negative impact on others’
performance. Researchers at the University
of Michigan’s Ross School of Business agree.
Their 2015 study described some employees as “de-energizers” (much like your jerk)
who spread a dark cloud, leaving people feeling deflated or depleted. That translates into
poor performance, negating your superstar’s
results. On balance, this guy may not be worth
the effort, but I’d level with him first. As Mike &
the Mechanics sang, “Everybody gets a second
chance.” Give him one. But only one.
real madrid
$3.3 billion (U.S.)
Change Up: How
to Make the Great
Game of Baseball
Even Better
by Buck Martinez
with Dan Robson
Meanwhile in
@BlueJays land, veteran
catcher/announcer
blames game’s woes on
#s and $s. Agree or not,
his stories are totally
#batflip worthy
Messi: More Than
a Superstar
by Luca Caioli
Now back to sportsbio formula: slavish
admiration of quiet guy
who wins a lot. But
c’mon, 5 #BallonDOr!
#BestEver #Barca
/Dave Morris
dallas cowboys
$3.2 billion (U.S.)
illustration antony hare; photographs (ronaldo) Kai Pfaffenbach/REUTERS; (romo) Mike Stone/REUTERS
Dear Corporate Governess
Our open-concept workplace has become
a wasteland with more people working from
home. We’re connected online, but it’s hard
to collaborate with people you never see.
Am I alone in feeling this way?
Chasing Perfection:
A Behind-theScenes Look at the
High-Stakes
Game of Creating an
NBA Champion
by Andy Glockner
Adapting Moneyball to
other sports sounds like
an easy layup; more
like a mid-range jumper
in traffic, but brave
nerds try anyway
16-02-03 9:09 AM
Eric Reguly
A jolt of reality, please
Electric and self-driving cars are no panacea. They’re still cars
photograph GREG FUNNELL
W
e’re getting duped. We’ve been used to generate about 39% of electricity, and natural gas suptold that the electric car and its plies about 27%.
tech-laden offspring, the selfCanada faces similar challenges. Last year Christopher Kendriving car, will clear away smog, nedy, a professor in the University of Toronto’s environmental
cure road congestion and help engineering research group, determined that, in parts of the
usher in a low-carbon economy country where fossil fuels are burned to generate electricity—
that will spare the Earth from Alberta, Saskatchewan and Nova Scotia—driving an EV could
BBQ status. These rolling eco-gadgets will transform mobility create more emissions than a gasoline engine. “You’re better
as radically as steam trains did in the 1800s and gasoline-pow- off filling up at the pump,” Kennedy said on CBC Radio.
ered cars did more than a century ago, minus the lung-choking
EVs will only be clean when renewable energy dominates
and planet-warming emissions.
the electricity grid. But that transition could take decades, and
It’s time for a reality check. The electric vehicle (EV) is not it is dependent on a big breakthrough in electricity storage,
as clean as advertised and the advent of self-driving cars could because solar panels are useless in the dark and wind turbines
stuff millions more cars on the road. Those objections are not are useless unless the wind blows.
coming just from EV and self-driving-car deniers—typically
A recent North Carolina State University study looked at
petrol heads who think civilization peaked with the recent projected U.S. emissions levels in 2050 under more than 100
launch of the 580-horsepower Chevrolet
different scenarios. The authors concluded
Camaro ZL1—but from sober consultthat even if more than 40% of the passenger
ing firms and academics. They argue that
vehicles were EVs, there would be little or
One study
Tesla and Google aren’t necessarily the
no reduction in air pollution.
concluded that
infallible gods of future personal transporWould self-driving cars be any better?
if driverless cars
tation, even if they admire the ingenuity
They, too, will be electric. And propoof the inventors and developers. Sadly, the
nents argue that the robo-cars would draretreat to cheap
skeptics’ voices are getting buried in the
matically reduce road congestion, partly
parking spaces
mountains of hype surrounding the new
because they can travel very close together,
outside the urban
car technologies.
and partly because of the advent of a vehicore, or circle the
Yes, pure EVs—the ones with no gasocle-sharing economy, which would reduce
line engine—have already made a mark
the number of private cars. Many—maybe
block to avoid
in the marketplace, even though they
most—of the self-driving cars would be in
parking charges,
still account for less than 1% of passenger
fleets that could be booked like Uber taxis.
traffic on U.S. roads
vehicle sales in North America and Europe
Hold on. What if the ownership model
(their share fell in 2015, probably because
does not change and these cars stay in pricould double
of plummeting gasoline prices). Shoppers’
vate hands? If so, they would probably be
bible Consumer Reports last year rated the
an addition to the traditional family car—
$100,000-plus (U.S.) Tesla Model S P85D sedan the best car it as so many EVs are now. Plus they would be used more often,
had ever tested. Almost every big carmaker has electric cars in because even people without a driver’s licence could use one.
the showroom or in development.
A study by KPMG concluded that if driverless cars retreat to
Dozens of big companies—including Google, Tesla, Mer- cheap parking spaces outside the urban core after passengers
cedes-Benz and Bosch—are also throwing billions of dollars are dropped off, or circle the block for an hour to avoid parkinto digital technology that will allow cars that steer them- ing charges, traffic on U.S. roads could double. The on-demand
selves to deliver Junior to the paintball arcade or Grandma to cars would also make public transit and walking less attractive.
the bingo parlour. The first self-driving cars should be in showLost in the debate about EVs and self-driving cars is the fact
rooms within five years, and hundreds of thousands of jobs will that they are still bloody cars. They still pollute. They still need
allegedly be created as cars are reinvented from the wheels up. parking spaces, and roads still need to be built for them. They
But a lot of those hopes may be misguided at best, and based still contribute to urban sprawl. Imagine if all the engineering
on fraudulent claims at worst. Take the boast that EVs are zero- talent and investor fortunes funnelled into these iPhones-onemission vehicles. It might be technically right if you ignore wheels were put into public transportation instead.
the pollution created in building the cars. Once the EVs are
on the road, however, they often just transfer emissions from Eric Reguly is an award-winning columnist with The Globe and Mail.
the tailpipe to the smokestack. In the United States, coal is still He is now based in Rome and can be reached at [email protected]
16-02-04 9:34 AM
03/16
Smart Money
Investing
Paul Moroz
Profits versus
the proletariat
U.S. wages are finally climbing again, and that’s not good for stocks
than at any time before 2010. Barring some
unexpected economic development, earnings
are likely to revert to a more typical (i.e. lower)
share of GDP in the years ahead. “Either the
U.S. has somehow unlocked a secret to permanently higher profitability or this is an
extremely dangerous time to be investing in
the U.S.,” Ben Inker, head of the company’s
asset allocation team, wrote last fall.
Analysts who track earnings by compiling
the outlooks for individual companies also see
cause for concern. Sam Stovall, chief equity
strategist at S&P Capital IQ in New York City,
estimated that the aggregate earnings per
Share of U.S. national income
Corporate
profits
Compensation
of employees
(%)
48
(%)
7
46
6
44
5
42
4
40
1990
1995
2000
2005
3
20102014
share of Standard & Poor’s 500 Index companies declined by 5.7% in the last quarter of 2015
compared with the same quarter a year earlier.
If so, the dip would mark the first time since
2009 that those earnings have declined for two
successive quarters.
To be sure, much of the recent earnings
decline reflects the enormous slump in commodity prices, which has smacked profits in
the oil and mining sectors. But gains for labour
also seem to be playing a role. That’s only fair.
After several years in which investors cheered
while workers groaned, it may be time for a bit
of payback. /Ian McGugan
Sound investing advice
Robert Bosch, founder of German multinational engineering giant
Robert Bosch GmbH, on how to analyze compensation expense
“I don’t pay good wages because I have a lot of money;
I have a lot of money because I pay good wages.”
Small-cap stocks have
historically outperformed
their larger cousins
over the long haul. We
asked Paul Moroz, who
oversees nearly $2.4
billion in global small caps
at Mawer Investment
Management, how he
mines for potential gems.
How did your small-cap
funds handily beat the
returns [in Canadian
dollars] from the largecap MSCI World Index
over the past five years?
We look for what we call
blue-chip small caps. These
companies earn a high return
on capital and are dominant
in their niches. We now hold
about 80 stocks, but just two
don’t pay a dividend. We buy
companies with outstanding
managers who are able
to grow their businesses,
and whose stocks trade at
attractive valuations.
Where are you finding
value now?
We are about 45% invested
in the United Kingdom and
Europe, but we also buy
in far-flung parts of the
world like Thailand and
Taiwan. Many of them have
international businesses.
Most are in the industrial,
financial and IT sectors.
We pay little attention to
commodity stocks, and avoid
regulated utilities because of
limits on their earnings.
What are some of your
favourite companies now?
We like Dublin-based Origin
Enterprises, which sells
fertilizer and other inputs
and services to farmers,
and Swiss-based VZ Holding,
which provides financial
services to wealthy people.
We also like U.K.-based
NCC Group, which deals
with cybersecurity. It has
a large stream of recurring
revenues.
/Shirley Won
illustration joel kimmel
W
orkers across the United
States are at long last
catching a break. For
investors, that’s worrisome news.
The accompanying chart shows why shareholders in U.S. companies may not want to
cheer the rapidly improving fortunes of the
American proletariat. The trouble is that
employee compensation and corporate profits tend to move in opposite directions. When
one jumps, the other usually dives.
If that historical pattern continues, recent
improvements in the U.S. labour market—
declining unemployment, rising wages and so
on—signal lower profits ahead for U.S. companies. Profits are what ultimately drive stock
prices, so this development does not bode well
for your portfolio.
Now I know, I know: You’re a big-hearted
soul who always puts the welfare of hoi polloi
above such mundane matters as your investing performance. Still, this has to irk. It seems
unfair that other folks’ improving fortunes
could mean a downsized nest egg for you.
So let me rush forward with caveats. It’s
possible that things won’t work out quite the
same this time. Maybe the trends we see in
the chart are the result of a quarter-century
filled with oddities, such as the 1990s dot-com
bubble and record low interest rates after the
financial crisis, and are not simply the result
of a continuing grudge match between capital and labour. However, all those objections
being duly noted, you must admit that the
chart could serve as a compelling exhibit the
next time your local Marxist-Leninist Club
stages a membership drive.
Increasingly assertive workers add pressure
on companies’ bottom lines. Grantham, Mayo,
Van Otterloo & Co., the Boston-based money
manager, points out that U.S. corporate profits as a percentage of GDP have faded slightly
from their recent peaks, but remain higher
16-02-08 9:24 AM
T:7.875”
S:7”
“IN OUR VIEW,
SM
White Paper Series
Authors
THERE’S NO SUBSTITUTE
FOR SKILL
The value of active management through market cycles
Robert M. Almeida, Jr.
Institutional Portfolio Manager
IN BRIEF
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Michael T. Cantara, CFA
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Joseph C. Flaherty, Jr.
Chief Investment Risk Officer
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And yet as more assets have flowed into passive strategies, it seems that investors
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THROUGH MARKET
CYCLES.”
The CRTC wants to save Canada’s
TV industry by forcing it
to offer viewers more choices.
But what if the regulators shatter
it in the process?
What’s wrong
with this picture
BY james bradshaw
PHOTOGRAPH by C.J. BURTON
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Can a di an T e l e v i si o n e xec ut i v e s o f t e n g e t m o r e
worked up about regulation than they do about the glamour,
glitz and showmanship that the public sees. So the austere
brownish-brick federal building in Gatineau, Quebec, across
the river from Ottawa, that houses the headquarters of the Canadian
Radio-television and Telecommunications Commission (CRTC) was a
fitting setting for a major turning point in the industry’s history.
On March 19, 2015, diminutive but sharp-tongued commission chairman Jean-Pierre Blais stood before lights, cameras, microphones and
about a dozen reporters sequestered in a conference room to announce
that the CRTC was “forcing the industry to finally face that the world
is changing.” By March 1, 2016, cable and satellite providers would be
required to offer subscribers a small, cheaper basic package of channels, known as skinny basic, for no more than $25 a month—about $15
less than most existing lowest-price offerings. By the end of 2016, they
will also have to allow viewers to pick-and-pay for individual channels.
Blais’s announcement came a week after he had unveiled other sweeping changes that would alter some Canadian content requirements and
other long-standing rules.
