BUSINESS

THE BRASCAN RING

THE SECRETS OF A GIANT BOARDROOM

October 3 1988
BUSINESS

THE BRASCAN RING

THE SECRETS OF A GIANT BOARDROOM

October 3 1988

THE BRASCAN RING

BUSINESS

THE SECRETS OF A GIANT BOARDROOM

In just over 10years, Toronto billionaires Peter and Edward Bronfman have built a powerful empire, which they control through their personal holding company, Edper Enterprises. The crown jewels in the Edper group are Brascan Holdings Ltd., which controls such diverse and well-known firms as John LabattLtd., and Hees International Corp., a giant merchant bank. In their new book, The Brass Ring: Power, Influence and the Brascan Empire, Toronto authors Patricia Best and Ann Shortell explore the inner workings behind the boardroom doors of the Edper group.

Brascan Ltd.’s headquarters is on the 48th floor of Commerce Court West in downtown Toronto, one of the tall and characterless bank towers that Torontonians like to think makes theirs a world-class city. The reception area is a tasteful plum and light purple. One wall is dominated by enormous brass doors—the palace gates—that whisk open and shut, controlled by a button at a receptionist’s desk. Just outside the doors is an ironic palace guard. A portly fellow, clad in an overcoat and carrying a briefcase, he stands cast in brass. Beneath him is a brass plaque, which describes him as raising his eyes “in pious reverence, seeking divine inspiration necessary for the consummation of the Big Deal.” Visitors to Brascan—a diverse consumer, financial and natural resources conglomerate—almost always notice and comment on the statue. Some remember that it was that old capitalist and former Brascan chairman John Moore who put it there; it is Brascan president and chief executive officer Trevor Eyton who keeps it there. “It is great fun,” he tells visitors. “If you read the inscription, you see that the artist, I think tongue-incheek, says the new priestly caste are the businessmen.” But he does not agree with the artist; he thinks businessmen are too human and candid. Humanity and candor aside, many people see in the Edper Investments Ltd. group a theological bent, a predisposition to dogma. There are articles of faith that form the way Edper people do business.

They call them “shared beliefs and corporate values.” They have a Jesuitical approach to business, a disciplined, ascetic, no-nonsense, suffer-in-this-life philosophy. First

among the sacred beliefs is the rightness of low salaries and huge, compulsory stock-purchase plans. Top managers at Edper holdings, including Hees, Brascan, Trilon, a major diversified financial services company, and Noranda Inc., the resource giant, receive salaries well below comparable industry standards. Jack Cockwell, Brascan’s vice-presi-

dent and chief operating officer—the single most important individual in the Edper empire and a 20-year veteran—earned a salary of $135,000 in 1986. Hees managing partner William L’Heureux was paid more than $250,000 as a partner at the Toronto law firm Tory, Tory, Deslauriers and Binnington. He moved to Hees, where he earned a salary of $100,000. As Edper managers move up the ladder, the salary gap between them and their peers widens.

The Edper group also believes in minimal staff. Throughout the group, but particularly at Hees, senior officers are expected to work “long hours, although every effort is made to keep weekends free to spend with family and friends.” Senior officers are expected “to put their business interests ahead of their personal interests when they are involved in a major initiative.” That is actually written down—in the “Hees Statement of Values.” At Hees, senior people “acknowledge the fact that regular office hours will be required for day-to-day decisions, transaction settlements and general enquiries. The evenings and weekends are reserved for personal de-

From The Brass Ring: Power, Influence and the Brascan Empire, by Patricia Best and Ann Shortell, Copyright © 1988, Published By Random House Canada Ltd.

velopment reading, to do basic research and to plan new initiatives.”

Melvin Hawkrigg, the ebullient president of Trilon, arrives home most nights around 11 p.m. On Fridays, he tries to make it for dinner by 7:30 p.m., but he takes home plenty of reading. “Family time is weekends,” he said. “I’ll go to just about any length—as will just about anybody else in this office—to make sure Saturday and Sunday are private.” Peter Bronfman, who does not work the long hours demanded of his staff, says that it is very rare that one Edper executive will phone another about a business matter on the weekend. Still, said Hawkrigg, “It’s longer hours than I’ve ever had before.”

The motivation to put in a superhuman workweek is underscored by another principle at Hees: the company expects its senior officers to contribute $2 million a year to the company’s earnings, after financing and overhead costs, within one year of joining. And each officer, whether a finance person, a legal person or whatever, is expected “to be a leader in one or more business disciplines and have a good general knowledge in the

other business disciplines required by Hees.” The Edper executives are in the game for power, but also for their own financial health. While they do not make much money in salaries, they make plenty on stock holdings when their companies do well. It is called “pay for performance.” To foster an owner mentality, rather than a manager mentality,

in their senior officers, Edper companies demand that senior people take a large portion of their remuneration in share ownership.

