BUSINESS WATCH

The thoughts of Chairman Adam

‘It’s time to admit to ourselves that Canada ain’t worth what it was, and to devalue our artificially inflated currency’

Peter C. Newman April 22 1991
BUSINESS WATCH

The thoughts of Chairman Adam

‘It’s time to admit to ourselves that Canada ain’t worth what it was, and to devalue our artificially inflated currency’

Peter C. Newman April 22 1991

The thoughts of Chairman Adam

‘It’s time to admit to ourselves that Canada ain’t worth what it was, and to devalue our artificially inflated currency’

BUSINESS WATCH

PETER C. NEWMAN

Adam Zimmerman, chairman of Noranda Forest Inc., the Toronto-based, $5-billion wood-products giant, who last week reported that 1990 was the worst year in the company’s history, is not typical of his breed. He’s buttoned up (the speech to his annual meeting of shareholders was exactly 2,046 words long, which was what he planned it to be); his power extends to many other spheres (he’s also a director of Southam Inc., the Toronto-Dominion Bank and Confederation Life); and he’s accessible (he is one of the few CEOs of a major Canadian company who answers his own phone).

More important, he says exactly what he means. “When you get in a pickle like this,” he told his bleeding shareholders, after reporting a $95-million loss and predicting that the company would do at least as badly this year, “you really do look in the mirror and ask how it happened. The fact that it happened to others is cold comfort. In our case, we believe that two elements were self-inflicted.” He then went on to explain how the company had overexpanded and become overburdened with debt. But being Zimmerman, he couldn’t resist a dig at public policy, blaming excessive interest rates and the high value of the Canadian dollar for reducing his company's income last year by $150 million—then declaring it was high time to do something about it.

“A decline of the value of the Canadian dollar is urgently necessary,” he said. Zimmerman added: “Of course, a severe dollar devaluation would have to be accompanied by price and wage controls, as well as a real freeze on government spending. You’d have to have a deal between industry and labor, which is possible, but not very likely. But everybody is so desperately looking for a way out, they might just give it a chance. I’ve been arguing that thesis for some time and the bankers have always told me I was nuts. But now, at least two of them agree with me, which doesn’t necessarily make me right. Anyway, the bankers aren’t able to tell me what would work better.

It’s almost as though they believe we should just pray for an end to our present misery. Surely, it’s time to admit to ourselves that Canada ain’t worth what it was and to devalue our artificially inflated currency.”

Zimmerman would like to see the dollar drop to about 78 cents (U.S.) and stresses that each cent above that level costs his company $9 million a year after taxes, while every 100basis-point rise in interest rates costs $8 million after taxes. He would like to see measures adopted similar to Sweden’s devaluation, which was accompanied by a wage deal between workers and employers, as well as a tax exemption for reinvested profits. He points out that forestry is Canada’s largest industry, greatest foreign-exchange earner and mainstay employer in 350 communities, yet it is in critical condition. After the meeting, he told me: “Barring some miracle nobody can foresee, or unless public policy changes, we are doomed— I wouldn’t say to extinction, but certainly to a vast reorganization of our affairs, both as a company and as an industry. For example, we’ve got one company, Northwood in Prince George, B.C., that made $90 million two years ago, $60 million a year ago, will probably make $4 million this year and lose money next year.

It’s modem, integrated, environmentally effective, but it’s big in lumber as well as pulp, and the lumber business has disappeared because of the low housing starts. It’s crazy. You make more money in Canada Savings Bonds than you do in the forest industry.”

Not only that, the Canadian industry itself is becoming irrelevant. Declared Zimmerman: “Pulp from Chilean, Brazilian, Spanish, Portuguese and southern U.S. sources can easily replace large quantities of our own. In the paper markets, Europeans and Americans can replace large quantities of what Canada can otherwise produce. Certainly, all of Canada’s fine-paper production could go out of business tomorrow, and nobody would notice.” Zimmerman is a favorite target of environmentalists. Although he fundamentally disagrees with nearly everything they say, he is willing to debate the issue, instead of hiding behind a public relations flack. Besides, he’s an environmentalist himself. Just let anybody try touching a single tree or cut a plant on his private island in eastern Georgian Bay.

He admits that some of the massive clearcuts left behind by his forest companies despoil the earth, and wants to do the cutting in small, separate bits instead. He claims that forests grow old and destroy themselves, and that they can be replaced through replanting. To my contention that you can only replant trees and never reproduce the ecosystem of a functioning forest with its vegetation and animal life, he shrugs and reminds me that nobody entirely understands ecosystems.

He blames the media for a lot of Canada’s troubles. “You get these rookies opining on something they don’t know a God damned thing about,” he protests, “and because it’s in the news, it’s supposed to be the truth!” But his greatest complaint is about politicians. “I don’t suppose there’s a politician anywhere in the democratic world with a horizon any longer than two years,” he says. “The state is not welcome in business, but business would go wild without the state. The two will only be brought in line if some long-term strategies are developed. When you look at the economies we admire, like those in Japan, Germany and Scandinavia, you find that they have systems for reconciling the divergent views of business and government. We don’t.”

Referring to the recent European lobbying against Canadian forest products, based on the Canadian companies’ clear-cutting practices, he contends: “It’s a bum rap of an extreme kind, almost seditious and certainly scurrilous, but some of these environmental people are basically Luddites and nothing is going to change their minds.” He added: “At this point, we appear to be caught in an overwhelming downdraft in the Canadian economy. The government’s profligate spending habits have strangled Canadian economic opportunities. Of course, Quebecers are the people we really ought to admire. They know who they are. If I were starting all over again [Zimmerman, 64, is due to retire next year], I would choose to be a Québécois. Being an English-Canadian is to be some kind of mongrel. I mean, what the hell are you, if you’re a Canadian?”