The overhaul capped more than a year of hearings and submissions
to the CRTC that it dubbed “Let’s Talk TV,” and which the Harper Conservative government turned into a political football in its bid to appear
consumer-friendly. Anticipating blowback on the new regulations, Blais
had cautioned in a speech in early March, 2015, that Ottawa “is full of lob-
DM161782_Pg32-37_ROB_MAR_2016.indd 34
byists whose job it is to spin their client’s private
interests into something else, to wrap themselves
up, as it were, in the flag, and to puff about Parliament Hill with an air of shock and dismay.”
After his announcement, a few cultural advocacy groups issued predictable warnings about
threats to Canadian programming, yet the biggest players in the business made only brief
statements. Rogers Communications Inc. said
the CRTC ’s decision was “sensible and flexible,” although it might have the perverse effect
of pushing prices higher for many viewers. BCE
Inc., the nation’s largest provider, said nothing,
although Kevin Crull, then president of its Bell
Media division, was privately irate.
In part, the reaction was muted because the
CRTC put in some measures to soften the blows
on each segment of the $6.6-billion-a-year industry, from giants like Bell and Rogers down to tiny
independent producers. There were also so many
changes that companies had to parse them all. As
Toronto-based channel owner Blue Ant Media
said in its submission—with a liberal mixing of
metaphors to make its point—“the pulling of any
one string in the tapestry of the Canadian television regulatory regime will have a ripple effect.”
Yet as cable, satellite and Internet providers got
ready to unveil their skinny basic packages just
before last month’s deadline, part of the future
got a little clearer. Virtually everyone in the TV
business agrees on what that future will look like:
Jobs will be lost, some channels will die and some
viewers will trim their spending. But almost
every player is also keen to show that they have
a strategy that will at least let them survive the
coming shift, if not prosper.
I.
T HE BIG F IVE
If yours is one of the 80% of Canadian households
that still has cable or satellite TV, chances are that
you don’t have just the basic package. Over the
years, you’ve probably opted for more expensive
bundles, adding dozens or even hundreds more
channels, and combining your TV service with
phone and Internet. According to the CRTC, the
average household now spends $203 a month on
communications services.
Those hefty monthly bills are the result of sheer
pricing power. For all of the laudable diversity in
Canada’s TV industry, you can’t ignore the fact
that it is dominated by five vertically integrated
behemoths. BCE, Rogers, Telus Corp., Quebecor
Inc. and Shaw Communications Inc. account for
84% of all broadcasting and telecommunications
revenue.
When the CRTC launched Let’s Talk TV in
October, 2013, it invited ordinary Canadians to tell
it what kind of choices they’d like to see. Among
those who answered, pick-and-pay was top of
mind. But the giant providers worried that such a
16-02-10 9:35 AM
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regime could blow apart the high-priced bundles
they have spent decades building. In a submission
to the CRTC in October, 2014, U.S. giant Viacom,
which owns and licenses channels in Canada
that include Comedy Central, Spike, BET and
CMT, warned that pick-and-pay could set off “a
consumer-welfare-destroying death spiral,” and
hinted that it might pull out of Canada.
Nevertheless, pick-and-pay—at least as one
option for viewers—is supposed to arrive by the
end of this year. The foundation is the skinny basic
channel lineup. It includes traditional local and
regional TV stations, the CBC, CTV and Global,
plus educational and public-interest cable channels such as the Aboriginal Peoples Television
Network. Distributors are allowed to add major
U.S. TV networks but they cannot hike the price
above $25. Every other channel must be available
à la carte, although distributors can also offer
theme packs and larger bundles.
Many executives at the large distributors were
alarmed at the level of control the CRTC was
exerting over them, even though they’re now
resigned to living with the new rules. “Having the
government tell you how to package, price and go
to market was probably eyebrow-raising,” says
David Purdy, Rogers’s senior vice-president of
content until last year, in an interview from his
new perch as chief international growth officer at
New York City-based Vice Media.
Even before the new rules took effect, Bell
Media and Rogers began firing staff. Bell Media
slashed more than 400 jobs last fall, even as its
TV subscriber base grew past 2.7 million. Rogers
Media cut 110 positions and another 200 early this
year. “There is no doubt that some players will be
hurt,” says Wade Oosterman, group president of
Bell and BCE. “Already, the decisions have created
shifts in cost structures. People have had to downsize to get ahead of it.”
But how much revenue will the cable and satellite giants actually lose? Last November, a survey
conducted by Toronto-based Charlton Strategic
Research Inc. found that 57% of TV subscribers
said they would stay put with the packages they
have, or even add more channels.
Those results were consistent with an experiment Rogers tried in 2011, when it offered 90,000
subscribers in London, Ontario, something similar to the pick-and-pay model at a price level
above basic service. Only 1,000 subscribers took
the option. “What we learned was some channels
are much more popular than other channels,” says
David Watt, the senior vice-president of regulatory affairs for Rogers. The other clear lesson:
“Customers generally prefer more to less.”
Yet the big distributors are also nervous about
cord-cutters who’ve ditched traditional TV, and
cord-nevers who didn’t subscribe in the first
place. Cable and satellite providers lost more than
100,000 subscribers in 2014 and at least 150,000 in
2015. That’s only a drain of about 1% a year, but it
appears to be growing. Still, the Charlton survey
suggests that some viewers could be won back:
Nearly a third of cord-cutters and cord-nevers said they would consider
taking a skinny basic package and adding channels.
Appealing to the disenchanted is a delicate dance, however. By promoting slim discounted options too aggressively, the cable and satellite
giants could set off a rush to downsize by their subscriber base. The
possibility “of the cure being worse than the disease exists,” says Purdy.
Much will hinge on pricing, and it’s already clear what the basic tradeoff will be: Channels will cost more individually than they will as part of
a bundle—about $2 more, according to research conducted by the CRTC
in April, 2014. Subscribers who opt for pick-and-pay could end up with
higher bills than they expected. Yet if a lot of viewers downsize, bills
may also climb for those who stick with bundles, as the distributors try
to spread fixed costs among fewer customers.
Behind the scenes, the cable and satellite giants, and the broadcasters
that own channels, are still wrestling over wholesale fees the distributor
pays to carry a network. A channel that gets, say, 50 cents per subscriber
per month in a large theme pack might also negotiate a $2.99 retail price
à la carte, and split revenue from those sales with the distributor.
Misjudging the à la carte price could be dangerous, and risks setting
off a grooming of the new channel lineups. “Ultimately, it should have an
impact on making content better, because if you have poor content, it’s
not going to survive,” says Bell’s Oosterman.
All of this bargaining is taking place within the CRTC’s revamped
Wholesale Code of Conduct, which was scheduled to come into effect in
January, but which BCE challenged in court last October. Its provisions
are eye-glazing to people outside the industry, but it tries to eliminate
trickery that limited choices and kept cable bills high. Restrictions that
prevented channels from being offered outside bundles are forbidden.
The code also attempts to stop vertically integrated giants from favouring their own channels with better packaging and marketing than those
owned by independent broadcasters.
Broader market forces have also given independent content creators
some more clout. The cable and satellite providers used to be the only
gateway to a limited TV dial. “I had an enormous amount of control in
my old job about who launched [a channel] and who didn’t launch,” says
Purdy, recalling his 15 years at Rogers. “The days of them having to come
cap in hand and [beg you to carry their show] are over,” he says.
II.
THE A RT OF THE N IC H E
Leonard Asper’s office in a renovated manufacturing warehouse in
Toronto’s hip Liberty Village neighbourhood is decorated with sportsthemed memorabilia: a football, a race-car driver’s helmet, a mini basketball hoop. Behind his desk hangs a large, framed red poster reading,
“Keep Calm and Carry On.” It would make a good motto for Canada’s
independent TV production industry as a whole. It’s also fitting for a
man who inherited control of a multibillion-dollar media empire at
Canwest Global Communications from his father, only to see it crumble
under the weight of its debts in 2009.
Now aged 51, Asper has shifted from business suits to jeans and an
open-necked shirt, and has started back up from scratch. In 2010, he
founded privately held Anthem Media Group, and bought a majority
stake in Fight Network, a channel for mixed-martial-arts enthusiasts
that is available on cable in 32 countries, and on digital platforms and
set-top boxes such as Apple TV. Since then, he’s launched FNTSY Sports
Network, which seeks to be to fantasy sports enthusiasts what Bloommarch 2016 / REPORT ON BUSINESS 35
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16-02-10 1:41 PM
Just before Christmas,
O’Sullivan ran into
a post production
supervisor looking
for work—not in
Television but as a
driver for Uber
berg is to business leaders, and added a half-dozen more
specialty sports channels and websites: Pursuit Channel (hunting and fishing), Edge Sport (extreme sports),
MAVTV Canada (motor sports), SportsGrid (a sports
news and opinion website) and RotoExperts (fantasy
sports information).
Anthem has about 70 staffers in Toronto and 20 in New
York City. The Liberty Village offices came wired for
broadcasting. They used to belong to Moses Znaimerowned VisionTV. It moved into the nearby ZoomerPlex, which now houses all of Znaimer’s media ventures.
Anthem has one main studio with interchangeable sets—
all it needs to tape information and interview segments,
primarily for Fight Network and FNTSY Sports—and a
smaller studio with only one camera to pump out onlineonly content. It also has studios in New York and Las Vegas.
Asper thinks that pick-and-pay TV presents both
opportunities and risks for Anthem. “We like people not having to buy
$150 worth of cable [before they can] get to us,” he says. But if viewers
must choose among hundreds of à la carte channels, it could be very
hard for one independent to stand out unless it spends a lot of money on
marketing. It would still help to be part of a bundle that a big distributor
sells to millions of viewers. “You can’t survive just à la carte. You need to
be chosen in theme packs, or 10-packs or 20-packs,” says Asper.
In such a competitive system, every channel owner, big or small, is
going after eye-catching shows. “They act as sort of the neon sign that
helps people find programming in a noisy environment,” says Tracey
Pearce, Bell Media’s senior vice-president of specialty and pay TV.
“What people don’t want is beige.”
But the big distributors will still handle most of the packaging, pricing
and marketing to their subscribers, and independents will still struggle to forge relationships directly with viewers. That’s why independents are also pushing beyond traditional TV, and putting their content
straight online through YouTube and other streaming services.
Blue Ant Media, founded by former Alliance Atlantis chairman and
CEO Michael MacMillan, owns 10 multimedia brands, several of them
focused on outdoor living, including Cottage Life, Love Nature and
Smithsonian Channel Canada. It also owns Omnia Media, a Los Angelesbased YouTube network. MacMillan says that Blue Ant released 225,000
videos online in 2015, compared with just 1,000 in the year before, and it’s
one major reason why the company’s revenue has “grown significantly”
from about $50 million in 2014.
MacMillan says he’s watched the Internet TV industry shift “from an
economy of scarcity to an economy of abundance.” The biggest beneficiaries will be content creators at one end of the spectrum and viewers
at the other, because both will have vastly more choices. “In between, I
thought and still think, there’ll be some dislocation,” he says.
III.
T HE O T HER HEAV Y W EIG HT
For the past 16 years, Corus Entertainment Inc. has stuck out from its
industry peers, but only since Let’s Talk TV have investors started to see
it as a sore thumb. Corus was spun off from Calgary-based cable and
telecommunications giant Shaw Communications Inc. in 1999, and it
owns specialty television channels, radio stations, the Nelvana anima-
DM161782_Pg32-37_ROB_MAR_2016.indd 36
tion studio and a children’s publisher. It’s a unique
content-based business, wedged between the huge
integrated providers and small independent producers. Both Shaw Communications and Corus
are controlled by the Shaw family through multiple-voting shares, and regulators often view the
two companies as effectively one entity.
Until late 2014, Corus was a steady stock market performer. Many investors liked its focus on
kids and families, with channels that include YTV,
Treehouse and W Network, and Nelvana. But as
the prospect of pick-and-pay loomed, along with
the expectation that some subscribers would
dump channels they don’t watch, the stock began
to slide. Corus shares closed at $20.67 the day the
final Let’s Talk TV decision was released. The next
day, they fell to $18.41, and kept sliding to less than
$10 early this year. “The Street has us in the penalty box,” says Doug Murphy, president and CEO
at Corus, and an avid recreational hockey player.
Since then, Corus has made some huge bets
in an attempt to reverse that slide. Last November, Corus ceded its profitable licence to telecast
U.S. giant HBO’s shows across Western Canada,
including the blockbuster Game of Thrones and
some movie networks. HBO wanted to work with
one carrier in Canada, and Corus accepted $211
million in cash from Bell to give up its rights.