Executives can usually buy stock at belowmarket prices, and the interest on the loans is equivalent to the cash dividends paid on the stock. An Edper executive is expected to pay off the loan in five years. Said Trilon president Hawkrigg: “When I think of my own personal situation, the amount of assets I’ve got tied into the companies with which I’m involved, I tell you it’s very significant. We all recognize we’ve got a lot of personal risk out there. If we screw up, that’s a problem. I go home and say to my good wife, ‘Well, we only owe a few million this week.’ We had to leverage ourselves a bit to buy more stock. From the old Anglo-Saxon tradition—that is, you owe a dollar, you work your butt off to pay it off—the wife had a little adjustment to make, but she’s okay.”

Not everyone is thrilled with the corporate creed. Labatt’s chairman and chief executive officer, Peter Widdrington, has become Peter Bronfman’s personal adviser and Eyton’s close friend since Brascan, Labatt’s controlling shareholder, was taken over by Edper in 1979. He maintains that he has not changed the way he operates under the new owners, and he knows little and cares less about the way the Hees boys practise their creed.

Widdrington sees his role as a manager, not an owner, although he does admit that the share-ownership plan “certainly gives you a little incentive! I mean, who is kidding who? Jesus!” But he sees the downside of share incentives, as well. “The only danger is, in any kind of bonus, commission, stockoption plan or whatever, management could take short-term decisions or short-term gains at the expense of long-term potential.” But Widdrington cannot contain his laughter as he contemplates the Brascan boys trying to stop the Labatt’s executives from taking lunch. “I have honestly never heard of a policy that says don’t take lunch with somebody. They don’t get down to the lunch level.” Another iconoclast is Adam Zimmerman, Noranda Inc.’s president for years and now head of the company’s new forestry subsidiary. His independent turn of mind has remained intact. “Everybody has [his] personality, and I think Brascan are pretty clear about their theology. You’ll see that in this year’s Noranda annual report,” Zimmerman said during an interview in the spring of 1987. “It appeared suddenly in there and it appeared throughout all their various companies.” While Edper has successfully grafted its theology onto some of the companies it has acquired, for example Royal Trust Ltd., at Noranda it has not worked well. “I don’t think you can impose a corporate culture on anybody,” said Zimmerman. “It’s something that’s organic and develops. In the end, though, if they set certain rules, you’re going to get people who want to play by those rules. [Those that don’t] all go into the sunset quietly over time.”

The high priest of the Edper family is

Cockwell. A slightly built, trim man who almost fades into the landscape, he is the supreme and unchallenged arbiter of right and wrong within the empire. Here is the ego he hides from the world. He wrote what became the Edper creed in the early 1970s, as a reaction to the chaos of the Bronfmans’ holdings and the self-serving practices that were standard in the real estate and investment industries.

He has a righteous indignation, a pure, clean fire in his breast. “There is a sort of spartan discipline about it,” says Unicorp Canada Corp. president James Leech of Cockwell’s philosophy. “It’s almost the Tru-

deau Jesuit thing; you know, you get it in the face every morning, and it wakes you up.” Others agree that Cockwell’s vision is rigid and narrow. It’s his way or the doorway. He is impatient when people don’t follow him.

While Cockwell is the high priest of the Edper creed, Eyton, like any convert, is more holy than the holies. He is the public preacher; he immerses corporate Canada in the sacred teachings. Eyton told a public inquiry in 1986 that the group’s beliefs were “more” than mere words on paper. “While the heading in the reports is ‘Business Principles,’ they are also invariably our practice.”

Behind the united front, however, fundamental changes have occurred. Wendy CecilStuart is a dynamic woman who first joined Brascan in 1974, when Moore was still in charge. Born in Stratford, Ont., in 1948, she had arrived at Brascan with a BA from the University of Toronto and three years’ experience at the Toronto Stock Exchange as a public information officer. At Brascan she began to move up the ladder in the public relations department. She took an executive-

management program at York University in 1977. She began to learn about other areas of the business and became involved in issues and public policies at the company.

As a vice-president of Brascan, Cecil-Stuart was the highest-ranking woman in the group. In a candid 1984 interview, during which Eyton expressed genuine surprise at the suggestion that she could head a company, he admitted that he did not spend much time thinking about having senior women in the group’s companies. He explained why there were no female board directors: “First of all, it is habit. That’s the way things are, and it is perceived that way. When most sen-

ior management on boards are looking at succession, they tend to be male and they tend to try to carry on the male process.” Eyton added that “there is a kind of a structure to corporations that I think makes it more difficult for a woman to achieve the highest office.” Attitudes also play a part,

Eyton offered. “It’s aggressiveness and just a desire and a commitment.” He has not met many women who would tell him they want the job, that they are willing to sacrifice their personal lives and prove they deserve the job. “It’s possible for a man to be one-sided, to be macho and masculine and to have that overriding commitment. I think it’s harder for a woman to be feminine and attractive and function with that same commitment. More is expected of a woman. In fact, they demonstrate a better balance, but it still means it’s harder for them.”

