Interview With Adam Zimmerman

September 20 1976

Interview With Adam Zimmerman

September 20 1976

Interview With Adam Zimmerman

Ever since the turn of the year, when Prime Minister Pierre Trudeau launched his much quoted (and much misinterpreted) remarks condemning the free market system, big business in this country has felt in a state of siege and panic. Corporate directors and business association executives have been competing to out-condemn the government in ever escalating rhetoric and threats of investment withdrawals. At the same time, Ottawa has begun to realize that it cannot fulfill its political ambition of perpetually redistributing wealth unless it also nourishes the climate that helps create it. One of the increasingly important voices in this debate is that of Adam Hartley Zimmerman, an executive vice-president and director of Noranda Mines. One of the more enlightened members of Canada’s business establishment, Zimmerman believes in defending the system to which he belongs. Currently also chairman of the Canadian Pulp and Paper Association, he was educated at Ridley College and the Royal Canadian Naval College in Victoria, as well as the University of Toronto. After a brief stint of selling soap for Procter & Gamble, he spent eight years with Clarkson, Gordon & Co., then joined Noranda in 1958 as assistant comptroller. As well as being director of a dozen Noranda-affiliated companies, he also sits on the boards of Southam Press, Dominion Insurance, Norcen Energy Resources Ltd., Celanese Canada, IAC Ltd. and is chairman of the board at Branksome Hall, the Toronto private school for girls. His outside business interests include a partnership in the Canadian agencies that handle eastern distribution for SAAB and BMW cars. Here, he discusses his thoughts about the future of free enterprise with Maclean’s editor, Peter C. Newman.

Maclean’s: When I was writing the last chapter of The Canadian Establishment, I predicted that the confrontation formerly expected between business and labor would come between business and government. I didn’t think it was going to come true as soon as it did. There is a certain sense of confrontation now between government and business fueled, in part, by Pierre Trudeau’s musings about his “new society. ” How do you feel about it?

Zimmerman: I see the PM’S statement as a professor talking to his pupils, hoping they’ll think about whether they like everything the way it is, whether they can sustain society the way it is, or whether some changes might be worthwhile. The

average businessman probably perceives “the new society” as meaning that there are going to be only so many kinds of toothpaste allowed for sale at a certain price and that’s going to be the rule. On the other hand, if you were to look at the fact that there really is no fair bargaining between labor and industry right now, then I think management might have some positive views about it...

SOME UNIONS ARE SO BIG THEY CAN HOLD COMPANIES—AND THE PUBLIC-TO RANSOM

Maclean’s: What do you mean by fair bargaining?

Zimmerman: Well, there is a labor monopoly in certain areas where the union that is bargaining is much much larger than the company with which it is bargaining. They are able to hold the company to ransom. The public is held to ransom. How can you go through what we in Ontario went through in late fall and early winter with the teachers? In that case, the people who are victimized are the students who are cut off from all kinds of extracurricular

activities and may have to go to school longer. In industrial bargaining, wage increases have been granted for years that were far in excess of productivity. The companies can’t pay it out any longer. Maclean’s: But in the end, the companies are more powerful because they survive, whereas if the strike is too prolonged the union members run out of money and don’t have food to eat.

Zimmerman: In some sense, a brief strike is like a holiday, because of the alternate sources of income in our society today. But a seven months strike, such as we had in the pulp and paper industry here in 1975-76, took a lot of earnings out of the companies that were out and hurt the people involved. There are all kinds of things that would have been done in the way of modernization and sharpening the companies’ ability to compete, maintaining and improving their productivity, that now are undone, and that is going to put the companies that much further behind their principal competitors. Sure, maybe companies can survive one or two major strikes, but the end of the process is that the companies will be out of business. Maclean’s: Getting back to Trudeau’s “new society, ” why the confrontation? Zimmerman: The business world has felt that it has been put upon pretty mightily in the last year. Business has been lousy. Ottawa’s bureaucracy has been increasingly intrusive and we have this anti-inflation legislation, which we basically welcome but I believe to be badly done.

Maclean’s: Specifically, in what way? Zimmerman: Well, it’s so incomprehensible for one thing, and it may be selectively adverse for another, because its effect depends on how it hits different companies and different circumstances. Maclean’s: It isn’t doing much about prices.

Zimmerman: Well, I don’t know what “not doing much about prices” means. It limits profit margins and therefore it limits prices; I don’t think you can expect Canadian prices to be limited in the face of worldwide commodity levels, for instance. Clearly, no one in Canada can expect to buy paper towels for 20% less than somebody in the United States where the value of the towel represents the cost of the pulp that’s in it.