Then, in January, Corus dropped a much larger
bombshell, agreeing to pay $2.7 billion in cash and
shares to buy Shaw Media from Shaw Communications in a massive realignment of the family’s
holdings. Shaw Media owns the Global Television Network, 12 TV stations and 19 of Canada’s
most popular specialty channels, including Showcase, HGTV Canada and Food Network Canada.
Assuming regulators allow the deal to proceed,
the family will consolidate nearly all of its media
holdings in Corus, leaving its cable and wireless
businesses in Shaw Communications.
Murphy says he intends to take full advantage
of Corus’s greater heft to negotiate better deals
with producers and distributors. He’ll also be
able to offer ad buyers—particularly those trying to reach kids and families—options that span
conventional and specialty TV, radio and digital
platforms. “We’re going to be part of all the buys.
16-02-10 9:35 AM
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he says, sipping a pint of beer at a restaurant in his
company’s modern eight-storey headquarters on
Toronto’s waterfront.
That kind of bargaining leverage strikes fear
in the hearts of many small independent producers. The Canadian Media Producers Association
(CMPA), a trade group that represents more than
350 independents, says the deal would bring
about a dangerous hyper-consolidation of TV
broadcasting. Corus would own six of the top
10 kids’ channels, the top six women’s specialty
channels, and seven of the top 10 specialty networks. Bell and Corus would control 70% of English-language TV viewership.
“Corus is by far and away the most aggressive
broadcaster” in negotiations with producers for
rights and payments for shows, says CMPA CEO
Reynolds Mastin. “In the vast majority of cases,
there is no conversation at all. Corus says, these
are the deal terms.”
Murphy strongly disputes that view, insisting
that Corus is “not the Death Star that we’re characterized as.” Producers will “share in the upside
with us, but we’re going to fund most of the show,
so we believe we deserve enhanced economics,”
he says. Even with the merged company’s scale,
however, he will still have to watch expenses,
given the potential for revenue losses from Let’s
Talk TV and continued competition from online
providers like Netflix. “I’ve got to change my cost
structure,” Murphy says. “Well, you know what?
So do the producers.”
The independents are also furious that the
CRTC blindsided them by eliminating old rules
that strengthened their hand in negotiations with
big broadcasters. The threat revolves around
technical provisions called “terms of trade,”
which received little attention in Let’s Talk TV.
The CRTC put the terms in place in 2011 as
conditions in broadcasters’ licences. Among
other things, they divide up in advance which
rights producers and broadcasters get to keep
in order to sell a show internationally. That split
can be crucial to long-term profits. But the CRTC
now allows large broadcasters to have the terms
removed from their licences. Losing those terms
is “as fundamentally impactful for independent
producers as is pick-and-pay for [large distributors],” says John Barrack, partner at Torontobased Don Carmody Television. The company
produces Between, which it licenses to Rogers in
Canada and Netflix in the rest of the world, and
Shadowhunters, licensed to the Disney Channel
and Netflix.
Barrack’s company is on more solid footing
than most independents. It is tied to the large
film production company that Carmody himself
founded in 1980, which has more than 100 movies to its credit, including Chicago and Good Will
Hunting. “Things are good, but they can turn bad
really quickly,” Barrack says. “You can’t build a
business that is sustainable unless you have those
rights. Without them, you’re done.”
I V.
SURV IVAL OF T HE F IT TEST
The old Canada Post office on Dovercourt Road in Toronto’s west end,
which sorted and delivered mail for 65 years, has an eye-catching new
second storey clad in orange and black, but there’s still no sign that says
this is now the headquarters for Proper Television. Company president
Guy O’Sullivan says he bought the building three years ago because he
was tired of paying “horrendous rents downtown.”
The Birmingham-born former BBC producer launched Proper in
2004, and built it into a successful maker of dozens of reality, lifestyle and
documentary programs, among them MasterChef Canada and Canada’s
Worst Driver, as well as Vegas Hot Rods and Canada’s Worst Handyman.
O’Sullivan’s vision was to have a 37,000-square-foot “bespoke space”
for producing TV, he explains in his ground-floor office which, true to
the company’s reality-TV roots, features a wall of (non-functioning)
surveillance cameras as decor. The basement used to be the post office
sorting floor, but it is now a rabbit warren of 35 editing bays—“definitely
under-utilized” these days, he says. All are wired into a $500,000 master
brain called EditShare, which lets the company do all of its post-production in-house. Proper’s staff moved into the building in December, 2014.
That was “probably not the best timing,” O’Sullivan concedes.
The following March, independent producers were the first segment to get slammed by the CRTC’s regulatory shakeup. Orders from
broadcasters, who were already being squeezed by online competition,
ground virtually to a halt. O’Sullivan says he understands why buyers
froze. “They had to sit down and determine which horses they’re going
to back, and which horses they’re going to pull out of the race. Why keep
investing in a channel you’re not convinced is going to last?”
Just before this past Christmas, O’Sullivan ran into a post-production
supervisor he knew who was trying to earn some extra cash—not in
TV, but as a driver for Uber. “He’s not a junior to the industry. He’s suddenly realized there’s just not enough work to go around,” O’Sullivan
says. Proper’s commissions for new shows “dropped by at least a third”
from 2014, he says. Renewals of existing hit shows like MasterChef Canada, which airs on Bell-owned CTV, as well as programs that are mostly
funded from the United States, kept Proper afloat. Without them, “I
think it would have been an exceptionally dark year,” he says.
The CRTC also eliminated some Canadian content quotas. A requirement that TV stations fill 55% of daylight hours with Cancon has been
scrapped. “Television quotas are an idea that is wholly anachronistic in
an age of abundance and in a world of choice,” Blais declared in a speech
in March, 2015. The CRTC did, however, maintain a 50% Canadian content quota during weekday prime time—from 6:00 p.m. to 11:00 p.m.
A core staff of 19 remains more or less intact, but O’Sullivan has had to
let go some regular freelancers whose contracts were typically renewed
show after show. Yet Proper is better off than many of its rivals. Last
December, a study by Toronto-based consultant Nordicity and Peter
Miller—albeit one commissioned by unions and associations for producers, actors and other industry staff—warned that Let’s Talk TV
policy changes could sap $400 million a year in funding for Canadian
programs out of the system, and cause the loss of 6,830 jobs.
With too few projects to go around, O’Sullivan says many talented
people will leave the industry. And clever shows that might have taken
off with viewers will quietly go unmade. “The problem with the way [the
regulation has] been handled is that it’s been such a blunt instrument,”
O’Sullivan says. “The point of culling the herd is to kill the unhealthy
animals, not the healthy ones.”
DM161782_Pg32-37_ROB_MAR_2016.indd 37
16-02-10 9:35 AM
From Irving facilities
like the oil refinery
in the centre of the
city, Saint John gets
many of its jobs—
but, according to
councillors, not enough
of its tax revenue
DM161782_Pg38-44_ROB_MAR_2016.indd 38
16-02-10 9:24 AM
P
R
O
V
I
N
C
E
The Irvings run New Brunswick like a hermit kingdom. But as the Energy East
pipeline catapults the family onto the national stage, the timing is awkward:
Now even the Irvings aren’t talking to the Irvings
V
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DM161782_Pg38-44_ROB_MAR_2016.indd 39
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s t e n t a f o r d
16-02-10 9:24 AM
Saint John, where some of it will be
refined in Irving Oil Ltd.’s refinery.
The Irvings will also build a $300-milerry Lowe is touring the streets of
lion marine terminal so crude can be
shipped abroad.
Saint John, New Brunswick, behind the
Energy East, proposed by Transwheel of his black Ford Taurus sedan,
Canada Corp., has been dubbed
“Keystone on steroids”—it promises
maintaining a spirited dialogue. It’s a
to transport one-third more barrels
of oil per day than Keystone XL was
bitterly cold January afternoon and the
supposed to. For the oil patch, Energy
iron-grey skies are threatening flurries.
East represents one of the last hopes
of gaining new markets for Canada’s
As a city councillor in a place blighted
landlocked oil. The environmenby both poverty and air pollution,
tal politics it entails are significant
enough to test Canadian federalism.
Lowe knows all about the local power brokers and scandals. Names like
But the stakes are high for the Irvings
McCain, Oland and Ganong—the banners of New Brunswick’s singular
too. Fossil fuel is one of the two mainstays of their business; that sector,
cohort of family-business dynasties—are the stuff of daily conversation
like forestry, has been whiplashed by
dropping prices and demand.
here. The dish du jour for locals is the recently concluded trial of Dennis
While the pipeline might boost
Oland, who was found guilty of murdering his father, Richard Oland,
the Irvings’ income stream, it’s also
drawing attention to the family’s conby bludgeoning him in a bloody frenzy one night in July, 2011.
troversial methods and internal divisions. The Irving businesses—long
organized in an old-fashioned conBut Lowe is agitated about a wealthier clan,
glomerate—are a kind of hermit kingdom where
the biggest New Brunswick dynasty of all—the
bad blood, lawsuits and troubling questions over
The Irvings’ imprint on
Irvings. After all, just about everything Lowe
succession are rife, but little is heard of them outNew Brunswick, clockwise
can see through his fogged windows belongs to
side the company perimeter. Family members
from top left: Bouctouche,
the Irvings—whether it’s Canada’s largest oil
rarely speak to the media (none of the four senior
where it all began;
the oil terminal in Saint
refinery belching fire and steam night and day,
figures approached would be interviewed for this
John; the city’s pulp
the foul-smelling pulp and paper mill that sits
article) and are notoriously secretive. As David
and paper mill; an Irving
smack in the heart of the city, the railway yards
Ganong, a friend of the family who belongs to the
trucking company in
where train cars full of crude from Western
Ganong candy-making clan, says, “They’re a very
Moncton; Bouctouche’s
K.C. Irving monument;
Canada arrive, or the massive tank farm holdprivate company and so it’s not easy to look inside
the Telegraph-Journal
ing millions of barrels of oil. Indeed, the Irvings’
and…understand their strategies that deeply.”
red-and-blue signs are ubiquitous. Even the
By the same token, while Irving is big, no one
local daily newspaper, the Telegraph-Journal, is
outside the inner circle knows exactly how big. Privately held, Irving
owned and run by the family. “[The Irvings] just
is off the radar of the analysts and dealmakers on Bay Street.
do what they want,” says Lowe at one juncture.
The empire is presided over by two of Canada’s richest men,
“They’re making a fortune off of us and putting
brothers James (J.K.) and Arthur. Both are octogenarians, and they
it in other countries.”
don’t get along with one another. As for the next generation, they’ve
At 72, the pugilistic retired businessman is a
proven they can’t get along either.
rarity in this industrial port city of 70,000—one
of the few locals willing to speak out against the
pervasive power of the Irvings, Canada’s fourthuring his guided tour of Saint John, Gerry Lowe turns his car
richest family after the Thomsons, Westons and
D on to Mount Pleasant Avenue, and points to a cupola-topped
Rogers. And lately, Lowe’s words have been
mansion sitting on a ridge—the home of Arthur Irving, Caneven sharper: After all, the city government is
ada’s second-richest man, by one calculation, and ranked No. 271 in
struggling financially. “I would like to see [the
the world of billionaires, at $5.5 billion (U.S.). The house was also
Irvings] pay their fair share,” he says, pointing
home to Arthur’s father, Kenneth Colin (K.C.). In fact, across the
out the city doesn’t have money to replace retirstreet is a park where a stern-looking statue of K.C. stands facing the
ing firefighters and police officers. In fact, the
house. “There’s K.C. watching him,” chortles Lowe.
city is facing a $76-million pension shortfall.