Cecil-Stuart has worked for her laurels. Yet her greatest coup was in working her way into the macho world of Edper-Brascan by taking up the gruelling sport of longdistance running. She became extremely good at it, winning the Toronto Marathon as well as foreign longdistance races. Doing so well at running, she liked to say, showed the men at Brascan that she could apply herself to something and conquer it. And it was something the jocks at the office could relate to. She scorns equal-opportunity initiatives, feeling that success must come by working from within the system. In a 1984 interview, she cited a Fortune magazine article about how executives are chosen: “The biggest hurdle is a matter of comfort, not competence; someone who fits, someone k who gets along, someone 2 you trust.” She crossed that

0 barrier. By 1986, she was

1 vice-president of business " development at Brascan.

But she was still responsible for the group’s—and Eyton’s—public relations. Meanwhile, she and Cockwell moved from a business to a personal relationship: a common-law marriage. Their first child, Tessa, was bom in 1986, and Jack Jr. arrived last March. (Cecil-Stuart has left the firm.)

Until recently, Eyton was the public face of the Edper group, “the statesman who took the public flak and glory,” as Cecil-Stuart described him in 1984. Brascan was known commonly as “Trevor Eyton’s Brascan.” In the early 1980s, recalls Toronto brokerage executive Thomas Kierans, high-finance people knew that Cockwell was “seriously smart and very determined,” but for most outsiders, “the gap between Cockwell and Eyton was like night and day. Trevor was not only the front man, he was the man.”

But by August, 1986, the media had at last fixed on Cockwell as the centre of power. Toronto Globe and Mail reporter Paul Goldstein identified Cockwell as the chief strategist for Peter and Edward Bronfman, as a living legend on Bay Street and as a secre-

tive genius who preferred to let smooth-talking lawyers Eyton and Hees’s L’Heureux speak publicly for the empire. Now the companies have issued so much stock to its executives it cannot hide under Eyton’s mantle. And, at an annual meeting in the spring of 1987, held at the luxurious Four Seasons Hotel, Eyton dutifully told assembled shareholders that their 30-per-cent annual rate of return from share-price appreciation and cash dividends over the preceding five years, “is due to the collective and individual efforts of more than 25 key executives.”

In setting up new rules of behavior, the Edper group has engaged in some of the most hostile takeovers in Canadian corporate history; it has gone head-to-head with the Establishment; it has rewritten rules for stock underwriting and it has proven that control of an empire does not dictate 100per-cent ownership. When Cockwell arrived, the Canadian business community received a kick in the pants. York University business professor Alan Hockin said that the lessons were needed: “They are bringing into Canadian business thinking and management and concepts that I think should be of benefit, not just for [Edper] but to the whole country. Because that is building for the future, it’s not taking a quick high return now. It’s working hard. All of these things which I think Canadian business needed to learn.” Even people who had serious questions about the Edper group’s actions now hold it up as an example of a new business philosophy. Said

Kierans: “We have new standards of operating business to work by, and these guys have been part of the catalyst for change.”

Such a drastic change in business philosophy must arouse controversy. Some business people believe in the new Brascan-style management, and others disapprove. Said Unicorp’s Leech: “It’s that owner-manager mentality versus just a manager, where a lot of companies grew up and were allegedly successful, but had built in so many layers of fat and extra perks that they lost perspective. As a result, some managers lose touch with their firms. There is the famous story about Massey-Ferguson, when somebody asked how much it cost to make a tractor, nobody could answer the question.” That clearly

could never happen at an Edper company.

Canadian businesses have become lean and mean, but few have adopted the entire Edper theology. First-class airfares have been replaced by executive class, but executives still go to meetings in cars. Cockwell takes the subway. Even Leech, who subscribes to the shareholder-manager theology, sees the Edper group as an extreme form of the species. “They’ve been the epitome of it,” he said, “but [you can’t] accomplish what they g have done without being really disciplined, * setting out single-mindedly with the purpose § of getting from A to B.”

I It would be easy to dismiss the Edper gosz pel as so much window dressing, designed to 1 cover up a bullying, secretive corporate “ style. Certainly Cockwell and his patrons, the Bronfmans, are inclined to secrecy and anonymity. But for Cockwell, it is a logical personality for a private family fortune. And for Cockwell, who is sure of himself, so certain that he is right and that he does right by those who trust him, it is untenable and outrageous that outsiders should question his methods and his motives. In an interview in 1986, L’Heureux observed that Cockwell has high moral standards. Said L’Heureux: “Cockwell will declare to anyone who will listen: They are not principles that are hidden away, they are published for the whole world to see. We are confident that we can match them against any practised elsewhere that we are aware of. And we are comfortable having our behavior measured against those principles.’ ” □