Maclean’s: Is free enterprise still alive when you have the federal treasury now spending a billion dollars every nine days, when governments control more than 40% of the gross national product?

Zimmerman: It’s a bit like the difference

between English rugger and American football. The game is similar, but the rules are a bit more complicated and the field may be smaller. But free enterprise shouldn’t be confused with capitalism. It’s still possible for someone to save money, to take that money and put it into an adventure of his choosing and make something of it.

Maclean’s: If they really believe in free enterprise, why do businessmen, when they get into any kind of trouble, immediately run to Ottawa for protection?

Zimmerman: I guess you could say that Canada isn’t a natural country, that the kind of protection being sought is to accommodate the fact that, if, for instance, southern Ontario were in a free market area with New England or the upper States, as an economic unit, I don’t think anybody in southern Ontario would need any protection from anything. There are lots of areas where Canadians don’t really need any help at all. But there are some products that are getting hammered. We don’t need any protection in mining or forestry, not in agriculture, either, or any of our natural resources. 1 believe that the Canadian manufacturing industry is in severe jeopardy through government interference in the free enterprise system as well as the material economic disadvantages such as distance, climate and the small size of the domestic market. Maclean’s: Why has the government concentrated its tax offensive against the natural resource sector?

Zimmerman: They misconceive our profit potential. There are a few big companies, and a lot of them have a foreign ownership element in them, so it looks as if the bully boys are being put in their place. 1 don’t think they are, but even if that were true taxes and royalties have effectively killed the initiative in some pretty important areas. As we’ve recently seen in BC, this pendulum is beginning to swing back. Maclean’s: Noranda’s margin of profit last year was about a million dollars a week and yet that was considered not enough to sponsor any significant capital expenditures. What would you consider to be a desirable level of earnings?

Zimmerman: To put that in some perspective, you say we made a million dollars a week, which is an interesting way to express it. By the same token, that million dollars has to satisfy the, say, $800 million that people think our company is worth. If all our shares turned over once a year, using your analogy, people would have been investing in Noranda $16 million a week. But we’re getting back a million dollars a week to service that. Now that’s working out to be only 6% back on our investment. Our experience in 1975 is the minimum experience we expect to have to endure. If 1975 were to be repeated for one or two or more years, we would have to begin to pull in our horns in a lot of areas. The amount of money we made was just the amount of the dividend we had been paying for the

last little while, about 5% or 6% on market value of our stock, which was twice the amount paid out for exploration; we spent something over $20 million on exploration. When you’re maintaining a plant that’s worth two billion dollars you really just have to generate enough money to service it.

Maclean’s: How do you feel about bigness? Noranda’s sales are $1.6 billion, which is huge by Canadian standards. Is there some qualitative benefit from bigness, are you able to do more things rationally?

Zimmerman: Bigness happens in a lot of ways and takes a lot of forms. I have the feeling that in a company such as ours we have to be more decentralized, so that we can create business units that are of a size with which employees can become identified. I think there is a danger in becoming too monolithic. I don't think the Ottawa

BLAKENEY’S TAKE-OVER OF POTASH? IT’S IMMORAL, DISHONEST, AND IT’S FRUITLESS

bureaucracy has any corner on red tape. I’m sure a lot of big companies have just as much. The one thing that bigness does that is desirable is that it provides security, a sort of Linus blanket that people can cling to; they can get through a tough period— like Maclean’s magazine. If MacleanHunter weren’t big enough, you couldn’t have Maclean's magazine, and if we weren’t big enough we couldn’t have some of the things which we have.

Maclean’s: What about potash? Noranda is one of the companies whose properties are being expropriated by Saskatchewan.

Are you upset with Premier Blakeney? Zimmerman: I think it’s immoral. It’s dishonest. And it’s fruitless. In addition, it’s going to be expensive for the people of Saskatchewan. Along with the other companies, we were enticed to go in there by a previous government. We went in through very difficult circumstances in good faith and took a long time to develop the industry. The industry just really got going nicely when the province put on the reserve tax and then the additional royalty levy. It has really just emasculated the companies. They are virtually profitless organizations, which operate somewhere around 4% or less on the investments they have. And now Premier Allan Blakeney says that he’s going to take these over and he’s going to do it at great profit to the people of Saskatchewan. Period. His only way out in the end will be to rig some kind of cartel, to set high enough prices to satisfy his investment, which is an interesting way to play the game.

Maclean’s: What about Noranda’s new business venture in Chile?

Zimmerman: The deal in Chile has been greatly overblown. What we’ve agreed to do there is to begin a feasibility study on a major copper property, but we are in no way committed to anything at this stage. Maclean’s: I thought you won out over competing American bidders.