K.C. built the empire and developed its business philosophy. The
Canada as a whole may soon know the Irvings
son of a sawmill owner, he was born in Bouctouche in 1899. Imbued
as well as the citizens of their home city know
with Presbyterian utilitarianism, K.C. assembled a conglomerate
them. The family will be thrust into the national
that grew to dominate the East Coast and eventually reached into
limelight thanks to the proposed Energy East
New England. “K.C. believed in vertical integration,” explains Donpipeline, which will cost $15.7 billion to build
ald Savoie, a professor of public administration at the Université de
and be the largest pipeline in North America—
Moncton and an Irving family friend. “If he sold cars, he felt why
carrying up to 1.1 million barrels a day from
don’t I sell gas so I can fuel the cars?” Indeed, K.C. sought to control
Alberta’s oil sands some 4,600 kilometres to
the entire supply chain—from cutting down the tree to making the
g
DM161782_Pg38-46_ROB_MAR_2016.indd 40
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DM161782_Pg38-46_ROB_MAR_2016.indd 41
16-02-09 10:03 AM
fo
ab
Happier times: K.C. Irving, his wife and
sons attend the opening of the family’s
Saint John refinery in 1960. From left:
Harriet, Arthur, K.C., James and John
in
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(family) SAINT John Telegraph-Journal/cp; (k.c.) the globe and mail; (3 brothers) Scott Perry/cp
paper and publishing the newspaper it was printed on.
Today, the Irving group is made
up of a host of privately held companies (at least 174 of them; possibly as many as 250), altogether
worth more than $10 billion, by
A rt h u r
Joh n (Jac k)
Ja m es ( J.K. )
one estimate. These firms, some
B. 1930
1932-2010
B. 1928
owned wholly and others in part,
are in a huge range of businesses,
Jim Jr.
ROBERT
Kenneth
arthur jr.
Sarah
John Jr.
albeit mostly connected to the
One of four
With Jim Jr.,
One of four
Kenneth’s
Arthur’s only
One of three
cores of oil and forestry. To feed
siblings, he runs Moncton-based
children from
brother was
child from his
siblings, he
a refinery that produces up to
the forestry side Robert is co-CEO
Arthur’s first
ousted from
second marriage
runs the Irving
of the empire
of J.D. Irving Ltd. marriage, he left
an executive
is executive
construction
320,000 barrels a day, the Irvings
as CEO of Irving
job at Irving Oil
vice-president
and real estate
import 100 million barrels of oil a
Oil in 2010
last year
at Irving Oil
businesses
year. They own more than 900 service stations, pulp and paper mills,
shipyards, railway lines, and trucking, construcAs his company grew in power, K.C. was able to bend provincial
tion and shipping companies. They supply 60%
and municipal politicians to his will. “It’s an industrial oligarchy
of the gasoline in Boston, and are responsible for
in a way,” says Bill Parenteau, a historian at the University of New
almost one-fifth of American gasoline imports.
Brunswick (UNB) in Fredericton. “And in some of their companies,
They own all three of the English-language daily
especially in oil, they practise a kind of 19th-century capitalism.”
newspapers in New Brunswick. They employ
If the Irving group is a throwback in some senses, its founder was
an estimated one in 12 of the province’s workers
ahead of his time when it came to taxes. K.C. was one of the first
(and thus a much higher ratio of purely privateCanadians to take advantage of offshore tax havens, placing his comsector employment), and account for more than
panies in a trust in Bermuda, where he had moved by 1972, avoiding
half of the province’s exports. The Irvings are
hundreds of millions in capital-gains taxes. By having his companies
also one of the five largest landowners in North
in the Bermudan trust, and through methods such as transfer pricAmerica, owning, between Canada and the
ing, he slashed his tax bill. “Bermuda is the North Korea of offshore
United States, 3.3 million acres and managing
centres when it comes to transparency,” observes David Marchant,
another 2.4 million acres of public land.
editor of Offshore Alert, a Miami-based website that calls itself “the
K.C. ruled his empire with an iron fist, instillunofficial financial regulator” of offshoring.
ing the principles of clean living, hard work,
The move to Bermuda prompted a Canada Revenue Agency
attention to detail and loyalty. “It was like a faminvestigation that discovered that by setting up subsidiaries in Berily culture built on trust,” says Blaine Higgs, who
muda, Irving Oil was, in one instance, able to lower its tax bill by
spent 33 years at Irving Oil, rising to become a
$142 million. The relevant Bermudan tax rate at the time was 0%.
senior executive, and later serving as finance
While the offshore structure today is less clear, Statistics Canada
minister in the Conservative Alward governlists nearly a dozen Bermuda-based Irving companies. “The Irvings
ment that was defeated in 2014. “There would
know what to do in order to avoid the Canadian tax system,” remarks
never be an [Irving] event…where people would
Alain Deneault, author of Canada: A New Tax Haven.
not be recognized for building and growing and
This is evident in Saint John, whose oil-by-rail terminal was
sustaining the company.”
built by Irving Oil to import crude to its refinery in 2012. The CBC
fr
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DM161782_Pg38-44_ROB_MAR_2016.indd 42
16-02-10 9:24 AM
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(family) SAINT John Telegraph-Journal/cp; (k.c.) the globe and mail; (3 brothers) Scott Perry/cp
k)
found that the terminal pays just $19,300 in annual property tax—
about half the $37,000 paid by the Tim Hortons across the street.
Gerry Lowe and other councillors are up in arms after discovering how Irving Oil pressured Saint John into a tax concession years
ago. In 2004, Irving Oil began talks with Repsol, a Spanish energy
company, to build a $1.2-billion liquefied natural gas (LNG) terminal. Repsol was looking for a place to offload gas so it could access
the North American market. Irving agreed to lease a parcel of land
to Repsol for the terminal, and took a 25% position in the venture.
Soon afterward, then-Irving Oil CEO Kenneth Irving informed
Saint John’s mayor that unless the company received a massive tax
concession, the terminal would not be built. The concession meant
the council would be forsaking a potential $200 million in revenue:
Instead of paying $8 million a year in taxes for the next 25 years,
Irving persuaded the mayor to accept $500,000. (Via a spokesperson, Kenneth Irving declined to comment on this episode.)
Not only did the city council quickly agree to the deal but the
province itself passed a bill whose sole purpose was to green-light it.
Last year, new details emerged about how the Irvings profited
from this arrangement. Due to a court case launched by Repsol
against the Canada Revenue Agency, it was discovered that Irving
Oil had signed a contract finalizing the deal with Repsol weeks
before the New Brunswick legislature passed the tax concession.
That deal guaranteed Irving Oil at least $20 million (U.S.) a year in
profits from the LNG terminal—suggesting the Irvings didn’t really
need the tax concession at all.
Court documents also show that Repsol pays Irving Oil rent and
a fixed 14% equity dividend, no matter how the enterprise fares. And
it hasn’t fared well. Indeed, for Repsol, the terminal turned into a
$1.3-billion writedown after demand for imported natural gas collapsed in the U.S. While the terminal is still in operation, it’s operating at far below capacity. Now the city council is waiting to see if the
provincial government will grant the city’s request to tear up the tax
concession bill.
At one point during our drive, Lowe points to the Irving Oil refinery, with its plumes of smoke and steam rising into the cold winter
sky. “That’s the cracker,” he explains. “The refinery, which is…one of
the top 10 in North America and produces 300,000 barrels of oil a
day, pays $5 million in taxes to the city and province. Out in Alberta,
refineries that together produce 300,000 barrels a day pay $15 million to $16 million a year.”
In fact, while the Irvings became among the richest businesspeople in Canada, New Brunswickers as a group did not fare well compared to other Canadians. Today, New Brunswick’s median income
is the lowest among the provinces, and it also registers at the dire
end of the spectrum in measures such as out-migration, growth
and unemployment. Meanwhile, the provincial government is facing a $453-million deficit and is paying $685 million a year in debtservicing costs. “[The Irvings] are doing their job making money,
but they are designing the game board we are playing on and redefining the rules whenever it suits them, and then making us deal
with the consequences,” says Rob Moir, an economist at UNB in
Saint John. “And I do believe that’s contributed regionally to slower
growth rates in our province.” The argument goes that the Irvings
have erected barriers to entry so high that competition and innovation are suppressed. “Is everything good for the Irvings good for
us?” Moir asks. “I would argue unequivocally no.” To the extent that
the Irving companies are relieved of taxes, he argues, the province’s
infrastructure and education systems have suffered. That in turn
hampers the province’s ability to produce the educated workforce
needed for a sophisticated economy. “But there’s nobody there to
force [the Irvings] to play fairly and that’s the problem,” he says.
While no one at the Irving companies would be interviewed
about these and other issues, Irving Oil’s director of public affairs,
Andrew Carson, was one of two Irving officials
who responded, mostly obliquely, to e-mailed
questions. Asked to respond to criticisms of
Irving tax strategy in Canada and offshore, Carson replied, “Irving Oil plays a foundational role
in the local and regional economy. As a New
Brunswick company, we pay all applicable taxes
on all aspects of our business.”
drilled his methods into his three
sons—J.K., Arthur and Jack, who
were nicknamed “Gassy,” “Oily”
and “Greasy.” J.K. managed the
forestry and shipbuilding wing,
J.D. Irving Ltd.; Arthur ran Irving
Oil; and Jack the real estate and construction
divisions. The brothers operated the companies
in partnership, often sorting out issues informally. They also embraced their father’s method
of internal sourcing—if something you needed
was available from another Irving company, that
is where you bought it, regardless of price.
But after K.C. died in 1992, the ties among the
brothers slowly began to unravel. And many
blame their children, referred to as “the Cousins” in local argot, for exacerbating the split.
Like their father, the brothers groomed their
children to succeed them. J.K.’s sons, Jim and
Robert, were trained to run J.D. Irving, while
Arthur mentored his sons, Kenneth and Arthur
Jr., to manage Irving Oil; Jack groomed his son,
John, to run the Irvings’ construction and real
estate wings. According to one family source,
a committee of the Cousins was formed in
the mid-1990s to see if they could operate the
empire together. But competing egos got in the
way. If they couldn’t run it together, then “no
one could run it,” the source says.
The Cousins’ fathers were drifting apart too.
Business aside, J.K. and his brother Arthur had
never been close. Jack, meanwhile, began siding
with Arthur on decisions. “Jack adored Arthur,”
recalls one source close to the family. “Arthur
was the outgoing flamboyant one and Jack was
quite in awe of him.”
By 2007, the brothers had begun formal
divorce proceedings. Today, the largest family entities, Irving Oil and J.D. Irving, operate
independently. “I don’t think it’s an empire any
more—it’s mainly two companies,” says journalist Jacques Poitras, author of Irving vs. Irving,
published in 2014. Yet the Irvings’ sway seems
no less strong.
Feuding was not limited to the brothers and
their sons: Within Irving Oil, an era of inner turmoil got under way.
K.C.
rthur Irving is often described as the
A most mercurial of the three brothers.
He’s famous for working his sons hard
at Irving Oil, and for forcing them to cut off relations with their mother following the couple’s
DM161782_Pg38-46_ROB_MAR_2016.indd 43
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divorce in 1980. “Arthur Irving doesn’t have a
an injunction that stopped his son from forcing disclosure of the
reputation as an easy man to work with,” says
trust’s assets.
Mark Tunney, a former editor of the TelegraphThe judgment details Kenneth’s turmoil in exile. During his testiJournal. “I’m not saying he’s not a nice man. …
mony, Kenneth was “overcome emotionally,” the judgment says. He
But on the business side, he gets what he wants
even offered to drop the case if Irving Oil held a retirement dinner
and he doesn’t really let what people feel about
for him and if he could attend a family event with his father. “I want
him get in the way at all.”
to be recognized by my siblings that I did good,” he said. But KenIn 2000, Arthur’s eldest son, Kenneth, was
neth’s hopes for reconciliation were dashed.
elevated to the post of CEO of Irving Oil. KenArthur’s problems with his children did not end with Kenneth.
neth is described as a talented businessman,
Arthur’s other son, Arthur Jr., was ousted from Irving Oil last year.
sensitive and socially conscious. “Kenneth,
In fact, sources say Arthur no longer has relations with three of his
who is an awesome man, was very sustainabilfour children from his first marriage.
ity-minded,” says Sharon Murphy, a Saint John
To replace Kenneth, Arthur promoted Mike Ashar. Ashar had
businesswoman. “He was looking at [having]
been a long-time executive at oil sands producer Suncor before
big huge windmills built in the dry docks and
being lured away in 2008 to become Irving Oil’s COO. But Ashar’s
bringing people back to work and serious awetime at Irving would not end well either.
some stuff.”
