The Nation’s Business

A lesson in how to choose the right stuff

Only rarely do families reach outside to anoint successors on the basis of their deeds instead of their seeds

Peter C. Newman December 21 1998
The Nation’s Business

A lesson in how to choose the right stuff

Only rarely do families reach outside to anoint successors on the basis of their deeds instead of their seeds

Peter C. Newman December 21 1998

A lesson in how to choose the right stuff

The Nation’s Business

Peter C. Newman

Only rarely do families reach outside to anoint successors on the basis of their deeds instead of their seeds

The harshest assignment for the head of any family dynasty is to establish succession. Too often, the patriarchs of business empires rush to judgment and appoint the wrong offspring to run the show.

Just ask Edgar Bronfman Sr. if he isn’t having a few qualms these days about his son, Edgar Jr., as the once proud and mighty Seagram empire sinks into the mire of movies about pigs going to town, but bypassing the box office. In my recent book, Titans, I outline the grim fate of 31 family dynasties, once central to the country’s power structure. Instead of heading the Establishment, they have been reduced to collections of vaguely connected people who share nothing except their surnames.

Only rarely do families make the tough choice, which means reaching outside to anoint successors on the basis of their deeds instead of their seeds. Last week, one of the most powerful Canadian families made the right decision, almost certainly guaranteed to perpetuate its financial clout, if not personal command. When Laurent Beaudoin, 60, who built Bombardier Inc. into the world’s thirdlargest civilian aircraft manufacturer, chose Bob Brown to succeed him as president and CEO, he bypassed the founding father’s son,

Pierre, 36, who has been president of the company’s recreational products division since 1996. Beaudoin himself joined the family in 1961 by marrying Claire Bombardier, one of founder Joseph-Armand Bombardier’s three daughters. He then marched the company from a manufacturer of just Ski-Doos into an industrial giant with revenues of $8.5 billion last year. (The family remains in firm control with 62 per cent of its voting shares and a 21-per-cent equity interest.)

Beaudoin’s chosen successor is a former associate deputy minister of Ottawa’s regional industrial expansion department, who graduated from the Royal Military College in Kingston, Ont., and served three years in the Canadian army. Brown, 53, joined Montreal-based Bombardier 11 years ago, and since 1989 has headed the firm’s dynamic aerospace division, which now accounts for half of the company’s total revenues and nearly three-quarters of its $620 million in pretax profits. “We’ve doubled our aerospace sales in the past five years, partly through acquisition,” he told me in a recent interview. “In the next five years, we will double our sales again to $17 billion, and that’s based on the product development we already have under way, without taking into account any acquisitions we might do. So I think the future looks quite good for us.

‘We’re in segments now that are going to evolve in our favour, particularly in the U.S. market where the airlines are moving from 737s to our regional jets on shorter hauls. We also see continuing expansion in business aircraft. It’s basically a mature market, but

you have to have new product to excite the customers and that’s what we’ve been doing.”

Brown’s appointment has been praised by market analysts because he has maintained such good connections in Ottawa, but as he himself points out, at Bombardier—unlike at most other aircraft manufacturers around the world—government business has been reduced to almost insignificant levels. For one thing, 90 per cent of the company’s revenues are now generated outside Canada. More significantly, Bombardier has deliberately spread out its order books so that it will not have to depend on unreliable government (mostly defence) orders. “We have a very diversified company and have been very fortunate in that since there’s not a large base in Canada for defence acquisitions, only two per cent of our sales depend on that sector. That’s unique internationally because for a lot of our competitors, the military portion of their sales is much larger. We’ve basically had to devise strategies that allow us to survive in the marketplace; we can move faster and quicker than other people.”

In 1987, its first full year in the aircraft business, Bombardier turned out 16 of its Challenger executive jets and a few water bombers; last year, the company produced 178 airplanes. The 1998 total will be close to 230. “Laurent has put in place a very, very strong team,” says Brown. “We have good financial, manufacturing and engineering systems, having drastically changed the corporate culture of Canadair and de Havilland, which had been Crown corporations, and Lear Jet, which we purchased out of receivership. Laurent put in a real entrepreneurial approach. Airplanes are a really emotional product—when they first fly, our people get tears in their eyes. It takes a lot of discipline to translate that into an entity that can make money.”

Brown adds: “We are entrepreneurs, and that means that you have to be very aggressive. We want to be in control of the markets in which we operate. We’ve selected areas where we can be leaders and be in charge of our own destiny. That’s why we specialize in business and regional jets. We have a new aircraft coming onto the market every single year from 1997 to 2001.”

Under Brown’s direction, Bombardier became the world’s largest manufacturer of executive jets, but the competition is fierce. Its new $55-million Global Express, which Brown developed, has a range of more than 12,000 km, flies up to an altitude of 15,300 m and is designed to ferry executives nonstop from New York City to Tokyo or China in about 12 hours.

One estimate for future world demand of the regional jets that are Bombardier’s specialty is 8,250 units worth $175 billion in the next 20 years. Bombardier won’t build the whole fleet, but under Bob Brown, it will certainly capture its share.