Zimmerman: Yes, that’s correct, but that wasjust for the study. It’s an area that some people are sensitive about. Church groups have talked to us and they are concerned lest we support what they view as an undesirable regime, but that remains to be seen. We don’t know enough about it. At the moment they seem to be restoring order to the Chilean economy in a way that is acceptable to a lot of the people.

Maclean’s: How do you feel about the preponderance of U.S. investments here? Zimmerman: There are some elements of real danger in foreign investment of the kind that we have had, in fact, have been encouraging in Canada. One of the dangers is that you become a specialist producer to a larger organization and of products that can be overtaken by time, events or technology. Then you have a plant that nobody wants and you are out of business. Maclean’s: What kind of legislation would you like to see in its place?

Zimmerman: 1 don’t know whether you can legislate these kinds of things. I defy anybody to give me a long-term definition of “significant benefit to Canada,” for example, as FIRA [Foreign Investment Review Agency] is attempting to do. I’m inclined to think that the right direction for this multinational game is the way our company has done it with Canada Wire and Cable where we’re taking a minority interest with natives of countries where we operate. That way you cover all these problems, because if something doesn’t accord with what, say, Venezuela or Mexico want then they can tell you.

Maclean’s: Where do you practise this?

Zimmerman: Oh we do it in Mexico, Colombia, Dominican Republic, Venezuela, Spain, Australia, New Zealand. There are 12 countries involved.

Maclean’s: How do you feel about construction of the Mackenzie Valley pipeline? Zimmerman: My own perception of it is that the whole pipeline argument divides itself in two ways. One is the construction and the operation of it, the other is should we be doing something with that resource or shouldn’t we? 1 think history generally supports the fact that you’re better to use what you’ve got when you’ve got it because it may be overtaken by alternate technology and then you would have wasted it. You know, suddenly tidal power becomes the thing or solar power or whatever. Maclean’s: But do you believe the Mackenzie Valley pipeline should be built? Zimmerman: Assuming that the construction problems can be handled, yes, I think it should be built. Why not? It’s a service project, really. We don’t argue with trains running across borders.

Maclean’s: I remember Bob Thompson, the former Social Credit leader, once saying that the Americans are our best friends, whether we like it or not. How do you feel about Canadian-American relations? Zimmerman: I was at a meeting of the Canadian-American Committee in Dallas recently, and you know it’s becoming embarrassing to be a Canadian. The Americans just think we’re crazy because we’ve gone

so far off the course we were on. We used to encourage them to invest here and now we slap them at every turn. 1 don’t think we have to be anti-American to be Canadians. Industry in Canada now is a very very poor thing from a lot of points of view. I don’t think anybody would invest in Saskatchewan any more—or in Canada until Mr. Trudeau makes up his mind and gives some kind of really definite economic leadership that looks long term. It’s like playing squash with the lights going on and off. You can’t have the rules changed every six months. 1 really felt ashamed—and that’s the first time I’ve ever felt that way— embarrassed that every goddamn thing we’re doing is calculated to disrupt the existing economic foundations of this country. Now if we got a better alternative, if we’re going on to some purer quality of life, if everybody is to have their own organic garden, growing their own nature food and so on, that’s okay, but we’d better identify what our goal is.

Maclean’s: Do you see Joe Clark as a viable alternative to the present government? Zimmerman: I don’t know, I’ve learned to distrust my own instincts. Mr. Clark is too new: I don’t know anything about him, I don’t think anybody does. He sure looks like a white hope, but so does every new person. I think there definitely is a swing to the political right now, but it’s to the right only in a sense that I think it’s for some kind of stability, some kind of definition of

what we’re trying to be and what it takes. Maclean’s: Canada is getting more conservative, then, in your view?

Zimmerman: In the sense that there is a strong feeling for law and order. People want things to be there tomorrow that were there yesterday. I think people like respect and some sort of discipline. Respect for institutions, even for old buildings that stand around. But then you look at your children. My kids and their friends have fairly modest and uncertain ambitions now. I don’t think they see themselves repeating their parents’ lifestyle. Equally, I never even thought about it as a child. I never saw myself doing what I’m doing, which was much the same as my father. Maclean’s: How do you visualize yourself? Zimmerman: I was born while my father worked in a mine in Timmins and we moved around quite a bit when I was younger. I went to public school in Niagara Falls, New York, then I attended Upper Canada College for a couple of years then went to Ridley for four years which was during the war while my dad was in Ottawa. My father started off with the Moore Corporation; he was their production vicepresident in Niagara Falls. He ultimately went to Ottawa and became chairman of the Defense Research Board. I have a ski house that we go to every winter weekend, and I inherited my grandfather’s island where he settled in Georgian Bay. I’m the ultimate Canadian WASP, I suppose.O