In a lawsuit he launched last year, Ashar claims that he was wooed
In 2008, Arthur started moving into retireaway from Suncor with promises of incentive compensation based
ment. But he didn’t stay away for long, and tenon increasing the equity value of Irving Oil. Ashar said he spearsions with his son grew.
headed the drive to get Energy East off the runway, and dramatically
The watershed year was 2010. That summer,
increased the “volume of crude oil shipped by rail [to the Saint John
Jack Irving was dying. Relations were so poirefinery] from all over North America,” representing both savings
soned that J.K. was not allowed to visit him in
and a more secure supply.
hospital. After Jack passed away, J.K. ranked so
But in 2012 and early 2013, Ashar says in a statement of claim,
low among the crowd attending Jack’s last pas“there were many instances of misconduct and inappropriate
sages on a hot July day that he stood out in the
behaviour involving members of the Irving family that created an
sun for 90 minutes waiting to see his brother’s
intolerable and poisoned work environment.” In 2013, according to
body, and then sat several rows behind Jack’s
court documents, he was constructively dismissed—that is, forced
family during the funeral.
out because his employer radically changed his job. Originally it was
That same month, Kenneth was suddenly
agreed he would stay on the payroll until the end of the year. But this
no longer CEO of Irving Oil. One source says
arrangement apparently fell apart when the company tried to force
Arthur fired Kenneth out of the blue. Via his
Ashar to sign an agreement that diminished his rewards for increasspokesperson, Kenneth said the stress of runing the value of the company. Ashar was sent $4.8 million in severning the company was affecting his health;
ance after the company claimed Irving Oil’s equity value actually
after taking a leave of absence, he
decided not to return. Another
source says Kenneth had a breakdown after discovering his father
planned to split his fortune equally
More than
The Irving empire stretches from building
among his five children: Kenneth
fossil fuel
warships to mass-producing frozen fries
felt he deserved a greater share
due to his stewardship of Irving
which in turn connect to businesses like
The Irvings
Oil. At one point, Kenneth checked
drywall (Irving Wallboard) and trailer rental
may have made
into the Lahey Hospital & Mediforests
(Kent Mobile Shelters).
their fortune by
cal Center in Boston for a mental
But the Irvings also own more peculiar
chopping down
health respite.
trees and refining things, like the Moncton Wildcats, who
Some observers believe the rift
play in the Quebec Major Junior Hockey
oil, but their
was rooted in differing visions of
League. Then there’s Juniper Farms (peat),
empire extends through a huge array of
Irving Oil’s future. “[Kenneth]
Cavendish Farms (frozen fries), and firms
related businesses as well—and also into
specializing in security and towing.
some sectors that seem not related at all.
had this plan for tidal and green
Controversially, the Irvings own all of
The most notable national presence
energy,” says Poitras. “He was
among these endeavours is in shipbuilding, New Brunswick’s daily newspapers, as
thinking of it as an energy comwell as 18 of the province’s 25 French and
where the Irvings are one of three big
pany. He was thinking about the
English community newspaper titles. They
players, along with Seaspan in Vancouver
U.S. regulations on climate change
also own four radio stations. A 2006 Senate
and Davie in Quebec City. In 2012, J.D.
and fuel efficiency and he was tryreport called these holdings an “industrialIrving landed a $26-billion deal to build
ing to get ahead of the curve on
media complex.”
replacements for up to 15 Canadian navy
The newspapers shy away from covering
warships at its shipyard in Halifax.
that. …But you get the sense that
Shipbuilding aside, a survey of the empire internal divisions or leadership issues
his father’s focus was run the oil
within the Irving family and companies.
shows how the Irvings have followed K.C.
company and sell gas and so on.”
Irving’s prime directive: Integrate vertically. “The problem with the Irvings owning the
Their relationship shattered,
papers is that none of that ever comes
Forestry provides the raw material for
father and son ended up in court.
out,” says Ken Langdon, a former publisher
products like diapers, paper towels and
Kenneth challenged the terms of
of one of their weekly papers. “You never
toilet paper (the Royale brand, for one); for
the family trust. But in a 2012 case
know what actually took place or why
lumber retailing (Kent Building Supplies);
heard in Bermuda, his father won
and for a spate of construction companies, things are really happening.”
&
DM161782_Pg38-44_ROB_MAR_2016.indd 44
16-02-10 9:24 AM
de
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declined during his tenure. He believes he
is owed $50 million for breach of contract
because, he argues, the opposite is true.
Irving Oil has aggressively fought back.
Even before Ashar launched his lawsuit,
the company went to court in Alberta and
won an injunction against Ashar to prevent him from breaking his confidentiality
agreement. After Ashar initiated his lawsuit, Irving Oil returned to court and won
a judgment against him on the grounds his
claim breached the injunction. But that
decision was reversed in January by Alberta’s court of appeal.
Ashar’s replacement as Irving Oil’s
top executive didn’t last long either. Paul
Browning, formerly of GE, left in the summer of 2014 after less than 18 months on the
job. Then, last summer, Ian Whitcomb, an
accountant and former partner at Deloitte
LLP, was named to the top job. “[Arthur’s]
got his accountant, for God’s sake, as president,” remarks one source derisively.
Today, the only other Irving in a senior
leadership position at Irving Oil besides
Arthur (who is chairman) appears to be
Sarah Irving, his one child from his second marriage. Last year, she was elevated
to the post of executive vice-president
and chief brand officer. However, Sarah is only in her 20s. “She’s
being mentored daily and she’s active in the business daily,” says
David Hawkins, a Moncton marketing entrepreneur who knows the
Irvings. “She is quite young but they can surround her with the best
talent in the world—and they do.”
espite the turmoil in its executive ranks, Irving Oil
played a key role in getting the Energy East pipeline
to centre stage in Canadian business and politics.
For Alberta’s oil patch, it is argued, pipelines to
tidewater are critical to reaching world markets.
The push was initially westward—to the Pacific via
Northern Gateway and Trans Mountain pipelines; or southward—to
the Gulf of Mexico via Keystone XL.
However, all of these pipelines were destined to be mired in political quicksand. As that became clear, TransCanada began pushing for
a pipeline that would travel to the East Coast—and specifically Saint
John. “Energy East was conceived as a desperate Hail Mary when
it began to become clear that Keystone XL was not going through,”
says Adam Scott of Environmental Defence, a Toronto-based environmental organization.
The plan, apart from its global reach, would finally bring Western
Canadian oil to the Maritimes. Yet the idea was met with skepticism
from producers like Canadian Natural Resources Ltd., which were
reluctant to commit the oil that would make the pipeline worth building—especially when Irving Oil wouldn’t commit to how much it
would refine. According to a source close to negotiations, producers
suspected Arthur wanted monopoly control over the pipeline’s spout.
Thus they insisted that other marine terminals and refineries be on
the route.
By 2013, by some accounts, the project looked dead until Arthur
and his executives revived it, in part by committing to refine 50,000
barrels a day. According to media reports, they approached former
New Brunswick premier Frank McKenna, who got everyone back in
D
the tent. “The support from New
Brunswick and the Irvings was
Irving gas stations,
now numbering
helpful in a political context,” says
more than 900,
former Alberta energy minister
manifested a
Ken Hughes. As the plan stands,
commitment to
Energy East will connect to three
vertical integration
refineries—Irving’s in Saint John
and two in Quebec, one owned by
Texas giant Valero, the other by Suncor.
For the Irvings, Energy East holds out the possibility of turning Saint John into a global energy
hub. “The bigger opportunity is the potential for
other investments here in Saint John to refine
that oil,” notes former Irving Oil executive
Blaine Higgs. In fact, the province has already
handed over 500 acres of submerged Crown
land adjacent to the proposed terminal site to
Irving Oil.
The project faces stiff opposition, with environmentalists worried about potential spills
and increased pollution affecting both people
in Saint John and wildlife such as whales in the
Bay of Fundy. More broadly, each pipeline today
becomes a test case of climate-change politics.
More than 1,900 groups and individuals already
have asked for intervenor status at the National
Energy Board hearings concerning the pipeline.
“You could push this project through in terms of
approval [but] are you going to be able to jump
over the huge hurdles of opposition in Ontario,
Quebec, Manitoba and rising opposition in New
Brunswick?” asks Mark D’Arcy, a Council of
Canadians campaigner based in Fredericton. “It
just seems that [the Irvings] are immune to these
obstacles and they’re not paying attention.”
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(ashar) David Smith
n July 6, 2013, a train that included 72
cars laden with crude oil from North
Dakota derailed in Lac-Mégantic, Quebec, and blew up, killing 47 people. The oil was
heading to the Irving Oil refinery in Saint John.
An investigation by the Transportation Safety
Board soon discovered the oil was labelled on
shipping documents as being far less dangerous
than it actually was.
But what did Irving Oil know? After the explosion, Transport Canada searched Irving Oil’s
offices, seizing records. The company, meanwhile, was among 25 firms that contributed to
a compensation fund, quickly paying out $75
million. But one class-action lawsuit suggested
Irving Oil must have known about the volatility
and mislabelling. Irving Oil’s Andrew Carson,
asked about this allegation, wrote in an e-mail
that “It is not appropriate for us to comment on
this matter.”
Even if the Irvings are blameless in the disaster, many recent events, including the internal feuding, suggest they may not be ready for
national prime time. The company has logged
a long history of environmental contamination,
including 19 “environmental emergencies” at its
refinery between 2012 and April, 2014, according to regulators. Carson put this in a different
light, writing, “Irving Oil is required, and it is
our practice, to report every single occurrence,
no matter how small. Irving Oil is very proud of
its record of environmental responsibility.”
Be that as it may, the Irving companies tend
to show a heavy hand with everything in the
public sphere. Most requests for interviews for
this article—to former premiers and other politicians, academics, businesspeople and family
friends—were received warily, and then turned
down. One economist at a New Brunswick university wrote in an e-mail, “I wouldn’t want to
be interviewed, quoted or referenced in regards
to the Irvings. I would be too afraid.”
New Brunswick academics studying forest
O
practices know that both they and their deans are apt
to receive letters from J.D. Irving demanding to know
about their sources and methodology. This is viewed
by these scholars as intimidation.
J.D. Irving’s vice-president of communications,
Mary Keith, doesn’t see things in that light. “We
operate to the highest level of integrity, basing our
management decisions on the best available, peerreviewed science,” she wrote in an e-mail. “New
Brunswick is fortunate to have many forest scientists who have realized international recognition for
their research and we have improved our practices
because of their work.”
Nonetheless, apprehension about the Irvings’
clout is deeply seated in the province. Last December, the province’s highly regarded chief medical
officer of health, Dr. Eilish Cleary, was suddenly
fired without cause. Cleary was studying the health
impacts of glyphosate, a herbicide used in the forest
industry—including by J.D. Irving. Numerous comments on an ensuing CBC news story attributed the
dismissal to Irving influence; J.D. Irving deemed this
“an unsubstantiated conspiracy theory.”
Mike Ashar, former
president of Irving Oil,
It wasn’t the first Irving-sensitive issue raised by
is suing the company
Cleary. In 2012, she wrote a report on the risks of
for $50 million for
shale gas development, which the Irvings support.
breach of contract
The then-Tory government initially considered burying it. Among the report’s many recommendations
was a call for health studies to be conducted in areas
affected by fracking.
Speaking generally—not with reference to the Cleary case—
David Coon, the sole Green member of the New Brunswick legislature, says the government wants to “muzzle or eliminate the expertise who might speak in opposition” to the Irvings. “The Irvings like
to get their own way and they don’t give up,” he says.
This is particularly true in the forestry sector. Although 50% of
New Brunswick’s forested land is Crown lands—of which J.D. Irving
leases 2.5 million acres—the province actually loses money on its
forests, according to a 2010 CIBC World Markets report. Last year,
the province’s Auditor-General singled out financial management in
a scathing report on the government’s forestry practices.
David Alward’s Tory government, elected in 2010, introduced a
forest management strategy that many experts felt was a reasonable
proposal. It rolled back some industry-friendly policies by reducing
hardwood logging on Crown land and restoring conservation zones.
But then in 2014, Alward introduced a completely new strategy,
one that increased the annual allowable softwood cut by 20% and
reduced areas for habitat protection. Moreover, the plan guaranteed
to companies like J.D. Irving rights to harvest a certain amount of
wood per year for 25 years—as long as the companies committed to
investing in their mills and equipment.
The sudden change was thought by Coon and others to have
occurred due to pressure brought by J.D. Irving. Asked to comment,
J.D. Irving’s Keith did not reply directly, but pointed out that the
company has kept investing in its New Brunswick forestry operations even while many other mills in the province have shut down.
“Our roots are here and we are committed to staying.”
Not all observers believe things are that simple. “I know some
people in the Conservative Party well enough to know when Alward
made his decision going ahead with [the new agreement] and
announced it to the cabinet, some people in the cabinet got up and
were so mad they stormed out,” says Andrew Clark, former president of the New Brunswick Federation of Woodlot Owners. “The
Irvings play hardball, and they play hardball with everybody.”
DM161782_Pg38-46_ROB_MAR_2016.indd 46
16-02-09 10:03 AM
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.
Rob McClean
to President & CEO,
Amex Bank of Canada,
and President & GM,
Amex Canada Inc.
American Express
Wayne Barwise
to Chair
Branksome Hall
Dr. Susan Mumm
to Principal
Brescia University
Don Kayne
to Board of Directors
Cameco
Dr. Lynn Stevenson
to Chair,
Board of Directors
Canadian Foundation
for Healthcare
Improvement
Michael E. Roach
to Board of Directors
Centre for Addiction
and Mental Health
(CAMH) Foundation
Charles R. Sims,
FCPA, FCA
Cumberland
Private Wealth
Management Inc.
Douglas E. Turnbull
to Vice Chairman
and Country Head,
Canada
DBRS
Marc LePage
to President
and CEO
Genome Canada
Peter Mann
to Co-Chief
Investment Officer
Gluskin Sheff +
Associates Inc.
Peter Zaltz
to Co-Chief
Investment Officer
Gluskin Sheff +
Associates Inc.
Angelique W.
EagleWoman
to Dean,
Bora Laskin
Faculty of Law
Lakehead University
Neil R. Wilson
to President and
CEO
NAV CANADA
Patti Croft
to Member
of the Board
Ontario Teachers’
Pension Plan
Lise Fournel
to Member
of the Board
Ontario Teachers’
Pension Plan
Charles Guay
to Director
Pomerleau Inc.
Dalton McGuinty
to Director
Pomerleau Inc.
Benoit-Antoine
Bacon
to Provost and
Vice-Principal
(Academic)
Queen’s University
Steve Sammut
to President
Rocky Mountaineer
Hanny Hassan
to Chair of the
Board of Governors
Western University
Paul Jenkins
to Vice-Chair of the
Board of Governors
Western University
March 2016
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
16-02-03 10:09 AM
t
h
e
DM161782_Pg48-52_ROB_MAR_2016.indd 48
16-02-09 9:37 AM
shrink
by
tim kiladze photographs by daniel ehrenworth
There was a time, not so long ago, when the offices and
bars of Bay Street (and Howe Street, too) were dominated
by the big dogs of finance. But their time is coming to an end—a
cultural shift that could change the entire Canadian economy
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16-02-09 9:37 AM
f you want to pinpoint the beginning of
the end of the Big Swinging Dick era,
you’ll need to go back to 2006, near the
height of energy-market hysteria.
That August, a minuscule private
company now named Athabasca Oil
Corp. started raising money from the
1%, marketing its land on Fort McMurray’s outskirts as something that
would make the Saudis jealous. No one knew if it was true,
of course, but word spread quickly, and shares bought for 10
cents soared to $2.50.
The hype hit its peak four years later, when Athabasca went
public at $18 per share. It was a triumph for the company’s earliest backers, whose returns ranged from 600% to somethingthat-will-make-you-cry, and it was an undisputed victory for
the independent investment dealers that underwrote the IPO.
Seven of Athabasca’s 11 underwriters were scrappy independents, and they earned the biggest chunk of the $81-million
commission cheque. Of the indies, GMP Securities, the colead adviser, made the most. In typical GMP fashion, employees popped Champagne the day Athabasca hit the market.
Fast-forward six years, and all that seems like a dream. In
January, GMP slashed nearly one-quarter of its staff, and its
rival independents are cutting to the bone. Some have shut
down altogether. Dundee Securities, owned by the once-glorified Ned Goodman, sold its retail brokerage to Euro Pacific
in January, and its investment bank is likely to be bought out
by its own employees to help shield Dundee from more pain.
The neutering of Canada’s independent brokerages comes
courtesy of several factors. Commodity deals, once the boutiques’ bread and butter, have plummeted, with the mining
sector depressed and the Big Banks sucking up much of the
remaining energy work. The trading game has changed, too.
The rise of the machines has sidelined many traders and compressed commissions to a fraction of what they used to be.
You might be asking yourself: So what if a bunch of oldschool traders and bankers disappear from the Street? So the
media will have fewer bon vivants to write about. But that’s
not the only consequence of this shift. It raises serious questions about the very future of Canadian innovation and our
ability to uncover the next tech or mining star.
Peter Brown, the man who built Canaccord, one of the few
contemporary independents to rival GMP in swagger, doesn’t
mince words. If his firm were starting from scratch in 2016, he
swears it wouldn’t stand a chance. “I don’t think you can do it
today,” he laments. “It’s a broken model.”
The boutique that epitomized the BSD was Gordon Capital
and its founder, Jimmy Connacher (a.k.a. the Piranha), a man
who prided himself on doing what more established firms
wouldn’t. “We wouldn’t say no,” Connacher once said. “We
were outside the box all the time.”
That applied equally to work and play (which is why Gordon is still legendary, despite being acquired by HSBC in
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1998, by which time it was a shell of its former self). Legends
abound. Connacher, they say, once showed up to a Christmas
party wearing nothing but a string of lights, and two female
secretaries received breast implants as a bonus. There was a
corporate yacht, the G-Force, available for private dalliances,
and a butler named Basil to serve drinks so traders wouldn’t
have to leave their phones. Every Friday, employees were
invited into the Fishbowl, the glass-walled executive suite, for
a catered lunch, complete with wine. When the weekly lunch
moved to Rodney’s Oyster House (the catering bills having
reached astronomical heights), the gathering would often
stretch well into the night.
No matter how late and how drunken the nights were,
though, each day at Gordon began with a meeting at 7:30 a.m.
sharp, and by the mid-1980s, Gordon accounted for an average
of 15% of daily trading on the Toronto Stock Exchange.
Brad Griffiths, a onetime Gordon star who died in 2011, likened the place to Hotel California: “It was tough to get into
and tough to get out.” When it began to fade, Griffiths fled
and set up his own shop, GMP Capital, with corporate lawyer
Gene McBurney. “We wanted to do exactly what Gordon did
in the ’80s,” McBurney explains by phone from the Bahamas,
where he has just landed after five days in Colombia. “We
thought it had lost its way.”
Reviving the business included reigniting the after-work
shenanigans. McBurney doesn’t deny GMP and its rivals
played hard, but argues that the best firms, like his, were still
loaded with smart people. “It wasn’t a bunch of yahoos getting
together and throwing darts at a dart board,” he says.
Indeed, even GMP’s rivals bowed down to the brains and
work ethic of its star trader, Mike Wekerle, a.k.a. Wek. The man
practically had his own orbit. Tattooed, with shaggy blond
hair, he looked more like someone from Kid Rock’s posse than
Bay Street’s best market-maker. He started at First Marathon
Securities at 19 and jumped to GMP when it launched 13 years
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16-02-09 9:37 AM
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later. Wek could work at a torrential pace during the day and
then endure legendary, alcohol-fuelled escapades after markets closed. At various points, he owned a Porsche GT, a beach
house on Harbour Island in the Bahamas, and a stake in chichi Toronto restaurant Splendido. Seymour Schulich once told
this magazine that Wek had “the balls of a cat burglar.”
f course, there was a more staid side to some
of the independents. Lawrence Bloomberg,
who founded First Marathon in 1979, was a
wiry runner whose parties, his friends would
joke, ended with liqueurs on the driveway because he went to
bed so early. But in 1993, Bloomberg earned a then-hefty $6.9
million. Justifying such payments, First Marathon offered this
explanation: “These people are all-stars.”
Meanwhile, at the Big Banks, multiple divisions shared
profit pools, so a fixed-income loss might hurt equity traders. And there was (and still is) an unwritten rule that no one
should expect to make more than the group heads, and the
group heads should never make more than the bank’s CEO.
That was blasphemy to the independents. At GMP, 60%
of fees went to cover expenses and non-partner salaries, and
the rest went to the bonus pool and partners. Better yet, the
cheques came quickly—often monthly. “If you got paid double
the CEO, he’d pat you on the back,” one investment banker
remembers fondly. In 2002, former GMP Calgary rainmaker
Tom Budd made $12.5 million, roughly double the head of
Canada’s biggest bank.
The paycheques were so massive because the partners (who
also owned the dealers) got a cut of profits as part of their
annual compensation, and because they had a direct claim on
the business they brought in. “It was an eat-what-you-kill environment,” says Jim Davidson, one of FirstEnergy Capital’s cofounders. “If you brought in a $12-million M&A fee, you had a
great year—and you deserved to have a great year.”
That tended to lure employees with an appetite for risk.
Think of it as choosing between a career in government (the
Big Banks) or at a start-up (the independents). Working at
a Big Bank guaranteed a decent, somewhat stable income.
Working for an independent was riskier but came with the
prospect of huge scores. “You tended to get the best and the
brightest, and they tended to be young,” says Davidson, who
was 33 when he helped set up FirstEnergy.
The brokerages selected for aggression, too. “I’d take an exjock with a B+ average over an academic with an A+ average,”
McBurney says frankly. He wanted people who were driven to
win—without relying on a Big Bank brand name to woo clients.
The effects were tangible. Bankers at Gordon Capital—
considered an outsider even among other, larger brokerages
like Wood Gundy and Dominion Securities—single-handedly
invented the bought deal in 1982 (over Scotch, of course) as
a way of getting in on a deal for Canadian Utilities. Instead
of telling clients they’d do their best to raise money for them
(while fighting for fees with the other dealers), Gordon fronted
the cash and absorbed all the risk that came with selling the
new shares to investors. The bought deal is now the dominant
equity-financing vehicle in Canada.
Independents were also more comfortable playing in grey
areas, something one former trader referred to as “flirting
with the edges of acceptability.”
The best of these dealers had ringleaders who were tapped
into Bay Street’s information flow. Wek got the most glory,
but there were others, including Canaccord’s Graham Saunders (better known as Suds), and John (Johnny E) Esteireiro
of Genuity (which was run by David Kassie, once one of Bay
Street’s best-paid and most aggressive investment bankers).
On trading desks, information was a special currency. A
ringleader might get a tip about the next big tech start-up
or junior miner and tell his friends about it (a practice that,
in some cases, amounted to blatant stock promotion). Long
before it was confirmed that Athabasca had about seven billion barrels of oil in the ground, GMP—one of its earliest backers—helped persuade some of Bay Street’s top fund managers
to invest; Dynamic’s Rohit Sehgal put in $10 million.
With publicly traded companies, a ringleader might call his
closest fund managers to assess the appetite for a new gold
financing—without giving away the name of the company,
since that would be illegal. Fund managers who correctly
guessed the issuer could make money by shorting its shares,
since bought deals are sold at a discount to entice investors,
forcing the issuer’s stock price to fall.
In exchange for the tidbit, the fund manager might step up
with a buzz-making lead order on a new financing or to bolster
a deal that was struggling to sell. And most likely, they’d book
their next order with the firm’s trading desk.
You might wonder how all this got past internal compliance rules. The short answer: The guidelines at independents
were a little more lax. They were often more willing to let
employees personally invest in companies they were doing
business with—forbidden at bank-owned dealers. (Last year,
National Bank Financial banned employees from even trading
individual stocks in their personal accounts.)
Outside watchdogs would hit the brakes when they could.
The Investment Industry Regulatory Organization of Canada
dinged Canaccord with a $1.1-million penalty in 2013 in part
for not paying close enough attention to which of its clients
were investing in risky companies. (Mom-and-pop investors
are supposed to be steered away from the most volatile stuff.)
First Marathon was slapped for allowing employees to act as
investors, promoters and underwriters for junior mining and
tech stocks in the early 1990s—against the interests of their
clients. The most famous of all was Cartaway Resources: First
Marathon employees bought control of the shell company on
the Alberta Stock Exchange and pumped its share price to
$26 within two years. The stock crashed to $2 after geological
reports proved it was overhyped.
Disruption often seems to happen overnight—one day taxis
are the only game in town; the next, it’s all Uber. But dig a little
deeper and you’ll find that the demise of the independents has
been a long time coming.
The first salvo came in 1987, when the feds opened the
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16-02-09 9:37 AM
doors to bank-owned investment dealers. Four of the largest
indies—among them Dominion Securities and Nesbitt Thomson—were quickly swallowed (by RBC and Bank of Montreal, respectively), turning the banks into formidable players
almost overnight.
For the next two decades, there was enough business to go
around—the independents simply had to be more aggressive.
The banks were less likely to touch companies with no profit
(and sometimes even no revenue). But Canaccord and other
independents swept the corners to find emerging companies
in need of creative financing ideas. Then they’d propose, say, a
zero-coupon bond, which lets clients borrow money interestfree up-front, with the interest paid as a lump sum when the
bond matures. More risk, big potential payout.
The Big Banks’ edge over the indies sped up after the dotcom bust, when commodities like oil and gold popped. Suddenly, the resource business was a heckuva lot more interesting. And as mining and energy companies began looking for
corporate loans to fuel their growth, the banks swooped in
with money the brokerages couldn’t provide.
Around the same time, the world of stock trading was disrupted. It used to be that portfolio managers had to go through
a human being to trade shares, with the middleman charging a
five-cent commission per share. Now, computers could just as
easily line up buyers and sellers—at one-fifth the cost. Shrinking commissions were only half the problem. Because they
weren’t in the middle of trades, ringleaders had less information to use as currency.
Electronic trading hurt the banks, too, but they had other
business lines to lean on. Derivatives, for one, are now a crucial component of mergers and acquisitions, guaranteeing a
company the ability to, say, sell gold for $1,200 (U.S.) an ounce,
regardless of the market price. That guarantee can make the
acquisition of a rival gold miner less risky—and the fees for
those derivative transactions can bring in more money than
traditional M&A advice.
here’s a lot of bitterness on the Street, and it
runs deep. In a letter to employees in January,
on the day GMP cut 73 employees, CEO Harris
Fricker defended the move, arguing “there will
be no regulatory rollback of anti-competitive practices as the
amorphous blob that is the bank oligopoly will continue to
expand in search of new revenues and earnings.”
Fricker et al. wouldn’t be this angry if the commodity mar-
ket was still smoking hot. Independents made a
killing in 2010 and 2011, when energy and mining deals were through the roof. But they do
have some legitimate points. While the major
global banks caused the financial crisis, smaller
dealers are the ones suffering from the resulting regulatory crackdown. The extra compliance costs post-2008—such as installing systems to monitor trades more closely—can be
crippling for indie shops.
New client “suitability” rules—meant to ensure mom-and-pop investors don’t get duped—
have raised ire, too. Brown says he knows a 76-year-old in
Vancouver who made his fortune bringing three mines to production. The man recently asked his broker at a Big Six bank to
put $150,000 into a new mining venture. The broker refused,
arguing it wasn’t suitable for someone his age—despite the
client’s expertise and riches. Regulators, Brown argues, “do
not understand the unintended consequences of what they
do.” If even wealthy Canadians can’t bet on the next great
miners, how will these companies ever raise the early capital
needed to grow?
Same goes for the independents—if they disappear, who
will bet on unknown companies desperate for cash? When
Canadian Natural Resources was still small, First Marathon
and Calgary’s Peters & Co. led early financing rounds. When
Canadian investors were too timid to take a bet on Research In
Motion, GMP took the company public in 1995, selling shares
to U.S. investors. These two corporations combined have
been worth more than $100 billion, attracting global investors
and giving Canadians something to be proud of.
Sure, sometimes it got ugly. Athabasca, for one, crashed and
burned. Though its shares debuted at $18 in 2010, they soon
cratered. It turns out there is such a thing as too much hype,
and public investors eventually saw through it. Canada’s IPO
market went into a state of shock—and everyone blamed GMP.
But the banks aren’t perfect, either: During the income-trust
era, they made huge commissions taking some questionable
companies public. And to date, one of Canada’s highest-profile tipping scandals erupted inside RBC Dominion Securities,
the most blue-chip of the country’s investment dealers.
So are the independents dead? Not quite—but they do need
to evolve. Too many still rely on their trading desks, which
in years past brought in enough money to keep the lights on.
Investment banking fees were the gravy. That model is now
inverted, meaning the bankers carry the burden of keeping the
firms afloat. There’s more to keep above water, too, since the
independents are much bigger than they used to be. Some of
them used the money they made during the commodity boom
to expand to London and Houston and New York.
At GMP, it’s telling—and definitely a good thing—that
the cuts were largely aimed at the old-school sales and trading business. What’s unknown is whether the bankers who
remain have what it takes to restore the glory—at GMP and
all the independents. Almost all of the old stars, the ones who
slugged it out with the Big Banks before the commodity boom
brought in easy fees, have left the business. It’s up to the current class to prove they’re just as good as the bad boys who
groomed them.
DM161782_Pg48-52_ROB_MAR_2016.indd 52
16-02-09 9:37 AM
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16-02-03 9:41 AM
Amazon Web Services
is doing with the
cloud computing business
what its parent
did with bookselling—
your
business
here
↓
swallowing it
Like many Type A technology executives, Matt
Wood, who’s general manager for product strategy at Amazon Web Services (AWS), has done
a lot of impressive things most ordinary people
probably can’t understand—even though he’s
just 36 years old.
After graduating from medical school in England,
Wood went on to do a PhD in bioinformatics (applying
software and computing power to biology—in his case,
the formation of proteins). The fast-talking Brit then did
some postdoc studies in Big Data at Cornell in New York
State, before returning to the United Kingdom to work at
the prestigious Wellcome Trust Sanger Institute.
Wood arrived in 2006, as scientists were finishing the
Human Genome Project (a collaborative global research
effort to map the DNA blueprint of humankind), and just
as a quantum leap was occurring in how quickly computers could map out DNA. “It moved from being able to do
one genome in 10 years to being able to do one in about 10
days,” Wood says. “The flip side of that was although you
could sequence more DNA, these machines generated
just tons and tons of data.” By tons of data, he means several hundred terabytes each week (one terabyte is 1,000
gigabytes; even an iPhone 6 with maximum
Adam Selipsky
augmented memory has just 128 gigs).
says that Amazon
But the institute is situated in the bucolic
has big ambitions
English countryside, about 14 kilometres
for all of its
south of Cambridge (near villages with names
businesses: “We
work really hard,
like Ickleton, Great Chesterford and Little
with a sense of
Walden), and there was no way to get more
passion, to build
power onsite to add more servers to its jamthings the world
has never seen”
packed data centre. The little town of Hinxton
photograph michael clinard
by iain marlow
DM161782_Pg54-58_ROB_MAR_2016.indd 54
16-02-10 9:28 AM
March 2016 / REPORT ON BUSINESS 55
DM161782_Pg54-58_ROB_MAR_2016.indd 55
16-02-10 9:29 AM
couldn’t really cope with the dark, satanic mill-like
server farms increasingly required in 21st-century
business and research.
So Wood fired off an e-mail to some of his
friends at Amazon, outlining the problem. They
asked: Had he not heard of AWS, the cloud computing arm of their almighty e-commerce behemoth? Wood signed up and Amazon gave him a
credit for $300 worth of data storage and service,
which he used to buy digital space for some of
the most cutting-edge DNA research in the world
(what he calls a “genomic assembly pipeline”)—all
of which could now be stored up in the so-called
cloud. In those days, cloud storage was relatively
novel, but it worked brilliantly.
“I was a convert, basically, from that moment,”
says Wood. He was so impressed that he joined the
company in 2010 (after selling a start-up). He now
helps develop the hundreds of sophisticated services and tools that AWS has layered on top of its
basic cloud storage and computing functions.
Even 2010 now seems like it was a generation
Saeid Fard is a friend of mine in Vancouver who’s in the tech business.
Anyone who has ever thrown documents, pho-
tos or videos into Dropbox has done basic cloud
computing: You’re storing things in servers that
you don’t own, quite safely and securely, even if
you don’t have a clue where those servers are. In
He’s president of Sokanu, which provides online career tests. When I
asked him to suggest any start-ups that might be AWS clients, he said
I could pick them at random: “Pretty much every start-up uses AWS.”
Phil Menary is fairly typical. He’s the vice-president of development
at Waterloo-based Axonify, which provides large companies such as
DM161782_Pg54-58_ROB_MAR_2016.indd 56
16-02-10 9:29 AM
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photograph jaime hogge
the early 2000s, old-guard firms such as IBM, and newer ones such as
Rackspace, were already renting digital space on servers to clients.
The next step was to integrate the data storage and manipulation,
and move it all to the cloud. That would allow companies to get rid
of servers, network hardware and software, and most IT staff, leaving
only equipment that employees need to access the cloud services. It is
now the reality in many companies. Employees arrive at work and can
log in to their own desktop on any screen. Departmental and officewide systems are in the cloud, too. All transactions are tracked, and the
system can alert customer service reps if there are problems. Companies can build, test and run apps in secured digital environments, shift
entire libraries of data, and grant or restrict access to individuals.
So why is AWS bigger than its rivals and growing so much faster?
Amazon launched AWS in 2006, and it quickly moved far beyond just
providing a lot of storage space. It soon built out an entire platform
with more and more flexibility. In 2014, AWS developers, working from
a road map that is 90% related to specific customer requests, created
more than 500 new features. Last year, that number jumped to more
than 700—about two per day.
Much of the drive to dominate comes from Amazon CEO Jeff Bezos,
of course. His overriding goals and obsessions are now familiar: making things as simple and effortless as possible for customers, constantly
searching for new ways to disrupt the status quo, and driving
amazon: The “Other” Businesses
costs and margins as low as he can to squeeze competitors
and keep expanding revenue.
$US billions, quarterly
Yet, like Apple with iPhones, AWS has also become much
2.5
more than a generic provider. It is a megabrand—a community, even. Many of AWS’s customers now flock to its annual
2.0
re:Invent conference in Las Vegas. From about 3,000 attendOther revenue
ees a few years ago, the event has grown to almost 20,000,
(including AWS)
1.5
with nearly 40,000 others nerding it up via live streaming.
AWS executives, and clients like Airbnb, get up onstage and
do Silicon Valley-style multimedia presentations, filled with
1.0
the wonderful industry-disrupting and paradigm-shifting
AWS revenue
jargon of tech.
0.5
Sheer size also allows AWS to throw a lot of new products
and features at the wall to see what might stick, and to learn
0
from those that don’t. This, too, is fairly standard procedure
20102011 2012 2013 20142015
at Amazon. Over the years, it has had several failures, including A9, a search engine and advertising application launched
ago. Since then, the cloud computing business has
in 2003, and BlockView, which was surpassed by Google’s Street View.
exploded, and AWS is growing faster than any of
Despite AWS’s now massive size and success, Amazon remains
its rivals (including Microsoft and Google, as well
secretive about many aspects of its operations. The company only
as more specialized competitors like Salesforce).
began breaking out AWS’s sales and profits separately in its financial
AWS’s revenue has soared from less than $1 billion
statements in the first quarter of 2015. That was partly because it was
(U.S.) the year Wood arrived to $7.8 billion in 2015,
becoming almost obvious to analysts just how fast AWS was growing.
and it is climbing by about 70% a year.
Its numbers used to be included in Amazon’s “Other” category, and
Much of that expansion has been fuelled by a
that had ballooned over the past several years (see chart).
new wave of tech start-ups, such as Airbnb and
But Amazon still keeps many other key details under wraps. A PR rep
Pinterest. But even massive corporations and
wouldn’t allow me to see a data centre—saying she herself had never
security-conscious government agencies have
been inside one. AWS will only say its employees number “in the thousigned up, including General Electric, Novartis,
sands,” but won’t say where they work or break down what they do.
Boeing, NASA and the CIA, as AWS added more
A LinkedIn search reveals that 9,654 people list AWS as their current
functions and analytics. As with Amazon’s online
employer, out of Amazon’s total of 230,800 full- and part-time employretailing and delivery businesses, the exciting—
ees in the fourth quarter of last year. For more specifics on what AWS
and scary—thing is that the growth now seems to
actually does, you need to ask its customers.
be feeding on itself.
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Walmart, Toys “R” Us, Toyota and Telus with customized, three-tobetween AWS, the cloud service Heroku—which
four-minute online training videos for their employees, on desktop
was bought by Salesforce in 2010—and servers of
and mobile devices.
its own.
At a tech start-up Menary worked at in the early 2000s, there was
One AWS function Shopify relies on heavily is
a fairly big data centre: dozens of servers, raised floors to hide multhe Amazon Relational Database Service. Relaticoloured criss-crossing wires and a cooling system to ensure that the
tional databases store information in categories,
servers didn’t overheat. At least one employee was assigned to monitor
and Shopify uses the service to house data for nonthat physical infrastructure at all times, and there were several other
core apps. Lemieux’s team also uses the Amazon
dedicated IT staffers.
Redshift service for merchant analytics, taking
But when Axonify launched in 2012, it was based entirely on AWS
anonymized customer sales data from Shopify
cloud technology. All Axonify’s back-end systems are in the cloud, and
users, and identifying patterns and trends.
it relies on Amazon’s data centres for delivery systems to keep latency
Still, Lemieux says that if Shopify really wants
(wait times) for videos below one second per click. Axonify has about
to unleash the floodgates, it tends to rely on its
60 employees, but it doesn’t even have a dedicated e-mail server onown powerful servers, rather than the cloud.
site, and it doesn’t have anyone taking care of physical infrastructure.
Yet Amazon and Shopify are now also partners.
“We’d never go back to having our own physical data centres,” Menary explains. Even if Axonify wanted dedicated Axonify’s Phil Menary
servers of its own, “there are data centres you can rent space says his company
in—the Rackspaces of the world—where you’re renting or doesn’t need its own
leasing servers.” But why bother, when you can do everything servers. “Why bother
when you can do
in the cloud? “Not to pick on Rackspace,” he says, “but even in everything in the cloud?”
that model—with physical equipment in a data centre—we’d
need another dedicated person.”
One of the most useful AWS tools for Axonify is CloudFront, a global
digital-content web service. Most of Axonify’s data is stored on servers
in a large AWS facility in northern Virginia. But so-called edge servers
in CloudFront’s cloud-computing centres around the world then shoot
high-definition videos to clients, and Axonify is billed on a pay-as-yougo basis. Amazon has regional hubs in Oregon, northern California,
São Paulo, Ireland, Frankfurt, Singapore, Sydney, Beijing, Seoul and
Tokyo, with more sites being built in Ohio, the United Kingdom, India,
China’s remote Ningxia Hui Autonomous Region and Montreal. Axonify clients such as Johnson & Johnson or Walmart have employees
scattered across continents. “As a global solutions provider, it’s really
important to maintain a sub-second user experience,” says Menary.
Axonify also relies on AWS’s EC2 core computing platform (the
acronym stands for Elastic Compute Cloud). EC2 made it possible for
the company to develop its own “drill-down analytics,” as Menary calls
them, to track and study millions of customer interactions. Axonify
can resize its computing capacity almost instantly, too. If it looks like it
will need more storage space or computing power, employees can click
and buy it. Resizing can even be automated, through what Amazon
calls autoscaling, although Menary prefers that his developers keep
monitoring server and storage functions.
Safety is another advantage. Most of AWS’s regions have several
data centres, so AWS can back up data and functions, and shift things
quickly in case of power outages or other disasters. Its clients can
move their data around, too. “Our primary data centre is in northern
The two companies have integrated their services.
Virginia, and our secondary is in Oregon,” says Menary. “If there’s a
Shopify clients can take advantage of Amazon’s
storm and it looks like Virginia’s going to be out for three days, then we
vast retail distribution network, and the two comjust turn on Oregon.”
panies have made it seamless for AWS clients to
All this means that Menary’s team of 17 developers can spend pretty
set up online stores with Shopify.
much all of their time on Axonify’s products. AWS’s price is also right:
“I suspect that our entire Amazon bill is less than one full-time equivalent salary,” he says. “If you were trying to manage your own system,
As AWS keeps gobbling up more and more of the
you’d have server costs plus a person.”
cloud computing business, it touches off the same
One key to AWS’s continued expansion, however, will be to keep
good-or-evil debate that Amazon did when it suphanging on to all of a client’s computing business once it grows beyond
planted traditional booksellers in the 1990s and
the start-up stage. Shopify, the wildly successful, Ottawa-based e-comearly 2000s. Is it driving us toward a better, more
merce platform that provides software to stores and online sellers,
efficient future with far more choices for customjoined the ranks of $1-billion “unicorns” when it IPO’d last year. Jeaners? Or is it just a greedy leviathan?
Michel Lemieux, vice-president of engineering, says his company was
AWS was launched on March 14, 2006. In part,
completely in the cloud when it launched itself in 2006. But, as it grew,
it arose out of Amazon’s internal struggles with IT
it felt it couldn’t rely on just one cloud provider, so it divided tasks
issues. Software developers and project managers
DM161782_Pg54-58_ROB_MAR_2016.indd 57
16-02-10 9:29 AM
Amazon treated AWS as a side project. When AWS launched its own
website in 2006, it still had a strip of Amazon’s retail categories (books,
CDs, etc.) running across the top. “In the first couple of years we were
asked, what exactly does this have to do with selling books?” says Selipsky, sitting on the 20th floor of an Amazon corporate office in Seattle.
Today, those categories are gone from the AWS website and it is
Amazon’s fastest-growing division. The day before he and I spoke, The
Seattle Times ran a front-page feature on the development boom in the
city’s gentrifying South Lake Union neighbourhood, fuelled mostly by
Amazon, which is putting up several buildings nearby.
Demands on employees can be heavy. A long feature in The New
York Times last August detailed Amazon’s occasionally brutal work
pace. The article prompted a memo to employees from Jeff Bezos, who
encouraged them to read it, but also said “the article doesn’t describe
the Amazon I know or the caring Amazonians I work with every day.”
But the angry wife of a burned-out former Amazon manager then
posted an open letter online, blasting Bezos.
There is also a local pejorative for hyper-aggressive Amazon
employees: Am-hole. In South Lake Union, someone has gone around
posting yellow Am-hole quizzes, with questions such as: “Think this
neighbourhood started with your arrival? Can you barely resist snapping your fingers at service people in the area? Do you not realize that
you are working for an updated version of Sears and Roebuck?”
Selipsky bristles at that kind of sniping. “A couple of things that I’ve
seen written certainly don’t resemble the company that I work at, and
I wouldn’t have stayed here for over 10 years if it did,” he says tartly.
“I had one colleague who said Amazon and AWS operate like many of
the successful start-ups down in Silicon Valley. We have a big vision,
broad ambitions, we work really hard, with a sense of passion, in order
to build things the world has never seen before. Does that mean we
work hard? Absolutely. People who do well here are people who have
passion and want to work hard to achieve great things.”
AWS essentially brought a successful e-commerce company’s attention to customer experience to an industry—enterprise computing—
that was infamously almost allergic to customer needs. It also brought
Amazon’s ambition and hard-driving work culture to a sector that was
used to explaining why things couldn’t get done.
Selipsky also has little time for the old-guard companies AWS has
surpassed. They still don’t publish their prices, which means that their
customers have to negotiate their cloud-computing costs. That, too, is a
legacy of the days when enterprise technology companies had a stranglehold on their clients, who were hopelessly enmeshed in
their providers’ systems. And as those systems got bigger
Jean-Michel Lemiuex, vicepresident of engineering at
and more elaborate, costs usually went up.
Shopify, uses AWS to help find
AWS publishes prices and usage rates on its website,
trends in customer service data
though it may provide custom solutions priced differently
to larger clients. And its guiding principle is the same as it
“All of those things gave us what turned out
is for all of Amazon’s operations: low cost and enormous scale. “Every
to be a blinding glimpse of the obvious,” says
business at Amazon pretty much works that way,” Selipsky says. “The
Adam Selipsky, a management consultant with an
amazingly high margins of technology companies have not been in
MBA from Harvard Business School who joined
the best interest of customers. This, at the end of the day, is the most
Amazon in 2005, and who is now vice-president
powerful benefit of cloud computing—the ability to move faster and
of marketing, sales and product management
deliver more value, more quickly to your customers.”
and support for AWS. There was a case for setting
Those lower costs also flow through to consumers in all sorts of
up a cloud-computing division. “In the early days
markets. Ever wonder why Netflix is so cheap compared with cable
we talked about it potentially being a $1-billion
or satellite TV? It’s an AWS client, and it now accounts for 36.5% of
business, and people looked at us as if we had
North American streaming traffic during peak periods. When NASA’s
several heads,” he says.
Curiosity Rover began streaming images from Mars in 2012, it did so
Selipsky began with a team of nine people.
over AWS servers, which also powered NASA’s mission control at the
For several years, they tried to operate AWS like
Jet Propulsion Laboratory in the California Institute of Technology in
a scrappy start-up. One early marketing event
Pasadena. “We have the honour of supporting robots on the surface of
was held in a loft in Seattle’s Capitol Hill trendy
Mars,” says Selipsky.
club-and-coffeehouse district, with bottled water
How much bigger could AWS get? “We’re really still at the begindonated by a venture capital company. The rest of
ning,” he says.
photograph john kealey
were pulling their hair out as IT gatekeepers kept
them at bay, guarding the company’s relatively
constrained servers and computing capacity.
But the division also grew out of demand from
third-party booksellers who sold titles online
through Amazon. In the early 2000s, they wanted
to get a closer look inside Amazon.com and its
bestseller rankings, to see which books customers
were buying and which publishers they were buying from. Third-party sellers of other merchandise
also wanted more information on products and
prices. So did outside programmers who wanted
to develop application programming interfaces
(APIs) to let those third parties search through
Amazon’s e-commerce platform.
DM161782_Pg54-58_ROB_MAR_2016.indd 58
16-02-10 1:46 PM
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16-02-03 9:39 AM
Exit Interview
Do the right thing
Peggy Cunningham had a ringside seat to watch the evolution of corporate morality
in Canada. As a professor at Queen’s University in Kingston, she was a pioneer in
teaching responsible management. In 2009, she joined Dalhousie University in Halifax
as director of the school of business administration, just as the recession took hold
and the reputation of Big Business plunged. The following year, she was promoted to
dean of management. Cunningham, 66, finished her five-year term last October.
you get a lower cost of
capital. You attract more
motivated employees and
ones who deal with people
better. Churn rates in these
companies tend to be
lower. They attract more
diverse workforces.
Can you train managers
to be ethical?
Surveys have shown that
up to 50% of MBA students
think they are going to have
to compromise their values,
and bow to pressure to do
something they believe is
wrong, in order to forward
their business agenda.
But most people know the
difference between right
and wrong. We can give
them techniques and skills—
just like tools in finance,
accounting or marketing—
that will help them behave.
How important is money to
MBA students these days?
They certainly want a
good quality of life. They
aren’t willing to live in
poverty. But they are also
concerned about things like
environmental sustainability
and a balanced lifestyle.
Do business students choose
Dalhousie because they
want to be ethical leaders?
Can you turn unethical people
into decent executives?
They come from such diverse
backgrounds. When you see
somebody who has studied
music, somebody who
has studied neuroscience,
somebody who has studied
business and a computer
geek, and all of them try to
solve a problem together,
that is just so exciting.
Does Halifax have a
comparative advantage
in ethics?
I've always been convinced
that you can’t take pond
scum and turn them into
angels. There are people
who will do anything for
a buck. We’ve seen lots of
those kinds of CEOs, and
they drive everybody in their
corporation down that path.
Are businesses actually
behaving any better?
Public expectations are
changing. A company needs
a social licence to operate,
so you can’t isolate a
business agenda from a
social agenda, the way that
business people could in the
past. You ignore that social
agenda at your peril, whether
you are trying to build a
pipeline or a condo building.
Do ethics pay off?
If you get that social licence,
Because of all the familyled companies, business is
done differently here. People
know each other well. You
have to look your neighbour
in the eye. I think that has a
large impact.
So are you going to stay there
and keep teaching courses?
Yes. You really feel part of the
community. /Richard Blackwell
This interview has been condensed
and edited.
photograph Aaron McKenzie Fraser
It draws conscientious
achievers. In particular, we
had a very high proportion
of women coming into the
program. Traditionally,
MBA programs have
hovered around 25% female
enrolment. We were over
50%. We do entrance
surveys, and for the women,
some statements that came
out very strongly were:
“I didn’t want to park my
morals with my car,” and
“I never thought that I could
be a person with high moral
values and be a participant
in business.” We also drew
a lot of people from sciences
and the arts. They hadn’t
considered MBA school
because of the image that
business is evil.
What’s the best thing about
teaching them?
16-02-04 9:25 AM
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the IrvIngs - The Globe and Mail

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